Invest earlier, get real estate-tic

Income earners in their 20s are fast making their presence felt in the property market. But getting there takes discipline.

HE acquires one property a year. He has been doing this for the past five years. Today, at the age of 38, his one regret is that he didn’t start earlier, when he was in his 20s.

Entrepreneur JS dishes out advice that he himself takes seriously. He tells young people all the time that they should invest in property from a young age, or the money that could have gone into real estate would be frittered away.

He believes that investment in property delivers the best returns. Apart from property, where else can young investors leverage on a 10% investment for a stable future gain? Any other transaction, whether in silver or shares, requires payment in full.

As real estate is based on supply and demand, one has greater control over it compared to paper investments like unit trusts and shares.

JS believes that if a person is determined to own a piece of property, he can do so when he is in his 20s.

His formula is simple: the minute you start working, you should start saving for a property.

Put aside a sum of 20% of your salary every month for two years towards a property. But the challenge will be to live within the balance 80%, especially if it means giving up Starbucks, clubbing, smoking and shopping.

If your take-home income after several years of working is RM4,000 and you put aside RM800 a month, by the end of 24 months, you would have saved about RM20,000.

And that is good enough for a 10% down payment for your first foray into the property market, probably a small apartment in the fringe of the city.

While the cheapest high rise properties in inner Petaling Jaya and Kuala Lumpur are in the region of RM400,000 to RM500,000, it is still possible to buy properties close to RM200,000 in outer KL areas like Puchong, Sentul, Cheras, Seri Kembangan, Serdang, Cyberjaya, Bangi, and in Shah Alam.

With Klang Valley’s population at 7.2 million and expected to rise to 10 million in another seven years, there will be a constant demand for living quarters.

If you are renting out your property (the average yield is about 5%) you will probably have to top up the rental you collect on your property to cover your loan repayment.

As a simple ballpark, the loan repayment would be estimated at RM1,200 a month based on 20-year loan for a RM200,000 loan.

But after a year or two, you can increase the rental and eventually your property will be self-financing.

One father who is completely sold on getting his kids to start young is Ten. He got his daughter, 29, and son, 25, to fork out RM13,500 each to purchase their respective three-bedroom apartments in Puchong for RM135,000 more than a year ago.

His daughter sold her unit a year after the purchase for RM170,000. After the real property gains tax and other costs, she was able to make a net profit of RM25,000. The capital appreciation on her apartment was about 20%, not including her rental income that year.

With that, she now has close to RM40,000 (seed money plus profit) for her next – and higher value – property. In fact, the senior manager of a multi-national is now eyeing a RM600,000 condominium in Petaling Jaya and Ten is fully supportive of her next purchase (only a 10% downpayment is needed for the first two existing loans).

A great believer in property investment, Ten, a retiree, is all smiles these days as his total property investment which was valued at RM3mil in 2010 has since more than doubled. His own house, a double-storey corner lot in Section 17, which he bought for RM63,000 in 1978 after working for five years, is now worth about RM1.5mil.

The phenomenal increase in property prices in the past few years, shares the CEO of a realty firm, is unprecedented. He attributes it mainly to a prevailing low housing loan interest rate of about 4.1%, which is barely above the 4% government housing loan rate.

According to a report by Oriental Realty and Zeppelin Real Estate Analysis Ltd, the residential property market in Malaysia has seen an overall price appreciation of 78% from the first quarter of 2000 to the third quarter of 2011.

While the CEO thinks that buying a property or two for a young adult is a good form of forced savings, he cautions that one must buy within one’s means and be careful with one’s cash flow.

“What if you lose you job tomorrow? Don’t overstretch. As the Chinese saying goes, don’t try to cover 10 woks with nine covers,” says the real estate man who has been in the business for more than 30 years.

A tip he shares for “good deals” is to look out for “leftover” property – often balance or unsold units developers want to clear cheaply or bumiputra units – which are not advertised but handled by the bigger real estate agents. Usually, there will be innovative schemes to make the units affordable. New launches are a good place to start too.

Sometimes, it’s also a fine balance between patience and research and paralysis by analysis.

Leigh, 35, was on the lookout for a property to buy when he was in his 20s. But every time he found something in a new development that he liked, his real estate businessman father would pooh pooh it.

“The first property I looked at was a studio apartment going for RM90,000. My dad was not keen as it was a new area. Today, it’s worth RM250,000.”

On his fourth attempt in 2009, he managed to buy a condominium unit still under construction in Subang at a good price from someone who had an overseas posting. He sold it two years later at RM600,000 and pocketed more than RM200,000.

When Leigh bought his current home in Mont Kiara, he took his time and studied the area, went to the ground and spoke to owners instead of researching only via online portals.

“Most of the owners were asking for RM580,000 to RM620,000. So I told real estate agents that if there were any units going for below RM550,000, please alert me,” says Leigh who joined his father’s realty firm four years ago.

After three months, he got his break when a Singaporean owner wanted to sell his unit and Leigh paid RM530,000 for it!

His advice to young investors: do your homework. Study the master plan; look into the background of the developer, quality and design of the product. Be clear on what you want: are you looking for capital appreciation or rental income? If you need the rental income to cover the bulk of your monthly housing loan, you would choose the latter.

For an investment of RM20,000 plus a housing loan, your return after three years upon completion of the property could be more than two fold.

And the key to your first property – based completely on your own finances – is to save for it.

When it comes to saving, don’t worry about the amount, worry about the habit. Says a financial coach, if you’re an employee and you’re not earning the income you need to make that first property, look at how you can add value to your boss to get that increment. If there’s a will, there’s a property waiting….

Common Sen-se by LEANNE GOH

Note: A recent chat with a 29-year-old colleague was enlightening. She has already sold one property, bought the one she’s living in and has invested in another. Among 10 of her friends, four have already bought property. 

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