You’ve read about the success of joint ventures, and jumping headfirst into the property investment scene, but have you ever wondered about investing in auctioned properties? This week, we share with you the insights and experience of an investor who started, quite literally, with a bang.
(Of the auction mallet, that is.)
Joel Lee did not plan to start out as a property investor or even a real estate agent. He was working in the sales and marketing department of various companies, and while thinking about his career, meager savings family, and overall finances, felt that he needed a plan to move forward in life. His journey into property investment came unexpectedly, when he was sharing his financial worries with a friend, who asked him if he would like to buy property and make money at the same time. His interest piqued by the question, he enrolled for workshops, attended seminars and, armed with less than RM10,000 capital, set out to invest.
His first property came during an auction, which he bought for RM162,000. The 10-year-old property in Sungai Long, which was bought at barely above the original price, sold for RM270,000 a few years later, earning Lee about a hundred thousand in profit.
However, his turning point came when he bought two shop house units in Pandan, Ampang for RM60,000 and rented them out for RM600, while paying the bank only RM300. He still holds those shop houses, in additional to another one, and is able to collect rental profit of about RM400-500 each month from each unit.
His experience from attending workshops, as well as personal experience in property investment, prompted him to join the market as a real estate agent, and he found his niche in auctioned properties. Not many people preferred to buy auctioned properties, especially during the sub-prime crisis, so he managed to get some good deals. However, auctioned properties usually needed to be repaired and refurbished before renting, so he began to get involved in repair works, engaging his own staff, and getting to know wiring men and plumbers.
Set Ground Rules
Like most successful investors, Lee follows a few basic principles that he has set for himself, and which works for him. First, he says that he will never buy new properties straight from developers. This is because there will be a wait of two to three years, or even six years if there are delays, before the property is completed, and there will be no (stable) occupancy until after two years. For commercial properties, the vacancy may be longer, up to three or four years. That is why he buys mainly from the sub-sale market. “The most important is time”, he says, as this strategy is not only faster, there is also no pressure to rent or re-sell because it is usually already occupied or occupancy in the area is high.
Besides that, another personal rule he goes by is to purchase from one main class of properties, and that is those catered to the middle class group. He analysed the income per capita of of households in Kuala Lumpur, and decided that properties with rental below RM2,000 would most likely be most in demand, therefore he only looks for properties that can fit the criteria.
Another of his strategies is to go for rental properties with positive cash flow, or places with developments nearby. For example, he bought an auctioned property in Kota Damansara for RM290,000, adding an extra RM20,000 for repairs, painting and installing air-conditioning. Buying it was a no brainer, as it was not possible to get any properties in the area for a similar price. In addition, the location had very good appreciation value in the next 5 years, as the MRT and other new developments were coming up in the area.
Lee says that he prefers the rental way of investment over flipping properties, as he likes having passive income to help pay for his monthly installments, as well as other items like petrol, internet, car loan, etc. That way, whatever he earns from his monthly salary is just like a bonus, as he already has his overhead is covered. He also learned the hard way that rental cash flow is important, because he had no sales in the first six months of being a real estate agent.
His advice for other investors? “Get education,” he urges, “Before you invest in property, invest in yourself. Know what to look for, what price is fair price, how do you calculate, how do you see the neighbourhood – all these take some experience and skills. If you do not know all these, no matter what price, you have the tendency to screw up.”
He also shares that investors do not necessarily have to start big (in fact, few can afford to) but rather, they should start within their means – it is more important to start right, and it will be easier to get into the second one. “Start well and within your means.”
One last bit of advice? Get yourself a property for your own living as a first step into property investment, so you don’t have to rent, because rental will rise every one to two years. You don’t have to be pressured to pay higher rent [every few years], and you can move on to buy a new property.
Original article by Benignus Cheah (Property Insight magazine, May 2015 issue, pg 68-70)