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Financial Planning Insights Into Property Investment


During a dinner session with friends recently, I kept hearing sighs about how they were unable to rent out their investment condominiums. At the time of purchase, those units were located in hot areas and were quickly snapped up for its rental yield.

However, with the current economic situation, some of them are facing tenants who delay payment or are unable to get new tenants when the existing one leaves. This leads to the situation where the secondary market and the property auction list starts to grow.

In fact, there is a growing list of Bandar Utama double-storey link houses up for sale. Once upon a time, the moment one is available, it is quickly snapped up and will rarely make it to the For Sale list.

The next challenge property investors face is the repair bill when a tenant leaves. You need to spruce up your place to attract new tenants.

Another major challenge is the tenant’s deposits that you hold on to. Nowadays, tenants will happily contra their deposit with their rental whether you like it or not. Chances are, after they have left, you will find areas that need repairs which the tenant conveniently forgot to inform you before leaving.

Another nightmare is the tenant who turns into a freeloader citing bad times for not paying their rent. You must get them out after the stipulated period in the contract to avoid potential sabotage from your angry freeloader. A model tenant is undeniably a blessing, but they are a rare breed.

Financial Planning Strategies of Property Investment

Many property experts out there would have shared with you where, when, how and which are the valued properties to invest in. To complement all these knowledge, the Financial Planning Association of Malaysia is providing insights from a personal financial planning angle.

This is a reflective piece in view of the above scenario being played out with each economic turbulence over the years. Here are some ideas on how you can invest in properties and survive during tough times.

First and foremost, property experts will continually stress on the importance of location, so this is a given. On the personal finance side, the investor must keep enough cash reserves to cover the instalments in case you are unable to rent out your property.

This cash reserve should come from emergency money that you put aside, which should amount to 3-6 months of your expenses. Your emergency money must either be in the form of fixed deposit or a vehicle which is liquid. Tying up your emergency money in shares or an equity fund is not a good idea as, during economic turbulence, these may drop in price or it may be hard to dispose of to raise the cash you need.

When you are collecting rent, remember to set aside a portion of your rental, aka sinking fund, towards:

Repairs and repainting for when your tenant leaves

Advertisement for new tenant

Annual payments for quit rent, assessment and house owner insurance

This is a separate sum from the emergency money, which is to pay for instalment whilst you find another tenant or find a buyer to purchase your property.

Last but not least, for those who have been saving their money and think that this is an opportune time to pick up bargain properties, do a quick calculation of your income and expenses to make sure that you have enough savings to fall back on before you plonk your hard-earned money in an investment property.

Having the down payment alone is not good enough, especially if you are solely responsible for all the finances and do not have a spouse or parent to fall back on for financial help should it arise. You must factor in the following cost of acquisition in terms of fees and payments:

Lawyer and agent’s fees

Bank loan agreement

Insurance premium

Renovation and furnishing

Stamp duty

Goods & Services Tax

Property valuation fee to determine your eligible loan amount by the bank

This is a ‘no-brainer’. If it looks like you cannot afford it, chances are you are right, as you know yourself better. Hold back, save some more before you commit and settle for one that is within your budget. Don’t stretch your purchase price now unless you want to be financially stretched later.

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