Mistakes made when buying a house

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A Registered Estate Agent with the Board of Valuers, Appraisers and Estate Agents Malaysia, Ai Cheng also served in the capacity of Council Member of the MIEA 2006/2008...  AI CHENG

A home is a place of residence or refuge and comfort. It is usually a place where an individual or usually a family can rest and relax, communicate, share, feast and be able to collect and store their personal properties. Therefore it is important that when you consider a place to call your home, it must be a safe and pleasant place to be in.
Buying a house is more often than not, the single largest investment most people ever make; yet all too often it's a decision made in rush without adequate thought and preparation. In this article we will explore some of the house-buying mistakes to watch out for in your property hunt.
Solo Mission
Buying a house is a complex transaction and should not be undertaken alone. You need to enlist the help of these individuals early in the buying process : Real Estate Agent, Banker, Lawyer and Property Inspector. It is also wise to get referrals and advise or tips from family and friends. When assembling your team, select rightly. Lack of experience in the person who’s suppose to be your guide can make your property hunt a frustrating experience.
Love At First Sight
You may be in love with the house at first sight, but you have to ask yourself if the house fit your family’s needs and budget. You have to make sure that you make a list of your needs and wants and also check whether the house fits your requirements. Besides that, you should check out the neighbourhood and the communities before you buy by visiting at different times of the day and week. Even if you do not have kids, you should also check out the local schools to make sure your resale value will be good. Get past the love at first sight to consider what it'd really be like to live there.
Pre-qualified and Pre-approved Financing
Being pre-qualified gives you a general idea of how much you can afford to borrow. It is a good idea to get in touch with your banker or mortgage officer early in the buying process so that you are aware of the amount you can borrow as this will determine your budget for the home. The mortgage officers will also be in a position to advise you on aspects of financing i.e. the possibility of having joint borrowers to strengthen the application or to lengthen loan tenures should a need arise.
Being pre-approved means your banker has verified your information and credit rating and agreed to provide you with a specific amount of money. You are in a better position to go house hunting knowing exactly how much you can afford and that you have the financing ready.
Over-Buying
You may qualify to borrow more, but you have to ask yourself again whether you can afford it or not. Borrowing more would mean higher monthly loan commitments for just the purchase of the house. You have not considered the cost of improvements on the house i.e. renovations and furnishings. What you need to do is analyze your monthly costs – food, transportation, entertainment, car loans and other commitments. Therefore you have to be sure to budget enough to cover closing costs (often two to five percent of the purchase price), plus moving and maintenance. Beyond mortgage payments, there'll be costs like insurance. You don't want your house to deprive you of your lifestyle.
Misplacing your trust
Remember that buying a house is a business transaction. Your decision is binding. You should do your own research and know your support team’s roles and responsibilities and not just depending on what one says 100%.

Verbal Agreement
Get it right and get it in writing. Written agreements almost always trump verbal ones when it comes to contracts. Don't set yourself up for surprises when you move into that new house and some of the items in it are now missing. There are many details that make up the purchase contract that governs the particulars of your house purchase. It is not unusual for an item to be missed; especially those requests made by you of the seller or seller’s agent. If you ask for a toilet to be repaired or a chipped tile to be repaired, don’t simply take someone’s word that the item will be repaired prior to transfer of the property. Make sure every item that you agree on is put in the purchase contract.
Verbal agreements are hard to prove and even harder to enforce. They can lead to an ugly “he said, she said” situation. Once the property transfers to your name; problems or issues that you thought were going to be repaired are now your responsibility. Don’t let miscommunication or failed promises ruin the purchase of your dream home. Get all commitments - no matter how small - in writing.
Fine print
You need to understand what you’re signing. As soon as possible, review the documents you'll be signing. You must always ask for documents in advance, make time to read them and ask questions, where necessary. Don’t just skim through the purchase contract. Real estate contracts are long and dense, but you need to know what you're committing to. Wrong assumptions, poorly written or missing clauses, and not understanding how the clauses affect the purchase can lead to increased costs or a void contract.
Do not sign documents in a hurry. Do not rush the closing.
Resale
You should avoid buying a home that costs much more than neighbouring homes and think before buying the most expensive house in the area. Your neighbours’ lower house values will weaken yours. Remember, markets change. If you buy intending to flip your investment and the market falls and you have to sell, your selling price may not be enough to even cover your mortgage.
Wrong Price
Many home-buyers forget that the market value of a house is affected a great deal by its neighbours. The best way to gauge a fair offer price is to get your real estate agent to pull prices that comparable homes nearby recently fetched. The listings will show not just the amounts but how long the house has been on the market and its condition and size. Note that the nearby houses will affect your house's value. That means the most expensive house on the street may be pulled down in value by its cheaper neighbours, while a low-end one will benefit from posher surroundings.
Conditional Offer
It is good practice to have your offer to purchase the house conditional upon securing financing. The last thing you want happen to you is the forfeiture of your deposits for backing out on a purchase transaction because of it. One thing is being pre-approved, the other is the property itself. The banks will do a valuation on the property to confirm the market value and then to determine the margin of loan they are willing to offer you. There may be other conditions are well that you might want to add in at this point.
House Inspection
It is well worth your money engaging a House Inspector to check out the house before committing to the purchase. These Inspectors know what to look out for and can advise you accordingly on the state of the house, whether it is in need of repairs so that you are fully aware of the additional expenses needed. Don't take the word of the seller that certain repairs and maintenance has been made to the home. A formal inspection of wiring, plumbing, and general structure of the home is needed to avoid nasty surprises.
Inspection reports are great negotiating tools when it comes to asking the seller to make repairs. If a professional home inspector cites specific repairs in the inspection report the seller is more likely to agree to them than if you simply try to negotiate based on your observations. As we mentioned above, make sure that any last minute items that arise based on the inspection report or your own visual inspection during the walk through are addressed in writing and completed before you take ownership of the property. If the seller agrees to make repairs, have your inspector verify the work is completed properly. Do not assume that everything will be done as promised.
If you're buying a new house, off the plans from the developer, they will offer the Defect Liability Period upon Vacant Possession, where they will rectify problems, if any, with the house during Handover.
Buyer’s Remorse
No place is perfect. There will always be surprises. Don’t let a few initial blips spoil the whole ride. And don’t miss a great house waiting for the perfect one! Failing to jump on an opportunity, I believe, is a mistake. Too much shopping around can backfire. When you have done your homework and when you see something you that matches, go for it.

Property millionaires share their secrets

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It has been done over and over - making money out of property investment, but it is not without its share of peril. At a recent Property Millionaire Convention, four property millionaires shared their journey towards financial freedom.
The convention was organised by Paysolution Technologies Sdn Bhd. The company’s founder, Michael Tan, 34, channeled positive energy and vibes through a “motivational” approach by eliciting “I” from his questions. “Who wants to be a property millionaire?” and the crowd goes “I”. “Do you want to be financially free in five years?” And the crowd hollers, “I”. You get the picture.
The convention was also interspersed with stretching exercises and participants giving one another high fives. Additionally, each participant was given an egg to take care off. So right off the bat, it was an eye-opener for many participants.
Tan’s financial advice
Tan has been involved in property investment for approximately four years, with wealth accumulation of more than RM2.28 million. Through his mortgage broking firm, he has taught more than 220 students within 8 months and has helped them purchase properties worth more than RM8.07million.

He also advised all to find out how much one can borrow, to find out how much one is worth. “If you currently have rentals, then your income (level) goes up. For example, if your monthly pay is RM10,000 and rental income is RM2,000, the amount that the bank will calculate is based on RM12,000. Therefore the (borrowing) limit goes up,” Tan explains.
 Tan also provided a few formulas. One included determining one’s Finish Line, which translates to determining how much you need to have in order to retire within your limits. Not surprising, all 150 participants’ figure ran up to the millions.
“Last time, to be a millionaire is a privilege. Now, it is becoming a necessity due to money inflation,” he explains.
Tan’s formula – calculate your required Pension Fund
Pension Fund (PF) is the amount you need when you arrive at your desired retirement age, in order to receive your Desired Monthly Income (passive income).
DI (Desired Income)  =  Ideal passive income monthly
CA (Current Age)  =  Current age, rounded down to closest 5 years (e.g. 48 becomes 45)
RA (Retirement Age)  =  Ideal retirement age, rounded up to 5 years (e.g. 48 becomes 50)
POA (Passing On Age)  =  Age of passing, rounded up to 5 years (e.g. 81 becomes 85)

PF  =  DI  x  (POA-RA)  x  12 months
For example:
PF = RM10,000 x (75 – 45) x 12 months
= RM3,600,00
Which means, I would need to have RM3,600,000 in savings, so that I can retire by 45 years old and enjoy a passive income of RM10,000 per month (assuming that I pass on at age 75)!
Chin’s investment strategies
One of Tan’s convention co-sharer, Juanita Chin, 39, became a property millionaire in less than five years. She currently owns RM5.6million worth of properties comprising resort condos, shop offices and office suites. She cautioned would-be-investors to be rational and not emotional. It is all about money and sense.
All her properties are in Penang and her first property was with a low downpayment of RM5,000. The property was in Gurney Drive. Chin said, “It was a balance unit. On the 4th floor. Facing a graveyard. Leasehold.” After the chatter of amazement eased, she added that she did research and discovered that Japanese community favoured living in the area and preferred the lower floors. The first unit was rented out and fetched a positive cash flow of RM400. She has since purchased two more units and is getting a total of RM3,000 in rental from the three units.
 Some of the strategies that she employs include:
• Knowledge - the more you know, the less mistakes
• Leverage on assets – refinance properties for extra capital to reinvest
• Joint-loans with family members
• Know your banker
• Look out for discounts and early bird specials from developers
• Find a group of people and negotiate for a “bulk" discount

Yee’s practical approach
Dr Peter Yee, a guest speaker at the convention, has benefited many times from property auctions. So far, he has purchased 14 properties, including terraced houses, bungalows and shop offices. Rental income and the sale of six properties have earned him profits of more than RM1million.

His straightforward candour and funny anecdotes during his sharing session were more than well received. He is perceived to be like a family’s funny uncle. His area of expertise is in the auction and secondary markets. He mentioned that he has paid tens of thousands in “tuition fee” – monies lost from bad purchases. As the years progressed, he stopped paying tuition fee, but instead made a tidy sum.
He also shared that it is important to know what’s going on. “See this shoplot. Beside the two lots owned by the same person. The owner of the two lots beside mine, did not know the next lot was going to be auctioned. I bought it and then the owner purchased it from me. I like people like this. Busy, hardworking people who don’t know what’s going on,” he said cheekily.
Yee also added that it is important to know an area well and adopt a wait-and-see approach. Look out for signboards at properties. If the owners are desperate, the prices will drop in time. Or if a piece of land is priced at a low value, due to the owner’s mistake, then it is to Yee’s benefit.

Doshi’s principles
Milan Doshi, a Singaporean residing in Malaysia and the convention’s second guest speaker, has been involved in investment property for more than 10 years. Currently, he has 19 properties, with one in Singapore. The loans amount to RM11million, with a positive cash flow of RM15,000 to RM20,000 per month.
“When I started working, my friends were driving second-hand cars. Two to three years later, they were driving new cars and I was still taking the bus and LRT. I knew something was not right,” Doshi shared.
“My first job was as a commodity trader. My boss told me that the sooner I learn that the four years in university is nothing but rubbish, the earlier you become useful to me,” he continued. It was years later that he found out what his boss meant because everything he learnt was theory, not real-world practical learning.
When he began investing in units in HDB flats in Singapore, he was doing well, until one friend told him to buy the most expensive property that he cannot afford. It made sense at the time, because the more the asset appreciates, the bigger the gain. But alas, as values can increase, it can also nosedive.
He has since moved on and has made many good purchases. To date, he has more than a handful of shoplots at Berjaya Times Square. Some of these lots are lesser than 1,000sq ft and were purchased for a price tag of more than RM1million each.
The six principles that he strongly advocates are:
• Learn as much as you can –  from sales people, the market, entrepreneurs, experts
• Network – it’s who you know
• Earn as much as you can, as fast as you can
• Savings – invest in yourself e.g. save RM200 and spend RM200 on books, etc.
• Borrow – as much as you can and invest to gain returns that are more than interest rates 
• Invest wisely, as much as you can
The gurus’ seminars
This property millionaire quartet conducts seminars and workshops throughout the year – individually and together with a few other speakers.
Tan, Chin, Yee and Ho Chin Soon (the maker of Malaysian maps that pinpoint the exact geographical location and information on properties) will be conducting a series of seminars titled “The Millionaire Start Up Programme”. Call 03-2283 1740 for details.
Property Intensive, a 3-hour seminar preview by Doshi, will be held on 9 and 10 April. For more information, call 1700 800 178.
The egg
Back to the egg. What was it all about? It was to represent a loved one and the reason one is striving financial independence for. In short, be grounded and remember loved ones and those in need even when one joins the millionaire club.

Traps at property auctions

I have written about the opportunities available at property auctions a few weeks ago. I revealed that there are huge opportunities, but I must add that there are huge traps too. Any investment that comes with an opportunity to make lots of money also comes with the possibility of losing lots of money too!
So if you want to make money from property auctions, you must know what you are doing. Otherwise, you could lose it all and get a major headache in return!
The first trap is of course poor location. Now some of the properties being auctioned off are dirt cheap. I have seen them, and I’m sure you have as well, properties being auctioned off for less than RM20,000! That is less than the price of some second-hand cars!
However, and this is a big however, just because it is cheap does not mean that you should be buying it. Why not? Because the price may be cheap for a long time! So yes, you can buy it cheap, but then no one will be buying it from you until years later!
The second trap is if the property is occupied. You are buying the auctioned property as it is. So if there are people occupying the property, it is your job to get them out. This is easier said than done. How are you going to get them out? They are not in most of the time. Even when they are, they refuse to open the door. You can get a court order to evict them but that will equal to time, cost and money. Sometimes, they may still not budge even with the court order! So in short, if the property is tenanted, and the people living there are not willing to move out, forget about it – no matter how cheap the property is. Move on to the next property.
The third trap is outstanding bills. This may include electric, water, maintenance and even assessment taxes. The cost may run into tens of thousands! So it is important to discover all these before bidding for the property. Otherwise, you could be buying a property and unknowingly have thousands of Ringgit in bills to be settled.
However, this does not mean that you should shy away from a property with outstanding bills entirely. The point to note here is that you must know about them before bidding. That way, you can calculate your costs and figure out if it will be a worthwhile purchase.
You must also take repair costs into consideration, and hence include them into your budget. The budget will obviously depend on the condition of the property. If the property is good, then the budget will be lower. However, if the property is in a poor state, then obviously you will have to set aside a higher figure. And because of the potentially vast difference in cost here, you would do well to inspect the property first. That is the only way to get an accurate costing.
These are just four of the traps that await an unwary bidder at property auctions. There are more of course! To reiterate, any investment that comes with an opportunity to make lots of money also comes with the possibility of losing lots of money!
So get educated on the subject matter first. Buy the relevant books, and only then, buy the property.

How to squeeze your housing loans to maximise your returns?

First things first. Decide whether you are planning to make money or save money from properties. If you answered “Save money from properties”, this article may not be suitable for you. I’m here to share with you how you can use your property loan to make money for yourself. In fact, I know some people who have such proficiency of earning via this method that they have retired within 5 years of starting!
Some will disagree with the information that I am about to share with you. If we were to  take all potential variables into consideration, it would be an endless task. However, should you use this method with care, you should be able to maximise the returns from your loans and make lots of money from your property while still keeping it!
To understand how this works, let’s go through a couple of basics. In general, does a property appreciate or depreciate in price? Now, how about a property loan? The answers are quite obvious. A property should, one hopes, appreciate in value whilst your regular monthly payments will reduce the amount outstanding on the loan secured against it.
So looking at the diagram above, how can you make money from your loan? As your property appreciates in price, and your loan reduces, the amount of equity (in other words, cash) in your property increases. In this situation, there is an easy way to access that tied-up capital: refinancing. The banks will also be aware if your property has increased in value, and majority of them will be more than happy to increase the loan amount, assuming that you can demonstrate you can afford the increased loan, and there is sufficient equity in the property. This way, you still own the property and are able to cash out some money from it. Ideally, it would be best not to increase the loan tenure whilst refinancing, even if the new monthly payments are a little higher, as this will end up costing you more in the long run.
Here’s an example of how this works. Let’s take a property worth RM300,000, with a loan of RM270,000. We assume that the property does NOT appreciate with time. The illustration below is with a fix loan of 6% p.a. (per annum).
Looking at the table below, you can easily take out RM20,000 every five years. However, you should only do this for your investment properties which are bringing you good rental yields. If you are able to rent your property out for seven percent and above, you can be rest assured that your tenants will be paying for your profits while you cash-out on your property at least every five years.
However, there is never a guarantee that property prices will ALWAYS go up, so it is unwise to overextend yourself completely. The clever investor will always keep a rainy-day fund to ride out dips in the markets.
With that in mind, happy investing!

Property Details	0 years	5 years	10 years	15 years	20 years	25 years	30 years
A. Property value	300,000	300,000	300,000	300,000	300,000	300,000	300,000
B. Down payment (10%)	30,000	30,000	30,000	30,000	30,000	30,000	30,000
C. Balance (A – B)	270,000	270,000	270,000	270,000	270,000	270,000	270,000
Financing Details
D. 25 years' loan	270,000	243,000	206,000	157,000	90,000	0	-
Unrealised Capital (C – D)	0	27,000	64,000	113,000	180,000	270,000	-
E. 30 years' loan	270,000	251,000	226,000	192,000	146,000	84,000	0

Get the right mortgage

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When you have located the right property and paid the necessary deposit, you need to hunt for the right mortgage loan. Before you visit every bank in the city, it is advisable to sit and think about your loan requirements. Ask yourself these questions.
• How long do you want to borrow?
• What is the margin of financing you want?
• What is the amount of monthly instalment you can afford?
Choosing the right mortgage loan is not just about choosing the loan with the lowest interest.
Key mortgage considerations for a property investor
An investor does not want to have a long lock-in period as he or she will flip (sell) the property within a short duration of time, when the time is right.
Although it is difficult to find zero-entry-cost package deals these days, a property investor can opt for the loan legal fees to be included into the loan amount. This is known as Finance Entry Cost (FEC).
Advice for first-time home-buyers
• Loan tenure
If your income is not enough to support a housing loan application, do not despair. This is where you, the borrower, can apply for longer loan tenure to lower the monthly instalments. A professional or graduate can stretch the loan tenure between age 65 and 70 years old. When your income improves, you can make extra pre-payments to reduce the loan’s principal amount. It is important to find out if there is any penalty for extra pre-payments.
Another alternative is to apply the loan under a joint name. The bank will assess the income from all borrowers in the loan application.
• Properties under construction
For properties under construction, some banks allow you to pay the interest only without having to serve the principal amount. Once the property is completed, only then do you start paying the regular monthly instalments. The money saved during the construction period could be used for other things such as paying your existing rental. It may not be much for some, but a Ringgit saved is a Ringgit gained.

Bill requiring credit-reporting agencies to obtain consent passed

KUALA LUMPUR: The consent of an individual will needed before his financial information can be displayed by credit-reporting agencies, under the Credit Reporting Agencies Bill 2009 passed by the Dewan Rakyat on Tuesday.
The agencies will also be required to provide correct and up-to-date information on consumers' financial information.
The Bill clarifies the roles and responsibilities of such agencies, which have been criticised for wrongly blacklisting the names of borrowers seeking loans from financial institutions.
Deputy Finance Minister Datuk Dr Awang Adek Hussin said the agencies will have to be officially registered after a three-month grace period, when the Act comes into force later.
He added that the five credit reporting agencies that needed to be directly registered were Credit Tips Off Sdn Bhd (CTOS), SME Credit Bureau Sdn Bhd, RAM Credit Information Sdn Bhd and Bradstreet FIS.
Awang Adek said the Finance Ministry will appoint a registrar of credit-reporting agencies, who will ensure that the agencies and other companies are registered with the ministry and their databases checked regularly.
He added company directors who fail to register their agencies may face a RM1mil fine or 10 year's jail or both.
"The companies will each need to have a paid-up capital of RM1mil and this can be increased by the minister from time to time," he said in winding-up the debate on the Bill at the committee stage.
However, he said exemption was given to the Central Credit Reference Information System (CCRIS) because it has been placed under the Bank Negara Malaysia's supervision.
Awang Adek said the activities of the credit-reporting agencies will also be checked through other provisions under the Companies Act and the recently-passed Personal Data Protection (PDP) Bill 2009.
"The onus is on the credit-reporting agencies to prove that they have taken reasonable steps to provide the correct and up-to-date information in their database. This is to prevent problems of incorrect information on consumer financial information through unverified sources.
"Further protection will be provided for consumers because the database will be kept by the agencies for only two years, after which the information will have to be deleted.
"The consent of consumers must be obtained first before the data collected by the credit reporting agencies is given out or displayed to anyone else. Consumers have the right to inspect the data and give their consent for the data to be displayed or otherwise," he added.

Future trends in property market


PETALING JAYA: High-rise living, security and proximity to amenities and other conveniences are current trends in the property markets, while green buildings are the way to go in the future, several speakers at a seminar said.

Contrary to what many believe, Mont’Kiara will continue to grow as a popular condominium enclave after Bangsar, Klang Valley’s first condominium hub, said Ho Chin Soon Research Sdn Bhd managing director Ho Chin Soon.

Ho was speaking at the “Future Trends in Property” seminar organised by Sunway City Bhd here yesterday.

The three main condominium enclaves in Kuala Lumpur are KL City Centre (KLCC) area, Mont’Kiara and Bangsar.

There are today a total of 390 buildings or 24,200 high-rise residential properties (serviced apartments and condominiums) in the Golden Triangle of Kuala Lumpur which includes KLCC area; Mont’Kiara, Damansara Heights, Bangsar, Ampang and Sentul.

Despite the thousands of units in Mont’Kiara, the area would continue to grow as it has been doing the past three years, said Ho.

“Once a favourite among the expatriate community, Mont’Kiara today is increasingly being occupied by Malaysians who have decided to make that location their home,” he said.

Because of security issues and the unwillingness to live in further places like Rawang and Nilai, people would opt to live in high-rise, he said. This would be the trend in thecities and other parts of the country like Penang.

Ho said as the economic recovery took off, developers preparing to launch must take into consideration three main factors - location, timing and branding.

“Demand and supply are not everything about land economics,” he said, adding that the other change to note in Mont’Kiara was the trend towards commercial.

“People doing buinesss will want to go into that location,” he said.

Veritas Architects Sdn Bhd principal founder and chief executive officer David Mizan Hashim said “green” elements were the other trend in the property market.

“Places which have low energy consumption, sanitaryware and faucets which promote efficient water consumption, and sustainable features are increasingly become popular.

“People will increasingly want flexibility to convert a three-room unit to two or vice versa. This means the introduction of screens to support the desire and need for flexibility,” he said.

He said the popularity of gated and guarded projects would continue to grow and spill over to places like Johor, Perak and Penang.

“Even within a high-rise residential development, increasingly buyers will want new elements and features that set it apart from the rest,” he said.

Older projects will become the casualties in this demand for better and more innovative residential developments.

Not forgetting the need for innovation and technology in today’s lifestyle, Research Inc (Asia) Sdn Bhd managing director Datin Adila Lim Lay Ying cautioned against allowing designs to be defined by technology. She said past examples overseas showed that futurish designs emulating science fiction did not work.

“Buildings of the future should allow us to express ourselves, how we want to live and work,” she said.

On the KLCC and the various projects ongoing, she said the number of projects there would continue to grow and prices continue to rise, with certain projects to hover between RM2,500 and RM3,000 per sq ft.

SA Architects Sdn Bhd director Richard Sau said “green” features would continue to add value to projects.