HOW TO BUY MY FIRST INVESTMENT PROPERTY IF I’M A FRESH GRADUATE
Five key things you need to work on to buy yourself your first investment property.
First, you can estimate the maximum amount of property loan which you are eligible to obtain by using the free calculator at loanstreet.com.my. I assume the buyer is below 35 years old and now receives a gross monthly salary of RM3,400. Thus,
1. He can qualify for a maximum loan tenure of 35 years.
2. His net monthly salary is estimated to be RM3,000 after income tax, EPF, and SOCSO deductions.
From the calculator, he may obtain:
1. Maximum Property Loan: RM443,734
2. Maximum Monthly Instalment: RM2,100
This is applicable only if he is completely debt-free. The maximum loan that he could obtain would be much lower if he has a car loan, outstanding credit card debt, personal loan and PTPTN. 3. Medium-Cost Condominiums.
What about new projects which are under construction? In his case, the new projects do not qualify as he could not earn rental income immediately upon purchasing his property.
Obviously, the buyer qualifies for a 90% financing from local banks as he is purchasing his first property.
From above, his selection of property would be narrowed down further by his available capital. As a rule of thumb, I believe, he should prepare capital as much as 15% of the total property value as down payment, stamp duties, legal fees and minor renovation on his property.
I was not informed about how much he has set aside to buy his first property for investment. Thus, if he intends to buy:
1. Low-Cost Flat worth RM100,000, he needs RM15,000.
2. Walk-Up Apartments worth RM200,000, he needs RM30,000.
3. Medium-Cost Apartments worth RM300,000, he needs RM45,000.
Let me use the following assumptions as an example to calculate his RONW:
1. He buys a Low-Cost Flat worth RM100,000.
2. His initial capital works out to be RM15,000.
3. The interest rate of his loan is 4.5%.
4. His loan tenure is 35 years.
5. His property is tenanted where the rent is RM500 a month.
6. The rent is able to offset both his instalments and maintenance fees.
7. He assumes that property prices would appreciate by 2% per year.
Is a 26.3% return from a Low-Cost Flat enticing?
Before you get into it, let me share its potential downsides:
1. The conditions for Low-Cost Flat or any properties priced under RM300,000 are often less ‘Posh’ or ‘Classy’ than nice condominiums that are well-maintained.
2. Are you comfortable with letting your property to tenants who, most likely, are low-to-middle income earners?
3. In Malaysia, you can obtain a 90% loan to finance your purchases of two properties. Some may plan to invest in higher-priced properties in order to maximise the amount of mortgages obtained. Hence, you may be ‘stuck’ with this mortgage if you are not able to sell your property to a new buyer. This can be a problem if you intend to buy yourself a higher priced property in the near future, especially if you have used the 90% loan for two Low-Cost Flats.
WHAT SHOULD I DO?
It depends. Here is a question:
‘How fast are you able to grow your monthly income?’ Mark Chua, author, banker and a seasoned property investor that owns a property portfolio of RM 11 million commented: ‘The more you earn, the more you can leverage to invest.’You can check out his webinar where he shared 6 simple ways to boost your income & property portfolio.
SO, THIS IS MY VERDICT.
If you foresee yourself doubling or even tripling your monthly income from RM3,400 to RM7,000 or RM10,000 in one or two years, then, I think, you may reconsider your investment options carefully.
However, if you foresee yourself making close to RM3,400 a month over the next 3 years, it’s okay. I’m not writing this to condemn you. Rather, I’ll like to share two options that you may consider.
1. You may consider investing your salary back into yourself to improve your employability. This involves acquiring new set of skills or even a professional qualification which are recognised in your workplace.
2. You may settle with the property which is priced under RM300,000. This is because, I believe, it is difficult for anyone to afford the downpayment and as well as mortgage repayments for a property which is priced any higher. For the sake of education, let us put aside parental support for the time being.