After receiving that much deserved end-of-year bonus you may find yourself wondering what to do with the money.
According to real estate firm Plus Property the possibilities vary, from saving for an emergency fund to clearing debts.
Some may choose to invest in Long Term Funds (LTFs) or Retirement Mutual Funds (RMFs), buy bonds (corporate and private) or insurance for tax breaks, or purchase stocks and gold while keeping an eye on market swings.
There is another lucrative investment option to consider – real estate – which can be especially advantageous when the global economy seems bearish.
Why real estate? Because of its potential to steadily increase in value, regardless of how volatile other markets are. Let’s take a closer look at how we can protect ourselves against increased interest rates and inflation through real estate investment, and overcome the seemingly volatile market.
Easing your mortgage burden
Mortgage loan interest is one of the highest interest rate loans available, which is calculated in a compound manner. The rate is floating and based on the domestic economy state for either the Mortgage Loan Rate (MLR) or Mortgage Retail Rate (MRR).
If you choose a longer period to pay off your loan you potentially intensify your debt burden. However, by using your bonus to put out this financial fire you can reduce the principal as much as possible and shrink the debt pay-off period.
An alternative financial instrument is refinancing which allows you to transfer your debt to another bank if you find that it offers lower interest rates. However it is necessary to first find out the true cost of refinancing and whether there is any penalty for prematurely ending your current contract.
When you are certain that the numbers provide you with a lesser monthly debt and work in your favour refinancing can be a very useful option.
Real estate investment
Investing in real estate can lead you to long-term passive income, with leasing your property being another way to optimise your bonus.
To turn a profit in the short term this kind of investment can be used in the form of speculative security. This does not require making a full purchase, allowing you to profit by selling your property to the person who will take up the full ownership baton.
By studying market trends and researching the developer, the prospect of development can help you make more sense of your potential investment.
It is also important to keep yourself abreast of the progress of government mega projects, as these can drive up property prices. Deciding when the best time is to sell securitised real estate to make a profit requires some planning. For example, property can be sold from the pre-sale or post-sale periods up until the project is almost ready to be transferred.
Profits, however, will vary.
A high quality, well-located project that is in good demand can be very profitable, especially during the post-sale period or before the installment debt for the down payment kicks in. In this scenario, when the item is out of stock, the supply is constrained. Once it is released to the market again to meet the demand, prices are usually higher.
During the transfer-ready period, property may be harder to sell because of the various factors that may force you to make the sale more competitive by lowering the price.
Finally leasing your property is another available option. Property in all sectors, residential (condominiums or houses) and commercial (office buildings) can be leased. It isn’t necessary to have a large lump sum of cash to purchase the property as this can be done with the help of loans.
The caveat here is that the leasing rate must be higher than the loan(s) that you are required to pay off each month. Not only can a leased property offset the interest rate of your bank loan, but it can also generate a good yield if the property itself is located in a convenient area in high-demand.
Get equipped
Educating yourself by attending property and investment seminars and courses is always a good idea. By keeping yourself informed about market trends and taking advice from experts you will be able to make more sensible investment decisions. You are also likely to make new connections with people who share this niche interest.
Planning for your family’s financial future can be an incredibly rewarding gift. By following the above-mentioned tips you should be able to propel your financial success to the next level.
This story and Illustration was supplied by real estate firm Plus Property.
