Begin With The End In Mind

Kit believes a good research will yield better investment returns

Tall and petite, Smart Financing’s Financial Advisor Kit WL hails from a scientific background prior to meeting her business partner, Gary Chua, who introduced her to the banking industry. “I was very fortunate to have met Gary and venturing into the banking industry, because it totally changed my property portfolio as now I am a full-time property investor,” says Kit with a bright smile.

Kit worked as a product manager in a bank for a few years before she started investing in 2009. “I wanted to get out of the rat race. A rat race meant that you have to work from 9am-5pm where you trade your time for money and I wanted to change the situation where I no longer needed to trade my time for money, rather I could do something which I am passionate about.” For her, property is considered a low risk investment because it is tangible, as in you can physically see it when compared to other investment tools. “I did try before with stocks for one whole year. It was more of a trial and error situation because I was not good in it. My net gain for that whole year was no gain, no lost. I felt apprehensive that I wasted time in playing stocks as I didn’t see the effectiveness in it. I was still working at that time and wanted to know more about business, for example finding out how to calculate ROI – something that I did learn,” Kit adds.

Kit had also added a Master’s in Business Administration to her portfolio, to develop her knowledge further in business. “Just imagine when you go out into the working world and people ask you whether you know what ROI is, and you look at them with a blank face and say ‘what do you mean by ROI?,” jokes Kit. “Hence, I experienced a steep learning curve when I did my masters because I learnt all the business terms which proved to be very rewarding for me. I had also discovered that my passion has always been towards property,” says Kit. During her reign in the banking industry, Kit picked up more on how the finance industry works. “How I manage my finances, how the bank sees the elements, and virtually anything within the industry,” adds Kit.

As far as first investments go, Kit started in 2009 with a high-rise residence in Cheras that was meant to be a bachelorette’s home. “That time I had just came out from university to work. Most of my friends were starting to buy cars. But for me, I was quite fortunate that I did not need to buy a car because I got a car passed down to me from my siblings as I am the youngest in the family,” says Kit, chuckling.

“I thought, what should I do with the money that I have? It was then that my mum suggested that I buy a house and the idea appealed to me because I only had to pay a thousand dollars from my current pay for the loan, and since I did not have a car loan, I found it affordable to purchase the high-rise residence in Cheras,” adds Kit with a smile. To Kit, this investment was also like another trial and error because many people were questioning her decision on buying that property.

“First of all, it was not a landed property. However, it was priced at about 200 thousand dollars, and on top of that, my mum helped me to choose a unit that came with a view of the KLCC towers with each window costing an extra 10 thousand dollars. So I had to pay an extra RM30,000, compared to other units there,” explains Kit. She was also asked on why she preferred to buy a 950-square foot high rise rather than a landed property because back then in Cheras, there were a lot of landed, single storied homes and they were also around RM200.000, so it was rather surprising for most people that she chose to buy a smaller unit for the same price. “I gave a lame reason, affirming that if anything happened, I could stay by myself and near to my parents,” laughs Kit. Today, Kit says she has no regrets in buying that property as when the property was completed in 2012, the value went up exponentially. The present asking price for the high-rise residence is sitting comfortably at RM400,000 to RM500,000 which was double the price she paid for. It currently resides right in front of the MRT Line 1 that was developed in the later years, and within walking distance from Cheras Sentral Shopping Mall.

While landed properties have a stronger potential for capital appreciation, they tend to come with negative cash flows due to the more expensive purchase price relative to the rental they fetch.

Hence, investors should apply the “Concept of Pairing” which involves pairing negative cash flow landed properties with condominiums that generate positive cash flows. This will lead to a neutral cash flow.

A positive cash flow is where rental exceeds the monthly housing loan instalment, while neutral cash flow properties are those where rentals equal about the same as the monthly repayment.

Property prices have averaged (an increase of) about 5.6% per year from 1999 to 2015. However from 2010 to 2014, which were years of relatively easy credit – house prices increased a fair bit to 11.5% per year. Last year and this year, house prices have normalized to the 5.5% range.

As of now Kit has two properties on hand, having bought the second property, a serviced residence at Cyberjaya in 2011. It is beside MMU University, and comes with a Guaranteed Rental Return (GRR) of 8%, making it easier to find a tenant. However, the drawback is that the appreciation value is not there. “Right until now, people are still asking me to sell it at RM400,000, which is the same as the original price I bought it for,” says Kit.

When asked on whether the location played an important role in the capital appreciation of properties, Kit shared that 30 years ago, a landed property in Bangsar was around RM30,000 and today it is worth RM1.4 million.

There are older apartments in Cheras, Old Klang Road, OUG and Taman Desa (in Kuala Lumpur) that offer investment opportunities and decent cash flow prospects as well. Throughout her investment journey, Kit sticks by strongly with the knowledge that research and information analysis are crucial before one ventures into buying properties, as it is pivotal that this will help to determine and identify the overall property value.

Property is one of the most popular tools for wealth accumulation. But investors need to acquire the key skills needed first for property investments which includes forming your own investment philosophy, selecting target areas, negotiating, taking care of cash flow and net worth and managing tenants and stakeholders.

Investors should narrow their target areas to not more than 30 minutes’ drive from where they live. This will help to minimise the time and effort required to manage the property and tenant. Look online and pay attention to ‘For Sale’ signboards in your target areas, especially when they have been put up for a long time. Call up agents in your target areas and tell them what you want, for example cash flow positive properties within your budget of RM200,000 – RM300,000.