Things I wish I had known before I bought my first investment property

Investing in real estate is often seen as a reliable path to financial security and wealth accumulation. However, as many first-time investors discover, the journey is fraught with unexpected challenges and hidden costs. In this comprehensive guide, we'll explore the crucial lessons learned from a first-time investment property purchase, providing you with the knowledge to make informed decisions in your real estate investing journey.

For many young professionals, the idea of owning an investment property is incredibly appealing. It's often viewed as a tangible asset that can provide consistent rental income and potentially appreciate in value over time. As one investor recounts, "When I was in my 20s, I bought an apartment as an investment. Back then, I thought it was the adult thing to do. Plus, as I had no clue on how to invest in stocks, I thought going into the property market was THE way to go, in order to retire comfortably down the road."

This sentiment is common among first-time investors who envision a future of financial independence through real estate. However, the reality of property investment can be quite different from these rosy expectations.

Lesson 1: Location is Everything

The Importance of Thorough Research

One of the most critical factors in successful real estate investing is location. Many novice investors underestimate the impact that a property's location can have on its rental potential and long-term value.

As our investor learned the hard way, "I didn't research enough about the location of my property. I just thought that buying a property in a popular high-end location would fetch me a good rental yield."

This assumption led to a rude awakening when it came time to find tenants. The area, while popular, was overdeveloped, resulting in fierce competition for a limited pool of potential renters.

Tips for Location Research:

• Study local development plans and zoning regulations
• Analyze population growth and demographic trends
• Investigate local amenities, schools, and transportation options
• Research historical property value trends in the area

By conducting thorough location research, you can avoid the pitfall of investing in an oversaturated market and increase your chances of finding reliable tenants.

Lesson 2: Understanding the True Cost of Property Investment

Beyond the Purchase Price

Many first-time investors focus solely on the property's purchase price, overlooking the significant additional costs associated with real estate investment. Our investor shares, "While I am not entirely sure what property prices would be like in the future, banking on potential capital appreciation is a huge gamble."

Hidden Costs to Consider:

Bank Loan Interest: The long-term impact of interest payments can be substantial. As our investor discovered, "I didn't even consider how much interest I would have to pay in the long run. This extra outlay could turn what seemed like a good investment into a bad one."

Property Fees: There are numerous fees associated with property purchase and ownership. "I was caught off guard when I learnt that there were other fees I had to pay for when making the property purchase. These include the sales and purchase agreement fee, legal fees, stamp duty, and valuation fees – which added up to quite a lot!"

Ongoing Expenses: Don't forget about recurring costs such as maintenance fees, property taxes, and utility bills. "Once I received the keys to my unit, I had to start paying the maintenance fee, quit rent (known as cukai tanah in Malay), assessment rates (cukai pintu) and utility bills."

To avoid financial strain, it's crucial to calculate all these costs before making a purchase decision. Create a comprehensive budget that accounts for both upfront and ongoing expenses to ensure you're prepared for the true cost of property investment.

Lesson 3: The Importance of Securing the Right Financing

Shop Around for the Best Loan Terms

Securing the right financing can make a significant difference in the long-term profitability of your investment. Our investor admits, "I only started looking for a bank loan after placing a deposit for the property. Back then, I didn't have a credit card, so I had no credit score."

This lack of preparation led to higher interest rates and less favorable loan terms. "The interest for my bank loan is quite high as that is how the bank safeguards itself against borrowers with no credit history."

Tips for Securing Better Financing:

• Build your credit score before applying for a mortgage
• Shop around and compare offers from multiple lenders
• Consider working with a mortgage broker to find the best rates
• Understand how different loan terms can affect your overall costs

Remember, even a small difference in interest rates can result in significant savings over the life of your loan. As our investor notes, "a mere 0.1% difference in interest rates could have saved me RM9,858, whereas I would have saved RM19,650 if my interest rate was 0.2% less."

Lesson 4: Preparing for the Realities of Being a Landlord

The Challenges of Finding and Keeping Tenants

Many first-time investors underestimate the difficulties of finding and retaining quality tenants. Our investor shares, "I found it really difficult to find a tenant. The oversupply of residential units meant that competition for tenants was tough."

This experience highlights the importance of understanding local market conditions and being prepared for potential vacancies. In some cases, you may need to adjust your rental expectations to attract tenants, as our investor did: "I had advertised for my unit to be rented out at RM2,000 a month but there were no takers for an entire year. I ended up renting out my unit at RM1,400."

Tips for Successful Property Management:

Research local rental rates and adjust your expectations accordingly

• Budget for periods of vacancy between tenants
• Consider hiring a property management company to handle tenant screening and maintenance
• Stay informed about landlord-tenant laws in your area
• By preparing for these realities, you can better manage the challenges of being a landlord and maximize the potential of your investment property.

The Long-Term Perspective

Investing in property is a long-term commitment that requires careful planning and ongoing management. As our investor reflects, "Looking back, I jumped at the prospect of property investment too quickly, without thinking of the long-term implications on my wealth."

While real estate can be a valuable addition to your investment portfolio, it's crucial to approach it with a clear understanding of the risks and responsibilities involved. By learning from the experiences of others and conducting thorough research, you can make more informed decisions and increase your chances of success in the property market.