Being in Asia, property investment is one of the hottest topic among young working adults. With the sort of return we’re looking over the past couple of years, everyone wants a piece of it, everyone wants to jump on the bandwagon.
The reality is, yes, it’s a got great rate of return and, yes, if you don’t lock in at the price now, it might get too expensive in future (especially with the average wage growing slower than the price of properties).
I, however, have a different take on property investment. People shouldn’t invest in property too early. Especially from an entrepreneurial standpoint. Owning a property and having to pay off your mortgage/loan is suicide in terms of having any form of flexibility. Who knows what will happen in couple of years. Perhaps, you want to quit your full-time job at some time to start your own business. Or maybe you might lose your job. Real-estate is illiquid. And it will rob you of many opportunities that will come your way.
I’m even willing to go to the extreme end and say, there maybe no point in owning any property depending on your circumstances. The truth of the matter is, what is the point of taking a loan and being tied down for the next 30 years (till your late 50s or 60s).
If your goal is rental income, the average rental yield in major cities in south east asia is hardly enough to meet 70% of your monthly expenses in loan repayment and maintenance (assuming minimum downpayment).
It would be far better to just rent a property for your own stay, have 20%-50% extra in cash flow monthly for other investment opportunities. Plus you’ll still have the flexibility to quit your job to do something you might like better. I reckon even if you put the extra cash (from not having to pay mortgage) into unit trust/mutual fund or fixed deposit in good times and then plough it into the stock market during bad times, you’ll have far superior return on your money.
Of course, this is just my opinion. If you have lots of cash in your bank account, go and do what you wish. If anyone is adamant on investing in properties, I’d ask them to take a look at Robert Kiyosaki’s way of investing. But then again, in Asia, you’ll hardly find the kind of opportunity that Robert Kiyosaki looks for when investing in a property. And remember, if you are buying a home for yourself, that’s not an investment. I agree with Robert Kiyosaki’s definition of investments and assets. “An asset is one which gives you positive cashflow every month” If you buy a property and rent it out, but your total receipt on the property is less than your total expenses on it, that’s a liability!
Remember it’s all about cashflow, opportunity cost and loss in flexibility!