Investing in real estate is one of the most powerful ways to build generational wealth. Not only does it provide a steady stream of passive income, but it also offers some of the best tax benefits available. However, for many beginners, the process of buying a rental property can feel overwhelming. Where do you start? How much money do you need? What steps are involved?
In this guide, I’ll walk you through the step-by-step process of buying your first rental property. Whether you’re looking to diversify your income, take advantage of tax breaks, or build long-term wealth, this post will give you the tools and knowledge to get started.
Step 1: Prepare Your Down Payment
The first step to buying a rental property is saving for the down payment. Most lenders require 10 -30% down for investment properties. This means if you’re buying a property worth RM 500,000, you’ll need RM 50,000 to RM 150,000 upfront.
The eligibility of the loan depending on the number of properties you owned. If you owned Less than 2, you will eligible for 90% loan, more than 2 units, your eligibility is only 70% of loan available.
Step 2: Build Your Credit
Your credit score plays a crucial role in securing a mortgage. The higher your score, the lower your interest rate, which means lower monthly payments and more cash flow.
To improve your credit score:
- Pay your bills on time.
- Keep your credit card balances low.
Step 3: Speak to Bankers
Before applying for a mortgage, speak to multiple bankers to get an idea of what you can qualify for. Ask questions like:
- How much can I borrow based on my income and credit score?
- What interest rate can I expect?
- What are the terms and conditions?
This step is about gathering information, not committing to a loan. Avoid letting bankers run a hard credit check at this stage, as it can temporarily lower your score.
Step 4: Choose the Right Property
There are many types of rental properties to choose from, including:
- Single storey
- Double stories or Bungalows
- Condos and apartments
For beginners, I recommend starting with a condos as it is lower entry.
Work with a local real estate agent who understands the market. They can help you identify properties with the best potential for rental income and appreciation.
Step 5: Research Properties
Once you’ve chosen the type of property, it’s time to start researching specific listings. Look for properties that are cash flow positive, meaning the rental income covers all expenses (mortgage, taxes, insurance, maintenance) and leaves you with a profit.
Use online tools like Mudah.my, Propertyguru.com etc to estimate rental income and expenses. Prioritize properties in great neighborhoods with good schools, parks, and job markets. Avoid properties that require major renovations, as these can quickly eat into your budget.
Step 6: Get Pre-Approved for a Mortgage
Once you’ve found a property you like, it’s time to get pre-approved for a mortgage. This involves a hard credit check and a thorough review of your finances, including your income, debt, and assets.
A pre-approval letter shows sellers that you’re a serious buyer and can help you stand out in a competitive market. Choose a bankers that offers the best terms and can process your loan quickly.
Step 7: Make an Offer
With your pre-approval in hand, you’re ready to make an offer on a property. Work with your real estate agent to determine a fair price and include contingencies for inspections and financing.
If the seller accepts your offer, the property will go under contract, and you’ll move on to the next step.
Step 8: Complete Inspections
Before closing, it’s essential to inspect the property for any hidden issues, such as water damage, foundation cracks, or outdated systems. If the inspection reveals problems, you can negotiate with the seller to lower the price or cover repair costs. You may put into the contract request the seller to fix it for you.
If the seller refuses to address major issues, you may need to walk away from the deal and continue your search.
Step 9: Close the Deal
The final step is closing, where you’ll sign all the necessary documents, pay closing costs, and officially take ownership of the property. Once the deal is closed, you can start making any necessary renovations and rent out the property to generate income.
Final Thoughts
Buying your first rental property is a significant milestone on the path to financial freedom. While the process may seem daunting, breaking it down into manageable steps makes it much more achievable. By preparing your finances, working with the right professionals, and choosing the right property, you can build a profitable rental portfolio that generates passive income and long-term wealth.
Are you ready to take the plunge into real estate investing? Share your thoughts or questions in the comments below! And if you’re looking for more tips on property investment, check out our other posts on ChatPropertyMalaysia.
