Wealth accumulation is a steady progress.

Contributed by Caryn Koay

realty@CarynKoay.com

Many individuals, rich or poor, have dreamt of making good investments for wealth accumulation as they believe in letting the money work for them to hedge against inflation.

We work hard to save seed money to invest in real estate as property investment has traditionally shown to be more than fortuitous in wealth accumulation.

The process, however, is not a fast one. Potential buyers and investors must do their due diligence like conduct area canvassing, research data, read market surveys, do price comparison and run personal financial affordability checks. All these have to be done before placing a deposit for the property.

Most Malaysians would acquire a loan commitment of 20 to 30 years and not forgetting the legal obligation for this investment decision. 

With so many choices offering a variety of modern lifestyle living concepts in the market and the current attractive prices, buyers and investors are spoilt for choice.

Due diligence is vital when flipping mature assets for new ones.

Flipping for reinvestment

Some investors may consider flipping their mature property for profits and reinvest into the latest lifestyle projects.

But before diversifying into a different property mix, they should take a serious look into the management and maintenance of those properties as these factors will contribute to their demand and future price.

Season investors are aware that a portfolio of diverse properties with good tenants, coupled with excellent property management, will give favourable yields.  It is no picnic, but the trick is to ensure that the return remains favourable for years to come.

Property investment does have a knife-edge and can cut investors who make the wrong decisions.

For those considering reinvesting because the current socio-economy situation offers more buying opportunities with low down-payment and good packages, a conscientious mind is needed.

Leveraging on borrowings to create future values is not the wisest approach because over-gearing has landed more than one investor in hot soup. 

However, gearing is not necessarily a red flag if it is optimised consciously. You need to remember that gearing and opportunity cost will come hand-in-hand, but over-gearing will lead to massive debts and possibly lawsuits.

Apart from keeping one’s good health, financial health is also of importance. Like having comprehensive medical coverage, buyers need to take up a Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA).

The less you know, the more trouble you end up with.

Ignorance isn’t bliss

Finishing well in property investment as well as in life is preferred. Dying with a massive debt could be detrimental for the family. But after a lifelong journey of saving, accumulation and growing wealth, it is only wise to pass wealth strategically to the next generations. 

It may be common sense to have a will to pass down your assets and estate to the next generation, but only 28% of Malaysians possess a will as reported in 2019. 

Property investors must have a will to facilitate the estate distribution to the family members. If not, it falls under the Distribution Act 1958 (Amended 1997) for West Malaysia and Sarawak. The Intestate Succession Ordinance 1960 applies for Sabah Only. 

Upon the demise of the estate holder, all bank accounts, Employees Provident Fund (EPF) without nominations as well as property of all kinds which bear the deceased’s name are frozen. The will executor needs to apply for a court probate, but in the meantime, all monthly loan installments remain.

The family of the deceased will need to have the cash flow to sustain the loan repayments during the process of betting the court probate, which generally takes up to six months if unchallenged. 

The Probate and Administration Act 1959 highlights the settlement of the outstanding debt first before the estate can be distributed to the beneficiaries.

It is important to note that if the deceased owns a property that still has mortgages attached to it, the recipients of the property would have to continue to finance the loan instalments unless the deceased has taken up an MRTA or MLTA.

This is because the MRTA or MLTA would take care of the remaining mortgage payments should anything happen to the deceased. This is an excellent solution as it would put the family at ease, especially if they were already financially constraint.

Undeniably, a written will helps to lay down the mechanism of distribution. However, you might want to consider not distributing the inheritance which would dilute the wealth but to retain that wealth accumulation and apportion out its earnings instead.

Wealth can be passed on from generation to generation.

Looking beyond three generations

There is a Chinese adage that wealth will not last beyond three generations. This is feasible if we explore the possibilities with an open mind.

For example, several Florentine families possess their inheritance of over 700 years, and after over 30 generations, are still going strong. In China, one of the longest inheritance legacies is Tong Ren Tang, a pharmaceutical company founded in 1669.

It is in your hands as you are the captain of the ship. You can chart for your wealth to go beyond the three generations. If not, the next generation will have to start all over again. But a well-planned estate that lasts beyond the three generations is your legacy.

Caryn Koay is a probationary real estate agent and is the cell group assistant vice president in the KL and Selangor Property Investors Club.  

Disclaimer

This article is intended to convey general information only. It does not constitute advice for your specific needs. This article cannot disclose all of the risks and other factors necessary to evaluate a particular situation.

Any interested party should study each situation carefully. You should seek and obtain independent professional advice for your specific needs and situation.