BE A SMART INVESTOR
by Lim Lay Ying
Property Times, New Straits Times
29th January 2005

One of the questions I am most often asked is what, where, and when should someone invest their money in real estate. It’s a million ringgit question which calls for more than a terse response.

If I were to recommend a property for investment and it turns out badly, I’d be in real hot soup. I will always be accountable. If on the other hand, the investment proves to be spot on, earning tremendous amounts of money, I will be quickly forgotten as being the one to make the recommendation in the first place.

This, unfortunately, is human nature. It’s what makes the world go round. If it sucks, you take the blame. If it’s brilliant, you get no credit.

I’ve watched real estate investments that I thought were sure bets go down the drain, and I’ve also watched what should have been terrible investments make tremendous fortunes for people. The reality is, you can never really predict and should not even attempt to do so.

As in the stock market, there has been quite a bit of herd mentality when it comes to real property investing. This is because there are lots of people who are not natural investors in real estate and yet they won’t normally approach it with an advisor.

Property market can be like a casino

When sentiments are bullish, the property market can be like the stock market – a huge casino with plenty of gamblers who rely mainly on themselves. Both can turn from good to bad – at times overnight even. Prices can sky rocket but there are also pockets of weakness, and we won’t be able to tell when it will crash but we do know one thing for sure.

Without a doubt, the market will go down. It’s really a question of time – will it be next year, the year after, or five years from now? History shows a constant and consistent wave of ups and downs. Sometimes the wave is longer and higher, and sometimes it is shorter and gentler – but there is always a wave.

The problem is, the market may keep soaring and then suddenly plummet. These movements are really quite impossible to predict. So when is the appropriate time to get in and get out?

I’m a great fan of real estate, and one thing I can promise you – investing in real estate takes time, patience, knowledge, and instinct. There are people who get lucky investing in the real estate market. But then, these “lucky” people are lucky because they do their research, have tremendous instincts and brainpower, and also great investment advice.

The power of real estate kicks in when it’s leveraged usually. But, this of course can be a risky proposition for people who are not fully aware of what they’re doing. It’s great to buy a property for a song – fix it up, make it fabulous again, rent it, and mortgage it even for far more than you ever put into it in the first place. It’s not easy and does take courage, conviction, and knowledge. The rewards however, can be incredible.

Often times, there are people who have bought houses that they believe are in good locations and offer potential to be renovated. They set to work very hard to make the houses look good again, and after just a few months, they sold them at a great profit. This idea is not new, and can be applied with whatever amount of capital that is available.

Reduce your risk of failure

For those who are not as confident and don’t really have the knowledge, capital, patience, or time, REITs or Real Estate Investment Trusts that are traded publicly and available to all, may be a better bet. Their real estate portfolios vary in their investment in different sub-sectors and locations. You may not get the biggest hit when you invest in REITs when compared to investing directly in a single hot property, but this way, it does reduce your risk of failure and negativity.

But going with REITs, do be careful. Scrutinize the management and study their track records to gauge how well they have performed. If the track record is good (if they have been around over a relatively long period of time), you can almost certainly be rest assured on their success. Otherwise, just stay clear.

Then again, there are some people who prefer to go with their gut. They invest by instinct. While some have managed to build great fortunes this way, unfortunately more have been caught with their pants down. Instinct, usually, is handed out to the very few. It is a very special trait.

There are so many different forms of real estate investments and so many different personal situations that it’s very hard to give advice appropriate to everyone. Huge amounts of money will be made and lost over the coming years.

Just don’t let yours be lost. Be smart, be bold, keep your guard up, and know the market behaviour and trends. Use the best brainpower possible to guard over your future, and the best people to advise you. Don’t ever put yourself in a position where you are risking it all.

Finally, do remember to give me all the credit and promise not to blame me.