There have always been three types of investors for property. One that buys looking for a dream or forever home, those that buy it for its appreciate value and some who perceive homes as rental investment.
All three have its own merits and considerations but buying a home to rent can be a sound investment, if orchestrated properly. For one – you own the asset and can choose to liquidate it at your convenience, especially in the likelihood of the property appreciating in value. During that time, it is also possible for you to gain passive income by renting out the property. At the very least you can also utilise the rental to offset the monthly mortgage, which will help you lower the monthly commitment.
The Malaysian rental market today seems to be gaining interest according to a recent report, which claims that most people are considering to rent rather than outright purchasing a home due to stagnant property prices and less than favourable market outlook. This finding corroborates data from Mudah.my.
Presently a total of 40% of property related ads are centred towards rental. In the second quarter of this year alone there has been an increased in searches for property rental adverts on Mudah. That said, before you think about jumping headfirst into the rental property investment market, take heed that it requires a calculated approach and planning. It all begins with these necessary steps.
Identify The Rental Potential
Whether its long term rental or short term, try and gauge the interest for the viability and market interest of the unit that is being purchased to be rented out or tenanted. Most of this is down to the type of property available as well as its location. If you’re targeting students, then a unit located nearby to a school will stack the odds in your favour.
If it’s the expat market you’re looking at, ensure its in a popular or well-connected neighbourhood with the required amenities and transport points. This is why hotspots like Mont Kiara, Bangsar and Sri Hartamas continue to appeal to the expat market as well as executives.
Thinking about short term rentals or lease? Look at popular tourist areas or city centres, which are well-connected and located nearby to major retail or business areas. Places within the confines of KLCC’s Golden Triangle for instance have heightened appeal for what the location offers.
Do The Math
Naturally, first order of things is to first find out if you can afford it. Then it’s down to putting the required figures down to paper to see if it’s worthy of investment. This includes compiling the major costs of the property (down payment, monthly mortgage, maintenance fees, etc.) and benchmarking it against estimated rental opportunities.
You can research the viability of the rental market by searching for any historical data (nearby units, rental interest, and rates) as well as the estimated appreciative value of the unit being eyed for purchase. A good place to start is to check out the rental market on Mudah.my to get an overall picture or snap shot of the segment.
Remember that everything is a cost, this includes maintaining the property (repairs, renovations, furnishings), taxes, insurance, and agent fees. It needs to be compiled against the cost of purchase in order for you to see the investment opportunity at hand.
Determining A Good Rental Property
In all likelihood, this is often related to the sub sale market as most investors will want to immediately capitalise on renting out an existing unit in a more matured neighbourhood. Narrow your search to popular areas and units with an appealing record. This includes low crime rates, good accessibility, nearby to transport hubs or LRT stations, and properties within the vicinity of key places like schools, retail, and business areas.
There are also considerations on what type of property you should consider getting. A small apartment or studio could be more enticing for short term rentals. A larger unit in a high rise with resort-style facilities may appeal to young executives or those with young families.
The bottom line is to put yourself in the shoes of the market you’re targeting first and then gauge if its worth the investment. Done right, you may well be looking at a piece of rental estate that could deliver dividends for years to come and make you some nice change in the process.
To understand more about the rental segment, check out the recent Mudah Property Agents online forum with Jason Kong. Click here to discover more about tenancy agreements, terms as well as clauses.