Real Estate Investment

A house is a big part of our life and has a different impact on various aspects of our life. In fact, in Maslow's Hierarchy of Needs, "shelter" is the most fundamental human need. With that being said, most of us have a roof on top of our heads regardless it is a rented property or personally owned. Unfortunately, the world is perfect with all its imperfections and we might see people still living on the street, while many are alone and to some extend, living under the bridge together with their spouse and kids. 

According to Global Homelessness Statistics, there are approximately over 100 million people were known as "homeless" worldwide while over 1.6 billion people go without adequate housing. A great example would be living in a 'house' structure that is not intended for housing, slums, relocated frequently, couch surfing with family and friends while there are still 'hidden homeless" that is not part of the formula. 

With these statistics and facts, it is important to understand how to build your wealth at a young age and start accumulating for retirement.  

Based on my professional experience, I have seen a lot of property players who are regret or simply missed the opportunity to invest or buy a property that has the potential of capital appreciation. Some might argue that it is difficult to choose a wide range of new projects, promotions, or incentives given out by the developers and government while considering;

    1. Developer's branding or reputation

    2. Possibility of the project being abandoned due to financial stress or legal issues

    3. The qualities of the materials on the project, and the possibility of a defect in the future

    4. The developer's past project

    5. Potential of renting out the unit

    6. Criminal rate within the compound or security

    7. The accessibility to essential services; banks, supermarkets, clinics or hospitals, schools, and etc. 

    8. Potential of the upcoming neighborhood and demographics

    9. Potential renovation cost and suitability for future expansion 

    10. Layout and numbers of room & washroom

To name a few, these are the classic issues raised from customers As an experienced financial planner, I was exposed to financial planning with a holistic perspective that could help in making wise decisions in investing in real estate. In this video, we have discussed 'passive income from real estates' and why we should invest in real estate at a young age;

(The Coffee Shop Interview: Best ways to make passive income)

Click the link for a full interview! https://www.youtube.com/watch?v=DSw1oc-agRs

 

We understand that investing in real estate in developed countries is one of the sources of wealth due to obvious reasons such as continuous urbanisation, economic growth, rental, diversification, tax advantage, and generally the stability of capital appreciation.

One of the great examples is McDonald's, a real estate mogul that acquired over $30 billion worth of property portfolio. The company owned some of the hottest real estate on earth, by owning the piece of the property and then rent it to the franchisees in which paying the rent that comes from the sales of burgers and fries!

As we all may be aware, investing in real estate allow us to build up our equity in the long run, considering the interest we pay is reduce over the years. 

In investing in real estate, there are 3 approaches in making a profit;

    1. Property Management (Buy-to-Rent)

    2. Property Flipping (Buy-to-Sell)

    3. Buying REITS  "Real Estate Investment Trust" 

However, it is all comes down to 1 question, what is your primary purpose for this property?

Are you buying this property for your own stay or  are you planing to refinancing in the future for a second house? What actually are you trying to achieve by acquiring the property, was it for investment, settle down or even both while leveraging the capital appreciation for a bigger space or renting purposes? As investing in property could be one of the single largest financial commitments in one's life.

Assuming if you are buying a property, one should consider the following cost:

    1. Minimum upfront downpayment of 10% of the property cost or 30% for your 3rd house

    2. Legal fees for acquiring the property (Sales & Purchase Agreement/SPA/S&P)

2021
First RM 500,000	1%
Subsequent RM 500,000	0.8%
Subsequent RM 2,000,00	0.7%
Subsequent RM 2,000,00	0.6%
Subsequent RM 2,500,00	0.5%

    

    3. MRTA/MLTA or general insurance

    4. Stamp duty fees for loan agreement (0.5% of the loan amount)

    5. Stamp duty fees for Instrument of Transfer 

2021
First RM 100,000	1%
From RM 100,001 – RM 500,000	2%
From RM 500,001 – RM 1,000,000	3%
RM 1,000,001 and above	4%

   

    6. Monthly installment (interest rate)

    7. Transfer of Ownership or Memorandum of Transfer (MOT)

    8. Bank administrative fees

    9. Renovation & Maintenance cost

         *It is highly recommended not to go above 10% of your property value for the renovation cost.

    10. Valuation Fees

    11. Real Estate Agents' fee for renting/selling the house (3% of the property purchase price)

    12. Real Property Gain Tax (if selling off the house) 

    13. Utility deposit

    14. Quit rent & property assessment tax

    15. Monthly maintenance & sinking fund

The next question is, is buying a real property more profitable than simply investing into REITS?

Disclaimer: Opinions expressed are solely my own and do not express the views or opinions of my employer. All views expressed on this site are my own and do not represent the opinion of any entity whatsoever with which I have been, am now, or will be affiliated. This is a personal blog - not a peer-reviewed journal or a sponsored publication. We make no representation as to accuracy, correctness, completeness, suitability, or validity of any information on this site and will not be liable for any errors, omissions, or delays in this information or any losses injuries or damage arising from its display use. This is not a recommendation to participate, buy, sell, subscribe, purchase, of any goods, services, entity mentioned. Any action that you took and/or may take as a result of the information, analysis, experience, opinion, commentary, or knowledge on this blog is ultimately your responsibility, It is the reader's responsibility to verify their own facts.