A degree, a job, and a car – check to all those boxes. Similar to most Gen-Ys out there, the next item on my list would be my own property. That idea seems daunting, however, as the economy is not so rosy at the moment. But then again, I do not want a sizeable chunk of my salary to go to monthly rental payments forever!
Not that I would know where to start – how do you actually get your foot on the property ladder?
Turning the archetypal strategy of “saving until you have enough money for the down payment on your dream home” on its head, the property investor said that young-uns out there should follow the buy-to-rent and rent-to-stay maneuver.
Apparently, the idea is to buy a property with a high rental yield, preferably one in the city and to rent a place of your own somewhere considerably cheaper, i.e: the outskirts of the city. Renting in a less desirable area where the rent is lower translates to savings, which can be used to pay the 10% down payment of your first piece of property. The bottom line is that you will be buying said property to rent out and obtain a monthly income, not for your own stay.
Sounds inconvenient – was the first thing that popped into my mind. Bursting my self-pity bubble, he says that most Gen- Ys have big expectations and expect immediate results; but not always knowing or valuing the steps involved to reach those expectations. In this era of smartphones, my generation has not really grasped the concept of delayed gratification. As he puts it, property investing is a journey, one that requires time, effort and not to mention sacrifices.
Being a young writer with a modest salary, he says that my best bet is to go for the cheapest rental property out there – studio apartments. First timers should start looking for units in the city center and slowly move outwards to an area where they can afford a property. This is because residential units in and around the city center are highly tenantable and will always be in demand from renters.
Rebutting my exclamations that it is impossible to obtain a property within my budget (RM300,000 – RM450,000), he said that they are studio apartments around Kuala Lumpur in that price bracket. For instance, studio units in First Subang, a serviced residence in SS15, Subang Jaya are going for RM380,000! His advice?
Do your homework Gen-Ys; you just might have to spend less time Facebooking and carrying out research instead.
My next lament was of course over monthly installments – how do I ensure that I am able to pay them off each month without me having to starve myself? The property investor shared his one tip – make sure that your rental property has tenantability, or in other words, you will ALWAYS have someone interested in renting your unit.
On tenantability, he shared the wisdom he obtained from his own mentor – Would you yourself want to live there – Are there eating outlets nearby? How far is it to the nearest LRT station? Also, imagining the worst case scenario, where you are unable to obtain a renter; you will have a fall-back plan where yourself would be able to stay there.
Another point to look out for is the catchment area – for instance, hospitals and colleges nearby would mean there is always a student or nurse who could be a potential renter. The cardinal rule is to carry out extensive planning and research to make sure that you are buying the right product.
One upside for first time home buyers is that they are able to obtain optimal profits from investing in a rental property for their first buy, as they enjoy a 90% loan. As the property investor explained, you must leverage as much as possible for your first investment property. Not only would your monthly installments be lower, but it would be covered by your tenant, thus guaranteeing a positive cash flow.
After a few years, profits from your rental income and savings from your own rental payments will enable you to obtain your very own nest egg. Then, it is up to you to either upgrade to a fixer-upper or to buy your second piece of property, as long as it ensures an increase in your monthly cash flow.
The views expressed here are solely of Reena Kaur Bhatt, writer at iProperty.com Malaysia and do not represent that of iProperty.com Malaysia and should not be construed as professional advice. Readers are encouraged to seek independent advice prior to making any investments.