Properties – innercircle

[toggle title=”Q&A: Should I invest in small properties first before moving on to bigger properties?”]Hi Mr Azizi Ali,

I recently started studying about property investments. I also read your book How to Become a Property Millionaire and it is really amazing and easy to understand. However, I still need to learn more in order for me to get a good investment. Currently I am reading a book of how and why we have to choose our own lawyer for buying own properties. So I hope that you can guide me on what book to read to gain further knowledge on properties.

Also, I need your advice of Palm Spring at Damansara. Is that condominium a worthy investment? I search the value at moment is about RM220k to RM250k for a two to three bedroom unit. I thought it would be better for me to invest in a small condominium before going further with a bigger investment.

Your kind reply is much appreciated.

Thanks
Ken Lai

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Hi Ken Lai,

Thank you for your kind words, Ken. I’m happy to know that my book has helped you and even happier to know that you want to continue your education. This is an excellent move – the more books on money matters that you read, the wealthier you will be. (That’s why I read three books a week.)

As far as my recommendations on the titles, you must read all my four books on property investment! (No surprises there.) But don’t stop there; read as many books on the subject matter as you can. The good thing is that there are quite a number of good books on the subject, written by Malaysian authors and those from overseas. I would recommend 40 Questions You Should Ask Your Lawyer Before Buying a Residential Property in Malaysia by Khairul Anuar, The Millionaire Real Estate School For Beginners by Wendy Koh and Real Estate Investing For Dummies by Eric Tyson.

Next point; your idea of investing in a small condo first is spot on. It ties in nicely with the concept of learning as much as you can about the subject, starting small, getting some real life experience, and then growing bigger as you get better. This is a tried and tested success formula. My first property investment was a RM100,000 PKNS apartment – thought you’d like to know that.

Thirdly, I’m afraid that I don’t know a lot about Palm Spring condo therefore am unable to comment much on it. However, I can say this: the location is certainly a plus – it being close to Mutiara Damansara. You can get more details easily about the condo by Googling the name and logging on to the relevant web pages. You should also talk to real estate agents, current owners and also renters there.

Finally, you should consider looking at other properties before making your decision. Property investment is like the fairy tale about the frog prince – you have to kiss a lot of frogs before finding your prince! Likewise, you have to look at a lot of properties before finding a gem.

I wish you the best in your quest, Ken. Have a great future ahead of you.

Regards,
Azizi Ali
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[toggle title=”Q&A: Is there any legal avenue for me to challenge the bank on fire insurance?”]Hi Azizi Ali,

I have recently purchased a landed property (22×70, 2,500sq ft, completed unit from developer) worth of RM500,000. I took a 90% loan from the bank. I was informed that I need to insure my house with fire insurance up to 80% of the purchased price. Is this correct?

As far as I understand, we only need to insure the cost of building the house, not the purchase price which include the land and of course, developer’s profit. My house price is worth RM500,000, but I do not believe the cost of building the house would cost 80% of the purchase price.

Is there any legal avenue for me to challenge the bank?

Thanks.
Andrew

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Hi Andrew,

Firstly, I must state that ALL property owners should have fire insurance, regardless of the financier’s terms. In fact, I believe that they must have fire insurance even if they owned the property outright. Though the chances of a fire are slim, it is there. Don’t think it cannot happen to you. One of my colleague’s house – a double-storey detached house in Kota Kemuning – burnt down a couple of years ago. If it can happen there, it can happen anywhere!

Right, now that the preaching is over, let me answer your question, Andrew!

The way your question came in suggests that you did not know about the fire insurance until after taking the mortgage from the bank. It also suggests that the bank insists of the insurance being 80% of the purchase price, which is making you unhappy. And to add to your dissatisfaction, you are right about the insurance should be just the cost of rebuilding the house (land does not burn down).

Now, there is no right, wrong or even standard practice about fire insurance. Some banks insist on the borrower taking a policy (especially if the bank has a subsidiary that is selling insurance!), some don’t. However, some of life’s battles are not worth fighting – they are too little or you just cannot win. In this case, it is both – it is too little and it will be difficult for you to win.

So, instead of challenging the bank, which will be like shouting at the moon and a complete waste of your time, Andrew, why don’t you just refinance the mortgage to another bank, one which does not force their customers to take up the fire insurance. There are plenty of financial institutions that will be more than happy to have you as their client.

More importantly, it would be a saner and cheaper way of solving the issue instead of going to court.

Regards,
Azizi Ali
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[toggle title=”Q&A: Are property taxes in Malaysia 10 times more than Singapore?”]Hi,

I am looking at buying a property in Johor and was quite surprised that the annual property tax rate in Johor is more than ten times that of Singapore. I am not sure if this is true for the whole state or country. It seems that each municipal have their own assessment. The few cases that I checked, the rates are 10 to 20 times more than Singapore.

As Tun Dr Mahathir said, the country’s growth rate is slower than Singapore because of the welfare system. But with so much natural resources and such high annual property taxes, it’s surprising. It’s a “perpetual mortgage”, and they increase it every now and then.

Nobody seems to mind. Malaysians are RICH!

Am I missing something here?

Best regards,
Bao

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Hi Bao,

I have to admit to being stunned by your claim that property taxes in Malaysia are ten to twenty times higher than in Singapore. So I checked with my contacts there. I’m told that the tax payable for a 1,400sq ft HDB apartment in Singapore is $166 (about RM390 at the current exchange rate) after deducting the GST rebate and owner-occupied HDB rebate. As a comparison, I’m paying RM1,214 property tax a year for a 1,033sq ft apartment in Bangsar in Kuala Lumpur (which by the way is one of the up-market areas in the whole country). So this means that your claim is a little bit out, Bao. Property taxes in Malaysia are only about four times more expensive than Singapore, and not ten!

Jokes aside, I’m afraid that you are right, Bao – property taxes are indeed high in Malaysia. Of course, no one here is happy about it; but since when taxes are low enough for anyone’s liking? I’ve never met a citizen of any country who believes that the taxes in his country are ‘reasonable’. All wishes for lower taxes.

On the other hand, to get all worked-up or worse, avoid investing in properties because of the ‘high’ property taxes would be incorrect. The truth is that property taxes are just a small part of property investment, just like legal fees and insurance. Yes, you should consider it but it should not distract you from the main thing – making money from properties. After all, properties are tried and tested wealth building instruments, so you should certainly participate in it. Learn as much as you can about it, do your homework and choose carefully.

Always remember that the primary purpose of investment is to make money. Anything else that you may gain along the way, including tax breaks, is just a bonus. I am sure that the value of the properties in Johor Baru will rise higher in the days to come, especially if Tun Mahathir’s proposed ‘Crooked/Scenic’ bridge comes into being!

Regards,
Azizi Ali
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[toggle title=”Q&A: Any suggestions on good places to open a restaurant/café?”]Dear Azizi Ali,

I’m interested in opening a restaurant/cafe. Do you have any suggestions on good places? I’ve no real criteria yet, so I’m open to your suggestions.

Thank you.

Sincerely,
Daniel Lee

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Daniel,

At first I thought of skipping your question because I’ve never cooked all my life! So I thought advising someone about restaurants/café may look odd. But then I realised that while I don’t know much about cooking, I know quite a bit about business.

So here goes: If I were to open a restaurant, I would open it at a place that is packed with people – malls such as 1 Utama, Sunway Pyramid and Mid Valley would be perfect. In fact, I would choose a spot close to an existing popular restaurant. Why? Because there’s already a crowd there.

Next, and it may sound basic, but I would ensure that the restaurant is suitable for the crowd. For example, if the crowd is predominantly Chinese, I would not be opening a Malay food stall there, and vice-versa. By the way, this is a way too common mistake that novices make.

Third, I would learn as much as I can about the restaurant business, not so much about the actual cooking. This would mean reading as many books as I can about it, learning from current restaurateurs and perhaps spend some time working in an existing restaurant. I would learn about food presentation, tables, up-selling and how to sell during the non-peak periods. I would create multiple and reliable supply sources. I would develop systems, checklists, workflows, processes, and then ensure that everyone follow the system. I would ensure that the staffs are properly trained, polite, helpful and kind. Most of all, I would ensure that I have enough money to run the business for at least a year even if there is no income. This is so that I would never run short of cash at any time during that critical first year.

Finally, I would open a premium restaurant, not those offering cheap food. Why? The margins are better.

Of course, there are a lot more things I would do before opening the doors. Considering that the restaurant business has one of the highest failure rates of all businesses, you must really do your homework before opening one. Make sure that you know as much as you can about the business before jumping into it. After all, if opening a restaurant is easy, any fool can do it. The trick is to ensure that the restaurant stays open one year, two years, five years from now – that is not so easy.

Don’t forget to invite me to the opening though!

Regards,
Azizi Ali
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[toggle title=”Q&A: Leasehold properties – good or bad investment?”]Dear Azizi Ali,

I am getting confused with leasehold terms. I guess many people out there share the same feeling as mine.

If I’m not mistaken, leasehold usually comes with 99 years. Government leases the land to the developer and then from that day to planning, constructing and completion, it might just remain 90 years. Construction is just 3 years but there might be other delays such as the developer putting the project on hold for a better timing to develop. Please correct me if I am wrong here.

Okay, back to the situation above. Let’s say, the lease just remains 90 years. If I were to buy an apartment from another buyer at RM180,000 with loan tenure of 30 years, probably after 30 years, the apartment will be fully paid. Here, I am not sure whether the price of the apartment will appreciate or not due to the balance of 60 years’ lease. However, another doubt here is whether any buyer is willing to buy an apartment with lease that has 60 years left? And if I were to keep the house and pass on to the next generation, what will happen if the 99 years’ lease is due? Will the government take the land back, with compensation or no compensation, or extend another 99 years of lease?

Conclusion, do you think that it is a good investment since the leasehold property doesn’t appreciate much?

Regards,
Koay

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Dear Koay,

Firstly, let me explain the difference between freehold and leasehold. A freehold property is one that is owned in perpetuity by the owner (on the condition that he pays the quit rent). A leasehold property is one that is leased by the state authority to the buyer for a fixed term (period not exceeding 99 years). Once the lease has expired, the land reverts to the state, which is obviously not a desirable state of event for the owner. To overcome the situation, the owner must either renew the lease before it expires or apply if the lease has expired. The bad news is that both will require a lot of money, almost like buying the land all over again!

So because of this, it is obvious that (1) freehold properties are more coveted, and (2) leasehold properties that are close to the end date will drop in value. However, the reality is that most of the freehold land in Kuala Lumpur and many parts of Petaling Jaya are already developed, which means that you can only buy them on the secondary market (sub-sale). This leaves only the leasehold properties if you want to buy them brand new.

In the long term, properties, especially those in urban areas (both freehold and leasehold), will increase in value. So, to avoid them just because they are on leasehold land would be incorrect. As long as the lease has some way to go (anything more than 50 years), you should still consider buying the property if the location is hot and you can get it at a price below the market value – even if it is leasehold. The hot location should enable you to charge a high rental, therefore increasing both your yield and capitalisation rate. As the years go by and the lease reduces, you should sell the property before it gets to the 50 year mark, thereby pocketing a generous capital gain in the process.

Of course, a different answer applies if the lease is less than 50 years. If this is the case, you should really look elsewhere! Anyway, there are literally hundreds of thousands of properties in Malaysia. And more are being built as you read these words. Surely, you can find a few gems among them.

Incidentally, the most profitable real estate deal for me came from a leasehold property. Thought you’d like to know that.

Regards,
Azizi Ali
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[toggle title=”Q&A: Is it better to go for fixed rate or BLR-based loan?”]Dear Azizi Ali,

The current market seems to be positive as prices of houses are soaring high especially in the Klang Valley area. Banks too had started to readjust the loan rates. BLR began to increase. This means that the sum that we are paying now may not be the sum that we will continue to pay in the next few years. I heard that in year 1997, the loan rate is as high as 11%. I am not sure how true that is, as I was still in secondary school at that time.

My question here is, as I’m buying a house for investment purposes (for renting), my payback period will definitely be 30 years and will not shorter than that. Do you think that it is better to go for fixed rate loan or BLR-based loan?

If the monthly rental I collect, let’s say RM900 and monthly loan instalment is RM600, I will still get RM300 monthly from the house. I worry that if BLR changes, my monthly loan instalment will be higher than my rental, which means that I need to dig from my own pocket to pay the difference.

Please advice based on your experience as millionaire property investor.

Thank you.

Regards,
Kevin

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Dear Kevin,

I’m not sure about the exact height the interest rate climbed to in 1997 as I was also in school at that time! (Actually, I was visiting my daughter at her school.) But yes, you are right, the interest rate climbed to double digits during that time. This increase meant that the monthly repayments of all the variable interest rate mortgages climbed up as well, which torpedoed the budget of many a borrower. A lot of them saw their monthly payments rising by 10 or 20 percent. Not surprisingly, this hefty increase led to much problems, heartaches and even arguments between couples.

Fortunately though, the situation did not last for too long as the then Prime Minister, Tun Mahathir, decided to take matters into his own hands. He fired the Finance Minister, took over the post himself and promptly reduced the interest rate back to single digits.

After that very brief history lesson, let me now get back to your question. I must say that you are a very smart young man as you are already concerned about the long-term interest rate, Kevin. (When I was your age, I was more concerned about my sports car!) No one knows what the interest rate will be in 5 years’ time, let alone thirty years. A lot of things can and will happen in that time. Some will be good; some will not be so good. The one sure thing is that things will be different in the coming decade. In fact, there will be some major upheavals that will turn everything upside down, and then some. As to what these upheavals may be, it could be hyper inflation, explosion of derivatives, collapse of paper currency or God forbid, another World War.

One of the negative effects of all the upheavals is that the interest rate could rise to double digits again. And when that happens, the same monster will reappear – the monthly repayments of all the variable interest rate mortgages will shoot up, hammering the innocent, the unwary and the greedy borrowers like a freight train. And unlike in 1997, there may not be a saviour to save the day this time. You may be on your own.

So the answer to your question is this – take a fixed interest rate mortgage. While the interest rate charged for a fixed interest rate mortgage may be slightly higher than the interest charged for a variable interest rate mortgage today, you should be paying a lower total repayment in the long run. Next, the fixed repayments mean that you can plan your cashflow better, reduce your workload and also your problems. Most important of all, you will be protected from interest rate rises throughout the period. And oh ya, it will help you sleep better at night.

Regards,
Azizi Ali
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[toggle title=”Q&A: Should I keep the property or dispose it?”]Hi!

I bought a condo a few years ago for RM255,000 from a developer, thinking that the value will go up. The condo is supposed to be in a good area. However, after a few years, I noticed that the value of the property has never gone up and in fact, now I believe that the value is lower than my purchase price. I’m quite lucky because the condo is very near to a University and thus I have no problems getting a tenant. Now I am renting it for RM1,200 per month (partly furnished).

My question is whether I should keep the property or should I dispose it? At the moment, my rental does not cover my monthly installment, what more the maintenance fee, which is very high among all other properties I own.

Norlia

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Hi Norlia,

As I understand it, you’re losing money every month as the rental cannot cover your mortgage; this is before adding the maintenance fee. Worse, the price is lower today than what you paid for, which takes some doing as prices in many areas have risen significantly in the last couple of years.

Anyway, Norlia, don’t feel too bad about it – we all lose money at one time or another. I too have lost money before. It is not something that I’m happy or proud of but hey, this is real life! After all, even billionaires, e.g. George Soros and Warren Buffett, have also lost money.

Next, and this is a critical lesson in building wealth, you must learn to cut your losses. Once an investment has turned south – a polite way of saying that you lost money – sell it. Sell it, salvage what is left and use the money as capital for a better investment. If you don’t cut your losses, you may actually lose all instead of just part of your money. It also means that you will have less capital for the next investment. Worse, it will continue to haunt your insides as you are constantly being reminded of the error.

Actually, common sense will tell that we cannot win all the time. We do not score 100 percent in every exam; what makes anyone think that they can win all the time and therefore score 100 percent in investing – a subject that very few people are experts in? Actually, if we can win 80 percent of the time, that is a good batting average already. Most people win less than half the time, which explains why not many people are rich. At the same time, winning 80 percent means that we will lose 20 percent of the time. The trick is to know what to do when you know that you have lost. The answer is to cut the loss, salvage what is left and move on.

Until you learn to do this, it will be difficult for you to build wealth. Now, I’m not saying that it is easy or something that is fun to do. What I’m saying is that you must learn to do so if you want to become a successful investor and build serious wealth.

In your case, you should consider selling off the apartment so that you can move on with your life. Drop the price so that it will attract buyers. Yes, it may hurt when you sell it at a loss, but the hurt is only once. If you keep the apartment, it will continue to hurt you every month.

Finally, and this is extremely important, make sure that you learn the lesson and do not repeat the same mistake again. As the saying goes, “Fool me once, shame on you. Fool me twice, shame on me.”

Regards,
Azizi Ali
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[toggle title=”Q&A: How would you know if it is the right time to sell?”]

Dear Azizi Ali,

I purchased a condo unit in SS2 some 15 years ago. The property hasn’t appreciated until recently, about 70% from the purchase price. I’m considering selling it before prices might drop as indicated by some of my friends, and use that money to get property when the price is right.

Right now, I’m unsure whether to sell it or not as the property is freehold and this place is centralised. Moreover, there’ll be a mall coming up soon. The reason of my indecisiveness is because I’m afraid that the price of my property might increase further. Thus, I will lose if I sell it now. So I’m in a very confused state.

How do you tell if this is the right time to sell or not? I’ve been holding on for so long and I don’t want to make a mistake again.

Looking forward to hear from you.

Regards,
Annie

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Hi Annie,

From what you have written, prices remained flat for many years and only shot up in recent years. That is probably because the value of most other properties in PJ (Petaling Jaya) rose in the last couple of years. Actually, the rise of 70 percent in 15 years translates into an annual growth of only 3.6 percent! This is hardly a stellar performance.

So, you could certainly do better elsewhere. At the same time, you are also concerned that prices may rise further because of the freehold status, centralised location and the upcoming mall. So if you sell now, you would probably be kicking yourself if the prices shot up after that! Your indecision is not unusual, Annie. Actually, it happens to basically all of us.

One reason for this is because we are getting conflicting signs from different sources. For example, some people are saying that there is a property bubble in Malaysia now. Others are saying otherwise. Now, both camps can prove their points with facts and figures. This being the case, it is little wonder that it confuses a lot of innocent bystanders.

So, this is very much like real life – the planets are never properly aligned. The lights are never all green or all red; it is always a combination of both. The best we can do is to weigh the options and then make the decisions based on our knowledge, experience, research and perhaps even gut feel.

If you want a more direct answer, then perhaps you should consider selling as you (1) already made money; (2) can settle your mortgage (assuming you still have one, of course); (3) free yourself from interest rate rises; (4) are exiting an overheating market; (5) accumulate capital for your next investment.

In case you missed it, sell not because your friends advised you to, but because it looks to be the better decision. I need to add a couple more points: The first is that you can never sell right at the top, so stop thinking about it. The few people that did so had luck on their side. Next, after you sell, don’t look at the property anymore. Detach it from your mind and move on. You’ll be a happier person by doing so. Instead, concentrate your thoughts on your next investment.

Anyway, the worst case scenario is that the price may rise further after you sell. Since you already made your money from the purchase, I think you can live with that.

Regards,
Azizi Ali

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[toggle title=”Q&A: Is there a standard tenancy agreement?”]
Dear Sir,

I am trying to obtain more information on the landlord and tenant rights or obligations. Is there any text that we could buy to understand what the law covers? The normal rental agreement does not cover many aspects. Different agencies produce different rental agreements. Do we have a standard agreement? Where can I obtain the National Land Code?

Thank you for your assistance.

Regards,
Soon

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Dear Soon,

I’m assuming that you are referring to some rental agreements that you have seen when you wrote the ‘normal rental agreement.’ The good news is that you can stop your search right there because unlike the ‘standard’ S&P (Sales and Purchase) agreement, there is no ‘standard’ or ‘normal’ rental agreement. That is why different agencies have different rental agreements.

Actually, the landlord can include anything inside the agreement. Yes, anything –as long as it is not something illegal or against public policy. Once both the landlord and the tenant sign the agreement, it becomes legal, valid and binding. Now, whether it is fair or one-sided, that’s another story. You can put whatever you think is necessary to protect your interests in the agreement. Remember that the property is more than just a property to you – it represents years of hard work, years of careful savings, your promise to repay the loan from the bank and perhaps even your hopes and dreams for your children. So, it is only right that you add in the clauses to protect all that is yours.

Next, I realise that you are probably still in the dark as to what you should put inside the agreement. I have the answer to your problem. There is a sample tenancy agreement in my book entitled ‘How to Become a Millionaire Landlord’. I personally think that it is the best tenancy agreement in the whole country! It is not the best because I wrote it. it is the best because it covers almost everything a landlord wants to cover. Remember that I am a landlord myself and have been one for thirteen years now.

The alternative is to pay thousands of ringgit to a lawyer to draft the agreement, and it still wouldn’t be as good as mine! (I apologise if it sounds like I’m promoting my book but I honestly do not know where else anyone can get a great tenancy agreement for just RM39.90!)

Next, in case some people raise the ‘fairness’ issue, let me point out that most of the agreements that we sign are far from being ‘fair’. For example, take a look at the loan agreement that you signed with the bank. It is so one-sided for the bank. Yet, we all still sign the agreement, because if we don’t sign it, the bank will not lend us the money.

On the same token, if the prospective tenant refuses to sign the agreement, you can always refuse to rent the property to him. This is a free country.

Regards,
Azizi Ali
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[toggle title=”Q&A: Should I invest or not?”]Hi Azizi Ali,

I am currently working in Kulim High Tech Park, Kulim, Kedah and am currently renting a single-storey house in Taman Selasih for RM450 a month. It comes with an air conditioner in the bedroom and a water heater in the bathroom.

I am planning to buy a new double-storey terrace house near Kulim High Tech Park for investment which costs RM195,000.

My target renters would be Kulim High Tech Park workers or the Polyteknik students as the the house is situated close to the High Tech Park and beside Polyteknik Kulim. However, I am not sure whether the unit can be rented out or not and I also worry about the rental returns which is not too high (about RM500 to RM600 only!) This means that the gross yield of this passive income is equivalent to ~2 to 3% only.

Should i invest in these kind of properties? Please advise.

Regards,
Miss Tang

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Dear Miss Tang,

My answers to your questions are as below.

F irstly, as you correctly identified, the yield of this property is indeed on the low side. The usual gross yield for houses in Malaysia is between two to six percent, which, yes, you are right, is nothing to shout about. This in turn explains why hardly anyone talks about yield in property investment. Bear in mind that this is gross, which means that the net yield, taking into account all other expenses such as repairs, legal, insurance and quit rents will be even lower!

Next, this assumes that the property is rented out and rented for the full year, which is a mighty high assumption. So that is the theory. Let me share the real life answers now.

As you are buying the property for investment purposes (and not for your own stay), there are two main points to look out for. Namely, you should buy only if (1) the location is hot (demand is a lot higher than the supply) and (2) you can get the property at a price below market value.

If it does not meet these two requirements, then do not buy. There are hundreds of thousands of properties in Malaysia. So even if you miss one, two, ten or even fifty good deals, there are plenty more out there.

I have not been to Kulim lately, so I do not know the actual demand and supply situation there. But since you are staying there, you should have an idea about this. If the supply of properties is a lot and demand is low, then your house may become empty for a long time. Even if you managed to rent it out, the rental may be too low and most likely, it may not even cover your costs.

On the other hand, if the demand is high and the supply is low, then go ahead and buy the property. On top of earning good rentals, the value of the property should also rise, which means you are making money from the rental and also price appreciation.

At the same time, it would be better if you can buy the property below the market value as it will push your yield and cashflow up. If this is the case, why not just buy properties from the secondary market instead of buying from the developer? The property is already completed and ready to be rented out.

One last thing. Do not be in a hurry to make investments, particularly buying properties as they cost a lot of money. If you get it wrong, it can cost a lot more than just money – time, energy, relationship and perhaps even your sanity! So get educated on financial matters, do your homework and double-check everything before parting with your money. You will increase your chances of making money significantly by taking all these steps.

Regards,
Azizi Ali
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[toggle title=”Q&A: Should we buy now or should we just wait?”]Dear Azizi Ali,

I have recently just got married and wish to start a family by buying our first property. As you know, housing prices in Klang Valley are rocket high. Even if both my husband and I can afford to down for a new house or second hand, the monthly instalments will take up a big portion of our net disposable income (which puts a strain on us). We are now looking at an area known as Bukit Subang (next to Denai Alam). The price is half of Denai’s (same size). We want a house that will have reasonable appreciation as a form of future investment and for current purpose, for own stay.

However, we are receiving opinions that we should delay the purchase as the property bubble may burst. Reason being, that a lot of executives whose monthly salary is in the region of RM5,000 to RM6,000 are buying houses that are worth almost a million for investment and when it’s time to start paying the instalment, defaults will begin and foreclosure will kick in. At the same time, supply is more than genuine demand (i.e. investor demand is more than genuine purchase).

Do you think we should buy in that area? Should we buy now or should we just wait? If we do buy, do you think that it is wise to stretch ourselves (i.e. instead of buying Bukit Subang, we buy in Denai Alam?)

Advice and opinions are appreciated.

Regards,
Aquila

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Dear Aquila,

Firstly, congratulations on your marriage. May you and your husband live happily and prosper!

Next, I understand your concerns about the property market and they are valid concerns indeed. Prices in selected areas in KL and PJ have risen by some 50 percent in the last two years. I doubt that anyone’s income have risen by that much in the same period. As property prices have to bear some semblance to income, there is a bubble in these areas – which is my way of saying, there are pockets of bubble today.

While prices can still rise and defy gravity for a little bit longer, they cannot be sustained. And when that happens, it will come down. By how much it comes down is anyone’s guess.

Third, you are right again about the default rate. There is no way (or perhaps more correctly, little way) that anyone earning RM6,000 a month can afford to pay a mortgage costing close to RM1 million. The people who are doing this is hoping that the price will rise fast and high enough so they can sell the property before their obligations to repay the mortgage kicks in. Otherwise, they will be in serious trouble.

Actually, some people are already in trouble. I have noticed that the quantity of auction properties have increased lately. More importantly, is the quality of the properties being auctioned. While most of the properties used to be in the not-so-hot areas before, my eyes light up when I see houses even in the hot areas today. This trend will only continue in the near future.

Fourth, your thoughts of buying in a place slightly further from the CBD (central business district) areas just confirms the pockets of bubble theory. Prices in the hot areas are way too expensive, so you are looking at the cheaper and usually, further suburbs. You are not the only person thinking of doing this; tens of thousands are thinking the exact same thoughts. And it actually makes sense, “Why pay through the nose and suffer when you can buy a cheaper property elsewhere?” Yes, you have to travel a little bit further to get to work (and shop at the designer boutiques) but it is better than suffering every month paying for a monster mortgage. By the way, this happens every time prices rise to astronomical figures. I remember the same thing happening in the late-1980s when property prices in downtown San Francisco rose substantially. So, instead of paying ridiculous prices buying in downtown areas, people just rented or bought the cheaper properties in the suburbs. As a result, the downtown prices soon collapsed. By the way, in case anyone is wondering, I did not live there; I just read about it!

Now that the introduction is done, let me answer your question – finally! If you do not want to wait, buy the property in the cheaper (and further) areas. That way, you are paying a more down-to-earth figure for a property and also avoid carrying the burden on paying off a monster mortgage. A house is supposed to make you happy. I cannot see how anyone can be happy for long if the mortgage is taking 50 percent of their income every month!

On the other hand, there are also good deals in the hot areas today, in the form of ‘motivated’ sellers and auctions. Look deeper and you will find them. Finally, I’d like to share one last piece of advice – wanting to become rich is glorious; wanting to become rich next week is asking for trouble!

I wish both of you the best.

Regards,
Azizi Ali
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[toggle title=”Q&A: Rental rate dilemma”]Dear Azizi Ali,

I am a little overwhelmed after reading some of your books including Millionaire Landlord. However, I’m now really interested to venture into the property business and have done my homework. I still have one question, though.

I’m living in Penang and want to purchase an apartment that is more than 10 years old. I intend to rent it out but am not sure how much I should charge the tenant. Let’s say the monthly rent 10 years ago is RM500 and the current rate is around RM900. How much should I charge knowing that the other landlords are probably charging the old rate?

Your advice is much appreciated. Thank you.

Willi Thae
Pulau Pinang

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Dear Willi,

First, it is normal to feel overwhelmed when you learn something new. There appears to be so many new things to learn and master. However, if you keep at it, you should be able to handle most, if not all, of the new knowledge. In time, everything will fall into place.

Seeing that you are new to this, I must add that you need to educate yourself further. Apart from referring to the books you have read, you should also attend talks and seminars or talk to people who are already successful property investors. The more knowledge you gain, the higher your chances are of making it big.

In answer to your question, I understand that there are tenants still paying RM500 despite the current rental rate of RM900. This could be because they have been there for many years and the landlord did not raise the rent.

All properties should reflect their current rental rate. This usually means a higher rate as the years go by. If the rate doesn’t increase, something is not right with (a) the property, (b) the landlord or (c) both!

So you should charge the current rental rate of RM900 per month. In fact, the other landlords should also charge the current rate (plus or minus a few ringgit). It makes no economic sense for a landlord to charge a rate that is 10 or 20 years old. How is he going to make money? And if he is losing money, why did he buy the property in the first place?

If you think it will be difficult to get RM900 for the unit, my advice is to not buy the apartment! Look for another one that will enable you to charge its current rental rate. There are plenty of properties in Malaysia. Surely you can find one that will help you build wealth.

Regards,
Azizi Ali
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[toggle title=”Q&A: Should I use the extra monthly income to invest or shorten loan tenure?”]Dear Azizi Ali,

I recently bought a condominium for RM236,000.00 in Bandar Sri Permaisuri. My monthly loan repayment is around RM1,000 for a tenure of 30 years. Currently it’s rented out, hence my monthly loan repayment is being taken care of. My question is, if I step up in my career and earn an additional RM2,000 per month, should I use the money to invest or to pay off my home loan so that I shorten the loan tenure?

Thank you for your kind advice.

Regards,
Emily

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Dear Emily,

The answer will depend on what you want in your life, Emily. Generally speaking (and I’m generalising big-time here), there are two groups of people when it comes to money matters: (1) those who want a simple life, and (2) those who want to be seriously wealthy.

All that the first group wants, which by the way forms the majority of the earth’s population, is to have a couple of properties, some money in the bank, do a little bit of traveling and be debt-free. In short, they don’t need much and they don’t want much. By the way, there is nothing wrong with this; it is a perfectly fine way to live life.

If this is the group that you are in, then the answer is to use the extra income (that I have no doubt that you will be making in the days to come) to pay off your mortgage so you can be debt-free as soon as possible. More importantly, you will be happy doing so as it matches your life’s philosophy.

However, the answer will be different if you fall into the second group – the folks who want to have so much money until it gushes out of their ears! Here you will not be paying off the mortgage earlier. Instead, you will be using the extra money as seed money for other investments which may include buying more properties. As the plan here is to build serious wealth, you will need to invest most, if not all of your capital for higher gains. In fact, it is likely that you will be using OPM (Other People’s Money) – another way of saying that you will be borrowing lots of money – to multiply the wealth faster and needless to say, further.

No prizes for guessing which group I fall into!

Regards,
Azizi Ali
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Category: Properties

Strategi Menyelesaikan Hutang Rumah Anda Dalam Masa 5 Tahun – Two

Strategi Menyelesaikan Hutang Rumah Anda Dalam Masa 5 Tahun – One

Property Inspection Form – sample

Property Investment Analysis Form – Sample

Property Q&A

Property Investment Analysis Form – Blank

Moving Instruction Sheet

Sample Tenancy Agreement

Sample Walk Through Inspection Sheet