How does the current generation home buyer use their first property as a pure investment asset? The most direct approach is to buy a private property such as seaside residences condo, but not move into it.
Instead, they continue to live with their parents, while renting out the private property. Many younger generations have always asked themselves “Whether buying a house a good investment?”. The answer to that is “Yes”. By turning your first property into an investment property, one can leverage your credit, lifestyle and limited responsibilities into a valid investment.
The concept behind is simple, by using your first property as an investment; it may seem to go against all the typical notion of personal finance. Here are the normal and typical timeline for a young adult in this century: College, working on his first job, first rental unit, second rental unit, marriage, starter home, have children, second home, education, investment. The timeline may seem to be a perfectly sound as it can give you abundant time to secure credit, save move and enjoy your life. But if you have a solid job with a steady income, waiting until you are at the age of 30 or 40 to begin investing may not be a smart choice.
Here are the facts why you should start investing in real estate when you are still young.
1. Being young
Being young may give you plenty freedoms as you can live where you want, buy what you want and travel whenever you feel like it. The money spent while you are “living the life” can be spent on something with better future returns. Saving credit and building credit is crucial as you will need them to qualify for loans. Your “living the life” lifestyle may hinder your later life when you have other obligations. You need to learn the way of effective financial management and come up enough cash for property down payment.
2. Real estate is cheap
According to the recent market research the home prices are steadily rising. However, the current real estate agency offers a variety of bargains to potential buyers such as distressed sales or rebates. Distressed sales are define as home or property which habe been foreclosed and the bank are willing to sell in a lower rate. Do bared in mind that always purchase a home which is within your financial comfortable range.
3. Securing a second income source
By renting out the purchased property, you are immediately putting profit on your investment as soon as you find a tenant and with the gradual appreciation of property prices. Then, you may take the money you earn and reinvest into another property.
4. Property to counter inflation
With the proper research and survey, it is not a difficult task to pick a property that will appreciate. An example of this is choosing to buy in a non-mature estate, where many amenities (shopping centres, train stations, hawker centres, etc.) have yet to be built. This is based on the theory that, as these amenities are built up, the property value will rise. The rate of inflation in Singapore is approximately three per cent per annum, and your investment must keep up with that.
A word of caution for fellow home buyers is not to sink all your savings into a property. A wise investor always has other assets in their portfolio which may include bonds, unit trusts and equities. Property is considered as a long term investment plan all investor should include into their portfolio. Lastly, never make a purchase if you are totally dependent on the rental market for mortgage repayment. It is always wise to have a stack of buffer saving incase the property fail to generate rental income.