We caught up with Wong Yie Yee, Business Development Manager of IQI Concept and Dave Chong, Managing Director of MyKey Global post-REAConnect to learn the secrets to getting the most out of your investment property.
Whether it is a newly acquired property or an existing portfolio, getting the best returns on your investment can be challenging, even for the most experienced investors. Since the main goal of investing in property is to increase wealth and ensure a financially secured future, it’s always important to constantly review your strategy in managing assets for maximum returns.
As long as you are aware of how return on investment (ROI) is calculated, there are various methods you can adopt to greatly increase your chances of success.
IQI Concept, a leader in providing interior design turnkey solutions and MyKeyGlobal, an expert in transforming mediocre properties into investment gold mine, share three effective strategies to help you achieve the best rental returns.
# 1 The “buy 1 get 1 free” strategy
Despite the temporary dip in the economy, given enough time property prices will always go up. On average, property prices double every decade.
Imagine owning a property that has doubled its value in 10 years – would you sell or keep it? If you do decide to sell the property, given the nature of inflation, it is unlikely that you will be able to purchase another property at a lower price. On the other hand, if you decide to keep the property you would not able to monetise your asset for capital gains. It’s a Catch-22 situation.
To mitigate this problem, Dave Chong advises experienced investors to purchase 2 units at the same time. This gives you the option of selling only one of your properties. The property you sell would be able to give you a 100% return on investment. You can use that yield to pay off your second property. This allows you to enjoy 100% of your rental yield.
It’s a strategy used by many experienced investors to expand their property portfolio and it has worked excellently.
# 2 The renovation strategy
There are three stages in the property investment cycle – buy, hold and sell. Many investors falter during the second stage, which is the holding of the property. Often, when investors receive their property during vacant possession from the developer, they tend to take their own sweet time to decide whether to sell, rent out as bare unit, or renovate. When they finally come to a decision, several crucial months would have already passed.
In order to maximise returns, Wong Yie Yee advises reducing the property’s “downtime”, which is the period when it remains vacant.
“The smartest way to do this is to get your renovators the keys to the property. This would enable them to start measuring the unit during vacant possession. The unit can be renovated and furnished within 20 days to create a tenant-friendly atmosphere.”
Wong adds, “After that, you can hire professional photographers to take beautiful photos of the unit for listing purposes. Don’t limit yourself to one real estate negotiator. Instead, let the unit be listed by several real estate negotiators on as many online platforms as possible.”
With this strategy, the investor will have first-hand advantage which enables them to stay ahead of other property owners.
# 3 The “snowball effect” strategy
The snowball effect is not a foreign concept in investment. In this context, the Snowball Effect Strategy works by combining business and property investment.
“Some of you may not be aware of this but banks love to give out loans to business owners when properties are given as collateral,” shares Chong.
Let’s paint a scenario where you are an owner of a trading business who started your venture with RM 1 million capital. You purchase stocks using your own money, which you sell to customers at a 10% profit margin. With each trade, you earn RM100,000 in profit.
Taking your customer’s credit terms into consideration, you can trade four times in a year, effectively earning RM400,000 per year. The money you can make each year really depends on the amount of working capital you have.
In another scenario – instead of using the RM1 million to purchase stocks, you use it to invest into a property. You then pledge the property to the bank for a trade line facility worth RM 2 million with an interest of 6%. Now, you have a working capital of RM 2 million which will appreciate with time and a property worth of RM 1 million which can be rented out to get a rental return.
“The RM2 million working capital can be used to buy stocks and be traded at 10% profit margin. So now, instead of making RM400,000 per year, you are effectively making around RM800,000,” Chong adds.
Whilst selecting the right investment strategy will depend on your targets and the timeframe you’ve set to achieve them, capital growth should remain your ultimate goal in order to achieve true financial independence.
“The next year, you can invest into another property and repeat the same strategy. You’ll find your money, business and portfolio growing at a faster pace with this snowball strategy. At the end of the day, if you decide to sell the business, you will still have a solid portfolio of properties to earn a good passive rental income from.”