Making money through property can sometimes be complicated, especially for beginners. Most new investors tend to look to seminars or talks in order to learn more about property investing, and often times, these platforms offer knowledge or information that would sometimes be either too advanced to digest or downright confusing. Well, everyone has to start somewhere, so here are some tips and pointers for those who would like to take it slow and to learn the basics of property investing.
Type of Property to Buy
1. Residential
Also known as one of the most profitable, easy to liquidate, and safe investment. Below are what you can expect from investing in this type of property:
- Resale Potential
There is almost always no short supply of buyers for residential properties. So this means high liquidity rate. Should you have the need for a sum of money during urgent times, it’s safe to bet that you will encounter less trouble trying to sell a residential property compared to a commercial one. However, other factors like location and condition of the property will also have to be taken into account.
- Potential Yield and Income
Given that demand for residential properties is much more constant, opportunities of finding tenants to rent out the property to will be much better. When you do find a tenant, it could also mean a stable income from your rental yield.
However, renting out your property also has its risks. As such, always do what you can to determine whether you are comfortable facing the potential hassles of renting. Most seasoned landlords will tell you that students and families should be avoided, while individual working adults may be a better choice. But in the end, it all boils down to the type of residential property you are investing in, as well as the potential tenants themselves.
Extra read: Spy-Worthy Background Checks on Tenants before Renting Out Your Property
- Rental trend and supply
Most young adults today follow the trend of renting their own place to stay as soon as they secure their first job, while most continue to rent for a long period of time due to increased prices of homes these days. These factors contribute to a constant supply of tenants for property owners, especially residential ones. Young married couples are also of no exception, where many choose to rent while saving up in order to buy their own house one day. This trend will not likely subside and experts predict that it will only continue to increase as the population grows.
- Financing
The Malaysian government has taken steps to ensure that Malaysians can afford to own a house. This opens up opportunities for many financially-abled individuals to get loan from banks. Down payment for these types of properties are also considerably lower. Moreover, depending on the type of property that you want to buy, you can get as much as 90% to 100% loan.
Read more: Things to Look for When Applying for a Housing Loan
2. Commercial
Commercial properties are shop lots which are used for business purposes. Before owning a commercial property, one has to consider things such as economic cycles. When the economy is doing well, yields from rental of commercial properties are usually good and consistent, but otherwise stagnant when in recession.
Apart from that, the amount of loan you can obtain from banks are usually around 80% or less. The financing cost of it is also higher compared to residential property. Also worth noting is that utility bills for this type of property is much higher than residential properties.
- Potential rental yield
One of the best perks of owning and leasing a commercial property is the amount of income that you can potentially get from it. We are looking at 6 to 12 percent of the purchase price in annual returns, which is significantly higher than residential properties. Nevertheless, location still plays a role in determining the percentage of rental yield.
- Consistency
Generally, business owners rent your property to do their business for extended periods of time. As such, the rental yields from this type of property will generally be more consistent. They are also more likely to pay rent on time in order to avoid rental disputes and allow their business to go on smoothly.
- Maintenance
Every property will eventually deteriorate overtime, but commercial properties will probably remain better maintained for longer periods of time. Those who rent commercial properties usually do business in it, and will have to maintain their establishment in order to give good impressions on their customers, lest their business suffers. As such, maintenance will not be as prominent an issue for your part.
- Wear and Tear over Time
One of the main reasons commercial properties last longer than residential properties is the fact that most businesses run according to the normal 9 to 5 working hour. Unlike homes where some people are there 24/7, commercial properties will most likely be vacant at night. The reduced amount of usage or occupancy of your commercial property will put much less strain on it in the long run.
- Valuation benchmark
Based on the type of business conducted by your tenant or other tenants in the same area, you can easily get the general idea of their income potential. This will be a good pointer for you to decide on how much monthly rental your property could go for.
3. Serviced Residences
Serviced residences is a commonly confusing category of properties. Nevertheless, one thing that you should note is that serviced residences are commercial-titled properties that are also designed for residential use.
- Flexibility
Given the role of serviced residences, this type of property is able to cater to different sorts of tenants. The units are also commonly rented out semi or fully-furnished, appealing to both renters who prefer short-term and long-term stays. Serviced residences also usually comes with hotel-like amenities such as a main lobby, front desk concierge, housekeeping, 24-hour security, parking, and other facilities.
Extra read: Condominiums or Serviced Apartments- 7 Things You Must Know Before You Buy
Valuing Your Property
Knowing what property to buy only wins half the battle, knowing how to value your property will get you through the whole campaign. Here are some factors which may affect the value of your property:
(i) Location Matters
Location is one of the most essential factors when considering an investment property, such as distance from schools, offices, and retail outlets.
For residential properties, the closer your property is to amenities and other infrastructure, the more likely it is to increase in value over time. You should also take note of future developments in and around the area, which can also largely contribute to an appreciation in value.
(ii) Security
The safety and security of the neighbourhood in which your property is located is also important, given that properties in unsettling neighbourhoods or areas may see a dip in value if there are no improvements over time.
(iii) Accessibility
Be it by train, taxi, or bus, your property will be much more valuable when they are well connected via roads and highways which can enable easy accessibility. Accessibility to amenities nearby should also be taken into account.
Did you know that PropSocial’s “Neighbourhood Review” page tells you what amenities are in the area and even the highways nearby?
(iv) Leasehold VS Freehold
In short, leasehold property is considered as a fixed asset with a certain lease period (usually 99 years). When the lease expires, buyers will then have to apply with the relevant governmental authority to extend the lease. Should the application be rejected, the owner will then have to vacate the property. Whereas freehold-titled properties owner may own the property with no time limit, unless they decide to sell.
Given the complexity and fear of “not owning” a property if it’s on lease, most buyers prefer freehold properties. This will definitely affect the selling and buying price of a property. However, debate is still ongoing as to whether Freehold or Leasehold title really matters when it comes to buying a well worth property.
(v) Future Development Prospect
Despite it all, one of the most determining factors in property investment is the future of the property. Regardless of whether you’re buying in a well-established neighbourhood or one that is upcoming, it is essential that the property has a good prospect of further development in the future. Look to both developer and government-planned facilities and infrastructure in the coming times, as well as other upcoming developments like shopping malls and so on which will contribute to the growth of your property’s surroundings.
Knowing the Legal Aspects
So now you’re all set? Well, not quite yet. Before jumping into property investment, having knowledge of the legalities is also important, where the Housing Development (Control and Licensing Act) Act is one of the most important one to be familiar with.
Additionally, you should also consider the Difference between Commercial and Residential Titles, which will greatly affect your choice of investment, as well as give you an idea of what rights that you have as a buyer over the developer and what laws and measures are in place to protect you in cases of disputes, such as the Tenancy Agreement.
Conclusion
Property investment is not a trade that can be mastered overnight. However, by being equipped with the knowledge of what different types of properties offer, as well as factors like location which play a role in the appreciation and value of your property over time, you will certainly be starting off on a better footing.
Don’t know where to start? Propsocial has all the features you will need to find the right property to invest in! Sign up now and join in our community who’ll give you great insights on property investment at the Discussions page.
(Written by: Muhd Hanafi, 22nd June 2017)
