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Landing The Best Deal

Friday, 3 Aug 2007 | 3:01 AM ET

No matter how many new investment options we have at our disposal, property remains the classic choice. It's no wonder. Land is something you can see, feel and step on. You can easily understand the value of a good location.

Many of the world's biggest tycoons - in that Hong Kong is not unique - built their fortunes on land.

But property is by no means a sure bet. Often amateur property buyers, whether for a home or as a rental, get swept up in their own confidence, making grave mistakes that end up costing them a fortune.

No doubt when working towards your financial security, property ought to be an integral part of your investment portfolio.

Real estate may not always outpace stock returns over the long term - and can involve a myriad of tax issues - but it can put a roof over your head and offers a type of security and enjoyment that you just can't get with any other type of investment. So before you sign on the dotted line, consider some of the biggest mistakes frequently made by newly minted landlords:

Poor Research: You've heard it time and again - the key to buying property is location, location, location. But how do you find the best spot? Why do some seemingly fantastic areas flounder while poorer neighborhoods offer double, even triple-digit returns?

Why on Hong Kong Island, where land is so scarce, do places like Jardine's Lookout and Pok Fu Lam lag behind other neighborhoods? Location is a mysterious thing and every successful property investor will tell you a hundred different ways they evaluate what makes a good place for investment.

So how do you find your gem of an area? The answer is research.

But research in the property world is a bit more disordered - it's a messy mix of asking real estate agents, doing statistical and demographic research and simply gossiping with colleagues, friends and acquaintances.

Peter Churchouse, director of property at LIM Advisors, notes that in Hong Kong some of the best property advice might just come from your taxi driver, who probably knows every detail of a neighborhood – or you could go for a walk around the place yourself. There’s no substitute for wandering around the place where you might eventually live.

So do as much research as possible before you plunge into the property market. And don't, as many investors advise, move to a new place and buy right away. Take your time before locking up your cash.

Getting emotional: If you don't know already, people are passionate about property. A beautiful place or a hot piece of property is a nice ego booster. But remember that if you're buying a place to rent out, being bland - but not ugly or old - is better. Keep your personal passions, tastes and emotions in check.

Many first-time landlords go overboard on outfitting their rentals with the latest appliances or trendiest interior designs because they look expensive.

But remember your target market - does the family of four need built-in speakers on the walls?

When I invested in a property many years back, I had an idea of how I would decorate the place and got emotional about it.

But I learned a tough lesson: my taste, which I would like to think is not peculiar, was unfortunately not to everybody's taste. I replaced the furniture with more generic, pleasant pieces and the place rented out immediately.

Overcapitalizing: This ties into the emotions and is more relevant for property investors who simply want to rent a place out. Many new landlords believe having the most expensive-looking place will generate the highest rental returns.

Wrong. Chances are if you're spending money to install exquisite Italian granite marble countertops, you will never get that money back. You will simply be able to say to someone that you have exquisite Italian granite marble countertops.

Few tenants will pay more for that. Rental prices are determined largely by the other units in the area, square footage and number of rooms.

On the flip side, you certainly don't want to skimp either. Almost all renters expect to have air conditioning and/or heating. And no one wants to live with a leaky toilet. As long as you provide good conditioned amenities, you should do fine on your return.

Negotiate: In property investing, everything is negotiable, from the contractor's price for renovating your bathroom to the real estate agent's fee. The more property you own, the more clout you have - and thus, more experience.

Never pay for anything at face value but see what you can bargain down or what extras you can get thrown in. If you continue to use the same lawyer or property agent, that gives you further bargaining power down the road.

Negotiating can be an uncomfortable thing for many people but remember that in this area of investing, almost everyone expects it.

Keeping these rules in mind, you should be off on a solid path to property investing. And in case you're wondering, Jardine's Lookout has bad fung shui and Pok Fu Lam lacks comprehensive public transport.

That doesn't mean you won't find fantastic bargains in those areas, but that you'll have to do a bit more research. And in property investing, that is a good thing.

Questions? Comments? Drop us a line atbizoflife@cnbc.com.