The secrets how the Rich Buy & Invest in Commercial Properties in Malaysia

This is the most practical and highly actionable guide to buying or investing in commercial real estate property in Malaysia.

The best part?

We are going to reveal how the really wealthy property owners & investors buy & invest in real estate properties using a concept I call the LPAV Quadrants

In short, regardless you have RM 500 or RM 500,000 to invest into your first commercial property, you’ll love this guide.

Let’s get started.

So here’s how you can buy and invest in commercial properties in Malaysia with as little as RM 100.

(not clickbait, believe me)

….but for real though,

…this is really a way that you can buy and  invest in commercial real estate properties in Malaysia with pretty much whatever money you have saved up right now,

 …without doing much of the work yourself.

• There is no renovating the commercial properties to make it rent-able
•  There is no trying to find tenants for your commercial properties and
•  There is no dealing with 2:00 a.m. phone calls of a broken toilet that you have to fix.

You pretty much just can invest your money and earn money passively starting now.

And this is called a REIT which stands for real estate investment trusts.

Sounds too good to be true?

It is, but you need to read until the end….

But how does REIT compare with just straight-up buying or investing in commercial properties and is it even worth owning a REIT to begin with…

So let’s find out, I’m going to be discussing the pros and cons of buying or investing in REITs – equivalent of commercial properties…

…as well as the positives and the negatives of straight-up just buying commercial properties and then that way…

…you can pretty much decide on your own which one is really the better choice.

The Advantages Of Buying & Investing In REITs

Your proxy for no hassle commercial properties investment.

How do you buy commercial property? The easy way?

If you ask that, then the answer lies in REIT (real estate investment trust).

REITs are really a fund structure that acts as a holding company for a portfolio of commercial real estate properties.

 Now usually REITs have a specialization in the sense that some focus on warehouses, others focus on office buildings, retail malls or even school/college buildings.

 Each REIT usually has a different specialization but by investing your money into this company you’re thereby entitled to part of their profits in the form of regular dividends.

 This means that you could potentially own a small share of maybe a 50, 100 or even 200 million ringgit commercial real estate property portfolio for really as little as RM 50 or RM 100.

Lots of corporations such as Paramount Corp Bhd nowadays started to adopt an asset-light strategy, whereby they dispose their assets into a REIT entity (Alpha REIT). This way, they monetize their real estate assets through this sale-leaseback transaction, enabling it to unlock capital resources from being tied up in long-term assets.

The other benefits are providing growth capital and allowing the company to focus on its core activities to ultimately better reward shareholders

REIT has pretty much zero barrier for entry to buy & invest in commercial properties.

Pretty much anyone with RM 50 to RM 100 can buy or invest in REIT.

This is unlike investing in commercial property in Malaysia directly where you have to come up with anywhere from about 15% to sometimes 20% or 25% down-payment. The rest are financed via commercial property loans you take from banks, provided you fulfil all the requirements of loan eligibility and credit rating (CCRIS) check (long outstanding credit card debts are bad from a personal finance perspective!).

…and you have to qualify for a loan from the bank in order to buy it.

With REITs, you can pretty much just invest whatever money you have now and that’s as easy as it is.

It’s also really extremely easy to invest and buy into a REIT – you pretty much go on any stock trading website or app…

…click the little ‘Buy’ button and you’re done.

That’s it! You don’t need:

• Hunting for months, looking for real estate properties.
•  Accumulating that cash flow for 20% downpayment…
•  Dealing with renovations or
• Dealing with banks or appraisals or inspections

All you do is literally just click the little ‘Buy’ button with whatever money you want to invest.

The REIT Manager has basically already done all the work for you so all you have to do is invest your money, sit back and say that you own like one ten-thousandth of the mega strip-mall downtown.

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No tenancy management when you buy & invest into a REIT

When you’re a landlord, you have to make sure tenants pay their rent on time.

You have to make sure all the expenses are paid and the property is well-maintained.

With owning a REIT, you don’t have to do anything because it’s already taken care of for you.

It’s also unbelievably easy to sell a REIT; you also don’t have to pay a 2% or 3% commission to a real estate agent.

You don’t need to deal with showings or inspections or negotiations or anything like that.

It’s just as easy it is when you buy it – all you have to do is instead of clicking ‘buy’, you just click the button that says ‘sell’.

 

With REITs, you’re really well diversified invested in commercial properties

It’s not like you only own one property with one tenant with one roof and all that sort of stuff.

We’ve all heard it – the risks associated with real estate property investments.

With the REITs you can potentially own hundreds or even thousands or tens of thousands of pieces of real estate and just own a fraction of all of them.

With this your risk is pretty well spread out so if something happens to one building that’s totally fine because chances are, you have a few other buildings that make up for that.

And with all of this you can get a pretty easy consistent five to sometimes six to eight percent return annually depending on the REIT classification REIT and the types of property (aka the type of commercial properties) they’re invested in. 

So from the surface this might seem like a really good deal.

It might seem like blue skies and smooth sailing ahead but there is another side to REITs that we should discuss when you are no longer a newbie investors.

The Disadvantages Of Buying & Investing In REITs

You have less control over the exact commercial properties invested in a REIT

Now the main downside with buying and investing in REITs is the amount of control you have when it comes to property type in your real estate property portfolio.

Unlike buying commercial property, buying or investing in REIT takes away the control you have over conventional commercial real estate properties. 

In other words,  this is unlike owning physical real estate where you can basically customize your renovations if that fancy you.

 And you can’t pick the tenant that pays the highest price.

Or you can’t pick where you are buying commercial property that you feel is undervalued or has potential for excellent price appreciation.

 When it comes to a REIT you don’t have any control over this whatsoever.

…and generally this means that you tend to get a slightly lower return because you don’t yield direct control over the investment.

Now, as they said, one man’s meat is another man’s poison ~ some people will certainly see this as a positive

…and that they don’t want any responsibilities or any control; they just want to buy exposure into commercial properties or invest their money and be done with it…

But usually, if you know what you’re doing you’re able to get a much higher return than if you leave it to somebody else to do it for you.

You don’t get to use leverage as you can in commercial property investing.

Now you also can’t build equity in a REIT as you can in real estate properties.

Because you don’t get to use leverage as you can like buying commercial real estate property.

Comparatively, when it comes to commercial property investing, or even any form of brick and mortar real estate, you’re putting a small amount of money down and getting a long term loan on that.

…and every single month you’re paying down the loan, thereby increasing the equity in your property.

Then after maybe fifteen to thirty years, you own the property outright after the loan is settled.

 …and there you go, you’ve just leveraged your money and built equity over a long period of time

 With the REIT instead, all you’re doing is just putting in your money and whatever money you put in is pretty much what it’s worth

 So with that out of the way let’s talk about actually physically owning real estate and we’ll first start with some of the downsides about commercial real estate properties.

 

The Disadvantages Of Buying & Investing Into Physical Commercial Real Estate Properties

Commercial properties investing comes with high barrier to entry

Is property a good investment in Malaysia?

Sure it is. The only catch is:

It usually comes in the form of needing a substantial downpayment for the average Joe, and a loan, plus the income to actually support those loan payments.

You can’t just go out and buy a RM 500,000 property if you don’t have the downpayment of 20% or RM 100,000.

….or if you don’t make sufficient monthly income to support those payments.

This usually disqualifies most people from buying or investing in real estate especially if they’re in an expensive area like KL City Center or Penang where the typical downpayment could be anywhere from fifty thousand to over two hundred thousand Ringgit.

Just to buy and saving this amount of money is probably the biggest downside I see.

Because not only does it take a lot of time to save that money but it also takes a lot of discipline.

It also requires a high income to have enough money left over to save.

Not to mention a sterling credit history needed for a bank to actually approve you on that loan and this is probably the biggest obstacle that we see when anyone want to buy or invest in commercial properties.

 

Real estate property investing comes with time commitment

 A friend related that it took him six months to find his first real estate property that was worth buying.

 It took him another 30 days to actually close on that property, do all his inspections, get his loan and appraisal and everything else that goes along with that.

 And then it took him another two months of renovating it for it to be ready.

That’s a total of nine months from start to finish.

Then you also have the time aspects of actually managing a rental property.

Now, this is generally something where you put a lot of time in up-front.

And then after that, it’s really not too much work – he would estimate it probably spend about an hour a month managing his rental properties which really isn’t too bad

But in the very beginning he did spend a ton of time getting it to the point where most part is pretty automated now.

 This doesn’t happen at all with a REIT

 

A caveat here is that you don’t have to contend with renovation when it comes to commercial real estate properties investments because tenants will usually do this themselves at their own expenses!

 

Real estate property assets lack immediate liquidity

You can’t just go out and sell a property and get the money the next day.

Typically the very best case scenario is about two weeks, realistically it’s more like thirty to sixty days to actually sell something and get your money.

And that’s not including the time it’s being listed before being sold.

The ‘listing period’ can get excruciatingly long – the higher the asking price of the real estate property, the longer the ‘listing period’.

Furthermore, selling a piece of real estate property is not as simple as clicking the ‘sell’ button because

• you have to get professional photos done
• you have to to put it on the market
• you have to show it to your prospective buyers
•  you have to negotiate the offers

 It’s quite a process to actually sell physical real estate properties now compared to this to a REIT where you just click the little sell button and you’re done.

How the really wealthy property investors buy & invest in real estate properties

 

Wealthy property investors don’t play the property investing game like the rest.

They move away from residential real estate property properties to commercial real estate properties.

Because it cuts down a lot of the tenancy related issues that comes with residential property investment.

One good example is, it makes no sense to go into a rental price way with a competing landlord. But you can’t avoid this if you are playing in the residential property space.

After all, residential property tenants move in and out all the time, and they are always hunting for the ‘best deal’. They won’t hesitate to pack their things and move out if the opposite unit offers them lower rental rate.

That or it is just the norm that they move out due to changing jobs or moving to another cities.

Major advantages of actually owning physical real estate

1 You can leverage other people’s (bank) money

This is probably one of the biggest advantages of actually buying and investing in physical real estate properties.

While it is true that REITs do use leverage as well when buying any commercial real estate properties into their portfolio…

…but that is at the REIT manager level, as a REIT investor, you don’t get the benefits of leveraging your money compared to when you buy or invest directly into any real estate properties by taking loans.

 

2 You can get tax benefits

Your rental income from owning actual real estate is usually entirely tax-deductible against your property-related expenses like repairs & refurbishments and even interest on mortgage repayments.

In some countries (not in Malaysia though) because you’re able to actually depreciate the structure itself against the rental income received.

 

3 You have absolute control over your investment

This means that you have the ability to find a very very good deal that’s undervalued and you can further enhance your returns by adding more equity to it.

Real estate is such a localized market and every single property is different from one another.

(In the stock market, it is very hard to take advantage of price inefficiency but in real estate investing, you can)

You could for instance find a seller who’s really distressed or desperate to sell it.

He could be willing to let it go at a hundred thousand Ringgit below what it’s worth.

…and BAM! you just made a hundred thousand Ringgit from one deal.

 And when you know your market really well you can do specific renovations to get the highest Ringgit amount possible.

This means that usually by physically owning real estate you can maximize your returns as much as you can borrow money from the equity in your home completely tax-free and that’s called the cash out refinance.

So let’s say your home is now worth 500k and your remaining mortgage is only 200k,  this means that you have 300k of equity in that real estate property.

You’re pretty much able to borrow, say, up to 80% of the equity that you have in that property so on 300k you can pull out 80% of that as cash and not pay any taxes on that.

This means you could pull out all the money that was stuck in real estate property… invest it elsewhere and not pay any taxes on those gains.

So at the end of the day, this is really what it comes down to if your goal is to build long equity in value, owning physical real estate properties is really the way to go.

Even though it’s more money and more time when you buy an investment property, you’re continuously building equity and a tangible asset

…and at the same time, you have a tenant who’s paying down your mortgage so your equity stake increases simultaneously.

Also, as your real estate property appreciates in value, having more equity in a property gives you the ability to borrow against that money in the future and then use that money to continue to buy more assets and thereby also growing your portfolio.

So basically with this, it’s more work, it’s more time and it’s also more money to be made.

However, if you don’t have a lot of money and you don’t want to spend any time on direct property investment but you still want the exposure and learn the ropes of commercial real estate properties investment, REIT is definitely a good way to start.

Now It’s Your Turn

Phew! We put A TON of work into this guide. So we hope you enjoyed it.

Now we’d like to hear what you have to say.

If you have RM 400,000 sitting in your bank account now, would you prefer to invest in a 2 million commercial property or park than in REITs?

Let me know by leaving a comment below.

This article is sponsored by Paramount Property, an award-winning developer with more than 35 years of proven track record in the property development industry in Malaysia. Paramount Property most recent commercial property project is at Shah Alam, known as Sekitar26 Enterprise.

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Buying Commercial Property in Malaysia: A Complete Guide

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