Tips for Successful Real Estate Investing

There’s good money to be made in real estate. Here’s how you can use property to grow your wealth and retire with more income.

As entrepreneurs attain success with their primary business ventures, many begin the search for property investments to raise profits. Investing in real estate can be a major income generator, where leveraging on your capital and the bank's money can increase your overall returns.

With the muted outlook of the property market now in Singapore, it is a misconception that property prices across all sectors will follow the same downward trend in the property cycle. However, the property cycles of any two properties are never the same. Be it good or bad times, there will always be properties that have a higher appeal and demand than others. Hence, deliberating whether you are buying during a boom or a bust cycle is fairly irrelevant. In fact, many property gems can be found during times of major changes and uncertainty – which may very well be the situation at the moment.

There are three ways to profit from property investments. They are to look for underpriced and undervalued properties, lower the costs in property investments, and lastly, value-add on a targeted property. Mainstream investors are usually familiar with the first two ways, while the last way is a less beaten track.

Here are three property segments to target:

Outliers Properties

These are properties that are available or transacted at prices that are much higher or lower than the current market prices.

For sellers selling at low prices, this could be due to the lack of up-to-date property price information. Other reasons include ignorance and apathy, negative property outlook, the urgent need for cash flow or sudden migration.

To get the best deals, search for and call the distressed homeowner before the bank makes its move. One way to get there first is to befriend the neighbourhood gossipmonger to get a sense of the distressed owners’ predicament. Some of the best information can come from bankers, pawnshop owners and licensed money-lenders. An alternative option is to attend auctions where foreclosed properties are put up for sale. Besides distressed homeowners, you can find bargains among motivated sellers who are not on the brink of default but are growing impatient. Sift through real estate listings for properties that have been on the market for at least six months. With their property on the market for a long period, these sellers tend to be more eager to dispose their property.

On the other hand, some buyers will offer high prices to acquire a property. This could be due to various reasons such as the emotional attachment to the property, where there may be a need to stay near a relative or school, or desire to move into the property as soon as possible.

Finding the right agent to source for these property outliers would very much decrease the possibilities of a bad deal. Agents who focus in a niche market are often the ones with solid knowledge and experience of the segment they are in. One way to fish out these agents is by spotting those who have consistently advertised different properties in a certain area over a period of time.

Gap Properties

These are properties where prices have the potential to rise due to the impact of current or future factors. Unlike the stock market which is supported by comprehensive information and is closely monitored, the property market has comparatively lesser investors. Not many will conduct research to identify factors that will affect property prices and respond accordingly.

There is a longer lag time for the market to respond to major changes, especially in the resale market. For example, close proximity to major facilities such as MRT stations, business hubs, and good schools can help property values appreciate higher and faster. However, when plans to build such facilities are being made known, the prices might not increase immediately. Hence, property investors who diligently do their homework and make quick decisions can capitalise on these ‘gap’ properties.

Unpolished Properties

Value-add onto unpolished properties and you can sell them for a higher profit. For example, you can rebuild or renovate a rundown property, enhance the decor of the place by adding a coat of paint or install new lightings to brighten up the place to increase the appeal and profit potential of a property.

Many buyers follow the crowd to invest in properties that have mainstream appeal, giving little thought to how they can effectively market and profit from these properties in the future. They evaluate properties based on what they see rather than what these properties can become by additions and alterations to enhance their value. For example, an astute property investor can purchase a rundown house at a lower than market price, renovate the house and divide it into separate units (on different levels) and lease to multiple tenants for a profitable return.

In challenging times, there are several property gems and less competition, hence it is critical to capitalise on such opportunities when they arise.

- Patrick Liew, Managing Partner of HSR Property Group -