Monday, 31 May 2010

Leveraging in Properties. Should We Go or Not..?

I have received many comments on my believe in properties acquisition leveraging by refinancing property.. The arguments are;
1. This was what western preach and belief, which lead them to recession in recent years;
2. The idea of mortgage paid by the tenant. How we know that there will be a demand in tenancy for any particular property we acquired?
3. Cash flow affected if no 2 not materialized as plan?

First and foremost, in any investment, no one could predict what will happened after it was made. Even Warren Buffet does not always hit the strike and jackpot. And the modest answer to the above arguments is, always look at your affordability, means debt and income ratio. Personally, I will make sure my debt to nett income ratio does not hit more than 40%, even though most of financial planner adviced to limit to 30% ratio. And not simply leveraging without looking at nett cashflow capabilities.

All in all, in current sophisticated market and with all resources, one may be able to predict and make a proper plan before acquiring any properties be it new properties or not. Location, historical tenancy demand, market price movement year on year, proximity to amenities and easy accessible etc are common key enablers before any decision made. Classic example, I always made a dummy advertisement in one of the popular selling/ renting website which is free. And from there I gauge the responds of potential tenant. Off course you have to be there physically to see and experience all the key enablers for making it a preferred choice for residents be in tenant or living for good. And you know what, the best way to look for acquiring properties are always auction properties.