The first property purchased may be the largest purchase made in a lifetime and getting the process right will be the best way to save money.
by Shaun Lee
PETALING JAYA: In this two-part series, we want to discuss the Top Five Tips that you ABSOLUTELY need to be aware of when buying your first property.
Buying your first property be it for own stay or for investment can be very intimidating yet exciting at the same time.
This is not unusual for most of us as buying a house will probably be one of the single largest purchases you would make in your lifetime, and along with the mortgage required for it, getting the whole process right will be one of the biggest ways to save money.
Tip 1: Defining Objectives One must be crystal clear about one’s objectives when buying your property. The two main objectives are:
(a) For own stay
When it comes to buying your first home, it’s very easy to get carried away with finding the perfect home. Sorry to burst your bubble, but perfection does not exist. So be prepared to compromise. You need to be realistic with what you can afford given your budget.
(b) For investment
If you are buying for investment, you then need to be clear if you are investing for Capital Appreciation (rising price of property) or for Rental Returns.
As a general rule of thumb, if you are still young with high future earnings potential, you should focus on properties which are likely to provide the highest Capital Appreciation. But if you are approaching retirement, you should be looking at properties which will preserve its value yet give good Rental Returns to fund your retirement.
If you are buying for Capital Appreciation, one would usually go for off-plan properties (properties which are sold before they are complete).
However, things have changed in the past few years especially in the Klang Valley where there is currently an oversupply situation therefore making it very tricky to “flip” properties (flipping is a common term used to describe buying a property on a short-term speculative basis) immediately on completion.
An advantage of buying properties off-plan is that developers usually have very attractive Developer Interest Bearing Schemes (DIBS), making it very affordable for buyers.
Under the DIBS, the buyer only has to pay the 10% down payment on signing the sale and purchase agreement (SPA) (or 30% if you already have two outstanding loans), and nothing else until you get the keys to your unit. So you don’t have to make any progressive payments during the construction period (progressive payments are payments made to finance a housing loan during the course of construction.
Typically, you only pay the interest element of your loan during the construction period).
The public should be aware that although this scheme seems to be very attractive, never forget that the developer would have factored in their finance cost during the construction period into the pricing of the property. Other advantages of buying off-plan is that developers will usually give a lot of “freebies” such as free legal costs for your SPA and sometimes even for your loan agreements too. This will help reduce your initial capital outlay.
Tip 2: Loan Application Most people will look for property first, then seek financing.
This is a major NO! NO! One should always find out how much you are able to borrow from the bank FIRST before going out to look for property. If you don’t know what you can afford, you are more likely to screw up.
You can do this simply by walking in to most banks (we recommend you walk in to a few to build the relationship with several loan officers as they will come in handy when you need to check the valuation of your property. Also, spread the risk (in case one bank rejects your application), applying to many banks will help you get a more competitive rate.
Don’t be afraid to let your loan officers know what rates the other banks are offering you, because this keeps them competitive too.
Some banks are known to undercut others but this has to be done before the formal offer letter is issued.
Stay tuned next week for the rest of our top tips!
http://www.freemalaysiatoday.com/category/business/2013/09/23/tips-on-buying-your-first-property/
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