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Does Property Investment Make You Broke?

These days there is so much fear in the property market, instead of thinking how to make money through property investment, people are scared that they will go broke from owning a property!

This is a very real fear as properties are the biggest purchase for many people. Most people buy properties that cost anything between RM200,000 – RM1 million per unit, and have to spend the next 30 years paying back! Think about it, you make a choice at the age of 30, and you will still be paying for it when you are at 50 with 10 more years to go! I don’t know about you, but that is a very scary thought to think about for many.

Yes, so if you make a single wrong move it will literally haunt you for the next 30 years! If it does not generate positive cash flow, then it will make you broke every month. But if you do get some exposure and groundwork before hand, and then make the right or at least a not so bad choice on property, then your experience will turn around to be a very happy story in deed. Instead of going broke, it might in fact pay for your new car or holiday!

So what do you do? Let me tell you a story, it is one of the properties I bought. This unit went from an amazing buy to almost a disaster, before turning around and become very good.

We bought this project from a top tier develop in the heart of the KL city centre. Our entry price was good, the package was good and the potential tenants were amazing. We were so excited when we got the project, that together as a group, my friends and I literally bought up hundreds of units in this one project.

Then a few years later, when the property was almost about to complete, something unexpected happened. The one thing that looked like it would never come down, rushed downward in a spiral. Oil Price.

Overnight our country’s economy and biggest income just disappeared. The whole oil and gas sector came crashing down. And disappearing together were those professionals working in the oil and gas sector, our amazing potential tenants whom we were hoping for, because they were willing to pay top dollar for the location and image.

What’s more, the units were completed and handed over by the developer a few months before the expected date. Call it a bonus, we didn’t even have the time to prepare for this down turn.

So what to do? Well, we put on the Phua Chu Kang boots and became contractors to renovate the units super fast, because we tried to rent it out quickly before others do the same. That worked for a few units but not all, soon we had so many units ready but no tenants. This was becoming worrisome. I remember I had the unit lists with me every day, they were all renovated but no tenants were even viewing it.

WHAT DID WE DO DIFFERENTLY?

This is where I give credit to my partner Aravind. He told me we need to explore the possibility of turning these vacant units into Airbnb. Ok, so that weekend I studied it, set up an account, uploaded pictures, checked out what others were doing, learned from them and did the same to mine. Within 1 day I had inquires coming, and in 11 days I had all the balance units booked up. I was so excited that I thought I had solved the problem, and it would be a walk in the park from here onwards.

Well, I was wrong, the problems had just started, I had to do shopping, room set up, key hand over, reply to all inquiries (even the silly ones), be on call for any questions any time of the day, inspect the units upon check-out, do PR with the guest so we get very good reviews, clean up the unit after they have left, and be the ever ready Phua Chu Kang who can fix anything any time. I was not so excited any more. What did I just get myself into?

Luckily I’ve had many years in business, and it was just a matter of learning how to handle it all, set up systems and hire some industry experts to help out. One thing that I think we did right was that we researched more, and found that while Airbnb was a great starting step, it was still at the amateur level.

If I wanted to find a real solution in getting returns from our properties in a soft rental market, I needed to upgrade and build a sustainable business model that is focused on generating income from the units owned, so we as owners don’t go broke holding the units. Hence, what I did was not just run the units as Airbnb, but set up a team to run the units as a proper hotel. We even got a hotel license.

This has now proven to be a stable solution for our units, as the tourism market is growing and we as the owners don’t have to pay a real estate agent to find new tenants year after year. There is also no maintenance issues for the owner, as the company we set up takes care of all the maintenance works, so as an owner of multiple units ,I just sit back for 3 years and collect monthly income from the units. It has also given us the freedom to focus on property investment.

In fact, it is doing so well that as I am writing this article, this company is now running in 9 different sites across 2 countries. We managed to expand as we were invited by the owners and developers to help them in solving the cash flow issue of fellow investors.

So after thinking that this project was going to make us investors go broke paying it off, this project has turned around to become a spectacular performer in this tough times. The building had achieved 80% occupancy in just 6 months, a record for KLCC properties and any other project that had completed in those hard times. It is yielding returns that are in the 8% range or more, and the property price has actually appreciated by 41% in less than 2 years! Also, it recently won an award in TheEdgeProperty.com Malaysia’s Best Managed Property Award. This will certainly push up the value and perception of the property further.

It is really not so much whether the property is good, so so or bad. It is all about you. Look out for my next article for more real hard truths in property investment. Till then, happy learning and investing!

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