Investing isn’t easy for anyone. For any venture to be successful, much thought, research, patience and perseverance has to go into it, whether you are managing your fixed deposits or sinking money into the stock market.
Buying property for investment is no different, with many factors coming into play – from choosing the right location to ensuring you are eligible for a loan.
Here are five steps you should take, especially if you’re a first-timer, before investing in real estate.
1. Take stock of your financial position
This is an obvious starting point: take stock of your finances. This is crucial as you would need to determine whether you qualify for a bank loan.
If you already have one or more mortgages on your plate, investing in a new property may be unwise. That said, don’t let this stop you if you are an experienced landlord and know what you are doing, and have confidence in the property market.
One inexpensive way to invest in real estate without actually owning the property would be through Real Estate Investment Trusts (REITS). These are investment funds or companies listed in the stock exchange that own and operate income-producing properties.
REITs have to give about 90% of their profits to you as a shareholder to enjoy corporate-tax deductions. Hence, you are assured of receiving money without having to deal with managing or renting a property.
2. Find out how much property prices have grown
This is important as you would want to make money from selling your property at a higher price in the future. As such, you need to be able to gauge how much property prices have increased in the past, and what you can expect five to 10 years down the line.
Relevant information can be gained from the National Property Information Centre (Napic), which publishes data on Malaysia’s housing prices.
Napic provides data on housing prices as well as breakdowns by states and districts, in addition to various property types.
When analysing the figures, it’s recommended to look at a period longer than 10 years. To illustrate why, consider that since 2010, house prices have grown by an average of 6.6% every year.
While this might sound like a good return on investment, you also have to realise that prices have only increased by about 2.9% annually since 2018.
It is entirely possible that you might not see a 6.6% increase again in the near future.
3. Identify and choose a location
It’s that oft-repeated mantra: location, location, location. It’s the primary reason behind why property prices increase or otherwise.
A location is considered good when it enables you to live, work, and play without much hassle, such as properties situated close to malls and schools.
Think about what works best for your type of property. For example, a school or university near a residence would be good for families or students.
For commercial property, the location would be an indicator of retail potential. Consider the benefit of proximity to supermarkets, offices, and other places with high pedestrian traffic.
4. Determine how properties will be managed
You can buy a house or condo unit in the perfect location but still fail to realise its full potential – and the biggest reason for this often pertains to management of the property.
A condo in the heart of Kuala Lumpur may be in a prime location but if it is not maintained well – think graffiti, rubbish, security – then people would not want to live there.
It’s important to identify a good location and determine whether the property will be well managed.
Good management is required to maintain the property and increase its value over time. Evaluate whether the local council allocates enough resources to keep the area safe and clean.
When buying a strata, gated or commercial property, you will be part of a larger private community managed by a management body, whose competence you will need to carefully assess as well.
5. Know how much resources are needed
Finally, you should be aware of how much time and money you would need to commit to reach your desired returns on the property.
Pre-owned property often requires some form of upgrade and/or maintenance. Those that have long been vacant or abandoned would require a big sum of money upfront for renovations.
You would also need to invest in upkeeping the property over time, making sure elements such as its facade, plumbing and wiring remain up to code.
Furthermore, renting out a property requires time and effort, in addition to the potential costs involved with engaging a property agent.
