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Many people wondered why I stay in a rented property while I own properties which I rented out to others. My mother nags most of the time saying I can stay in one of my own properties and that’s my OWN property, rather than staying at other people’s properties.

The Ownership Mindset and “My Own Property” Mindset

Just as any typical Chinese (I am not sure of others), we think that OWNING a property means having assets and the pride of being a property owner. As a OCBC (Orang Cina Bukan Cina, Chinese but not Chinese), I only look at properties as a means or a vehicle in my investment portfolio.

When I painted the house, my mom says “Paint for what? Not your own house…” my dad says, “Should we ask the owner/landlord to also fork half the paint cost?” See? When it is NOT “my own property” we have a different thought that it doesn’t really care. We definitely save a lot. Trust me.

Look, having “my own property” means a lot of things. For the single storey terrace house I am renting as a home now, it is priced at around RM320,000. If I were to buy this property, I will need to fork out at least RM32,000 as downpayment and pay over RM1,540 in installments (for a home loan with 5% interest over 30 years tenure). And being my “own property”, my mother will definitely put in RM50,000-RM100,000 in renovations, new furnitures, new coat of paint, new toilets, new tiles. I would definitely want a new altar table, perhaps renovate a small room for my altar and meditation. I am sure I would want a newly built kennel for my dog and a garden and automatic gate and bean bags and the list goes on and on. All these come from the mindset that “this is my home, I will definitely spend more time here and therefore these are necessities.”

Things do not stop here. The bills continue too. Quit rent and assessment tax comes to about RM800 annually and insurance can cost about RM200 a year, which comes to about RM83 per month. Total monthly cost will be RM1,623.

Renting

I rent this property for only RM800 per month for over 5 years. I do have a new altar table, some furnitures and a room with books to feed two bookworms at home. Two nice bedrooms each for my Dad and I, 2 clean bathrooms and a good kitchen for us to cook. Good enough! At RM800 per month in rental vs RM1,623 if I buy this property, I saved RM9,876 a year and over 5 years now, I have saved RM49,380.

What can I do with an excess of RM49,380? I can easily buy 1-3 properties with this cash in hand and generate a 5% returns on investment, perhaps a 6%-12% cash on cash return equivalent to almost RM3,000 a year!

But….

My mom always say… “But after 5 years your home loan is almost 1/6 paid and you are nearer to ‘my own property’…”

Many people think the same but let’s see. In 5 years you may have paid only less than 5% of the principal and still owe the bank a lot of interest. If you sell the properties within 5 years, you are taxed Real Property Gain Tax, which the Malaysian government just increased it up to 30%. If you do not pay the bank loan on time, the bank auction off your property. Try not paying the taxes and see who really owns the property.

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Look at the calculation. With RM112,570, I can stay at this house for another 140 months. With RM823 savings per month, this will mean that for every month I pay to own a home, I can stay at this home for 2 months if I rent it.

Buying

All is not bad after all. I am not saying buying a property is bad but you must know the objectives of buying your own property. Believe me, many people buy their home just because their peers do so and just because there is a “need” but they can’t explain. For me, property is a tool for me to make higher returns than the bank and/or EPF, as well as a well-padded tool for inflation. Therefore the properties I own are all rented to others.

Some people buy for the sake of the next generation, so they worked hard and paid off the property so the next generation could have a home. However, generations and situations change. My grandfather’s house was already sold a few years ago as all his sons and daughters have own homes and work elsewhere.

I am not against buying your own home but I suggest buying your home with cash or with the lowest loan amount. Say if you buy a RM300,000 property, you can pay RM200,000 in downpayment and the rest of the loan should be paid of as soon and as early as possible. Owing a home seldom comes with cashflow returns but if you could do it, then that will be the best choice. This means that, if you rent for RM800 and if owning a home saves you this RM800 monthly or its installment/expenses comes to less than RM800 per month, then it is all well worth it.

Another point to note, owning a home also means you gain in property appreciation. This house was only RM290,000 5 years ago, and now could fetch up to RM320,000. An average of RM30,000 in appreciation value over 5 years means a gain of average RM6,000 per year. You do not gain this if you only rent the property. However, not every property appreciate in value. Take a look at Bukit Beruntung and Rawang.

I hope this blog gives you some space for thought.

I would like to share another experience in property investment.

This happened right after I bought my first property in 2007 at Grandeur Tower. Out of excitement, I visited my very first apartment almost everyday. One day, while I was there, feeling so happy, I noticed something at the unit opposite mine. As I locked the doors and walked towards the lift, there was a notice I saw, stuck at the front door of the opposite unit. I walked towards the unit and saw an advertisement for “Bank Auction 01x-xxxxxxx”. That property too, was for auction.

I called the agent and he mentioned that the property was on auction, depending on the price offered by willing buyer. He further reminded me that the property was worth RM120,000 at that time, hoping I will offer a price near that number. As a student of Robert Kiyosaki, I wanted to offer a price but at a very ridiculous number, a number way below that value.

Look, I just bought the first apartment. Almost all my savings were already invested in the first apartment – downpayment, lawyer, repairs, paint and some outstanding fees. At that time, I really cannot afford the second property. My parents were not too supportive of my new “business venture” in property investment, my family members poured cold water on me and I just started working for a year. Yet, something tell me that I need to do something or just perhaps offer a price!

I told the bank auction agent, I said, “Look, what’s the loan amount? Perhaps I could settle at the loan amount.”

“No… no no… the market value is RM120,000, Ms Chew. You give an offer.”

Recalling Azizi Ali’s book, he says property agents also need to make money and for sure they will expect my price to be as high as market value.

So I told the agent, “Sir, I am going to give an offer. But whatever my offer is, please convey to the bank because I am going to pay the difference in commissions at RM120,000.” This means that if I offered RM50,000 and the bank only willingly pays him commissions for RM50,000, I will pay him agent commissions of the rest of the RM70,000.

In your mind, perhaps you will ask, “What? 50k? Market value is RM120k!!” Yes, I am trying to expand your mind a bit that we can give an offer at that price. What’s the problem with offering RM50,000 even when the market value is at RM120,000? What’s the worst that could happen? You may get rejected and you don’t get to buy that property, so I start looking out for the next property! Who says that we must offer a value near market value?

The bank only wants to recover the loan amount due. I was calculating in my head. The apartment was there perhaps 10-12 years ago, with developer price at around RM100,000. If the borrower gets a 90% finance at RM90,000 and serviced the loan for 10 years, he may only owe the bank RM80,000  RM85,000 only.

I told the agent, “Sir, I just bought a unit right opposite this unit for slightly over RM80,000 only.” For those who have read my first property blog will know I paid more than that la…

“So I am going to offer RM80,000 for this unit.”

The agent, sound shocked, “What? RM80,000? Cannot la… RM120,000 is the market value. At least offer RM100,000 you still make RM20,000”

For those who read about my first property will also know that I cannot afford to pay more than RM95,900 for this unit at the rental rate and monthly expenses that I needed to bear.

“Yes, RM80,000 and please remember I will give you the difference in commissions. You can calculate your commissions now and treat as if the sale price is RM120,000.”

He said, “OK. I will call the bank. Perhaps have an appointment to meet the bank manager.”

“Great!”

Remember, I was cash tight at that time and cannot buy the property so if I were to offer a price, RM80,000 or even RM70,000 is not ridiculous. It is not a matter of market value. It is a matter of whether I can make passive income with the property.

In the past, I have made similar offers. Pandan Heights condominium at that time was auctioned at RM76,000 – RM110,000 although the market value was RM115,000. So when there was an ad to sell a unit at Pandan Heights, I remember offering price like RM70,000 and RM65,000. All these numbers shocked the real estate agents and all of them thought I was crazy. Of course, I never got the property but what have I got to lose?

Two weeks passed and I thought, there goes another case of a manager thinking I am crazy. Good experience.

The phone rang one day and the bank manager was on the other line.

“Ms Chew ar, market value is RM120,000 you know. RM80,000 is too low la, you can consider higher or not?”

“What’s your price then?”

“RM100,000 la…”

“NO! Definitely not! I just bought one unit right opposite at slightly over RM80,000..” (grin…!)

“Ok ok… RM85,000..”

I counter offered, “RM81,000” He wouldn’t have called me if there were better offers, right?

He said, “Aiyo Ms Chew…. RM85,000 very good already. Hmmmmm RM84,000”

“No.. RM82,000 la…”

“OK la… RM83,000 la… final… OK?”

“Alright… when will you pass me the papers to sign?”

Since I was out of cash, I definitely did not buy the property but who would not want a property which was RM37,000 below market value and fetch a rental returns of RM700/month? That’s 10.1% ROI! I gave that offer to my friend who was kind enough to give me kopi money of RM2,000.

Hope this experience could be a good one for you to ponder upon.

By the way, even until now, I still offer ridiculous numbers. Sometimes agents call me to ask if they could be of help, so I tell them what I am looking for. I said, I am looking for properties below RM100,000 with rental returns say at least RM500. I have agents hung up on me as soon as I said that, I have agents telling me “Crazy ar? Where got properties at RM100,000 now?” My turn to hang up on them.. 🙂

I promised to share another case study on my property investment.

The second property, I found almost a year later after the first investment. It is too slow, I know. I am always grateful to have parents of two extreme sides. When I was planning on buying this property, my Dad says, go slow go slow… Mom says, only one property a year, so slow?

This is at Pandan Perdana – Pandan Heights Condominium. There are 3 development there, all of which are widely known as Pandan Heights. The red block (one of my aunts own a unit there) and the blue block (my mom and aunt own a unit there each) – these two blocks are supposed to be called Bukit Pandan Condo 1 and 2. Lower down the slope is Pandan Heights Condominium (the green block).

This green block is special. Unlike the blue and red blocks, the green block is a mixed of 5-storey walk-up apartments and one block of a 20+ storey condominium. When choosing to buy condos with lift, the higher floor the better and more expensive but the lifts there were malfunction most of the time. (So the higher the better?) Developers choose to sell higher floors at a higher price but as an investor I only look at figures, whichever gives me highest return with lowest cost is a good investment.

For walk-up apartments, the lower the better! Is obvious right? You don’t need to climb stairs so the ground floor is the best. So this property is a 934sq feet (unlike the condo is over 1,000 sq ft), 3 bedrooms 2 bathrooms apartment on a ground floor of Pandan Heights walk-up apartment. The only drawback of this unit is that it is nearest to the rubbish dump. So I went to the property 5 times in a day to “smell”. Not like the free smell by Famous Amos la… but the rubbish dump did not affect the house. In fact, it is even better! So near and it is easiest to throw rubbish!

I also visited the neighbours, knocked on doors to ask who is staying in the unit. Next door neighbour said that the unit on auction was empty for already 4 years. Vacant possession is a blessing for auction properties or else you may need tough actions to evict the tenants.

Let us look at the numbers.

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The auction room was filled with so many bidders but for this unit, there were only 2 bidders – another man and I. As the auctioneer announced the property, the other guy went and asked the auctioneer, “How much outstanding fees does this property owe?” The auctioneer of course smiled and said, “You have to do your own homework.”

My homework showed that the property has an outstanding fees of over RM6,000. I knew I need to pay this amount, I have factored in the costs. So I told the man, “Over RM10,000 outstanding!” Yes, I know I bloated the figure.

The auctioneer announced:

“OK Property XX-X Pandan Heights, reserve price RM78,732… two bidders… we start at RM80,000, each time you raise your hand is additional RM1,000!”

The other bidder was quiet, and I was waiting for his move FIRST. After about half a minute silence, and the auctioneer stared at him, me, him and me again… I raised my hand. Auctioneer said, “OK RM80,000… Sir, RM81,000 sir? (looking at that man)… 80,000 going once… 80,000 going twice… and Pandan Heights sold RM80,000 congratulations!”

Painful lessons

Later I found out, if the hammer has not gone down yet, I could actually request if the auctioneer could sell me at RM78,732 because the other bidder wasn’t bidding! That bugger has just jacked up my cost to a freeeeaaakkiinnng RM1,268!!! Not very happy! Anyway, good lesson there for you readers.

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The COC return was low. BUT, since the property was empty, I have already repaired and painted the house and rented it out the second week! It is not legal to occupy the property until my name is on the title but no one will come check on the property and summon me, I guess. Furthermore, from the date of auction, all monthly expenses on the property is borned by ME! So, legally the property is mine, just that I need to settle the financing. Some lawyers can advise us on this.

I kept a habit of having all my payslips, EPF, accounts and financial status up to date and all documents readily available even before I go for an auction. Right out of the auction, I demanded a copy of the Proclamation of Sales and brought all documents to banks to apply for loans. I went to 4 banks that day and got 2 offers and I chose CIMB Bank.

One mistake I made was not having a lawyer expert in properties in my team. I actually had but the stingy me refused to pay high price for a lawyer but there goes another lesson! I remember the lawyer I took for this property was the same lawyer for the loan processing, recommended by CIMB Bank. But that lawyer did not know what to do with my property since the developer has gone missing. Her law firm is already suspended after that.

The lawyer was quick to have all the loan documents for me to sign. But took almost a year and did nothing. I almost forgot the property and went on with my life and a month or two I called to follow up. The lawyer said she is doing her work. I said it is better to ask the auctioning bank for extension or else I lose the property, so she said she did.

After a year, and that was almost the time I was about to go to Singapore for a medical check as a procedure to donate part of my liver. I wanted to make sure everything is fine before I went to Singapore. So, angrily, I asked the lawyer and even went to the law firm and demanded ALL documents to be passed to me. The clerk there passed to me all correspondence and documentation. I made a call to the lawyer acting for the auctioning bank. They said they have sent a termination letter to my lawyer just a week ago.

I pleaded to extend and said is not my fault and showed them the loan documents which I signed only two weeks after auctioning date. The lawyer was shocked at my speed of getting the loan but lamented my lawyer’s slow actions. So I wrote to the bank and the bank allowed an extension. I quickly get Chris Tan, a good friend and lawyer at Chur Associates to help me with it. At Chur Associates, everything was done for me and I had the luxury of documents prepared. I only need to sign documents. From informing the bank regarding change of lawyer, finding out my case and caveats till loan approved. I remember signing some final documents right at the hospital at Singapore after the liver donation. My Dad brought me documents to sign.

Do you think I will let the first lawyer go? And losses? I fully paid the first lawyer fees. I do not like to owe people money and took me so long to have a paradigm shift to use OPM (Other People’s Money) to invest. The auctioning bank charged me an 8% for the duration of the process until the loan was disbursed. That mounting to over RM4,000.

So Chur Associates of course, helped me claim the money from CIMB because it was their lawyer. I also claimed from the first lawyer but the law firm sudah tutup! I settled for RM3,000+ (forgot the figure) by CIMB. BUT! Within that year, installment wasn’t paid because loan was not processed yet but I rented out the second week of auction, remember? So for the full year, my income was RM600-R155 = RM445 per month x 12 = RM5,340. I was still making money with the property!

Fast Forward 2013

Forget the past but take the lessons… the property now rents out at RM1,000 per month. It was newly painted and there was a change of management. I helped to do that! Fortunately or unfortunately, the meetings to change management was done right after I bought the property and I helped them a little and appointed the secretary for the joint management body. But I resigned quite immediately as I needed to go to Singapore for the surgery.

Let us see the numbers in 2013

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I have not refinanced the property but let us see if I refinance:

BG16-4If I refinance, I am going to take out RM53,000 for my next property investment. So far I have not done so due to my time managing the PJ Utara office for the past 2-3 years. I am back in property investment but government, please la don’t revise property taxes and loans so fast! 🙂

Market value of the property?

BG16-5Conservatively, it is around RM240 per sq ft so mine is at 934 sqft @ RM224,160. If I take RM200,000 as market value, and my current outstanding loan is only RM71,000, I have a net worth of RM129,000 from this property. The first property was RM87,000 net, so my total property net worth is RM216,000.

For an initial RM20,000 (2007) to grow to RM216,000 (2013) (I consider the above property cost RM25,000 as a “nothing down” because I got RM27,000 from the first property after refinancing). That’s more than 10 times in only 8 years, AND with RM471 cashflow per month from 2 properties! I can’t emphasize enough that there is no other investment vehicle which will bring positive cashflow and 10 times returns in 8 years.

Next blogs… I will share lessons learnt from property investments. Enough of case studies (these are past), I will share future opportunities which we can do together.

Grandeur Tower

Grandeur Tower

This is Grandeur Tower – where my first action on property investment is. I have heard many people, when their ideas and thoughts were being implemented by others, they said “Oh I knew it, I thought of it before!” or “That’s my idea they stole to implement!”

While many people THINK of ideas and toy around TALKing about ideas, very often these ideas were not put into actions. I learnt my lessons too. When I was in the IT line, my ideas were aplenty, from this portals to that portals. One by one the portals came up – Catcha, Bluehyppo, Jobstreet. The more I said, “hey, that’s my idea” the more I felt embarrassed.

When I was only in college, I started reading Robert Kiyosaki’s books. It was by accident that I found “Rich Dad Poor Dad” from a small grocery store at Jasmine Tower, SS2. I remember reading the book back to back and finished it in 3 days – in the midst of having examinations. I did not do revision but the very book caught my attention. And then I read Azizi Ali’s “Millionaire Landlord”, “How to Win at Property Auctions” and “Property Millionaire”, attended property classes, property seminars/talks and all these happened for 2 years – 24 months!! 104 weeks!! I think it is TOO LONG to learn without taking actions!

I can literally tell anyone how to make money with property and it was in one conversation with Edmund, a friend who has a computer business in Teluk Intan, he said, “Hey you know a lot about properties, why don’t you start investing in one?” As a college student – a college student investing in a property was never heard of at that time, at least in my perspective. Edmund said he too never thought of being in business but it was almost by force and he only learnt about the business as he runs his business daily. Learning is always by DOING.

So there you go – a motivation to act. Sure enough I went on to research on properties – visiting one condo/apartment per week – asking what price did the people buy their homes there, what was the maintenance fees, other costs etc. Over time, I had in my research, information of over 20 apartments/condos.

It is also interesting to know that once I have set my target on buying a property, when I first started working, I set aside RM1,000 per month for investment. I was only making RM2,500 per month at that time. With RM1,500 left and car installment was RM350 + petrol RM300 + phone bills RM150, I was left with only RM700 per month to live. Don’t ask me how but the RM1,000 set aside was the biggest torture and turn out to be a blessing.

I “met” my first prospect property in an auction site – the reserve price was roughly RM89,000. By that time, surprisingly I already have RM13,500 in my investment account (including some interests from unit trust investments and an 8% growth from share market). It was a 947 sqft apartment with 3 rooms-1bath. Next to Steven Corner, Pandan Indah and people refused to buy the properties there because it was almost like a budget hotel where couples rent on a nightly basis (ahem, you know what I mean!) The investment also drew negative remarks from my family members. One uncle said is difficult to be a landlord – pouring cold water before I even bought my property!

The calculation below will hopefully shed some lights.

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Grandeur Tower 2007

I can’t remember much of the figures so is all estimation. That was the first thing I learnt – filing system for your investment and a tracking of each individual property of its income and expenses is very important.

I got the property at RM93,400 and to my surprise as I went in to my very first property, 2 rooms were equipped with air-conds, one room with built-in wardrobe, kitchen cabinet, water heater and plaster ceiling. Rented to one great tenant I forever treasure – I would recommend her to anybody but not now! Sirilah has never paid rental late but once and that was also because she was in the hospital, not on purpose. Millionaire landlords love good paying tenants like her – she stayed there till now and even increased the rent amount herself when she knows the rental value was appreciating at that apartment.

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Grandeur Tower – my first property investment

COC by the way is cash on cash – the calculation I use to calculate how much cash returns I gain from the cash I put in. My first property so the mistake was I did not account for so much expenses and the excitement of having the first property – that made me spent almost RM20,000 – which I don’t know where it goes.

It is MORE interesting to know what I did with this property only a year and half later. Police stood at the guard house every night to ensure the place is safe. Remember, it was almost like a brothel and people shun away from the apartment and market value depreciates. Then, there was a change of management taken over by the residents who did great job in transforming the place. In 2009, the market value was about RM130,000 and rental rates shot up too. I only added RM50 per year for my tenant so the rental was RM800. I refinanced the property and got RM27,000 cheque so my total cost is a negative figure!

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Grandeur Tower 2008

So I have no cash down for this property and still making RM8 per month. The RM27,000 – I used it to buy my second property and I will share later. It is more interesting to know this….

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Screenshot of iproperty.com.my on Grandeur Tower 31/8/2013

With the market value at a conservative RM200,000 and my liability is only about RM113,000 (as of 2012), I have a RM87,000 net worth for this property. So in my last blog, I said I am richer after the 13th General Elections – is all because my net worth increase with the increase of market value of properties I own.