Making money from property investment
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HANDS up if you think that the prices of properties are too high now. I see your hands are up. Well, that makes two of us. I, too, think that the prices of properties are too high now. As a matter of fact, just about everyone I meet think that the prices are ridiculously high. So we are not alone.
The only problem is that the same situation is repeated every year for as long as I can remember! I hear this statement every year: that the property prices are way too high. I heard it in 1987 when I bought my first property. I heard in 1995 when I was looking for a second property. And I heard it again and again every year after that. Yet the prices keep on rising every year! Except for the exceptional year of 1997 when the stock market crashed because of the Asian currency crisis and brought down everything else together with it - including property prices - I cannot remember a single year when property prices actually dropped from the previous year. So despite the notion that prices are high, property prices kept on rising every year.
So, I suppose the basic strategy of investing in property in Malaysia is this - buy them anyway. Because if you think that the prices are high today, you will get a heart attack when you see the prices next year!As an example, a colleague of mine bought a double-storey link house in Aman Suria Damansara - a freehold gated community in Petaling Jaya two years ago. The house is 22′ x 75′. In other words, except for being in a gated community, it is pretty much a basic double-storey link house, the same one that you can find in any housing project in this country. He paid close to RM600,000 for the house.
Now, I know what is going through your mind: the guy must have been stoned out of his mind to pay that much for a double-storey link house. Sure, the design is nice, the location is fabulous, the neighbourhood is great, but it’s still over half a million ringgit. It’s too much! It’s just too much.
Well, the house next door was sold a month ago for RM825,000!
So that just about put paid to our belief that property prices are too high.
In other words, if you want to invest in properties, do your homework and then buy them. Let me spell it out again - do your homework (while include reading books and asking the experts) and then buy the property. Don’t wait for things to settle down, don’t wait for interest rates to come down and don’t wait for prices to come down to a more reasonable level. Because if you do, you’ll be waiting for a long, long time - perhaps forever. In the meantime, prices will climb higher and higher and you would have missed the opportunity.
Buying and selling
Of course, some people will point out factors why they believe that the prices will come down - soon. This may range from this being an election year to (probable) recession in the US to the unstable interest rate to the weather. Now they may have a point.
But if you go back in history, you will notice that similar circumstances existed even in the past. There are always bombs going off, always some country in turmoil, always recession somewhere, always speculators ready to pounce. In other words, the risks have always been there. Just about the only constant is that the property prices kept on rising.
So ignore the noise, and make your move anyway.
Now let me get another cat out of the bag - properties are low margin business. While it is an excellent investment, there is a lot of outflow of money every time you buy and sell. This includes paying the stamp duty, legal fees and real estate agent’s commission. All this outflow eats into your margin and reduces your profits. So every time you buy and sell, you will incur all these outflows. While you can reduce them slightly, there is no escaping from them. This being the case, the better strategy in property investment is to buy and hold, and minimise the buying and selling. That’s right - buy properties and keep them as rentals. In the meantime the price would rise in the background (because of inflation and demand), and bringing your net worth higher together with it.
Of course, we can sell one or two every five years or so to realise our profits. But generally speaking, we would do well by buying and keeping our properties.
But of course, keeping properties cost money as there are bills to be paid. Even if it is empty, we will still need to pay the monthly mortgage, electricity and water bills. Let’s also not forget the quit rent and insurance. All these will just drain money from our bank account.
So obviously, we should not allow it to remain empty for long. We must realise some gains from the property and not allow it just to lie there looking pretty but not doing much good to our bank account. Obviously again, the way to do that is by renting out the property as the rental will offset the expenses. And if the rental is higher than the expenses, then that is positive cash flow coming into our bank account every month. That is certainly very nice.
by Azizi Ali
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