- Buying property to let
If you are currently searching for the perfect buy-to-let investment property here in Singapore, or indeed anywhere, here are some things to consider before you put pen to paper.
- Property hotspots
One of the most valuable keys to unlocking the door to a good property investment is buying in the right location. Location is important for various reasons. As well as assessing an area for achievable rental yields, and the potential for capital appreciation, an important consideration when looking at any location is what facilities surround the property. Some important features for any tenant will be local amenities (shopping and entertainment), transport links and the quality of local schools.
You will also need to determine crime rates in the area where you will be investing. Ensure it is a desirable location for tenants and where they would be happy to live. Personal safety and a secure environment for their possessions are often top of a tenant’s wish list. Investing in a property in a low crime area with a good reputation is also advisable in order to attract good quality tenants and to protect your asset.
- Market matters
Ensure your investment choice is suitable for the target market. Remember that you are not going to be living there, your tenant is, so choose a property with their needs in mind and not your own. Many people buy a property they have fallen in love with, instead of one that would be more suitable for the target market.
It is also important to consider the quality of the property and the types of tenants that it will attract from a dilapidation perspective. A rental yield may be considered high, but if the property is not looked after because of the type of tenant it attracts, resulting in higher regular refurbishment costs, then overall returns on the investment will be affected. Keeping void periods to a minimum is also important, so areas with a high tenant demand should be considered.
- Do yours maths
Even the most well-presented of properties in prime locations are not going to make good buy-to-let investments unless the figures add up. Buying a financially solid investment is not as straight forward as finding a property that can achieve the highest rental yield. It is important to look for a property in a location with reasonable capital appreciation. Taking rental values as well as capital appreciation into account, the overall return on the investment can be seen.
If a landlord is looking at a short or medium term investment they will probably need to look at properties in an area with higher capital appreciation, and where their return on investment will be primarily the profit achieved on the sales price. But landlords looking for a more long-term project (such as a property being used as a pension) should look for a good mix of rental yields plus capital growth. In addition, a buyer look at the sales price in conjunction with his or her current financial situation. Is a mortgage needed? If so, how much? Will the rental returns cover monthly payments, and what if these amounts rise? As the buyer, do you also have capital for any necessary renovations and repairs, and a contingency fund for ongoing maintenance.
- Know your exit strategy
Before you ‘get in’, know how you’re going to ‘get out’. A clear and comprehensive exit strategy should always be part of the planning process before committing to buying any investment property.
You wouldn’t commit to any other kind of investment without knowing what you want to achieve, and the same goes for buying an investment property. You can’t possibly assess whether it will perform well against other investment options unless you know what your short-term and long-term goals are. You need to know how long you’re intending to keep the property and if it will be able to achieve the right return given these timescales – whether through rental returns, capital appreciation or both. Have a clear exit plan from the outset and, if your circumstances change, re-evaluate your property portfolio and ensure it’s still meeting your investment requirements.