A property is usually the most expensive asset we will buy in our lives. I repeat, it’s an asset. There are people who bought overpriced property and thought that property investment does not work. They said, ‘I bought it over a year ago and now I still could not sell.” If we still want to classify that property as an asset, it’s an overpriced asset. When it’s overpriced and we still buy, please do not blame property investment yeah. Perhaps it’s best to understand what we buy before we actually buy?
We may buy a car and it could be more expensive than a home but it’s definitely not an asset as it continues to depreciate. Not many people would want to buy an old second-hand car but many people would love to buy a property which is in a good location and has all the amenities he needs. Let’s note these 10 reasons why property investment is a must, for working people like you and me.
#1 – Shelter is a basic need. It’s a very tough decision to sleep by the road side or even under the bridge. Do refer to the Maslows Hierarchy of Needs below. In brief, this is the foundation before we start thinking of other things. It’s hard to have a job but have no place to rest everyday. How are we going to prepare to go to work the next day? Perhaps an emerging city may be good for a growing family.
#2 – Inflation. This is the reason why the value of our money goes smaller as the year passes. A RM250,000 home may ONLY become RM500,000 when we retire and that RM500,000 may only be the same value of RM250,000 today. However, please tell me, how many of us could save RM500,000 without buying a home. If we bought a home, we have hedged against the effects of inflation.
#3 – Low Risk. Unless due to some very special circumstances, the price for a home does not suddenly lose half its value overnight or even within hours. This is not like the stock market where things could happen very fast, almost in a split second sometimes. If we are buying stocks, please focus on investing in good companies and wait. Day traders are merely speculators, not investors. Let’s note that the price of a home may also not rise by 50% overnight too yeah.
#4 – Power of leverage. Invest RM50,000 into most investments and if the value of the investment rises by 10%, we have gained 10% based on our initial investment. For example, RM50,000 x 10% up = RM5,000.
If we invest RM50,000 into the property market, it’s a 10% downpayment for a RM500,000 home. Assuming it gains just 10% after 5 years. (less than compounded 2% per year) That’s RM500,000 x 10% up = RM50,000. Based on our initial investment of RM50,000 this is 100% up. Divided by 5 years, that’s 20% returns per year based on a RM50,000 investment.
#5 – Power of Demand. The median age for Malaysia is just 29. We continue to be grow our GDP and as a country, we are still rated under ‘Investment Grade’ by all three international rating agencies in the world. If we ask around, we would note that home owners are minority. Some even say they prefer to rent. Well, let’s understand that if people prefers to rent, I prefer to rent to them. That’s still a demand for home and sometimes for a bigger homes further away.
#6 – Affordability gets worse. If we could afford a 1,000 sq ft home today which is 5km away from the city centre and we did not buy it… 5 years later, we could either afford a 1,000 sq ft home 15km away from the city centre or a 500 sq ft home 5km from the city centre. Actions determine the future. If we bought that 1,000 sq ft home 5km from city centre 5 years ago, we could have sold it 5 years later for a good profit and still be able to afford a 1,000 sq ft condo 15km away from the city centre (and take the MRT…).
#7 – Company is not forever. Our salaries will stop when we stop working. An investment will continue to work for us whether or not we have a job. Property investment, once we are quite successful allows us to have a choice because we do not want to hate the boss or the company but have no choice but to continue working for them.
#8 – Retirement can be more relaxing. One day, we will stop working. Those without a home to their name could continue renting but their funds will now start depleting because income has stopped. Those with 3 homes however (buy one home every 5 years) could sell one of that home and just go travelling. Another one could be where he stays when he is back from travelling while the third one will continue to provide rental income. Retirement can be a relaxing affair really…
#9 – Compulsory for kids. It’s the least we could give to our kids? Let’s not think about giving them money because in future, that money we give them will only be enough for them to buy a home VERY far from us or VERY SMALL if it’s nearer. A property meanwhile will come in handy even if they prefer to use the money for their education instead.
#10 – What IF we got lucky. When we get lucky in property, it’s super huge. Our RM50,000 worth of stocks may increase 3 times and we suddenly have an extra RM150,000 to spend. However, if we used the same RM50,000 for a 10% downpayment and our RM500,000 property tripled, that’s RM1,500,000 of extra money. I am not saying it could happen but the possibility is there…
If we were to google for reasons not to buy a property, there are millions of articles to read. If we are to google for reasons why renting is better than buying, we will also get a never ending list of articles to read too. We could say that the world is full of different views and perspectives. Everyone has their own way of thinking. However, since you are reading this until here, I believe you may have the same thoughts as me. I just happened to provide some facts. Please do our own due diligence. A bad property remains a bad property regardless of the market condition. Till then, happy deciding.
This article is brought to you by Bandar Sri Sendayan the Self-Sustaining City.
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