One day in the future, our income stops. Are we ready? I am not so sure if I am ready but here are all the things which I have been doing. The first thing was, I started with renting. I rented homes for at least 5 years after graduating and working in Penang before I purchased my first property when I was 26. Here’s the journey.
#1 – I started with renting (to save…)
When I was a lot younger (I am 44 this year), I started my career in Penang. I rented rooms for 2 years, then I upgraded to renting one whole apartment for another 2 years. Then, I wanted to get married and suddenly I was told that it is BEST that I own a place versus renting a place since I would need to give a comfortable home sweet home to my wife and perhaps babies in the near future. In 2003, I bought my first property which was a 730 sq ft apartment in Relau.
During those years of renting, the most important thing on my mind was to rent as low as possible. Instead of one whole house, I rented a room. Instead of a master-room, I rented a small room or an extra room which was carved from the living hall. Instead of expensive areas, I rented in older neighbourhoods, older landed properties. Yes, I saved money doing it.
#2 – Small can also be home sweet home
First property I bought was a small one. Though it was a small unit in comparison to my current home but it was really a home sweet home and we owned that unit for many more years even after we moved out before eventually selling it and earning a positive RM98,000 over the original price we bought. Imagine if we did not buy that unit but had rented even after gotten married…
Not only would this RM98,000 profit disappear but we would have also spent an extra RM57,800 in total rental for 8 years. (RM600 rental per month for 8 years). In other words, we would have lost / lost the opportunity of RM57,800 + RM100,000 = RM157,800. How many of us could save RM157,800 within 8 years?
#3 – think I will still be working for the next 16 years
I do have intention to stop working and start holidaying while I could still walk around easily. Is it easy to do? At the moment, I guess the most important thing is to earn more, save enough and invest continuously.
As for the decision to eventually stop working, it’s not an easy choice. Too early and we may not have saved enough money to travel. When we get too old, we may feel easily tired when we travel.
However, it’s super important to understand that when I stop working 16 years later, I intend to also stop paying for any property too. By then, I should have settled all my home loans and perhaps could start enjoying continuous rental incomes instead.
#4 – Rental does not stop even our salary stops
The funny thing about the debate of renting vs buying, which is better is this. The renting side says that it’s not clever to rent since one could pay a much lower number and stay at a much better place versus paying a much higher mortgage and having to accept buying a lesser desired place because of budget concerns. By the way, this argument is correct yeah. It is true that rental may just be lower than the home loan monthly repayments.
The little difference is this. Whatever we pay for the home loan, a certain percentage belongs to us. Only some portions are interest and that belongs to the bank. As for rental, 100% of what we pay belongs to the owner. What happens at the end of 30 years is that the home we were paying for on a monthly basis is now ours.
That rental property which we have also paid for the last 30 years? It is no longer ours. What happens for the next 20 years after our salary stops? Rental continues. Just need to look a little further ahead and remember this.
#5 – Property investment can hedge against inflation
Buy a good property which we like and chances are many other people may also love that property in the future. The cost of building a home would continue to increase. The salary of the construction people will continue to increase. In fact the land cost will also always be going up as well. The cost of cement has always been increasing.
This is why property prices in future is usually higher than the property price today. This is also why properties are built smaller to make it affordable. Now, imagine what happened to the earlier, bigger units? Yes, the price would move up since the newer, smaller properties are priced at their level earlier. Briefly, with a property, we are hedging against all these potential increase (inflation).
#6 – Property investment is really an investment
Buy RM50,000 worth of shares and our returns would be based on RM50,000 we invested. 5% returns on our shares per year means RM50,000 x 5% = RM2,500. Looks like pretty okay. Of course for the ones who’s very good with stock investment, they could earn many times more. Just a question of whether everyone is great with the stock market. If you are, please go ahead yeah.
Pay RM50,000 for a property and this is usually a downpayment for a RM500,000 home. Well, if we use just half of the 5% as property price increase percentage, the calculation looks like this:
RM500,000 x 2.5% = RM12,500.
This is 5x higher than the stock investment we have above. This is why as soon as we look at Return On Investment (ROI), it is very clear that property investment deserves more of our time to do sufficient due diligence.
This is why property investment is really an investment. There is a quote which says that most of the people in the world who became a millionaire did do through real estate. I agree fully.
#7 – That day when our income stops
If we have one fully-paid property, it’s possible to rent it out for continuous rental. The rental should be enough to cover meals every month.
If we have two properties, we could sell one to get money to go travel and sell another one to keep in the bank as extra funds.
If we have three properties, then one could be for own stay, one for rental and the last one could be sold. The money we get, we can go travel.
Unfortunately, relying on the government of the day may not be the best choice. No matter who the government is. Always have something which we could control versus one where we have zero control over.
#8 – Landlord vs Tenant?
By the way, tenant is very powerful today. The market is slow, the choices are aplenty and homeowners are competing against one another. Many landlords do not have much choice but to agree to what the tenant wanted.
Just remember that everything is a cycle. One day, the landlord will have the upper hand again. Most of the time, landlords would win. That’s why they are known as a lord…
Renting looks cheaper in the short term. However, stretched till retirement and beyond, renting will look like a wrong decision and by then it would have been too late.
At least today you have read this article, so perhaps it’s time you call that sales person and arrange for a viewing yeah. Buying decision is not an easy one but it always start with due diligence and due diligence always start with a viewing.
The more we view, the more we learn and the better we get when it comes to choosing a good property to buy. Stop renting… when you could afford it. Take care.
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