6 mindsets you need as a successful property investor
If you only have a minute, here's what you need to know:
- Being a property investor is more than allowing someone to stay in "your home" and collecting a fee from them while treating them as a friend.
- Reasons why successful property investors adopt an investor's mindset
- The attitudes and beliefs that are key to an investor's mindset
Thinking of transitioning from homebuyer to property investor? You'll first need to know the differences between the two.
As a homebuyer, you purchase property to live in and hope you'll be able to sell it for a profit after the 5-year Minimum Occupancy Period. You hope to use the extra cash to upgrade to a bigger home or buy a private property.
Meanwhile, as a property investor, you're constantly on your toes. After buying a property, you'll need to look for a tenant, plus balance the mortgage and rental income. In the future, you hope to purchase a second property to generate more rental income.
Another difference is mindset. Successful property investors have different attitudes and beliefs than that of normal homebuyers. Let's look at some of these mindsets that will help to propel you forward in your property investment journey:
Mindset 1: Set aside time for your new 'business'
Being a property investor is more than allowing someone to stay in "your home" and collecting a fee from them while treating them as a friend. It's a business, and successful property investors know this.
Treat it seriously, just as you would your job. Set aside time to deal with any issues, instead of letting them stagnate for "later", which may escalate even the tiniest of problems, even something as small as a leaking faucet.
Consider making this official by setting up a company through which you handle all your property assets. This also opens up new avenues, such as allowing you to use a business loan to buy the property, instead of a mortgage. If you’re not the sole investor, this makes things neater administratively for all involved.
Mindset 2: Learn to think objectively
As with all forms of investing, successful property investors leave their emotions out of the equation.
It doesn't matter if you’ve stayed in the neighbourhood since you were a child, or how close the apartment is to your own workplace (although that would be convenient if you need to check regularly on things) — your tenant won't care.
When you are buying to achieve a good rental yield instead of buying to stay, prioritise the considerations the renter would have. These include:
- Rental statistics of different districts,
- What type of property has good rentability,
- Transport connections,
- Schools nearby,
- Condition of the unit, and so on.
Mindset 3: Make sure you know your market
You should also have a clear idea of what type of tenant you are looking to attract, as this could affect the type of property you’ll purchase.
Put yourself in the shoes of your target tenant: How old would they be; Would they be single or a family; What sort of amenities and schools would attract them; What kind of property and furnishings suit their taste; How big a home do they need; Do they drive or would they need good public transport links?
Knowing the property market also gives you an advantage. For example, details such as changing home loan rates and changes to property market sentiments could affect rental yield and pricing.
By aligning your property offering with the needs of the market, you'll be able to capitalise on trends and maximise your return on the investment instead of shooting in the dark.
Mindset 4: Make a plan to exit
Some people continue with a failing business venture just because they've already "invested so much in it". The smarter thing to do? Cut your losses quickly and know when and how to exit.
Just as important as all the groundwork needed to kick start your property investment journey, it’s also crucial to have an exit strategy (or a few) in place. This way, you’ll know exactly what to do should your investment not go as you forecasted.
Lorna Tan, former Invest editor with The Straits Times and Head of Financial Planning Literacy at DBS Bank, says: "Know what you are investing in, know yourself and know your exit plan...It's easy to make an investment decision but harder to exit an investment unless you set clear parameters or trigger points at the onset, and review along the way."
Mindset 5: Be sharp about finances
Turning a profit may be simple math, but in the world of property investing, it's not as straightforward as ensuring the tenant pays a money rent that’s higher than your monthly mortgage instalments.
First, determine how much money you can borrow from the bank. In Singapore, the Total Debt Servicing Ratio (TDSR) caps your total monthly debt repayments at 55% of your gross monthly income. Thus, if you’re already maxing out your TDSR with other loans (for example student loans, personal loans, car loans, home loan on your residential property), there's not much you can borrow to buy a property for investment.
Next, factor in additional payments such as property tax, property agent commissions, condo maintenance fees, insurance, home repairs or improvements, property loan interest and so on. Include other upfront costs, such as the down payment, Additional buyer's stamp duty (ABSD), stamp duties, cost of furnishings and any renovations.
Only then will you derive the net rental income and your net rental yield.
If numbers aren’t your strongest suit, consider teaming up with someone you trust to be co-property investors, or seek advice from a reputable property agent.
Work out your property budget
Work out and save your investment property budget and map out the cash inflows and outflows for the purchase of your next investment property purchase.
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You can also access it via Home Marketplace, another excellent resource that has a consolidation of tools for planning your property purchase.
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Mindset 6: Play the part of landlord
Congratulations! you're going to be a landlord, so you will need to act like one.
In addition to getting the necessary paperwork filed (tenancy agreement and other legal documents), you must lay down the house rules and make sure everything is in black-and-white from the get-go.
Even if the tenant is your friend, closing one eye to their actions could result in costly incidents later. For example, if they throw a party and some of the furnishings get damaged. Make sure it's clearly stated what they'll need to do in such an event — you wouldn't want your rental income to be lost on repairs.
Do your own due diligence, such as checking on your tenant's credentials before they move in, even if they seem all too eager and even offer an upfront cash payment. If the tenant wants to keep pets, make sure these pets are legally allowed (some dog breeds aren't allowed in HDB flats; cats are illegal in a HDB) before giving the go-ahead.
Must-dos as a property investor
While you process these mindset shifts, there are some non-negotiables for every prudent property investor. These include:
- Working out a budget
- Setting an investment goal with a time horizon and return on investment target
- Setting aside a minimum of 6 months’ worth of the mortgage as buffer (this is on top of your personal emergency fund)
Also the key is to understand the different risks involved and your risk appetite. For example, a soft rental market amid rising property prices might put you in a negative cash flow situation, where your rental income cannot cover the mortgage and other costs.
Are you able to stomach this, and do you have enough funds to maintain your holding power? Selling off a property too soon could incur a much higher Seller’s Stamp Duty than you can actually afford.
Make sure you understand the product before buying into it. Likewise, study the market prior, and always have an exit strategy.
If you want to get into property but prefer to have liquidity, perhaps a much better option would be to buy Real Estate Investment Trusts. REITs for short, these investment vehicles see you pooling your funds under the care of a REIT manager who then helps you invest in a variety of properties — you don’t need to buy an actual property.
Other investment options
Property investing not your cup of tea? Speak to a DBS Wealth Planning Manager to explore other options available.
Some other tips before you begin
If you’re not the sole investor, make sure everyone who has a stake in the investment property — whether it's your spouse, sibling, relative or friend — is on board. Decide on the manner of holding, which can be:
- Joint tenancy (everyone has equal share of ownership regardless of how much money they put; everyone needs to act together), or
- Tenancy-in-common (able to specify share of ownership; co-owners can sell off their individual share; but certain decisions must be made by all co-owners).
Do pencil in regular sessions to review the performance of your investment and schedule check-ins to help you identify any potential issues or if the rental yield is on track. Remember, property investment is like a business.
Start Planning Now
Check out the latest DBS/POSB home loan promotions to get a headstart on your property investment journey.
Check out DBS MyHome to work out the sums and find a home that meets your budget and preferences. The best part – it cuts out the guesswork.
Alternatively, prepare yourself with an In-Principle Approval (IPA), so you have certainty on how much you could borrow for your home, allowing you to know your budget accurately.
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