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5 Ways A Real Estate Investment Becomes Profitable

1. Cash Flow from Rental Income

As with a stock that pays dividends, a properly selected and managed rental property will provide a steady stream of income in the form of rental payments. Historically, this percentage of return has exceeded that of dividend yields on average.

The real estate investor has a bit more control over the risks to that cash flow also. Though there are downturns in real estate prices and homes sold in some years and areas, generally those renting property in which to live will continue to rent and without a corresponding decrease in rent amounts.

2. Increases in Value Due to Appreciation

Historically, real estate has shown to be an excellent source profit through the increase in investment property value over time. Of course, one cannot predict that this trend will always be true, and it varies significantly by area.

3. Improving Your Investment Property – More Value at Sale

While it’s providing rental income cash flow, your property can also be improved in order to garner a better price and more profit when you do choose to liquidate it as an investment.

Upgrades to the appearance and functionality of a real estate investment property can significantly increase value. As trends and styles change, keeping the property interesting to renters will at the very least help you to retain value.

4. Inflation is Your Friend When it Comes to Rent

Though your fixed mortgage will remain constant over time, inflation that drives up home construction costs will also drive up rents. Population growth creates housing demand, again driving up rent prices if supply cannot keep pace.

5. Paying Off Your Mortgage

As you pay down your mortgage, the increase in equity can be used for other purposes and investments. Though it’s frequently accessed by selling the property, a real estate investor can also take out equity loans if the terms are right and use those funds for more investing or other purposes.

6. You Could Just Find that “Steal of a Deal”

This is the last item, though it’s one of the first ones many investors think about. There are opportunities to buy below market, but the other advantages above will probably be what the average investor experiences most of the time.

Should you be fortunate enough and have the experience to locate a value-priced property, this is an immediate way to increase your net worth and the value of your investment portfolio.

Written by James Kimmons, About Real Estate


Cooling in Malaysia’s residential property market? Is it likely?

Cooling in Malaysia’s residential property market? Is it likely?

A report from Spy Ghana enumerates the following trends in the country’s residential real estate sector when it comes to household debt:

– Residential property prices have increased by 60% since 2008 according to IMF

– According to McKinsey Global Institute, the household-debt-to-income ratio reached 146% at the end of 2014 from 139% in 2007. Home loans made up the largest share of Malaysia’s household debt, accounting for 45.7% of the total.

– IMF notes that notes that 70% of all home loans as of March had been taken out with variable-rate mortgages, meaning repayment levels could rise in certain economic conditions.

– Home loans are now falling, with more applications being rejected by the banks: loan rejections over sales rose by 7% from 2013 to 2014, according to the Real Estate and Housing Developers’ Association Malaysia (Redha).

Regulatory measures aimed at cooling the market will play a part in driving down demand. In 2013, Bank Negara Malaysia capped mortgage terms at a maximum of 35 years and personal loans at 10 years, while also limiting pre-approved housing loans by developers.

Real estate is a cycle of ups and downs. The photo shown contains historical data. The question remains: are we approaching a downturn?



4 Factors Affecting Property Prices

Property prices capture some of the main talking points among fellow Malaysians these days. After all, the sky high prices do pose a problem to those seeking to buy.

The house price index graph below indicates a fall in housing index in the second quarter of 2014 with respect to the first.

Whether the implication that the index follows a random ‘walk’, i.e. subsequent rises or falls in price index remains debatable. But let’s take a look at some of the factors that affect property prices.

1. Leasehold vs Freehold
Homeowners generally prefer living in neighborhood with a freehold tenure rather than leasehold. Ownership in freehold property remains intact with its titleholder with no time limit unless transferred legally to other party. Leasehold is a fixed asset with maximum lease period of 99 years. Eventually, it has to be returned to the government or if the current owner needs to forego a fee to lease it further.

For those interested, the formula on the second phoro highlights the premium on the land excluding the building situated on it. According to, Section 7 entitled ‘Premium’ of the Selangor Land Rules 2003.

The first photo: Example: For a 4000 sqft residential property in Damansara with 20 years remaining on lease, valued at RM150 per sq ft by the Authorities, the lease renewal fee will cost.

Property prices under the freehold tenure may differ from the leasehold, i.e. it could be higher or lower regardless but it is well known that freehold properties tend to perform better in terms of long-term capital appreciation due to substantial lease fee amount.

2. Location
There are multiple factors that deem a good location for some individuals. Let’s take a look at some below.

a) Distance from School, Workplace & Retailing Outlets

Generally, the closer they are to the housing areas, homeowners are expected to fork out more for the luxury. Availability of shopping centres and hypermarkets nearby definitely adds value to the premise. After all, shopping is one of the top family activities for us, Malaysians!

b) Security

With the current rising crime rates in Malaysia, any housing with added security becomes a necessity. Gate-guarded and fully landscaped neighborhood with perimeter walls, security personnel and CCTV are desirable for the safe-minded individuals. A premium can be inserted in housing price if the community is fully secured.

c) Environmental qualities

The constant urbanization creates a shortage of green space views. Most individuals prefer the era with natural landscape and views of green space. The opportunity cost of planting native tree species around the area is the amount that the developer could have received from sale of more properties instead. This cost is reflected in the higher price of properties that has an acceptable threshold environmental quality.

3. Accessibility
Getting from home to city or around the city remains an issue for most Malaysians who are unable to afford private transport. They are obliged to take public transport such as trains and buses. Having LRT and MRT within a 20 minute walk from housing areas is convenient but to a certain extent. If located too close could result in congestion, noise and petty crime. A 20-minute walk may appeal to be long for some of us; thus, it’s crucial that bus stops are close to the properties.

Highways are definitely one of the fastest ways to get to the city. Knowing that Malaysians will most likely locate the fastest route possible, housing areas with easy access to highways such as the LDP or Kesas are higher in demand, therefore higher price.

For those with cars, we all know how frustrating a task of hunting for car parks are. Countless litres of petrol are wasted through searching for them. Ample car spaces make a particular area more attractive.

Other accessibility factors such as recreational facilities could drive up the property value. After a long day of studying and working, all we want to do is sit back and relax. What a better way to do this than having a swimming pool, gym and sauna, BBQ corner nearby. Obviously, this comes with a hefty price for the housing properties.

4. Future development
High-end areas with appreciative development in the future are obviously valued more. One example includes the rezoning of land in Section 13 of Petaling Jaya from industrial use to commercial use. As a result of this shift, the value of this location spiked up.

The availability of land for expansion plays a part in property value. With vacant land in urban areas diminishing, for example in Klang Valley and general increase in population, land prices are rising.

Our Final Take
A general rule of thumb suggests a freehold property with a desirable location, efficient accessibility and ample space for development are consistent with the uprising price. However, an average income could only fetch some of the factors above and so, compelled to prioritize. Here are some things to be aware of. Also, for those going in for the purchase, be sure to make use of our home loan wizard to get the best rates in the market!

Reprinted from LoanStreet


5 Reasons Why You Should Invest In Malaysian REITs Now

Malaysian property investments have become less attractive these days due to the skyrocketing prices and also the various cooling measures implemented by the authorities. This has set many people from the middle and lower income groups back from buying their first home or investing in property.

However, other than investing in physical properties, Malaysians can consider investing in Malaysian Real Estate Investment Trusts (MREITs). Unlike business trusts, Malaysian REITs are trusts which invest in properties only. They are traded on stock exchanges and are eligible for special tax exemption.

Here are five reasons why you should invest in REITs in Malaysia:

1. Small starting capital

Most property investments require a significant amount of money to start. Even with 90% loan, a RM500,000 property would require at least RM50,000 down payment plus extra for legal fees and stamp duties. For MREITs, you can start investing with as little as RM140 (100 shares of Pavilion REIT at RM1.40).

2. Get exposure to the top shopping malls and commercial buildings

With MREITs, you will be able to buy into the top shopping malls in Malaysia. Malls such as Pavilion (Pavilion REIT), MidValley Megamall (IGB REIT), Sunway Pyramid (Sunway REIT) are all available on Bursa Malaysia. As an individual property investor, you would have little chance of owning such popular shopping malls, other than certain strata title types like Berjaya Times Square. With MREITs, your dream of owning a part of these popular commercial properties can be a reality.

3. Earn regular dividends

Like property rentals, MREITs also generate income in the form of dividends. Since MREITs are usually diversified, vacancy rates are generally low so they are a more stable form of income as compared to physical properties which could have vacancy periods.

The frequency of dividends payout for REITs is quarterly or bi-annually, making them an ideal investment for retirement income. To make it even more attractive, the dividend payout for REITs tend to be pretty high as they need to pay out at least 90% of their net income to be eligible for tax treatment.

4. Ease of buying and selling MREITs

As MREITs are exchange traded, buying and selling them is generally easier compared to physical properties. MREITs are bought and sold like normal stocks so the prices are transparent and the transactions take place instantly. For property transactions, it is normal to take between six to 12 months at least to find the right buyer at the right price and go through the sales and purchase agreement (SPA) process.

5. Minimal effort required

One of the key advantages of MREITs is that there is minimal effort required to maintain these investments. MREITs hire professional management teams to manage the tenants and upkeep of the properties, leaving you to enjoy the fruits of your labour. Anyone familiar with property investments will know that there is in fact a lot of work involved in managing your own properties.

At current market condition, dividend yields of most MREITs are pretty attractive compared to other investments, ranging from 5% to 6%. Given the stability of the dividend income and quality of the properties, MREITs are generally good investments to consider.

About the Author
Calvin Yeo, CFA, CFP is the Managing Director of DrWealth. Dr Wealth is ASEAN’s leading site on personal finance. We offer users high quality articles and research on all areas of Personal Finance including Retirement Planning, Investments, Savings, Insurance etc. In addition, we provide effective and simple to use mobile and desktop software tools that help you track, model and plan all your finances.

Reprinted from Iris Lee’s article at iMoney.

warren forbes

Warren Buffett Reveals His Secrets for Investing in Real Estate

Worth $72.3 billion as reported by Forbes in 2015, Warren Buffets reveals his insights about real estate investing. This article is reprinted from Brian Lund at the Daily Finance:

There is no lack of information available about the institutional investment strategies of the world’s billionaires — how they move money in their capacity as the heads of large public companies and investment funds — but how often do you get the chance to look inside the personal investments of those billionaires? And how often does a billionaire offer you insights that you can use in your investing?

Warren Buffett did just that with his annual letter to the shareholders of Berkshire Hathaway (BRK-A), which he sent late last month. In it, he highlighted two personal investments in an area he is not normally associated with — real estate.

He talked at length about a 400-acre farm he bought in Nebraska and a retail property purchased near New York University and in the process provided a number of lessons for anyone thinking about investing in real estate. Here are five takeaways from the letter and Buffett’s words supporting each.

warren forbes

1. Invest in Undervalued Real Estate

From 1973 to 1981, the Midwest experienced an explosion in farm prices, caused by a widespread belief that runaway inflation was coming and fueled by the lending policies of small rural banks. Then the bubble burst, bringing price declines of 50% or more that devastated both leveraged farmers and their lenders.

In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000, considerably less than what a failed bank had lent against the farm a few years earlier.


In 1993, I made another small investment. Larry Silverstein, Salomon’s landlord when I was the company’s CEO, told me about a New York retail property adjacent to NYU that the Resolution Trust Corp. was selling. Again, a bubble had popped –- this one involving commercial real estate –- and the RTC had been created to dispose of the assets of failed savings institutions whose optimistic lending practices had fueled the folly.

2. Think in Terms of Income, Not Appreciation

With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.

If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so.

3. Focus on Underutilized Properties

I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out.

And regarding the New York property …

Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20% of the project’s space – was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings.

4. Use Partnerships to Fill In Gaps in Your Expertise

I knew nothing about operating a farm. But I have a son who loves farming and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be.

And …

I joined a small group, including Larry and my friend Fred Rose, that purchased the parcel. Fred was an experienced, high-grade real estate investor who, with his family, would manage the property. And manage it they did. As old leases expired, earnings tripled. Annual distributions now exceed 35% of our original equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150% of what we had invested. I’ve yet to view the property.

5. The Macro View Is More Important Than the Micro

My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following –- 1987 and 1994 -– was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.

There is one major difference between my two small investments and an investment in stocks. Stocks provide you minute-to-minute valuations for your holdings whereas I have yet to see a quotation for either my farm or the New York real estate.


Perhaps unsurprisingly, Buffett’s philosophy on investing in individual companies is similar to the one he applies to investing in real estate. Find investments that produce income, have long-term value prospects not currently being recognized by the market, and, once you buy them, increase their operational and managerial efficiencies to maximize recurring revenue.

These are ideas that you don’t need to be a billionaire to understand, nor to put them into practice in your own portfolio.


Planning to enter the real estate investing market?

Planning to enter the real estate investing market? Take heed; avoid these mistakes:

1. Planning as you go. First, you find the plan.Then you find the house to fit the plan. Pick your investment model, and then go find property to match that.

2. Thinking you’ll get rich quick. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance.

3. Playing Lone Ranger. A key to success is building the right team of professionals. At the very least, you need good relationships with at least one real estate agent, an appraiser, a home inspector, a closing attorney and a lender.

4. Paying too much. The biggest reason investors don’t make money is simple: they pay too much for the properties. Due to mistakes in the analysis, the investor pays too much and then is surprised later when he doesn’t make any money.

5. Skipping homework. Many wannabe real estate investors don’t think twice about taking their financial lives in their hands without even cracking a book. Educate yourself before you put your family’s financial security on the line.

6. Ducking due diligence. Investors often have to move very quickly on their deals. They don’t do their due diligence about the deal, the costs or the market conditions, and they wind up draining their personal savings because the house needs extensive repairs or they can’t sell it.

7. Misjudging cash flow.If your strategy is to buy, hold and rent out properties, you need sufficient cash flow to cover maintenance.

8. Lowering the volume. If you’re working on one deal at a time, you’re doing transactions, not running a business. You need a steady pipeline of prospective deals; sufficient volume will weed out the marginal deals and let the good ones rise to the top.

9. Painting yourself into a corner.Many people buy a property and get stuck with it because they only have one exit strategy. They’re going to sell it or they’re going to rent it out. What if it doesn’t sell? What if the rental market stalls? Always have two, if not three, ways to get out of any deal.

10. Miscalculating estimates. After doing your homework, you should double the amount of time and money you think it will take. If you can still make money then and you might be able to rent it out, it’s a good deal.

Pat Curry, Bankrate