Managing risks, starting strong. (Think Big, Start Small)

One senior manager colleague shared with me that over 10 years ago, he bought a shoplot. In his mind, he was thinking BIG. He thought the shoplot would double in price within 2 or 3 years. Despite just starting, he aimed at commercial property due to the potential huge profit. Yes, the entry cost was also bigger than residential. Alas, nothing happened after it was completed for TEN years. He thought it was the worst investment he has ever made and vowed not to buy another one. He had to continue paying for the loan and only recently, with the boom in 2012, the shop lot increased in price sufficiently that he sold it. He said, based on his total investment, it gave him a return of around 80%, divided into 10 years is 8% gross per year. Actually, this is really nothing to shout about but this is still 2 times higher than if he had left his money in Fixed Deposits for the past 10 years. Sometimes, it is just the timing. He was fortunate because he did not buy a few commercial properties at the same time. Manage our risks, start small.
When you think about property investment, do you think of it as a potential or just another form of investment? As a road to quick riches? I think of it as an investment that one must have. The potential depends on how you do it and perhaps a bit of luck. If you happen to buy and your condo was completed during a financial crisis, it definitely does not help. Nevertheless, as long as you have no roof over your head, buy one. If you already have a roof over your head and you like to buy a Segment C car then buy another property first. Chances are you may be able to afford the downpayment for a Segment D car instead, within five years time.
Do not however start property investment thinking that you will be very rich in very short period of time. It does not usually happen this way. Even starting slowly when we are younger would mean that we have repaid for at least one property in 20 years and have 2 properties fully paid for when we retire. Start property investment with a goal of retiring earlier and be financially free. However, start on a strong footing. Have sufficient downpayment before starting and not borrow from our relatives or friends to start the investment. Start right, start small. Buy a property which we can afford easily with our current pay. If we can afford to pay for a mortgage of RM2,000, then buy a property which only needs for a mortgage of RM1,600. There’s nothing wrong with stretching ourselves but it is very risky for us to stretch to the limit just at the very beginning. If we are lucky, we may hit our first jackpot faster than majority but if we are unlucky, we are also the minority who somehow got bankrupt from property investment.
Thus, personally I have always believed that if we intend to get very rich, retire earlier than majority, real estate investment is a key investment we must have. Only one thing that I always remind myself is, there’s no need to rush. My first property was only RM123K, second property was slightly higher, followed by the third one at RM247K and this increased slowly over the years until my latest property few months ago at RM540K. I know, nowhere near a lot of really gung-ho property investors but it is ok. My property investment motto remains to be, Think Big, Start Small. Happy buying.
written on 11 Dec 2016
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