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by Lim Lay Ying
Property Times, New Straits Times
10th September 2005

Warren Buffett, the world’s richest and most successful investor, has this message for those who want to be rich : “Don’t think you have to be wealthy before you can be an investor. You have to learn to be an investor if you want to become wealthy”.

Investment – in any form, is after all about making your money grow for you. Whether they are in paper assets such as, stocks, bonds, mutual funds, fixed deposits, and investment-linked insurance policies, or in the form of real estate where income is derived from rents collected, or gains from capital appreciation, investing wisely will help support the lifestyle you would like to live over the long term.

Investing in real estate is an option that should be seriously considered because it does not necessarily call for large initial capital outlay. A RM100,000 piece of property for example, can be acquired with a fraction of the consideration sum (or less, if you can convince the bank to extend you a larger margin).

A RM10,000 to RM20,000 down payment today will steadily grow into an equity of RM50,000 to RM100,000 over a period of ten to twenty years. And during this same period, your rent collections could possibly increase by 50 percent or more if you’ve picked an emerging hot location. The property is also likely to appreciate substantially over time.

Be Market Savvy

Even in bouts of down cycles and recessions, rents have seldom fallen drastically. During such periods in fact, with less people buying properties and new supply cut-back, the rental market is usually quite well sustained.

When good times come round, rents are pushed up by rising employment, income levels, and heightened prosperity. In addition, those who have earlier held back property purchase and were either renting homes or shops, or involuntarily living with others, would start to look to buy.

Therefore, owning a piece of real estate – particularly one that is in a fast appreciating location, offers an investor the opportunity to increase his or her wealth by trading up to larger or more expensive properties. In the process, this enlarges his or her wealth and at a faster rate too.

By putting in some effort, and having same basic knowledge so that you can be market savvy, will open up a wide array of real estate opportunities to help your investments grow:

  • Buy properties at bargain prices, especially if they are acquired in a recession.
  • Acquire properties with little, or sometimes even none of your own cash through creative financing.
  • Improve properties so that they can command higher values.
  • Boost rents and retain tenants through attractive furnishings and prompt response to complaints and requests.
  • Trade up, or convert the use of the property to generate more profits.
  • Treat your properties like ATM machines by refinancing them to pull out cash for other investments.

To profit from this list of opportunities, just take note of the following:

  1. Select the right location
    The old adage ‘location, location, location’ will never fade as far as real estate investment is concerned. Properties located in established and preferred localities will always perform. Prices of residential properties especially, will usually move up when land close to offices becomes scarce as most people tend to congregate nearer to their jobs. Thus, capital appreciation will be more assured in such areas where job growth is fast and land availabity is limited.
  2. Check out the developer
    The ability to complete and hand over a project on time does not entirely guarantee that a developer is reliable and responsible. The track record of the developer should be critically assessed in terms of quality of construction, promptness in service – in particular for repair and maintenance tasks, and quality of property management of the premises. Well managed and maintained properties have greater appreciation potential.
  3. Scrutinize the designs
    Attractive and functional designs or properties determine the future potential gains from the investments. Details such as the density of the scheme, sufficient car parking facilities, the type and level of security services, privacy, and views, are some of the pertinent criteria that need to be checked out prior to investing in the property.
  4. Gather market information
    Information on current rent levels, values, tenant profiles, and vacancy rates, will help determine whether the investment can yield attractive returns, generate positive cash flow, and potential capital gains.

Today, there are still bargains around – bargain prices, bargain deals packaged with complete furnishings and fittings, and bargain financing. And you don’t need to be wealthy to be an investor. But you can become wealthy if you start investing.