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My ‘forced’ savings worked for me. What about for you?

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In 2003 (yes, 17 years ago), my wife and I jointly purchased our my first property. It was an apartment of 730 sq ft. The name of the apartment was Villa Kejora in Relau, Penang. From the balcony, if I stretch my head out a bit and look a bit further, I could view the construction progress of my second property which was a condo of 1,258 sq ft. This first property for me was also RIGHT NEXT to the apartment my wife and I were renting then.

So, I did not need to engage any lorry services. I merely borrowed a trolley from my office and actually pushed some of my belongings from my rented apartment to my newly bought apartment which was like 500 metres away. As it was a rented place and it was fully furnished by the very nice lady owner, there were not a lot of things to move anyway. Want to know the price of my first apartment today? Please refer to the image below from brickz.my

Our forced savings? When we were still renting, we were paying RM550 per month. After we bought the place, our monthly mortgage was around RM600. Maintenance fee was around RM133. (I think so…). So, in total, we were FORCED to pay RM733 every month or an extra of RM183 over our rental of RM550 per month. We stayed there for around 5 years before we could move to our upgrade home in 2009. 5 years x 12 months x 600 = RM36,000. (This is my actual forced savings)

Our loss from maintenance fees paid? RM133 x 5 (years) x 12 (months) = RM7,980. Ouch… not a small amount too, yeah? Enough to for an overseas (ASEAN) holiday for two.

Our loss from renting? If we kept renting, we would have paid 5 years x 12 months x RM550 (assume rental cannot go up) = RM33,000. This amount would have been lost forever and I could not sell the rented property later on even if I wanted to. It’s not mine…

Our gain from capital appreciation? We sold the apartment 10 years later for RM215,000. The surplus from price sold minus price bought was RM92,000. Minus the RM7,980 for maintenance fee and that leaves us RM84,000. Divided into 10 years, the increase per year was RM8,400 per year. To get RM8,400 returns per year, even based on a Fixed Deposit of 4%, one would need to save into the bank an amount of RM210,000 and leave it untouched for 12 months. Question is, do we have RM210,000 cash now or could we just afford a RM18,000 downpayment for a home instead?

Three things I gained from the purchase of my first property. Number 1 is that when we are forced to save, it will usually help us in our financial management too. I realised that after buying the house, I always have to think thrice before I decided to buy any technology stuff, before I decided to go for any holiday and even before I decided to eat something fancy every week which will cost me hundreds of ringgit. All those stopped and I realised I could save even more money than just the forced savings for my home loan.

Number 2 was that I start to realise that property investment is a hedge against the value of money. Everyone said the value of money is on the way down. I truly agree. That is why the salaries go up and that’s why property prices move up too. Thus, by buying that property, I did not lose any of my wealth and in fact built up some extra too over the next 10 years.

Number 3 was that I realise that the first property is usually not the perfect property. It may be too small once our family starts growing. It may start to feel insufficient once our salary goes up and we think an upgrade is now necessary. We may even need to move when we change jobs! Now I know what those property guru said when they said, buy and stay first. Upgrade later.

So, just buying that affordable apartment was what started my property investment journey. Would it work for you? I think it will work for any working professional who wants to force themselves to save some money because if they did not force this savings via an affordable property, the money would go missing somewhere and after some time, it becomes M.I.A (missing in action) too. Happy following and starting that property investment journey. Cheers.

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Next suggested article:  Buying for future of children (literally)

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