Who are the other people so nice enough to lend us money to invest in real estate?

Bank – If you have credibility and pay you bill on time, for the bank it is why not? just as you swipe your credit card for a few thousand dollar purchase that end up in servicing the high interest each and every month. You might as well borrow the money to make you richer by investing in real estate. Of course it will be back to square one if you get the bank money to pay the purchased properties and then having to service it yourself, the number of real estate properties loan you can service is only limited by your own active income. Fortunately, we can use another people money to service the loan installment – your tenant.

Tenant – The equation of OPM will not be completed if tenant is not included. If you are the landlord, then your tenants are the one who work for you to make you richer. For rental property that fetches zero to positive cash flow, in another word rental income is more than the loan installment plus property maintenance cost, the investment is self sustaining.

If investor can achieve zero-positive cash flow on every rental property, then he/she can keep buying more and more real estate and banks are willing to lend as much as they deem fit. By doing this patiently and with due diligent, many people are able achieve financial freedom and better. So are you still wondering why the rich get richer?

1. Freedom of land – Landed property is usually associated with owning a land and the freedom to do anything you want at anytime on your own land. However as investor, through capital appreciation or rental income, you need to think if these factors could contribute to the rate of return? Probably this is best explained in the third point.

2. Not an ideal rental property – Landed property is always higher in price and monthly installment. For a decent terrace house in a good area can cost up to half a million – take Bandar Puteri as example. The monthly installment could be as high as RM2.5K. In order to generate positive cash flow, you need to at least rent out in RM3K. Probably you don’t think this is too much if the tenant has family and children and they need bigger space to live in. But do you think they would rather rent the place instead of buying it on their own? Again, a small family will opt for smaller living space such as an apartment or condominium with 3-bedroom that only cost them around RM1.5k per month.

3. Landed properties tend to appreciate more in long term – this is not new, if your grandparents owned some land back since 60s, you would have seen the price gone up a few hundred times from the time they bought it. Same as landed property, as the land get scarcer, and population grows, the land price will go up as well. The faster the population grows, the faster the appreciation. In contrast, apartment or condominium unit doesn’t appreciate as much as land properties simply because the “land” is divided into so many smaller parcels. The appreciation, if any, is simply spread out to all the unit owners. Another factor probably has to do with land reuse cost. More cost is involved in reusing the land with apartment built on compared with landed property that is usually 2-3 storeys tall.

Since landed properties have always being associated with higher capital appreciation, it is also very common being used in flipping. For example the landed terrace house in Bandar Puteri was sold at RM350K+ 4 years ago pre-constructed has recently appreciated to nearly RM600k. Without factoring in the other cost, we see a whopping 72% capital appreciation. The costs are anything involved during the time you purchased the property until it is sold off, which includes total installment paid plus interest, cost of rectification not covered by developer, furnishing and improvement, legal fees, middle man charges, other processing fee, etc.

4. Low entry cost for apartment compare to landed property – It’s easier for people to make decision if the entry cost is low. For rental property, usually the tenant will need to come out with 1 month of rental deposit, 1 month advance rental and 3 months of utility deposit. If an apartment’s rental cost is RM1.5k, then the initial cost tenant needs to come up is around RM1.5K x 2 + 750 (Let say 3 months utility deposit is roughly half month rental) = RM3.75K. However for landed property, tenant is required to come up to around RM3K x 2 + 1.5k (Let say 3 months utility deposit is roughly half month rental) = RM 7.5K as initial entry cost. In this case, an apartment’s initial entry cost is only half of the landed. 

5. Visible maintenance cost for apartment – Usually maintenance cost of apartment is proportion to the size of the unit. The larger the apartment unit, the higher the maintenance cost. Depending on variety of facilities provided and the quality, usually maintenance cost per square feet is around 15 to 20 cents, which is RM150 to RM200 for a 1000sqf unit. Landed property owner does not pay maintenance cost but they do need to pay for whatever exterior maintenances required such as paintings, roof repair, ducts, lawn mowing and miscellaneous efforts to keep the surrounding in proper condition. However, with some due diligent, maintenance of a landed property can be much lower than of apartments’.

6. Security problem – one of the reason people like apartment or condominium is because of security. For a very basic apartment there are two tiers of security system at minimum; one is the apartment compound fencing with electronic gate and security guard post and another is the security enforced entrance to the elevator area. Since apartment consists of many units in a building block it makes it harder for targeted attack or robbery. If apartment is high rise building, it will be quite rare for casual break-ins as well. In contrast, landed property owners need to invest quite amount of money into home security system such as auto gate, alarm system, window/door grill, etc. Even fully equipped, landed property still risk higher possibility of casual/targeted break-ins and robbery. However apartment security is not fool-proof as well, one example lies in security personnel being not scrutinized enough or too lenient to stranger visitors.

7. Property life expectancy – A well built landed property can last for twenty to thirty years or more without a question, however due to young age of Malaysia and shallow high rise living experience, no one can tell exactly how long can an apartment or condominium will last. In common sense, the value of apartment building will start to depreciate only after certain age, this usually happens when the building is deemed unsafe to live in.

In the start of the game, you will be given 3 millions dollar to shop for streets around the world and build property on it for rental income or resell. Player can either buy the streets first hand from banker or make an offer to other players who already own the streets you will die for. The game will last 4 months until January 2010. The richest Monopoly tycoon will be determined at that time. 

Having tried out the game for a few hours myself, only to find out most of the streets in the most popular city has been taken! So I bought a few streets in Las Vegas and City of Dallas (why city of Dallas, probably it’s near to me now ). One problem with the game though, the loading is quite slow because most of the streets and cities are already infested with other players properties so it kind of slowing down the loading, or it is just my laptop?

Well, if you have always interested in Monopoly game or just want to try out this piece of new creation from Google and Hasbro, go to this link , it’s definitely something new.