To Buy or Not to Buy…
Wow…Haven’t I heard enough of this question? I had 12 people come up to me with tis question at different occasions over the past week, expecting a dramatic answer from me.
Every property forum, seminar, conference and discussion has addressed this question for the past year. But has there been a guaranteed distinctive answer to this question?
This is because, all these Property ‘Gurus’ and experts neither own crystal balls nor can predict the future. All they can do is advice on the current market situation and compare it with market movements over the last few years.
I may not be an expert in the matter as many claim to be, but I would like to emphasize on one single fact – use your common sense!
In order to understand the buying of property, we have to go back to fundamentals. Forget huge investments. Forget monopolizing the market. Forget becoming an instant millionaire and look outside the box by asking yourself just two questions:
- Am I buying for own use?
- Am I buying for investment?
If you are in the (1) category, then the honest to God truth is that there is never a bad time to buy. All you have to look at it the best deal you can get from the finance institution for your loan. My advice is, the longer the tenure, the better – you’re not going to stay in that house until the tenure ends, instead, you will and should look at selling it in 10 to 15 years and heading out to a bigger property. At least your monthly commitment for the 15 years would be kept at minimal.
Also, for category (1) buyers, no place is a bad place. The location rule doesn’t apply here. You will not be looking for a house in Subang Jaya if you didn’t intend to stay there. As you would not be looking at a home in Rawang, if you’re daily activities have your attention in Klang – Correct?
However, for category (2) buyers, it gets a little trickier than the latter. You have several aspects to look at. For instance:
Loan vs Rental
The first and most important thing to look at would be the monthly repayment. If you are purchasing for investment, you have to make sure that renting out the property could take care of your full monthly commitment to the bank or at least 80% of it. For instance, if you take a loan for RM450, 000, your monthly repayment with the current BLR over a maximum tenure (38 years) would be approximately RM2, 100 per month. Hence, you have to do the math and make sure that you are able to fetch rental that can equate to that amount. Hence if you are looking at a condominium priced at RM800, 000, in an area such as Old Klang Road, do you think you could get rental to sustain the RM4, 000 monthly repayments to the bank? – Don’t forget, you have signed your life away to the bank – literally!
Location, location …location
Yes, this mantra doesn’t grow old. It is the principle of property investment. You must always identify the location you are purchasing into. In depth research is needed to make sure you do not go terribly wrong with your purchase. A healthy location would be one that either already has or is in process of having retail, commercial and educational pull. For instance, you couldn’t go wrong with Puchong as it has IOI Mall, Tesco and Setia Walk. Nor could you go wrong with Subang as it has Subang Parade, Empire Shopping Gallery, colleges and International schools. Remember, you need to be able to fetch rental.
If you are in category (2), you have to have your game plan in hand way before signing the dotted lines. You have to work out an exit strategy. You have to be sure that you can sell the unit in the next 5 years, and make sure you sell, even if you don’t make such a huge profit – then go after your next property. Don’t fall into the ‘waiting’ trap that has swallowed lots of investors and trapped them in the dungeon of not having more than one investment property.
This is because they didn’t exit when they needed to, then they are unable to as the markets have turned and they can’t budge. Or they have gotten rather comfortable with the rental that is taking care of the loan repayment. But friend, that tenant may leave…then what happens? Stuck with a burden for the next 20 years?
This may be something younger investors may like to look into. Instead of burdening yourself with a huge purchase, what if you were to share the burden with 3 other friends? Yes, shared purchase, would allow you to purchase that property for a quarter of the price. Of course you have to trust the other 3 with your life as they need to make the monthly payments (commissioner of oath documents are not bound by law for property purchases). Though profits would need to be shared four ways, remember it would be four times easier to purchase that first investment and make enough to go for your own after.
Well, as every other property expert or guru out there, I too do not purchase that crystal ball and my last name isn’t Nostradamus, so all I can say is that if you want my 2 cents worth, there is no bad time for property purchase, its only good if you believe it is and make it be.