Property Investment

Becoming an Expert in Property Investment

A friend of mine who is staying outside of Klang Valley, is getting a lump sum of money soon and is looking for a property to invest in. She asked regarding a property in Petaling Jaya, and since it was nearby I decided to have a look. It was a few weeks since I first heard of it. One evening, when I finally had some free time to ask, I whatsapped the agent and apparently, there were only a few more units available.

Everything sort of fell into place, Baby was asleep and sorted, the kids were fulfilled with lots of quality time together (not to mention some new toys), so I figured I had nothing to lose and was primarily doing a favour for a friend. This is not the first time I have made a recommendation for a friend living outside Klang Valley to make a property investment. Two other friends had asked for similar help before.

I don't consider myself an expert in property investment, but certainly we have some experience and knowledge that we can share with others who are interested to learn.

My parents were not property investors. They lived in the same house for as long as I can remember. Not that I am complaining. They just never invested in properties. Perhaps if they were, our story would have started a bit earlier. It was actually two of my husbands friends who sparked our interest in property investment.

A Witness to The Power of Capital Appreciation

The first friend invited us over for dinner. This was many years ago when my husband had started working and I was still a student, I think. It was a brand new home and beautifully furnished with exotic looking (at least to me) Pakistani furniture, with the intricate wooden carvings for almost every piece. This friend bought two such units from the developer. As soon as the houses were complete, he sold one of and used the profits to settle much of the loan. We were very impressed with the capital appreciation, not to mention owning a home of your own.

Through out my years as a student, we had always rented. We didn't have enough funds to purchase our own property at that time. When my husband graduated, one of his friends sold off an apartment that he had used for the five year duration of medical school as he was leaving the country to practice elsewhere. The profits he obtained from selling the apartment was used to pay off all the medical school fees. This was the second time we witnessed the joys of capital appreciation and decided that we too, must look for a piece of property to call our own.

The Decision

It did take me sometime to learn and understand what capital appreciation meant. Remember, I was a science stream student since high school, with no business education or background. During the time we purchased our first home, I had just started working as a doctor and my husband was two years senior with a pretty similar state, his parents too were employees with no business or investment experience.

We didn't have kids yet and the banks wanted to be our good friends since we started earning. We did make a decision that buying a house was a good idea. Why pay someone else's mortgage when you can pay your own and then own the house when it is finally paid off? Not everyone agreed though. Some people think it is better to rent, but we decided based on facts and our own research.

Opportunity came one fine day and we acted on it. Our friends were moving into the capital city from posting in rural hospitals and had surveyed many properties in great detail. They decided on buying from this particular development and invited us to join along when they were paying the deposit. We did, and while looking at the show units, we found our first home. It was the last available unit. Our first property purchase. We obtained 100% financing and other government incentives. It was a good time to buy. This was in 2003.

First Time Luck

Being our first experience buying from the developer, we had to buy the furniture and furnishings, not to mention lights, curtains, washing machine cum dryer, dishwasher and other modern conveniences. So remember to add that to the budget. The only thing that came with the house was the kitchen tiles and cabinet, bathroom tiles and basics, home alarm and fire alarm system. We had to figure out insurance, now of course we have the islamic takaful option. For loans there are also islamic or 'syariah' complaint bank loans, however, it is my understanding that what is syariah compliant in Malaysia does not necessarily comply to 'international standards' and may not be deemed such in the Middle East, for instance.

Two and three

We also purchased two other properties, one a corner lot terrace from a developer and another, a tenanted apartment from a friend of my fathers. The financial commitment for the second property was low as we only need to pay for the 'interest' part of the loan (not sure how this works our for islamic loans), while the third property loan was being paid by the tenant. We stayed in our first home for one and a half years, rented it out for one year plus and then decided to sell it off as we were moving away. After about three years of ownership, we hired the help of an estate agent who was an expert in the neighbourhood and had sold many other similar properties. Within a short amount of time we received a good offer and decided to let go. Capital appreciation was 40%. There was no way, through working and saving alone, that we could have accumulated that amount of funds.

Since it was our first purchase, there were a few things we did not take into consideration when we made the decision. We forgot to take into account our place of work and what the daily commute would be like (imagine) and that was a bit painful. Looking back though, it was a worthwhile sacrifice.

We could have used the funds to settle the loan of properties two and three, however, my husband had career goals and ambitions, and this led us to jobs in another place which was in no way within daily commuting distance. I had never been to the new town so husband went there first and rented a decent enough place. By this time, we both had careers and two young children. So another extra factor to think about when buying a home, apart from distance from workplace is the proximity of good schools.

Number Four

We moved in to the rented home, it was small and miserable, located near a septic tank that (even though the developer claimed was underground) gave off a horrible smell during the day. That and the arrival of our third child was great motivation to look for another property investment. This was a small town (in comparison to the capital city) and there were no sophisticated means to search for property such as internet websites or newspapers (in 2007). I ended up driving through a neighbourhood i considered attractive (near workplace and schools), asking whoever I saw coming out of their houses if they knew of any homes for sale. A nice lady who later became our neighbour, lead us to the right person. We surveyed a few different options and settled for what we thought was a good buy.

We sold property number two because we were advised to either sell or use upon completion. Renting out would only 'destroy' the property and we were not staying near enough to manage it in case anything should go wrong. Capital appreciation from property two was 46% and we bought property four with cash from the proceeds. At this point in time we were living a very comfortable life, house and cars paid off, no financial commitments, decent government jobs. I had the option of taking time off from work to care for our third child, but like most workaholics, got bored after a while of leisure. We decided to sell of property number three as managing it became a hassle.

The Fifth

Our fifth property was a condominium right in the heart of the capital city. Bought from a relative who had bought it from the developer and got married so didn't have a need for it. We stayed in this property while my husband was working in a hospital nearby. It was interesting, living on the 25th floor smack dab in the middle of the city, with one parking lot, another had to be purchased for short term period for example every six months. On the whole, I do not think living in middle range condominiums is suitable for families with young children. This type of accommodation suits the working young professional. The kids did enjoy daily swims though.

Then Daddy passed away and we moved back to the house I grew up in to accompany Mummy. We sold off property number five. Capital appreciation was only 20%. We could have rented it out before moving in and after moving out, but again, I did not desire the hassle of doing so during those times. Our first child was starting primary school, so it was a time of transition. I was also starting a new job.

Number Six

It was also during this time that we came across two opportunities. One was a condominium that was going to be right in front of the hospital in the big city that my husband came across through work. The other was a house in the suburb, nicely located near the highway. Information came from another relative who purchased a nice property in the same neighbourhood.

I had developed an averse experience towards condominiums. So we decided to buy the house from the developer. It was our first islamic loan (that may not be deemed such, if we were in the Middle East). Today, the value of that house has increased by about 46%, quoting the price that two of our neighbours paid to purchase similar units from other buyers. I have recently started another job and our fourth child has recently learned how to crawl. I had taken a good two years off from working full time to pursue MBA and complete our family. I would never have been able to do so if we had not ventured into property investment.

An Important Lesson

By a strange twist of fate (or whatever you choose to call it), my current job has led me to the same hospital my husband worked in not too long ago in the busy and bustling capital city. Now, I get to see the completed condominium that we could have purchased years ago, and the capital appreciation or even cash flow we could have made. Ouch. It is painful.

However, life has thought us never to cry over spilt milk. So instead, we are on the look out now for more investment opportunities. The economy is in crisis and opportunities are abound. Go get them.

If you had been paying close attention, you would notice that we did not make gains from the sales of property number three, however it did, during the course of ownership, provide cash flow.

We own number four and six, missed out on two. One was the potential number seven and the other was...between number three and four. I had put down a small deposit for a condominium in a suburb near my parents home as my late dad recommended the buy, but somehow, due to the move from one town to another, new job, new addition, I let go off that one too.

By number six, I had lost count and had to go back and put numbers on my story. 

The Adventure Continues

So a few days ago, with the intention of helping a friend, I have put money down on number seven (corrected as number eight, look at paragraph ***below). 

Similar to our first buy, I did not go with the intention to purchase. But I learnt that the location of the property was excellent, a bit similar to property number six and missed number seven. There was also potential commercial development in a nearby piece of land. A friend of a relative also mentioned (or rather, complained) that rental in the area is a certain market price (had recently gone up to RM1800 for a similar piece of property) and a relative has another property in the area managed under pretty similar circumstances.

The decision whether it is buying to stay or buying to rent would help guide whether to invest and which unit to invest in. If buying to rent then you should know the rental market price. If buying to sell or rent, you also need to know the demand for properties in the area. Husband had also viewed another competing property quite recently, in the neighbourhood. Knowing the price per square feet is a good means of comparison.

Since we are in an economic crisis, developers are giving discounts and other incentives so if you can afford it, have done your research and have some reserve funds (recommended is at least six months total cost of living expenses including all financial commitments in fluid form such as cash or perhaps gold; the gold part, I came up with, but remember that the price of gold also fluctuates).

We are now at the beginning of the story. This weekend we are checking out another potential investment. Who knows, maybe a number eight (or more accurately, number nine, see ***below).

Leap of Faith

Ok, you have done your research. Read several books and websites, attended seminars, met and interviewed several different people with experience and talked to the experts, got your finances sorted, and now, you are ready.

You have looked at many different properties and finally found one that is the right buy.

The first step is to place a deposit, the amount which will be deducted from the total price. A copy of identification will also be needed. For the bank loan, standard requirements are 3 months pay slip, bank statement and income tax statement.

If purchasing through an agent, a lawyer is needed to sort out the legal documents. They usually charge a percentage of the sales price and if the lawyer is a friend, you may get a discount.

***Opps I forgot, in between number six and number seven, my husband had invested in another investment in the small town, some commercial hotel, where you purchase the room and the management rents it out for you. So number seven is in reality, number eight.