Buying a second property

Published on 22nd May 2012

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Peter Yee

Our property investment consultant Peter Yee is the author of the books, You Can Become Rich in Property and The Certain Way to Life’s Riches.

Formerly an educationist, he has also been a management consultant, stockbroker, restaurant owner, property investor and investment coach.

Yee has a doctorate and master’s degree in business administration as well as a bachelor of science degree. He runs workshops on How to Make Money from Residential, Commercial and Auction Property in Malaysia.

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Question

I am a senior banker, aged 29, with a monthly salary of over RM10,000 (excluding my annual bonus). I am staying with my parents.

I bought a terraced house in Bandar Mahkota Cheras (Kuala Lumpur) for RM500,000. It is in a new development and will be ready by the end of the year. Currently, I am servicing the bank interest which is gradually increasing. When the house is completed, I would need to pay a monthly housing loan of RM2,000.

The proposed MRT project by the MMC-Gamuda joint-venture company will eventually link Sungai Buloh with Kajang. This will shorten the distance and travel time and create more business opportunities. Thus, I foresee that the property value of the surrounding areas will appreciate when the project is completed.

However, the project has yet to start and the notorious traffic jams in Cheras still remain unresolved. Initially, I planned to move to Cheras but could not bear the long distance - 33km to the KL city centre - and the traffic jams. Thus, in my plan to buy a second property, I am still undecided whether it should be for own stay or for investment. And which location in KL should be preferable - Bukit Ceylon or Mont’ Kiara? My budget is capped at RM650,000.

What should I consider in my buying decision? How should I start my research? How should I plan for the payment?

More importantly, what would be the most crucial point?

Home Buyer (via e-mail)

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Answer

Congratulations on being a senior banker earning a high salary at such a relatively, young age. I guess you may still be single as you are staying with your parents and still undecided on the purpose of buying your second property.

Your terraced house in Bandar Mahkota Cheras has probably appreciated in value even though it would only be handed over at the end of the year. Despite the traffic jam and travel time to your work place, the capital appreciation of your first property may have influenced you to invest in a second property.

When the first property is handed over, you will start servicing the monthly repayment of RM2,000 - which is approximately 20% of your monthly income. As such, you still have room, financially, to invest in another property.

Infrastructural developments such as the MRT link between Sungai Buloh and Kajang may reduce traffic jams in KL, as well as become a factor in the increase in property prices along the route.

However, no one knows the future for certain. The future of the property market will be influenced by Government policies. And Malaysia's economic well-being is also influenced by the world market situation.

In general, property prices have appreciated 20% to 80% over the past few years. Most people who bought property a few years ago have made money and feel lucky. The entry point or timing of purchase can be crucial point in property investment.

One of the factors fuelling this upward trend in demand, has been people who have not invested in property and who do not want to be left out from making money. This has caused a surge in property purchases.

As you are not certain about your second property investment objective, I will share three perspectives for you to consider. They are based on different objectives, such as:

(A) buying for your own stay

(B) investment purpose

(C) buying for own stay and later converting it into an investment

Factors you should consider, if buying for:

(A) Own stay 

1. Convenience - near your work place and parents. This will help you save time, money and avoid 

    stress from KL's traffic jams while helping you maintain closer ties with your parents.

2. Near facilities and amenities which you frequent such the supermarket, laundry services, food 

    outlets, banks, park and so on.

3. Located in a quiet, clean and safe place.

4. Neighbourhood, sun direction and view.

5. Feng shui factors.

(B) Investment purpose

1. Preferably ready-built so that you can collect rental income to offset the bank loan.

2. The return on investment or yield, should preferably be more than 8% for high-rise residential 

    property or more than 5% for landed residential property.

3. For rental income to be sustainable, the occupancy rate is preferably more than 90%.

4. Quality of tenants in the area.

(C) Own stay and investment 

This objective should consider all of the factors above (A + B).

You may search for the desired property by leveraging on the expertise and time of property agents by telling them what type of property you want. Property purchasers do not need to pay the agents commission. The agent's commission will be paid by the seller.

You may plan your monthly repayment based on an allocation of 30% of your monthly income for buying your property. For an investment property, it is preferable to have a positive cash flow. That means, after paying the monthly repayment with your monthly rental income, you should still have money left over. To increase the positive cash flow, you may choose to stretch your loan tenure longer to reduce your monthly repayment sum.

Crucial points to consider in property investment include factors such as the location, purchase price, timing of purchase, renovation and repair costs.

Peter

http://www.starproperty.my/PropertyGuide/Finance/21377/0/0