Hi, I’m Rachel. I’m 25 years old. Presently, I make RM 5,000 a month in salary as an auditor in Puchong. I would like to buy my first property before 30. As I write, I had accumulated RM 30,000 in savings and would like to know how long it will take for me to buy my property, assuming that it would cost about RM 400,000. Also, do you have any suggestions to raise funds quicker so that I can realise my dreams of having a property much earlier.
First, I think that it is important to acknowledge that it takes time to build funds to buy a piece of property. It is okay not to rush into a property buying decision if one does not have the means to afford it. Lately, I had been listening to a nice podcast by Ikhram Merican on Syok where he talked about 7 steps to raise your deposit for a property. In this article, I’ll use the same insights discussed to help Rachel find out if she can afford a property costing RM 400,000 before 30. Here are 5 things Rachel needs to know to raise funds to her first property.
#1: The 25% Rule
The 25% rule is a ballpark calculation of the amount a person needs to spend in initial capital outlay for a residential property, assuming that the buyer is below 35 years old and a first time Malaysian property buyer in Malaysia. The amount includes the 10% in down payment, about 3-5% in transaction costs inclusive of sale & purchase agreement (SPA), loan agreement, stamp duties, and valuation report of the property and another 10% which can be used for renovation costs and a buffer of 6-12 months worth of property-related expenses.
As such, if Rachel plans to buy a property costing RM 400,000, it is advisable for her to prepare RM 100,000 in cash (25% of the property price) before buying it. If you are Rachel and find this figure overwhelming, it is perfectly normal. I had that overwhelming feeling too. But, don’t fret for I’ll be sharing a golden nugget on how you can raise the money quickly below. For now, let’s move onto:
#2: Save ‘Monthly Property Expenses’ Today
For a start, Rachel can easily estimate the amount of mortgage installments per month via Calculator.com.my. Out of which, she will be paying nearly RM 1,600 a month in mortgage installments for her RM 400,000 property. In addition, the amount of other property expenses would include quit rent and assessment, its fire insurance and maintenance fees and sinking fund if it is an apartment. Let’s say, collectively, they cost around RM 400 a month, therefore, Rachel should be expecting to incur RM 2,000 in total property-related expenses per month.
Here is a tip I’ve learnt from Ikhram via the Podcast.
If you are Rachel, is it possible to set aside RM 2,000 per month for the purpose of buying her property?
Why? This is because Rachel will continue to incur RM 2,000 per month in total property expenses after having paid her initial capital outlay for the property. If Rachel is not mentally prepared to set aside RM 2,000 a month for her property today, it is likely that she would not be able to afford the property in the future. I believe the act of saving RM 2,000 a month is more than just raising funds. For Rachel, this act could help her be mentally prepared to afford her property.
#3: The Gap
From above, we know that Rachel has RM 30,000 in cash, which is a shortfall of RM 70,000 from the targeted RM 100,000 in cash to buy her property. Also, we know that she will spend RM 2,000 per month in total property expenses and is committed to set aside RM 2,000 a month for her property.
So, how long will it take for Rachel to boost her savings from RM 30,000 now to RM 100,000? The answer is 35 months (RM 70,000 / RM 2,000 = 35 Months). It means, if Rachel is able to set aside RM 2,000 per month starting today, she will be able to afford her property in 3 years time, realising her dream of buying her property before 30.
#4: The Power of RM 10 a Day
Well, what if Rachel is not able to save RM 2,000 per month for her property or what if she wants to speed up the purchase of her property? What can she do?
Here is the golden nugget, which is to harness the power of RM 10 a day. In her case, Rachel can choose to find ways to raise herself RM 10 per day by lowering her expenses by RM 10 per day or by earning an additional RM 10 per day or by combining the two where she can lower her expenses by RM 5 a day and boost her income by RM 5 a day concurrently.
There are multiple ways of doing both. But, the main thing here, whichever she chooses, is to be committed to do so on a daily basis.
If Rachel is able to raise RM 10 a day, either through lowering expenses or have her income raised, she would have raised RM 300 a month for her property. So, if she already can save RM 2,000, with that extra RM 300 in savings, Rachel will be able to shorten the time needed to raise her savings from RM 30,000 to RM 100,000 from 35 months to 30 months. That is the power of RM 10 a day.
#5: Have the Faith of a Tortoise
I totally get it. Be it 30 months or 35 months, it is a long time and it can feel like eternity for many people. Some would had already given up their aspirations to own their properties. Just like the story of the hare and the tortoise, many have chosen to be the hare in the property game via creative financing schemes that include mark-up loans and multiple loan submissions. Initially, that seems to be impressive as these hares got ‘speed advantage’. But, do hares win races?
Learning how to raise RM 2,000 a month seems like a tortoise plan as you could see how your peers buy properties with little or no-money down deals, creative financing or via parental support. It is okay to be a tortoise as I feel you too. But at the end, I think the process is worth it as along the way, you will learn proper financial planning and be prepared both financially and mentally to buy a piece of property. If you learn how to raise funds for your first, you will raise funds for your second a lot quicker than your first because you have done it before.
So, if you feel like a tortoise today, it is okay. You will win your race eventually.
Cheers to your next property!