Where you can find money for your property investment
The common sources of financing are own savings and loans from banks, finance companies, insurance companies or the Government. Most residential properties can be financed by a bank up to 90% of the purchase price. The balance would normally come from your savings. Some can even be financed 100% by a bank. These are bargain properties costing say, 30% below market price. For example, you are buying a property worth RM100,000 in the market at only RM70,000. The bank valuation of the property could be RM90,000. The bank further puts a forced-sale value of RM75,000 for the property For properties like this, you can borrow 100% or RM70,000 from a bank easily. This kind of deal is called a “no money down” deal.
In order to obtain loans from banks or financial institutions to purchase properties, you will need the following documents :-
- A copy of your identity card
- A copy of the sale and purchase agreement
- A copy of the individual land title (if available)
- Evidence of income (salary slips or latest income tax statement)
- Application form
For corporate or self-employed applications, the documents
- A copy of business registration certificate and the relevant business documents/licence
- Profit and loss account for the last three years
- Bank statements for the last six months
- Summary of rental income (if any)
Types of property loans available are:-
- Term loan with fixed interest rate
- Term loan with fluctuating interest rate
- Overdraft facility
Other sources of financing are:-
- Employee Providence Fund (EPF) – Account 2 which comprises 30% of your accumulated monthly contributions. (withdrawal is only allowed for buying or building a house, or to reduce or settle the balance of a housing loan)
- Loan from your employer
- Selling your other investments such as stock/shares or business.
- Company housing loan benefits
- Cash value from your insurance policy
- Refinancing your current properties
- Borrowing from your family, for example, your parents (also commonly known as a FAMA loan, short for father and mother loan)
Alternative ways you can get financing when you find a very good deal are:-
- Finding another investor to partly finance and negotiate the terms and conditions. When I find a very attractive property which is way below market price worth say, RM2 million, I will look for investors and we will buy it up using a company. I will be holding a certain percentage of shares, say, 10%, in the company, with the remaining held by my investor friends.
- Barter trade your skills for the down payment. You may barter trade the 2% down payment required with your skills which may be needed by the seller such as accounting skills or management skills.
- Barter trade with your other assets such as cars, or properties. You may also negotiate with your seller for part payment with your car or your apartment. The balance of the purchase price can then be financed by the bank.
In reality, you can make any kind of deal as long as it is legal and mutually agreed upon between the seller and buyer.