Since young, most of us have been educated to buy a house of our own regardless if it’s for investment or own stay. Properties investment are believed to be one of the most secure investment as it is of low risk with capital gain. Despite any sub-prime crisis, property values have only stayed stagnant or reduced a little but eventually appreciate again in the long term of 10-20 years.
On the other hand, we all know that investing in stocks will be badly affected by recessions and economy crash. Hence, you will realize both risk adverse and risk taker investors will surely take part in property investment. Furthermore, the last big property boom that began in 2010 has definitely instill more confidence in Malaysians to invest in properties.
If you are interested to join this bandwagon but unsure how, we will summarize all the vital points of property investment in this article. These points applies to both strategy “buy & sell” and “rental income”.
Timing is very important, especially when it comes to property investment. If you notice, most people will choose to acquire or invest in properties when economy is blooming and when they are financially stable. For example, many invested in 2010 to 2013 but these are also the people who now face difficulties renting or selling it off as the market price barely increase. They will have to wait way longer to see an appreciation in market value for their property as they will need to wait for a full cycle of economy boom & burst to profit.
You often hear the quote “Buy High, Sell Low” but unfortunately, most people only apply this theory in shares investment. In fact, this also applies to property investment! Investors who entered the property market during the Sub-Prime Crisis in 2008 profit the most in less than 5 years. Remember, you have to be FEARLESS when others are FEARFUL. You should be holding & saving up cash when the economy is well. Then, INVEST when the economy is down!
When it comes to “where” your properties should be located, you will have to weigh a lot of factors as they have their own pros and cons. For instance, the cost of a condominium in the city can buy you a landed property in a new developed township that is situated far away from the city. Which will you choose?
Newly Developed Township
- Usually lower pricing for bigger units as compared to matured townships
- New properties are more widely available
- Newer designs, resulting to less renovation needed.
- Lower capital as they will offer attractive packages. Eg: Free legal fees , full furnished & rebates
- Easier to rent or sell the property as people prefer newer properties which are at better condition with well-maintained facilities.
- Will need to serve the progressive interest during construction period.
- Townships needs easily 10 – 15 years to reach maturity stage.
- More choices for potential tenants and buyers as new properties will continue to develop in the township
- Will need to hold on to the property for at least 5 – 10 years to fetch a good sale
- Stable and good market value.
- In demand as people love amenities & convenience.
- Selling and renting out is easier.
- Market value will surely appreciate.
- The property will most likely be located close to your home, it will be more convenient for you to manage it.
- Higher pricing for smaller units.
- Lack of new property so mostly are investing into sub-sale.
- Renovation & repair work needed most of the time.
- History of the property is unknown.
UNIQUE SELLING POINT (USP)
As you may still get confused on which of the above 2 options to choose, the second vital factor to consider is the Unique Selling Point (USP). Asides from the type and size of the property, it is important to look into the USP that may or may not be presented by your property agent. If not, do remember to research on them online and taking the time to physically drive around the area.
It will be a bonus if there are available public transports near your potential property such as LRT, MRT, KTM and bus. The convenience of public transportation will evidently attract more buyers and tenants, as well as appreciate in value faster.
Shopping Malls & Business Centres
If the property of your choice is within 5 -10 minutes drive away from a good shopping mall or business centre, it will similarly attract more buyers and tenants. Aside from the convenience for food, grocery shopping, banks and entertainment, there are a lot of job opportunities. Hence, the demand for rental is surely high. This will ensure appreciation in property value as well as rental income. Definitely a good investment!
Colleges & Universities
If your property is within the vicinity of colleges & universities, you’re in luck as potential rental is at its highest possible. Even if your strategy is “buying and selling”, its a great USP for your potential buyer as they get to easily rent out the property.
Schools & Hospitals
The convenience of having schools and hospitals nearby is a “bonus” point for you as it will contribute to increase the demand for buyers and tenants.
This is something you will not be able to control over but it is also important to ask around or research online. Knowing the safety and security level of the area will surely help in renting out or selling your property.
Did you hear about the condo in Taman Desa that collapses during construction and another condo in Sunway that was caught on fire? Imagine if you want to sell or rent the condo out in future, would there be demand?
Remember the infamous uncle that went viral on facebook for hammering and smashing his own condo because the developer gave him poor quality furnishing and it was nothing like what he saw in the showroom? The condo cost him 2 million!
That is why is truly vital to do your due diligence before investing in any development. At times, many are blinded by the attractive packages, rebates and the showroom. But, do note that they are all just marketing gimmicks!
Ensure that the developer has a good track record. Did the market value for their completed projects increased? Are there high demands for those projects? What are the feedbacks from the owners or tenants living in the condo?
Good developers will always ensure that the condo is well maintained. A good management is more important, above all else. What’s the point of investing in a beautiful condo at the start but to find out 10 years later, the swimming pool has turned into a rubbish dump.
Developments with special concepts will stand out among the rest. Concept and design is also an additional factor to consider. For instance, if you are a tenant and looking for a place to rent a place in Damansara. There are too many options to choose and they are prices around the same rate. Among these options, there is one that has sky facilities, which would you choose?
CAPITAL GAIN VS RENTAL
There are 2 types of investment – Capital Gain where you see investors buying under-construction properties and then flipping them once they are developed. Or there are another group of investors who prefer to invest for either short term rental (Airbnb) or long term rental to earn monthly passive income. And of course, there are a group who are in between – They rent out first, and then sell it off for capital gain.
Regardless which type of investment, holding power is very important in property investment as the longer you hold the property, the higher the capital gain. It is always ideal if you are able to rent it out at a price that yields you positive monthly cash flow or if not at least, cover your loan repayment. However, if you are experiencing a slight negative cash flow, it may not entirely means it is a bad investment as the capital gain in the long run is more important. Perhaps it is still a developing township that needs a little bit more time?
When considering to sell off your property, you have to look beyond the purchase price in determining your ROI to see if it is worth selling it. Consider the initial payment for the acquisition of the property including down-payment, legal fees, renovation and maintenance works that you paid for into your calculation. It is also important to know which type of investor you are prior to investing in one! That way, it will be easier for you to hunt for a property that suits your demand
As property investment gain popularity over the years, you will notice that experts in this field may be owning more than 5 properties but maybe only 2 of them are under his name. This is due to the rising property prices and tight measures on lending condition by Bank Negara to control Malaysia’s household debts.
Ensure that you are financially healthy and that you maintain a good credit rating for easier loan approval, such as prompt credit card and loan repayments. If otherwise, you may be blacklisted. In addition, ensure that you have sufficient liquid cash for holding power in case you need time to rent out your property, as well as factor in repair work and maintenance.
Method to Invest
As property investment gain popularity over the years, you will notice that experts in this field may be owning more than 5 properties but maybe only 2 of them are under his name. There are 2 common methods to invest in properties.
- Self Invest
The most common method would be investing solely on your own. You will take ownership of the property and loan under your name, which also means you will enjoy all proceeds and return this investment. However, you will also bear all investment risks and any costs involved to maintain the property.
If you choose to co-invest, investors will usually advise to only take the loan under only 1 person’s name so that you do not exhaust the entitlement of 90% loan for 2 properties per individual. However, this would mean that you need to properly choose your investment partner as you need to fully trust him/her or you can always get a lawyer to draft up a contract and state the terms & conditions that you both agree to. On the bright side, you will get to share all investment risks, cost involved to maintain the property and return as well. This enables you to diversify your risk and you can co invest in another property together.
CHECKLIST BEFORE BUYING A PROPERTY
For our readers’ convenience, we have prepared a checklist before investing into a property for your reference. All the best!
Property investment is surely one of the most important and secure asset in your investment portfolio. Having said that, it is still a huge investment and every investment will definitely have their own risks.
We hope that this article will provide you insights on property investment. Do subscribe to our site for more weekly money tips and occasional free gifts!