The key elements of opportunity in property
2) Market value
3) Rental market
4) Property quality
5) Local market
6) Future growth
Researching the right opportunity
- Word-of-mouth: Speak to locals, friends, anyone with a connection to the area to understand a bit more about what it’s like on the ground.
- Newspapers: Search online for newspaper stories that refer to the area, they may help inform your understanding.
- Explore: Explore the area on-foot and in a car, help get a grip on how the roads are, where public transport might be, and what and where local amenities are placed.
- Analyse: Analyse the current level of development and upcoming development by searching for new launches, as well as historical information on the area.
2) Market Value
- Compare: Check listings of similar properties, giving you an idea of current prices for comparable properties.
- Understand: Analyse whether below market value properties are actually what they say. Sometimes this designation is used less accurately than it should be.
- Assess: Understand the range of property prices listed and transacted for similar properties in the area. This can offer insight into the potential to negotiate on price.
3) Rental Value
- Compare: Check current rental prices in the area by searching rentals on online sites to give you a rough idea of a pricing benchmark.
- Understand: Research the local rental demographics by understanding the area. Is there a link to a major commuter route? Is it a family-friendly area? Is there a major university nearby? Check maps and speak to locals to understand who might be renting.
4) Property Quality
- Investigate thoroughly: Investigate the property thoroughly, inside and out, before any purchase. Check the hard-to-reach places for some good insight, things like beneath cupboards, inside maintenance areas, behind taps. This won’t give you a professional assessment, but should give you a bit of insight on how well it has been built or maintained.
- Ask questions: Be bold and ask the owner/real estate agent/developers. They shouldn’t lie to you, but they might be economical with the truth.
- Undertake a survey: If in doubt, undertake a valuation or survey using a qualified and registered professional.
- Speak to people: Neighbours are a great source of information. If you’re polite and respectful, they may offer you some great insight on the property, and similar properties in the neighbourhood.
5) Local Market
- Track trends: Track trends of listing prices or price per square foot on PropertyGuru’s AreaInsider. Compare regional and national trends using the National Property Information Centre statistics.
- Understand history: Analyse genuine transaction prices from previous sales using online tools and analysis.
- Check analysis: Check professional analysis for trends in areas using major news sources. Search the internet for expert insight. Real estate agents are glad to offer their own insight to media companies in order to promote their services, so it’s worth checking for analysis to understand their own predictions.
- Compare previous success: Explore and analyse areas that have seen significant property growth, and understand how that might offer insight on potential up-and-coming markets, and what to look for.
6) Future Growth
- Keep an eye on the news: Keep an eye on upcoming infrastructure projects or developments in the news.
- Search online: Search for key developments in areas you’re considering using online search tools.
- Check trends: Look at trends in previous success areas as noted above, and look at the kind of projects which have triggered significant market growth.
Understand your investment returns
- Purchase price: Price you pay for the property.
- Stamp duty: Total stamp duty you are required to pay.
- Legal fees: Fees for completion of legal documents.
- Survey costs: Cost for potential survey of the property.
- Home loan costs: Overall costs of home loan over the period of the loan.
- Home loan insurance: Potential insurance cover for the home loan itself.
- House insurance: On-going insurance costs for building and/or contents.
- Maintenance fees: On-going property maintenance fees.
- Rental charges: Agency charges for rental management.
- Quit rent: Land tax in the form of quit rent.
- Assessment tax: Property ownership tax.
- Water costs: On-going water tariffs for property.
- Upgrade costs: Costs of any potential improvements or renovations.
Gross rental yield:Rental yield is a measure of the annual rental income you receive versus the value of the property. It’s found by taking the total rental income annually, dividing it by the total cost of the property, then multiplying by 100 to find a percentage. In Malaysia, a rental yield for residential property of more than 4-5% would be considered good. This is a simple but effective way to compare potential properties.
Net rental ROI:Rental yield gives you a guideline figure, but net rental yield is an analysis that also takes into account the costs. So take into account the calculation above, but subtract the total annual costs from the annual income. This can be more challenging to do in advance, which is why gross rental yield is often used as a baseline comparison.
Property ROI:Return on investment takes into account the full costs and value of your property. So if you earn RM10,000 annually on rent, but spend RM2,000 on costs, you earn net RM8,000 in rent. On top of that you’ve bought a RM500,000 property in an area that’s seen huge growth, enjoying a capital increase in value of RM50,000 over the year. That means your ROI would be a function of the total earnings of 58,000, divided by the cost of the property at RM500,000, multiplied by 100, to give an ROI of 11.6%. Remember you have to take into account things like loan repayments in this calculation if you have one.
How to make the most of property investment
This article does not constitute financial or legal advice, but hopefully provides a platform to explore and support an informed opportunity for you. Want to explore more opportunity today? Take a look at the thousands of great properties available on PropertyGuru now.