Since young, most of us have been educated by our parents to buy a house of our own whether it is for investment or own stay. Properties investment are believed to be one of the most secure type of investing as it is of low risk with capital gain. Despite any sub-prime crisis, property values may only have 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 and bonds will be badly affected by recessions and economy crash. Hence, you will realize both risk adverse and risk taker investors will surely lay a hand on 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”.
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.
- Incremental of property price will be slower.
- 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
- Having your property to be rented out will be more challenging
- Need to hold on to property for at least 5 – 10 years to fetch a good sale
- If the location is far from your home, it will be troublesome for you in managing the property
- 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 subsale.
- 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.
Financing: Loan or Cash
Should you buy the property completely out of your own money or is it a better option to loan from the bank? Property investment ‘gurus’ will advise you to make the acquisition as much as 90% or more of the money from bank loan. The reason for doing this is to minimize your capital investment and have more liquid cash available. This way you’ll get to make your capital for property investment work harder for you. You can put those capital into better use, such as investing in another property, Fixed Deposits or other investments. It will yield you even more return in the long run.
Methods 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. This is due to the rising property prices and tight measures on lending condition by Bank Negara to control Malaysia’s household debts. Therefore, there are 2 methods commonly to invest in properties.
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.
Sell or Rent
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? You can read here for useful tips in renting out your property.
Asides from that, before you think about selling your property, you have to look beyond the purchase price in determining your sales proceeds. Will your proceeds be only a small margin after including all the initial payment for the acquisition of the property including down-payment, legal fees, renovation and maintenance works you have paid for in the early days?
Therefore, do not be hasty in making decisions over selling a property. However, if you have not been able to rent out the property and incurring negative cash flow from the investment, many other factors will have to be taken into consideration in determining if you should hold or sell the property. Perhaps selling it will be a better option. Do take note that if renting out the property is already challenging, what about selling it?
However, there are definitely a few signals that tells you it is a good time to put for property up for sale.
- Experiencing too much losses that your income is unable to sustain
- Gradual depreciation of capital gain due constant repair and maintenance costs
- Your property can command a very good price and is at a good selling position
- With a good margin of profit and it has reached the time to realize your initial investment goal such as to pay your children’s education or retirement.
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. So, ensure that you do thorough research as discussed above before signing that S&P agreement.
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!