Introduction
Hey guys, it's Sean here, and welcome back to the E-Heng Podcast. Today, we're diving into a detailed email from Mr Niao, who has some great questions about real estate. Let's get started!
Mr Niao's Background
Mr Niao is 27 years old and last year, he bought a landed compact house in SS19 for $415,000. His monthly installment is around $1,007 for 35 years. With a current salary of $6,500, which is estimated to grow 20% year-on-year including bonuses, and no other loans, he's in a decent financial position. He spent $50,000 on the down payment and miscellaneous fees and another $60,000 on renovating the house for himself and his wife to live in. Currently, he has about $10,000 in cash and $20,000 in the stock market, which he'd rather not withdraw unless it's a last resort.
Question 1: Building Towards a Second Investment Property
Non-Strata Property Ceiling
Mr Niao has two questions. The first one is about my previous statement regarding non-strata properties eventually having a ceiling to their capital growth. He's concerned if this applies to his area in SS19, which has compact landed terrace houses with mature local amenities nearby. He believes that due to the scarcity of land, there's high demand for such properties, leading to potential returns. The purchase price of these properties decades ago was around $60,000 - $80,000, and now the median price is about $450,000.
Advice for Mr Niao
So, let me clarify. What I said was that non-gated and guarded properties will eventually reach a price ceiling. For Mr Niao's location, let's consider the affordability aspect. A normal 2275 property in areas like OUG, PJ, KL, Cheras, USJ, etc., often costs around $1 million. To afford such a property, you need at least $180,000 for the down payment and miscellaneous fees, and your income should be around $15,000 per month to qualify for a $900,000 loan.
For Mr Niao, buying a house at $415,000 was a great deal. It's possible for the price to increase further, but it won't be at the same rate as before. The acceleration of price growth will likely plateau as his income and requirements change, especially when he has kids.
Options for a Second Property
Regarding building towards a second investment property, Mr Niao has a few options. He could take it slow since his wealth is a bit depleted, or he could look for projects that will be completed in a few years, giving him time to accumulate renovation fees. Another option is to obtain an investment unit via bulk purchasing. Looking for high cashback properties can ease the burden and allow him to use the cash to prepare the unit for rent.
Question 2: Bulk Purchasing Concerns
Competition Among Investors
Mr Niao's second question is about bulk purchasing. He understands that bulk purchasing offers benefits like cashback, lower entry price, and project certainty. However, he's concerned that if he's part of a bulk purchasing deal with other investors and a company like Far Capital purchases 50 - 100 properties for clients, he'll be competing against a large number of investors trying to rent out the same units after getting the keys or renovating.
Standing Out from the Crowd
To stand out from the crowd, Mr Niao can focus on the entry price. Buying at a discounted price gives him an advantage in terms of installment amount and potential cashback for beautifying the unit. A fully furnished unit will likely attract more tenants than a bare furnished one.
Unsold Units from Developers
Mr Niao also wonders why there are still many unsold units from developers, especially if the property has potential for capital appreciation, a good location, and popular demand. The reason is that developers operate in a finite model. Once they build a project with a certain number of units, they can't produce more in the exact location. During launch, they start with a lower price to gain interest, and as they sell more units, they increase the price to maximize profit. However, this can lead to a situation where the price becomes too high, and sales slow down.
Research for First-Time Bulk Purchasing Buyers
For first-time bulk purchasing buyers, it's important to do thorough research. They should understand the developer's reputation, the project's location, and the potential for rental income. They can also look into the property investment company's track record and the deals they offer.
Conclusion
In conclusion, Mr Niao has made a great purchase with his landed house in SS19. While there are some concerns about non-strata properties and bulk purchasing, there are also opportunities for him to build towards a second investment property. By doing his research and making informed decisions, he can achieve his investment goals.
If you have any questions regarding real estate, feel free to email me at T-A-N-I-H-E-R-N-G at gmail.com or DM me on Instagram at I-H-E-R-N-G. See you on the next episode! Ciao.
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