Property investment is not a game, it’s hard work

Property investment is not a game, it’s hard workThere is no denying that property remains as one of the most attractive investment vehicles out there, but many have gotten burned when they buy the wrong product or purchase for the wrong reasons.

Every aspiring investor should have the following must-do’s on their check list:

Educate yourself first

“So many people spend more time researching over the latest hand phone they have their eye on compared to when purchasing property!”

Property investment is a war zone and you have to equip yourself with proper ammunition before venturing out into the battlefield. Many people take real estate knowledge and research lightly, most will be happy enough to depend on word of mouth or plain luck.

If you can spend hours on blogs comparing between S8 and iPhone7 and scrutinising every last detail for a small ticket item, why can’t you do the same or even more for a property?

The truth is you cannot earn if you never learn – It is a rule just like Newton’s gravitational law. An investor’s first step to fully furnish himself with these 6 key areas:

1. Enrich your mind – Glean as much knowledge possible; read and read even more.

2. Master the basics of real estate.

3. Know how to select your asset – The difference between a good and bad property is the distinction between your failure and success.

4. Figure out the best financing option for your property.

5. Study property law and taxes.

6. Keep your personal finances in check.

Know The Reason Why You Are Buying

“A guy once told me that he bought a property just because of me, he thought investment gurus like me were cool and that my success will rub off him – that is the scariest reason that I have ever heard!”

He is not the only one – there were students of mine who bought a property which had an RM3,000 monthly instalment; one which he cannot afford. But, he went ahead with the deal anyway just because the property was next to an MRT station and somehow this makes it okay.

What happens when the repayments kick in? Is it any wonder that foreclosures have been steadily rising of late? We cannot have unsavvy investors like these two as they will weigh down the market.

There are only two reasons for purchasing; for own stay or investment. The latter is either for rental or capital appreciation. Investors must determine their goal before stepping into the property boxing ring. Do not purchase for the sake of purchasing; those who do so might find a money-sucking monster on their hands instead of an asset.

Determine your affordability (EVEN IF you qualify for a loan)

“The irony is many people do not even know what their monthly expenditure is, but they want to be a millionaire”.

Leveraging and borrowing to invest in property is the way to go but qualifying for a loan does not mean it is a sure-fire recipe for success.

Investors must take note of the pecuniary risks involved and learn how to manage them. Consider all the things that can go wrong at any point of time. What is your backup plan when something happens to you? To avoid financial predicament down the road, the following prerequisites are a must for every investor:

1. Have an Emergency Fund – Keep aside 6-9 months of your monthly expenditure for rent, food, family necessities, etc.

2. Medical Fund – Remember, it is not if it happens, it is when

3. Slash Credit Card Debt – No property out there can give you an 18% rental yield. So snip up your cards, do not spend money you do not have.

4. Manage PTPTN Debt – If you cannot even sort out the minimum RM50 each month, do not even think about property.

5. Leave Your EPF fund alone – Do not dip into your retirement savings scheme, bear in mind the rising inflation and costs of living.

Study history

“Past performance does not determine future performance but the greatest failure of humanity is when the current generation does not learn from the previous one.”

Learn from mentors who have had loads of experience. They would be the best source for financial tips, lessons learnt and pitfalls to avoid. Also, it is imperative to study economic benchmarks such as the Malaysian GDP Growth – During the economic crises in 1985, 1998 and 2009, these were the best times to buy as there were many property sellers and developers who were willing to offer discounted prices. Nevertheless, you have to stop for a reality check. Many people who have this ‘get rich quick dream’ fail to neglect that lucrative returns from property investment rely heavily on prices continuing to rise quickly.

Foolish optimists have to remove their rose-tinted glasses and take note of the current economic situation. Granted there is a slowdown, but we have not yet hit a crisis. With global economic uncertainties, there is a chance that markets might take a turn for the worse down the road before the country’s economy improves. Hence these next couple of years will be a rough patch for consumers and prices are not going to grow as exponentially as it did a few years back when the property market was on an upswing. With the current market bottoming out, investors will have to be more realistic with capital appreciation growth and rental yields.