Unlike stocks, property investing requires a huge capital and calls for an even more vigorous evaluation process.
Recently, I manage to steal get my hands on part of Jeff’s property evaluation checklist:
Jeff checks through 27 factors in order to produce a rather detailed analysis for an investment property, here are the key ones.
7 Key Property Evaluation Factors
1- IRR (Internal Rate of Return)
Before you even consider a property in your portfolio, it’s natural to be curious about your potential returns.
Jeff advocates the use of the Internal Rate of Return (IRR) as a gauge. IRR is commonly used in finance to estimate the profitability of an investment, it takes cash flow and growth rate into consideration, making it more accurate than the vanilla ROI calculation.
Here’s the formula:
Nobody’s got time to calculate that manually, so here’s a free calculator you can use instead.
2 – Mortgage
Understand your mortgage options – will you be able to get bank loans or would you have to fork out the full amount in cash? Weigh your potential returns and risks based on the mortgage options you have on hand.
Having access to better mortgage deals will always give you an edge against other property investors.
You should ask if mortgage readily available? Will be available someday? Is it available under company structure?
Jeff Ong
The real work only begins once you’re happy with the potential returns. Now, you’ll have to find out if the potential returns are feasible. Next, you’ve got to:
3 – Study the City
Property investing is alluring because it promises the best of both worlds – capital appreciation and rental income.
And a good property can only provide both if it’s located in a city with the right conditions.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles.” – Sun Tzu
Seek to understand the city’s growth rate and its supply and demand of properties. This will give you a better idea of the growth potential of your property. For example, a city with low property supply may yield greater capital appreciation as compared to a city with high property supplies.
You should ask what are the affordability vs growth ratios?
Jeff Ong
This then leads us to:
4 – Identify potentially high yield hot spots
Let’s face it, not every district is designed equally. You’ll get varying rental yields at Boon Lay vs Orchard.
It’s your job as a savvy property investor to identify high yield hot spots in the city where you’d be buying a property.
This will give you a better idea of the yield generating quality of the property you’re considering.
5 – Property compatibility
Now that you have a better understanding of the city and the district where the property is located, you should have a good gauge of the demand for your property.
Some questions to ask yourself are:
- Does the property in consideration add value to the people in its district?
- Will there be a sufficient demand for residential rental units?
- Are there desirable facilities within walking distance?
- Would there be upcoming developments?
Next, you’ll need to do some ground work.
6 – Street Check
Take a walk in the streets near the property, you’ll want to gauge its level of security, convenience of amenities, etc. This is best done on foot.
Unless you have a trustworthy partner, you may not want to outsource this.
7 – Comparable analysis within 500m radius
Finally, you have to do some comparable analysis or competitor analysis. Check if there are cheaper options in the area. Ideally, you should not be investing in the most expensive property in the area because it puts you at an instant disadvantage, ROI wise.
tl;dr
Picking a good investment property requires a stringent process. Jeff shared his 27-point check list at his live webinar, I present 7 key items from his checklist above. You can learn directly from him here.
