Wednesday, November 12, 2008

Property as an investment

Just a reminder that Car Loan interest rate is about 1.9X more than the House Loan.  Meaning a 3% car loan is almost as high as a 6% house loan.  Think again if you think car loan has a lower interest rate.  (click here to read more).

The fundamental of investing in property is not much different than buying a business to earn you passive income.  However, the nature of brick and mortal business is an Active Income generator, not a passive one.



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So you would need to be extra careful when using property as your finance tool to gain "Passive Income".

In simplest term, you HAVE TO make sure
  1. you can rent your property out to fully pay for the monthly loan repayment
  2. you budget in the fee you pay for professional to maintain your property including
Lawyer
Real Estate agents
Renovation
Interior Design if needed etc.
Without these 2, you cann't start property investment at all.  With this, there is no guarantee you can win big yet but at least you would at least pay less to learn the lessons.


7 comments:

Anonymous said...

yes yes yes. world is never this ideal :(
The price of our unit in HFC is dropping day by day... :( ... anytime from now, we would still be earning as we bought in a relatively low price 3 yrs ago.
We hate renting to others :(

OoT

neal said...

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Anonymous said...

My 2 cents

Take your holding cost:

-Quit rent
-Assessment
-Allowed repair and maintenance
-Insurance
-Income tax (estimated)

Add them up and divide by 12 then add on

-Monthly installment amount
-Collection expenses (e.g. phone calls, travelling, bank charges)
-Lawyer, agent and stamp duties paid divided by no of months of the lease
-A little profit element a month

That should give you a viable monthly rental.

One suggestion; keep all the invoices and receipts to clam expense net off against your rental income when you do your tax filing

Lee Wee Tak

TheCurious said...

Michael,

Any comments on how to approach the banks/lenders to finance the purchase of property as an investment vehicle? You know, property investment is all about leveraging.

Appreciate if you could talk about aspects we should pay attention to (revealing the "hidden" truth) when selecting a mortgage package in both self-occupied and investing purposes.

Michael Tsen said...

when negotiating for loan, its best if you have cash offer at hand. Else they are at upper hand if you are the one who want to borrow, not they want to lend you.

other than that, ask for daily calculated interest ...

Anonymous said...

why should ask for daily calculated interest?

Michael Tsen said...

a daily calculated interest loan has better flexibility for cash flow control, which is also an important aspect in property investment ...