| Q: | What are the four types of returns available from investment real estate? |
| A: i) Spendable (cash flow) income, ( You may get it from rental, your rental should cover your monthly loan, whatever excess is your income) ii) principal reduction or equity buildup, ( Ini gua tak tahu, a check from google: Equity buildup is the increase in the net ownership value of a property that is achieved by the gradual reduction of the mortgage loan principal. This one I have, my current house that I stay, I borrow 200k, now left principal 150k) iii) appreciation and (You bought at 200k, 2 years later is 300k, price increase) iv) leverage. (1) (You pay 10% can own a house, 90 % by bank) | |
| Q: | Why must you consider the effects of inflation when establishing your investment goals? |
| A: Most of the people over the age of 65 are practically broke because they failed to consider the effects of inflation on their investment funds. You can plan on needing twice as much in ten years to do what you can today on your present spendable income. (2) (2 years ago Wan tan mee cost RM 3.80, today wan tan mee cost RM 5.00) | |
| Q: | How do you determine if it makes sense to refinance your home to obtain investment capital? |
| A: Use the formula in Module 3 which tells you how much you must earn on the borrowed cash in order to offset the added mortgage payments on your home. (3) (If you find a better property to invest and you need the cash to pay for the principal or your cash can give you a better investment opportunity then go ahead. Example, my house now worth RM 330k, so I can refinance my house up to 300k and take out RM 150k to invest in another property) | |
| Q: | Why is it extremely important to carefully analyse a property that can be purchased with no money down? |
| A: Any property that is 100% leveraged will probably be at break-even basis or below. It is important to realise that anything out of your plan will no doubt taking money out of your pocket to keep the investment going. (3) | |
| ( Example, lelong property that relelong for a few times, every times the property lelong will drop 10%, if you can buy a property at 80k, but bank value at 120 k, so it is consider at no money down). | |
| Q: | What are the advantages of a sale/leaseback? |
| A: Sale/leasebacks offer the investor a management-free investment. The tenant generally pays for everything except mortgage payments. (4) | |
| (People manage for you) | |
| Q: | What are the advantages of vacant land over improved property for investment purposes? |
| A: Vacant land is usually held for resale profit in the future. Profits will usually be higher than on improved properties. There is no management requirement with vacant land. (4) | |
| ( Right timing and usually better appreciation value, example broga land 2 years ago only 90 k per ekar due to insinerator, now can fetch 330 k per ekar) | |
| Q: | What is the primary problem that occurs when property is held by a partnership? |
| A: Partners tend to have disagreements. (5) | |
| (1 person want to sell, the other don't want to sell, best way is to form a company and the company hold the property) | |
| Q: | How important is location when selecting investment real estate? |
| A: Location is always important, but not as much as in selecting a home. Some of the best real estate investments may not be in the prime locations. (6) | |
| ( location is important: last time i am choosing between cheras vs kajang area, but kajang sipeh jam, so I choose bandar mahkota cheras which have a AEON(jusco) now) | |
| Q: | What is Net Operating Income (N.O.I)? |
| A: N.O.I is the income produced by the property after an allowance for vacancies and operating expenses, but before mortgage payments are made. (7) | |
| ( NOI should be more than mortgage payments to get +++ CASH FLOW) | |
| Q: | How can you verify income produced by the property? |
| A: Check with the tenants. Lease can be altered by unethical sellers. (7) | |
| ( SIgn Agreenment or Tenancy Agreement and make sure legalized it by stamp duty) | |
| Q: | Which of the appraisal methods is the most reliable for you to evaluate the value of your prospective properties? |
| A: The income approach establishes value based on the income actually being produced by the investment. (7) | |
| ( I will choose +++ CASH FLOW method) | |
| Q: | How much leverage should you use when purchasing investment real estate? |
| A: Buy the largest worth-financing property you can with the maximum leverage and the cash you have available. Use go-financeTM method to determine if a property is worth financing. This must be tempered with how much leverage you are comfortable in having. Some investor could not sleep nights knowing they owned a property that was 90% financed. (8) | |
| ( If you can sleep at night by knowing you own the bank 1 million. Then you can maximize your leverage by buying 5 property worth 200k) | |
| Q: | When might it be advantageous to refinance, even at a higher rate of interest? |
| A: When existing mortgage has shorter term (tenure) remaining which its payments for principal greatly reduce cash flow. (8) | |
| ( time factor) | |
| Q: | How long the term (tenure) should you choose for the mortgage loan of your investment real estate? |
| A: Try to get the longest tenure available to you. This is to minimise your monthly loan repayment and increase your cash flow or spendable income. (8) | |
| ( Longest tenure so that you pay less each month) | |
| Q: | Under what circumstances might it pay for a buyer to offer a price greater than listed price? |
| A: To obtain better terms for the sale, such as a lower down payment. (9) | |
| ( You see the future appreciation of it) | |
| Q: | Why should security deposit be placed in an account separate from your property operating account? |
| A: Security deposits belong to the tenant until they are disbursed at the rumination of the lease. (10) | |
| ( No comment) | |
| Q: | When “posting” your mortgage payments to your ledger, why do you separate the principal portion of the payment from the interest portion? |
| A: Interest payments are deducted from your income for tax purposes. Principal payments are not. (10) | |
| ( Income tax again) | |
| Q: | How do you determine how much rent to charge? |
| A: Make an survey to determine what your competition is charging. (10) | |
| ( Ask your neighbour or mudah) | |
| Q: | Should you offer renewal options? |
| A: Renewal options should be offered only if clause of rent adjustment upon renewal is written in to protect the lessor from the effects of inflation. (10) | |
| ( Provided you can increase the rent) | |
| Q: | What factors enter into determining when to sell? |
| A: Such factors as: change of goals, incurable problems with property, excess equity in the property and reduced return of your current invested capital, all point to a decision to sell. (11) | |
| ( You can not sleep or rent not enough) | |
| Q: | What is CAP or capitalisation rate? |
| A: Capitalisation rate is the ratio between the net operating income and the market value of a property. (7 & 11) | |
| ( The highest the better, but must take into consideration of time factor,) | |
| Q: | Why should you buy the largest number of properties you can with the investment capital you have available? |
| A: Operating expenses tend to be less, on a per unit basis, in a larger investment portfolio. Vacancies are also less critical in larger investment portfolio. (12) | |
| ( increase your cash flow) | |
| Q: | What is meant by “pyramiding” and how can it work for you? |
| A: The practice of pyramiding transfers your equity every so many years into a much larger investment. This is repeated several times whenever you can own a property twice the size of your present one, with no additional outlay of capital, until your final investment is capabale of supporting you for the remainder of your life. (12) ( Change to a bigger property, 1st time buy double storey, 5 years later buy semi d, another 5 years buy bungalow) |
FAQ for property
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