Why Should I Invest in Real Estate?

Original article can be found here

I have been doing lots of thinking (more like calculating) lately regarding as to how can i own and manage more properties of my own and why i should be doing it in the first place. I even asked myself, why bother & why should i invest in real estate? Then i found this article over at about.com. Have a good read!


Most of the 1990's, The Standard & Poors Index posted earning yields of 5% to 6% on average. At the same time, the dividend yields of the S & P were only around 2% or less. Since dividend paying stocks tend to be much less volatile, the gains on the appreciation side would not normally be a significant factor.
At the same time, bond yields taken as a composite, showed only around 5% returns. Better yields were riskier, while safer bonds returned lower yields.

During the same time period, real estate investors were realizing much more attractive returns due to the multiple income streams from real estate investment:

Rental yield - This is the percentage yield from direct rental income, and can be calculated as either gross or net. Experienced investors prefer to calculate the Net Rental Yield, which takes the expenses, taxes and other costs into account, and divides by the property value/cost. It could be a negative cash flow, as it doesn't take mortgage payments into account. For this reason, many investors prefer to look at Cash-on-Cash rental yields. The example at the link shows a 6.4% example return on cash invested. Though the investor can purchase and manage for a yield on this single component that exceeds average stock or bond dividend yields, it is only one of the ways in which real estate returns on your investment.

Appreciation - Rental properties normally appreciate in value with inflation. Increased value can mean sale and reinvestment in higher value properties, or provide an equity line of credit to use for other investments. This is the second, and a historically proven value component of real estate investment return.

Inflation is Rent-Friendly - Rents usually increase with inflation, while mortgage payments on the property remain stable. This increases cash flow, with more rent income without increased expense for holding the property. When inflation is up, it can also mean more renters, as the affordability of homes can be negatively impacted by inflation. More renters increases demand, so rents can escalate.

Leverage - Using leverage, while being careful to buy properties with good rental yields, provides greater returns. Using $100,000 to purchase three properties with down payments, instead of one for $100,000 cash, can greatly increase returns. Of course, all leverage involves risk, so the successful investor must understand how leverage impacts their real estate investments.

Paying down the loan - Amortization, or paying down the loan, frees up more investment resources to increase leverage. Some investors use increased equity in one property to free up funds to invest in others.

Property improvement for equity - Many investors intentionally purchase properties at a value because they lack some feature or could use some improvements in condition or amenities. They have calculated that the value of the improvements will exceed the cost, resulting in an immediate increase in equity.

Electricity (TNB) & Water Bill (Syabas) Application

Sometime in April i received a call from the developer (Shanghai Realty) to inform me that i will have to change the name on the utilities bill (electricity & water). They inform me that i would have to change it myself but of course if i want them to do it on behalf there would be some service costs involve. Heck, enough of paying the developers more money. So i decided to go and do it myself.

So on my day off today, i went to Shah Alam TNB's kedai tenaga. I have done a bit of research on this as this is my first time doing this (my 1st house whattt) so asked help from our good friend, Mr. Google regarding what required for this process. With everything ready i went to the shop. Took a number, and was advised to fill up the form 1st. The form that you should be filling up is called the Permohonan Bekalan Elektrik Domestik or Domestic Electricity Supply Application form.

Here are the list of what was required:

• Salinan perjanjian jual beli @ Salinan Geran Tanah @ Sales & Purchase Agreement copy
• Salinan kad pengenalan pemohon @ NRIC photocopy
• Bayaran untuk proses @ Processing fees - RM3.00
• Stem Hasil @ Stamp Duty - RM10.00
• Wang Cagaran @ Deposit - RM210.00 (depending on your type of house)
• Salinan Bil Elektrik @ Copy of previous electricity bill

Guess what, after running through my check list last night about this, i forgot about the stamp duty and to make a copy of the S&P. The lady assisting was kind of enough to make a photocopy of the S&P and informed that i can pay RM10 directly to them for the stamp duty. Thank you to the lady as it would save some time then going to the post office (yes, the post office is nearby but u still have to drive though). Made payment and was informed that electricity will be up in 2 working days. The thing that surprised me was there was no queue for this services, although i still have to take a number & how fast the lady assisted me. One thing that all Indahria Apartment resident should notice is that the street name & postal code that was given by the developer to TNB is different than your actual address but the lady also informed that was the address given to them and they would have to follow it accordingly. Fine by me, just dont cut the electricity ever again.

Turnaround time: 10 minutes (including waiting time)

Electricity bill: Done, next please.

Off to Syabas (Syarikat Bekalan Air Selangor) in Kelang. I am still wondering why is it that there isnt any Syabas branches in Shah Alam itself. I hate going to Kelang as the traffic jam is really bad (pity u Kelang folks). Fortunately for me, i have been to Syabas before and roughly knew where it was. Just a quick guide, just after Kelang town, when u cross the river and when u can see the tall CIMB building on your right, maintain to the left. There will be a signboard to go to Majlis Perbandaran Kelang, keeping left follow the signboard. 1st turn to the left would be Syabas. Took a number, asked the cute looking staff of Syabas what was required. Filled up the form & waited for my turn. There were quite a number of people around and this was at 11:30am but the numbers are running fast. Not bad.

Here are list of what was required:

• Salinan perjanjian jual beli @ Salinan Geran Tanah @ Sales & Purchase Agreement copy
• Salinan kad pengenalan pemohon @ NRIC photocopy
• Wang Cagaran @ Deposit - RM100.00
• Caj pemasangan meter @ Meter Installation Charges - RM30.00
• Salinan Bil Air Lama @ Copy of previous water bill

As i have totally forgotten to make duplicate copies of my S&P, i was again hoping that the lady who assisted me can make a photocopy of the S&P. The lady smiled and replied politely and said "Boleh, tapi satu keping kitorang charge RM0.20" Haha! Trying my luck, again, but on the window counter there were notices informing patrons about the photocopy charge. I guess a lot of people have forgotten to make their S&P photocopies as well. Oh well, it was only RM1, as they only require the important pages only. The lady also informed me that within 3 working days water should be up and i call the person in charge if theres no water by next Monday.

Turnaround time: 15 minutes (excluding waiting time of 20 minutes) Again, not bad.

So, both electricity bill & water bill is now under my name and it was only around 12:30 PM, its time to have lunch!

Good day indeed.