This is an interesting article by Milan Doshi;
Property Speculator vs Property Investor
Last month, someone asked me over the email “What’s the Difference between a Property Speculator and a Property Investor?” Being busy at that time, I forwarded the question to our readers at our getrichbook egroups at:
http://finance.groups.yahoo.com/group/getrichbook/
I was extremely surprised to receive so many different responses to what I thought was a fairly straight-forward question. In this article, I have taken the liberty to reproduce some of the more interesting emails (lightly edited) we received. A big thanks to everyone who shared their thoughts.
A Speculator makes money only when he Sells.
An Investor makes money when he Buys.
e.g. A speculator buys a RM100K property for RM100K, and hopes to sell at RM120K. An investor buys a RM100K property for RM60K, thus making a “profit” when he buys. He might sell it at RM100K, but usually he sells it at RM90K (leaving “some” profit behind) for the speculator.
In my opinion, I think a property speculator is someone willing to gamble on the unknown in the hopes of making significant gains. A property investor is someone who decides exactly what it is worth (value-wise) and makes a ‘safe’ property investment in an established place.
Note: Contributor is a real estate agent in Singapore
It seems like a tricky question, here is my take on it since I serve mainly investors. From my viewpoint, the difference between speculation and investment has to do with 2 factors: Time & Knowledge.
Speculators in property have a short time horizon. Most are looking to flip properties & make a fast buck in times when property prices are moving upwards. They typically want to get out within a year or even weeks if possible.
In terms of knowledge, most speculators do not really comb through the property in detail. They have no interest in looking at rental yield, mortgage cost, location, condition, etc, factors most investors are concerned with. As long as they believe a property will move up in price quickly, they will jump into it. In short, most speculators are only looking for a rapid rise in capital appreciation
An investor on the other hand has a longer time frame & spends lots of time reading & researching his investments .He takes into account both micro & macro economic factors such as:
1) The rental yield & how it compares with comparable units
2) The mortgage cost, whether rental can cover mortgage cost & have some left over for time when units will be vacant
3) Specific location of the unit, development & its comparison with similar properties. If other nearby projects are slated for development & how that would affect the property in question.
4) Tax issues, use of properties to offset taxes
5) The economy, how the economy will fare in 3, 5 or longer years & how that will affect the property concerned.
In short, an investor wants to maximize all possible returns from the property from all possible angles: from capital appreciation, mortgage payment, cash flow & taxes. Whereas, most speculators are only concerned with fast capital appreciation.
Speculators try to anticipate and profit from price changes while investors seek only to acquire property at a reasonable price.
I think:
Property Speculator
1. Makes short term gain (30% or more), 3 months to 1 year.
2. Normally, buy at developer price & resell, and make significant profits
Property Investor
1. Using own system or Milan’s style of investing :), plan well when buying.
2. Looking for rental/passive income.
3. Long term goals: 5-year plan, 10-year plan etc
4. More on buy & hold property as long as it makes significant passive income.
Here’s my perspective of a speculator vs investor….from a different angle!
Speculator
Investor
Time Frame of Investment
Short term
Long term
Typical Nature
Opportunist, likes listening to tips, may not know the meaning of “research”
You jump, I jump!
Less emotional
Wide network and possess good political skills
Has the “know-who” feature!
Research, research, research!
Check the computer, check the calculators!
Compares 10 before buying 1!
More emotional
Ask for God’s advice (for the religious ones)
Targeted Quantum of Capital Gain
As long as he makes money! Sets ROI target!
No set target capital return.
Don’t like to sell. Sell only if offer price is too good to resist!
Hold for life if possible, as long as it makes sense
Cash Flow Management
What’s that? I only want big money!
Busy punching calculators, meticulous, preferably positive
Speculating and investing can be applied to the stock market as well. I invest indirectly in the property market via REITs. But once in a while, I’d do some speculation to try for a fast buck 🙂
Property Speculation is just like playing Contra in the share market. You are hoping prices go up. Investor is to buy the right share at the right price, in this case property and hopes for the price to appreciate. Correct me if I am wrong.
A person can be both a speculator and long term investor, depending on the situation. The market is fluid…as such our ability to anticipate and react to changing landscapes and conditions are the keys to success! To me, it doesn’t really matter as long as it meets the end goal.
You make it sound like speculator is a bad and unlearned bunch. It may not be so. Some speculators or investors may be flippers. We often try to do both ie long term keep and short term gain depending on the strategy. So there is no right or wrong.
Finally, my favourite short and sweet reply goes to:
On the light side – Long Term Investment is when Short Term Speculation Screws Up!
If you have any comments on this article, please email to me at achievers88@yahoo.com. I would highly recommend that you sign up at our moderated getrichbook egroups at:
http://finance.groups.yahoo.com/group/getrichbook/
It’s free for all my book readers and readers of this article. Only relevant emails pertaining to finance, property and stock investments will be approved for broadcast
Article Contributed by
Milan Doshi
Financial Trainer and Best Selling Author of
“How You Can Become a Multi-Millionaire Real Estate Investor!”
For more information, visit www.milandoshi.com
Article from iProperty.com Link: http://www.iproperty.com.my/news/2882/Property-Speculator-vs-Property-Investor
Property Investment 