photo credit: TheTruthAbout…

Once the determination has been made to sell your property the next consideration is how to go about it. Remember when you purchase the property? You were convinced that the seller was trying to make a killing and had the property priced well above its fair market value.

Well, now the shoe is on the other foot. Now you are the seller and any potential buyer will feel that you are the one trying to make a killing. He can, as you did, find out exactly how much you paid for the property by performing land search at the land office.

How much should you sell
Perhaps I should clarify something at this point. It was suggested that you check the records at the land office and find out how much the present owner paid for a property. You discovered Mr. Seller would make a $70,000 profit at his price. Likewise, the potential buyer you have can find out that you expect to make a $40,000 profit in just five years.

The point is, do not judge a property’s value by how much profit you are willing to allow a seller to make. Remember, the value of an investment property is in direct proportion to the income it is producing (read “How to estimate the value of a property?”). I might add, that is the income it is producing today, not what it is capable of producing a year after you buy it provided you can increase the rent.

Knowing how much the present owner paid for the property may be some help in your negotiation, but has little or no value in determining what the property is worth today.

How to find a buyer for your property
You can try advertising your property yourself, but you may consider listing it exclusively with a knowledgeable investment property agent in order to obtain best results. He has the leads and contacts that you may never be able to locate on your own.

Why “exclusive”? It seems to be common practice in most areas for sellers to give only an “open” listing when he the seller is still free to offer it to other agents or sell it himself without paying a real estate professional fee (commission). Most investment property agents will shy away from this type of listing, or at least give it a very little attention.

Why? Because they have virtually no protection. They may locate a buyer and show him the property, complete with all the detailed information on the investment, which they have spent considerable time preparing. The next thing the agent knows is that the buyer has contacted the seller directly and made a private deal, cutting the agent out altogether.

If you decide to employ a property agent, be honest with him. A good one is well worth the fee he is paid. I apologise for a “plug” for the investment property agent, but you would be surprised at the number of beginning investors who make costly mistake due to lack of knowledge of investment real estate. But still, you can learn to “do it yourself”.

Selling it yourself: tips on preparing advertisement for your property
You will no doubt receive many calls on your “For Sale By Owner” ad. Chances are 90 percent of them will be from real estate agents looking for a listing. If you decide to cooperate with an agent on an “open listing” basis, do not spread your property all over among several agents.

Pick one or two that are qualified to represent you in a professional and ethical manner. Do not be attracted by the usual come-on, “I have a buyer for your property.” We all have “buyers” for well-priced investment real estate. You do not want a lot of brokers running around your property, so any broker cooperation should be on a confidential basis.

Several things you need to know about the ad that you run on your property:

1. Never put the property address in your ad. You will have a parade of cars past your building and may never hear from one prospect. Once he knows the proce and location, he can make a judgment as to the property’s value without your help. In most cases, his judgment will tell him that the property is overpriced. You also want to keep your offering reasonably confidential from your tenants as well.

2. Do put the price in your ad. This will eliminate calls from unqualified buyers.

3. You can advertise “low down payment”. “low interest mortgage”, “excellent terms available”, etc., as long as the price is the only number that appears in the ad.

4. Make sure your headline attracts the readers and compels them to read the remainder of the ad. If they skip the headline, they’ll never call you. The mere heading, “For Sale By Owner” always attracts attention. The average buyers automatically figure they can buy at a bargain price because there is no real estate fee (commission) involved.

5. Do not try to save a couple of dollars by cutting an ad short. Paint a mental picture that will attract an interested investor.

Which of the following two typical ads for an apartment would prompt your response?

For Sale By Owner
Apartment – Good Area
Priced at $230,000
CALL: 1234 5678

_________________________________________

OWNER MUST SELL!
High Income Producing Apartment
Bldg in Prime Rental Area
Beautifully Landscaped
Close to Shopping yet in a Quiet Neighborhood
Priced at ONLY $230,000
CALL Owner at: 1234 5678

Both ads are short, but the second should have more emotional appeal, and hopefully, attract some serious callers. No doubt the first question you will be asked is “Why must you sell?” you can honestly tell the caller that you are purchasing a larger property.

Try several different types of ads until you find one that attracts callers.

Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.

Post from: Real Estate Investment in Johor Bahru

How to sell your property?

photo credit: samismail

How do you decide when it’s time to sell your property?

The average individual has an annual physical examination to check up on his physical condition. Your investment, like you, needs an annual check-up to ensure it is still functioning well and is healthy.

There are four possible motivating factors, any of which will tell you it’s time to get out of you present real estate investment and into another.

Incurable problems
If you are experiencing problem that you cannot cure, it is probably the time to sell. Hopefully, this will not happen because your chance for realising appreciation on the sale will also be affected by the problems your property is experiencing.

These problems include such things as a deteriorating neighborhood, major expenditures needed to upgrade the property, or continual vacancies due to an abundance of more desirable rentals in your area. Each of these problems could have been avoided by carefully locating an investment.

Changes in goals or situation
Investors may decide it is time to sell because their investment criteria have changed. They may be ready to retire and take life easy. They may want to make one last change in properties and structure it to give a lifetime steady income. Equity buildup may no longer important to them. Their heirs will have the concern.

Perhaps something has happen in their lives that has made a change in their investment goals and the present property does not fit their long-range investment program. They may be tired of rental apartments and want to try a small office building or shopping center. Perhaps they have suddenly changed jobs.

Whatever the reason, investors from time to time have logical reasons for an investment change, and I stress logical.

Profit
Assuming you have been giving your investment and annual check-up, you have probably noticed that your property is worth considerably more than you paid for it. This fact really hits you when the property next to yours sells for almost twice what you paid for and you “know” that yours is a better property.

At this point of time, you may want to rush out and sell it, since there is no capital gain tax in Malaysia on your big profit. However, if you still want to own the property, you may consider refinancing it and taking some profit out of it.

Increased equity but decreased return
The remaining reason for selling your property is the result of a large increase in equity brought by a combination of appreciation and mortgage principal reduction. This is where many investors make a drastic error in analysing their present position in their property.

Once you include your equity buildup and mortgage reduction into the calculation of your return on investment after the first year, if your total return continue to diminish each year, this will be an excellent indication that it’s time to sell. We will further discuss this analysis with example in another post.

In short, you should consider selling or exchanging your property when any of the four reasons are affecting the return you are making on your invested capital.

Post from: Real Estate Investment in Johor Bahru

When you should sell your property?

photo credit: amishsteve

No landlord would like to pay more than necessary for utilities or other operating expenses for a rental property. But, every year, millions of landlords pay more taxes on their rental income than they have to. Why? Because they fail to take advantage of all the tax deductions available for owners of rental property.

Rental real estate provides more tax benefits than almost any other investment. Often, these benefits make the difference between losing money and earning a profit on a rental property. But tax deductions are worthless if you don’t take advantage of them. Here are the top six tax deductions for owners of rental property.

1. Interest. Interest is often a landlord’s single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property. In Malaysia, from 2009 to 2011, this tax benefit has been extended to the mortgage interest of your first home. However, interest payment on mortgage refinance loan is not deductible for both rental property and home.

2. Repairs. The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.

3. Insurance. You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.

4. Legal and Professional Services. You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.

5. Employees and Independent Contractors. Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

6. Casualty and Theft Losses. Finally, if your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called “casualty” losses. You usually won’t be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

Post from: Real Estate Investment in Johor Bahru

Top six tax deductions for landlords

photo credit: Robert S. Donovan

15th Dec 2011 Update:

Auction listing is no longer provided for REIJB.com subscribers.

Now the listing can only be downloadable in the members are of PropertyMethod.com

Sorry for any inconvenience caused.

Do you know that REIJB.com now updates all subscribers every month with the latest auctioned property listings from more than 10 banks?

We have sent the first update with more than 80 auctioned properties in Johor to subscribers in mid of May. We then followed up with a recommendation of auction unit at Sri Wangi apartment. Do you still remember this apartment in our case study that we shared previously, on how we manage to increase the return of a property investment to more than 20%? Read “How to increase the return of an investment property to more than 20%?” if you had missed it.

June’s update has been distributed in the last week of May. We continued to recommend good auctioned properties to subscribers when we have encountered any. (If you’re not already a subscriber to REIJB.com, subscribe here now to receive FREE auctioned property updates and our latest articles via email.)

If you are new to property auction, you can find out more from “What must you know before buying an auctioned property?”.

Thanks to our appointed real estated agents who provide these updates and service to our subscribers FREE. They are agents with years of experience in property auction. Currently they are appointed by more than 10 banks as their agents of auctioned properties in Johor Bahru.

What can you do when you found something from our lists?
You can contact the appointed real estate agent stated in every update when you found any interested property from our listings. They will assist you through out the whole process of auction. You can even authorise them to bid for you if you are not free to attend the auction. Simply give the reference number of the property to them to find out more details about the property and the upcoming auction.

All these services are FREE to you as these appointed agents receive commissions from banks ONLY should their clients successfully bid a property. No charges and fees are required from you!!!

For property which its auction date is already due, you may check with the agents if there was any successful bidder in the previous auction. If the property is still available, find out the next auction date from them because the new reserved price will be 10% lower than the last reserved price!

We will soon expand this service to auctioned properties in Klang Valley and Penang.

Happy investing!

We write regularly about real estate investment. Some of our featured articles include:
“How to find good real estate/property agents?”
“What must you know before buying auctioned properties?”
“Where to find cheap properties?”
“Why apartment can be the best real estate investment?”
“How important is location to an investment real estate?”

Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.

Post from: Real Estate Investment in Johor Bahru

Auctioned Property List Monthly Update

photo credit: Andres Rueda

“There is always a price to pay for everything”

“No risk no gain”

For a real estate investment with “infinite return” as discussed in our previous article “Is it possible to have an infinite return on investment?”, the price to pay and the risk involved sometime can be significant, although supposingly you don’t need to pay a single cent in this type of investment.

Impact of interest rate hike – another power of leverage
Let’s take the real case of tan81 in the article as an extreme example since it is 100% leveraged.

If the base lending rate (BLR) bounces back to above 6.25% and his rental income is still the same (RM1450 per month), his rental property will stop putting money into his pocket but will start drawing money out from his pocket every month.

This is because every 0.1% increment in interest rate will cause an increase of RM14 in his monthly installment. His monthly cash flow from the property is around RM100 only, while every 1% increment in interest rate requires him to pay another RM140 more every month.

Unless he is taking a fixed interest rate package, otherwise he is exposed to the risk of interest rate hike. Imagine, an increase of 1% only in interest rate will require him to increase rental income by almost 10% to break even…

This is an effect of leverage. The power of leverage can help you to magnify your return on real estate investment through financing (as demonstrated by our real case in “How to increase the return of an investment property to more than 20%?”). However, it can also magnify your repayment cost even with a slight increase in interest rate, if you borrow too much for your investment property.

Managing the risk – keep your monthly installment below 60% of rental income
As discussed in our previous article “Inflation may come back soon (or it has never left?)”, if inflation strikes, which will cause the interest rate to go up, your cash flow from rental property should increase also.

However, in order to have a “robust” cash flow from your investment regardless of economy condition, we encourage for each investment property, monthly installment should not exceed 60% of the income generated from the property.

For example, if you can collect RM1000 every month from a rental apartment, keep your monthly installment below RM600, which should be enough to service a loan amount of RM130,000 with interest rate 3.75% and tenure 30 years.

This is to provide some room to maintain a positive cash flow should your bank revises interest rate to even double of the existing rate.

If you look at our rental apartment in Tampoi discussed in “How to increase the return of an investment property to more than 20%?”, we did follow the guideline of keeping monthly installment below 60% of rental income.

However, if you look at another case study from our reader in Penang (“How to turn a property to become worth borrowing/leveraging?”), which the main objective was to turn her property to become worth borrowing, you will find that if the reader borrows 90% she will not be able keep her monthly installment below 60% of her rental income.

The main reason is rental income of the property was relatively low (RM600) in this case. Because of this we suggested the reader to borrow just RM40,000 (or 38%) in order keep her monthly installment at RM184 only while increasing the return on investment from 4.23% to 6.21%.

In real life, most of the time we just can’t have the best of both worlds unless we do things right in the first place. That’s the reason why risk management is so important to every investment.

How to make sure we do things right in the first place?

Make your assumptions boldly but verify them carefully.

photo credit: me and the sysop

Post from: Real Estate Investment in Johor Bahru

What risk you may face if you borrow too much and how to manage it?

photo credit: oskay

If you have read Robert Kiyosaki’s books about financial education, you must be familiar with the term “infinite return on investment” mentioned in many of his books (sometime referred to as “free money”). If you have not heard about him, an investment with “infinite return” actually means an investment that requires no money from you but you receive return in term of money from the investment.

“Is it really true in real life?” Many people may ask as it sounds too good to be true.

In this article, we will discuss a real case of such investment in real estate shared by tan81, a blogger who shares his investment experience at tan81 investment and rich secret. tan81 has shared the latest progress of the acquisition in his blog.

A real case
tan81 found a furnished rental property last month, which was valued at RM280,000 by Hong Leong bank. He managed to negotiate the purchase price to RM230,000.

The property is currently rented to a tenant for RM1450 every month. Monthly maintenance fee is RM200. Total monthly maintenance cost is around RM250 including other expenses like quit rent.

In one of his articles, he estimated the transfer fee for a property worth RM260,000 should be around RM7470, which includes:

Stamp Duty 1st RM100，000 X 1% = RM 1，000
RM160,000 X 2% = RM 3, 200

Legal Fees 1st RM 150,000 X 1% = RM 1,500
RM 110,000 X 0.7% = RM 770

Other costs = RM1，000
Total = RM7470

Here we assume RM7500 is required for the transfer of the property.

Housing loan package offered by Hong Leong bank to him is Mortgage Plus with floating interest rate BLR-2.2% (up-to-date BLR is 5.55%), tenure 30 years, zero entry cost and 5 years lock-in period.

If he loan 90% of the purchase price, the projected cash flow and return are shown in the following table.

From the above table, we can see tan81 has found a property worth borrowing with monthly cash flow of RM287.72 and a cash-on cash return (cashflow yield) 11.32% if he loans 90% of the purchase price. An upfront cash of RM30,500 is required in this case.

However, as mentioned in his blog, tan81 decided to borrow RM250,000 from bank, which is about 89% of the bank’s valuation (RM280,000). With the approval of this loan amount, which is enough to cover all expenses, he effectively doesn’t need to fork out any money for this acquisition!

Look at what happens to the projection of cash flow and return now.

From the above table, tan81 will still get a cash flow of nearly RM100 every month even though he doesn’t need to pay anything to buy this rental property. This is a typical example of “infinite return on investment”!

How can it be true?
Though this is a real example of “infinite return on investment”, it is a bit different from those cases described by Robert Kiyosaki. In most of his cases, Robert would still need to pay a certain amount of down payment in cash.

The only thing that made Robert’s cases “infinite return” was that he borrowed this cash from somewhere else. For example, friends, overdraft (OD) or term loans with – most of the time – much higher interest rates.

In the case of tan81, which solely depends on a housing loan to cover all expenses of an acquisition, is something that can be happened quite uniquely in Malaysia. We normally call it 100% (sometime can be more than 100%) loan or sometime “loan with mark-up”.

In Malaysia, banks will normally offer a mortgage loan amount based on the purchase price stated in sell and purchase agreement (SPA). For example, up to maximum 95% of the purchase price is quite common for new development projects.

So how can a borrower borrows up to or more than 100% of the purchase price?

As far as we know, the trick is in the purchase price stated in SPA.

For example, in tan81’s case, since bank’s valuation of the property is RM280,000, that means bank is willing to lend up to 90% of this valuation amount (RM252,000), provided financial strength and credit record of the borrower meet the requirements of bank.

Once you know the bank is willing to lend up to RM252,000 for the property you want to buy, all you need to do is to use the valuation amount (RM280,000) as your purchase price in your SPA and submit this SPA for loan application. If your financial strength is strong enough and your credit record is clean, you might just be offered with the maximum loan amount of RM252,000.

Simple right? But wait… is there any risk?

In our next article, we will discuss the risk that you may face and how you can manage it.

Post from: Real Estate Investment in Johor Bahru

Is it possible to have an infinite return on investment (or free money)?

We proudly recommend the FREE first edition of eMoney Tips ebook to you. This is the baby of the first group writing project in Malaysia contributed by personal finance bloggers, practitioners, and even some readers of blogs. It shares the ideas and tips of personal finance such as wealth creation, insurance and investment.

We feel honoured to have a chance to publish one of our articles in this ebook.

Thanks to all the contributors especially KCLau (Founder and Organizer), Ken Neoh (Cover Designer) and Yow Chuan (Editor), who have made the project a success. Click here to download the ebook for FREE.

These are the contents of the ebook:

Creatively Invest Your Money by Amey

Investment diversification is a genuine financial “free lunch.” by Larry

8 Great Tips to Make Your First Million by Jacquelyn

Renting a Property by Mohd Fauzi Puniran

10 tips to stay poor (or things to avoid) by Bob

Turbo Charging your Financial Transformation by Father Sez

10 Ways How to Make the Recession Works for You by Yow Chuan

How To Survive in a Bear Market by Tushar Mathur

How to Find a Good Financial Advisor by The Financial Blogger

Gold Investment In Malaysia by Carson Ding

How to know if a real estate is worth investing? by OngKL

Is It Alright that We Buy Insurance Only After We Get Married? By Loke Cheng Leong

Accounting Loss vs. Real Loss By Jadelynn

Budget by saltlamp2u

Why do Rich People commit suicide during recession? By MTSen

All Money Made is Equal by KCLau

Read comments about each article here.
If you want to participate in this project or find out how you can benefit from it, read more about the project here.

Post from: Real Estate Investment in Johor Bahru

Free eMoney Tips ebook (April 2009 Edition)

How many are there (places i can know abt auction houses) and usually how fast do they update their list. Also for good bargain do they “keep” the info to regular gangs of property agents instead of releasing it out to the public?

Answer #15:
You can contact auctioneers to get a latest auctioned properties list from them. Their contacts are available at auction advertisements on papers, notice board at the ground floor of JB High Court and Internet.

Besides City Plaza, some LACA auctions are held by auctioneers in their auction houses in TJB tower.

Most auctioneers are appointed by banks. Banks also appoint certain property agencies to find bidders for their auction properties. These agents collaborate with auctioneers to provide services in facilitating their clients to successfully bid the property they wanted in auction.

We have discussed some of our experience and details in acquiring auctioned properties in “What must you know before buying an auctioned property?” with recommended links and agents.

Question #16 – Inspection of auctioned properties
I admit that I never really consider to buy an auctioned property just because of the tedious due diligence works.

One particular thing is that the potential bidder can’t inspect the property. How do you go around this?

Answer #16:
It is necessary to conduct on site inspection of an auctioned property and its surrounding neighborhood to ascertain the physical conditions of the property. You may not be able to inspect the interior condition of a house. But you can ask around the neighborhood who may have visited the house. From the exterior condition also you can have a rough idea how much cost is needed to refurbish the house.

The stage of maintenance has a significant effect on property’s value. Don’t go for the deal unless you are confident that you understand the value of the property and the possible costs required.

Question #17 – Property agent’s conflict of interest
How would u know if the agent you’re hiring won’t be trying to sell for his clients? Wouldn’t there still be conflict of interest as agents would likely already have a pool of clients they’re already serving and earning commission from?

Answer #17
In today’s market where sellers are more than buyers, agents start to know they have to serve buyers better in order to close any deal. However, we always encourage home buyers and investors to do their ground work like learning how to estimate the property value, how to identify a property worth investing and borrowing before negotiating any price with the seller through agent. (You can learn these from our previous articles “How to estimate the value of a property?”, “How to know if a property investment is worth investing?“, “Why you want to take up a loan for your real estate investment?“)

No doubt most of the agents today still tend to sell for their clients and the conflict of interest is there. It’s our own responsibility to protect our own interest. And the best way to do so is to equip ourselves with the right investing and market knowledge.

Question #18 – Questions for prospective property agent
Maybe you can come out with a set of questions we should ask our prospective real estate agents, before engaging any.
In Penang, I’ve met many agents who don’t really know about the market. Only a handful of them are professional and knowledgeable.

Answer #18:
Some questions that we normally ask our real estate agents:

How old is the property? Fully-furnished or unfurnished? Lease hold or free hold? How big is the built-up area? How much is the monthly maintenance cost, if any?

Any other expenses for the property? Has the individual title issued? Why does the owner want to sell?

What is the lowest offering price? Is the price reasonable in the market? Any room for negotiation?

How much is the highest and lowest rent I can get from the property? How long will you need to find a tenant for the property?

Once you have asked the same questions to several agents, you will be able to identify who can serve you better.

Question #19 – Commission rate of property agent
May I know what’s the standard fee like for hiring/paying an agent in KL or PJ area? Is it 1% of the property purchase price like in JB?

Answer #19:
Yes, you are right. But for certain higher value transactions you may negotiate with the agent to have some discount on the commission. For example, for a transaction above RM250k we normally expect to get 20%-30% discount from property agent, i.e. 0.7%-0.8% of the purchase price instead of 1% for agent’s commission.

Post from: Real Estate Investment in Johor Bahru

Real estate investment Q&A #3

Answer #10 (contributed by KCLau):
If it is an investment-linked policy, you can redeem the unit (just like unit trust). Of course there are terms and regulations that require minimum unit left in the policy in order to keep it in force.

If it is a traditional policy, the cash value is available for loan. Currently the loan interest is 7% (not low actually).

Question #11– Is now a good time for rental properties?
“Credit is tight, Approval of loan are low, …”
Persons who wish to own a house are forced to rent one. Thus, there is a need in rental market during this recession. But, properties have no market, value is going down, this affects rental.
Good timing for income producing properties?

Answer #11:
We found out that although the property values have been going down after Sep 2008, rental market is not much affected, yet. We believe the rent will not drop as fast as the property value, and thus give us more and more opportunities to find properties with high rental yield.

In other words, the gap between the selling price and the expected rental income of a property is becoming smaller now. But here we are only talking about residential properties because people still need a place to stay in hard time.

Question #12 – Lido Boulevard
I was told Lido Boulevard is a good investment. Can i have any feedback on this project?

Answer #12:
In Jan 2008, the developer, Central Malaysian Properties Sdn Bhd (CMP) said the project “is set to commence in March 2008“.
In June 2008, again, the developer said it “will start work in September 2008“.
So sorry that most of the time we just have no faith in most new development projects in Malaysia, especially those who claimed to be “one of the biggest private finance initiatives” in this uncertain period of time.

Question #13 – Tebrau City Residences, Desa Tebrau
How do you think about Tebrau City Residences, Desa Tebrau? Shopping malls around there create much value. Developer is http://www.plenitude.com.my .

I’m looking to buy a unit @ Tebrau City Residences…

Do you have any views on that? I happen to think that the rental yield will be good as it is situated in the IDR and also has 3 huge hypermarts surrounding it….

The developers are also hinting of a 5* hotel being built behind it.

Any ideas or hints??

Answer #13:
Though we don’t know much about this project and its developer, the location is definitely premium. We also learn that the price of most properties such as the apartments under this project is considered affordable for the quality they deliver.

As we are expecting manufacturing, retail and service industries to be hard-hit by recession in the coming quarters or years, we are reserved about the short-term yield that the area may deliver. However, there is one thing for sure: when the economy starts to recover, which it will eventually, the properties in such premium location will be the first to enjoy the fruits.

Question #14 – Lagenda Tasek
What do you guys think of Lagenda Tasek by IJM?

Answer #14:
IJM is quite a prominent developer in Malaysia. However, with the economy situation right now, the risk of buying property from new project has increased due to the potential financing problem with both developers and buyers.

We find the location of Lagenda Tasek a bit inconvenient though it is located beside Jalan Skudai and adjoining to Larkin. Unless there will be some improvement of the traffic system there, otherwise future residents of the estate may find it a hassle to get in and out from there.

Other than that, we also find Lagenda Tasek a bit ambitious with the number of units just like IJM’s Suria Mas apartment in Larkin. Maybe that’s the reason why they can be priced as the “affordable” apartments in the area.

Post from: Real Estate Investment in Johor Bahru

Real estate investment Q&A #2

photo credit: Moe_

reijb.com is going to enter into her 5th month. Thank you for all your support.

We have received many feedbacks and comments from readers which help us to improve the contents of this blog and make reijb.com a place of discussion about real estate investment.

We hereby summarised some of the questions and answers which you may have missed but yet interested:

Question #1 – Fixed and floating rate mortgage, which one is better?
Last time, there are fixed interest rate home loan package available. But nowadays, this kind of offer is getting less.
Some investors pointed out that it is safer to use a fixed rate mortgage because we don’t have to worry about interest rate hike in the future, which might affect the monthly installment amount. What do you think about this?

Answer #1:
Yes, there is virtually no more fixed interest rate mortgage in the market now. But no worry, it can be a good thing for real estate investors and home buyers to choose floating interest rate in this period of time of economy crisis.
Please read “Why floating rate mortgage can be a better choice now?” for detailed discussion.

Question #2 – Is now a good time to buy house?
Is now a good timing for buying a house in JB since BLR dropped? We are looking for a house near Tampoi area. Please advise.

Answer #2:
Generally speaking, compared to months or years ago, yes, we would say now we can find more good bargains in JB. From what we have seen in the past few months since Aug 2008, the attitude of most sellers (home owners/developers/agents) have changed to become “softened”. And we discovered that more developers are throwing in those units they previously held (to jack up selling price) into the market.

Also, now we can get better offers from banks in terms of interest rate and other terms. For example, Maybank now offers shorter lock-in period (3 years) for non-zero entry cost mortgage. But according to bankers, however, loan approving rate has dropped nearly 50% since Sep 2008 due to more stringent policy adopted by banks. They are trying to secure more ‘quality’ borrowers by promoting more attractive packages.

Specifically for housing estates near Tampoi, we have yet to look into this market. However, the area is classified as one of the prime suburban areas by JB town councils. Most of the residential lands for apartments/condominiums there are lease hold mainly because of its location as the nearest industrial area to town and better traffic system. The other area that deserves such status is Larkin, but you may find less choice of houses there.

Question #3– Is there really a high-return property?
There is one big problem with the 1st scenario in “How to know if a property investment is worth investing?“. How many people have actually bought a condo for RM168,000, or even RM200,000 and manage to rent it out for RM1,400 within even the 1st 6 months? Agent fee alone is 1 month.

AFAIK a condo that is worth RM168,000 in JB or KL can only be rented for around RM1,000.

I would stand corrected if someone is able to have proven to own a property worth RM168,000 that fetches RM1,400 monthly rental. This does not include a property bought several years ago for RM168,000 but renting at RM1,400 now (in which case in the first few years there would probably be negative cash flow).

Answer #3:
Yes, not many people are able to spot such good deal from the market.
If we spend some time searching for wholesale bargains like fire sales by developers, desperate owners or bank auctions, we will be surprised by their offering prices and quality of properties.

Some apartments/condominiums in Larkin area worth RM160,000-RM190,000 now are rented for around RM1200-RM1500 (fully furnished). The unit in the 1st case was found in the same area with existing tenant from a local company. 2 weeks after we found the unit, our agent was able to rent another unit out in the same building (2 floors higher) for RM1500 within a week!

However, we cannot deny that there are many units of these apartments/condominiums currently rented below market price (RM800-RM900). They may be rented to owner’s friends or relatives or rented out several years ago.

“Seeing is believing” – that’s what we always say in the market….
Question #4 – Are rental markets of JB, KL & Penang the same?
I think your explanation about the rental market in “Will property price and rental fall further?” (that rental rate are expected to increase as more people will prefer to rent instead of buying house in this uncertain period) applies to the market in KL and Penang too. Isnt’ it?

Answer #4:
Theoretically, yes, rental markets in KL and Penang are expected to see the same things happen.

But there is one factor in JB rental market that KL and Penang markets do not have – Singapore. Within the next 6 months, Malaysian workers retrenched by Singapore firms will flow back to rent houses in JB while they look for new jobs. This may temporary create another influx of tenants to JB. The strong Singapore currency will also attract more people from the north to come and find job here in long term, just like what has happened in the last 1997 Asian currency crisis.

p/s: we further discussed our recent observation about the increased occupancy rate of certain rental apartments and condominiums in Johor Bahru in “Why apartment can be the best real estate investment?”.

Question #5 – Is inflation your friend or enemy?
I don’t really “catch” the meaning of “inflation is an enemy to all home buyers because they don’t earn income from their houses…” (in “Inflation may come back soon”)
Would you explain more details about it?

Answer #5:
Home buyers buy houses for their own stay. Whenever inflation strikes, cost of living becomes higher and higher, including the price of a new house, monthly installment of new housing loan, maintenance of house, utilities and other household expenses.

Unlike property investors who benefit from higher rental income and property prices due to inflation, home buyers have to rely on their existing sources of income to cover the increased home-related expenses.

Question #6 – Does Iskandar Malaysia project benefit property investors?
How do you think about Iskandar Malaysia project? Does it really benefit the property investor?

Answer #6:
In his latest comment on remarks made by Singapore PM Lee Hsien Leong that the republic was not competing with Johor especially with Iskandar Malaysia, Johor Mentri Besar Abdul Ghani claimed that the special economic corridor had attracted RM40bil in investments since its launch in November 2006.

If everything portrayed by the government about Iskandar Malaysia is true, it definitely benefits almost everyone in JB including property investors there. However, in the market we found more speculations rather than concrete confidence from investors. For example, price of land plots along the second link has increased tremendeously (>80%) as a result of speculators’ operation. This has also invited criticism from former Malaysia PM Maharthir because without the support from true economic activities, everything looking good now will not sustain, and eventually someone will have to pay the bill – most likely the locals will lose their ownerships of agricultural land and tax payers will have to repay additional natioanal debts incurred by unnecessary infrastructure projects.

Investors are realistic players while speculators are gamblers.

Question #7 – Why prices of some properties never go down?
I see that supply > demand in JB property market due to many housing development projects, but price of properties never go down.

What is the reason behind this?

Answer #7:
Property price of new developments may not easily go down as developers have to meet their break even points. Unless they are really in deep trouble. So we see a lag effect compared to resale/sub-sale market.

Certain resale properties in JB like high-end semi-D, condominium, bungalow and land are mostly bought by cash-rich buyers such as wealthy Malaysians and foreigners (Indonesians and Singaporeans). They have the holding power and normally do not like to let people take advantage from their properties when the market is bad. Sometime we can even face difficulty to find such properties in bad time.

Properties that reflect instantly the effect of supply and demand are those bought by middle and low classes in the resale market.

Question #8 – Why strata title is not issued yet for a completed project?
Regarding Wadihana, I was told that though it was completed more than 15 years ago, strata title for individual unit has yet to be issued and that the owners are now in dispute with the developer over it for the developer is dragging its feet. Is this true?

Answer #8 (contributed by goBetong):
If strata title is still outstanding after 15 years, the property is not worth any consideration. Either (i) the developer is intentionally irresponsible and to his advantage, keeps dragging the title application it to enable them to control/manage/continue to make monies from the properties or (ii) that the developer is still owing $ to the bank and is unable yet to redeem the master title or (iii) the property is not constructed to specification, CF is temporary. Whatever the scenarios, it stinks to seven heaven. Why anyone of sound mind would want to invest in a property w/o title and which, is not outrightly his is beyond my comprehension.

Question #9 – Does a property with average rental yield or capital rate guarantee a cashflow investment?
For example, i buy an apartment at $200k with 10% down-payment of $20k, 90% with mortgage loan (interest rate 6.5%) of $180k with $1100 monthly installment.

if my capital rate is 6%, i manage to get monthly rental income $1000.
in fact, i invest $20k then getting -$100 cash flow.
please advice.

Answer #9:
Yes, you get a preliminary monthly cash flow of -$100 before other expenses like tax, repair, insurance, etc. (with 30 years of tenure for your loan)

Here we can see how high interest rate (6.5%) can turn a so-called high rental yield (6%) investment into a negative-cashflow deal.

In fact, even though now we can get lower interest rate at around 4%, which reduces the monthly installment to $860, a $200k apartment rented at $1000 is still not considered as a positive-cashflow deal if its monthly maintenance fee is above $140.

Post from: Real Estate Investment in Johor Bahru

Real estate investment Q&A #1