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Meticulous research and sub-sale strategies prove winning ways for a young property investor

By: Aidil Mohammad Noor

Young Magdeline Lim, fresh from college graduation in 2010, first came to realisation that she needed to start an investment because she knew eventually she needed a safe and secure investment for when she retire and can no longer work. After some research, she discovered that property is the safest form of investment that had the longest leverage with the longest loan tenure. Her early strategy was buying to rent, she decided, because she needed to increase her income.

“Property prices back then was still manageable, and the prices weren’t as scary as it is now. Then again, people are not so keen to invest in property as they are now,” Magdeline tells.

Her first property was from a sub-sale market. “It was the safest form of property investment for me as I could see and touch the property before purchasing it. Secondly, the market and amenities and infrastructures are all already there to assess the demand of the unit,” Magdeline explains.

She then narrowed down her choice to Subang Perdana Goodyear Court 7. “I observed the area to understand the traffic flow and population density there. After a while, I found that the area has high traffic and high density population with offices and residential areas and shopping malls within 5km vicinity, and I thought this is a HOT area!” says Magdeline.

After three months of conducting the research, she knew all the Subang Court units along with all the sizes, rental demand and even the market value. “I even knew what kind of families stayed at which type of courts,” she adds.

With only RM7,000 for initial down payment and legal and valuation fees, she finally bought her first property from an agent who’s willing to sell one unit for 20% below market price. But she did not go and seal the deal alone; she went there with her team. With a contractor in her team, she could make a rough calculation on the repair costs needed and, with that as an argument, she managed to get the deal for much lower than the market price.

Good rental yields

Even now, her strategy is still the same: go for sub-sales. “For the past three years, I’ve been investing into sub-sale properties. As you know, there are two ways to make money from properties: buy to rent and buy to sell. All these while, in my 10 years, my aim is to increase my monthly income. Thus that’s why I chose to buy and rent out my units,” she explains. Most of her property portfolio consists of low- to medium-cost units. According to Magdeline, these types of properties generate the highest rental yields. All her units are giving her minimum of 9% rental yields.

For her, the justifications for choosing sub-sales are as follows:

  • Since the property building is already up, she can see and feel and touch the properties, thus eliminating the odds of any possible half-completed projects. She can also use any defects in the units to negotiate for lower price.
  • The demand and supply are all already existent, so it is easier for her to assess the demand for the unit she is buying. Moreover, most infrastructures would already be up and running, which draws the population to that area.
  • She can study and narrow down the demographics of her potential buyers/renters since there are people already buying and/or renting the unit. She would already know exactly what type of people would want to rent her properties – singles or family, locals or foreigners, students or working people. She would even have sufficient data to analyse the yearly trend from the last few years.
  • Since she can safely project and asses the future developments as most of the infrastructure is already present, it is also useful for her in spotting the next area for potential growths, and the credibility of new development projects nearby.

For the past 2-3 years, however, Magdeline thinks that there has been too much supply of properties in the market at ridiculously high prices, and the developers were making this scenario worse off by offering easy entry to allow many buyers to easily buy a property that they financially cannot afford.

“If you have noticed, most of those properties were those small ones like SOHOs, SOVOs, etc., all under the Commercial title to capture the investors who were facing the LTV 70%. So, in the next year or two, I’m expecting a rise in desperate sellers who finally feel the pinch of having to fork out high monthly instalments,” she adds.

“First, if all those projects are finally completed, there would be an oversupply of properties for sale/rent, and the owners will be facing a stiff competition to rent/sell out their units. Second, with the GST and the increased cost of living these days, it’s going to be much tougher to sustain such a high monthly instalments. And this is especially so for those who carelessly bought into more than two units at one go without considering this factor,” Magdeline explains.

This shows how not many people are going into sub-sale market, which lessen her competition in purchase and rental transaction. “Continue to focus on this and soon one will lead to market dominance,” she adds. Also, small spaces being marketed at high prices per square feet are targeting potential buyers/renters earning above RM4, and this means not many are catering for the people who earn lower income range.

Due diligence

Magdeline advises that despite new rules and regulations to control Malaysian property prices, there will always be loopholes. So, she urges investors to talk to more bankers and seasoned investors who know the in-and-outs at the back of their hands, and learn from them. For example, she illustrates, while most people stop at buying properties just because of the LTV 70%, not many know that LTV is applicable for residential properties.

“Hence, why not focus on commercial properties that can still give us 80% margin of financing? Some smarter investors who have a bigger portfolio can easily use companies to invest into commercial properties and still leverage on the higher margins,” Magdeline adds.

In public perception, commercial properties are expensive, yet investors can still get a commercial property that is less than RM300k in certain areas, according to Magdeline, and if investors are creative enough, they would know how to maximise that commercial space to maximise on the rental yields, provided that they do their own due diligence with proper research on the market demands and supplies. “So, buy low and rent out high = good money,” she concludes.

As for 2015, her strategies will be as follows:

  • Remain looking into residential properties in the sub sale market since still not many looking into that area, yet;
  • Keep buying to rent properties because it is still too expensive for many consumers to buy a property of their own;
  • Always be on the lookout for desperate sellers by keeping tab of potential areas; and
  • Last but not least, keep a much closer relationship with bankers and lawyers to share more tips on getting more loans to finance her property journey.

Magdeline now owns a number of properties, and currently she is one of the team members in Freemen, a company that started in 2009 with the objective of sharing the knowledge of investment, and has now become a community that invest together to make their financial lives a success.

“Since I started investing, I’ve always been a fundamentalist, and I am proud to say that I am a prudent investor,” Magdeline says.

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