June has been one of the most amazing months of my life. My wife gave birth to our second child in the middle of June. I took time off from my busy schedule to spend the whole month with my wife and to witness the birth of my newborn daughter, as well as to spend time with my family.

It’s times like these that I count myself fortunate to be able to enjoy time off with my family. To me, this is what really counts. Although I still have to work, my time is very flexible and it is only because we made a wise decision three years ago to invest into real estate. Both real estate and business has given me the opportunity to spend more time with my loved ones.

We are fortunate to live in an age where modern medicine makes childbirth a relatively safe and routine event. However, it can be quite a burden to see how much the medical bills can amount to these days. A decent birth in a private hospital is easily a four-figure or five-figure event. Looking into the future, with an additional member in my family, expenses will definitely go up. According to several studies in the United States, the cost of education for a dual income family per child until the age of 18 will be approximately USD250,000 in total (reference: http://moneycentral.msn.com/articles/family/kids/tlkidscost.asp) This would be chalk up to almost RM1,000,000 per child!

A friend once warned me that the aftershock will arrive 20 years later, when it’s time to enrol the kids for higher education. Parents would normally want to provide the best education for their children. Depending on where you intend to send them, you should allocate anything from RM200,000 to RM500,000 per person for their education.

Important questions
As a parent, here are a couple of questions that you should ask yourself.

a) What is a good guarantee that you’ll be able to provide fundamental/ basic higher education to your child without breaking the bank?

b) How can you hedge against inflation, and ensure that you’ve sufficient savings, should the cost of education double in the next 20 years? (It’s very likely!)

c) How can you provide for your children’s higher education expenses for just a fraction of the cost… say only 10%?!

The answer is simple. Yup! You’ve guessed it. Get yourself an investment property or more.

Securing your children’s educational future
To ensure your children’s financial security, you should invest into a property when your child is born. That is one of the safest and cheapest ways of securing your child’s education fund.

Allow me to illustrate this in an example.Peg your estimated education fund to a property. For example, you need RM200,000 for your child’s education in 20 years’ time. You immediately invest in the following:

• Purchase property: RM250,000 (Property value to be 25% more than total education value, just to be safe)

• Down payment: RM25,000

• Assume fixed interest of 6% for entire tenure of 25 years

• Assume minimal appreciation of 1% per annum

Green line = Property capital appreciation
Red line = Loan reduction with time

Looking at the illustration above, at year 20, you could easily sell the property and make a net profit of RM230,063. Alternatively, you could keep the property and still get money by refinancing the loan. If you refinance the property at 90%, you could still cash out RM199,558.20

Regardless of the strategy used, the property could easily provide a good education fund for your child. All you need to do it to manage the property and consistently get tenants for your investment unit. Tenants will rent your unit, which in turn will pay for your loan’s installments, hence indirectly sponsoring your child’s education.

Repeat the steps
If you do it right, you can repeat the same formula for your children’s education fund and also create your retirement nest egg and so forth. I’ve made it a habit to invest in a property for each of my child, when they were born. Perhaps I’ll even extend it to invest one property for each of their birthdays!

Why not?
In my next article, I’ll highlight the typical mistakes that new investors make when buying properties. Until then, happy investing!

Juanita Chin is one gutsy lady. Her property investment journey with her husband began in year 2003 and today, they own 13 properties in Penang worth approximately RM5.6 million. 12 of those properties were purchased from developers.

How do these numbers make her gutsy you ask? They don’t, but the following figures do; when she started, she was a bank teller earning RM400 and she had two young children. She had the courage to take action and the story of her journey towards financial freedom is as inspiring as it is heartwarming.

In a recent two-day property investment course titled Breaking the code: Discover the secrets of buying from property developers in Malaysia, Chin partnered with fellow property millionaire and close friend Michael Tan. This is not their first collaboration and certainly, will not be their last.

The first day – information download by Chin
Even before looking at new residential developments by developers, there are many things that each investor must do and ask oneself.

• Research: Spend 80% of your time on research before placing any deposit. Make sure that the price per square foot and location is right. Chin shared, “There was an expo overseas and most of the buyers bought a property that was in the jungle, with beautiful scenery and all that. But these investors were not aware that the development would be 100km from the nearest town! By asking the right question(s), these investors would not have been stuck with their purchase.”

Energetic: Michael Tan “warming up” the crowd

If one does not conduct the necessary research, one could be stuck with a property that has depreciated from RM100,000 to RM50,000 and be stuck with the property after seven years (and counting!). That is another example that Chin shared. The unfortunate investor told her, “I should’ve invested in seminars. What is a few thousand (to spend on seminars), to save a RM50,000 mistake!”

• Set your goals: You need to know whether you are going purchasing to keep (for rental returns) or flip (buy-to-sell upon capital appreciation). It is also important to figure out who the target tenants or buyers are once the project is completed as that affects your goals. Ask yourself, “Would a restaurant or grocery store want to do business here?”, because future tenants or buyers will ask such questions.

• Set your budget: Decide on your property portfolio, whether it would be less than RM500,000 or RM100,000 and so on. For a newbie, it is advisable to begin with a smaller budget.

• Set your target location: Don’t run all over the place. Instead, be an expert in a particular area and keep farming (investing) in that area.

• Pick type of developer: Would it be residential, commercial or industrial?

Once you have figured all that out, then you should analyse the developer. To evaluate, you need to find out these key information - track record, financial strength, reputation, past projects (completed / abandoned), end-financiers, workmanship, license approval and the individuals behind the project.

Chin also cautioned that it is important to find out if a developer has been blacklisted by the Ministry of Housing and Local Development. As reported by The Star on March 23, 2010, a total of 1,345 housing developers were blacklisted from carrying out projects the previous year. As at March 5 this year, a total of 1,120 developers were blacklisted and the highest number of blacklisted developers were from Selangor, followed by Kuala Lumpur and Johor.

To help residential property investors select the right project, Chin shared a list of positive and negative indicators.

Positive indicators Negative indicators
Workmanship Near sewerage treatment plant
Near amenities Next to electricity sub-station
Location High tension wires
Good property management Graveyards
Security T-junctions
Surrounding neighbourhood Facing empty land
Developer’s track record Garbage dumpsite
Property layout Smelly surrounding
Specifications Noisy
Facilities High density
Car park
Good catchment area
Growth potential

The second day – field trip
On the first half of the day, all participants were ferried to two upcoming residential projects. They had to evaluate these projects based on the first day’s learning and decide which project (of the two) that they would purchase.

The second half of the day was a sharing session with two property investors – Prudence Wong and Nancy Ng, who are of course, property millionaires themselves. In fact, they are so successful that they are currently collaborating on a commercial project in Shah Alam. Both have attended many workshops and courses (property and non-property related) before finding their Midas touch in property investment. They actually met through an Internet course eight years ago.

Passionate about property: Juanita explaning the “property analysis” exercise to
attentive participants

Read the interview with driven property investor-turned-developer Prudence Wong next week and find out about her property investment journey and retail-cum-business suite project, The Qube.

Nancy Ng is the sales project director for The Qube. She began investing since year 2003 and has attained more than 15 properties within six years. This comical and cheerful Ng shared the following with regards to financing.

• Pay your taxes

• Refinance some of your paid properties or properties that have increased in value

• Be a member of banks’ priority or privilege clubs

• Pay all your loans on time

• Establish good working relationships with your bankers, lawyers and property agents

• Look out for discounts and promotions such as 5/95 (5% down payment / 95% financing from bank), 10/90 or 20/80 from developers

If you are new to property investment, she advised to take baby steps and invest in yourself by attending property seminars (or attend to get the latest updates if you are not a novice investor).