‘Location, Location, and Location’

 Is ‘location’ really the ‘sacred mantra’ in property investment?

location, location and locationYou have often heard this very popular phase from many sources when buying any investment properties, “Location! Location!  Location! You can’t go any wrong if you buy in a good location”. Many of this ‘sources’ have often been amplified to investors that ‘location’ should be the No.1 consideration, then followed by other crucial factors.   In other words, if you are to follow this ‘sacred mantra in property investment’ and buy a property in a good location, it will definitely be a good investment and sure to make money even in the long term, no matter what other risks that may be involved…

Right? …Wrong! And Beware! You will still have the possibility of having a bad investment even if you pick a property in a good location. Yes! You heard me and please allow me to repeat again,” You will still have the possibility of having a bad investment even if you pick a property in a good location”    

Surprise? Well, it may not be if you are one of those savvy investors reading this.

This mantra has often been spoken aloud like mainly by 3 categories of people. The first, ‘Salespeople’, the Second, ‘Property Speculators’, and the third, ‘Novice Investors who try to act smart’. (Yeah, I know you are laughing)

Professional investors like me know that we may end up with a ‘crap’ property even in a good location. Therefore, we know buying a property in a good location does not guarantee a ‘successful’ investment and will never make major buying decisions base on location factors alone. There are many other key considerations to factor.

A few examples of properties that have lost money for their investors as below:

Bishan 8, is a 99-year leasehold condo launched in 1997. When it was launched, there were a lot of hype and excitement especially from the media. The property is located just directly opposite the Bishan Mrt station, the Junction 8 shopping mall and close to town. It was one of those few properties that were located near an MRT station during those early days of our public transport system. No wonder it was such as hype. But based on past caveat transactions, many who have bought the property during that launch period have lost money and even for those who are still holding on today, there are not much favourable gains if they were to sell.

You may think because it is leasehold, that’s why it may not be so valuable as freehold.  However, there are also many freehold properties in good location that have caused many investors to lose money. St Regis Residences as an example, a freehold apartment located in one of the most prime districts in Singapore is one of those ‘hype’ properties launched back in 2006. Some of these rich investors, who have sold even at the peak of 2012, still lose millions speculating in its ‘so called potential capital gains’ because of its location. There are of course many other clear examples in our local context as well as overseas properties.

I am not saying that you should leave out the ‘location’ factor from your key buying decisions. I am saying that you should first consider the many other more important factors before zooming in on where a property is located.

So, what are some of the more important factors to look at first?

Professional Investors look at ‘numbers’ first. The ‘numbers’ will tell the whole story of the property or investment, even its location. In other words, the ‘sacred mantra in property investment’ should be this: “Numbers, Numbers, and Numbers!” What does those ‘numbers’ tell you about the investment? You will be surprised how by simply reading and understanding the numbers will actually reveal a lot of crucial information for you – ‘Timing’, ‘location’, ‘Value’, ‘Risk factors’, ‘Margin of safety’, ‘True’ or ‘lies’, etc.

There are 2 numbers you should understand and be familiar with if you want to be a successful property investor. In fact, these 2 numbers are the basic investment language of any ‘credible’ investor, whether in a business deal or any other investment deals.

The 2 vital numbers novice investors/speculators frequently ignore

C.O. C % (Cash – 0n – Cash Return)

Most novice investors and speculators look at net yield only. This can be highly deceiving as it does not tell you if your money is safer in the property or in the bank or can yield higher returns in other investments. The net yields are based on the purchase price, rental income and net all expenses without mortgage and interest. The difference between net yield return and C.O.C return is that the latter factors in both the mortgage (principle payments) as well as the interest on the loan including all other expenses incurred. Novice investors and speculators only know how to look at purchase price or psf because they buy on the ‘hope’ of capital appreciation which can be highly dangerous. Professional investors look at the real C.O.C, that is, if you were to put in your initial sum of cash/money/capital (include stamp fees, LTV% down-payment, renovations costs, legal fees, etc) minus away all property-related expenses, plus mortgage and interest, what will be my actual return of my cash/money/capital in the first year? Will my money be safer in the bank instead for now?

IRR % (Internal Rate of Return)

Professional investors used this tool to measure and compare the profitability of investments. It can also be defined as the annualised effective compounded rate of return. It is quite similar to C.O.C (Cash-on-cash), except that it measures a period (years) of different cash-flow yielded by the investment to the point of exit. Because it is a ‘rate’ quantity return, it is an indicator of the efficiency, quality and yield of an investment.

An investment is considered acceptable if is its internal rate of return yields higher than the minimal acceptable rate of return or cost of capital. Example: If your minimal acceptable rate of return according to your ‘overall investment plan’ is 10%, and the IRR for the investment deal upon exit after 5 years (before inflation and possible interest rate rise) is 8%, then it is definitely not worth your while to enter.

Similarly, if your cost of money (borrowings) is 1% today, your acceptable rate of return is 8% and your investment potentially yields an IRR% of 10% over 5 years, then it may be worthwhile to enter as there is still a tremendous ‘safety margin’ and meets your target requirement as well.

Purchase price is only ‘relative’ to current market price

Your C.O.C% and IRR% is ‘real’ as it measures the actual performance of your property since it takes into account how much ‘value’ you can get out of your investment property.  When I look at an investment, the purchase price is the last of my considerations. It is only used because I need to compute both my C.O.C% & IRR% to determine the ‘value’ of the investment/property. Novice investors/speculators pay seller’s price or market price. Professional investors dictate the price to pay the seller, not the other way round! If the price does not reach my targeted benchmark for both my C.O.C% & IRR% in my negotiations, I will walk away from the deal, no matter how others may say it is a potentially good investment. The purchase price can be high, but if I can create ‘value’ through both C.O.C% & IRR%, I know that I already have a winning investment immediately.

You want to put money in your pocket immediately, not buy, hope and pray!

Remember, a good property will always put money in your pocket. A bad property takes money out of your pocket. So, to speak, buying a property in a not-so good or average location but yet puts money in your pocket today is lot better than buying a property in a good location which takes money out of your pocket every month. But per se, please do not rush out to buy those properties in areas where (as the Chinese saying goes) “even the birds don’t lay eggs” base on this statement. Do your own due diligence first!

I know someone who had bought a 3-bedded condo in woodlands during the Sars period of year 2003. As she has bought it very low, somewhere in the region of S$400,000 plus, she paid full cash payment for it. Today, she is enjoying ‘free money’ from the rental income she is generating every month from her tenants. Her net yield is easily above 10%.

I am not saying you need to pay full cash payment for a property to be able to enjoy such yields. I strongly believe leverage is a very powerful tool especially in real estate investments. All my properties are leveraged. My point is that if those ‘real numbers’ make financial sense, then the property is a good investment even in an average location like woodlands back in 2003.


So, now you know why professional investors seldom lose money – because they make key critical buying decisions based on ‘actual numbers’, not on speculation that a property is located in a place which has potential growth or simply because it is in a good location. Professional investors do not count on any ‘potentials’ to make money. If there is, it is a bonus. The smart investor will then gain both good cash-flow as well as good capital appreciation if this bonus happens. If there is no potential development as ‘promised’ in the future for whatever reasons, there is still positive cash-flow from the property.

Next time, if someone tries to sell you an investment property (especially those new launches nowadays), simply ask for these 2 numbers from them. If they stare at you with a blank look (most likely because they have never heard or understand what C.O.C & IRR means) and say it is a good investment simply because it has a really good ‘potential net yield’ and it is in a ‘good location’, heed the red flag!

As in any investment that will carry a certain amount of risks, understanding those ‘numbers’ will help mitigate those risks substantially and propel you forward in your investment journey.

Click Here To Find Out How You Can Harness Your Intentions And Turn Them Into Reality.

Have you benefited from our articles? LIKE us on Facebook to get more benefits.

FOLLOW us on Twitter for our latest news!

To your continued success,


Your friend

Gerald Tay


About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

Comments (2)
  • Zhiwei Mar 30 2012 - 12:36 am Reply

    Hi Gerald,

    Great post and definitely I learnt more from your article. I too aspire to own a couple of properties for my investment portfolio and since I only started only one year plus, your article definitely gave me more insight.

    With regards to COC, how much is consider a good returns?

    For IRR, how is it really calculated or looked at? Do I set the benchmark myself?

    Look forward to more articles from you

    • gerald tay Apr 1 2012 - 9:35 am Reply

      HI Zhiwei,

      I’m glad this first article has given you some insights into property investment and I am sure there will be more for you as well for many subsequent issues!

      Both the COC & IRR % are decided by you, according to your investment plan as well as your strict investment criteria which you have set. (I will cover this in future articles)

      How much is considered a good return?

      This will be according to your investment philosophy, life goals/objectives, purpose of investment, etc. But as a general rule of thumb for succesful professional investors, you should be looking for at least nett 5-6% yield and above (residential properties)

      Yes, you may be asking how come it is possible? Well, it is is and I have done it many times with many of my local properties in singapore. That is why I have never subscribed to the beliefs of ‘so called property experts’ who say one can only achieve 3% nett yield in singapore.

      An investment property generating a 5-6% nett yield is only worth considering if you want to be really successful in property investment in singapore.

      Some tips to achieve 5-6% yields:

      1. Buy Low (during a crisis when everyone is fearful)
      2. Buy properties that no one is buying or interested in, but lots of tenants wants to stay in!
      3. Avoid the herd mentality! (avoid buying when everyone is buying!)

      Zhiwei,I hope the above pointers helps!

      I will be covering more of these in future articles, so do keep a look out for them!

      To your continued success,

      Gerald Tay
      Conspiracy Theory of Real Estate Investment

Leave a reply

Reply to Zhiwei Cancel reply

Name (required)