Is Property An Alternative Investment?

The answer is Yes. Property is an alternative investment.

There are many types of investment out there. Alternative investments are those financial asset that does not fall into one of the conventional equity/income/cash categories. I looked up the phrase for alternative investments on the internet and found the closest definition is from Investopedia.

Alternative investments is a financial asset that does not fall into one of the conventional investment categories. Conventional categories include stocks, bonds, and cash. Alternative investments include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Real estate is also often classified as an alternative investment. - a definition from Investopedia

Simply put any investments that are not regulated by Securities Commission (SC) and illiquid considered as alternative investment.

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Alternative investments are more complex than traditional investment vehicles except for stocks and forex investment. Traditional investment that are safe is only applicable to fixed deposits, bonds or similar type of investment. Alternative investment such as properties have higher fees associated with them. This could be legal fees, stamp duty, valuation fee etc. New property investors would find this overwhelming. Stock investment is much more straightforward in terms of buy and sell process. What most newbie investors are struggling is fundamental analysis and technical analysis. Both are different strategies in stock investment.

Property is High Risk – If You Don’t Know What You Invest

As with any investment, the potential for a higher return means higher risk for alternative investment. You could start investing in stocks as little as RM500. However, there is absolutely no way that you could invest in property with that little money. In fact, property is rather high risk if the investor don’t even what he is investing in the first place.

I highly recommend to read this article that I wrote about the importance of having knowledge prior to start any investment. Check out the article here.

A good property can generate superb return. Let me explain it how.

Say for example you bought a property in 2011 for RM100,000

Today, the property worth RM200,000. Your property has appreciated by RM100,000 and that’s 100%.

The property investment above gives 10% p.a. return over 10 years.

Now the trick is to leverage on the bank. With the bank loan of 80% from the purchase price, your initial capital is only RM20,000.

Your actual cash return is 500% or 50% p.a.

Caveat: The scenario above is only possible if you managed to get good investment grade property with rental income for you to be able to hold the property over 10 years.

Where the Confusion Starts

The problem with property investment is that it comes in many types and forms. For example, everyone knows how to differentiate between landed residential property vs high rise residential property. That is rather obvious. But many struggle on high rise properties. Example, there are high rise property that is residential but somehow it can be used for commercial activities e.g. offices, short-stay, etc. This is confusing matter particularly in Malaysia. Unlike conventional investment like fixed deposit, the only thing you need to know is what the interest rate being offered by the banks.

Conclusion

There is no easy way to get best investment property out there. You can either pay someone to get the deals for you OR you spend time to learn it yourself. There is no other way. Remember, investment is all about making an informed decision and managing risk. Both require prerequisite knowledge in property investment. You can start by learning the basic in property investment for FREE here. Happy learning.