Property Investment 101: 5 things NOT to do for property investment

Property Investment 101: 5 Things NOT to do for property investment

An experienced property investor asked me this question today. “Can we still enter the property market today? It seems that the price is high and yet stagnant.” I smiled and said this question could have many perspectives. Maybe it’s easier to just go into the stock market then? Seems like it has a lot more happenings currently. Earlier article here: Time to look at equity Malaysia?

Let’s look at the 5 things NOT to do for property investment, okay?

#1 – Buying overpriced properties

Overpriced property is always in the market. Somehow some of these overpriced properties could still continue to rise in price because people just love to buy them. I say overpriced because the rental could NOT even cover the interest payment for the repayment yeah. I also do not personally think we should calculate yield based on constructing additional rooms. In other words, if we need to build additional rooms in order to get a positive yield, then this property is overpriced. Find the ones which you have compared, benchmarked and know that the price is okay.

Only if we add one or two extra rooms into the may exist since a few years ago and it may still be overpriced today when we look at the potential rental which one could get from buying these overpriced units from the market.

2) Buying what my friend says

If I do not know about property investment and I am blindly buying whatever my friend says, then it’s a gamble. It may work and we will treat our friend a good meal or it may not work and suddenly our friend may no longer be a friend. Property investment requires effort to understand, knowledge to decide and experience accumulation to become even better with every property we buy. It cannot be delegated to a friend, especially if the friend also have something to gain from getting you to buy the unit or your friend is working in the property developer company. It may be a very good property to buy but you must make sure this is matched to what you want.

3) Buying a property in a location I dislike

A friend bought a unit in Cyberjaya many years ago when the market was still hot. When the unit was completed, he was not able to rent it out for a good rental and could not sell because everyone who bought a unit in the development was also thinking of selling and thus everyone was trying to outdo others by offering an ever lower price just to sell the unit.

As my friend was renting a unit in KL city, I asked why not he stop renting and stay in his own unit instead. At least he would then save on rental. He said, the location is not his preference. It does not have the restaurants he like, if he stays there, he may not have many activities with his friends since most of them are based in KL city. Thus, he has to pay rental and the mortgage at the same time just because he bought at a place he does not prefer.

4) Buying the wrong property

Every time someone asked me this question, “this property can buy ah?” I would tell them that the answer to this question is a very long one. Why do you want to buy the property? Own Stay? For investment? To rent out to students? To rent out to working people? To use for own business? A property can help us achieve these objectives or a property could be a wrong one.

Buying a property for short term rental but the location is in an undesirable location will not be successful. Buying a property targeting students but there are many other choices nearer to the university meant that your property will always be a second choice. Everyone should know the purpose before deciding what to buy, where to buy.

5) Buying property but does not have money to renovate

This is a real problem too! Haha. Many times, we buy a property which stretched us to our financial limits and after the property is completed, we no longer have any funds left to renovate. Or we may need more time to save up in order to be able to pay for renovations. Before we even buy the property, think about the potential renovation cost.

My personal advice is a maximum of 20 percent of the home price. Why 20 percent is so that when we sell in the future, the selling price is usually able to cover the renovation cost. If we spend 50 percent extra, I can tell you that the buyer will NOT want to pay for our renovation cost in full. We can tell them we spent RM200k and they will just smile and say, ‘no thank you’ and move on to the next property yeah.

Property Investment is a rewarding journey

I bought my first property way back in 2003. It has been a rewarding journey thus far and I specialised in high-rise units and only bought my first strata landed home 4 years ago. I will be moving into the home soon. Renovation is ongoing today.

Property price is always a good hedge against inflation. If inflation rises 3 percent, everything would rise by 3 percent and this includes all the inputs to building a home and thus the home price may also increase by 3 percent too, if not more. It is not possible for prices to move up for everything but property prices are dropping yeah.

Someone once told me that if a property price increase by 3 percent every year, that’s nothing. I told that person that as long as he can save the 3 percent increase every year or earn that 3 percent every year, then he will be just fine. Else, it’s smarter to just buy and let the price increase by itself slowly without the need to do anything else. The below is a small 3 percent rise for a RM400,000 property.

RM400,000 x 3 percent = RM12,000 per year. Do you know you have to save RM400,000 in the bank in order to earn RM12,000 per year but if you buy a property, you only need to have the 10 percent downpayment? PLEASE NOTE that if we did not research enough and bought an overpriced property, do not blame the market yeah.

Happy investing!

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