• Gerald Tay

Value and Analyse great property deals within 20 minutes

I say this with no compunction - Many property buyers have NO idea how to calculate their investment R.O.I correctly. The problem? They think they know it.

An investor cannot evaluate any investment, whether it's a stock, bond, rental property, or option, without first understanding how to calculate his or her Return on Investment.

Many property buyers come to me for advice. Over the years, many individuals like to "ride on my advice" for free hoping they can steal something valuable without having to pay their dues.

There're individuals who think they "know it all", even thought they have yet to show any substantial evidence of profits from their first investment - other than "speculation of capital gains in an unknown future".

There're also individuals who think "they don't need to know" or unwillingly to spend money on further education. Many "mom & pop" property buyers like stock investors seem to think they can "outsmart" the markets with their own fancy market theories.

If you've been to the casinos, you'll have seen amateur (weekend) gamblers eager to share you their potential wins from their own fanciful gambling theories and predictions of actions by casino dealers that will allow them to win.

For those of us who are street smart enough, we know casino dealers do purposefully allow you to grow your ego and let you think you can win so you will bet more... and lose more to them. It's the same for the property market. Developers, property research companies and banks form their own cartels (they sleep together) to spread propaganda and misleading marketing information to "mom & pop" buyers to tempt their ego.

I've been a career property investor for almost 20 years. My net profit per property deal range easily from $300,000 to $600,000 excluding rental income. Over the years, I've bought and sold at least six and more local properties. (excluding my foreign properties) Do the calculations and you can see why I'm living my "carefree" lifestyle today.

I'm not one to boast of my financial achievements all over media. The reason why I'm sharing this is because when I do generously share (for free) with some beginner property buyers, they seem to think they are smarter than me. - They simply shot down my sincere advice when I shared why they should not be doing what they are doing. It's similar to how a weekend gambler tells off a professional gambler he's wrong in his methods. (Well, I certainly don't mind if anyone wants to think you're academically smarter ( an all As student in school or university grad) than a diploma holder like myself. )

Point is, I've been out on the streets since I was 15 years old making a living out of part-time jobs. I've to survive financially because I've no "university degrees" to fall back on. This survival instinct led me to being critical and mindful of "big players", of how they can easily manipulate and milk smaller players like us without us knowing. Many university grads and As students I know grew up in a sheltered school environment which leads them to a mindset of entitlement and safety.

Yes, entitlement and safety. Today, affluent property buyers (generally university grads) seem to have this sort of negative mindset that they're entitled to make money as long as it's real estate - the dangerous fallacy of believing that as long I'm invested for the long-term, it'll make money; as long it's real estate, it's a safe investment.

A s a diploma holder, I've nothing against university grads. My wife was a NUS honors graduate herself but when coming to making sensible investment choices or any high-level investment decisions, she's unable to. This isn't a female thing. It's more of the male property buyers - the male ego in them who wants to think they "have it".

So, with that, let me come back to our important tip of the day: Property Net Rental Yield.

One common mistake beginner property buyers always make is the calculation of Net Rental Yield. A buyer once told me "There're many methods to calculate property rental yield. All methods are correct.'

This is shocking! There're many (wrong) methods indeed - but only ONE method is the holy grail used by professional investors like myself - not amateurs.


A property buyers, once asked many years back if I can help evaluate his investment yield for one property he just purchased.

He calculated a Net Rental Yield (NRY) of 8%.

My calculations - 1.5%.

Surprisingly in every of my real estate classes, none of the participants (seasoned investors included) ever get it right!

To prove my point – Solve NRY by yourself below (Answers at bottom of article)

Calculate Effective Net Rental Yield Percentage.

Purchase Price: $1,300,000

Down payment: $260,000

Annual Mortgage Payments: $27,700

Annual Interest Payments: $15,600

Stamp Duties: $33,600

Monthly Gross Rent: $4,000

Rental Agent Fees (1 year lease): $2,000

Renovations: $10,000

Annual Property Expenses: $8,660

Net Rental Yield = ?

Almost everyone would agree that novice investors do not know how to do fundamental analysis or how to read financial statements. They trade off the headline news and price momentum. They speculate very frequently, and lose a lot of money (Property Flipping). Or if they do make some money, it's too tiny for any consideration. (Just like how 4D lottery winners win the consolation prizes and brag about their 4D prediction skills)

At the other extreme are successful investors using fundamental analysis for property valuation. They buy, hold for long periods and generate fine returns.

Guessing Games often wrongly played by beginner buyers: –

1. Indicative Bank Valuations

2. Monitor average prices of new launches within the same or different regions

3. Gauge asking prices on price-per-square-foot for properties within same or different regions

4. Developer’s Cost Based Approach:-

Total Cost = Cost of Land + Construction + Financing + Taxes

Therefore, Selling Price = Total Cost + Seller’s Profit

5. Cost of Land Approach

6. ‘Expert’ Forecasters

Sadly, the above ‘Try to beat the casino’ valuation methods are frequently over-used by many beginner property buyers.

Take for example, Developer’s Cost Based Approach. The major flaw in this approach – buyers suffer the seller’s chase for profits. In the case of a property developer, if his cost rises he simply transfer these costs to buyers. This is an untenable position especially for the average buyer.

Another evident example, Indicative Bank Valuations. Different banks can come up with very different valuations for the same property. And that’s baffling for many. Unfortunately, most people require a bank loan – the bank’s valuation is the final word.

If we are buying or selling a property, the bank’s valuation is a major determinant of the loan quantum. And here lies another problem - SENTIMENT drives property prices.

Here’s evident proof about flaws of relying on Indicative Valuations:

MS YVONNE LEE LEK SIEW LING: Recently, I received two valuations from the same bank for the same property which differed by $200,000 or 15% of the asking price. (Report in the Straits Times Forum Page on 18 Jan 2011)

In response to the letter above,

“We caution against relying on such indications, and urge buyers or sellers to obtain proper valuation reports from licensed appraisers if they need to ascertain the market values of their properties.”

Evelyn Chang (Ms.)

Executive Director

Singapore Institute of Surveyors and Valuers

Jan 18, 2011

As you can see, the above valuation methods involve plenty of guesswork and exuberance assumptions. They may work in a bull market, but fail miserably in a bear market.

So how do we value property, as near to its true value as possible – even after taking into consideration all subjective elements like emotions, hopes… and sentiments?

How do you ‘value’ your property objectively and within reason – either as an Investor, Home Owner or Seller?

Simple – Start with the basics.


If you can get your R.O.I. RIGHT, all other parameters, including price & location would have fallen into place.

Answers to above:

Net Rental Yield = 2.7%

Yes, that's the ONLY answer and method. There're NO other answers or methods.

Instead of feeling helpless and frustrated with 'nonsense' advice from experts, you can choose to learn and take a different action which lead to a happier outcome like me.

I will also guide you step by step and show you, with iron concrete proof, how I Value and Analyse great property deals within 20 minutes in my One-on-One Property Coaching Program. To know more about calculating property R.O.I, CLICK HERE.

Or simply Whats-app ( 8292 - 9976 ) to find more more about my private coaching program.

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