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6/1/2023, 3:58:57 AM

Guide to Successful Property Investment

The process of investing, including property investment could in simple terms describe the process of purchasing or putting money into an asset with the expectation that it will gain in value at some point in the future to return a profit when that asset is eventually sold. There are a diverse range of investments to choose from, such as stocks and shares, gold, fine wines, stamps, antiques, works of art, jewellery, classic cars, and property as an example.

Your attitude to risk, access to finance, experience and personal preferences are just some of the factors that will dictate what investment vehicles you decide to select. Real estate is generally a great investment option. It can generate ongoing passive income and can be a good long-term investment if the value increases over time. You may even use it as a part of your overall strategy to begin building wealth. Some investors choose to purchase properties for the sole purpose of renting them out, while others may live in a property as their home for awhile, before renovating it in anticipation of it being rented out.

Property does not go out of fashion, unlike fine wines or antiques, and there is a rising demand for it driven by scarcity, whether as homes for people to live in or as commercial property to support industry and commerce. However, you need to make sure you are ready to start investing in real estate. For one, you will need to put down a significant amount of money upfront to begin real estate investing. Buying a home, apartment complex, or piece of land can be expensive. That’s not to mention the ongoing maintenance costs you’ll be responsible for, as well as the potential for income gaps if you are between tenants for a time. Real estate is still considered one of the best investment options if you are looking for an opportunity to save for retirement. It’s considered by many pundits to be a relatively safe long-term investment

  • The Pros and Cons of Property Investment
Advantages Disadvantages
ASSET SECURITY
Unlikely to lose all its value in a recession or stock market crash and so provides investors with a form of asset security.		 SIGNIFICANT DEPOSIT
Requires the investor to deposit a considerable sum of money, as property finance is unlikely to be available for 100% of the acquisition.
PROPERTY FINANCE
Finance to purchase property can be available at lower interest rates, spread over a long term in the form of a residential or commercial mortgage.		 ILLIQUID ASSET
The money invested in property may not be easy to access if you need to release your cash quickly, as property sales can often take some time to complete.
FINANCIAL LEVERAGE
Once you have purchased one property, you can borrow money against the asset value to obtain a mortgage for another property, until a number of properties are acquired.		 COMPLEXITY
Buying and selling property can be a complicated process, involving several different stages and additional costs.
KNOWLEDGE
Many people already understand the basics of buying, renting, and selling property from their personal experiences in acquiring their own home.		 PROPERTY TAX
When a property is sold, capital gains tax becomes payable on the profit element, that is unless you can demonstrate that the property was your primary residence.
DEMAND
A large, well established buy-to-let market, in which properties are bought to let to tenants (students, young professionals etc.) where there is good demand in large cities, university towns etc. If the property increases in value over time (capital growth) they can then be sold at some point in the future for a profit.		 PROACTIVE MANAGEMENT
Property is an asset that requires proactive management to safeguard its value and income streams. Regular tenant management, building maintenance and updating is required to minimise rental voids and prevent the building fabric from deteriorating.
TANGIBLE ASSET
Property is a tangible, bricks-and-mortar asset, and is versatile in that you can rent it, live in it, renovate it or redevelop it.		 LEASEHOLD
When buying leasehold properties, as opposed to freehold, it is important to remember that you are not buying the property itself but are only leasing it for a specified number of years. When the lease expires, the property reverts to the leaseholder.
DESIGN
A property can be customised to your own requirements. You can have the pleasure of seeing a property go from run-of-the-mill to an object of beauty.		  
TAX EFFICIENT
A residential property can be used as your own home until you sell it, this is a useful approach as it helps to minimise capital gains tax bills, which with property can sometimes be considerable.		  
HOLIDAY HOME
If located in a good, sought-after area, you can use your investment property as a holiday home for part of the year, and rent it out in the times you don’t use it.		  

With the soft property market due to the economic effects of the Covid-19 pandemic, potential homebuyers are now spoilt for choice. The Malaysian economy is expected to shrink to 2.5% from 4.2% during the recovery period. For those with sufficient savings to afford a house, backed by a stable income, there is no better time than now to consider property investment.

  • Categories of Property Investment in Malaysia

Property investment is an exciting endeavour, and it can be very rewarding. Equip yourself with knowledge, and you can do very well for yourself in this field. We’ve listed the types of property investments that you can consider in the Malaysian market.

Residential Investment Commercial Investment Retail Investment Industrial Investment
Landed homes
Apartments
Condominiums		 Office buildings
SOVO: Small office versatile office
SOFO: Small office flexible office
SOLO: Small office lease office
SOSO: Small office smart office
Shop lots		 Malls
Other retail centres		 Industrial warehouse
Industrial lots
Factories

Before you begin your journey into property investment, there are several aspects you need to consider before you get started. Here are 10 quick facts to remember:

  1. Evaluate Your Debt Tolerance Level

You should evaluate your debt tolerance appetite before making a property investment. Especially if you are still paying off your primary home, it may be difficult to purchase another investment property. Carefully consider your appetite for debt and proceed if you find your debt levels within your control.

  1. Establish a Budget

You need to have a good understanding of the amount of money you have access to, before investing in a piece of property. Check your savings and cash flow, and consult your bank to find out how much you can borrow, especially if you have limited cash

You should also consider the amount of work required to renovate a property. For example, you may like the view of a property built on a hillside, but its renovation costs may make it less than ideal in terms of return on investment.

  1. Consider Recurring Costs

Your budget should factor in general repairs, insurance, and property rates and any current or newly imposed taxes such as GST. Carry out repairs and replace fixtures that are not functioning well, to ensure that the property runs efficiently.

  1. Identify a Growth Area

If you primarily intent is to rent out the property you purchase instead of living in it, it is advisable to identify a location with a large rental demand. Choose locations where people are more likely to rent property, such as students and new graduates. A property near a college campus, near public transport or commercial centres would be ideal.

  1. Set Practical Investment Goals

Your investment goals should take into consideration the market situation. If there is a market boom, you can consider renovating and selling property for quick returns. On the other hand, if the economy is going through a difficult phase, it will take longer to attain similar growth.

  1. Find Practical Properties

Select practical properties that people will want to rent. A unit with a luxurious interior may look fantastic, but it may be an unnecessary cost, because renters are often simply looking for a practical place to live.

  1. Avoid Getting Emotionally Attached

It is easy to allow your emotions to influence your decision when purchasing a property, but this should not be allowed to happen. Weigh all the advantages and disadvantages of the property rationally before buying.

  1. Avoid Negative Gearing

Properties are negatively geared when rent does not fully cover investment loan repayments. This may allow you to enjoy some tax advantages, but it can be frustrating if your cash flow is inadequate to meet loan repayments. For this reason, you should calculate your costs and market condition keenly before making a purchase.

  1. Inspect Before You Buy

Hire a professional to inspect the property thoroughly before you sign any purchase agreement. This can save you a lot in terms of repairs in the future. Be sure to check the property for structural damage, broken fixtures, parasites and pests such as termites.

As you become more comfortable with being a landlord and managing an investment property, you may consider buying a larger property with more income potential. Once you own several properties, it becomes easier to purchase and manage more properties—and earn a greater return on your investments.