What strategy will you employ for your investment property?
Contributed by Dr Ivan Kok
A recent study shows that Malaysia is the most property obsessed country in Southeast Asia and ranked at fourth place globally after the United Arab Emirates, the United States and Taiwan.
It is interesting to note that Malaysians spend a longer time viewing property than they do keeping fit in the gym, reading books or watching the news.
Kudos, fellow Malaysians, we have properties running in our blood!
However, the only difference between someone who spends an ungodly number of hours every week window shopping for properties and those who own one or more is execution.
After studying all the property investment strategies deployed by Malaysian homebuyers, I have put together and concluded that there are top four strategies most commonly used by Malaysians when it comes to property investment.
The buy-hold-sell strategy is considered outdated and difficult to execute for the new and upcoming generation.
- Buy-Hold-Sell
This is the most common strategy. Employed by homebuyers and investors for the last 30 years, it is still popular, especially among the older buyers. Why?
Simply because it still works. Back then, everyone was not as well off, thrifty and only had one goal in life - to save money, even though they have not figured out how to yet. You get the point.
People tend to think that paying loan instalments is the way forward. Life was simple and people generally never really think much beyond that.
But times have changed, and so have our economy, lifestyle, technology and generation.
Want something? Just get it online and it will arrive as early as the next day. Want to watch a movie? You don’t even have to check movie times, just log in on Netflix.
You can have anything you want in an instant. We are living in an era of instant gratification.
Modern society has conditioned us to believe that saving money is regarded as for “losers”, at least that’s what the Millennials or Gen Zs are thinking. The majority of them can’t seem to get hold of the whole “saving for rainy days” idea. That is probably why they will continue choosing to rent a property than to commit to a property purchase.
In other words, the buy-hold-sell strategy is considered outdated and difficult to execute for the new and upcoming generation. The property landscape has evolved and changed forever, locally and even globally.
This strategy is suitable mainly for landed properties as investors are betting on capital appreciation. Landed properties have shown to have high capital appreciation versus high-rise ones like apartments and condominiums.
Malaysian properties had shown resilience over the years, and those who bought properties back then have made their fortune even though they don’t rent out their properties.
According to the Malaysian House Price Index extracted from the National Property Information Centre, research revealed that the average Malaysian property prices double every nine years.
The key take-aways to pull off this strategy successfully are:
- Purchase landed properties located within good proximity from the city centre
- Look out for nearby property boosters such as shop lots and offices where commercial activities and employment opportunities are abundant
- Buy at below bank value to secure equity gains first
- Hold at least for the next 10 years
- Consider selling once properties prices doubled
The rental market is on the rise.
- Buy-Hold-Rent
This strategy has become increasingly popular among Malaysians. Many have learned the importance of rental income to sustain their lifestyle or commitment, whichever they like to call it.
A huge advantage in renting out your properties is the ability to get more loans from the banks, which converts to more and more properties.
However, one of the main challenges faced by investors today is not being able to get the rental returns they desire.
This is due to several contributing factors such as buying overpriced properties, no in-depth understanding of the local population and its demand or focusing on the wrong target tenants.
In fact, over 50% of properties in Malaysia would not give a positive monthly cash flow (rental exceed instalments) if bought at today’s price.
Hence, looking for a positive cash flow property is no easy task. There is a saying that goes the harder the battle, the sweeter the victory.
The key take-aways to pull off this strategy successfully are:
- Purchase high-rise properties located within good proximity from the city centre
- Look out for nearby property boosters such as connectivity like highways and transportation especially walking distance to MRT and other train stations
- Study the rental demands of these places and benchmark against the current property price
- Buy at below bank value to lower overall monthly instalments
- Time is money - Rent out your properties as fast as possible, use property agent services whenever possible
Proximity to MRT, LRT or other rail stations tend to be a preferred requirement.
- Buy-Reno-Rent
Because of technology, information is easily accessible and made available. So some investors tend to upgrade their strategy to Buy-Renovate-Rent.
Why spend money, time and effort to go through the hassle to renovating your properties?
Tastefully done up properties not only demand higher rental returns but at the same time attract better quality tenants and potentially increase the property value. One stone kills not two but three birds.
Because renovation involves a huge sum of money, it needs to be carefully planned and executed with an optimum budget, at the same time achieving the highest rental returns possible.
The key take-aways to pull off this strategy successfully are:
- Purchase high-rise properties located within good proximity from the city centre
- Look out for nearby property boosters such as universities where students can comfortably move in only with their luggage in tow and where offices cater to employment opportunities
- Study the rental demands of these places and benchmark against the current property price
- Plan and set an optimum budget for renovation so that you don’t blow your bank account
- Time is money - Rent out your properties as fast as possible, use property agent services whenever possible.
High-rise properties in city centres tend to see higher capital appreciation
- Buy-Fix-Flip
This is an excellent strategy for investors who have deeper pockets and would like to make quick returns through buying cheap old run-down properties, give it a fresh new look and sell it for a handsome profit.
These properties are normally acquired through auction or secondary market properties.
It may seem easy to execute, but don’t be fooled. One miscalculation and there goes your entire savings, and you are stuck with the property.
To pull off this move successfully, you need to accurately predict the property purchase price, projected selling price and renovation costs.
Usually, it’s done by property experts because it takes years and years of practice to master this strategy.
The key take-aways to pull off this strategy successfully are:
- Study the current ongoing property market price
- Scout for cheap run-down properties located within good proximity from the city centre
- Assess the property condition and estimate the overall repair cost
- Be cautious when it comes to budget setting for renovation so that you don’t blow your bank account
- Get as many quotations as possible from contractors and renovation experts to obtain the best value for money exchange
- Once you have discovered that you are able to make at least 20% of gross profit from the purchase price after factoring in the renovation and miscellaneous cost, hit the buy button and execute your masterful plan
About the contributor:
Dr Ivan Kok is a leading property speaker, entrepreneur, medical doctor and the founder of Wealth Momentum, a property education company. He has mentored and helped many successful investors in relations to real estate issues.
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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.
