Reasons to venture into Property Investment

There are a lot of advantages or benefits that you can enjoy in real estate property investments. If you are looking for a type of investment which can provide you with income without doing much, give you a lot of chance for socializing and meeting other people, or ease you from worry of financial loses then investing in real estate property is the next best thing. It provides a lot of advantages which other types of investments, such as stocks or gold investments, cannot give you.

1. Rich people have many properties

The first reason is, this is my personal reason, because I find that many rich people invest in properties. You, yourself would be able to notice that most millionaire investors have a long list of real estate properties on their assets. It is either they buy a lot of real estate properties using their money earned from their business or they are in the business of building and selling real estate. In the later case, I am referring to those developers and building contractors.

Why would these rich people do this? They sure did saw something that is worth it in real estate investing. There is a simple fact from PropertyShowRooms.com which says that 50% of the names mentioned on the Times’ “Rich List” made their money through investing in property. It is a proof that most rich people earn their wealth by investing in real estate. This is a plain proof that one of the most important investments which made millionaires out of them, is real estate investing. If these “rich” people made a fortune by investing in properties, then it could probably be also a way for you to become one

2. Available to anyone

The second reason is that real estate investment is available to anyone. Because real estate is simply everywhere; you can see land, you can see houses – basically you will find that in any place where there are people living, there will be real estate for sale. It is like a basic human need, just as food and clothing are a necessity for people to survive. Real estate property is available in any place or location and it is also very much affordable for almost anyone.

You can start it, in Malaysia, for as low as RM10,000. You can buy a property with a capital as small as that and you can already start on the business of real estate property investing. It does not necessarily take a lot of money in order to invest in real estate. It is very affordable to acquire real estate property which is contrary to what most people think. You do not need to be a millionaire already in order to be able to afford a real estate property. You will always find a property that suits your level of investment.

3. Leverage

The third reason why you should invest in real estate is because of the leverage that you get. Leverage means that you use just a portion of the money required to get the whole control of a very big investment. With just a relatively small amount of money, you will be able to buy and “own” something which costs a lot of money. It is also called in the art of investment which is to use other people’s money to make more money.

I would like to show you this quote. I like this quote a lot: “you see in real estate investment, no other type of investment allows you to purchase with other people’s money, so in this case the bank’s money, and pay this back, with other people’s money too.(In this case it is the rental income from the tenant).

For instance in Malaysia, if you want to buy the first property, say a RM100,000 residential apartment, you can just pay about RM10,000 down payment or even sometimes, it can be structured that you don’t even have to put down any money at all. So as you can see, investing in real estate property is really one of the smartest ways to put your money into an investment. With just a very small amount or even none at all, you are able to gain control of such a big investment. That is definitely leverage. You can do more with less. In what other type of investment can you do that?

4. Appreciation

Aside from that, you can also get more capital to buy more property. You see the house price change so every year. You can see that the percentage of increase is always positive over the years in every year which is unlike if you invest in stocks or commodities where the price are always on the verge of falling or rising depending on the way the market dictates. In Kuala Lumpur every year it is appreciating about 5% to 7% every year for the past decade or so. 

This definitely shows that houses will appreciate over time and you will gain a profit. And this will soon lead to another advantage of investing in real property which is …The fourth reason is that real estate is going to appreciate over time due to the effect of inflation. 

Since inflation is inevitable, the prices of goods, petrol and other commodities are just going to rise over time. And due to that fact, because real estate is made of something real (it is built out of cement, brick and mortar), the property price is going to rise over time. So when it rises, you have more equity built up and you can also do refinancing to get more money. Even if you do not do much about your investment you will gain a lot of profit because of inflation.

5. No need to sell

You don’t really need to sell it to realize a gain. You do not need to sacrifice your property just so that you will be able to enjoy the profits. Of course if you are buying other things like gold, you have to buy low and then sell high and before you sell it, you don’t see any profit that you are making. It is just paper profit. You are not able to see any of your profit in cash only the one which is written on paper, and how do you think are you going to enjoy it?

But in property investment, even if you don’t sell it you will be able to realize the gain. The simplest way that you can do is by refinancing. It allows you to acquire money which is greater than the original amount that you paid for the house when you originally bought it, without the need to sell it. Say you bought the property at about RM100,000 and then after 5 years its value increases to RM150,000. You don’t have to sell the property at RM150,000 in order to realize a gain of RM50,000. You can simply refinance it and you will get the extra 50,000 out from your properties without losing ownership of the property.

6. Income-generating Assets

If after paying the mortgage you still have money left, then you are getting passive income from there. You can use that additional money to invest in other investments which will also be able to provide you with more profits. You do not only earn the profit when you sell it, you earn a profit by renting it out to someone else. 

You will be able to enjoy your profits early and not on some distant future when you will already be able to sell it at a higher cost.Real estate properties are income-generating assets. That means when you own a property, you don’t need to sell it in order for you to gain an income. It is going to produce the income for you by renting it to somebody else.

And that somebody else, the tenant, is going to pay for the mortgage, too. So, you are already gaining profit from your property even when you have not even paid for it in full. The tenant shares some of the burden of paying for the loan while you also earn money through it. This is one of the most amazing aspects of real estate investing.

7. Inflation-friendly rental income.

Another advantage having rental income is that it is inflation-friendly. What I say inflation-friendly is when property values appreciate and its price gets higher and higher, it will result in more people cannot afford to buy a house. With the higher costs of purchasing a house, more and more people would choose to rent instead.

This is just a logical thought – more people will get to rent a place to stay, instead of owning one when the properties are getting less affordable. So if you cannot afford to buy a house, you have to or you will be forced to rent a place. 

This means, that your property will have more clients just at the time or moment when homes and rental incomes are at their peak or highest. That is if you own a property and due to the inflation, property values increase, the rental income also increase because there will be more demand for your rental property. This is great news for you when it is not so for other non-property-owners! You do not lose clients due to inflation; you gain them because of inflation.

8. Control

Another control you get is that you can do some adding value kind of activities like furnishing your properties. You can choose to do this improvement in any time you want. You can fix it up and then through that property improvement, you also increase your property value. You can get a high “after repair value”. 

It is the amount that you are getting after you buy a property, then fix it up and you can sell it at a higher price. For example, you buy a RM100,000 house and let’s say you put in RM10,000 for the renovation and furnishings and later sell it at RM130,000. That means you made about RM20k of profit. So, you get to control the amount of profits that you make at your own will or decision.

The next reason why people invest in real property is that it gives you a lot of control over your investment. The first control is – the flexibility to choose the type of tenants that you want. Not all types of investment will give you the option to choose the people that you deal with. If you want business tenant, you will buy a commercial property. If you want a residential tenant, you can buy an apartment to rent it out. So you got to choose your tenant. You got to interview them and you can decide whether to rent to a certain type of person or not.

9. Market Price Stability

Let’s go to the next benefit. What we are going to talk about is the market price stability. It is unlike some other commodities or stock, the market price of real estate will not go up and down like a roller coaster. It is not going to be in this case. In the long term of course it appreciates slowly. Sometimes in the same neighborhood you may find a property selling at RM100,000 and the other at RM120,000. There is no fixed price for real estate properties. It is not a very efficient market if you compare house price to stock and commodities price movement. It depends very much on your ability to find a good buyer for your property or your ability to get a desperate desperate seller to sell his property to you at a discount. You will not have to depend on what is the current pricing trend in the market.

In this situation when the market price is not reflected daily, you will have less emotional unease. So you will not feel like“tonight it’s very hard to sleep because today my house just depreciated by RM10,000.”It is not going to happen in that sense. You will be less emotionally disturbed due to the market price stability feature of real estate properties. You will not have to worry about your investment suddenly losing its value overnight.

10. Tax Benefits

One other thing that will benefit real estate investors is on the tax advantage of owning a property. In Malaysia there is Real Property Gains Tax (RPGT). After five years you don’t have to pay any tax if you finally decide to sell it. But if you are not going to sell it, the rental income can be lessened with other deductible expenses such as interest paid for the mortgage and your repair for the house or commissions paid to the agent in order to get you a new tenant. Tax-wise, owning a real estate property have some similar treatments like what a business would get. There are a lot of possibilities in which you can lessen the amount of your tax due to government , which is definitely an advantage to landlords.

11. The Most Forgiving Investment

And the other thing I want to talk about is that real estate is probably the most forgiving type of investment. If you are buying a property at a wrong place, at a wrong location or probably at a wrong time when price is at a peak, and it is not giving you the returns or the profit that you are looking for, provided that you have the holding power to wait 3 to 5 years, the profit will ultimately come. 

You will not always be buying the right kind of real estate investment at the right location and time. There will be instances in which your judgment will not give you the best outcomes and you may be blaming yourself a lot because of it. But the good thing about real estate investment is that time will eventually correct the mistake that you have done. It just comes later in the form of delayed profit. So this feature is giving you, I say, the most forgiving type of investment you can do.

On the other hand, if you bought some shares of a bad companies, it may eventually go bankrupt and you may lose all your investment capitals as a result.