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T(65)6259 0880
F(65)6353 3070
1 Goldhill Plaza
#02-47
Podium Block
Singapore 308899
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Generally, houses make poor
investments. Houses tend to be bought and sold on very low
yields and are therefore reliant on capital growth to make
them a worthwhile investment. Purpose-built flats tend to be
much better as they usually sell on higher yields and often
require less maintenance. That said, this does not mean
that all houses are bad investments.
The key issue in property investment is demand by tenants.
As such, a house in a much sought after location will
certainly yield good rental growth with resulting capital
growth.
Three major aspects of a property’s quality are:
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1. Location ...
Location is certainly important to your property investment --
it is the only aspect of a property that cannot be changed.
You may be able to change the tenant, the tenant’s lease and
features of the building itself, but you can never change
where the property is sited.
While the location of the property is important for security
of income, it is even more critical for income growth and
therefore capital growth.
Location, more than anything else, will provide the rental and
capital growth to make wealth. Property goes up in value
mostly because of rental growth. Rents go up because of
pressure from tenants competing to get space in a particular
location or a particular type of property.
Competition for
good space in good areas ensures a low vacancy rate, leading
to rental and capital growth.
(See
more on Location.)
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Where your
property is sited determines its prospects of rental and capital
growth.
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2. Tenant and Lease ...
The tenant and the lease are your life-blood. The cash flow
they provide is the first return on your investment, giving
you an ability to pay interest on any borrowings, and your
primary security.
It is the tenant’s rent that keeps and enhances your
property’s value. It is clearly better to have a tenant who
looks after the place, who can pay top rent and pays it
punctually. The ability to pay a higher rent is also important
in situations where there are likely to be rental growth.
The type and terms of the lease that bind the tenant are also
important. Investors almost always look for long-term leases
for security of income.
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The type and terms
of lease that bind the tenant are important.
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3. The nature of the building ...
You need to consider the building’s design, layout,
configuration and quality of workmanship as well as the
materials that it is built from. Also what are the maintenance
that will be required.
Your residential property investment need not be up to the
standard of the house you live in, however there are basic
issues such as serviceability, light, space, facilities and
décor that should be of a reasonable standard before you
purchase.
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Your investment
must be of reasonable standard in terms of design, layout,
configuration and quality of workmanship and materials used.
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