Here are 3 critical questions that you should be asking yourself when you are committing to a purchase just for rental.
1. What kind of rent are you looking at, and what are the outgoing cost?
When we talk about investment - The first thing in mind is that the investment must be able to generate positive cash flow. Why positive cash flow is so important? Lets imagine that you are investing into 1 property that is giving you a negative cash flow of RM 300 per month. That is only 1, what if the number is 10 ? Then you will be investing in 10 properties that is going to leech away RM 3000 per month from your pocket, whether you like it or not. Of course, on the other hand, if the property is able to generate RM 300 in positive cash flow, investing 10 will be able to generate RM 3000 every month without needing to do much, except by collecting rentals.
In any time during your investment decision on a real estate property, it is
important to look at the perspective of cash flow, compared to capital appreciation alone. In other words, will you be make money each month, or will you have
to wait until the value of the home rises before you make a return on your
investment?
Here are some of the cost that most of the investor tend to overlook in terms of outgoing cost to acquire a property, and the recurring cost to maintain the property.
Here is a list of potential cost that you could overlook when you are calculating your effective yield from your rental income
- SPA and Facilities Agreement Legal Fees
- Stamp duty / MOT
- Potential Repairs
- Cost of Furnishing (If applicable)
Here is a list of potential recurring cost (monthly, or annually)
- Agent fees (1 month agent fee if you engage an agent to rent your property)
- Maintenance fee + Sinking Fund
- Insurance charges
- Fire Insurance (For condominium)
- Quit Rent
- Assessment
- In house repairs and maintenance
If you can get an investment grade properties that is able to cover all the recurring outgoing cost and still being able to give you a positive cash flow after bank mortgage repayment, that is consider a good piece of property that you can invest in.
2. Is there a consistent demand from renters at that place?
Consistent demand is very important. Why do I need to emphasize on "Consistent". That is because your property is going to be tied to mortgage repayment for probably the next 30 years. If you do not foresee a consistent demand for the next 10 years, that is a big risk that you are betting on.
Some important lifestyle factors that will
appeal to future tenants will be
Is the home located next to highly-rated schools? Is there good employment opportunities? Proximity to public infrastructure and transportation? Is there a popular destination nearby
that people will always want to live next to? Is it near to a tourist area?
While the quality and condition
of the property will determine how much you can rent it for, the location will have the biggest impact on whether or not you can find renters
each month.
Of course, if you are talking about places with guarantee demand, that place would be the center of Kuala Lumpur. Places like KLCC will be a place where expatriate will be there, tourist will be visiting, and high ranking multi national company officer will be at. Chances of them staying in the KLCC area is of course - very high. What say you ?
3. Who will be going to manage the property?
Alright, this is one of the very important question that investor will always tend to think about it later. I had to tell you that this is a very risky decision to put this question when you are going to get the keys. In fact, this question should pop up in your mind when you are deciding on who will be helping you to rent such property out.
Well, the normal practice will be engaging real estate agents to rent out your property for a long term rental, such as 1 year rent, or 2. That is not wrong at all. However, the rental might not be as attractive as you might think if you are engaging on a passive long term renting style.
If your property have the capabilities to cater to short term rental stay, and deliver to you a higher rental yield compared to a passive long term rent - Why Not?
Of course, if you are taking this path, it will be best to leave this to the professional. I believe you do not want to risk you job and waste your time just to manage day to day check in and check out from the short term stay of your tenant. It will be just great to engage an operator and do the whole thing in a income sharing basis, a win win situation for both you as the owner as well as the operator.
In conclusion
If you spot a property that is able to meet all the above 3 criteria, I had to tell you that you should grab it as soon as possible because that property will be able to bring your retirement closer.
If I can show you a property in KLCC which can meet all the above criteria, are you going to hesitate again, or are you going to give yourself a chance to get to know this property?
Wait no more and click here to register your interest now.