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Property Investing – A Discussion on the Pros and Cons
By Musicwhiz  •  February 12, 2010
[caption id="attachment_3140" align="alignright" width="150" caption="Photo by «Gaurav»"]Photo by «Gaurav»[/caption] It is with some trepidation and reluctance that I venture into the topic of property investing, for Singapore is a country whereby its residents fall in love with property, and where most of the rich folk make their money from properties. Personally, I also know a few relatives who are sitting on very good rental yields on property which was purchased a few decades ago. With the steady and relentless rise in property prices, for both HDB flats and private properties, I think now has come the time for me to voice out my views on this matter. Firstly, it is to highlight the salient aspects of property investing; secondly it is also a “diary” of sorts to remind myself of my thoughts at this point in time (when property is hitting new all-time highs). The Essence of Property Investing Property investing generally differs from equity investing in one important aspect – it makes use of leverage and collateral to “multiply” gains. This is what I had observed in the majority of cases as Singaporeans are generally not cash-rich enough to purchase the entire property outright, therefore most will pay a downpayment of say 20% and finance the remaining 80% through the use of a bank loan. Since those who can fully pay for their properties are just a small minority, I can conclude that most people make use of leverage for their property purchases, and when it comes to property investing, most may already own 1 property (in which they live in), and are contemplating a second property purely for investment purposes. Even with equities, one can make use of leverage (commonly known as “margin”) in which shares are used as collateral to purchase even more shares. However, this blogger has always discouraged the use of leverage in equity purchases because during good times, your gains are magnified; but during bad times, your losses are exacerbated manifold. The same scenario also plays out in property investing as leveraged is usually heavily employed. Assuming a S$1 million piece of property, the down payment will then be S$200,000, with the remaining S$800,000 financed by a bank loan. Read more...
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By Musicwhiz
Musicwhiz who is in his 30s is educated in accounting and works in the investment line (but not in a bank, financial institution, brokerage or fund house). He has a have a full-time job and investing is his side-line as well as passion. Musicwhiz is a value investor and his technique is derived from the teachings of Warren Buffett, Benjamin Graham and Phil Fisher. He incorporate all aspects of their investing style, and modify his value investing style to the Singapore market.
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