The 3 Most Important Things to Consider when Buying a New Investment Property

What are the 3 most important things to consider when buying a new investment property in Malaysia? Below is a helpful list of the 3 most important things you should always bear in mind before you pour your hard-earned money into a new piece of real estate for investment.

1. Location

Location is the most important thing when it comes to buying an investment property. This will have a significant impact on the cost and rental of the property. Consider properties located right inside the city and compare them to those on the outskirts.

Just do a quick search on PropertyGuru and you will be able to see very drastic differences in the price per square foot as well as the rental rate per square foot. Both figures will have a direct impact on the success of your investment property.

It is absolutely essential that you look at the prices and rental rates of surrounding properties to determine the quality of the investment property under consideration. These are the two key figures that will bear the heaviest weightage on your decision.

Is the new property you are looking at much more expensive than the older properties in the surrounding area? If so, why?

Are the developers offering you great deals such as high GRR and other rebates? Sometimes there is justification but not always. So, be careful when the prices are much higher for a similar sized property because you will be looking at similar rental rates, meaning that you will have difficulty coping with your property loan repayments.

Besides the cost of the property and the rental returns, location plays a big role in the future resale value of the property. Buying in a developing area with great upscale potential can mean the difference between RM50,000 and RM100,000 on your resale price or potentially even much more.

It’s also important that you do your homework to find out what future developments are coming up in an area or what other pull factors in the surrounding neighbourhoods could make this location more desirable or undesirable. Is there going to be a theme park or a new mall built nearby? Are they making a new highway exit to the area? Will any of these new developments create massive bottleneck jams?

These are the kind of questions you should be asking yourself when researching the location.

2. Calculation of All-in-Costs

The price given to you by the developer is not the total cost of your new investment property. It is important that you be mindful of all the other costs that are included. These can add up to a significant amount on top of what you’re expecting to pay and are not always possible to be included in your mortgage.

There are numerous associated costs such as SPA Legal Fees and SPA Stamp Duty, as well as Loan Documentation Legal Fees and Loan Documentation Stamp Duty among others. Malaysiahousingloan.net has a good article breaking down the additional costs that you need to bear in mind – here.

A lot of these fees are waived when buying a unit in a new development, so be sure to find out clearly from the developer which of these fees are taken care of and which are not.

Besides just looking at your upfront costs, you will need to look at your monthly repayments which include; your mortgage repayments, and all other costs that come with the upkeep of your property each month. This also means costs such as maintenance fees and sinking funds. These costs are charged on a per square foot basis and should be one of the first few things you ask the property agent after finding out the price.

On top of these costs, you should also consider the type of insurance that you intend to have on your housing loan. This could either be in the form of an MLTA or an MRTA. iMoney.my has a very good article that goes over the differences between these two types of mortgage insurances and it’ll be a good idea for you to read up on them first if you haven’t already – here.

They have different pay schedules, MRTA is paid when you purchase the property and can be included in your housing loan while MLTA is paid monthly and cannot be included in your housing loan.

If you’re looking at long term tenants then you’ll probably not have to worry about utility costs but if you are considering short term rental solutions, then you should factor these in. Your electricity, water and internet bills should not be overlooked and included in your calculations.

3. Density

Density refers to how densely populated a development is in terms of the number of units made available. This is a factor that is often overlooked but plays a big role when considering your odds of finding a tenant and determining your future resale value.

If a development has 1000 units up for sale, it means that, if other investors have targeted the development for investment, you are going to be competing with 1000 others to secure a tenant. This also applies when you are looking to sell your unit. If many people are looking to sell, you will be competing with them in prices.

You might feel like the deal is too good to pass up or that the location is superior and there’s going to be no shortage of tenants. Just bear in mind that high density equals high competition. So, if you’re willing to roll up your sleeves and are up for a fight, just be prepared for it because it will have significant influence on your investment returns.

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