This article summarizes insights from an interview with Ai Heng, a prominent figure in the Malaysian real estate scene, on property investment strategies and common pitfalls.
Ai Heng's Background and Initial Investments
Despite some modesty, Ai Heng is recognized as a key opinion leader (KOL) in Malaysian real estate. He started investing at a young age, around 22, and has since accumulated a significant property portfolio.
Leveraging Rental Income
A key strategy Ai Heng employed early on was leveraging rental income. Banks recognize rental income with supporting documentation (tenancy agreement and bank statements) as part of an individual's income. This increases the Debt Service Ratio (DSR), allowing for larger loan applications.
Financing Multiple Properties
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The first few properties can be relatively easy to finance by rolling over rental income.
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Subsequent purchases may require more cash due to lower loan margins (e.g., 70% loan for the third property).
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Options include sharing ownership or increasing personal income.
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Refinancing existing properties to extract equity for down payments on new purchases. He refinanced his first property after 12 years to get the money for another down payment.
Tax Implications and Benefits
While increased property ownership leads to higher income and therefore higher taxes, there are offsetting benefits.
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Tax Deductions: Interest payments, maintenance costs, and other related expenses can be deducted from rental income, reducing the overall tax burden.
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Loan Accessibility: Demonstrating substantial income through rental properties makes it easier to secure future loans for further investments.
Personal vs. Investment Holding Company
Ai Heng currently holds all his properties under his personal name. He initially didn't see a need for an investment holding company, observing others with large portfolios doing the same.
Practical Strategies for Property Investment
Increasing Loan Approval Chances
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When applying for a loan, tell the bank you have made a lot of money.
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Maximize rental income to demonstrate financial strength.
Down Payment Strategies
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Partner with family or friends, using their names and your funds, or vice versa.
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Refinance existing properties to extract equity for down payments.
Flipping Properties
While flipping landed properties is common, Ai Heng's strategy focuses on high-rise properties where rental income can cover installments.
Covering Installments with Rental Income
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Target rental income that covers at least 85% of the installment.
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This essentially allows you to borrow money for free, as the renter is covering the interest.
Achieving Below-Market Prices
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Negotiate for Discounts: New developments often come with retail prices. Ai Heng, due to his status, can negotiate for 5-10% discounts.
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Group Purchases: Group purchases can yield significant discounts.
Avoiding Overpriced Projects
The key to evaluating a project lies in the entry price. It's crucial to assess whether the price justifies the investment potential. The value is not simply about math, but about who you know to get a good deal.
Understanding Market Dynamics
Identifying Good Investment Opportunities
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Rental Yield: Analyze the rental rate in the surrounding area to gauge demand.
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Transaction History: Review past transaction prices to assess profitability.
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Future Competition: Evaluate future competition and its potential impact.
Avoiding Common Pitfalls
Many buyers are swayed by compelling narratives rather than concrete data. Ensure the project has tangible demand and value.
Exit Strategies
Plan your exit strategy (5-10 years out). Aim for a property that can be sold back at market price. A good benchmark is to ensure rental income covers 85% of the installment, indicating strong demand.
Advice for Aspiring Property Investors
Minimum Income and Financial Stability
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A minimum income of RM5,000 is recommended.
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Assess your ambition and financial goals. If you need capital for a business venture, property investment may not be the best choice.
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Ensure stable employment and avoid impulsive purchases based on emotion.
Understanding Your Objectives
Know what you want to achieve and align your investment decisions accordingly. Don't be pressured into buying if it doesn't fit your goals.
Accountability
Take responsibility for your decisions and avoid blaming the industry for poor choices.
Long-Term Wealth Building
Property can be a good way to build wealth over time, but it's not the only way. Consider investing in education and skills development, especially in emerging fields like AI and Web3.
Key Market Indicators
- Rental Rates: Rental rates serve as a direct and honest indication of supply and demand. They are harder to manipulate than sales prices and discounts.
The Importance of Due Diligence
Many people research extensively before buying electronics but fail to apply the same rigor to property investments.
Overcoming Information Overload
The sheer volume of new projects can be overwhelming. Focus on key factors and avoid getting bogged down in minor details.
Understanding the Purchase Process
The property purchase process is complex, involving location, project selection, unit type, floor level, loan options, and more.
Alternative Investment Strategies for Young Adults
Ai Heng suggests that if he were 25 today, he might prioritize investing in education and emerging technologies rather than immediately buying property.
Identifying Undervalued Properties
Look for properties that are priced correctly relative to the market.
The Importance of Rental Data
Rental data is the most transparent and reliable indicator of market demand. Tenants are highly sensitive to price changes.
Final Thoughts
Ultimately, becoming rich isn't solely about buying property. It's about working hard, earning money, and making informed investment decisions that align with your goals. Whether you choose to buy property or not, the key is to be financially literate and accountable for your choices.
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