My first property investment was a disaster. It is my current house, which I have lived for nearly 4 years since the first day of 2005. I bought it with zero down due to a campaign by a bank which was celebrating its 50 years in existence and I did not have to pay any single cent including legal fees for the loan (though I used my firm and I could do it without a single cent naturally). What I did not counted on, as this was in 2004, in which I was quite naive in my knowledge of investing in property, is the fact that there is no such thing as a free lunch. The bank did not tell me that I actually am paying a good rate. The loan was under Islamic finance and although all Islamic finance loan is higher than conventional loan, this one was really high.
I did not take into account the fact that the rate was high and I had to pay more for the same price of property as I wanted to take advantage of the bank footing the bill for the stamping and the legal fees. I asked my neighbour after some times and was shocked to find out that they are only paying half of what I am paying monthly. The other factor which I did not counted on was the lock-in period which means that I couldn't sell the property within a certain period of time. If I did, I need to pay a penalty of RM6000-00 (USD1,700++) or 3.5% whichever is higher. That is if I redeem the property from the bank either through a sale or refinancing with another bank within 5 years I took the loan.
To make matter worse, the property did not appreciate as much as I hope. Using 8% per annum increase as a yardstick, the value of my house only increase between 1% to 2% per annum in the last 5 years. And taking a 100% loan make it even more worse as I have to really wait out the 5 years period if I want to refinance as only then would the refinancing amount can cover the loan I took from the first bank. It was bad. Financially.
However, the silver lining was the nighbourhood where my house is situated. Being at a cul-de-sac, there are no outside traffic as the only place anyone can go once they enter my housing estate is to a house within it. No vehicle can go through to anywhere. I also live fronting the original settlers' houses whose lands the developers have taken to construct our houses. Being cash rich as they got paid quite handsomely for their land, they are always at home. And being good neighbour to them, which comes easy for me, they watched out the empty houses, such as mine like a hawk, when most of us out for work. Then, the housebuyers such as me, are mostly easy to get along with. Which means, the people within the nighbourhood make up for the fact of my botched investment.
As an investment, my decision to pay 100% using the bank money was bad and not researching properly the value of the property at the outskirt of my housing estate, was bad. However, I don't think I would move out of this area anytime soon as I really, really, love the neighbourhood.
And as investment, as this year is the 5th year anniversary of my loan, I am taking a cheaper loan to refinance this house and it will free up my monthly liquidity. Which I have planned to clean up my monthly portfolio for my other investments.