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Buying property is good debt, an asset? 3 issues here.

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I favour property investment. I repeat, investment. I disagree with property speculation yeah. Certainly not using whatever method which enables anyone to buy a property or properties beyond what their salaries could afford. For this time, we revisit the thought that buying a property is good because this is a good debt and property will always be an asset, right? Well, if we asked property owners who bought a few units during the good times, gotten the keys last year or this year and is now struggling to pay their mortgages, they will tell you that those few properties are liabilities. They may go bankrupt because of these properties instead. Anyway, are there a lot of Malaysians who go bankrupt due to their property investment? Earlier article here.

#1 – Property is not an asset in the beginning. Frankly, that property we bought actually ‘belongs’ to the bank. We may pay 10 percent like the usual or we may get rebates or cash back in the beginning. In brief, the property is still not ours yeah. If we fail to pay the monthly mortgages, very soon the bank will auction off that property that we paid 10 percent downpayment and we lose everything and more.

#2 – Property is not an asset if it does not increase in price. I think this is the main thing everyone is worried about. What if the property price stayed almost the same after a few years? This is the reason why the first purchase should usually be the one we stay in. When we do this, we do not need to pay rental which essentially 100 percent goes to the owner. If it’s our own home, some portion of the mortgage belongs to us; forced savings.

#3 – Property is not an asset if it’s overvalued in the beginning. If we did not check the typical prices around the area or nearby areas before we buy and we paid an extra 30 percent for it for example, we will realise it a few years later when it’s completed. As soon as get the keys to it and we try to sell, we are no longer competing against the other owners within the same project but all owners with similar properties everywhere… Please check.  brickz.my for example will be a good place to start.

Every time we invest our money, we hope for good returns. The term ‘good’ will be different for everyone.  However, with property investment, the increase should be ‘pretty slow.’ My wish is only for the property to appreciate based on just 2-3% per year. (Must buy the right property yeah) Actually, even that is already attractive to me. Imagine a RM400,000 property appreciating at just 3% per year. That’s already RM12,000 or RM1,000 per month. I know, we technically do not own it yet until we finish paying for it. Well, no one should be investing into property thinking that it will suddenly gain 10% every month…right? Happy investing into good debts.

written on 29 Nov 2018

Next suggested article: Of bubbles, declining prices and mortgage defaults. It’s a cycle.

 

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