Mrs. Money here. I finally bought my first property – hoorah! I’m really glad that I’m on track with my short-term FI plan that I set out when I started this blog, just over a year ago.
In this post, I will share the journey towards purchasing my first home – the what, why and how. What started as a pie in the sky, soon led to me poring through blogs and property sites, talking to aunties and uncles, driving around suburbs like a creepy stalker, and whipping out my (phone) calculator to make decisions about the largest investment of my adult life.
Coming from an Asian family, buying a house was something we were encouraged to do right out of the womb. It’s a sign of financial maturity, independence, and most importantly, completion of one of our three core filial duties (the other two being married and having children). I also set my sights on buying a property as a means of cultivating a habit of savings towards a worthy goal.
However, as I was building up my savings, I found myself asking some questions: Should I even invest in a property? Are there better investments? Is it more financially savvy (and convenient) to rent for life instead of buying and maintaining a home? What is the true cost of home ownership? Am I ready to commit to such a huge investment?
This is a personal choice, and ultimately I decided to do it for two main reasons:
- There is a lack of low-risk, secure investment options with stable, long-term returns in Malaysia (see Mr. Money’s post on the high fees associated with unit trust, as one example). Property prices have been averaging at almost 8% capital appreciation yearly in the Klang Valley (including rental yield), which is better than most other secure investments you will find in Malaysia.
- Know thyself: As someone who needs and values certainty, my ideal future envisions a roof over my head which no one can take it away from me (except my bank if I default on mortgage payments, of course). There is also something oddly secure and satisfying about owning a piece of land on our finite planet. And really, there are not many investments that you can actually live in.
Sure, there are downsides. It is expensive to maintain a house. There are costs of fixing busted pipes, roof leakages, paying quit rent and assessment, periodical maintenance such as painting the house and other random things that need to be seen to and that can be damaged over time. Dealing with tenants who may trash your home and more importantly, cause mental anxiety, compounds this. Then there’s the high upfront cost involved in the down payment and other fees. Capital appreciation also means nothing unless you plan to refinance your home, or when you actually sell your property and receive your gains. Otherwise, a house is an illiquid asset, sitting, waiting, hoping to be the goose that lays the golden egg of an above average capital appreciation at the point of sale.
In any case, I decided the value (financial and emotional) outweighs any negative aspects of home ownership, especially as my pot of savings grew larger and I could begin to contemplate affording it.
The next questions I needed to decide upon were (a) budget (b) location (c) type of property.
The easy part: deciding on a budget
I decided this based on two figures:
- First, was the amount I was able to set aside every month for the mortgage repayment. I calculated this by taking my nett salary – (monthly expenses + an additional 10% for additional savings/investments/emergencies), which meant that my mortgage repayment on a monthly basis would be close to 40% of my take home salary. To be conservative, I based my nett salary on the fixed part-time position that I had, disregarding any income that I occasionally get from other consultancies as that was less predictable. Based on this monthly figure, I worked out what the purchase price should be.
- Next, I needed to make sure I had enough upfront cash to be able to purchase the property – which is roughly around 15% of the total purchase price. This includes 10% for the down payment (most banks will give first time young home-owners with a good credit score a 90% loan), and around 5% in total which covers lawyers fees, stamp duty, valuation fees etc. This was the figure I had been working towards over the past few years.
These calculations were just a guiding post. Since I took almost one and a half years from the time I started to look, to when I actually bought a place, my income increased and so did my budget. However, I would be cautious about being too flexible with that figure. You don’t want to be stuck with a massive loan that you will struggle to service.
The next two questions were harder. I felt like I was going around in circles, without a clear direction as to what property to buy and where. There seemed to be an infinite number of ways to look at it.
The hard part: What, where…. and how?
Research, research, research
I went really nerdy with this next stage. I started by creating a Google Doc titled “First Home Purchase: Notes”, where I stored all links to sites, notes, and my reflections on criteria that I wanted to consider in my process of determining what property to buy. I pasted good articles, which included those that had strategies to start investing in property, good areas to buy properties in Kuala Lumpur, how to calculate rental yields, tools to compare properties for investments, freehold vs. leasehold, and anything else that was remotely relevant or insightful for my search.
Narrowing down the search criteria
Then I chanced upon an article by KC Lau, sharing tips by Faizul Ridzuan. It had guiding questions and tips that can help set direction for anyone considering buying a property. These included understanding your long-term objectives and risk appetite, and then asking if this property will help you in achieving that.
My risk appetite is low, and my long-term objectives were to be able to retire comfortably with a reliable stream of passive income. But I also wanted at least one house that I could call my home. A place I can possibly retire, or sell off at a later time to take advantage of appreciation or if I ever needed the money. Some additional advice he had included:
- Old is gold: it is better to go for an old property that is valued at lower per square feet, than a new, more expensive one in the same location.
- Go mass: go for a property that the mass market can afford
- Landlording (buying to let): this helps with your holding power in a financial crisis, and having rental as part of your income will help in obtaining future loans.
And of course, every other article talks about the importance of location, location, location.
Using all the information I researched and applying it to my personal goals and situation, I had a clearer sense of what I was looking for, which was:
- A central location (surprise!). I wanted somewhere in the Klang Valley, and some locations I was considering were Subang Jaya, Bangsar, and Petaling Jaya – the latter two being locations I had lived in for most of my life and was therefore very comfortable with.
- A landed property instead of an apartment. I had initially been open to purchasing an apartment, but given the massive oversupply of condominiums in Malaysia, did not feel confident in investing in one. While rental yields are always higher for condominiums, I was prioritizing capital appreciation over time, rather than shorter-term gains.
- An older unit. I did not want to be paying a premium for the “newness” of a house which will wear off over time.
- Buying to hold, with an option to either occupy it myself, or to let.
- In a decent condition, not requiring significant renovations. Mr Money always reminds me that it’s rare to be able to make back any money spent on large renovations in terms of improved rental yield or capital appreciation over time. For example, spending RM50,000 in renovations to improve my bathrooms and kitchen might bump up my rent by RM300, at most. This means that I would make back that initial investment only after 14 years of renting it out! This is not counting interest foregone (and the fact that our bathroom is now already 14 years old). While renovations and upgrades make sense for own stay, I would be very cautious about excessive renovations hoping that it will yield returns over time.
The hunt begins
This next step was basically one year of my life.
I started contacting agents for viewings and spending hours every week on online property sites like Iproperty and Property Guru; using their filters to narrow down and save properties based on location, budget and type. A real estate agent with 30 years of experience, my dad was at hand to dispense tips and advice: see as many houses as possible, ask as many questions as possible, and take this opportunity to really learn and process options so you are ready when the right property shows up.
He also gave me some really useful questions/things to look out for when viewing properties, including:
- What has been the historical price trend of the area?
- Is it close to public transportation?
- Is it close to supermarkets, restaurants, universities, colleges?
- Is it a mature area?
- How old is the house? Do you need to change entire roof, plumbing and wiring etc?
- Is it currently tenanted? How much are they paying? How long have they been renting for (especially relevant if you are looking to buy-to-let)
- What are the demographics of your neighbourhood?
- Is it easy to get in and out?
- How many families have lived there before?
- Why is the owner selling? (so you have a sense of your negotiating power)
- Is it freehold? (freehold is generally seen to be of higher value given limitations with the latter, although you can always try to negotiate down for leasehold properties).
Some things to avoid:
- House with the number 4 is generally seen to be bad luck in Chinese culture, limiting resale/rental value.
- Be aware that houses facing certain directions are preferred by certain religious or cultural communities.
- A house facing a T-Junction (also considered bad luck, limiting resale value)
- Any place of worship nearby – due to traffic congestion and noise pollution
- Houses near overhead power lines
- House elevation: houses at a lower level than the road in front of it.
Finding “the one”
With these questions and tips in mind, I set off viewing single storey houses in Subang Jaya, Petaling Jaya and Bangsar over the next year. It almost felt like a part-time job, and I must have seen 40 – 50 houses in total. But what that meant was when I saw the house that I eventually bought, I had enough knowledge and “feel” to know it was the right one. I also got great ideas for house design (and things to avoid; e.g. silver wallpaper against bright red ceilings, ugh), learnt about different neighbourhoods and how people lived, increased my confidence in negotiations, and learnt so much about the property market – which were all great life skills to acquire. And because I had the luxury of time (thanks to the lacklustre property market), I didn’t have to stress through the decision, which made it so much more enjoyable.
I ultimately purchased a single storey link house at a great location in Bangsar with commercial potential for a price below market value. And contrary to my greatest fear, I didn’t have buyers remorse or any commitment issues when I wired over the massive sum for the down payment!
As I’m just about to collect my keys and begin my (very basic!) touch ups to the house, I have been reflecting on what I’ve learned through this process and want to share my takeaways:
- Understanding your needs and how buying your property helps you get there. I found Faizul Ridzuan’s exercises and some of my dad’s advice really helpful in the process of reflection and understanding what was important for me.
- Take your time and do your homework. There is so much value in going slow, learning, and taking it all in so you build your knowledge and confidence in the market and the process.
- ..Then go with your gut. There’s a big caveat here. The “gut” or instinct here should not be taken lightly – it is very valuable, but even more so when you have enough information on what you are making your decision about. Malcom Gladwell talks about this in his famed book “Blink”. For someone who is very risk averse, I was surprised at how easy the decision was in the end, and I really placed value in the house just “feeling” right. If you’re going to be spending so much money on it, and may live in it one day, you better like it. A lot.
- Information is power. Know how much properties are transacting in your area (you can see them on Brickz.my – another top tip from my dad). Ask all the questions above, and more. Make real estate agents your friends. They are financially going to act in the interest of the seller, so you want to be able to get them on the side of making the sale. They are your best hope of critical information on the property. Knowing the state of the market means you have greater negotiating power. I was buying in a soft market, and the house I eventually bought had already been on the market for over a year (in fact, I first saw and fell in love with it a year ago, but had to walk away because I was not willing to pay the asking price). Talking to the agent, I knew no one else had even made an offer a year later. With that, I was able to get the property 15% lower than the original offer price.
- Location is key. I really needed to feel confident in the area I was buying in – that it was urban, booming, matured, and would likely be even in the decades to come. Analysing capital appreciation over the past 20 years was one good way of gauging this.
And that is it! I’m really thrilled to finally own my first property, but have been so grateful to have learned so much from this process too. My immediate goal is to try to quickly pay down the loan, while working to diversify my asset classes.
In my next post, I’ll write out the loan process – which was unexpectedly complicated by the fact that I was no longer employed by a Malaysian company. If you are working on consultancies or a gig position, you’ll want to read this. Stay tuned!
Do you have any lessons learnt from buying properties that you would like to share? Any questions? We’d love to hear from you!