Be Responsible Lah When Investing

Recently, I came across a group of people buying multiple properties like playing Monopoly Board Game. I felt impressed with the way and speed they grow their property portfolio from 2 to 3 properties to 8 to 9 properties in the span of a few years only!

It is like having competition on who owned the most properties.

What makes it more interesting is that some investors would claim that they are employed and are taking peanut salaries. If it is so, then how would they be able to get financing for all the properties that they have purchased? Think creative. There are numerous self-declared property sifus out there who would be able to guide you THE SECRETS of CREATIVE FINANCING if you know who to look for.

Let's do a case study here on owning 8 properties using conservative assumptions.

Averagely, each property purchase price is RM500,000.

- Margin of Finance for each property is 70% (for more than 3 property units)

- BLR -2.4%

- Loan Tenure: 30 years

Monthly instalment for each property would be RM1,763.

Monthly instalment for 8 properties would be RM1,763 x 8 units = RM14,104 !!!

This is excluding other inherent costs such as service charge, maintenance fees, quit rent, assessment tax, fire insurance and others.

To be able to own or invest in 8 properties means that the investor would require a month’s salary of RMXX,XXX, or perhaps USDX,XXX?

Of course, many would say that rental income derived from the property could be used to offset or cover the monthly instalments. But the reality is that an investor would still require some time to secure a tenant and this is when savvy investors would need to have enough HOLDING POWER during the vacancy period.

No doubt property investment is one of the conventional type of investment method and that it has been proven to be a good hedge against inflation. However, I believed that one should be more RATIONAL and RESPONSIBLE when comes to property investments.

In my opinion, savvy investors should provide ready funds of at least 6 months to 1 year of loan repayment amount in hand before investing on another property. Why minimum 6 months?

  1. For those who are wanting to RENT their property:
    1. The need to spend some money to furnish the unit, partially or fully; and
    2. Generally, it will take at least 2 to 3 months to secure a tenant.
  1. For those who are looking to SELL their property:
    1. Let’s say you are fortunate enough to secure a buyer almost instantly upon taking Vacant Possession (VP). For freehold property, it will require 3 to 4 months to facilitate the transfer of ownership; and
    2. At least 6 months for leasehold property to fully transfer the ownership of the property and get your money in full.

Think about, what if more time needed to secure a buyer? Let’s say around 2 months to look for the right buyer. Then the holding period will be much longer than 6 months.

Hence prudently, it will be good to have holding funds of at least 6 months of loan repayment before moving on to the next property purchase!

Don't get us wrong here. We are not discouraging people to invest in properties. We just felt that investors should exercise their investment decisions prudently and responsibly.

Property is an ASSET as well as your LIABILITY as well.


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