I have been doing some research on properties since 2004, mostly via books and internet forums. While I didn’t have any money or a stable job to qualify me for buying properties in 2004, I believed learning diligently would help when I was finally ready to acquire my first property. As I had no money to attend those thousands of dollars property seminars, I just simply asked and learned from anyone I knew who had bought at least one property. I had to be thick-skinned to learn. At the same time, I had looked at many properties. I may not have had the money to buy but hey, window shopping is free. It was fun going around looking at properties pretending to be a young hotshot investment banker. Nowadays, I go around buying properties in shorts and pasar malam sandals, but in those days I had to dress up nicely or most agents wouldn’t entertain you, and you had to pray they didn’t know you were just window shopping.
The chances of making mistakes in investing will be significantly reduced if we have explored all our options. To summarise this, the more properties you look at, the better chance you have in finding the right one. Back then, I followed the 100:10:1 ratio :
“ Complete 100 viewings, make an informal offer to 10, and then buy only one! ”
The word “right” is actually quite subjective. It varies from individual to individual. What works for me might not necessarily work for others. There isn’t a single approach that fits everyone, as each of us has different needs. There are millions of properties out there, so finding the right one is crucial. Back in 2005-2006, my priorities were different – then, it wasn’t about making millions from properties. It was about finding a rentable property that could be used as a future home for me and my girlfriend. It’s a simple need, and I’m sure many of you out there can relate to this. So to summarise my two primary needs:
• The property has to be rented out first in the first few years and in the long run, so it has to be self-sustainable. In other words, it has to be cash flow positive.
• It has to be located in an area that is convenient for both me and my girlfriend. So we narrowed the areas to cover only Sentul (my home area), Petaling Jaya (girlfriend’s home area) and Damansara (middle ground).
So I started looking rigorously at over 70 apartments and condos in these three areas. What I gathered from this exercise was that most of the properties I liked (for own stay) were above my RM200,000 budget. However, one of them caught my attention – big time. It was a condo in Kelana Jaya called Kelana Puteri.
Looking from an emotional/non-investment perspective, Kelana Puteri was a good choice for me. It is a full-fledged condo with decent facilities. It is located near a park, a hypermarket and it’s in Kelana Jaya. I like Kelana Jaya a lot and it was convenient for me and my girlfriend, who had lived in Kelana Jaya for close to 10 years then. My future in-laws were nearby should we need any help. More importantly, it was pocket friendly as well, as one could get a three-bedroom, two-bathroom unit then for less than RM170 psf. It was a convenient choice for us.
Kelana Puteri was even more attractive when I analysed how investable it was. Apart from the leasehold factor, it had plenty of positives going for it, such as:
1. Cash flow positive rentals if I could rent it partly or fully furnished. A partly furnished unit today can be rented out for RM1,200 while a fully furnished unit can be rented out from RM1,400 to RM1,600. My monthly instalments and maintenance charges today total up to less than RM950 per month. A fully furnished unit rental unit can give me a gross yield exceeding 12% per annum.
2. It was the cheapest condo available psf-wise in the whole of PJ/ Damansara belt and at the point of purchase, it was undervalued as surrounding condominiums were priced at 10% to 20% higher.
3. Tenants are plentiful. You get all kind of tenants in Kelana Puteri. Stewardesses, spa workers, college students, young professionals, you name it. How did I know this? I actually camped outside the Kelana Puteri guardhouse twice.
4. Location – Walk-able to the largest park and hypermarket in PJ and the feeder bus to the Kelana Jaya Putra LRT stops right in front of the condominium. The LRT station is just a two-minute drive away. Very convenient.
Also, back then, it was the only condo in PJ/Damansara/Sentul belt that allowed me to be a proud property owner, without putting in a single sen of my own cash!
Hunting for the right deal
This is the fun part. Now that I found my dream condo, I started calling agents and owners for viewing. I even made cheeky offers (10% -15% below asking price) and got all my offers rejected up front. After five or six viewings, I came to realise that it was highly unlikely for me to get anything even 5% below asking price as most owners would not sell their properties for anything more than a RM5,000 discount from their asking price, which was around RM165,000 to RM175,000, and this asking price was consistent even when I track back advertisements from 2004. I now know for a fact that if I had bought any unit in this development for less than RM155,000, it would have been a decent deal.
*Tip: 1. If buying sub-sale, the general rule is check prices for the past one year at least to gauge the transacted prices, to avoid overpaying for a property. Profit is made when you buy, not when you sell. So always, always, buy undervalued props.
Three to four months after I started zooming on this particular condo, I finally found an advertisement with a RM155,000 price tag. I was so happy and quickly made the call to arrange for the viewing and spoke to the owner himself. Lucky for me, it was the owner who advertised (he was trying to save agent fees), so I thought there would be a better possibility for me to get the said unit at a much lower price. My girlfriend and I were thrilled and we could not wait to have a look at the unit and our potential future home.
However, our joy was short-lived. There’s an expression that goes: “If it’s too good to be true, it probably is.” In this particular case, the saying was spot on. We were shocked to see the unit as it was in a really horrible condition. It was like a bad dream. All the doors inside the house had holes in them, which I suspected was the consequence of extreme vandalism (looks as if someone had intentionally punched/kicked all the doors). Half of the window glasses were either broken or missing. The floors had serious black oil stains on them, and I’m not sure if the stains could be removed. It looked like some mechanic had operated his workshop in that unit! Pipes weren’t functioning. There was a huge hole in the ceiling with several wires coming out from it. Apparently the previous tenant was stealing electricity from the upper floor unit. This was a case of the tenant from hell – no wonder the owner was willing to let it go at lower than market price. In fact, the unit looked like it needed more than tens of thousands in repairs costs and was recently auctioned without any takers.
My girlfriend and I could not wait to finish the viewing, oddly for different reasons. My girlfriend thought that the unit was in a really bad condition and would require a lot of time and cash to fix it back to a liveable condition. I, on the other hand, was salivating at the prospect getting the unit at almost 20% below market value. I knew the owner was seriously looking into selling off his property after having such a bad tenancy experience. I also realised that while the unit was in a terrible condition, most of the repairs were largely cosmetic and the cost would not be too high. Best of all, this unit had the potential to be a zero-down deal, where technically I could own this unit using no cash at all.
I was convinced that the pigpen condo was an excellent buy, provided I could close it at RM140,000. I could do a zero-down deal and the repair cost would not be more than RM5,000 after I checked with a few contractors. So the next day I asked the owner and his wife out for lunch, hoping to finalise the deal. I don’t believe in negotiating over the phone, and I thought if I could get him to like me, he might be inclined to accept my offer.
However, the owner insisted that he would only let go of the unit at the minimum price of RM145,000. He knew the actual value, so obviously he thought he could do better. While I thought that at RM145,000 the condo unit was still a decent deal, I insisted that the maximum price I would pay for it was RM140,000, citing that the repair cost would be above RM10,000 (got to try my luck right?). He didn’t buy my BS, so in the end I went back empty-handed as I refused to pay that RM5,000 extra he wanted. We parted ways on good terms, and I told him that he could come back to me anytime if he agreed to lower his asking price.
While I failed to close this deal, I wasn’t disappointed. I knew that I was still very much in the game. You see, a lunch treat can do wonders when it comes to information gathering. Here’s what I discovered:
1. The owner worked for MAS, and during that time MAS was restructuring so there was a strong chance he might be laid off (I discover this during the lunch). So if he did get laid off, he wouldn’t want to hold a dead property that would only add to his monthly expense.
2. The unit was previously auctioned, so I suspect the owner was having cash flow problems.
3. Unless the owner decided to spend a few thousand ringgit to repair the unit, no one would rent the unit, so the unit was basically a liability instead of an income- generating asset.
4. Any prospects that saw the unit would be immediately turned off by its horrible condition, so it was very unlikely it would be taken up anytime soon.
So it was just a matter of time, and I believed my patience would be duly rewarded, somehow. Two months later, I called an agent that advertised a unit going for RM145,000. I then quickly arrange a viewing and I ended up looking at the very same horrible unit. The rookie agent told me to just make any reasonable offer, and said he was convinced the owner’s wife would accept the offer as the owner recently suffered a heart attack. They now needed the cash for the costly bypass operation. I was tempted to low ball them at RM130,000 – 135,000 knowing that they were now extremely desperate, but after knowing the seller’s predicament, the human in me decided to stick to my last offer a few months before, which was RM140,000 plus additional terms. I felt it was the right thing to do, and at RM140,000 it was fair for the seller and me.
My offer was duly accepted on the very same day together with the additional “special” terms I requested.
Added on May 4, 2012, 2:52 pmStructuring the deal – How I bought the unit using zero cash!
The thing that I love about sub-sale deals is that everything is negotiable. So to get the maximum gains of out out of this deal, I negotiated four major points to my advantage, which were :
This allowed me to buy this property for “free.” In fact for this particular deal, I was “paid” RM8,000 to own this positive cash-flow property. I had to put all the necessary advance payment to initiate this deal, but once the property is legally mine, I recovered all the capitals used for the purchase plus RM8,000. “Money is made when you buy, not when you sell”, they say. This deal clearly embodies this.
Vacant possession (VP) given to purchaser upon signing the SPA
Since the property was a leasehold property with a strata title, the transfer could take anytime from six to nine months (according to both seller and lawyer). And since the owner would not be able to rent out the unit anyhow due to its horrible condition, I persuaded him to give me the keys to the unit as soon as I paid my 10% deposit so I could start refurbishing the unit. He agreed and I got the unit refurbished to a liveable condition within 30 days after VP.
I could rent out the unit while waiting for the property to be legally mine.
This simply means that I could start making money of a property that was yet to be mine. It took me about a month to refurbish the unit with the help from my girlfriend and friends, and the unit was soon rented out at RM1,100. And since the transfer was only fully executed after nine months, I was happy to collect eight months’ rental plus deposit:
Eight months rental: 8 x RM1,100: RM8,800
Security deposit: RM1,100 x 2.5 months: RM2,750
This clause alone helped me to make approximately RM11,500 before I even paid my first mortgage repayment to the bank. Neat, huh?
No booking fee paid, and the 10% deposit was be used to pay off debts and outstanding outgoings.
Knowing that the unit had more than RM10,000 in outstanding maintenance fees and other charges, I insisted that the 10% deposit be used to pay off all outstanding and outgoings related to the unit first. This is to ensure that there is no additional delay in the transfer as developer’s consent was required, and there’s no way they’ll consent unless all outstanding maintenance charges is paid. Knowing that the seller was facing some financial difficulties, I just couldn’t take my chances.
Added on May 4, 2012, 2:59 pmMy First Mistake
While I think the deal I structured was executed to my advantage, one mistake I made here was to use the wrong lawyer. I became acquainted with this lawyer via internet forums, as he appeared to give some decent legal advice online. What a big mistake. As soon as I paid the fees, his true colours appeared as he barely returned my calls, gave wrong advice, his legal assistants were rude in answering my queries and worst of all, they sat on my case without much progress. I had to call them every two weeks or so just to remind them to work on my case.
The lawyer I appointed was so bad that the transfer took nine months to finish and I nearly lost this deal as the owner ran out of patience and threatened to pull the plug. I would lose close to RM30,000 in deposit, legal fees and renovation cost. I literally had to beg the owner to give me a two-week extension and for the stupid law firm and banks to quickly disburse my loan. Finally, the full disbursement finally came after three weeks of constant nagging from yours truly.
While in the end everything worked out, I realised that having good legal support is very important, and there is no point skimping on legal fees when that cheap but incompetent lawyer will cost you more headache and money in the long run.
Making the property a cash cow
1. Restoring and renting out the property
Under normal circumstances, a buyer will be given vacant possession only after financing is secured and disbursed to the seller. However in my case, I negotiated for early VP upon paying my 10% deposit, which was duly accepted by the seller. Therefore the moment I paid the 10% deposit to my lawyer, I got the keys to the unit, and I could start restoring the unit back to liveable condition and then rent it out.
The restoration work took approximately one month and cost me around RM2,000 after comparing with four contractors (the worst offer I got was RM5,000). I replaced all the doors, windows and added some new grills for the windows. I painted the unit myself with some friends as “professional” painters wanted at least RM1,200 for a simple paint job. What a rip-off. I chose to spend RM300 for paint and RM50 for pizza (treats for my friends who helped me out) and the painting job was done in three days.
Now that the unit was almost ready, I start scouting for basic furniture. I wanted to rent out my unit at least partly furnished so I could command a better price. The unit I got already had three air conditioners and light fixtures installed. When I did my research on this development, I found that the average rental rates there were the following:
Basic : RM850 – RM900
Partly furnished : RM1,000-RM1,200
Fully furnished : RM1,200-RM1,500
Since the condo was rented to mainly students and fresh graduates, I figured that there was no point for me to splurge and I didn’t have to buy fancy new furniture and electrical items. Students and young adults generally don’t take good care of your stuff anyway, so why bother?
I then start buying used furniture over the internet and garage sales. It was my luck that I happened to come across an expat relocating to another country and was disposing of his furniture over our local eBay wannabe, Lelong.com. I got his fridge, washing machine, TV, DVD player, TV cabinet, queen-sized bed frame and mattress all for less than RM800 plus free delivery. Most of the furniture and electrical items in the unit today are used items, apart from the detached kitchen cabinet and the sofa. So in total, I spent close to RM3,000 to make the unit technically “fully furnished.”
2. Scouting for tenants
I’m a cheapskate. And since I had some time to spare, I started looking for my own tenants. I rented out this condo within two weeks after I put out my first free advertisement. I managed to rent out the condo fast simply because I knew who my prospects were and marketed to these guys extensively. I did mainly three things that helped me to secure a tenant fast:
I studied who my prospect tenants were
Before I even got my keys, I sat outside of the condo’s entrance for two hours after work to learn who normally rented there. Students from the nearby college, young adults working in Kuala Lumpur that frequently used the LRT, a few stewardesses and some pretty spa workers (they were two hours well spent, I must say) were among the highlights.
I don’t like renting to students as I’ve learned that they aren’t the best paymasters and generally don’t give a crap about the property. I was a student myself, and I do pity my landlord, now that I think back to those times. Recalling how we really “took care” of our landlord’s unit during our university days, there’s no way in hell I’d rent out my unit to students.
Obviously, the best case scenario for me was to rent the unit to a group of hot young stewardesses (every male landlord’s dream). Now allow me to declare that I’m certainly no pervert. Logic here is that ladies generally tend to take better care of an apartment, and they’ll keep it clean. And since stewardesses travel a lot, the wear and tear to the condo should be minimal unless they have boyfriend who happens to be the famous “Pramugara yang terlampau.” In fact, if I had stewardess as tenants, I wouldn’t mind at all spending an hour every month to go and collect the rental personally. However, I had no idea how persuade them to rent my unit. So I settled for the next best thing – the young working adult segment. I went on to put up free advertisements at the following:
1. Popular youth internet forums – Lowyat.net, Lelong.com etc.
2. The condo’s information board – Current residents can be your best prospects as you no longer need to sell the location to them. They can also refer friends and family members as prospects.
3. Nearest LRT station.
4. Bus stops surrounding the condo.
5. Office lots nearby.
I didn’t wait for the unit to be ready
I advertised for tenants when my unit was still being refurbished. Some so-called gurus preach that you have to make your unit looks as inviting as possible, but my unit looked like a pigsty and I didn’t care. I wasn’t trying to rent out a luxury condo, it was a mass market property. Tenants are normally quite “cincai” (not demanding), and I promised them that the property would be delivered only after it was cleaned.
Within 10 days, I had received more than 10 enquiries. I had four viewings, received two firm offers, and decided to take an offer from a group of three girls at RM1,120. They had just recently graduated and found jobs, so I thought rental payment shouldn’t be a problem, and being girls, I figured they would take good care of the unit. I’m pretty sure I could have rented it out at RM1,200 if I had waited longer or rented the unit to students, but I personally think that the potential extra RM80 was not worth the hassle, and anyway I had already saved more than RM1,100 since I didn’t use agents. To illustrate my point:
a. Scenario A (Bird in hand) – My current scenario, i.e., rent immediately at RM1,120:
Total rental collection: RM1,120 for 12 months = RM13,440
b. Scenario B (Bird in the bush) – Rent after a one-month wait for RM1,200:
Total rental collection: RM1200 for 11 months: RM13,200
To me, one bird in hand is always better than the two birds in the bush. Plus, if I was unlucky, I might have had to wait longer than a month just to rent the unit out for RM1,200 and I didn’t pay a single cent for my advertisements. So why take the chance for just a few extra bucks?
The unit today and summary of this deal
Until today, the unit has been occupied by the same tenants, entering year five now. They are great paymasters, and I only increased rent once to RM1,160 in the second year. I know the current market rate is RM1,500 for a fully furnished unit there, but to me, having a trouble-free tenant who takes good care of the unit is far more important than having a few extra bucks.
To summarise this deal:
1. Didn’t use a single cent of my own capital to acquire this property
2. Got paid an additional RM8,000 to buy this property
3. Collected another RM8,800 in rental and RM2,900 deposit even before this property was officially mine
4. Today this property gives me additional nett monthly RM320 pocket money. I’m renting this unit at 30% below market to the same tenant. Should I refurbish the unit, I could pocket more than RM600 in nett cash-flow as rentals for a fully furnished unit in decent condition but I’ll need to probably spend more than RM15,000 in refurbishments and furnishing and leave the unit vacant for around 2 months. Its too much of a hassle for me for a few extra bucks and since tenant are really great paymasters I just leave it there.
5. Paid RM140,000 for a property that was valued at RM165,000 in 2006 (RM25,000 lower than the official market value)
6. In end of 2011 this property was selling at around RM280,000 to RM300,000 (Estimated gross RM140,000 profit in just five years, represent a 100% capital gains )
If I sell the property today, I would probably have a gross profit of approximately RM130,000 to RM140,000. Not bad at all considering it was a “free” unit and I paid zero cash of my own for it. And thanks to my creative methods, by the time the unit was officially mine, I got back all my capital used to acquire this property and an additional RM8,000. Combined that with more than RM12,000 in advance rentals + deposits , I now have over RM30,000 of reloaded capital.
Now I’m fully loaded and can start shooting again!