How to invest in properties

Is property a good investment? Of course, but I know that while the answer is correct, it is not complete. Of course properties make good investments. But then, the same thing can be said about stocks, unit trusts and a couple of others as well. While they are all good investments does not mean anyone can make money from them. Buying the first house you see or the stock that takes your fancy is a sure recipe for disaster. It is a guaranteed formula for exchanging your hard earned money for a long-term headache.

So this will mean that you will still need to do your homework when investing in properties. This will include reading books, magazines, articles, observing and yes, learning from the experts. Of course, this will require time, effort and yes, even money. But all that effort is peanuts compared to the reward that awaits you. And yes, even the price is miniscule compared to the problems that can happen if you bought wrongly. (Just ask the unfortunate people who bought houses in flood prone areas. Worse, they have to bear the brunt of listening to jokes about water proof furniture and getting free boats from the developer.)

The median price of a house in Malaysia is RM160,000. That figure jumps to RM334,000 for properties in Kuala Lumpur. I don't know about you but that is a lot of money. Not too many of us can afford to invest this kind of money around. (And even if you could, you have to admit that it is not so nice to lose that money!)

Further, the house is the most expensive purchase we will make in our lifetime (for most of us anyway). And it also forms the highest amount of debt we will incur and for the longest time - often lasting 20 years or more.

That being the case, doesn't it make sense for us to do a little bit (or better, a lot) of homework before parting with our money? Doesn't it make sense to tread very carefully before buying a property? Obviously, the answer is "yes".

As an example of treading carefully, a friend of mine viewed the plot that he wanted to buy three times: one in the morning, one in the afternoon and one at night - all on different days. Mind you, it was only a plot of land at that time as the house was not up yet. Now some people may think that may be overkill, but his answer was spot on: `Before paying RM850,000 for anything, I want to be sure that everything is right and in order first,' he remarked. I totally agree.

And oh yes, he sold the house when it was completed 3 years later for RM1.1 million. Even taking into account that he had to pay Real Property Gains Tax (that was still applicable then), real estate agent's commission, legal fees and all, he still pocketed a tidy sum of money. I'd say the three trips were certainly worth the RM200,000 plus - don't you agree?

But I have seen people buying houses on the spur of the moment. I have seen people rushing to buy properties as if they were buying groceries. For their sake, I sure hope that they have done the homework beforehand though my heart tells me something else. And these are the ones that I have witnessed personally. What happens behind closed doors is anybody's guess.

Why buy properties in places no one heard of? While they may be cheap, who's going to buy them from you later on? (There's a very good reason why such properties are cheap - not too many people are buying them!) Of course, after reading that last statement, some people will rise and claim otherwise: `This is going to be the next Subang Jaya/Bangsar/ Damansara.' (The magic word in properties is "Damansara". Any property having Damansara as their address will cost a minimum of RM20,000 extra!)

While that can happen, it can just as easily wind up as the next Lembah Beringin. Anyone who is willing to risk the highest amount of money he will raise in his lifetime is welcome to jump in. If others are willing to risk their money, please go ahead. But I will not be the developers' test pilot! I want to see rows of houses (with people in them), completed roads (and not just "proposed") and shops with at least two banks in the area before I even consider the area.

Buying a property is easy. All you need is a little bit of money and just sign some papers. The question is "can you sell the property for a profit later on (hopefully not too later on)?" Or in other words, can you make money from the property in the near future? As you can see, the answer is not so easy. Furthermore, what you want is a formula to make money on a consistent basis. Making money once is no big deal; anyone can do it. But only an expert can make money consistently. Day in, day out; week in, week out. And like everything else, you need to do a lot of work to become an expert in properties. Winging it, guessing, listening to rumours, referring to friends and throwing darts in the sky will obviously not work here.