What are you investing for?
Before you even start looking at properties, you need to decide whether you are buying to rent out, flip (sell at a higher price), rent then flip, or for your own stay.
This will determine the type & characteristics of property you are looking for.
Should I continue to rent or just sell off my property?
- If your property gives you positive cash flow, you should continue to rent as rents continue to rise.
- If you can realize gains equivalent to 10 years or above of rental cash flow, it may make sense to cash out.
Does it matter whether I buy Freehold or Leasehold?
- Freehold properties generally appreciate better over time compared to leasehold.
- It does not affect rental returns.
- It is not an issue if the property is for your own long-term stay.
- If you buy an existing property sub-sale, (with the leasehold period approaching 50 years) you may face difficulties getting a home loan.
3 Important Numbers to Look at
- Gross Yield = Annual Rent / Property Value >> Target 3% – 6.5%
- Cash on Cash (CoC) return = Annual Cash flow / Initial Investment >> Target 12 – 15%
- Comparative value = Use per square foot (PSF) to compare purchase price & rentals of other similar properties in the area.
3 Ideas for you to Maximize Your Returns!
- Find a nice neighborhood & buy the worst/cheapest property (that is still structurally safe and sound). Renovate it!
- Be creative in financing for zero/low down payments to maximize your CoC return.
- Save on agent fees. Seeking non-agent alternatives to rent out your property and/or keep your existing tenants long term.
5 Key Steps in the Property Purchase Process
- Sign booking form / letter & pay booking fee / deposit (typically 1-3%. If seller backs out after that, seller usually has to pay back twice of deposit).
- Check out & compare home loan rates among banks / financial institutions (different bank branches have different rates). Check loan amount, rates (with & without MRTA), lock-in period, flexi-payments & re-draw costs, etc.
- Get your lawyer to prepare the Sales Purchase Agreement (SPA) & pay the remaining deposit which is held in escrow by the lawyer.
- Wait for funds disbursement from financier & completion of all remaining transfer documents.
- You are now the new property owner!
Property Purchase Costs Involved
1. Sales and Purchase Agreement Legal Fees
a. Total estimate (Legal Fees & SPA): 4.5-5%
b. Professional Legal Fees
- 1% (subject to a minimum of RM500) for the 1st RM500,000
- 0.8% for the next RM500,000
- 0.7% for the next RM2,000,000
- 0.6% for the next RM2,00,000
- 0.5% for the next RM2,500,000
- 0.5% or less (negotiable) for value excess RM7,500,000
c. Applicable discounts
- 50% discount on SPA fees for first time property buyer for properties below RM500,000
- Housing Development (Control and Licensing) Act properties:
- RM50,000 – RM250,000: 25% discount
- RM250,000 – RM500,000: 30% discount
- Above RM500,000: 35% discount
- Non-Housing Development (Control and Licensing) Act properties (sub-sale):
- lawyers can give discount up to 25%
d. Property Stamp Duty
- 1% for the 1st RM100,000
- 2% for the next RM400,000
- 3% for value excess RM500,000
2. Loan Agreement Legal Fees
a. Professional Legal Fees
- 1% (subject to a minimum of RM500) for the 1st RM500,000
- 0.8% for the next RM500,000
- 0.7% for the next RM2,000,000
- 0.6% for the next RM2,00,000
- 0.5% for the next RM2,500,000
- 0.5% or less (negotiable) for value excess RM7,500,000
b. Loan Stamp Duty
- Total Loan Amount X 0.50%
3. Other Fees (if applicable)
SPA Copies
- RM10 each copy (usually would stamp 4 copies, one original)
Memorandum of Transfer (after Strata title issued)
- for every RM100 or fractional part of RM100 of the contract price or the market value, whichever greater.
- RM1 on the 1st RM100,000 (1%)
- RM2 on next RM400,000 (2%)
- RM3 on any amount in excess of RM500,000 (3%)
Discharge of Charge/Deed of Receipt and Reassignment
- Action to redeem the property from existing financier ~RM400-500
FAQ
Should I withdraw from my EPF?
YES, if…
– you are lacking the necessary funds
– it makes sense to reduce your home loan amount (i.e. for your own stay & better overall savings vs other investments).
No if you are keeping the property for rental purposes. After all, you are focused on cash flow (i.e. letting your tenant pay for your loan).
Learn more about EPF withdrawals
How much should I spend on Renovations?
Spend below 10% of your property price on renovations focused on structural/built-in improvements.
Take note that many renovations do not add value & you lose money with the renovation.
There are many other ways to improve your property at value cost instead of dumping money into renovations.
Any reasons I should NOT buy properties?
- Property prices can be quite high, especially for first time buyers. Depending on your financial situation, it may not make financial sense to buy a property right now.
- Investing in a property adds a big chunk to your asset portfolio. If your portfolio is not large enough yet, you may be over-weighted into properties.
If it’s for your own stay (and you need to move in the near future), consider renting a nice house within your budget. At least you don’t have to worry about all the costs of owning and maintaining the property.
