Owning Properties as your Investment

owning properties as your investment

Investing in real estate has long been a popular strategy for building wealth. There is a famous saying “you can’t go wrong with property” (Though it is not always true). Many believe that once you have owned the first house, you are secured and safe. Let’s briefly explore these thoughts here:

1. Owning 1 Property

When you own just one property, you can generally expect its value to appreciate over time. However, it is not easy for you to realise (dispose) the value of your property rather there are some catch you have to beware of.

As the value of your property increases, it increases insurance costs, quit rent and assessment taxes.

Still, owning a property is better than not possessing any value appreciating asset at all. At least you have options like mortgage or refinance the property for loan (housing loan is the cheapest loan you can get in Malaysia). Additionally, you may also consider selling your only property to realise gains. Potential challenges include you must downgrade to a smaller unit or a less convenient location, in order to get back extra funds (so unlocking your gains from single property can be tougher).

2. Invest in 2nd Property

While many careful considerations needed before you decide on which one to invest one, the additional unit would provide you with rental income, capital appreciation and flexibility in disposition – you can sell away this unit (your investment) without disrupting your primary residence.

3. Owned vs Renting your residence

If you own one unit for your residence, the mortgage payment is considered a financial commitment, which affects your borrowing capacity. Conversely, if you are renting your current residence, rental expenses are typically not counted as commitments by lenders, giving you greater borrowing capacity.

4. If you invest, think from Buyer’s perspective

Financial consideration alone, how much a buyer will have to fork out to buy your unit?

For example, selling a property valued at RM500,000 involves significant additional costs for the buyer:

  1. Legal Fees and Stamp Duties: The Sales & Purchase (S&P) legal fees, stamp duty, and loan legal fees and stamp duty can easily amount to around RM20,000.
  2. Insurance Costs: Banks typically require Mortgage Reducing Term Assurance (MRTA) insurance, which can cost another RM10,000 to RM15,000. Some banks may also require additional personal insurance.
  3. Down Payment: A 10% down payment on a RM500,000 property is RM50,000.
  4. Total Initial Costs: Combining the down payment and additional fees, a buyer needs to set aside approximately RM90,000 to RM100,000.

Given these substantial upfront costs, it can be difficult to find buyers willing or able to meet these financial requirements, especially if your property is priced at a premium. As a seller, being aware of these challenges can help you set realistic expectations and develop strategies to attract buyers, such as offering competitive pricing or incentives.

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