3 important points. Is property an asset or liability?

3 important points. Is property an asset or liability?

I love property investment. I repeat, property investment. It’s not simply buying a property and think of it as an investment. I also disagree with property speculation yeah. Certainly not using whatever method which enables anyone to buy a property or properties beyond what their salaries could afford.

For this article, we revisit the thought that buying a property is good because this is a good debt and good debt is always be an asset, right? So, property is an asset?

Well, if we asked property owners who bought a few units during the wrong years, gotten the keys to all of them and is now struggling to pay their mortgages, they will tell you that those few properties are liabilities and not assets.

They may even go bankrupt because of all these properties they bought all at once. Well, if we have treated property as an investment versus a gamble (because we were too greedy), this situation may not have happened. Frankly, buying a good property, one at a time, will always be a good advice I will give to the ones who have started working and needing a place to stay. In future, you will understand.

Coming back to whether the property becomes an asset to us or not when we buy a property?

#1 – Property is not an asset in the beginning. Frankly, that property we bought actually ‘belongs’ to the bank. We may pay a 10 percent like usual or we may pay more or we may get rebates or cash back in the beginning. In brief, whether we pay or we get back some money, the property is still not ours yeah. It belongs to the bank.

If we fail to pay the monthly mortgages, very soon the bank will auction off that property and we have just lost everything and more. Bankruptcy may be looming too. This is about how one becomes a bankrupt in Malaysia. How much unpaid debt to be declared a bankrupt?

#2 – Property is not an asset if it does not increase in price. I think this is the main thing everyone is worried about? What if the property price stayed almost the same after a few years? This is the reason why the first purchase should usually be the one we stay in. When we do this, we do not need to pay rental which essentially 100 percent goes to the owner.

An even important note is that if we are looking at long term, property prices will always rise because salaries of people will rise, construction material cost will rise, land cost will rise and even the marketing costs will rise too. This is also why property investment is also known as a hedge against inflation. In other words, the value of our money will stay the same because the increase in price will compensate for the inflation.

#3 – Property is not an asset if it’s overvalued in the beginning. Secondly, we should not just buy a property which we like without knowing if the price we bought is above or below the typical price for the area. One resource we could use to benchmark is brickz.my This site has the transacted prices which will help to guide our buying price as well. Remember, property price cannot just simply keep rising. Important note here: property price we buy matters.

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Every time we invest our money, we hope for good returns. The term ‘good’ will be different for everyone.  However, with property investment, the increase should be ‘pretty slow.’ My wish is only for the property to appreciate based on just 2-3% per year. (Must buy the right property yeah)

Actually, even that 2-3% is already attractive to me. Imagine a RM400,000 property appreciating at just 3% per year. That’s already RM12,000 per year or RM1,000 per month. Based on statistics, the typical property price increase after all the ups and downs over the periods of 1990 – 2013 is 6.3%. Image below is from housingwatch.my

I know, we technically do not own it yet until we finish paying for it. However, how many of us have an increment of RM12,000 per year? (conservatively speaking?)

Well, no one should be investing into property thinking that it will suddenly gain 10% every month…right? Happy investing into good debts which may eventually turn into an asset once it fully becomes ours in the future.

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