How to spot property gems and make them shine

Forget about what marketers bluff about hidden gems in the property market.

We can never be too good doing anything for the first time, especially when it comes to investment.

With lack of knowledge and experience, we can have all the money in the world, but still end up buying a lousy property which turns out to be an underperformer in both value appreciation and rental yield.

Last year, I wrote a post to share my story about “The day I bought my first private property”.

With a limited budget, I picked up five small properties in less than five years in a depressed property market. Some were good; others were not as good as the others.

With hard work and a bit of luck, I was grateful for the humble profit margin of 79 to 119 percent after selling my first property portfolio.

But what I treasure most is the lessons from my mistakes and experiences, which is far more valuable than the gain in monetary terms.

Sixteen years have passed since my first purchase. I am now ten times more knowledgeable compared with the day I bought my first property.

Or at least that’s what I thought.

New findings from my property research

In the process of preparing for the Finding and Managing Residential Rental Properties Workshop this Sunday, I compiled some charts using historical and latest transaction data.

I was surprised that there are new findings that I have never noticed before. Some of the results even proved me wrong.

Aristotle told us, “The more you know, the more you know you don’t know.”

• When I put the price and volume data of transactions from the last 15 years in the same chart, I suddenly realize what is wrong with the current property market.
• I kept buying condo units with almost the same size, without knowing what size appreciates the most in value over the years.
• Now I finally know what size, location and age of condo units are most resilient in a soft rental market.
• Newly-TOP condo projects fetch higher psf prices, but not higher rents compared with older projects.
• Shoebox units may be phasing out soon outside central region. But it is interesting to look back at how they performed in both sales and rental in the past ten years.

Now I know what I should buy next time when the market is right. With the gloomy market outlook, it’s time we did our research and got our wish list ready.

Forget about research findings in news articles. Most are biased and published by so-called experts with vested interests. We can easily get access to property data and do our own studies.

How to play the property game

Properties is very similar to jewellery. We must know when to buy, where to find the good ones, how to spot the gems, and how to polish them and make them shine.

There are three things we can learn to master the property game:

1. When to buy;
2. Where and how to buy; and
3. How to manage.

1. When to buy

Two sentences best summarize timing in property investment:

Buying the right thing at the right cost.

Selling at the right price at the right time.

Just get the first one correct and the second one won’t be a problem.

People who buy shares and properties during a financial crisis can sell at any time and still make a profit, provided that they don’t sell immediately after their purchase.

Most people lose money because they buy the wrong thing at the wrong price, and are forced to sell at any price during the bad times.

2. Where and how to buy

Fellow value investors like to ask the question: How do we know we are buying at the right price? Where to find undervalued properties?

• Understand the difference between price and value. Check transaction history and find out where we are in the property cycle.
• Affordable and value-for-money are two different things. We can use affordability, mortgage and valuation tools but they have nothing to do with value-for-money.
• Pricey properties can be pricey for no reason. Cheap properties can be cheap for a reason. Stay calm to find the facts and be wise to see the truth.

Bad deals are usually widely advertised to first-time buyers who are paying a premium for the hype. They are paying for the top price for the property, with no idea that its highest value is now.

Their prize is the thrill to bag a property amidst an exciting crowd. The reward is the boosting of their pride and ego immediately after the purchase.

Their action is no different from speculation. Gamblers always have a blind faith that they will win this time.

Good deals are hidden gems known only to savvy investors who can sniff them out. It is similar to spotting undervalued stocks in the equity market, waiting for the market to recognize their intrinsic value.

Some good deals are open to everyone, even if they are not known to all. Some are more exclusive and only reserved for the privileged.

There are also high-risk-high-return money games for savvy investors with big risk appetite. They are not common practices but are legal to do. It’s complicated.

Let's talk more about how to win the property game during the workshop.

3. How to manage

A gem is just a stone if we don’t know how to polish it. We can only get humiliating lowball offers for unpolished gems if we don’t know how to package and present them in the market.

Treat a property gem with care and touch up where necessary. That is where secrets of renovation, advertising and flat showing come into play.

Inexperienced landlords often hurt by a depressed rental market, get frustrated by tenants from hell, then call it quit. Because they don’t know all the smart tips and hidden traps in engaging reliable agents, finding good tenants, and managing them systematically that works like clockwork.

To get the most out of the property game, the strategy is always to maximize income, minimize expenses and hassles in leasing.

Talking about lowering costs, do you know how to get it right with leveraging, decoupling and taxation?

For those who signed up for the Finding and Managing Residential Rental Properties Workshop, we can talk more this Sunday. I know some of you are first-time investors while others are savvy investors.

We can learn from each other through our discussions and activities. I am interested to know other alternatives. Because knowing other alternatives can make me a lot of money.

And feel free to disagree with me. I don’t insist on my views. My views don’t cost much. I only insist to know the truth. Because not knowing the truth can cost me a lot of money.

See you on Sunday!