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Property investment-for-media Property investment-for-media Presentation Transcript

  • Presented by Ishak Chandra 101 PROPERTY INVESTMENT Sinar Mas Land Financial Workshop
  • Q&A Investment Alternatives Return vs RiskHighlight WHAT YOU WILL GET TODAY • Understand Alternative of Investment • Understand what is Risk and why we need to consider Investment Risk beside the Return • Understand why Property is one of the Best Alternative for Investment
  • What is investing? Investing is a method of purchasing assets to gain profit in the form of reasonably predictable income (dividend, interest or rentals) and / or appreciation over the long term Burton G Malkiel – A Random Walk Down Wall Street View slide
  • What is investing? A process of sacrificing NOW for the prospect of Gaining something later TIME TODAY SACRIFICE PROSPECTIVE GAIN View slide
  •  Preparing for a Career, such for going to College  Saving for major Purchase (first Home, Car, etc)  Preparing a “Rainy Day” fund for EMERGENCY (job lay off, etc)  Developing Personal Financial / Investment Plan  Starting Saving and Investment Program
  •  Expected Return: the profit you think you will receive from an investment, in the form of  Income from interest or dividends  Increased value (capital gains)  Risk: the amount of uncertainty about the expected return, including the possibility that the investment may lose money or value, or become worthless  Liquidity: the ability to sell the investment quickly and at a fair price
  •  Dividend (Stock)  Interest Income (Bank Saving / Private Lending, Bond)  Rental Income (Property)  Capital Gain (Stock)  Capital Appreciation (Property)
  • Inflation & Saving
  • INFLATION make your Value of the money DECREASE over the year WHICH ONE YOU PREFER ? US$ 120 now Us$ 10 per month for 12 month 1. US$ 1,000 now US$ 1,100 Next Year 2.
  • • Persistent INCREASE in the COST of GOODS & SERVICES • Persistent DECREASE in BUYING POWER of Money
  • Interest rate from saving usually is higher than Inflation Rate Interest Rate Inflation + Premium Risk= 4% 1% Big & Good Bank. 5% += Medium class bank 4% 2.5%6.5% += Small bank 4% 4%8% +=
  • Your value of Money is reduced if you are putting your money in the bank with current inflation rate
  • SO WE HAVE ANOTHER REASON WHY WE NEED TO DO INVESTING NOT ONLY DO SAVING
  • Power of Compounding…
  • Power of Compounding? • Your MONEY INVESTED will get RETURN • Your RETURN will GAIN RETURN • MORE MONEY you INVEST, the MORE you will get An amount of Rp 1,000,000 which compounds @ 15% after 30 years is worth, …………….. ???? The power of compounding can be expressed using the following time value of money expression FV= (PV) *(1+k)^n Investing …. FV = future value PV = present value K = rate of compounding n = no. of years Guess for Prize..
  • Power of Compounding it works… Year Inflation Bank Saving Inv. A Inv. B Inv. C Inv. D Return 5% 6% 9% 15% 20% 25% 0 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1 1,050,000 1,060,000 1,090,000 1,150,000 1,200,000 1,250,000 2 1,102,500 1,123,600 1,188,100 1,322,500 1,440,000 1,562,500 3 1,157,625 1,191,016 1,295,029 1,520,875 1,728,000 1,953,125 4 1,215,506 1,262,477 1,411,582 1,749,006 2,073,600 2,441,406 5 1,276,282 1,338,226 1,538,624 2,011,357 2,488,320 3,051,758 10 1,628,895 1,790,848 2,367,364 4,045,558 6,191,736 9,313,226 15 2,078,928 2,396,558 3,642,482 8,137,062 15,407,022 28,421,709 20 2,653,298 3,207,135 5,604,411 16,366,537 38,337,600 86,736,174 25 3,386,355 4,291,871 8,623,081 32,918,953 95,396,217 264,697,796 30 4,321,942 5,743,491 13,267,678 66,211,772 237,376,314 807,793,567 An amount of Rp 1,000,000 which compounds @ 15% after 30 years is worth Rp. 66,211,772
  • Investment Alternatives
  • A. Paper Assets: • Stocks • Bank Account • Certificates of deposit • Bonds B. Tangible Assets: • Gold & Silver • Art • Real Estate • Land
  •  Cash Equivalent Saving (Saving Account, CD) – Safe & Liquid  Equity (Stocks) - offer dividend & capital appreciation.  Fixed Income Bonds -offer safe return.  Real estate, Land - offers rent & capital appreciation.  Precious metals (Gold, Silver) -appreciate over time and are a hedge against uncertainties.  Art work - appreciate over time.  Insurance - used as security against risk of uncertainties.
  • Saving Investment OBJECTIVE Short Term need or Emergencies Long Term growth PRODUCTS Saving account, CD Stock, Bond, Mutual Fund, Gold, Property. RISKS None as long as guaranteed by Government Varies, depending on Investment product SOURCE OF RETURN Interest income Interest, Dividend, Rental Income, Capital Gain, Capital Value Appreciation KEY BENEFITS Safe, accessible & Liquid Return > Inflation over the long term KEY DRAWBACK Low rate of Return Risk of losing money the investment decline in value
  • Investment returns The rate of return on an investment can be calculated as follows: (Amount received – Amount invested) Return = _________________________________ Amount invested For example, if US$ 1,000 is invested and US$ 1,100 is returned after one year, the rate of return for this investment is: (1,100 – 1,000) / 1,000 = 10%. In case if we adjust the return obtained from above for inflation we arrive at the real return in the investment
  • What is investment risk?  Investment risk is related to the probability of earning a low or negative actual return.  The greater the chance of lower than expected or negative returns, the riskier the investment.
  • Risk Taker Risk Adverse
  • RETURN RISK LowHigh Low High Gov. Bond Corp. Bond CD Gold MF Fixed Inc. Property MF Mix MF Equity Equity DON’T INVEST HERE
  • Annual Compounded Return Years to Double Risk Fixed Deposit 4-5 % 14.5 years Low Gold 7-8% 9.5 years Low Bonds 6.4% 11.25 years Medium Property 15% 4.8 years Medium Jakarta Stock (15 year history) 17.67% 4.07 years High
  • Do your own exercise… !!  Long term or short term  Liquid or non liquid  Expected Return vs Risk can be managed  Risk Taker or Risk Adverse  Cash Flow vs Capital Appreciation  Investment product knowledge & skill level  Available fund and expected future fund
  • A. Paper Assets: • Stocks • Bank Account • Certificates of deposit • Bonds The ALTERNATIVE Investment.. B. Tangible Assets: • Gold & Silver • Art • Real Estate • Land
  •  Residential  Landed house (Land & House)  Vertical (condominium)  Commercial & Industrial  Shop house (Include Rukan, Business loft)  Strata office (include SOHO)  Warehouse  Industrial (Land, Standard Factory Building /SFB, Factory)  Retail  Strata Retail (Trade Center)  Rural Land – Farm Land  Timesharing is not property Investment
  • Why Property is the IDEAL Investment ?
  •  Property is one asset class that does both, rising in value and generating income  It is often referred to as the “IDEAL” investment  “IDEAL” is a simple acronym that highlights just some of the key benefits of owning real estate
  • Benefit #1: Income  Ability to generate passive income  When investing in property the key thing is to focus on net income  Many real estate agents will quote gross yield figures i.e. the annual rent as a percentage of the property price  Potential return on investment,  to focus on net yield or net income  Absolutely must have net positive cash-flow otherwise you haven’t got an investment on your hands but a burdensome liability  The challenge in property investment is to minimise the down payment (which will maximise your mortgage) whilst at the same time generating positive cash flow each month
  • PRICE = Property value 1,000,000,000 Net Rental Yield 3% Gross Rental 30,000,000 3%
  • Benefit #2: Depreciation  A rental home is seen as a depreciable asset just like a car or piece of factory machinery  Rental properties with positive cash flow can show an accounting loss, granting the owner a tax deduction,  Depreciation is an accounting loss and only shows up on paper  It can result in you being able to turn a small economic profit into a small tax loss
  • Property value 1,000,000,000 Depreciation rate 5% Net Rental Yield 3% P&L Cash Flow Gross Rental 30,000,000 3% Cash In from Rental Income 30,000,000 3% Depreciation 50,000,000 5% Depreciation - 5% Net profit (Loss) (20,000,000) -2% Net Cash Flow 30,000,000 3% Even though we could be “loosing” money on paper we could actually be making a monthly cash profit
  • Benefit #3: Equity Build Up & Expenses  As you pay down the principle of the mortgage loan you are gradually building up your equity stake in the property  So, even if there is no increase in the value of the property over the term of the loan you still end up with an asset with 100% equity at the end of the mortgage loan term  Expenses such as property management fees, maintenance, insurance, mortgage interest and so on are deductible from the rental income, thereby reducing your tax liability
  • Interest rate = 9% Property Value Loan Principle (Liabilities) Asset recorded in Balance Sheet Additional Equity Increase 15% End of Year 0 1,000,000,000 1,000,000,000 1,000,000,000 - End of Year 1 1,150,000,000 834,000,000 1,000,000,000 166,000,000 End of Year 2 1,322,500,000 652,700,000 1,000,000,000 347,300,000 End of Year 3 1,520,875,000 454,300,000 1,000,000,000 545,700,000 End of Year 4 1,749,006,250 237,300,000 1,000,000,000 762,700,000 End of Year 5 2,011,357,188 - 1,000,000,000 1,000,000,000  As you pay down the principle of the mortgage loan you are gradually building up your equity stake in the property  So, even if there is no increase in the value of the property over the term of the loan you still end up with an asset with 100% equity at the end of the mortgage loan term  Expenses such as property management fees, maintenance, insurance, mortgage interest and so on are deductible from the rental income, thereby reducing your tax liability Benefit #3: Equity Build Up & Expenses
  • Benefit #4: Appreciation  Your asset should appreciate in value over time  Often the largest part of a return on an investment in real estate is in the appreciation in the value of the asset and the resultant gain in equity  Property prices can sometimes reduce in the short term due to changes in demand, access to finance and so on, but over the long-term you will benefit from appreciation
  • Benefit #5: Leverage  Leverage is the principle of using a small amount of your own money to control a large value asset  One of the unique aspects of real estate over other investment classes is your ability to borrow up to 80% or 90% of the purchase price of the asset  This is leverage i.e. using Other People’s Money (OPM)  By fully understanding and utilising these characteristics of property investing you can take advantage of this powerful investment asset to build wealth quickly and get rich fast
  • Rental Yield Capital Appreciaton Total Expected Return Land 2-5% 15-25% 17-30% House 2-5% +/- 15% 17-20% Condominium 6-10% 5-15% 11-25% Shop House 2-4% 18-20% 20-24% Strata Office 6-10% 10-25% 16-35% Warehouse 2- 5% 15-20% 17-25% SFB 2-5% 15% 17-20% Strata Retail 3-10% 0-25% 3-35% Rural Land Based on negotiation Based on negotiation Based on negotiation * Based on standard condition, not super-ordinary condition, average for 15 years
  • How to Start Investing in Property ?
  • 1. Clear Goal & Strategy  Target Return & Risk  Managed or Direct Investment  Cash Flow or Buy & Hold  Financing Plan 2. Research…Research…. Research 3. Shortlisted, Hunting, Selection & quick DD
  • Managed or Direct Investment  Managed (Through listed / unlisted property Trusts)  Direct Investment (You are in control) 1
  • Buy and Hold • Land • Your personal home PURPOSE of the Investment Cash Flow or Buy & Hold? Cash Flow • Rental producing properties • Parking lots • Car washes 1
  • Financing Plan  Exercise your Financial Status  Disposable Income available  Leverage or Un-leveraged  Property value vs Financing given by bank (usually about 70% of the property value the loan amount will be given)  Monthly Installment (usually 25-30% of Total Income)  Amount of Down Payment (30-50% of property value)  Loan period  Property Value Adjustment 1
  •  Growing Area (city development, GDP per capita, Population)  Historical value & Investment Return of the property  Location and accessibility (Distance vs Time)  Developer name & reputation (late handover, portfolio, financial background, etc)  Main facilities & infrastructure (current & future)  Land banking available in the estate 2
  •  Shortlisted (based on Research)  Hunting (available property with bargain price)  Available property  Primary vs Secondary  Ready property vs buying Off the Plan  Via Mediator or Direct  Payment scheme  Selection & DD  Meet the criteria  Clean and Clear  Financing available 3
  • Tidak peduli seberapa banyak uang yang kamu dapatkan, selalu ingat untuk membagi uangmu ke dalam 5 bagian yang proporsional. Selalu membuat dirimu berguna. – Li Ka-Shing
  • What is the Solution In our lifetime there has never been a better time to buy real estate…
  • … but it still needs to be the right real estate
  • Source: Cushman & Wakefield
  • Why bubble ? Criteria for bubble… 1. Leveraged Investor > Un-leveraged Investor 2. Investor Expected Return is not achieved 3. Investor fundamental is not strong .. Low holding power 4. Force sale or Default condition 5. Property Loan vs Overall loan, NPL is big 6. Economic Fundamental is bad