By Alan Poon
I was overwhelmed that, my inaugural contribution at PropertyGuru’s guide last month received a considerable amount of encouraging feedback from those who appreciate knowing the vast difference between property buying and property investing. It is such engagement with the readers which propelled my continuous venture into sharing more.
In Part 1, I have covered the 4 factors of considerations which both home buyer and investor looked upon when purchasing properties, namely; Geographical location, type of dwelling, entry pricing and furnishing or renovation of the purchased unit.
For Part 2, let us continue to look at 4 other factors both buyers and investors should be aware of prior to any purchasing decisions. As the saying goes; “Save the best for Last!”. Here it goes:
5. Financing approach
Applying the need for a correct strategy in taking a hefty sum of housing loan, this aspect of consideration is one deemed most crucial to an investor; in ensuring that the yield or returns are guaranteed and perform according to a preset expectation. “It is all about the cash flow!” For the investors, financing is termed as ‘leverage’ in acquiring more properties.
Subject to a minimum down payment by most investors (some even only hunt for NMD – “No Money Down” deals where the usual 10% deposit is offset by a higher than market valuation entry pricing), the balance of financing from banks is usually preferred with the longest tenure to maximize returns and lower monthly bank installments.
Meanwhile, home buyer sees housing loan financing as a debt, and most had the fear of gathering a huge amount of ‘commitment’ henceforth, prefer to clear off this ‘debt’ as quickly as possible. With this in mind, most purchasers would even put additional down payments to offset a ‘smaller’ loan amount as well as to reduce the loan tenure. In order to save money by paying less interest!
Aside from the down payment and tenure, there are also plenty of financing options available from various institutions. Remember that each product is subject to a different timeline, be it short, medium or long-term goals and it serves various needs depending on each individual’s requirements.
6. Insurance (MRTA)
Mostly overlooked in ‘purchasing’ decision, insurance plays a pivotal role when it comes safeguarding the homeowner’s interest. Usually, the bank loan borrowing terms will include this in the form of the MRTA (Mortgage Reducing Term Assurance). MRTA is a form of protection to insure both the bank and the mortgagee, in the event of a default due to unexpected events such as the mortgagee’s sudden demise while the loan tenure is still not matured.
To keep things simple, most homeowners will take this aspect for granted and willingly accept the tenure to coincide with the length of a housing loan. To them, this is part of the standard procedure. There is absolutely nothing wrong with such mindset if you are buying a property for your own stay.
As for investors, they may want to keep the MRTA tenure short, in lieu of flipping the property after five to ten years (short to medium term objective). There are even instances where investors choose not to buy into MRTA as they can now transfer the remaining tenure of loan amount assured via MLTA. At the least, there must be a basic term insurance, arguably the cheapest form of alternative, to minimize this so-called ‘expenses’ in property investment.
All options being explored, there must be a proper assessment done by professionals to take on any of the mentioned options and must commensurate with each of the risks involved.
7. Primary VS Secondary market
Primary market projects by developers are usually the target by new homebuyers as the marketing of these projects are done over printed mass media or exhibitions; where homebuyers are tempted to rely on this form of direct marketing method solely. Incidentally, homebuyers are likely to ‘fall-in-love’ with most sales gallery unique and nicely designed show units which attract and invoke the emotional sense of a buyer, particularly soon-to-be married couples.
Nonetheless, new developments are easily favoured by investors as they tend to get rebates or discounts for these properties. Their objective is to buy ‘cheap’ first hand with the option of choosing their own units. Therefore, obtaining a lower entry pricing guarantees better yield. With most developments are tied to agencies or investor clubs which offer ‘pre-launch’ private viewing, it is imperative that good deals are sought after by the discerning investors.
Contrary to the secondary market of ‘sub-sale’ properties, direct discount as elaborated above are not available. Negotiations have to take place and the skilled investors will hunt for ‘motivated sellers’ to purchase below market value (BMV as most called it), which requires effort and this could be a deterrent to the unassuming homebuyers.
The sub-sale market are also meant for those who need immediate occupancy, as well as those who requires a specific location to reside or operate businesses. In certain areas without much allure for a worthy yield; homebuyers would still prefer to purchase abode for conveniences, such as buying a house nearby for their children.
Topping the list of things to look at when buying a home, has always been the safety of our own well-being and also our loved ones who stay with us. A gated or guarded environment for home living is not an option when it comes to the selection of the property regardless of the price.
The availability of security guards in the neighbourhood provides comfort and a sense of relief for residents, as the vicinity is only accessible for residents and not strangers or sales person. This grant peace of mind to the residents, regardless of the one staying in high-rise or landed properties.
For investors, the first thing that comes to their mind regarding security is about the safety of their tenants, as well as to ensure that the unit is not subject to any form of hazard which could possibly turn away prospective tenants, ultimately hurting the growth and attraction of the property and its neighbourhood.
We all lived in times where we must feel secure and any threat to our well-being poses a risk which we do not want to be taken lightly, at all cost!
Property as the ultimate investment vehicle
By now, you would have realized if you ever take any form of real estate as a vehicle or trade them in exchange for a monetary return, you are investing your monies in property! The yardstick to consider in every aspect vastly differs when every ringgit and cents are taken into account.
In a nutshell, both investing and home buying are different decisions one have to be very clear of. Identify your need before putting down the signature on any sale and purchase or loan agreement. An informed buyer will be very pleased with their purchase in the long run, whereas a strategic property investor knows what they are getting themselves into by acquiring more debts with the banks to leverage and build their wealth portfolio for the long term.
Superior Wealth Mastery
Alan Poon is a Real Asset Value Investor, who focuses on tangible and undervalued assets, specifically real estate and precious metals as his choice of investments. He founded Superior Wealth Mastery, an organization dedicated to the mastery of wealth education as the cornerstone of success and happiness in life. Alan firmly believes in adding value through his lifetime passion of enriching one’s mindset in wealth creation, accumulation and preservation. During leisure, Alan turns to reading personal finance books, immerse in Cultural studies as well as devote his time in Chinese Metaphysics, practicing the ancient art of elemental and energy equilibrium in properties, whilst transforming lives of those whom he interacts and meets.
Alan conducts his signature program on auction property investment entitled “Auction Property Intensive” workshop. For those who are keen to know more, Alan does share his insights of this programme via his 2-hour content rich preview called “Profit from Auction Property Investment”. Please connect to: www.facebook.com/superiorwealthmastery to get updated on the next event.
For feedbacks and opinions on this article, please feel free to drop Alan an email at: email@example.com or connect via social media at: facebook.com/AlanPoon.Official