Planning for a property investment can be a lengthy process, but it can provide substantial returns. With a well-thought-out plan and strategy, investing in property can be tremendously lucrative.
If you plan to invest in property, specifically residential property, read on to learn more!
Table of contents
What Is A Residential Property Investment?
Residential investments are investments into properties that have Residential land titles. This includes condominiums, terrace houses, apartments and other Residential-titled properties.
Some commercial-titled properties are also considered residential-titled under the protection of the Housing Development Act (HDA), such as SoHo (small office home office) developments – which are a popular form of investment due to its lower entry price point.
The location of the property can be a huge determining factor in the ROI, so it’s important to do your research beforehand in order to maximize returns in resale value or collected rental. Having property in a ‘preferred’ location can positively affect your returns.
Other Types of Property Investment in Malaysia
Property investment is not limited to residential property. Some other types of property investments in Malaysia include:
- Commercial
Commercial property investments are investments into commercial-titled properties, usually rented out for business use.
Some of the properties include retail lots, shop lots, SoFos (small office flexible office), SoVos (small office versatile office), SoLos (small office lease office) and SoSos (small office smart office).
Commercial properties can be resold or leased unfurnished – unlike residential properties – and utility and management costs are usually absorbed by the tenant.
However, the ROI for commercial investments are dependent on factors such as public transportation networks, the surrounding township occupancy and commercial occupancy rates.
They also have a higher upfront capital, with a typical financing margin of less than 70%.
- Retail
Retail properties are properties that are located in retail storefronts and malls. These investments are similar to commercial investments, but using different mechanics and in different prime locations. Being a combination of property and business investment, the landlord of these properties receives a part of the profits alongside its basic rental returns.
- Industrial
Industrial properties are properties that have long term agreements such as industrial storage, warehouses and distribution centres. Investment in these properties comes with a significant fee and service revenue, which can generate profitable income from resale and rentals, increasing the ROI for the property owner.
Despite its lucrative nature, the upfront capital cost can be costly, and it is considered more risky since it is a very niche market, requiring professional management and maintenance.
- Real Estate Investment Trusts (REITs)
REITs are a new concept in property investments where investors purchase shares of a corporation that owns the properties and distributes the income as dividends. This concept leverages affordability and ease of entry.
Keep in mind that you do not own the property when it comes to REITs. You also do not have any power to determine how the property is managed. However, the perk is that if you would like to ‘own’ your preferred property industry such as hotels, you can invest in hotel REITs.
What type of property is best for investment?
The best type of property is definitely property that brings in the most returns on investment. These returns are measured by rental yield and capital growth, which highly depend on surrounding developments and market conditions. Properties with a low entry point usually offer the highest rental yield returns.
Properties that are walking distance to public transportation points, have nearby amenities and provide available jobs (such as business centres and universities) can offer much potential for capital appreciation as well.
Is it worth investing in property in Malaysia?
Despite the high start-up cost, investing in property is a stable option and has the opportunity to not only balance, but surpass the initial investment amount!
Rentals can provide a steady monthly income, and considering nearby infrastructure upgrades, property values can increase over time.
However, it is important to note that the location of the property plays an important role in the returns of the property. ‘Preferred’ areas tend to bring in more rental, so if your property is not in a high-demand area, the rental may not be able to cover the interest and loan installments.
Proper planning should be executed before investing in property. Typically, owners are responsible for maintenance, sewerage, assessment and sinking fees, which can be a loss for the investor if the fees are higher than the installment and maintenance amount.
How do you make money from property investments?
There are several ways you can earn from property investments:
- Buy-to-rent
One of the ways you can invest in property is by purchasing and renting out the property (buy-to-rent). The type of property you are purchasing, the location of the property and your potential tenants can determine your return of investment (ROI).
High demand areas can help bring in higher rental income, and if the property is nearby, it can be handy in case any issues surface. Doing background checks on your tenants is also highly recommended to ensure that agreements go smoothly, you receive your rent in a timely manner and know that your property is in good hands.
To maximize your net profit, you can calculate your rental yield by factoring in the fees and costs involved so that you can get a clear idea of what your ROI looks like.
- Short-term rentals
Another approach to profiting from property investments is through short-term rentals, by renting out the property typically for a few nights or weeks. Although it is less stable than long-term rentals, short-term rentals can provide significantly higher returns on a day-to-day basis compared to long-term rentals.
It is important to keep in mind that short-term rentals are different in nature compared to long-term rentals, and it comes with its own set of challenges. Short-term rentals require regular marketing efforts and more maintenance due to its high turnover.
- Flipping / Buy-to-sell
With the right strategy and proper planning, investing in property by purchasing to resell (alternatively known as subsale) can bring in satisfactory returns.
The demand for sub-sale properties exists because of factors such as location, immediate ownership, high occupancy rates and mature townships with great public amenities. Subsale properties provide a certain degree of confidence to consumers compared to properties that are still in development.
However, investing using this method requires a well thought-out strategy. It can be a time-consuming and costly process, from sourcing the property, financing and maintaining the property to finding the right buyers. Getting assistance from professionals can considerably encourage the success of the investment.
Investing in property can be a great opportunity to earn additional income. Now that you have an idea of how property investment works, we hope you have gained some confidence to make that move and start investing!
IQI is a real estate firm with over 30,000 agents in 21 countries across the globe. Join us now and become part of one of the world’s leading property companies!
