If you are here, it means that you are looking for a safe long term investment. The problem is, how do you ensure that the property you purchase will be profitable? This is a simple step-by-step guide that will lead you through this quagmire of decision making, and hopefully lead you to getting a steady source of long term income.

1. Kick Start Your Property Search

Before you even begin your property hunt on a property portal or via a real estate agent, the first thing you should do is sit down and list the things you need to consider – sort of like a checklist. Essentially, your buying decision hinges on three important factors: Your income and budget, the property’s location, and your requirements.

A. Your Income and Budget. This will be your limiting factor when buying any property, as this determines what you can afford; whether it’s a simple apartment, a condo unit or a posh landed home. Experts repeatedly emphasise to buy within your means, less you want to experience a painful foreclosure.

B. Property’s Location. This is the “golden rule” of property investing. Aim to buy rental homes close not only to amenities like eateries, convenience stores and supermarkets, but also places that people gravitate toward, such as institutions of education and employment hubs. Don’t just look at the present situation, strive to look ahead. A barren patch of land could become a mall or office in the future. To get an idea of the conveniences available within a neighbourhood, you can check out specific location pages in PropSocial.

C. Your Requirements. Ask yourself, who are your target tenants? If they are college students or single office workers, then it’s okay to settle for a one-bedder. But if you’re eyeing families, you’ll need at least two bedrooms. Another key requisite of property investors is rental yield, which typically ranges from 3.0% to 5.0%. The higher the rate, the more profitable is your rental property.

2. Do Your Homework

Now that you have your checklist in hand, it’s time to dig for information to help you decide the location of your property and which type of property to purchase. In Malaysia, you can look up the government’s National Property Information Centre (NAPIC), and local authorities often announce their development plans. You can consult property agents or read reports published by The Real Estate & Housing Developers' Association (REHDA). Another good thing to do is to visit the neighbourhood or development where you’re considering to purchase, and interview the residents there. However, this process is time-consuming.

But worry not as PropSocial has made property-sleuthing easier and more convenient. Just input the name of the neighbourhood or development, and you can browse the properties available for sale there. You can even refine your search by selecting your price range, unit size, and number of bedrooms. Even better, PropSocial is the first real estate portal in Malaysia that features unbiased project reviews to help you decide.

3. Selection: How to Spot a Potential Goldmine?

Once you have a shortlist of the areas and developments where you’re considering to purchase, it’s time to sift through the properties to separate the good apples from the bad ones. But how do you avoid buying a home that will be shunned by tenants and instead get a sought-after property?

Basically, you need to watch out for warning signs. Is there a nauseating garbage problem in the area? Is the place a crime hotspot? Is it noisy at night? Are there many vacant apartments or condo units there? Does it look or feel like a ghost town? Beware of these things.

Similarly, properties that are potential goldmines also have telltale signs, but the most common one is their excellent location close to amenities, schools or jobs. Another indicator is the tight supply of unoccupied homes, as well as the high number of enquiries from prospective buyers or renters.

4. Funding Your Purchase: What You Need to Know

Unless you have enough savings to buy your investment property in cold hard cash, most people typically obtain housing loans from banks to fund their purchase. Apart from your income, lenders also consider your other existing debts (e.g. car loan and credit card) and the property’s value to determine how much you can borrow.

Generally, you can borrow up to 30% of your gross income. If it’s your first home purchase (own occupation), banks can lend up to 90% of a property’s price. But if you have more than one existing housing loan, the loan-to-value (LTV) or margin of finance will be lower. In fact, Bank Negara Malaysia has ruled that borrowers with two or more existing residential mortgages can only get a loan of up to 70%.

5. Setting a Reasonable Rent

As mentioned previously, you need to do your research to become a savvy landlord. With an in-depth study or through PropSocial’s user-friendly search tool, you can easily determine the current rents of properties in certain neighbourhoods and developments.

When setting the rent of your property, opt for the median or average rate and adjust it accordingly depending on the present market situation, improvements you’ve made on the home, or changes in the immediate vicinity (e.g. a new mall will be built in the area). A word of advice: Don’t set the rent too high as it could turn off potential tenants.

To ensure the rental home is profitable, take into account expenses like property taxes and insurance costs, as well as repairs and maintenance. The older properties are usually more expensive to maintain compared to newer ones. Also, it’s best that you do the necessary math before buying an investment property.

Conclusion

If buying a home is already the most expensive purchase you’ll make in your lifetime, then buying another one for investment is surely a more challenging task. Given the immensity of such an action, the process of selecting and buying a rental property should not be done carelessly. Otherwise, the consequences could be severe, such as losing your life savings or worse still, ending up bankrupt.

On the other hand, if the process is done properly, the outcome can be hugely rewarding, helping you achieve the lifestyle you’ve dreamed of so far. So learn the easy and smart way of looking for a profitable rental home via PropSocial.

(Written by G. Zizan, 3 October 2019)