Tuesday, September 12, 2006

Property Investment

Lesson 9: Property Investment

As I told in my previous post before, there are a lot of ways for you to invest your time and money. We talked about mutual fund earlier before, there are many investment vehicles as I said in my previous posts. Today I am going to talk about property investment. What you have in mind right now maybe Azizi Ali for Malaysians and Robert Kiyosaki for Americans. And if you are Hong Ki, of course , you think of your 'Superman Li'. Yes , you are right , there are too many good examples out there that people really make tons of money by investing in lands and houses.

" Should I buy this house?"

The theory behind why you always make money in investing real estate is because the land available in any country is limited but the problem is the population is blooming and exploding in certain countries such as China and India. Human's behaviour is quite similar to that of animals'. We want territory and feel being safe in our own land. Therefore, it is very natural for us to acquire and buy land to build our 'nests'!

If you look back at history at own country, can you remember when was the last time your country’s land depreciated besides when there were economic downturns. You are right, there are always demands for land and you would see your land and home's value increase slowly every year unless your country/ area is hit by economic crisis, war or natural disaster!

OK..... you might be thinking 'So, are you asking me to buy land and house now?' There are a few 'possible problems' you must always think when you want to buy real estate,

1) If you are thinking of selling your real estate after holding for a very short period, you would always find it difficult to sell because as I said before, liquidity of real estate is less and you need long time to locate a buyer. However, this first rule does not apply when the market is 'crazy' when everyone is flocking to one area to buy houses thinking that houses at that area will double within months.

2) The interest rate is quite high if you want to borrow large sum of money from bank. Eventually, maybe the bank will become the winner ( making more money than you) instead of you! Now, majority of Malaysian bankers have extended their loan tenure, therefore, your children or even grandchildren have to pay your loan after you! This second rule does not apply if you are buying with cash!

3) If you want to buy a house/ shop to rent out, you may not find good tenants easily nowadays. Of course, if you want to get good tenants (such as professional expatriates), you have to buy high–end condominiums/ bungalows which you yourself might not have the luxury to live. This rule, of course does not apply if you do not mind to spend more money than your rental income to repair your property after you tenant moves out.

My advice to you, if you want to invest in property, settle your housing loan first and fast. Save your money and get your second property and borrow less than 50% of your second property's value, then only it is possible for you to get money from your second property. Remember, the home that you are living now is always your liability! Settle this liability first if you want to leap further in future.

A lot of friends ask me,' It is not possible for me to settle my home loan so fast, my loan tenure is 30 or even 40 years!'Yes, you are right, as I said before, 80% of Malaysian cars on the road are owned by bankers, even more shocking to know that I think 90% of houses on Malaysian land are owned by bankers as well! The problem that you might be having is you own ( actually you do not own, you are renting from bankers!) 'TOO EXPENSIVE' home! I have seen a lot of examples when my friends are getting RM2500 per month and buying a 250k house! If possible, do not spend more than 30% of your total take home salary for your monthly housing installment!

Spend your money in accordance to how much you earn. There is a Chinese saying 'Do not wear big hat if you do not have big head to show!' Do not try to impress your friends or relatives if you actually do not have the money!

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