Ways To Find Out If A Property Is A Good Investment Choice

By: Jency
6th Jan 2022
Rent & Invest

When it comes to investing in a property, the single question that predominantly runs in an investor’s mind is “Will this property be profitable to me?”

Here, we have listed 3 factors that determine a property’s ability to bring a good ROI and whether it is the right investment choice for you. So let’s dive in to find out!

  1. The 1% Rule

    When looking to purchase a property for investment, one may get a little overwhelmed as to which property will be the best bet as there are many options available out there. This is where the 1% rule comes in to help simplify things. The 1% rule is a calculation that investors make to narrow down their list of options and allow them to see which property they should really be looking at.

    According to the 1% rule, a property should yield at least 1% (or more) profit from the total cost of its purchase. So, let’s say that you bought a property worth RM300,000, you should be getting a minimum 1% ROI from it which is RM3,000.

    Take note that in the case of this rule, the total cost of the property should include all other costs involved in the purchase transaction, such as the legal fees, stamp duties, renovation and repair costs and cost to maintain and upkeep. So, if the sale price of a property is RM400,000 and these costs amount to RM50,000, the total purchase price to be calculated should be RM450,000. It would only be sensible to get a return of RM4,500 being its 1% profit, and not RM4,000.

    You can roughly estimate the profit by looking at the approximate value of rentals or property price within that area. Look at properties that meet the 1% rule’s criteria and then you can reduce your number of options from there.

  2. The Location

    As the ever-popular adage of the property industry that goes ‘Location, Location, Location’, one can never deny the fact that the location of a property is essential in determining whether it is a good choice for investment or not. When investing for residential purposes, a preferable location would be one with close proximity to public amenities, schools and commercial centres, along with easy accessibility and a secure neighbourhood. As for commercial investment purposes, an area with close proximity to transport hubs, warehouses and highways along with a high commercial traffic would be an ideal choice.

    Always be on the lookout for future developments around the property that you intend to purchase. While some developments add value, some others may actually be detrimental to the value of a property. For example, a residential property that is initially peaceful with a beautiful surrounding may end up with a depreciated value if a commercial or industrial development takes place nearby in the future. That is why it is important to find out about the future development plans surrounding the property to avoid disappointment later on.

  3. The Purpose Of Your Investment

    When you do not identify what exactly is the purpose of your investment, you may end up with a few unexpected turns along the way, some of which can lead to financial loss. To avoid this, you must determine the purpose, duration and the expected outcome of your investment.

    A few types of investment purposes include:

    • Purchase for own use – You will be able to save from having to spend on a rental and enjoy the value-added features of the property yourself
    • Purchase for rental – You can obtain a stable and long-term income by collecting monthly rentals
    • Purchase and sell (short-term) – You can get profit with a small to medium margin, whereby a property is typically purchased before its construction and sold upon completion
    • Purchase and sell (long-term) – You can get profit with a bigger margin as the value of the property would have appreciated over the years
  4. Choosing Between New Development and Existing Property

    You may want to decide on a new development or an existing property based on these aspects:

    1. New developments usually offer attractive discounts and rebates along with waived or subsidised legal fees and costs . By purchasing a new development property, you will also get new home fixtures and contemporary architecture. The risks to this type of property including late delivery of vacant possession, project abandonment and the possibility of a negative outcome to the entire development.
    2. Existing property gives you an ‘as is where is i ’ view of the whole property and its surroundings, so you don’t have to worry about any possible outcome. The downside to this type of property is that there may be some renovation or repair works to be done before moving in or renting it out.

    Prior to deciding, take note on these key points:

    • For new development properties, do a thorough research on the developer, their reputation and their past completed projects
    • For existing properties, check on the title, as properties with a freehold title tend to fetch a higher price than those with leasehold. If you decide upon buying a leasehold property, find out the number of years left on the lease.
  5. Be Vigilant of the Property Market

    Getting yourself updated with the latest news and trends of the property market will always be useful for you as an investor. You should also be informed about bank loan rates so that you get the best offer when purchasing. Some other things to stay up-to-date with are upcoming new developments, high-demand locations, types of properties that are currently sought-after, new and existing property listings and their prices.

In Conclusion

Every investor has their own unique purposes and expectations when it comes to investing. While the above are general pointers on how good a property can be for investment, it always pays to consult a professional real estate agent or an investment consultant to get in-depth details on a property and the risks involved to ensure a favourable ROI for your hard-earned cash. 

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.

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