Bali Real Estate Investment Planning
What is your profit strategy?
Capital Appreciation vs. Monthly Recurring Passive Income (Note on different tax of the different approaches)
When it comes to investing (investment planning), there will be only one thing in the mind of every investor. The question is “How do I make profits?”
There are many ways investing in real estate can generate profits. The first approach is Capital Appreciation. As we all know that in general all real estate prices or valuation will eventually appreciate as there is limited supply of land. The price appreciation is also dependent on the demand and the development of that particular area. Different areas have different growth rates.
So, it is safe to say that any piece of real estate will increase in value. However, the question is when will it meet the investor’s target price of profits. Some are looking at just 20% appreciation, some 100% and how long is the wait to get there?
Another way of making money from real estate is through rental income. Within Bali, there are different forms of rental income. Rental from land, meaning leasing the land to a tenant for a fixed number of years (example: 25 years). Rental of villa or apartment to tenant.
Another approach could also be a combination of both. By identifying the objectives, will make hunting of the real estate as well as investment planning easier and approach differs.
Investors Objective
- Ability to buy the properties at low price
- Ability to rent / sell the properties quickly at a markup
What is your exit strategy and time horizon as an investor?
This is another question when considerations to invest. By determining the time horizon, it will have direct impact to financing and also the monthly leverage / installments if you should decide on loans to finance the real estate.
Time Horizon might also have other impacts to your investments should as the appreciation value might not be as expected.
To illustrate this better, an example is
Your expectations to exit — 10 years
New area development completion — 15 years
This means you might be exiting too early and might lose the upside growth potential of the real estate and exit at its peak.
Budgeting , Financing and Leverage (Investment Planning)
i) How you intent to finance your real estate?
ii) Are you purchasing a build up property or a land?
iii) Will you be taking a loan or cash?
Typical down-payment for Indonesia range between 15- 25% of the final transaction price as down-payment, depending on the size of the property as well as the number of property you have purchased before.
Loans from local banks are as follows:
For first-time buyers, the bank will be financing up to 85% of the purchase price, up to 80% of the purchase price for second time buyers, and 75% for third time buyers of house larger than 70 square meters (sqm)
Home Loan Calculator (Mortgage Simulation)
How do you intent to finance the monthly installments are also questions?
Through other sources of earned income or from the rental income, these will have an impact how much you personally can afford also if the installments is going to rely on rental income there would be considerations for long term or short term holiday rental?
Long term rental would probably have lesser margins but stability of income, short term holiday rental is dependable on the travel season and occupancy rates etc.
These questions highlights the initial phase of real estate planning. Our next article will be focusing on
- Understanding Supply and Demand of the Market
- Defining the location that you are targeting
- Type of land (Freehold vs Leasehold)
- Existing infrastructure and future planned developments
