CNY Property Tip #2
It's CNY Day 2!
Hope you have had wonderful reunion meals and time with your families!
We are continuing with property tips to address the question that I posted in my first post:
Are you working to pay your house OR is your house working to pay you?
Back in our grandparents and parents' times, putting money in the bank might have worked for them. But time has changed. Today we need to make our money work for us. Our house is actually a powerful tool to build our finances.
However, there are various considerations when it comes to choosing the right property.
As mentioned before, location is NOT always the most important factor when it comes to choosing the property for capital gain (aka profit). Neither does high demand in a particular development means that it is a profit-making property to purchase.
Today, we are looking at another factor:
Number 3: The Power Of Capital Appreciation
As property is a mid-long term investment, I advise my clients to focus on capital growth as the No. 1 goal if they truly want their house to pay them.
Some clients I met said, "Rental yield is important to me. I want to see cash." In fact, HDB owners often say, "I will keep my HDB. It's rental yield is better."
This is actually a common mistake made by many people.
Yes. Higher yield produced by cash-flow positive property may look very tempting, especially when the interest rates are rising. But we need to look at facts and figures. High yield and low capital growth do not perform just as well in the mid-long term. Remember: Property is a mid-long term investment.
For example, if you buy a property for $600,000 that yields 4% p.a. with 5% capital growth each year; after 10 years, the property will be worth about $977,000 and provide a yield of about $24,000 per year. Total profit will be $617,000.
On the other hand, if you buy a property for $600,000 that yields 2% p.a. with 10% capital growth each year; after 10 years, it will be worth about $1.56 million and provide a yield of about $12,000 per year. Total profit will be $1.08 million!
As you can see, a property with higher capital appreciation is worth more and makes a greater profit than a property with higher yield.
You and I have limited cash and CPF funds. If we do not start off correctly with our first property, we may not necessarily lose money, but we may lose the opportunity for higher capital growth. Without good capital gain, it may take a much longer time before our house can pay us.
Thus, if you are buying your first or second property, look out for those that can help you grow your capital appreciation instead of simply looking at those that give you good yield. You need capital growth to grow your assets.
Remember: Right assets = Good payout
"Being frugal is a good virtue, but being able to earn more and find different sources of revenue and income is far more important..." - The Straits Times, 8 Nov 2015
When you purchase the right property, you are letting your property pay you, instead of you paying your property.
That's all for today. Stay tuned for more property tips during this CNY festive season!
Check out my previous post if you haven't seen it.
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