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  • 5 things to massively increase your property investment returns
    5 things to massively increase your property investment returns
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    Dr Dolf de Roos took the PRISM conference stage yesterday (Sunday Nov 2, 2014) at the Mines Exhibition Center in Kuala Lumpur, and delivered quite a presentation.

    One thing was clear for all, Dolf is a man of creative ideas and he is quite passionate about getting people to open their minds. As his speech gained momentum, a central point was highlighted over and over again, a point I was hammering at myself for quite some time, one that I whole-heartedly believe to be the biggest contributor to turning regular property investment activity into a huge success:

     
     

    Property will yield as much return as YOUR CREATIVITY can allow…

     
     

    Over the course of about an hour, he focused on commercial property and how it can be adjusted, amplified, and modified to produce more and more income than the initial rental yield a beginner investor would think they can get.

    The idea is that buying property and flipping or renting it out as-is, produces below-average returns. It is through “Amplifying” a property that top investors and Propertypreneurs make the biggest bucks.

    Here are the top five ideas inspired by Dolf’s presentation:

    1- Billboards: Outdoor advertising billboards are indeed a simple no-brainer… we used it a lot in Dubai. A building that has a bit of a height advantage over its surrounding structures or a good vantage point, is a great place to put a large outdoor advertisement billboard.

    Advertising Companies and their Corporate Brand clients would gladly take care of the design and erection of the billboard, and they would provide you as the property owner with a significant annual rental for the privilege.

    Outdoor-advertisement-billboard
     

     

    cell-base-station-tower2- Mobile phone cell towers: Just like the billboards, rental can be collected for something outside the building itself. Inviting telecom companies in your area to erect a mobile phone station on your commercial property gives your neighbors great reception, and gives you a comfortable ongoing fee.

    The tower does not even have to be on top of a high building, it can be installed to its side, and it would work just fine on a standalone pole that the telecom company erects in the parking lot. They even disguise them as trees to preserve the natural view.
    Mobile-phone-base-station-antennas
     

     

    3- Automated Parking Systems: In congested city locations where parking spots are as precious as gold, having a small plot of empty land in the back can be used to increase the value and rental yield of a property, or even turned into a cash-generating passive investment with a return of its own. That is by installing one of those modern automated parking systems.

    This system basically “stacks” cars on top of each other, making a small piece of parking area fit to carry five or ten more cars than before. You can install it at your office building to augment the parking facilities. By making more parking spots available for every tenant, you would be allowed to increase the rent (and consequently the property value). Alternatively it can be operated as a public automated parking, where the hourly parking fees collected create a passive stream of income on their own.
    automated-parking-2
     

     

    4- Modified purpose: Dolf revealed that in one case they had an apartment building which had a ground floor unit, and that unit was quite unpopular due to safety and noise issues. It was untenanted for a long time, so they knocked down the walls of that unit and turned it into a glass enclosed space that was gladly taken over by a restaurant. They not only serve customers from the street, but also deliver to the tenants of the building.

    The same can be made with warehouses and commercial space all over the World. We had a warehouse in Dubai that was not renting out quickly enough. After finding a reliable operator that we can work with, we put in a minimal investment and equipment purchase to create what became the city’s first and most popular indoors go-kart racing circuit (in 45°C heat, nothing better than air-conditioned racing).

    Warehouses have been converted into mansions even all over Australia. The sky is the limit with this. Just remember, the rental from a modified property can outclass the original setup by leaps and bounds.
    Modified-property-real-estate
     

     

    5- Helipad: This one was new to me. I was not aware that it required so little investment of time and money. Dolf revealed that in a particular project they had in traffic-ridden Jakarta, a helipad was built on top of their office building for as little as $20 in painting supplies (in addition to a permit acquired from the aviation authorities).

    Simply a good paint-job for the basic “H” on a basic flat supported rooftop (with no antennas) provided quick access for businessmen in the office building to and from the airport by allowing them to charter a quick helicopter ride straight from the office. It saved them from getting stuck in hours of traffic and that is very valuable for many senior executives.

    The rent increase for the revaluation of having a helipad in the case study presented by Dr. de Roos was approximately US$200,000 a year, effectively increasing the valuation of the office building by around 2 million.
    Helipad-helicopter-landing
     

     

    These five were not the only creative ideas you can do, but they were only part of a great avalanche that Dolf brought to the audience in that presentation. It was simply refreshing to see focus on amplifying property, in the middle of people being worried only about the right property to buy and when.

    The mindset of the entrepreneur is the one that can create great opportunities and productive assets from a property that looks neutral and not particularly productive to others. This is how wealth can be created. Buying something and renting it out as it is, will most often NOT yield the best returns. You would be doing yourself as well as the community a dis-service, as well as leaving a lot of money on the table if you did nothing else.

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  • The “Propertypreneur” – part 2
    The “Propertypreneur” – part 2
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    In part 1 of the “Propertypreneur” article I covered the rising concept of the property entrepreneur, that success in the modern economy is about adding value and shaping a productive asset out of your property, no longer just buying blind and hoping for the best.

    Today you will learn what a Propertypreneur needs to do in order to make this happen.

    So how can successful Propertypreneur do it?

    First… Adopt a mentality of value

    Property should provide value to generate cash. So spotting opportunities must become natural to the Propertypreneur.

    A Propertypreneur needs to be able to look at possible projects with vision. They need to look at a property and not think about what it can do now, but what it can evolve into. They should ask themselves: “What can be opened in this location and this property that would provide great service?”

    The answers that come to mind should then be evaluated as to what can be done economically so as to generate a good return, and what would be too costly. It could be upgrading a basic or run-down apartment into a premium modern unit, it could be a creative conversion of space in a double-storey empty bungalow on a Bangsar main street to provide two commercial outlets, one on each floor. It could be an office space turned into a shared business environment.

    A creative thinking exercise will help people start seeing opportunities with new eyes. They will be spotting them all over the place and seeing what others don’t see. That is how Propertypreneurs develop vision.

    From there they need to focus on four Key Elements:

    1- Assess properties the right way…

    Make sure it is a good investment, and have a good plan of how it will be utilized.

    One of the biggest mistakes property investors do is going in without a plan. A Propertypreneur’s plan needs to have three parts:

    • Know what needs to be done and can set the action points to get there.
    • Ensure they have the resources to handle that property.
    • Research and Analyze the property itself and make sure it is a good option for the Propertypreneur and his plan.

    We call this, a P.R.O. plan. Perception, Resources, and Opportunity. Easy to remember by “Every property pro, needs P.R.O.”

    A Propertypreneur’s approach should be to analyze his Perception first. He needs to make sure he has enough understanding and awareness about a property and what he will do with it. It is knowing what is good and what is bad about that property, having an idea about who would want to live there, the tenants who will pay rent for it and how much would that rent be, the people who can buy it back from you eventually and for how much.

    Second comes Resources, which is the element of an objective plan where you can see that you have enough to handle this property through thick and thin, that you have what you need to carry out your plan even if things don’t go smoothly.

    Resources are more than just having enough cash… You need cash, and you need people… Do you have a good renovation contractor already lined up? Do you have reliable people who will handle legal or some admin work done to get permits? You get the idea.

    Finally you analyze the property itself that is on offer from an Opportunity point of view. It is really a distillation of one concept: financial return.

    Every property that is out there, has its own uses. Some of them are used by families for residence, some used by small business, some can be summer retreats and you fall in love with them… When you take over a property however as a Propertypreneur, you do don’t do it because you like it emotionally… you do it because you have a vision of turning it into a financially productive asset.

    2- Develop the skills and knowledge of taking over property in creative ways, acquiring it with no money down techniques or lease-options, always at a good price.

    Buying a property can be daunting, primarily because of the total price of a property. Although mortgages are out there to allow people to buy properties for 10 or 20% only, it gets harder and harder the more units you own, and the 10% itself might be a barrier especially for starting beginners.

    A good Propertypreneur knows how to acquire a property without paying even that 10% downpayment. There are no money down techniques that allow you to buy and control a property without needing any cash, it is all taken care of by finance from banks and other financial institutions.

    This is the beauty of property, it is the easiest asset in the World to get finance for.

    A Propertypreneur needs to not only know the different no money down techniques, but also knows how to negotiate for them, when and who to approach for the finance, and mostly, knows that they don’t always have to BUY a property outright in their name to take it over and control it, but that there are solid Lease-Option agreements now that can give them access to property without any downpayment and without even getting finance from any bank.

    3- Understand how properties are improved, upgraded, or renovated, knowing how to do it with quality yet economically, then actively arrange for finding the best operator or tenant to lease it to them.

    No Propertypreneur will succeed without learning about renovations and understands how to go about them. There always needs to a plan and that plan depends on one question: What is going to be the usability?

    The answer to that question shows you exactly what you need to improve and what needs to go. This is where you start working with a reliable contractor, or if you are comfortable you can get the worker teams directly and save even some more money. The contractor would do well though for beginners as they help in filling up the gaps in your knowledge about where to get different things, but you need to be involved and get educated on WHAT needs to be done, and how can that be made economically while still being in a quality condition.

    You then have to get a marketing plan in motion that gets as many enquiries as possible about your property from interested business operators or tenants. There is no point in just leaving the property with a canvas sign on its fence and wait for months and months till one prospective tenant passes by and offers you what could be your only offer. This marketing activity needs to be well-structured and targeted for the type of tenant or operator you want to attract.

    4- Systematize everything so that the property and its tenants can generate income without requiring constant operational input from the Propertypreneur.
    A Propertypreneur is someone who builds and hands over assets to be run by others. The success depends on efficient operation and administration that keeps everything running smoothly. There are no more decisions to make and therefore the attention of the Propertypreneur should always be on the next project.

    So what happens to the upkeep and admin of the previous ones?

    They need to be delegated in an organized manner to people who can run it for you. In the beginning you will need some freelance or independent people helping you, but soon you will find yourself with enough property projects that you would need the trust and reliability of having your own staff.

    Paying bills, following up on rent, supervising repairs and maintenance, keeping up the inventory lists, legal work… all this is taken care of by either professional agents you hire, or full-time staff who become part of your team.

    You need to then establish a cycle of researching and growing perception – finding opportunities – acquiring them – renovating and marketing – handover to team within your operational system, and then wash, rinse and repeat.

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  • The “Propertypreneur” – part 1
    The “Propertypreneur” – part 1
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    What is a propertypreneur?

    “An entrepreneur is someone who seeks opportunities and develops a business system for the purpose of creation of wealth.”

    To me this is one of the best definitions I believe arrived at by the researchers of entrepreneurship.

    So what is a “property-preneur” then?

    A propertypreneur is the person who acts as an entrepreneur using property as his medium.

    It is someone who looks at property with a creative vision to spot an opportunity, then undertakes to create wealth in the process.

    Now in many cases that is resembled by major property developers who take wastelands and turn them into an urban center or a suburban sanctuary. But here in Malaysia, I find that there are enough opportunities and financial tools that would allow the smallest individual investor to become a proper propertypreneur.

    The number and variety of opportunities are mind-blowing, but it’s for those with the right mindset and the right kind of thinking. Vision is key. Resources are secondary.

     

    You see, good property today is about VALUE.

     

    Investors who buy a property and just wait for appreciation to bring them a profit, are actually speculators. Neither the economy can tolerate too many of them for long, nor can they do that in all market conditions.

    The right property investor needs to think like an entrepreneur: think of ways to add value to their property, in order to add value to the community.

     

    The property is NOT an asset unless it is generating cash return (Robert Kiyosaki wrote extensively on that), and the real cash is not in flipping a condo unit that wasn’t built yet or renting out an empty shophouse for 3%, but in what I call “amplifying” a property and adding value to it to generate a higher cash return.

    – Think of a condo unit fitted with everything a family would enjoy from a built-in oven to a Jacuzzi. It will yield a seriously higher rental return than a bare unit with a few basic necessities provided by the original generic developer.

    – An office space that is customized with modern facilities, open working space and internet connectivity can become a modern efficient business center and leased out to an operator at a much higher return than just rent from a normal office tenant.

    – Converting a warehouse to an indoor go-karting arena yielded 3 times as much income when leased to a go-kart operator whose clients much preferred the sheltered track.

     

    Look at McDonalds… their franchise founder Ray Kroc always brags about how their core business is real estate, not burgers. They started by leasing land plots and their buildings and then setting them up for franchisees to operate… Today they are one of the largest property owners in the World and their income from property is more than twenty times higher than all the royalties and revenue they make from hamburgers.

    Propertypreneurship from the small investor is a frame of mind, a vision, and a growing trend that could probably build new communities, neighborhoods, and economies.

    In Part two I will mention the five main areas of thinking that propertypreneurs need to have in order to excel at what they do. (Click here to read Part 2)

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  • LPP, the mother of capital appreciation
    LPP, the mother of capital appreciation
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    When I came to Kuala Lumpur in 2008, I came because I fell in love with it and felt it was a great place for me and my family to live.

     

    Property investment here was picking up, and year after year it was clear that the city was evolving. You can confidently say that Kuala Lumpur has what it takes to become a New Dubai.

     

    The new projects that are being established in KLCC area (Tun Razak Exchange, Warisan Tower, Bukit Bintang City Center, etc.) are not only taking Kuala Lumpur to a World Class standard, but they are also filling up the land gaps. These land gaps here have isolated KL from a worldwide phenomenon, or a global trend if you prefer:

    Over time, the price of property within urban centers of developed cities will continue to appreciate in value above and beyond the relative pace of the economy or the increase in household income.

     

    What is the reason behind this? In simple terms: Land is a constant, a finite set area, while cities and populations are growing. The more a city and its population grows, the more demand pressure it puts on the same amount of land that it is centered on, creating a natural shift in price to go up. I call this Land-shortage Price Pressure effect, or the LPP effect.

     

    The saying goes: “Always buy land, they don’t make it anymore,” stands true. It is the reason why prices have become so high in London, Manhattan, Hong Kong, Singapore, Tokyo, and downtown Dubai.

     

    Kuala Lumpur was always attractive to foreign buyers because prices are comparatively lower, and the reason for those lower prices was largely because Kuala Lumpur had this peculiar layout where neighborhoods would be built with a lot of land space in between.

     

    Everytime a premium project is launched and gets marketed at a hundred ringgits per square foot more than the neighborhood, another savvy developer comes out with a competitive launch right next to it and forces prices down.
    Right now though the gaps of empty land between towers in KLCC and other close-by areas are getting smaller and smaller and quickly disappearing. That big empty space around MidValley and Kerinchi is quickly filling up with KL Eco City and Bangsar South towers. The developers have grabbed up all these empty spaces and are building fence to fence now.

    Soon there will be none, and LPP effect will begin showing you higher rates.

     

    This is not actually bad; it can be very good for property development as an industry. You see the higher prices means that investors will get a good return on their investment, and that allows developers can afford to get creative and build better and higher quality property to match the higher prices this stronger demand is creating.

     

    Will people suffer from higher prices? Experience says they generally won’t, not really. Just like in all major cities like Tokyo, New York, London and others, people who cannot afford this price hike will adapt to moving to the suburbs and less central areas. In sea-locked cities like Singapore and Hong Kong however it does inconvenience a large sector of the population, however it is a natural effect of a free economy and battling with enforced price regulation will ruin the industry so governments avoid it.

     

    The thing about LPP effect is, once it hits an area, it becomes pretty permenant. Infrastructure development in an area like a badly needed MRT station or a good shopping center increases the value of surrounding property at a higher rate for a year or two but then it returns to normal rates of capital appreciation. LPP is ongoing, it doesn’t let up, and because of that, people who can spot the area with this effect when it is just starting out, can secure themselves an ongoing higher rate of capital appreciation for decades to come. The area can suffer some level of deterioration of its livability and amenities without losing that (New York has some great examples of old buildings in tired neighborhoods that are still very expensive).

     

    Right now however, majority of local property investors in Malaysia are unaware of this effect because they haven’t witnessed it before. Awareness however will start growing very soon thanks to the ongoing urban development, and savvy investors will (and should) be keeping their eyes open for some golden opportunities.

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  • Five years on, and this trend is still alive and kicking… Why distance to KLCC shouldn’t always matter
    Five years on, and this trend is still alive and kicking… Why distance to KLCC shouldn’t always matter
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    I wrote this article in the end of 2009. Amazingly, it still rings true and I find that people still need to read it. So here it is, revived from the depths of thinkproperty.my:

    “Can you see the Petronas twin towers from here?”

    The look of disappointment comes on the faces when the agent shakes their head in negation. That question is not really asked by an eager prospect expat tenant, it’s asked by eager Malaysian investors who have it in the back of their heads that this is the view that people want.

    They were not exactly wrong, the view fetched a premium. But this was engraved in the property constitution of Malaysia: The twin towers were the gravitational center where neighborhoods orbited, the tip of the real estate price fountain from which the square foot decreases in value as the distance from KLCC site increases. Market was centered around it, and Dubai style prices started emerging walking distance from it.

    2008 brought a wake up call, and rents before prices headed south. Winds of change came to the fair tropical city, and the market went through a painful act of growing up. Realization came that there is sweet life elsewhere on the Malaysian property map than KLCC. Business was living it up around the Curve and Tropicana, Desa Park City was selling out, and projects as far as outside of Shah Alam were no longer second fiddle.

    Moreover, these projects were actually coming out nicely, quality-wise as well as amenities. But the lesson of KLCC was still in the air, and the same effect that almost hit Mont Kiara, became instinctive with investors: buying strictly because other people are buying, is a bad idea.

    People started thinking:

    – Is this unit affordable by most people I imagine?

    – Are there enough customers for my type of property that would like to own in this location, in this condition and at this price?

    – Are the amenities in the area good enough and serves the purpose of the demographic of my renters?

    Such questions brought around purchases, purchases that were smarter. And the flow of investment started bringing the prices up again, appropriately not as centric to the KLCC as before. It went back to its basics, where investors are trying to satisfy needs to make the buck, not think what option makes the quickest buck.

    That was one of the most important distinguishing factors of the successful traders and investors I worked with througout my life. They rarely ever thought “what is selling a lot? Let’s buy that, it’s obviously in demand”. No, they mostly thought “what is in demand that people needed? Let’s provide that”.

    A subtle difference, but a crucial one, and a property investor already provides something that people need: a home. It needs however to be a good home that caters to all the attached desires, and if you can imagine it and understand it, then you can provide it. If you buy property in an area because this is the way you believe others are doing it and everybody must be right, you will have no vision, no coherent plan, and will end up with a property that will make sense to few people.

    The market spoke, and the participants followed. KLCC vicinity is nice and convenient, but is not everything in KL, there are a lot more beauty and gratification and convenience and amenities in other neighborhoods and in other urban areas.Where there are needs and desires, there should be providers.

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