5 things to know: Buying your first property
“The five things you need to know when considering buying your own property”
Buying your first property, whether it is to be your home or an investment can be very intimidating yet exciting at the same time. It’s a big step and for first-timers; you’ll want to know all you can about the process and the pitfalls. To help you along; we’ve listed the five things you need to know when considering buying your own property.
No 1: Why do you want this house?
There are usually only two reasons.
(a) For Own Stay
When it comes to buying your first home, it’s very easy to get carried away with finding the one that is perfect. Sorry to burst your bubble, but perfection does not exist. So be prepared to compromise. You need to be realistic with what you can afford given your budget. So make sure you have a BUDGET and STICK TO IT.
(b) For Investment
If you are buying for investment, you then need to be clear if you are investing for Capital Appreciation (rising price of property) or for Rental Returns.
As a general rule of thumb, if you are still young with high future earnings potential, you should focus on properties which are likely to provide the highest Capital Appreciation. But if you are approaching retirement, you should be looking at properties which will preserve its value yet give good Rental Returns to fund your retirement.
If you are buying for Capital Appreciation, one would usually go for off-plan properties (Properties which are sold before they are complete). However, things have changed in the past few years especially in the Klang Valley where there is currently an oversupply situation therefore making it very tricky to ‘flip’ properties (Flipping is a common term used to describe buying a property on a short-term speculative basis) immediately on completion.
If you are buying for Rental Returns, it is advisable to buy properties from the secondary market where the rental yield is likely to have stabilised. Imagine this, if you have bought a unit off-plan which takes 2 years to complete, you will be faced with a lot of competition to let out your unit during your first year. Aside from that, for an off-plan property, you won’t be able to collect any rent during the construction period.
No 2: Getting a Loan
Most people will look for the property first, and only then seek financing. This is a major NO NO! One should always find out how much you are able to borrow from the bank FIRST before going out to look for the property.
Let’s just say if you don’t know what you can afford, you are more likely to screw up. You can do this by walking in to most banks. It is recommended that you walk in to several to build the relationship with several Loan Officers as they will come in handy when you need to check the valuation of your property. Also, never apply to just one bank. You should always spread the risk (in case that one bank rejects your application) and applying to many banks will help you get a more competitive rate.
No 3: What is the House Worth?
When you have found the property of your choice, you are usually required to pay a holding deposit of 2 – 3% of the purchase price to take the property off the market. However, making an offer and paying the holding deposit does not necessarily equate to acceptance. Until the Seller signs the Letter of Offer, nothing is confirmed. .
Before you pay the holding deposit (also known as Earnest Deposit), make sure you do the following two checks:
(a) Valuation of Property If the price that you have agreed to pay for the property is RM400,000, and you are looking for a 90% loan from your bank, you need to check with your bank that the valuation is ‘up to mark’. Reason being, if the banks’ valuers only values your property at RM350,000, the bank will only be willing to lend you 90% of RM350,000 and NOT 90% of RM400,000. What this basically means is that, if you really wanted to buy the property, you will need to fork out the difference from your own pocket i.e. RM85,000 [RM400,000 – (RM350,000 x 90%)] rather than RM40,000 that you thought you would need.
One way to mitigate this risk is that you ensure there’s a clause written in your Booking Receipt which says that you are entitled to get back your Holding Deposit in the event you are unable to obtain a loan. This is not a standard clause in the Booking Receipt, but don’t be afraid to insist on this even if it means penning it yourself on the Booking Receipt.
(b) Check up on your Estate Agent
Before paying your Earnest Deposit, be sure to also check up on your Estate Agent to make sure they are legit. You can do a search to see if the company that they work for is registered with the Board of Valuers, Appraisers, and Estate Agents of Malaysia here.
Also remember to only issue cheques to the realtor’s company and never to an individual.
No 4: Buying a pre-loved home
This is a little trick that you can use to find undervalued properties. If you have been following the property market i.e the Classifieds be it online or in print, avoid buying from real estate agents who are regularly advertising for a specific area or for a specific development. They are more likely to be working with a lot of owners in that area and are more inclined to want to maintain high selling prices to protect the interests of all these owners.
TheStar Property, Mudah Classifieds, iProperty and HomeGuru are good ways of finding ‘Urgent’ and ‘Below Market’ properties. These are simple keywords which you can use on these online property aggregators to find great deals.
No 5: Keep in mind transaction costs
When budgeting, be sure to factor in the transaction cost for your purchase (between 3 – 5% of purchase price) as you will need to have cash in hand to pay for these things.For your convenience, SaveMoney.my has prepared a legal fee quotation calculator for your easy reference, do click below to see:
Some banks allow you to include your legal fees (and the Mortgage Reducing Term Assurance (MRTA) premium – MRTA is an insurance to protect against a borrower’s untimely death or total permanent disability as it settles the outstanding loan amount so your family won’t have to worry about the outstanding home loan with the bank) in your loan amount which helps ease the burden as you won’t have to pay these potentially huge amounts upfront in cash.
So be sure to ask your Loan Officer at time of application if this is what you prefer. So there you have 5 things to note to make your first property purchase less of a grueling nightmare! Happy house hunting!
By Lucas Ooi – Savemoney.my
Source : Free Malaysia Today