Investing in Properties Without Being a Landlord
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Malaysians seem to love investing in real estate, or at least they love the idea of property investment. There have been many social conversations that start out with one person telling another all the reasons that it’s amazing to invest in properties.
Naturally, most follow-ups involve asking how many properties they’ve invested in. Some sheepishly admit they haven’t actually invested in any yet, but they plan on it. And there’s no denying the handful of people you’d probably know personally who have made themselves wealthier through investing in properties.
There is a very good reason people are drawn to the idea of real estate investing; they understand how it works. Many tend to shy away from investing in the stock market because they don’t really understand how it works and find the risk very intimidating.
But real estate it is simple, “I own a property, I find people to live in it, they give me money!”. Also, real estate accounts for a sizeable portion of one’s net worth, and many will consider it a major part of their financial plans for the future.
So yes, we get why people are attracted to this type of investment. But it also doesn’t take rocket science to figure out why most people, who may own one property that they live in, have not invested in real estate.
It takes a ton of money to invest in real estate and becoming a landlord can be very scary, annoying, troublesome and time-consuming.
Real Estate Investing Requires a lot of Cash.
To buy an investment property you typically still need a make a down payment of at least 20% of the purchase price of the property. Then you’ll need more money to cover the lawyer fees and other purchasing costs.
You’ll need to start making your monthly repayments (regardless whether you have a tenant) while setting aside another pot of money to cover things like general maintenance, damage repairs, property taxes, and simple renovations.
There is no way around it, if you want to invest in properties, you need a lot of cash.
Or do you?
Then there are two realities people tend to believe about being a landlord.
The first is that you’ll simply sit back, collect rent and never really do much work.
The second is that you’ll be constantly getting calls to fix things or constantly have to chase an irresponsible tenant to pay the rent on time. Even before all that, you’ll need to find and screen tenants, arrange for maintenance and repairs, make sure all the bills are paid, and do the nasty business of evicting people when necessary.
Yes, you can hire a property agent or property manager to help with these tasks. But it does not absolve you of doing any work.
How to Invest in Real Estate Without Being a Landlord and With Less Than RM10,000.
Yes, it is possible to invest in real estate without owning physical properties.
You can invest in what is called a Real Estate Investment Trust (REIT).
REITs are public listed corporations that professionally invest in real estate. REITs invest in a variety of projects that most regular people would not have the capital to invest in such as:-
- Large apartment complexes
- Industrial or office buildings
- Healthcare facilities
- Shopping malls
REITs allow you to indirectly invest your money into properties without the hassle or problems that often come with managing tenancy related issues.
You purchase shares in REITs the same way you would purchase a share of any other public listed company, through the stock exchange. The good thing is that REIT investing in Malaysia has effortlessly and consistently brought an average of 6% to 8% annual net dividend yield. Malaysia is one of the leading nations when it comes to profits made via REITs in the Southeast Asia region.
Investing in a REIT is now considered a low-risk investment, as it trades like shares but is structured like a unit trust. And here’s a little piece of info that you may not have known; any REIT is obligated to distribute a minimum 90% of its net profit. That’s right, 90% of all rentals collected from all those buildings will be distributed to shareholders. The savings on stamp duty and RPGT alone run into the millions, those savings will eventually be transformed into dividends for investors like you.
Another big advantage of investing in REITs is liquidity. Compared to physical property, you’re able to buy and sell shares in Malaysian REITs in a matter of minutes, versus the hassle you have to go through just to sell an apartment unit. The lawyers, agents, potential buyers – the fastest you’ll be able to liquidate that property could be a month. Whenever you find yourself in a difficult situation and you need cash fast, you will realise how important liquidity is.
And finally, it is definitely a better idea to leave it to the professionals. Actual real estate experts handle and manage these massive properties. Who do you think owners of a billion-ringgit shopping mall like Mid Valley and the Gardens will hire to manage their properties? The property managers are specialists and have tons of experience. With expertise like that on your side, you leave the acquisitions, the disposals, and the management of your properties to true professionals.
The original version of this article was published by CompareHero.my, a site dedicated to increasing financial literacy and helping you save time and money by comparing credit cards and personal loans in Malaysia.