THE SWEET LIE OF PROPERTY INVESTMENT
THE SWEET LIE OF PROPERTY INVESTMENT!
Are You Digging Your Own Financial Grave?
Owning a property is a dream for many young individuals who aspire to have a place to call home—a space to live with their family and enjoy a fulfilling lifestyle. However, this highly sought-after dream has often led people into the shadows of financial instability, creating a significant strain on their finances. Many fail to recognize the damage their costly dream inflicts on their portfolio. They continue to live in a state of denial, perceiving the house they reside in as an asset and a worthwhile investment. The belief that 'the bigger, the better' is widespread, with some taking pride in the idea that their lifetime earnings are justified by owning their dream home.
When Dreams Become Burden
However, some dreams are better left as dreams. The desire to own a home often overshadows the practical realities of financial responsibility. While it may symbolize success and stability, blindly pursuing homeownership at any cost can lead to financial strain, limiting your ability to invest in other opportunities or enjoy a balanced lifestyle. Dreams should inspire and motivate, not become a source of endless stress and sacrifice. It’s important to ask yourself whether the cost of turning a dream into reality truly aligns with your long-term goals—or if it’s a vision better appreciated from afar.
The primary aim of this blog is to highlight the pitfalls of purchasing properties beyond one’s financial capacity, often under the illusion of investing. Many end up locking themselves into nearly endless mortgages, burdened further by hidden property-related expenses. Living below their means, practicing extreme frugality, and sacrificing other aspects of life just to keep a roof over their heads may not be worth the steep price they pay.
There's no doubt that having a roof over your head is a fundamental necessity. However, the trouble begins when people are misled — or confused — into believing that their home is an asset. The conventional wisdom says property values appreciate over time, but the reality is often more complex and less glamorous.
The truth is, the house you live in is a liability, not an asset—at least in financial terms.
There’s a common misconception that the house you live in is an asset because property values typically appreciate over time. While this is partially true, many overlook the significant liabilities that come with homeownership. Monthly mortgage payments, taxes, maintenance, and insurance can create a financial black hole. These costs, coupled with high interest on loans, can quietly erode your wealth over time.
Even if you sell your house for a profit, the so-called appreciation often doesn’t tell the full story. How often do people factor in inflation or account for costly renovations? Repairs like replacing wiring, plumbing, or roofing are inevitable over time to keep the property functional and marketable. Once you crunch the numbers, the so-called 'asset' may not seem as rewarding as it initially appeared.
Having said the above, one must have a clear idea of whether they are buying a house to live in or to invest in as a rental property to sell for a profit when it appreciates over time.
By renting out the property, at least the mortgage and maintenance costs can (hopefully) be offset by carefully calculated rental income. Eventually, the property could be sold at a profit to yield a return that outpaces inflation. But again, landlords face many challenges as investors, from finding reliable tenants to dealing with maintenance issues and market fluctuations. That’s why this blog seeks to explore a more feasible approach to real estate investing for beginners and novices alike.
The Challenges of Owning a Property
While housing remains a vital necessity, owning a property as an investment isn’t as straightforward as it seems. Here’s why:
- High Initial Costs: Purchasing a rental property requires a significant upfront investment, including down payments, legal fees, and renovation expenses.
- Ongoing Maintenance: Maintenance, repairs, and renovations can drain your wallet before you even see a return on your investment.
- Tenant Risks: A problematic or non-paying tenant can turn your investment into a nightmare, costing you both money and peace of mind.
- Low Liquidity: Selling a property is a time-consuming process. You’ll need to find a buyer and navigate through months of paperwork before you can access your money.
Residential vs Commercial Properties
When it comes to property investments, the dynamics of residential and commercial properties differ significantly. Many people focus solely on residential properties, but commercial properties also deserve attention. While they are less popular among the general public due to their hefty price tags, they offer unique investment opportunities.
The Declining Need for Physical Spaces
The rise of digitalization has reduced the need for traditional retail spaces, making some types of commercial properties less viable.
However, investing in commercial properties presents a completely different set of challenges. With the rise of digitalization, the traditional demand for physical spaces to conduct business is gradually becoming obsolete.
Take a look around you—it’s becoming less common to drive to a store, find a parking spot, and shop in person. Instead, people prefer the convenience of shopping online, where goods are delivered to their doorstep, often at a lower cost. This is possible because online businesses save significantly on expenses like building rentals and utilities that come with maintaining a physical store.
Similarly, restaurants are thriving on food delivery platforms. By selling through delivery apps, they can boost profits without worrying about limited seating capacity or parking space for customers. This shift reduces the demand for physical outlets that rely on walk-ins.
Even banks are adapting to the digital era. The rise of digital banks, which operate entirely online without physical branches, shows how industries are moving away from the need for expensive real estate. All of this points to a declining demand for traditional business spaces, making commercial real estate investments less attractive than they once were.
However, this doesn’t mean the market for commercial real estate is disappearing. Certain types of commercial properties remain in high demand, particularly those tied to service-based industries.
The Hidden Burden of Hospitality Properties
Hotels, homestays and serviced apartments may seem like lucrative investments, but they come with their own challenges. The upkeep is relentless — cleaning, repairs, staffing, and guest management require constant attention. Without the right resources, managing these properties can quickly become overwhelming.
The Evolution of Commercial Real Estate: Shifting Demands in a Digital Age
However, this doesn’t mean there’s no market for commercial properties—on the contrary, demand is shifting toward specific types of spaces that cater to service-oriented industries and unique experiences.
Properties like hotels and resorts remain essential to the tourism sector, while hospitals and healthcare facilities are indispensable due to ever-growing healthcare needs. Similarly, function halls and entertainment spaces like movie theaters and theme parks thrive on providing experiences that cannot be replaced digitally. Even agricultural spaces are gaining attention as food security and sustainable farming become global priorities.
These types of commercial properties are capital-intensive to acquire, often require specialized knowledge and resources to manage, making them less appealing to the general public. Nonetheless, they offer immense potential for investors who can navigate the complexities.
Understanding these emerging trends and aligning with the right opportunities can make commercial property investment a profitable venture, even in an era of digital transformation.
Why Real Estate Investment Is Not Suitable for the Mass Public?
In the past, owning land was a powerful symbol of wealth and status. But as the world evolves, this notion is becoming increasingly outdated. Today, the rise of digitalization and shifting consumer habits have redefined how businesses operate and, consequently, how we view property investment.
Direct Property Investment: High Risk, High Capital, Low Liquidity
Despite their potential, Commercial Real Estate Properties are often viewed as too complex and capital-intensive for the average investor. Managing them requires specialized knowledge, and their high upfront costs can be intimidating. However, there are alternative ways to invest in such properties, such as through Real Estate Investment Trusts (REITs), which allow individuals to gain exposure to these markets without directly owning or managing the properties.
The Case for REITs: A Smarter Alternative
In contrast to direct property ownership, Real Estate Investment Trusts (REITs) offer a modern, accessible, and hassle-free way to invest in real estate. Here are some of the advantages:
1. Low Capital Requirement: With REITs, you can start investing with as little as RM100 (or even lesser), making them accessible to the mass public.
2. High Liquidity: REITs are traded on stock exchanges, allowing you to buy or sell them quickly, unlike physical property.
3. Diversification: A single REIT investment gives you exposure to a portfolio of properties, reducing risk.
4. Professional Management: REITs are managed by experts, so you don’t have to worry about maintenance, tenants, or legal hassles.
5. Steady Income: REITs pay regular dividends, providing a consistent source of passive income.
Conclusion: A New Era of Real Estate Investment
The digital era has fundamentally changed how we interact with real estate. As the demand for physical spaces declines and the challenges of property ownership grow, it’s clear that traditional real estate investment is no longer suitable for the mass public.
REITs offer a smarter, more efficient way to invest in real estate without the headaches of direct ownership. With low capital requirements, high liquidity, and professional management, REITs make property investment accessible to everyone.
So, before you dive into the world of real estate, ask yourself: do you want to own property, or do you want to grow your wealth without the hassle? The answer may lead you to REITs—a modern solution for a changing world.
How To Invest In REITs?
There are various types of REITs, and it’s important to familiarize yourself with them and conduct thorough research before investing. To get started, you’ll need to invest in REITs like you would with stocks, requiring either a Central Depository System (CDS) account or a brokerage account that provides access to them.
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