Since the start of property boom nearly 10 decades ago, owning a home has become the cornerstone of the Malaysian dream. Although, with the increasing cost of living, depreciation of Ringgit, GST implementation and various other lending restrictions, the dream seems to be increasingly out of reach for many especially for the younger generation.
There are many reasons property is still the number one investment choice despite the current challenges, one of them being leverage. Your investment can either create enough positive cash flow for you to quit your day job or give you a good capital appreciation. But before you can achieve this, there are three important fundamentals of property investment that need to be addressed – Your intention of buying, property location and access to financing.
IDENTIFYING YOUR NEEDS
In identifying your intention of owning a property, there are two important questions: (1) Is the property intended for own stay or for investment? (2) And if you are looking to invest, what is your strategy?
I would like to suggests that, if you are looking to invest, you should determine if you are looking for capital appreciation or cash flow (rental). Once your strategy has been decided, you need to identity the type of property that will match it.
Buying a high rise property would be the obvious choice if you’re looking to capitalise on rental yield. On the other hand, if you’re looking for capital appreciation, a landed property would give you the best return. Make sure you do your rental return calculation.
When it comes to capital appreciation, it is crucial to have the foresight and to be able to identify the boom factor/ development potential of a location. The quiet remote place, called Batu Kawan in mainland Penang that started booming during the construction of the Second Penang Bridge linking the mainland to Batu Maung exemplifies this point. With the arrival of notable developments such as IKEA, Designer Village (Premium Outlet), KDU University College, Batu Kawan and its periphery towns are expected to experience a price surge.
FUNDING YOUR FIRST HOME
Although it’s tempting to purchase a home with the best view and a myriad of luxurious facilities, I would suggest that young investors stay realistic and purchase within your means. Keeping your purchase below RM300,000 (assuming that the buyer manage to obtain 90% financing) would only require RM30,000 down payment. Attainable as it may be (with calculated planning), the idea may seem farfetched to the Generation Y. To prove this possible, here are 7 tips to get down payment for house:
Tips #1: Invest in yourself first
You need to have the awareness that you are your best investment, thus is important to be well-equipped with knowledge. Without good knowledge, you will not be able to identify a potential property.
Tips #2: Good money management
Make a point to save some of your monthly income and contribute it towards your down payment fund. A realistic number is 10% of your income i.e. if you make RM3,000, put aside RM300 every month. In addition, your purchase goal should be realistic and according to your budget.
Tips #3: FAMA loan
In other words, father-mother loan. Knowing how little you earn on your first job, parents are usually more than willing to either subsidize a little bit or pay for the full amount. Yours truly funded the first down payment of my house using this method.
Tips #4: Leverage using a credit card or Personal loan
Unless it’s a very good deal, credit card or personal loan can be a double-edged sword due the high interest charged. Use it merely as a tool.
Tips #5: EPF withdrawal
For those working and contributes to EPF, you could actually opt to withdraw from EPF . You can withdraw from EPF Account 2 to finance your 10% downpayment.
Tips #6: 100% from Government Scheme and Commercial Bank
For the 1st home buyer out there, do explore the option of getting 100% loan. For example, there are 100% Government Loan Scheme for 1st home buyer. Recently also announced, commercial banks are also providing 100% loan to buyer purchasing their 1st property.
Tips #7: Structure a deal with the developer for a Zero-Money-Down
Say you purchase a RM300,000 property and manage to obtain 90% loan. If you can work out a deal with the developer for 10% rebate, which is worth RM30,000, how much do you have left to shell out? Zero, of course. This is what you call buying with no money down.
You can read more on how to buy your property with no money down here. And if you’re interested to know how to buy your property with little capital and make five figure a year, read my article Discover How To Buy Your Property With Just Under RM1,000 And Make RM20,000 to RM60,000 A Year here.
That’s the 7 tips I have for you how you can get your down payment for a house. The next thing that you may ask yourself next is where should you buy?
Which Location Should I Buy My House?
It’s quite a simple decision really.
If you are buying for own stay, some of the factor(s) you need to consider are the distance from your work place and your spouse’s work place . If you have children, then you also will need to consider the distance from their school and/or childcare centre.
If you are buying property for investment and is considering to invest in Penang, do head over here where I breakdown the different location in Penang Island and Penang Mainland.
Till then, happy investing. And if you have any comments/ questions, do post below or connect with me at www.facebook.com/kaygarntan
Note: This article is written by Kaygarn Tan and appeared in iProperty.com’s Oct 2016 Issue. Kaygarn Tan is also Author of the best selling book The Master Key Method.