Nooruladha’s Weblog


Are you sure you can become financial independent through property investment?
July 22, 2009, 1:25 am
Filed under: Investing Method, Investment Story, Thoughts

Many ppl has debated this, Robert Koyasaki has done a book Rich Dad on this, but the way I see it, property investment and rental business wont make you money, unless it fulfils one requirement. (Which I will reveal later, like ebook, eh?)

Reason 1. Property price in bangi (I cant cover Klang Valley, too big)

If anything, the price of property, in general is sky-high. I based my case at my hometown, Bangi. Newly build section 8,9 areas are not for shallow pockets everywhere. The one close to Tasik Cempaka easily fetched 500k, similarly the one closed to Masjid Biru Bangi. Generally the price of the houses defy Malaysian economy. Some of the less than new area such as section 3 tambahan, fetched about 300-350. (All these houses are terraced-style double storey).

But, the 2nd hand market in Bangi is generally lower price, at probably 10-20% lower. For example, section 2, and the older section 3 and 4 are selling at starting 230-280, depending upon location and house condition. But those houses are built in the mid 80s to mid 90s, therefore their house condition may be bad. You may have to cough up some 30-40k  just to renovate.

So, the price range from 220 to 500k.

Location

Bangi has become attractive due to its “serene surrounding”, connected with multiple highways to KL, proximity with many University.

Loan rate and term

Generally, if qualified for loans, you are required to put down 10% deposit. But nowadays you can go for 100% loan.

Let say, if you buy a 300k house, you pay 10% downpayment, and you apply for 270K loan for 30 years (7% interest). Monthly, you will pay 1796.32. Total loan paid after 30 years 646674.03. (That is 346674 more than the house price)

http://www.mortgagechoice.com.au/calculators/home-loan-repayments-calculator.aspx

Rate of new house built, old house sold, old house being put in the market

Bangi is what I considered saturated place. There are no more place to build houses, except outside the main perimeter of Bangi Lama, Kg Sg Ramal etc. Those place are the next area, but their main facility such as road and shop malls are non-existent.

A lot of the older section of Bangi has been there since the 70s, and many of the owner I would say reach the old age of retirement. Some are divorced, some move on with their kid, some sell their home to go back where they come from. So, I will say Bangi has a considerable potential market for 2nd hand home buyer.

Office, factory, shopping malls where people go to work and play

If bangi ever to grow in price, it needs new shop, new factory and new office place. Nowadays, most of its occupants either work in UKM, Putrajaya.

flippers, financiers, builders

The plus side is, these guys keep the house price at certain range (300 k?) because there is a certain demand in Bangi, due to its middle class people working in UKM.

economy downturn

The only helper is this downturn. Less ppl are buying. The price of houses are going down a little bit.

My reason is simple. If you are going to rent out your property in Bangi, most of your client are probably student, factory worker and probably some newly-wed government servant. Student cant afford much, plus in Bangi itself there are plenty of choices.

Furthermore, the price of the house are high, most of even will have to pay double at the end of 30 years loan. Even if you have 100% occupancy rate, you wont be able to coup your payment to the bank.

If you are thinking when you retire (about 30 years from now), you can sell your home, will it reach 600k?

The way i figure it, if you want to rent out your place, you better buy the property with as much cash as possible, then pay as soon as possible. You may not have the cash flow, but at least you will get your property sooner. The sooner you pay the bank, the soooner you can make money of your property. Which means, if you only have 50 k, aim for property within range of 100k, not to use your 50k to buy 500k property.

*Disclaimer – this is my opinion alone.

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