Investment Property Purchase: Insights and Considerations
This article addresses questions from Lam, a 28-year-old earning RM7,000 and saving RM3,000-RM4,000 per month, regarding purchasing an investment property. Lam already has RM50,000 in stocks and ETFs, RM50,000 in crypto, a RM20,000 emergency fund, and has paid off all cash loans.
Understanding Property Purchase Channels
Lam asked about the different channels to purchase property: new from developers, subsale (secondary market), auction, and bulk purchase. The most common method for first-time buyers is purchasing new from developers. The reason why subsale isn't as popular for first-time buyers is mainly due to affordability.
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New Developments: Often offer zero down payment or very low booking fees, targeting first-time home buyers who may have income but limited cash. Developers also factor in all sorts of risks of inflation when pricing the properties.
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Subsale Market: Requires a significant upfront capital outlay (approximately 18%: 10% down payment + 8% miscellaneous fees). A RM500,000 property requires at least RM90,000 in cash upfront, excluding renovation costs. For first-time home buyers, it can be difficult to save this amount.
Freehold vs. Leasehold Properties
Lam's parents advocate for freehold properties, while Lam believes leasehold is acceptable for investment properties if rental income covers expenses for the next 35 years.
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Prioritize Location: It's crucial to prioritize location over tenure. A leasehold property closer to the city and amenities may be a better investment than a freehold property in a less desirable location.
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Landed vs. High-Rise: Freehold tenure is more critical for landed properties due to the land ownership aspect. For high-rises, location and affordability are more important factors.
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Potential Conversion: Many leasehold high-rises offer the option to convert to freehold, potentially diminishing the importance of the initial tenure.
The Influence of Feng Shui
Lam questions the importance of Feng Shui when purchasing an investment unit.
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Target Market: Feng Shui's importance depends on the target tenant market. For some demographics (e.g., expats, university students), it may not be a significant factor.
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Price Consideration: The most critical factor is purchasing at the right price, meaning at a discount to the median market price. Buying a property with good Feng Shui at an inflated price may still result in financial loss. Properties next to a cemetery can still be a good investment if it sold at a discounted price.
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Developer Practices: Most local developers consult ID designers who incorporate basic Feng Shui principles into the property design.
Determining a Suitable Price Range
Lam is considering properties between RM400,000 and RM800,000 and seeks advice on a suitable price range.
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Location Tiering: Prioritize the location and its "tier" (Tier 1, Tier 2, Tier 3) before setting a price range. Tier 1 locations often attract expats and command higher rental yields.
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Worst-Case Scenario: Consider the worst-case scenario, such as the property remaining vacant for several months, and assess if you can financially sustain the mortgage payments.
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Lowest Project Strategy: Buy the lowest price project in a very expensive location.
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Dutamas vs. PJ: Example of buying in Dutamas which has a higher rental yield than PJ.
Bulk Purchases
Bulks purchases are good because you can purchase directly from a developer or purchase from a distressed developer at a discount. This often occurs when the market is oversupplied. You would also get to pick the units.
Concluding Remarks
The key takeaway is to conduct thorough research, consider individual circumstances, and prioritize affordability, location, and potential rental yield when making an investment property purchase. Lam's thoughtful questions indicate a strong foundation for success in property investment.
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