My First Property

Don’t wait to buy real estate, buy real estate and wait. – T. Harv Eker

I love properties very much. Investing in the property was my only strategy many years ago. Friends around me told me to buy properties. They said the best and easiest way to riches was through real estate.

Mark Twain once said,” Buy land, they are not making it anymore!” Average Joe like me buys properties, thinking that real estate prices have only one direction to go.

Bigger players like developers and businessmen buy land because they understand the land is the only limited commodity in this world.

I had good experiences in buying properties because it was the only asset that I never lost a single cent in my investing journey.

My first Property

It was back in 2001 during my housemanship, I saved up MYR15000 after one year of my hard work in Taiping. My mum told me it was imbecile not to buy a house when you grew up.

The majority of the Chinese are guided by the Confucius dictum: 修身，齐家，治国，平天下（Cultivate self, establish family, govern the country well before spread peace to the world).

How can a man grow up and have family if he doesn’t buy himself a house?

I came back to my hometown Bukit Tambun in 2002. There was rapid development going on in the neighborhood. A housing project near my old house (my father built back in 1974 with his life saving of MYR2000) looked very promising.

The corner terrace house with a land area of 20×70 meters was selling at MYR170,000. After a long discussion with my wife, we decided to buy it even though we knew we couldn’t afford it. I used up all my savings of MYR15000, borrowed some money from my eldest sister, and took a 90% bank loan.

The monthly loan installment was MYR750, almost 35% of my monthly salary.

Home ownership lessons

I learned a few lessons from my first property purchase.

1. Your home is never an asset because it takes money out of your pocket. No matter how much your home has appreciated, if you are still living inside the home, you will never earn anything from your home. To get income from the home you live in, you can either rent out one of your bedrooms ( if you and your spouse need more privacy, a dual key condo might be a good idea) as long term lease or short term via Airbnb.
2. Never spend more than 20% of your total income as your housing loan installment. If you can’t afford it, wait for a few more years and save more so that you can pay 30 or even 50% upfront of your first home.
3. Settle the housing loan of the home you are living in now as soon as possible because your primary residence is your biggest liability!

My mum was wrong and most probably yours too

As my salary increased gradually over years, my mum advised me to buy a bigger house even though I was very happy with our terrace house.

People around you tell you to upgrade your lifestyle once you make more money. And I think this is the stupidest financial advice you can get.

“No worry though you spend 50% of your monthly income for installment! Your salary will increase gradually overtime!” This was the advice given by my mum.

There are two caveats to this statement. Your job security is confirmed and you are sure you will not lose your job in the future.

Secondly, you are confident that your salary will increase over years with no pay cut in whatsoever economic scenarios.

I listened to mum’s advice and bought an MYR320k semi- D house in 2004. My monthly housing loan installment had exceeded 50% of my take-home salary. Next few months after the purchase were the darkest time in my life because I was worried all the time about my cash flow.

I was lucky

We didn’t move to the new house because we couldn’t afford to renovate our first home let alone the second home.

For our first home, we spent less than MYR5k to renovate the house. I was the painter, wallpaper decorator, and plumber for the new home. I kinda loved and learned the tricks of fixing common problems of wiring and plumbing works.

We were lucky and managed to rent out our second home at MYR800 per month to factory workers. This certainly has lessened my burden of servicing two housing loans/ mortgages.

Job security is now a myth in medicine. You are not even sure you can get a job after medical school in Malaysia!

And are you still dreaming about the pay rise every year? You are most probably the lucky 3% if you can get a permanent job after your contract with MOH ( Ministry of Health).

I was lucky because back in 2001 till 2015, properties were selling like hotcakes. Everyone was flipping properties and making good money. Tenants were easy to find and I could rent out my houses once the project was completed.

Moreover, my job as a medical officer back then in the government hospital was a permanent job .It came with a yearly salary increment of 2-3% and at least a month bonus every year.

Imagine if I have bought these two houses in 2018 during my medical officer training and lose my job in 2020?

Things have definitely changed over the years, if your housing loan/ mortgage installment is more than 20% of your take-home salary, it just means you can not afford it. It is that simple, full stop. Save a few more years and buy later.

Buy Assets not Liabilities

The only way to be more wealthy financially is by building up assets. Buying more properties with a 70-90% margin is a good way of building up your assets fast provided you have good cash flow.

Your rental income must be able to cover your loan installments. And of course, the property prices must keep going up.

The main difference between property investing compared to stocks investment is the level of leverage.

You can get a leverage of 90% or 100% to buy a property, you build up your portfolio rapidly. You can keep on buying houses and shops provided you can get tenants and manage them well!

All these properties will be your liabilities if your rental income can not cover your installment and your house equities decrease in value during recessions.

Conclusion

I told my kids not to rush to buy a home next time when they start working. Save money first and make sure you spend less than 20% of your monthly income on housing loan/ mortgage installment.

Do not try to upgrade your lifestyle too soon once you earn more. This stupid advice will make you a money slave forever.

Be debt free as soon as possible if you are serious about wealth building.