Before reading part 4, you may like to do a reality check whether you are following part 1, 2 & 3. If your answer is yes, congrats, you may continue to read the following part.
When investing in properties, do we look at yield as an important parameter before investing? Of course we do, otherwise we are not maximising our ringgit. Let’s assume that we are able to engage a team of professional property researchers to do a survey, surely we would be asking for a detailed report stating every tiny location which is enjoying high demand by tenants, which are offering excellent returns, above 6-7%. Would you agree?
As investors, am sure we are always aiming to achieve the highest yield possible from all our investments. After researchers submitted their reports & when decision to purchase arrives, don’t you agree that it will be extremely marvelous if we are able to buy with very high confidence that we will be investing into a development that will continue to have strong demand regardless of the economic conditions.
Also, the chosen investment & the design should & must appeal to the core rental market as this is to ensure that the returns (%) will out-perform other investments, regardless of market conditions, either downturns or strong growth periods. There will always be a demand for affordable housing.
How do we calculate yield? Look at the total amount of rent collected per year minus the yearly interest you pay on your loan, then, divide that number with 12 and You’ll find your yield. Generally, we are looking for a minimum of 5-6% rental yield, anything lower that 5-6% you are not getting your monies worth.
It is always good a practice to compare rental yield of multiple locations, just to have an idea of the average rental yield for each state. Thereafter, choose the location that offers the highest rental yield.
Don’t risk buying into the wrong area and then struggle to find a tenant. We should know that market is very dynamic & market condition changes. It may be a good rental market today as there is a shortage of rental properties in certain market. But times do change and the reverse may happen. Therefore, having solid fundamentals that appeal to tenants will always mitigate your risk of vacancy.
Start engaging researchers or we can talk to our appointed property agents & ask them to submit detailed homework. It is our right to get agents to present all market intelligence before you make any payments.