Property Insight > Finance > Eoi & Roi Considerations: A Logical & Financial Comparison

Eoi & Roi Considerations: A Logical & Financial Comparison

E-web PI Issue 38

When it comes to defining real estate investment success, there are various determining factors, from the aspects of location to financial returns. Since it is subject to each person’s personal experience, everyone can claim their own version of a success formula – as long as it consistently works for them. In essence, real estate investing can be very lucrative and rewarding if one plays by the rules of the game and invests responsibly.

There has never been any lack of information in this digital era. Wannabe investors can do their homework by reading and researching online on the ‘how-to’ for property investment. To add to that knowledge, it would be best for them to network and learn from experienced fellow investors who are generally willing to share their trade secrets. After all, property is a big ticket item which requires due diligence before one parts with their so called hard-earned money.

Other platforms where like-minded individuals gather are property related events such as seminars, expos or conferences, where property education is aplenty based on the experience and winning formula of each educator within their respective field. All in all, property investments require extensive headwork and legwork.

RETURN ON INVESTMENT

For beginners and seasoned investors, the most often used financial investment indicator to measure whether an asset class is performing is return on investment (ROI). The latter can be used to gauge an underlying investment vehicle’s prospective return from the onset.

From a financial perspective, every Ringgit invested in a cashflow producing real estate must yield a considerable sum of return via monthly returns to be annualised for a percentage of the property price. The formula is as indicated:

 

Return of Investment (ROI)

=

Annual Returns   x 100%

 Property Market Price  

 

While the formula is generic in nature (some ROI calculations are based on nett annual returns or even actual cash invested), it is a handy measurement tool to manage one’s expectation when investing in properties. Naturally, when the formula is used as a benchmark for returns, many people will equate investing as a numerical and financial consideration as it makes logical sense for every Ringgit ‘spent’.

Having been a property investor for a while now, I often ask myself whether financial consideration, solely for the purpose of benchmarking returns, is sufficient. What if there are other factors that can give us an assurance in the investment through first mover advantage, i.e. detecting favourable returns beyond numbers? 

ENERGY ORIENTED INVESTMENT

Welcome to a new paradigm shift in the property investment success approach: Energy Oriented Investment (EOI). In my article published back in April 2016, I mentioned that EOI is the ultimate approach in real estate Investing. The EOI model is about harnessing natural energy for a prosperous and liveable space, and the consideration where energy flows dictate a progressive and harmonious growth for occupancy. In essence, energy is everything.

Since properties are built in a natural environment where energy exists and must first be observed, we can either choose to respect the energy and live in harmony with nature or miss the abundance that it provides.

Being a practical property investor, I find value in the logical assessment of a property by performing a quick check on the surrounding area of the property site. I am sure many are aware about avoiding certain angled properties, i.e. those facing T-junctions or with a nearby pylon. What makes such properties non favourable has nothing to do with being superstitious; it’s all about logic.

Imagine a house where the main entrance faces a T-Junction; it is almost unavoidable for the occupants to havethe headlights of vehicles shining into the property each time it passes by the house, especially at night. The occupants would also have to deal with the amount of dust and noise pollution, especially for houses located at busy intersections.

To illustrate the comparison between ROI and EOI in a simple manner for real estate investment, let us look at how asset and liability is defined in each context.

ASSET & LIABILITY

In the context of real estate, an asset is defined as a property of value that can meet the financial obligation of its owner by generating income and yield future benefits. Likewise, liability is a non performing property that requires the owner to fulfil his legal responsibility to meet repayments or future obligations which usually presents a non favourable financial state for the owner.

While there are countless references one can use to define an asset and liability when it comes to property, the simplest definition for ROI is: 

RETURN ON INVESTMENT

ASSET

Property that brings CASHFLOW INTO the bank account

LIABILITY

Property that results in CASHFLOW GOING OUT from the bank account

 This clearly shows that a property that is worth investing and is considered an asset when it produces positive cashflow. The latter refers to the nett absolute amount from monthly rental returns after deducting all financial obligations to the bank and other recurring expenses. An asset makes our bank account richer whereas a liability drains our funds.

The EOI approach has a different definition altogether. A property is considered an asset when the property has positive energy flow, thus producing a better capacity for its occupant to prosper and grow. The opposite is true when less than positive energy affects the property and subdues the inhabitants’ capacity to prosper in their livelihood when they occupy the property.

 

ENERGY ORIENTED INVESTMENT

ASSET

POSITIVE ENERGY FLOW

affecting the property

 

LIABILITY

NEGATIVE ENERGY FLOW

affecting the property

 

While we can decide who to rent the property to and how much to charge for the rental, the capacity of the property itself has been decided by the natural environmental energy surrounding it. It is therefore imperative to factor in the EOI approach when considering a property before calculating its ROI. When there is positive energy flowing into the property, the owner will rake in higher ROI from renting it to good quality and long term tenants. This is a win-win formula for all parties.

ENERGY MATTERS, JUST LIKE CASHFLOW

Ideally, an energy producing property infuses its occupants with the capacity to perform and absorb the positive energy to make it prosperous for them. Be it owner or tenant, a good energy flow property will be sought after without much problem, whereas a negative producing energy property will be subdued in bringing out the best of its occupant and therefore creates unnecessary vacancy, or worse, the homeowner’s capacity to grow and live in harmony with nature becomes less than positive.

When we sort out the energy flow, the cash flow will automatically sort itself out. Now you see how the EOI approach can benefit its subject while increasing ROI as a desirable outcome. If you decide to choose to implement EOI in your property assessment ventures, you will be having an unfair advantage over others who don’t. The choice is yours.

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