It’s not easy to consistently buying property through bank borrowing. But how some people can do that? How they manage to convince the bank to borrow them more to purchase even more property? With the income of less than RM2000 can you start buy property? What information that bank need to approve your loan? All this will be answered soon.
Income
Income is the main resources that bank will look into when they evaluate housing loan and commercial borrowing case. On average they will take 33% as the base against your monthly installment. So if you are earning RM3000, your repayment average ratio (RAR) is not going to be more than RM1000. With RM1000 installment per month, actually you can borrow up to RM 230K HL base on interest rate of 3.5% & loan tenure of 30 years. So why worry? Imaging if you are earning RM5000, then you can even afford to buy house worth more than RM350K. All income received must be reported to income tax department every year through e-filing. The whole sets of income tax document together with the income tax receipt are needed by bankers to prove your income sources. This is the most basic information that bank need.
Central Credit Reference Information System (CCRIS)
CCRIS is the perfect tools that all banks use to track against your repayment habits. Don’t ever play fools with the bank as they are all interlink to Bank Negara. Since 1997, this system is fully utilized by all the banks in Malaysia to protect themselves from bad loans. Under CCRIS report, it will show all you borrowing with any banks in Malaysia including guarantor details, hire purchase, personal loans, housing loan, commercial loans and credit cards. All borrowing and credit facility will be records for the period of 12 months and any late payment will be clearly shown in the report. That why bank will know how perfect is your repayment “habits”. This will be definitely affects your credibility in borrowing. So to avoid late payment I advise you all to open saving accounts with the borrowing bank and implement “standing instructions” to repay your loans. This will not only save you from having bad CCRIS report but also assure further future borrowing.
CTOS
If your name is appear under CTOS most likely bank will decline your application, unless you can show to the bank that the case has been settled together with a letter of settlement. Otherwise it’s tough for you to borrow more in the future. Make sure you don’t “black list” your own future here if you want to be rich in the future.
Property location
Mortgage bankers are trained to search for a profitable business in line with bank policy that is maximizing the profit while lowering the risk. Every bank has their own target territory to attack but bear mind most of the area are the same. Like in Kota Kinabalu, most of the hot spot areas are Damai, Luyang, Inanam, Kingfisher, Likas, Sulaman Kingfisher, Putatan and Kk City Centre. Bank always selecting good location to finance to avoid future resale possibility (auction) in the event customer fail to make repayment. Of course bank will also consider non catchment area with lower margin of finance and certainly with good profile customer. Besides that, bank also prefer landed property over non-landed as if the property when off for auction there is additional cost incurred mainly management fees, transfer fees and other cost charged by developer or management company.
Rental income
I found out that most of the people around me love to collect rental in “cash” term and then directly pay into their loan account. The problems arise when you cannot prove to the bank that you are getting the repayment resources from your rented property. To solve this, you just need to bank in all rental collected from your tenant every month and signed the standing instruction to auto deduct from your account to avoid late payment. Not only that makes sure all your tenancy agreement is fully signed, witness and stamped. By doing so, bankers would love to borrow more money to you.
Joint Borrowing
Sometimes, bank can’t borrow to you individually to purchase property under your own individual name and personal financial credibility. By joining name with parents, siblings and spouse will definitely strengthen your borrowing capacity. Of course the additional name might cost extra legal fees and administrative fees. But it’s worth it. My advice to the hardcore property investors, try fully utilized your own borrowing credibility before bringing your spouse into the property games. At least you can buy additional one or two more property before bank stop borrowing to you.
Other deposit / saving / ASB
I know some people around me actually own several account at different bank to avoid income tax, bank when bankruptcy and a lot more funny reasons. But it’s ok. If you have such account, you can utilize it when you apply for loans as this will shows your saving habits and financial stability. You can even pledge your money like Fixed Deposit or ASB to bank as a secondary security in the even your credibility is low.
With that, I hope all of my friends will to continue buy and leverage against the future with calculated risk. I can assure you that your hard work will be well rewards few years from now. Happy Investing.
You cannot Grow Land.. Ck Wong & KH Wong
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{ 18 comments… read them below or add one }
Just to be in more detail, for salaried Employee, the bank usually wants the latest 3 months salary receipt and your J/EA form(which is the income tax documents mentioned by Ck wong) For self employed, The bank usually want to look at the latest 3 months banks statement and business registration /form 24 and 49. Do note that the bank may require more documents than the above mentioned documents. Please do a research on the bank’s website regarding the interested products and related documents needed before knocking on your bank’s door. It always good to be prepared !!
Fatduck,
Thank you for your information. If you are business owner, banker might need all those information. But its all depend on how strong is your reported income. If your income is too weak then banker will need these information for further support. So its all depend. Happy Investing.
You cannot Grow Land.. CK Wong & KH Wong
Thanks for the information CK Wong,
i am new in property investment, and i am wondering if you could explain to us more regarding how you and your friends escape from paying too much income tax for rental property, considering if i plan to own 2 rental property or more at one go. thanks…
Lai,
I never thought of running away from tax. That is illegal!! But you can reduce the payment of tax by including interest expenses, management fees, assessment fees, agent fees and repair expenses to reduce your reported income. I think this will help. Happy Investing.
You cannot Grow Land.. Ck Wong & KH Wong
Hi CK,
That’s called tax avoidance . We should not to pay a single cent more than necessary but yet we should also not to evict tax when it’s due.
If any of us are self employed ( especially husband and wife company or few family members set up) and your company is making good profit , pay yourselves a higher EPF ( there’s no limit on the company portion) so that you avoid being tax more. Again ! this is legal !! In years to come , you can take some of this money in the EPF acct to buy property or offset yours or you spouse’s loan whichever applicable .
It’s all legal.
Just to make some corrections regarding the contribution for those are self employed. This is directly quoted from the KWSP website:
“Members registered under the self-employed category may contribute a minimum of RM50 up to a maximum of RM5,000 monthly to their EPF accounts. ”
In other words, there is a limit for contribution to those are are self employed.
Fatduck,
I think there is some industry government has given them special right on amount of contribution to EPF. Happy Investing.
You cannot Grow Land.. Ck Wong & KH Wong
Correction to a ‘correction’
Dear Fatduck ,
The self employed that you refered to are those not officially registered as employees includes business owners, homemakers, pensioners and Malaysians working in foreign countries.”This self-employed category was created to encourage individuals who fall outside the official definition of ‘employee’ to contribute to the EPF. And you are right the maximum is rm 5000 using KWSP 6 Form (Form A). The following page has the details : http://www.kwsp.gov.my/index.php?ch=p2news&pg=en_p2news_press&ac=1371.
Whereas the self employed i refered to are those high networth individual who onws comnpany or senderian Berhad : if you and you wife or brother or good friend who owned a Sendirian Berhad , you are also considered as self employed . The company is the employer, and you as an individual is an employee. Again ! I can tell you this there’s no limit in the portion of the employer’s as well as on the employee portion of EPF contribution . You can do this by notifying the EPF by completing KWSP 17 (Majikan) and KWSP 17A (Pekerja) forms.
“Can I pay the employee’s contribution at a rate that exceeds the statutory rate and is there a limit?
Yes, you may contribute more than the statutory rate. There is no limit to the maximum amount of which you can contribute but you need to notify the EPF by completing KWSP 17 (Majikan) and KWSP 17A (Pekerja) forms” ( http://www.kwsp.gov.my/index.php?ch=p2faqmembers&pg=en_p2faqmembers_register&ac=442&expand=1 )
I am just sharing my experience here as i have done it. We called EPF and filled up the forms and I have been contributing a much higher level of EPF ever since. But mind you , you also don,t want to contribute to a level that you or you company have cash flow problem.
These only work if your company making good pofit. To give higher % of EPF (company portion), this is an expense from the accounting point of view, thus reduce your taxable income yet still benefit the ’self employed’ or the business owner. This is good tax planning !!!. You pay less coperate tax, the self employed also don,t pay tax as the amount come from the employer and in years to come you can take it out to buy property.
Infact , instead of increasing pay( which is taxble on the individual) the partners can opt for higher company portion of EPF contribution . Both pay less tax !!
Good or good ?
hi CK,
i am new in property, u said:”With the income of less than RM2000 can you start buy property”?? guide me pls.
im employee with salary RM1800 /mth only. is tht possible to get Home Loan to invest Alam Damai $315000? booking fees paid last week & down payment is ready. wish to sell it matured 1-2 years after with good price.
regards,
kenyi
Kenyi,
Its tuogh if you want to buy Alam Damai, unless you are Boclk A & Block B buyer whereby the purchase price is about RM250K. In this case, unless you can pay more down payment of about RM80K or more otherwise you have to look for lower property value to buy. Why not you start with smaller property first? When I start my property investment 5 years ago, my condo only cost me RM96K!! Try to reconsider as your decision is very crucial for beginner property player. Happy Investing.
You cannot Grow Land.. Ck Wong & KH Wong
yes like ppl said “do not wear a hat bigger then your head”
thx for yr advice.
Kenyi,
Since you already paid the deposit..might as well try to find a partner to close the deal?Try find your best friend, relative or even family member… Happy Investing.
You cannot Grow Land.. Ck Wong & KH Wong
hi,
i’ve invested in a total of 3 properties so far (2 residential and 1 shop lot), and has seen a reasonable cashflow from it… while i am looking for another property to invest, i received a kind advice from one of my best friend, who himself is a very successful, seasoned investor (who had owned many properties both local and abroad..and is a selfmade multimillionairre)
here are his piece of advice and it would be very nive if i could also get a second opinion from you on his advice:
here we go:
I would like to give you some free advice on investing in to real estate at this time of the world economies.
Only last week i read a report on global real estate market and i am in big shock what is about
to come in the next one to two years to the Real estate Market globally.
As you probably know the residential Housing market in usa, england, Germany Russia is in a free fall.
same areas have entire city section under power of sale people just leaving there house and let bank or government take it.
Price have fallen as much as 60% in some areas of the world. ( take a house some one paid 500k 2 years ago now selling for 200k and nobody buying)
Now here is my future view of the next shoe to drop it is the commercial real estate market.
Vacancies rates in Russia 63 % Singapore 34% America 30 to 40 % Germany 25% and the list goes on.
So far Canada Malaysia not affected at all but it will be only a matter of time before things cross the borders and every one will be infected.
Today could be the start of a global sell of in stock market lead by Asia in china stocks drop 6% in one day
This could last till the fall September October time frame are the worst times for stock market and always have the big drops in history.
A drop in Commercial property price will be followed by a another wave of Bank closures and Bankruptcy and businesses around the world.
Investing is somewhat like Fishing one needs to be patient and willing to wait for the right time and place to act.
A statement by Warren Buffet the worlds great investor ( one should be buying when the masses are selling and be carefully when every on is lining up to buy)
From what i know Real estate has jumped a lot in the last few years in Malaysia every one jumping on the wagon to make quick money.
History has shown this type of behavior is very dangerous and usual a sell of in the market no matter what area or country real estate is a commodity
and can go just as quick down as up and always has in the past.
Buying a property with only 10% down is very risky and just a small 10% drop will result a total loss of your investment.
The best time to buy is when power of sales are high people are walking away from there property and taking
loss and every one talks bad about real estate investing like it is a bad thing.
My first house in Canada i buy with $ 3000 down and the seller financing for me he so happy i take the house from him
i buy for 47 k and sell 18 month later 88 k he take a loss i make a nice profit on my investment in short time.
At the time i did not know what i was doing but years later i realized how perfect my timing was buying when every on was scarred and sell for loss.
I did the same with the house on Winona 4 p lex i sold last year, when i bought it was on the market for 5 years from 1992 till 1997 asking 380 k at first
after 5 years the slowly drop the price to 240k and i end up buying for 235k.
The moral of the story is human are guided by great and fear and have there emotion make decisions for them on investing is always the wrong thing to do.
Take a moment and think and think some more before you but down your hard earned money
Foo,
Its true that market is driven by fear, greed and emotion. Nothing will change this philosophy even in property market. But bear in mind, our market (Malaysia) is too young to experience these global financial crisis. Look at our property is the very very cheap compare to US, HK, Canada and Japan. We are still far behind. Our property on average selling for RM300K-RM400K is virtually only abour USD100K. Don’t you think our property is still very cheap? I presume there will be more overseas people will migrate to Malaysia coming years as the living cost here is cheaper to them. Imaging if you own USD500K house in US, you can sell and move over to Malaysia, virtually you are millionaires. You can start enjoying life and retired already.Right?
Foo,
If you really scare of the global crisis that might happen in the future. Try expand your portfolio into “vacant land” as this is the best commodity with limited version. I can assure you that even next economy crisis it will not affect you. As I always say, you must design a portfolio that is reccession proof for yourself. It must comprising share,property in residential, commercial and vacant land and cash. Happy to learn all this from you also. Hope we can share more our experience and learn from each other. Happy Investing.
You cannot Grow Land.. Ck Wong & KH Wong
Thanks Azlan for enlightening me. Really appreciate it.
Hi CK,
Good Day.
Please advise me if my name appear on CTOS report. What should i need to do? Once all debt are settled, my record will declare? Where i can get my personal credit report during i working at oversea?
Last time, my bro use my name to get the car loan, end now the car under for auction. The balance still haven’t settle, so what should need to do?
Currently, i still at W.A. Should need come back to settle the problem by self?
Regards,
Xin
Hi,
I think you better get advise from your banker on this matters. Of course bank will be much more willing to borrow you more money provided your margin of finance is lower says 60%? Happy Investing.
You cannot Grow Land..CK Wong & MY DAD
thanks..