Bread & Butter Properties

Bread & Butter Properties
Generate passive rental income

Tuesday, June 29, 2010

Where To Buy Your Rental Properties

How do you decide where to buy your Bread & Butter properties for rental?

Well firstly, it must be an area where people want to rent i.e. there is high demand for rental and there are ample units available for you to buy.

I would suggest you find an area which fits your criteria and stick to buying in that area. While some people may say you should "diversify" your risk by buying units in few different areas, I beg to differ. You should put all your Eggs in One Basket and watch that basket closely!

Another good reason to focus on one area is that it is a lot easier to manage. Imagine having one or two units in Cheras and a few more in Selayang for example. You would waste a lot of time travelling to where your investments are. And you would probably need to travel there if you are later on managing those units yourself.

What to look out for?

I would suggest you take a few hours off during the weekend and drive around some potential neighbourhoods before you decide to buy.

  1. Ideally it should not be too far from where you live. My rule of thumb was that it should not be more than half an hour or forty five minutes from where I live; I have to go there often initially to meet sellers, and to learn about the area, so I don't want to waste too much time in the car.

  2. Also it should not be too far from city centre or commercial hubs like KL, PJ or Shah Alam. It would be a struggle if you were to buy a flat in Bukit Beringin and expect to rent it out easily. Even if you could rent it out you may not be able to collect the rent especially for those low cost flats around that area. So make sure you buy close to where the commercial activities are. A good idea is to ask your colleagues in your office where they stay? And why did they choose that area. A rule of thumb: I draw a 30km radius area from KLCC on the map and will look only within that.

  3. Look out for a good property agent once you think you have found a good area to help you. I am sure most people have heard about the word "farming" among real estate agents. Basically, what that means is that they specialise in that area and look for properties in those areas. So they would make it their business to know everything there is to know about that area. Talk to them and ask them what's available. It is a fast way to get up to speed and to decide whether you want to buy in this area or not.

  4. Remember we are looking for bread and butter properties; where most of the working population lives. Don't ask your boss where he lives. Ask your young executives, officers or those with small families. Talk to those that are from outstation and are currently renting. And don't ask them where they would like to live but where they are now! It would give you a pretty good feel of which are the good areas to buy rentals.

  5. What are some of the criteria that are desirable for the area you plan to buy? Here are some which I have found. You can put them on a list and tick them off as you evaluate each potential area (like a check list).

  • Near public transport like LRT, Putra or Bus line,

  • Near shops and eateries,

  • Has shopping malls like Carrefour and Tesco nearby,

  • Low rise walk up flats (not high rise) – see photo

  • Lots of parking available near the flats /house,

  • Muhibbah community – Malay, Indians and Chinese, easier to rent out vs. where a single race is dominant

  • More matured area, developed more than 10 years ago. No need to wait for it to grow,

  • Schools and colleges around,

  • Middle income – look at the cars tenants drive: Is it Viva, MyVi and Proton, Vios? Or are there motorbikes only?

  • Are there many Astro dishes in the flats/apartment areas? I still consider this a luxury and shows the income level of occupants,

  • Safety – ask the tenants and shop owners around the area. Any there many major incidents? Theft or break-ins tend to put tenants off.

  • General areas are well kept – good maintenance, rubbish disposals, etc.

  • Well -lighted general areas,

  • Play ground for kids or a park would be plus,

  • The building exteriors are reasonably clean i.e. painted and not too much graffiti.

I would suggest once you have identified a few potential areas, go and have a few walkabouts in the area to familiarise yourself. You have to feel comfortable with this area before you buy your first property.

Stanley's Law: this was taught to me by a friend who invested in properties years ago and was successful at it. Go and have a look at the place at night – if you don't like it at night, you probably won't like it during the day! The inhabitants are usually home then, so you get a feel of what it's really like. Are there major disturbances at night? Drunks with unruly behaviours are not desirable neighbours.

Some suggested areas to look at (see Personal Money article on Properties below 100k -April 2010 issue): Pandan Indah, Setapak, Taman Miharja, Maluri & Ara Damansara.


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