I have been contemplating this question for a while now. While there is no real impetus to sell any of my rental units, it is always good to review the situation from time to time.
What are some of the pros and cons of selling now?
Pros:
1. the prices of units have increased since I bought them - on average around 25% since 2008, which is not bad returns,
2. not have to worry about collecting rental and raising rent which can some times be a pain,
3. reduce my gearing so that when (and if) the local property bubble eventually burst, I would have some ammunition to buy some gems, at rock bottom, bargain prices.
Cons:
1. If I sell now, I won't be able to get financing for new property, at higher margins since BNM still imposes the 70% LTV for 3rd property and above,
2. What else can I do with the money raised from the sale of the unit? Invest in shares? - you must be joking. Invest in gold perhaps? - good idea since its a physical asset. Knowing what the alternatives are out there is important - the last thing you want to do, is to keep $ in FD!
3. Sell the golden goose, and there goes the income stream - question is: whether the capital gains from selling is greater than the property's cash flow (i.e. the excess above your interest payments) if you continue to hold on, longer term?
These are some of the questions I am pondering now; as my Uncle Sam says: "there are no investments SO good that you got to have 100% of" So, I guess there is no harm selling one or two of these, if the price is right? After all he should know: he made his millions buying and selling rental properties in Birmingham, UK.
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
Bread & Butter Properties
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Monday, June 18, 2012
Wednesday, August 17, 2011
I Sold!
I finally sold one of my bread and butter properties. And, it was not as difficult as I thought, probably because it was to a friendly party - my uncle and aunt. Actually my mom sort of arm twisted me to sell this to them as she thought it was a good thing to do. They are both retired and recently sold their shop house near Bahau and are renting a house now. With the money they got from the sale, it would be difficult to generate any kind of decent returns otherwise. Here are some options.
Option 1: put it in FD,
RM100,000 in FD today would probably earn you around 3% p.a. so that would be around RM250 per month. A paltry sum really, not even enough to cover their rent which is around RM350 per mth for a small link house in Bahau.
Option 2: Put in stocks
This would be a risky option since they both have no experience, and would probably end up losing all their money, I wouldn't advise my mom to invest for them either!
Option 3: Buy a Flat with good rental yield
The flat I sold to them is a 2bdrm, 500 odd sq ft which fetches RM600/month rental; this is a unit I rented to a company that houses their workers for their Mamak shop chain. They have rented another 3 from me and are excellent paymasters. So my uncle and aunt can be assured of consistent income, and not have to worry about renting out the unit every few months when tenants move.
After costs (such as maintenance RM20/mth, Indah water, cukai etc) they would probably end up with around RM550/mth. The unit cost them RM95,000 in cash (the price my mom wanted) so that means a 6.9% p.a. yield which is not bad at all. Much better than letting the bank use their money. With this, they will at least end up with an asset, not to mention being able to pay for their monthly house rental. And, have some money left over from this little rental unit.
I am sure they would want to buy another unit soon, when they see the nice cash flow, but I doubt I would part with another right unit now..
As for me: well, at 95k you can say I made a descend profit for my efforts; plus, I can always go buy another one right? also, I am quite happy to cash out on this one, as I had accumulated quite a bit of equity in it. All in all, a win-win I guess.
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
Option 1: put it in FD,
RM100,000 in FD today would probably earn you around 3% p.a. so that would be around RM250 per month. A paltry sum really, not even enough to cover their rent which is around RM350 per mth for a small link house in Bahau.
Option 2: Put in stocks
This would be a risky option since they both have no experience, and would probably end up losing all their money, I wouldn't advise my mom to invest for them either!
Option 3: Buy a Flat with good rental yield
The flat I sold to them is a 2bdrm, 500 odd sq ft which fetches RM600/month rental; this is a unit I rented to a company that houses their workers for their Mamak shop chain. They have rented another 3 from me and are excellent paymasters. So my uncle and aunt can be assured of consistent income, and not have to worry about renting out the unit every few months when tenants move.
After costs (such as maintenance RM20/mth, Indah water, cukai etc) they would probably end up with around RM550/mth. The unit cost them RM95,000 in cash (the price my mom wanted) so that means a 6.9% p.a. yield which is not bad at all. Much better than letting the bank use their money. With this, they will at least end up with an asset, not to mention being able to pay for their monthly house rental. And, have some money left over from this little rental unit.
I am sure they would want to buy another unit soon, when they see the nice cash flow, but I doubt I would part with another right unit now..
As for me: well, at 95k you can say I made a descend profit for my efforts; plus, I can always go buy another one right? also, I am quite happy to cash out on this one, as I had accumulated quite a bit of equity in it. All in all, a win-win I guess.
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
Thursday, June 2, 2011
When's the Right Time to Sell
When is it the right time to sell your property? That's a difficult question to answer. If you read Rolf deRoos' 10 Rules on Property Investing, then the answer is Never (or seldom). You just keep accumulating those little green houses, rent them out for income, and never sell. Over time, this would prove to be a good decision, as the property become "free and clear" courtesy of your tenants, and not to mention, the price having appreciated along the way.
Robert G. Allen (author of Multiple Streams of Income, No Money Down) says "don't wait to buy property, buy property and wait" - referring to the power of compounding over time; property prices tend to appreciate, so the longer you hold on to it, the higher its value. Again, don't sell.
But then, as my Uncle Sam says "there's nothing so good, that you've got to own 100% of" - explaining, that sometimes, we don't have to hold on to all our properties like they were family heirlooms. There comes a time when it is right to sell a few of the property and realise some profit. Take some money of the table, so to speak. But, what is the appropriate return on your investment? is it 10%, 20%, 50% or 100%? That is a difficult question that only you can answer. It all depends on your risk return profile, and what the market can bear, when you sell.
When is a good time to sell some of your 'bread & butter property'? I have written down 3 times that I can think of, and hopefully that will help you decide.
1) At the bottom of the interest rate cycle; all else being equal, as interest starts to climb, the value of property should come down. Of course, knowing when the bottom is crucial. It would normally take one to two years for the interest rate hike to peak - in which case, it's probably a good time to buy some of the properties, as their prices come off. In our scenario, BNM has raised rates by another 25bps which to me signals that we have passed the bottom of the cycle - time to take some profit?
2) the second time to sell is when the area we have been buying has matured, and perhaps started to deteriorate; there could be some demographic changes in the area attracting a different set of renters, crime could be increasing or the general areas start becoming unkept. These are all signs that you should get out, so the decision to sell is not difficult - just getting the right price that you want.
3) lastly, when you no longer enjoy the "game" of buy, and being a landlord. You are sick of phone calls from unreasonable tenants after midnight complaining that their tap's broken, or the constant late rent payments. This could also be a signal for you to get out. Always good to listen ti what your heart is telling you.No point to stay in the game if your heart is no longer there.
Robert Irwin says - The two best days in your life as a real estate investor are the day you buy your first property, and the day you sell it!
So, you have enjoyed one of those times by buying, perhaps this is the time to enjoy the other?
Chris
next article: what you need to do to prepare the property for sale
copyright Chris Gan@2011, www.breadnbutterproperty.blogspot.com
Robert G. Allen (author of Multiple Streams of Income, No Money Down) says "don't wait to buy property, buy property and wait" - referring to the power of compounding over time; property prices tend to appreciate, so the longer you hold on to it, the higher its value. Again, don't sell.
But then, as my Uncle Sam says "there's nothing so good, that you've got to own 100% of" - explaining, that sometimes, we don't have to hold on to all our properties like they were family heirlooms. There comes a time when it is right to sell a few of the property and realise some profit. Take some money of the table, so to speak. But, what is the appropriate return on your investment? is it 10%, 20%, 50% or 100%? That is a difficult question that only you can answer. It all depends on your risk return profile, and what the market can bear, when you sell.
When is a good time to sell some of your 'bread & butter property'? I have written down 3 times that I can think of, and hopefully that will help you decide.
1) At the bottom of the interest rate cycle; all else being equal, as interest starts to climb, the value of property should come down. Of course, knowing when the bottom is crucial. It would normally take one to two years for the interest rate hike to peak - in which case, it's probably a good time to buy some of the properties, as their prices come off. In our scenario, BNM has raised rates by another 25bps which to me signals that we have passed the bottom of the cycle - time to take some profit?
2) the second time to sell is when the area we have been buying has matured, and perhaps started to deteriorate; there could be some demographic changes in the area attracting a different set of renters, crime could be increasing or the general areas start becoming unkept. These are all signs that you should get out, so the decision to sell is not difficult - just getting the right price that you want.
3) lastly, when you no longer enjoy the "game" of buy, and being a landlord. You are sick of phone calls from unreasonable tenants after midnight complaining that their tap's broken, or the constant late rent payments. This could also be a signal for you to get out. Always good to listen ti what your heart is telling you.No point to stay in the game if your heart is no longer there.
Robert Irwin says - The two best days in your life as a real estate investor are the day you buy your first property, and the day you sell it!
So, you have enjoyed one of those times by buying, perhaps this is the time to enjoy the other?
Chris
next article: what you need to do to prepare the property for sale
copyright Chris Gan@2011, www.breadnbutterproperty.blogspot.com
Friday, May 27, 2011
On commodity boom, OFWs and property prices
Over the last two months, I have been travelling around the country, doing talks (as part of my job) - hence the long silence in blog postings. But, visiting towns which you would not normally go to for a holiday, has been an enriching experience, as you get to meet the locals and also assess for yourself, what is happening on the ground. This time, the roadshows have taken me to places like Taiping, Kuala Selangor, Ipoh, Miri, to name a few.
Some of the more interesting observation I made on people and property are as follows:
- Property prices are rising almost everywhere. Most people I talked to would acknowledge it if you asked them if their property has gone up in price. A small shophouse in K. Selangor is now selling for 600k (vs. 400k when first launched 1.5 yrs ago); and there is now a Tesco and also a 24hrs drive-thru McDonald's in K Selangor! Speaking to a developer in Ipoh, she also said the same thing - the shop houses she sold are now 50% higher. What is this attributed to? Well I suppose a lot has to do with input prices increasing (steel, cement, petrol, etc have gone up) but I guess it has to do with the rising affluent in smaller towns. Most of those involved in commodity related trades like palm oil,swiflet farming, fisheries have made tons of money in the last few years. And, where else to invest if not in physical assets like houses, and shops? some even tend to buy outside their own hometowns like in Bdr Utama or Puchong - for their kids when they study in KL?
- Secondly, a lot of the buyers for residential properties especially condos, tend to be Malaysians working overseas. Those that work in HK or Singapore have higher purchasing power due to the higher wages and more favorable exchange rates. And as a result, they like to buy a place for themselves to retire to, in addition to buying one for their parents to live in. So, condos and also house prices tend to get pushed up by the strong demand from this segment. The talent drain has its downside but the upside is the repatriation of money back from these MOFW (Malaysian overseas foreign workers). Incidentally, the term OFWs is used in the Philippines. Over there, they are a powerful lot - there are around 8-10mil workers worldwide, that remitted around $19bn in remittances (2009) to their country and is the largest contributor to its GDP! In addition to this, of course, is the higher spending on properties. It looks like Malaysia is no different in that sense.
- the last observation is probably quite obvious - residential properties here have very low yield. We are looking for a place (condo) to rent now and its amazing how many of them are empty or recently vacated. It appears that even the Japanese expats are now a rare lot; the Tokyo quake has caused some disruption to a few industries for example, auto, and a large number of executives have been recalled back to HQ. So, that has affected the rental market here too. The European expats are now lower in numbers after the 2008 financial crisis, and that hasn't helped. But the surprising thing is that - developers are still building! and the prices are astronomical. Take a drive round Mt Kiara at night and KLCC and count the number of units with light on - you will be surprised. Well, maybe "its different this time" or in "Malaysia, property prices don't fall"? Let's hope so.
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
Some of the more interesting observation I made on people and property are as follows:
- Property prices are rising almost everywhere. Most people I talked to would acknowledge it if you asked them if their property has gone up in price. A small shophouse in K. Selangor is now selling for 600k (vs. 400k when first launched 1.5 yrs ago); and there is now a Tesco and also a 24hrs drive-thru McDonald's in K Selangor! Speaking to a developer in Ipoh, she also said the same thing - the shop houses she sold are now 50% higher. What is this attributed to? Well I suppose a lot has to do with input prices increasing (steel, cement, petrol, etc have gone up) but I guess it has to do with the rising affluent in smaller towns. Most of those involved in commodity related trades like palm oil,swiflet farming, fisheries have made tons of money in the last few years. And, where else to invest if not in physical assets like houses, and shops? some even tend to buy outside their own hometowns like in Bdr Utama or Puchong - for their kids when they study in KL?
- Secondly, a lot of the buyers for residential properties especially condos, tend to be Malaysians working overseas. Those that work in HK or Singapore have higher purchasing power due to the higher wages and more favorable exchange rates. And as a result, they like to buy a place for themselves to retire to, in addition to buying one for their parents to live in. So, condos and also house prices tend to get pushed up by the strong demand from this segment. The talent drain has its downside but the upside is the repatriation of money back from these MOFW (Malaysian overseas foreign workers). Incidentally, the term OFWs is used in the Philippines. Over there, they are a powerful lot - there are around 8-10mil workers worldwide, that remitted around $19bn in remittances (2009) to their country and is the largest contributor to its GDP! In addition to this, of course, is the higher spending on properties. It looks like Malaysia is no different in that sense.
- the last observation is probably quite obvious - residential properties here have very low yield. We are looking for a place (condo) to rent now and its amazing how many of them are empty or recently vacated. It appears that even the Japanese expats are now a rare lot; the Tokyo quake has caused some disruption to a few industries for example, auto, and a large number of executives have been recalled back to HQ. So, that has affected the rental market here too. The European expats are now lower in numbers after the 2008 financial crisis, and that hasn't helped. But the surprising thing is that - developers are still building! and the prices are astronomical. Take a drive round Mt Kiara at night and KLCC and count the number of units with light on - you will be surprised. Well, maybe "its different this time" or in "Malaysia, property prices don't fall"? Let's hope so.
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
Sunday, March 27, 2011
Retire Young without being Rich
28 February 2011 was a memorable date for me and the kids, as this was the day my wife Ee Ran retired from her job at the bank. Yes, left work for good. Clocked out for the last time. Cashed in the chips, so to speak. And she is not even at the usual retirement age of 55! She has worked a good 10 years and now has the choice whether to work or not to. Now, she spends most of her time doing yoga and hanging out with our two boys. The younger one who is now only 13 months is probably too young to wonder why his mummy is home all day long? While the older one is probably glad that mummy drops and picks him up from school everyday (and not me cos I am always late!).
A lot of our friends think that she is able to retire young because of my high paying job! no such luck I am afraid, as you all know in corporate Malaysia, the pay is not that fantastic especially if compared to Singapore or HK!Some think that she would have to take a "pay cut" in order to be able to stay at home. That's not very much fun in my opinion, especially if you are used to having your own income for such a long time.
No, the answer is none of the above. The truth is not that we are better than anybody else but we decided a few years ago to replace her income through investing in rental properties. And that the cash flow from those little bread and butter properties would pay her every month instead of the bank. When I look back it wasn't all that long ago when we had zero properties in our names. But right after April 2008, I started investing - initially with the advise of my friend Raymond. And I never looked back: from there we built up a portfolio of rental units by leveraging on both our incomes. It didn't really take that long to put it all together; from start to end, it probably took us 3 years. And a lot of the time was spent waiting around for the land office to approve the land transfers as they are all leasehold properties. But once all that was done, and we rented out the units, the cash flow started coming in. The hard work of searching for the right properties, negotiating and arranging financing probably took a solid 1.5 years. Not all that long if you think about it.
I am telling this you story because all I did was follow some simple principles which I have outlined in this blog. And with a lot of good fortune, perseverance, and God's favor, it all came together this year. If we can do this, so can anyone.
Retirement is about choice -having the choice whether to work or not to work. You decide. And I always believe it is a function of cash flow and not number of years. So, now that the missus is free, I have to work doubly hard to retire I guess. Which means focusing on acquiring more positive cash flow properties.
Happy investing!
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
Sunday, March 20, 2011
Why Buy When You can Rent?
As some of you know I believe in renting vs buying. And can't figure why I should pay a premium to own when renting is cheaper in comparison. For example, I heard that you can rent a house in Bdr Utama for less than 2k per month while in Desa Park City, the super links are also going for the same price. I am tempted to live in Desa Park for the facilities and amenities but would never pay the RM1.3m asking price even if I could afford it. By the way I heard that the maintenance fee is around RM800 per month! yes, it costs a lot of money to keep the place looking so nice, and of course there is the man-made lakes and club house too to maintain. At 2k a month, I think its a steal but am not so sure for the owners, though. I suppose there is the possible appreciation that will compensate them for the super low yields? One of my good friend told me about a brilliant idea his friend had - he rented out his high end condo at Mont Kiara for RM12k per month and went to rent at Desa Park for 2k. Not a bad deal if you think about it eh? An extra RM10k in the pocket each month to make the swap.
Happy investing! and have a good week ahead.
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
Tuesday, March 15, 2011
My First Home Scheme - a great opportunity
Well what do you know? The central bank, BNM has left its overnight policy rate (OPR) unchanged at 2.75% in its latest Monetary Policy Committee meeting last Thursday. This means that the banks won't be raising their Base Lending rate (BLR) this round; well, I suppose that's what can happen when its an election year! So, house owners, here is some reprieve from having to pay higher installments. However, BNM did raise the SRR or statutory reserve requirements for banks from 1% to 2%- this is the amount of the bank's deposit have to keep with the central bank (w/o any interests). It's basically a way for BNM to mop up some liquidity in the market and force the banks to work harder in order to make money from their lending: so, watch out, banks will be lining up to get your cheap deposit in light of this development. In any case, in my view rates will likely to move up, perhaps 0.5% this year but probably not until after June.
The other interesting piece of news was PM Najib's announcement on the government’s My First Home Scheme. Launched last week, this scheme will enable young adults aged up to 35 and earning less than RM3,000 to get 100 per cent financing to buy houses worth between RM100,000 and RM220,000 with a repayment period of up to 30 years. This is certainly good news for those of you below 35 (too bad I am not!) but it got me wondering on a few things. But firstly, I figured that at 5% interest rate, for a 200k loan, for 30 years, the repayment would be around RM1k per month, right?
- But, what could you buy for RM220k in Klang Valley today? certainly not a descend link house; maybe not even a descend condo in P.J area, which prices now run way pass RM300k,
- so where could you buy a house like that? perhaps in Rawang?or in Selayang?
- Does that mean you don't buy one? Certainly not! if the bank is willing to fund the whole property, take risks and in addition, the government is throwing in its guarantee for free, you certainly must not decline. You don't even have to come up with a down payment! I mean it would be foolish if you don't take this kind of opportunity- it would be like throwing away free money.
What can you do? Well even if you don't want to live in a RM200k house, there are plenty of people who would - so, the answer is to buy a rental property. Yes, why not? It is not likely the government will come and check if you are really living there?
So, what you could do is to find a rental property that fits the price range in a good area, buy it with 100% funding from banks, and then proceed to rent it out. Of course, you gotta make sure that the rental at least cover your installment of RM1k per month. Even if you had to subsidize it a little bit, it may still be worth it. In the end you walk away with a house, fully paid which hopefully would have appreciated somewhat.
In the meantime, well, you can always rent somewhere cheaper to stay in or do what I did when I was 30 and single - stay at home with your parents! It's a great way to build up your funds, and you get to enjoy your mum's cooking.
Happy investing!
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
The other interesting piece of news was PM Najib's announcement on the government’s My First Home Scheme. Launched last week, this scheme will enable young adults aged up to 35 and earning less than RM3,000 to get 100 per cent financing to buy houses worth between RM100,000 and RM220,000 with a repayment period of up to 30 years. This is certainly good news for those of you below 35 (too bad I am not!) but it got me wondering on a few things. But firstly, I figured that at 5% interest rate, for a 200k loan, for 30 years, the repayment would be around RM1k per month, right?
- But, what could you buy for RM220k in Klang Valley today? certainly not a descend link house; maybe not even a descend condo in P.J area, which prices now run way pass RM300k,
- so where could you buy a house like that? perhaps in Rawang?or in Selayang?
- Does that mean you don't buy one? Certainly not! if the bank is willing to fund the whole property, take risks and in addition, the government is throwing in its guarantee for free, you certainly must not decline. You don't even have to come up with a down payment! I mean it would be foolish if you don't take this kind of opportunity- it would be like throwing away free money.
What can you do? Well even if you don't want to live in a RM200k house, there are plenty of people who would - so, the answer is to buy a rental property. Yes, why not? It is not likely the government will come and check if you are really living there?
So, what you could do is to find a rental property that fits the price range in a good area, buy it with 100% funding from banks, and then proceed to rent it out. Of course, you gotta make sure that the rental at least cover your installment of RM1k per month. Even if you had to subsidize it a little bit, it may still be worth it. In the end you walk away with a house, fully paid which hopefully would have appreciated somewhat.
In the meantime, well, you can always rent somewhere cheaper to stay in or do what I did when I was 30 and single - stay at home with your parents! It's a great way to build up your funds, and you get to enjoy your mum's cooking.
Happy investing!
Chris
copyright Chris Gan@2010, www.breadnbutterproperty.blogspot.com
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