Sure Way Of Making Money From Your Property Investment
There is a sure way in making money from property investment. Hard work alone is not the answer. There are many poor hard working people. Intelligence alone is also not the answer. There are also many poor but highly educated and intelligent people around. In any business or industry there are rich and poor people. The normal wealth distribution can be described by what is known as a bell curve; the figure looks like the shape of a bell. (Figure 3.1)
The very rich and very poor people in any population is only about 3%; most people belong to the middle category. The sure way of making money in properties can help you move towards the rich from wherever your position is in the bell curve now. What is this sure way?
The sure way is all about you. Do you know yourself and what you really want? Do you know how to match your strengths, talents and skills with the money-making investment opportunities around you? Do you know how to change the intangible to the tangible? Do you know when to invest and when not to invest? The ability to know in advance what is going to happen in the near future is very important in investment. In a way, money is similar to water; it is predictable; water evaporates, forms clouds, clouds are then affected by the wind, lightning and thunder and it then becomes rain. And the cycles starts all over again. Similarly, in the property market, before a property boom there will be signs such as high gross domestic product (GDP) growth, low unemployment and high demand. Before the property bubble bursts, some of the signs are stock market collapse, change of government policy and high debt-to-household disposable income.
The sure way of making money from property begins with your mental preparation. Visualize and imagine what kind of properties you want and make a decision to get it. You can prepare your mind by setting very specific, measurable, achievable and realistic goals to be achieved within a certain period of time. You can then activate your mind by making a decision to get it. Inform property agents in your target area of the type and price range of property you want. They will help you to find the property. The seller pays their commission. Go and view as many properties as possible before deciding on the right property.
If you have never used the sure way before, you may learn the sure way method by setting a relatively easier goal to begin with. For example, I may say I want to buy an apartment worth less than RM100,000 with monthly rental of about RM600 per month within 3km from my home before end of 2013. The key to success is that you must keep in mind your goal all the time. How can you achieve your goal if you cannot even remember your goal? Do not hurry, be patient and wait for your goal to materialise. If you rush to achieve your goal, you may make mistakes! Do not rush.
You can upgrade your goals from small achievable goals to bigger goals. In property investment, you may begin with an apartment or a condominium and then graduate to a piece of commercial property. For example, I would say I want to own a shop office for less than RM1 million with a monthly rental return more than 8% within 3km from my home before 1st June 2015.
By changing your own money conditioning, you can help improve your own financial well being. Let me share with you my past money conditioning experience and how I changed it. I was confused about money during my childhood as my parents always quarrelled over lack of money and yet at the same time, told us children that money is not important. While I was doing my undergraduate studies in the university, my peers argued that money is the root of evil and that it should not be taken it too seriously.
Perhaps because of my unconscious social conditioning about money, for the first 10 years of my working career, I was renting houses and hardly had any savings. My financial health improved after reading books about money and after investing more than RM100,000 just to unlearn and re-learn from various money mentors and seminars on how to make money. Now, for me, money solves my daily needs, fulfils my dream and gives me freedom of choice and happiness.
Properties and internal value
Greed and fear cause the boom and bust of property cycles that can change the internal value of a person towards the price and value of a property. Similarly, a change in person’s balance in life can also alter the internal value of the price of his or her property. For example, when a divorce or separation happens in a family, the spouses change their views as to the internal value of their home and other joint investment property. They then to link the value of their property to the value of their relationship; when eventually a divorce takes place, the internal value collapses totally, together with the price of their property. Therefore, improve your relationship with your spouse and family members yourself, so that the internal value of the properties that you own will not collapse like many property owners in the market who put up their properties for fire sale. They want to get out of that relation-ship, and that property, as fast as they can.
When there is a change in career such as relocation or transfer to other work locations, the person’s internal value towards their property also changes as property is a non-movable asset. Here, the price of a piece of property also changes in proportion to the changes in the person’s internal value.
When a person makes a wrong business decision and their business cash flow is in the red, their internal value of business survival is more important than their property, thus they are willing to sell off their property at a lower price because they want to sell it quickly. When the property owner’s survival or family well-being or business sustainability is affected, they are willing to sell their property at a relatively lower price than its real value.
How do we prevent ourselves from losing money in property investment? If you take good care of yourself, your family and handle your career or business with responsibility, you should be able to maintain your internal value towards your property. When your internal value is intact, you will not lose money. You do not have to sell your property below market price; instead you are able to acquire more bargain property from those who have lost their internal value. Strengthen your internal value, then more money will gravitate towards you. This is another sure way of making money from property investment.
Property cycles and human behaviour
The price of a piece of property is affected by economic conditions of the market. Property is just another consumer product, similar to a table or a chair. The price of a piece of property goes up or down depending mainly on the demand and supply. Prices goes up when the demand is higher than supply. Prices will go down when supply is higher than demand. Property prices are also affected by the sentiment in market. Sentiment is good during a seller’s market and sentiment is poor during a buyer’s market.
A seller’s market means that a seller has a lot of choice as to who to sell to, because there a lot of people (buyers) who want to buy their property. This usually happens during good times when a lot of people have the money to buy properties. On the other hand, during a buyer’s market, the buyer now has a lot of choice as to which property they want to buy, because a lot of people (sellers) are selling. When a lot of people are selling properties, some being forced to sell, it usually means that times are bad.
When the demand for property is good, due to good market sentiment, property prices will appreciate. When the property prices increase but the rental remains the same, the yield is reduced. For example, when a shop office’s market price increases from RM500,000 to RM800,000 in a short period of time but the rental remains the same at RM3,ooo per month, the rental yield has decreased from 7.2% to 4.5%.
Fearful and panicked property owners rush to sell their properties when the supply increases and the sentiment is getting bad. Property prices keep falling. For example, a shop office price at its peak was RM8oo,ooo, it then drops back to RM500,000 and the rental yield increases from 4.5% to 7.2%.
The value of a property is partly measured by its yield and partly by potential capital gains. Buy properties with higher yield or value. Buy high-rise residential property with a yield at least three times the fixed deposit. Buy commercial properties with yields of at least twice the fixed deposit rate.
When you apply the sure way in property investment, after you have decided to buy a specific type of property with specific yield, start searching but do not rush. Over a period of time, the right property with the right price will appear for you to buy. Why? It may be due to the property cycle or inefficiency in the property market.
Buy more properties during property bust cycles when sellers are in fear. Sell properties to lock in the profit during property boom cycles when buyers are greedy. By applying the sure way of making money in properties, you will benefit repeatedly during property boom and bust cycles due to the basic human nature or psychology of greed and fear. Have a balanced and holistic prospective approach in property investment and maintain a sustainable portfolio of income property with high potential of capital gain and growth. There is no such thing as a perfect piece of property. Always match what you want with what is available in the market place.
Property value is also measured by its usefulness such as its monthly rental income or yield per year. When the property yield is low, it means that the price is high. On the other hand, when the property yield is high it means that the price is low. For example, for an apartment with a market price of RM80,000 and a rental income of RM500 per month, its yield is,
RM500 x 12 x too = RM6,000 or 7.5% per year
When a person’s internal value changes due to say, a family relationship crisis, he would be willing to sell it quickly for RM50,000. The yield would then be,
RM500 x 12 x 100 = RM6,000 or 12% per year
When the yield of the apartment is 12%, the property value is higher than its price. On the other hand, when the yield of the same apartment is lower than 7.5%, the property’s value is lower than its price. Buy properties which have a higher value or lower price than its market price.
The sure way of making money from properties is to strengthen your internal value, match what you want with what is available in market place, and transfer your wealth from cash to properties and vice-versa in an alternating manner.