• Gerald Tay

The Best Property Advice From a True Blue Property Investor

Updated: Feb 15, 2020

I find it excruciatingly painful to hear property buyers eagerly hopping to showrooms to grab their hands on a $2,500psf tiny hole property located in the outside central region. (Hint: East Coast Area)

What in the world are these buyers thinking.. or if they're even thinking at all?

As a professional property investor for 18 years, I have done a lot of deals, seen many properties, and watched over-eager buyers and investors who simply want to "get-on-the-band-wagon".

Way back when I was first getting started, I sought out the best property investing knowledge I could find. I talked with many other successful investors and read as much as I could before I ever did my first deal.

I sought out real successful investors as mentors who put their money where their mouth is.

Some of the things I read and heard were top notch, others were dubious at best.

But one piece of advice has stayed with me all of these years.

It seems to ring incredibly true and forms a basis for my huge financial success in property: no deal is better than a bad deal.

NOT Buy is Sometimes BETTER Than Buy Something Rush and Stupid

It is better to not invest at all than to get yourself into a bad investment deal.

You cannot let yourself slip into the opposite mindset (that any deal is better than none at all). Bad deals will cost you money, time, and your sanity—and perhaps your business, friends, and family.

For these reasons, bad property deals must be avoided. This advice can be very difficult to remember and stick to though.

When one is trying to get started in property investment, the excitement of doing that first deal can be blinding. What is more, today’s market conditions—high prices and an over-inventory that may last decades—can make even experienced investors slip. The urge to do a deal, any deal, at times becomes overpowering.

What Is a Bad Property Deal Exactly?

This discussion begs the question: what is a bad deal? The answer is hard to nail down, as every piece of property and every investor/buyer is unique.

There are, however, some pieces of sage advice that you can use to hopefully bypass the bad deals that come your way.

1. Numbers Never Lie

Many of the mistakes I have seen buyers make stem from ignoring or massaging a potential deal’s numbers.

Again, the urge to do a deal, any deal, can be so strong that exuberance wins the day.

Cash flow is found where none exists and the song in the musical chairs of property flipping will surely not stop.

Yes, as entrepreneurs, we investors need to take risks. But learning how to do that is a carefully crafted art that is learned in part by sticking to the numbers.

1. Net Rental Yield

2. Cash-On-Cash

3. Internal Rate of Return (I.R.R)

There are many different ways to calculate a property investment returns but the above 3 numbers acting cumulatively is by far the most accurate methods of calculating the cumulative property investment returns over a specific holding period.

Inexperienced property investors and home owners who only look at capital gains as a measure of investment success are always surprised by the difference between the earnings that they expected to realize from a property investment and the actual investment return.

Capital Gains or Growth do not equal investment returns due to many variables like financing, nature of loan amortization and many other costs involved in an entire property transaction process.

2. Invest on Quality, Not Quantity. Invest on Cash Flow, Never Net Worth

It is the quality of your income producing assets that will define your wealth, never the quantity.

If you want to be truly wealthy through property or any other investments, it is absolute vital you need to focus on buying on immediate Cash flow, rather than capital gains (Net worth).

It sounds too tempting to buy on capital gains, knowing your neighbour or your friend just happen to make a $200,000 profit by selling his or her property that was bought (maybe by chance) during a low cycle many years ago.

I know of property investors who boasted how many properties they own and how many fanciful new launches they have bought recently.

The hidden questions are,

“What’s the quality of those investments?”

"Can they withstand an economic downturn?"

What if they lose their jobs, businesses? Can they keep up with the hefty mortgages?"

3. Taking a Smart Risk Vs a Stupid Risk

Lady luck may be smiling on you, for the first or even second time buying on capital gains, but let us be honest.

How many times can lady luck be smiling on you for the next few decades of your life investing on capital gains?

All investments carry some risk, but you do have a choice between choosing a smart or a stupid risk.

You would not want to ride a bicycle on the road without a protective gear, and neither would you want to start driving your car without an insurance, or try racing your ‘Ferrari’, at a 180 km/hour, and try beating the red light on Bugis Street even in the middle of the night, thinking there will be none or lesser cars.

Maybe for the first few times, you can get lucky, but unfortunately the guy who did just that chose a stupid risk, and this time round, it cost him his life.

4. No Advice is BETTER than BAD Advice

Beware of false prophets. They come to you in sheep’s clothing. For inwardly, they are ravening wolves.

Your independent thinking is the shepherd to protect you from those wolves.

You have heard many commentaries from "experts" in media from property developers to research analysists and so-called top notch property agents who in reality made their money from commissions than from own investments.

It seems to suggest that many of these puissant claims could be bought like so many chickens in the markets. Have you been to the markets of late? You’d find it easier to buy an ‘expert’ than a chicken.

Of course, ‘experts’ cluck louder than a chicken.

Always REMEMBER this business fable:

"The Chicken is Involved. The Pig is Comitted."

When producing a dish made of ham or bacon and eggs, the pig provides the ham or bacon which requires his or her sacrifice and the chicken provides the eggs which are not difficult to produce.

Thus the pig is really committed in that dish while the chicken is only involved, yet both are needed to produce the dish.

Have you heard any deal horror stories? Have you experienced a good deal gone bad?

Share in a comment!

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