Buying Property Early in Life

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Buying Property Early in Life

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After a year or so of drawing a salary as a legal assistant in my father’s firm, my mother told me I was buying a house. That surprised me since I harboured no such intention at the time. I had enough difficulty paying off my credit card, never mind buying a house.

Apparently, the house I wanted to purchase was a double-storey link house near my present neighbourhood. It did occur to me that it was strange for me to want to buy it since I could not afford the purchase price, let alone the ten per cent deposit.

I was, however, wise enough to know that when any difference arises between my mother’s recollection and mine, hers prevails. In matters of contract, such priorities are explicitly stated. However, in matters of family, this is an inherent, implicit, and imperative term present since we are born.

When I expressed my reservations about being able to afford the deposit, she reminded me of what we agreed to. To her recollection, I secured her agreement to front the deposit, after which I declared myself responsible for paying the loan I would take to pay the purchase price balance. She reminded me why I agreed to such an extravagant purchase:

‘So you don’t waste your money on useless things of no value! This is a good way to save your money. Buy property.’

My mother’s words of wisdom

That was how I came to purchase my first property.

I bought the house from the developer before it was built. Naturally, I took out a loan to cover the purchase price balance. The loan was released progressively at each completion stage of the house until the purchase price balance was fully paid for.

In the early stages of the construction, I only paid the interest on the amount released to the developer. Initially, the interest amount was low. It was low because the loan amount released was low relative to the total borrowed amount. I only paid interest on the amount released, not the whole sum. The more loan money the bank released to pay the developer, the higher the monthly interest amount.

The closer to completion the house was, the more worried I grew.

This worry arose from an inescapable fact: There was a gap. There was a gap between the loan instalment I had to pay and the salary I earned. My salary then was about two thousand five hundred monthly gross. After accounting for statutory deductions, it was something like two thousand three hundred’ish. The monthly loan instalment was close to three thousand ringgit when the house was completed.

I had to find a way to bridge that deficit.

An obvious way to do this was to find a tenant to rent the house to as soon as I obtained vacant possession. If I were lucky, the rental would cover the loan instalment. If I were less lucky, it would cover most of it. If I were unlucky, I would have no tenant and have to pay the loan instalment with my salary, a prospect I dreaded since my credit card was usually close to the limit at the end of the month.

The situation I found myself in forced me to learn what it meant to be a landlord. It demanded that I learn fast but be patient and resourceful.

Owning my first property taught me that renting out a house in a newly delivered development was difficult: too much competition. Many others were doing the same thing – purchasing to invest and seeking good rental rates. However, since too much choice is available to a prospective tenant, the landlords are in a weaker bargaining position.

The first year after I took vacant possession was painful, and finding a tenant was challenging. Mine was not the sexiest location, but it had unique advantages and charm of its own, which, of course, I would contend. Its distance from the guardhouse and neighbourhood park was in the Goldilocks zone. It was close to the end of the housing road; guests’ cars or extra cars could be parked nearby instead of in front of the house gate.

I only secured a tenant about eight months after vacant possession. Those were a painfully tight eight months. There were moments when I felt my sole purpose in life was to earn money to pay the banks back what I borrowed by a loan or credit card. As much as I hated the indifferent banks and their punishing interest rates, I knew the problem was not the banks; the problem was with me, or more particularly, my wanton spending.

The rent was on the low end. But I was desperate. I was willing to take anything that came my way. I had to top up a few hundred to make the loan instalment, but I took it. It’s better to get some feed than bleed.

I still remember the tenant’s business; he owned a lok-lok steamboat restaurant. It wasn’t successful. After a year and a half, he closed it down. Naturally, he requested to terminate his tenancy early. I felt sorry for him. I did not demand for the unexpired period of the tenancy and let him off from finding me a replacement tenant. I refunded his deposit and wished him all the best.

I learned about taking back vacant possession with the tenant. Preparing a checklist to sign for the handover of keys, keycards, car stickers, utility bills, etc. Carrying out a joint inspection. Checking the water and electrical facilities are in working order. Making sure there is no significant damage to any part of the house. After that is all done, it is put on the market for rental.

Despite being forced to endure a challenging and uncomfortable financial situation with the house purchase, I learned immensely from the experience. I don’t recall feeling resentful for being placed in it. It was simply a situation to endure, survive and educate myself with. How well I did that was up to me. I am grateful for those moments.

I got to experience what it was like to own, manage and supervise a residential property for investment. I learned the pains of getting a tenant. The suffering that comes without one. The people I needed to maintain the house were – a handyman, electrician, airconditioner dude, and cleaner. I was acquainted with tenancy agreements, my rights as a landlord, eviction procedures, and claims for double rental and ancillary expenses. I was acquainted with real estate agents and their professional culture.

More invaluable was that I had access to the role and mindset of a landlord. I understood a landlord’s point of view, not just from a legal perspective but from a psychological and emotional perspective, too. If and when I had a future landlord client, I could use that experience to empathise with her.

I eventually got the hang of owning, supervising and renting out a residential property for investment. If the tenant is responsible, owning property is a breeze. Rent comes in. They take care of the house. Win-win. But if the tenant isn’t, oh boy, renting out a property becomes a tedious pain and potentially expensive experience. Every enterprise has risks. It is the same with renting out our property.

Developing criteria for evaluating prospective tenants is helpful. I will discuss this within the context of renting out residential homes, not commercial premises, although they share similar concerns.

First is the tenant’s identity.

Who’s the tenant? Full name. A photocopy of his or her identity card or passport number (‘IC’).

Second is the people staying with the tenant.

Is anyone staying with the tenant? If yes, provide their name and IC copy, and state their relationship with the tenant. Contact numbers of the house’s inhabitants (save for minors). You don’t want to suddenly find your two-toilet, three-bedroom house suddenly tenanted by twenty people. And if you do, it is a breach of covenant.

The point of this is to know who stays in the house.

Third is the tenant’s capacity to pay rent regularly.

How does the tenant earn a living? Employee? Self-employed? Government officer? What is their position with the company, firm, department or agency? Any proof of this?

We don’t need much proof to verify the tenant’s employment. A calling card suffices if the name matches or is close to his IC. We can, for example, call the office numbers on the calling card, but we are not obligated to do that. We are allowed to take people at their word. Unless the prospective tenant’s vibes excite a sense of distrust.

How much does the tenant earn? What is her nett? Does she have other commitments? What is left over after deducting her commitments, loans and regular expenses? Is it enough to cover the rent? If not, what assurance can she give that the shortfall will not be outstanding? In terms of rough figures, not decimals.

The point is understanding whether the tenant has enough actual earnings to make the monthly rental. A salary or drawing slip does not tell the whole story. It does not contain a tenant’s financial commitments. As someone who has dealt with landlord-tenant matters, I have seen cases where the tenant defaults right after the first month and becomes inconsistent with the rent, has to be chased, or doesn’t pay altogether.

Fourth is how you feel about the tenant and your due diligence.

That is personal. It’s, to me, a minor consideration. I don’t have to like you to rent it to you. All I am looking for is someone to keep the place properly, don’t fuss, and pay the rent on time.

I have taken over tenants from properties I purchased. I know of them but have never met them. By knowing of them, I mean their name, mobile number, job, and bank account number, and that they always pay the rent on time. Never cause a fuss. Never even call me for repairs. I like these best.

I concede that the suggestions for assessing a tenant are amateur ones. The point is to extract the information we need to consider in making decisions and responding to prospective tenants, lowering our exposure to the risk of default.

If the tenant has a good pedigree, our risk of default is low. If the tenant’s pedigree is questionable, our risk of default is high. Our relationship will be hassle-free. In the latter case, our cost of renting to the tenant is likely to be high, too, because we will likely incur personal and maybe even legal costs in enforcing payment and rectifying work to the property.

If, by those four considerations, we feel the risk of default is high, we should not rent to that prospective tenant. If the risk of default is low, then that prospective tenant is worth considering for tenancy.

One way to mitigate or minimise our risk is by doing due diligence early before entering into any agreement or relationship with the other party. The answers to a set of right and appropriate questions can sometimes help us avoid a whole load of grief later on.

I would not have learned if I had given up at the first shoots (and indeed, repeated instances) of pain. I would not have garnered any insights if I was so focused on my suffering and perceived unfairness. I would not have learned from the pangs of experience if I had been busy complaining.

Thinking back to those times shaped my belief that endurance educates and inculcates. Our education begins the moment we can endure. When we endure, we accept life is a perpetual challenge. When we accept life is a perpetual challenge, we do not complain. When we do not complain, we have room to listen, empathise and think. It is at that point education begins.

I would have never thought I would learn all that from purchasing a house I could not initially afford.

1 thought on “Buying Property Early in Life”

  1. Unless the prospective tenant’s vibes excite a sense of distrust.… love it!
    I’ve had it all good, bad and ugly. Just about still ticking…


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