Property Investment Commandments

Investment

Without turning this into a religious discussion, commandments in this context are taken as rules to be observed. It is also important to clarify investment and to avoid any doubt, investment involves deliberately allocating resources with a hope of securing returns over the principal amount in the future, based on fundamentals and analysis. Investment is not to be confused with speculation which involves conducting a risky financial transaction with the aim of making huge gains from a single transaction. The difference between the two is based on the amount of risk undertaken in the trade. There are various options available in which one can invest in, such as stocks/equities, money market, bonds and property. A deliberate choice to discuss property has been made in view of how it is misunderstood and the exposure of the industry to bogus practitioners.  The biblical commandments are numbered whereas the property investment commandments are not and remain just as simple guidelines.

Opinions are created and can be argued but facts being stubborn cannot be ignored, as such, when investing in property one of the most critical aspects to be complied with, is making decisions based on facts and avoid putting emotions into it. Clarity of purpose in defining the objective and risk tolerance in property investment ranks as one of the most critical considerations. There are two main aspects which are, cashflow/income and capital growth/value retention. Typically, pension funds would naturally be interested in income producing real estate in view of their obligations on monthly payouts since, they hardly exit to realize the capital gains whereas fund managers are likely to focus on capital growth as they move funds chasing short term gains. Nonetheless there are properties that can address both scenarios. Further, there is a simple yet common oversight that happens when especially couples are looking for a house, focus is diverted to petty issues such as green garden, colour schemes, kitchen fittings against the location, size of property/improvements, etc,. Key issue is, there is need to focus on the bigger picture than anything else.

It is always important to undertake a prepurchase due diligence assessment before committing and risking loss of money through basic yet common oversights such as ascertaining the structural integrity of the property, its age and condition, the legality of the registration of the land which can be verified at the Surveyor General’s Office, the property ownership through the Deeds office and the permissible uses of the property as defined by the local town planning scheme, which gives ideas on possible further developments that can be done. It is important to note that, older buildings would require additional capital expenditure for renovations to extend their lifespan and attract tenants. Further, they also require intensive maintenance which weakens the performance of the asset. Properties naturally wear with time and would require rejuvenation through refurbishments and planning for such expenditure is a necessity.  Patience is a virtue and an unavoidable exercise in property investment since by its nature, property is a long term investment with significant gains realizable in the fullness of time.

If acquiring property, appropriate funding is critical being mindful of property cycles, voids and fluctuating interest rates, these have repercussions and present a high risk of putting any plans off track. The need to invest in information assists the unfortunate scenarios.

In more ways than one, investments need to be looked after just as equities need stock brokers and management of the entities invested in, as well as the banks and regulators involved in the management of money market instruments and bonds, property requires hands on competent professionals for active management of the property in the form of transaction advisors, valuers, estate agents, property managers, etc,. Further, there is need to understand the costs associated with the services so as to factor them in the feasibility and performance analysis.

All investments have their known upside and downsides, property remains superior on hedging against inflation, its physical nature barring catastrophes such as cyclones, provides peace of mind and has longevity. That said, with utmost care and diligence in embracing the rules of engagement and commandments of property investments, success is guaranteed.

– Integrated Properties CEO : Dr. Mike Eric Juru –

 

– Financial Gazette Extract –