Real Estate Investment: What Should I Know?
- Investing in real estate can be lucrative, but risks are involved.
- You can choose to earn money through short and long-term investments in property.
- Doing research and preparing for risk will make your investment more successful.
Investing in real estate can be lucrative, but risks are involved. Some of those difficulties stem from financial considerations on how much profit an investor makes off their rental properties versus what they put into it. There are several ways that an investor might assess their risk profile when investing in property.
If you are new to investment, you might want to have a look here. However, if you are interested in real estate (property) investment, you have come to the right place!
You need to know several steps before investing in real estate in Malaysia. We are going to talk about it below.
Why should you invest in property?
Before we start with all the steps, you might want to know why you should invest in property. Is it the kind of investment that is suitable for you? Buying property for investment purposes can seem daunting at first, and it might seem like a huge financial risk you may not need or want to take.
Other types of investments, such as a unit trust or bonds, may not be as risky. This is true until a certain point, especially when they guarantee yearly rates of return. However, the interest rates on these accounts are only slightly higher than regular bank savings. All your funds will be locked away for years, or you will be penalized.
On the other hand, the property market is a much more durable option when compared to the investment that is volatile, such as the stock market. And it might let you have peace of mind whereby property investment is a physical asset, compared to digital assets such as NFTs or cryptocurrency.
When you consider property values, it tends to rise over time, and renting out your home or unit will provide an income for yourself in perpetuity. All you can sell after a few years to gain more profit from it, up to you!
Therefore, investing in real estate might not be the wrong choice. With the government’s support, it is not difficult to start investing in real estate. Why not give it a try?
When should you invest in real estate?
There is no straightforward answer for this; however, these are some excellent ‘moments’ when you should invest. We listed down below:
- Your housing loan has lower interest rates
- Attractive stamp duty exemptions
- Higher loan percentage relative to the price of the property you want to invest
For example, if you are a first home purchaser in Malaysia, aged 18 and above, you will get benefits from MyHome Scheme. The government pays an upfront subsidy to the developer that includes 10% of their deposit, along with a qualifying payment amount. This means that you DO NOT need to pay the standard 10% down payment when buying a house! Isn’t that great?
If you have enough funds, you might also consider buying properties when the market is not so demanding. Therefore, you can purchase at a lower price and earn a profit if market demand increases.
Types of real estate investors
We can categorize them into short-term and long-term real estate investors.
- Short-term investors
Some investors will choose to buy or invest in up-and-coming areas, especially places considered ‘trendy’. Therefore, they can buy and sell the property in a short time as soon as they believe the price value has increased.
While many people who buy real estate do so intending to hold onto their property, there is still money to be made by quickly reselling it at a profit. We called them house flippers. This strategy will be best used when the property market is booming, and banks are willing to offer loans at affordable rates.
- Long-term investors
They focus ONLY on the steady increase of real estate’s value over time. They will earn profit either through capital return or rental return.
If the investors prefer to sell their property, they will only sell it after the value increases by a percentage that meets their personal target. Otherwise, investors can get a steady, passive income stream by renting their property to others.
What should you know when investing in property?
You need to know a few things when investing in real estate.
1. Don’t let your emotions make the decision
When buying a home, people often listen to their heart more than they think about it logically. This is perfectly fine when you will be living on the property for many years of your life. However, if the real estate is for investment purposes, you might want to consider more than what you like, but what you or your client need.
Don’t let your emotions affect your decision when buying investment properties. Consider this a good investment opportunity as any other business deal and negotiate to get a reasonable price when dealing with a real estate agent!
Like other kinds of investment, the lower the price you get the property, the better your chances of earning higher profit.
2. MUST do research
No matter how others tell you that a particular property is worth buying, you MUST still do your own research.
You need to do proper research on the property. You need thorough research before making any purchases, as well as market conditions that would help drive future profit.
To ensure that your property sells or rents for the best possible price, you need to know what type of client you are targeting. If your target clients are students or fresh graduates, you might want to choose a location where your clients can afford to rent and have easy access to public transport.
However, if you are targeting high-end clients or entrepreneurs, you might want to consider investing in luxury apartments or houses. This is because the needs of your clients are different from students.
Therefore, understanding who your target client is and the market condition before you decide to purchase a real estate investment is significant!
3. Secure the real estate
If you have decided to buy a particular property, you should make a down payment or deposit to secure it. Some sellers or developers require only a small deposit, while some require a down payment.
The down payment is a substantial amount that must be paid to purchase property, whether you buy from the developer or real estate agents in Malaysia.
To secure the real estate, the buyer must pay at least 10% of the property’s price as a down payment. If you buy a house for RM650,000, there will be an upfront payment requirement of a minimum of RM65,000. Other options for paying the remaining 90% can be a home loan or any similar type of financing.
4. Deal with trustable third-party
No matter how valued your property is, it is useless if you cannot get the money. When buying or selling a home, one should remember that it’s essential to make sure that the transaction and payments go through an established real estate agency or trustable third party.
This is to avoid scammers whereby you will lose your money and your property, no matter if you are a seller or buyer.
5. Calculate expenses and profit beforehand
It is essential to calculate the money you already have and what loans or other funding sources can be used before making a property investment. Your next step should be figuring out how much it would cost you and other factors such as renovations and operation costs. Once these have been taken into account, you should estimate the profit you want to make after cutting out all the expenses that have been spent.
Pay off your debt if needed. Remember that before borrowing a loan from banks, you need a good credit history and financial plan. You do not want to be on the blacklist after or before investing in a house.
6. Choose a trustable partner
For some, partnering up with friends is the better option than going through a long process of getting an investment loan to start investing in real estate. However, when considering choosing a partner, it’s essential that you take into account your comfort level and what will happen if things don’t work out. A trustable and good credit partner will be a good choice.
7. Willing to take risk
Although property investment is a great way to make money, it isn’t always fail-proof! Be aware of the risks involved and how you can minimize your exposure. Have contingencies planned for any problems that might arise.
The factors that could lead to a property market crash are fluctuations in interest rates, the cyclical nature of real estate markets and external political or economic shocks. You should always plan for the unexpected when making a property investment.
Investing in real estate is always exciting, but it’s important to keep perspective. You could make money and have a great experience or find yourself bankrupt with nothing left behind except debts!
If you want to find the best property for your money, don’t base it on personal preference. Instead, use an analytical approach that considers all financial factors and consider doing some research first!
When making property decisions, be sure to avoid being overconfident or irrational. This costly mistake can lead you down the wrong path and cost more than just money. You might be spending more than you bargained for, resulting in low returns on rental and resale values.
With the information from this article, you are now equipped with everything needed for your first investment property! We wish you all the best and good luck!