Financial Freedom

Real Estate Investment

60% of the world rich people gather their fortune via real estate, property investment has no doubt an important investment vehicle for us to venture into toward the road of financial freedom.

Many people say, if you want to be rich, go to a place where the economy is growing, the property market is growing and settle down there. Eventually, after many years later, even without much property investment so long you own your own house in this place, you can get rich by your property appreciation, this is very much true to many Malaysian who went to Singapore to work and bought an apartment in Singapore 15 years ago, those people have easily end up multi-millionaire (in RM) due to their property value and currency appreciation.

Relatively, compare to a person who opted staying at their home town, say Kulim to work and settle down, after 15 years of today, these two persons probably have a difference in net worth of more than million even though both of them may be doing the same thing as engineer, own their own house eat the same quality of food.

The guy who chose to work in Singapore and bought house in Singapore can probably retire and be financial freedom now if he choose to go back to home town Kulim to settle down and his friend may need to continue working for the entire of his life.

On the other hand, property investment also creates many bankruptcies due to mistake in decision making, wrong timing and speculating.

Thus, real estate investment is a good investment vehicle to gather wealth and also dangerous areas to ruin your path to financial freedom should you reckless in property investment.

Ok, then, what am I trying to tell? on one hand try to encourage on investment in property, on the other hand, try to scare and warn on property investment, actually, what I am trying to say is property investment is definitely a correct investment vehicle to most of us an average people provided he learn, passionate and have enough knowledge on the successful strategy of property investment.

If you want to be success in real estate investment, you need to be above average on real estate knowledge, has intelligence analysis, detail working and planning and develop your skill and experience though actual experience, remember there is no easy money and there is no free lunch in the world.

Below are the principal and rule I gained from my own experience, from reading book, e-book, audio book as below and I would encourage you to read most of these books if not all before start venturing in property investment.

Golden rule of property investment

1. Location

2. Real Estate is its future earning power. The value of the real estate is determined by the income that can be generated by the property when it developed to its highest investment use from today to definite future, the value of home is the value a person who stay there desire to pay for, the value of the rental property is how much the person prepare to pay for its rent, value of agriculture land is determined by the quality, quantity of the crop can be produced by that piece land.

3. You make your profit from when you buy your real estate not when you sell, you make the profit by buying right, by buying right the property and at the right price in turn, when you sell, you simply realize the profit you made at the time of purchase.

4. Avoid greater fool theory, the greater fool theory, sometimes the bigger fool theory is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to “a bigger fool”; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to someone else for an even better price

5. Do not become emotion on the property you buying, even your own house, you buy property is because of its value not the sentimental value.

6. Rule of 100-10-3. Go, survey and view not less than 100 units of similar type of property, compare all the key factors for property investment and make offer to 10 that meet criteria. Out of 10 units offered, mostly 3 will be successful. Thus, to be success in real estate investment is not only reading all the available investment guilds, resource but to go into the “battle” field yourself to feel it and experience it.

Step to begin with real estate investment.

1. Clear specific goal-set property intend to purchase in coming 5 to 10 years.

You need to set a specific goal on real estate investment, for example, you want to have 2 units of cash flow positive property every year for the next five years down the road or you plan to have property price between RM 100k by next 6 months and subsequently to have 3 units of this type of property and 1 capital appreciation property every 2 years etc.

2. Write detail plan of action, organize time and priority- once you have set your goal on the property investment, you need to come out detail plan of action, set priority of your time and organize your time in order to meet your set goal.

3. Master every detail of investment in real estate- with the goal and action plan, you need to ensure you have equipped with full knowledge of property investment to ensure you can have efficient solution in your process of executing your plan,

You need to build up propety agent network, where they will look for you when this is a suitable property for investment.
You need to build up network with at least 2 bankers and to ensure any time you get the good deal, there is always financing to support.
You need to build up relation with lawyer, and get special rate for the service rendered though in Malaysia, laywer has a prescribe billing rate based on property value.

4. Prepare to back your plan with hard work and scarify. Remember the rule of 100-10-3 and there is no easy money in this world neither free lunch, thus, be prepare to back up your plan with hard work and scarify on your leisure time.

5. Prepare to hold for long term -10 to 20 years

Real estate investment does not possess the flexibility of liquidity as share equity investment, you need to prepare to hold it for several year to even 20 years. Despite of this, I would like to share my experience in particularly the topic of timing, I went in one unit of condominium with the method of “buy and fix them”. After getting the key, in a effective short timing, I have managed to rent out the property with cash flow positive return. My first intention is to hold it for long term, however, after 6 months, my property agent came to me that he got one motivated buyer plan to offer to buy my unit with 20% higher of the purchase price I bought. I used down payment of RM25k and spend RM 10k in legal fee and basic fitting and furniture, I managed to make a net profit of RM 40k in 6 months time. After the deal, I summarise the resource against the monetary return as below:

Time spend: 15 hours for viewing, touch up, signing documents

Cash spend: RM 25k down payment, RM 10k legal fee and fitting and furniture.

6 months cash flow: RM 170 per month x 6= RM 1020

Net profit from the proceed against the cost : RM 40k + RM 1020

At a glance, it shows a good return, however 6 months period later after my property disposal, the same area, the property has even gone up to another 20% from the selling price I made. Thus, from the experience, so long the property generate positive cash flow, it may be a better decision to hold it long term.

In Malaysia, there are many types of real estate to invest such as shop house, apartment/condominium, landed residential, industrial property, commercial property and agriculture land.

I only focus on 3 types of property to invest,

A.Shop house

B. Condominium

C. Landed residential

Below are the tips that I use as key foctor for consideration for each property type:

Tips For Buying Shop house

· Always look for location,

· Rental yield of 6% to 10%

· Net cash flow positive

Tips For Buying Condominium

· Always look for location,

· Rental yield of 6% to 15%

· Net cash flow positive. refer to Excel spreadsheet for analysis

Tips For Buying Landed Residential Property

· Freehold or Leasehold

· Always look for location

· Community surrounding

· Amenities surrounding

· School and hospital

· Proximity of public transport

Buy and Fix them method-

Financial glossary

Basic pointer to bear in mind when buying property.

Buy within your means. A general guideline is that the monthly loan installment should not exceed 33% of your take home pay. If you have other installments to service, you should be even more conservative.
Inspect the property. Check for defects that you’ll have to spend money to fix. For example, if a window leaks when there’s a heavy downpour, you can think of asking for a discount.
Consider the land tenure. Freehold and leasehold, it’s still best to buy a freehold properties for long term investment. However, 99-leasehold properties are more affordable and can fetch a higher rental yield, however beware of secondary lease hold houses with less than 40 years of lease hold period, normally will be difficult to get bank loan.
Get in-principle approval from at least one bank. To ensure your hard earn money"deposit" at a risk of being forfeited should you can’t get a loan approval eventually.

When considering bank mortgages, look out for:

Maximum loan duration, if you intend to stretch out your loan repayment. Some banks look at your current age. Some look at the youngest age among all the joint applicants. Others could be more conservative.
Interest rate. Always look for zero entry loan with maximum of minus BLR. Consider fixed interest rate package especially during this period on historical low in BLR. (the BLR will go up again when economy getting better)
Lock-in period. Also called penalty period. The idea is that the bank can ask for a penalty payment if you redeem the loan in part or in full before the lock-in period expires. Check with the bank to be sure.
Freebies. It’s quite standard for a bank to offer to foot the legal fees and fire insurance. But still, it’s good to make sure. And note that if you redeem the loan before the end of the lock-in period, you may have to reimburse the bank for these payments.
Free one-time refinancing. This allows you the option of refinancing your loan at a later time when the bank offers more attractive packages (e.g. with lower interest rates).
Flexi Mortgage. For example, some banks offer to offset your interest payment with the interest earned in another current or savings account. This is extremely popular with cash rich people. How this works is that you deposit your cash in an account (the cash is still liquid; you can withdraw any amount anytime), and whatever interest earned in this account will be used to offset the interest payment for your mortgage loan. This means that a higher portion of your installment goes to reducing your loan principal, effectively shortening the loan repayment period. At the same time, your cash is not locked in any way.

Good property investment resources to read:

· Robert Allen - Multiple Streams of Income - 08-75 - Learning to Invest.mp3(audio)

· Robert Allen - The road to Wealth (Multiple Streams Of Income)

· Robert Kiyosaki - Secrets To Aquiring Real Estate (Audio Book).mp3 (audio)

· The Complete Guild to Real Estate Finance for Investment Properties by Steve Berges

· The 37 most important real estate investing questions