Those buyers who are considering investment property should ask themselves some important questions before taking the plunge.
Many Malaysians nowadays looking towards their future and considering the option of investing in property. An investment property offers an excellent, extra source of income. Over time the rental income from the property increases while the balance of the housing loan decreases. By the time he or she is ready to retire, if not sooner, the loan is paid and the investor has the option to continue to collect the income (monthly rental payment) for cash flow or to sell the property and gain the capital.
For those considering taking this step, the first question to answer is “what is your purpose for the property?” Will you live in the home or will it be purely for investment purposes (entirely rent to a tenant)?
Those able to afford to invest in the higher-end rental market are mostly people investing in their own home, which they live in while renting out a room on the property.
Investing in the low- to mid-end residential rental market, means an investor will enter into the high rental demand arena. There is always an influx of young students, professionals and working individuals as well as families looking to start their own quality life when moving out of their family homes.
Choosing a property for own use will be a more emotional decision and a long-term investment. You’ll be looking at your own needs. The location of the property will also have to meet your personal needs (is it close to your work and your children’s schools?). As a result, investors in such properties usually have a higher shortfall to cover.
If you’re looking for a property to buy in order to rent it out, a different mindset must prevail. Divest themselves of emotion and think as an investor. In the case of investment properties, a good “location” means that (even for middle-income or lower-income homes) the area offers a high rental demand (where there are, for example, good schools, facilities, transport, etc.).
Before purchasing, calculate the potential yield of the property (take the annual rental income minus expenses and divide it by the price you pay for the property). Then compare that to the yield of other rental properties in the same area. And when it comes to location, your consideration should only be whether there is a high rental demand in the area and whether an investment there will hold its value, and grow in value over time.
Entry-level residential properties in Malaysia almost always appreciate in value faster than the rest of the market. Investors buying these properties, with their lower purchase prices, are also able to cover most of the costs due to the rental they receive. The properties are also much easier to be tenanted as they tend to allow for affordably-priced residential rentals, which also means that there is a lower chance of the property not being tenanted.
The market for lower- to mid-end residential rentals is much larger than the upper-end residential market, so it is important to do a comparative marketing analysis (CMA) for that area. New investors should remember that they need to be sure their rental income will almost cover their monthly loan repayments and that they can afford any shortfall.
New investors need to keep an amount equaling two months’ loan repayment set aside should any unforeseen circumstances arise for whatever reason, and to look for properties that are low-maintenance. ”
You also need to look at the importance of an experienced, professional management agent, who can help you find the right property, find an approved tenant, manage the rent collections and take on any maintenance issues.