February 18, 2013
Studio apartment investor goes all-in
No diversification needed when one is young, property investor tells CAI HAOXIANG
Most investors live by the virtues of diversification - that is, not putting all your eggs in one basket.
Not Ryan Khoo Chung Ming. The 30-year-old bought his first apartment in his native Malaysia in 2007 when looking for a place to stay. Then, the market was not as buoyant. He spotted an opportunity for studio apartments and bought more and more, maxing out his borrowing limits.
He even moved to Singapore in 2009 to get a higher-paying job so he could borrow even more.
Today, he owns 13 apartments in Kuala Lumpur, a studio apartment in the United States, a studio apartment in Singapore, and has also invested in an office unit in Johor Baru and a hotel floor in KL. The total value of his portfolio has gone up and is now worth RM10 million (S$4 million). Half of the portfolio is yield-generating, with the remainder under construction.
Like many who buy property, he is highly leveraged, borrowing more than RM8 million. But with rental income more than covering his mortgage payments, Mr Khoo quit his bank job to focus full-time on his property investment club, Alpha Marketing.
Says Mr Khoo: "After my first rental unit, I saw I could get attractive returns. I thought, why buy one, I should buy more, it was such a waste. I knew I can still borrow, so I borrowed more. I bought units in the same block together with friends," he says, adding that stocks were too volatile for him.
"When you're young, you can take the risk, don't diversify. If you're trying to make it, you should be a bit more focused," he adds.
Mr Khoo grew up in Petaling Jaya, a city near KL, in a middle-class family. His father worked in the navy, and his mother was a housewife.
"Growing up, I had an idea to do business. But the expectation was to go to university, get a good degree, get a job, buy a house, get married, settle down and have children," he says.
He graduated in end-2004 with a degree in electronics engineering. "Things were tough for engineers, the pay was lower. I didn't feel I had the aptitude to get ahead in the industry. So I joined something with bigger prospects," he says.
He joined Standard Chartered Bank in 2005 as a loan product manager, with a starting pay of around RM3,000 a month.
Valuable experience was gained in the process, which he later used to his advantage. "I learnt that loan approval depends on your income and employment, your age, I learnt about debt service ratios that banks use to determine how much to lend to you," he says.
In 2007, he was looking for a place to stay and found a three-bedroom, 1,100 sq ft apartment in the KL suburbs for RM300,000. By that time, he was earning around RM5,000 to RM6,000 a month.
The downpayment was just 10 per cent, or RM30,000 - easily paid for with saved-up cash. Then his colleague, who is also his age, told him about one-bedroom apartments. He thus bought his first investment property - a 380 sq ft one-bedder.
The studio apartment, near KL's city centre, was going for RM170,000 and could be rented out for RM1,800 a month. This translates to a gross yield of more than 12 per cent.
"Those were the days when property investing wasn't so sexy," he recalls.
"We found there was a shortage of supply of one-bedders in the city centre. But expats need a place to stay. So we bought more studios, together with friends. We bought whatever we could find. We bought till we ran out of money."
In 2008, he bought four more units, each costing around RM200,000. The downpayment for each was either 10 per cent, or lower than that for properties where owners were financially distressed.
"I ran out of money, my income hit the borrowing limit," he says.
Mr Khoo thus transferred to his bank's Singapore office in 2009. His father helped him manage his properties in KL. In 2009, he bought one more studio unit, in 2010, five more, and in early 2011, two more.
Last year, he bought a 590 sq ft studio apartment in Singapore that cost $650,000. In early 2011, he started Alpha Marketing with his girlfriend Melissa Low, a finance executive.
"I realised Singaporeans lacked knowledge about buying properties in Malaysia. They know more about property investing in Australia and the UK than in their neighbouring country. There is a lot of suspicion. But I want to show that it's not difficult," he says.
"Agents bring leftover stuff to sell here. I want to stay here and serve a certain market segment: Malaysians here go back often but are out of touch, and Singaporeans who want to invest in property but find Singapore hard to invest in, and the UK, Australia and the US too expensive."
Last year, he thought about quitting his job and living in Malaysia off his rental income.
"But my mum told me, you are only 30 years old, why do you want to quit and live like that for the rest of your life? She told me to continue working.
"But after working for so long in a bank, I didn't like the thought of politics and ladder-climbing in larger companies."
Hence the decision to quit his job last December and focus on his club. "It's a passion," he says simply. Mr Khoo is now a licensed sales person under ERA Realty Network.
Alpha Marketing began through sharing sessions over dinner. It grew by word of mouth and social media, and eventually started organising seminars on property investing. Now, there are 1,000 on the mailing list, out of which 100 are active investors. "Membership is free but we make money off deals," he says.
"I can't do this alone. Having partners mean having a network, sharing information, and we can work together to buy. We try to be selective, we want to avoid selling leftover, overpriced property."
Buying property in a club allows investors to buy bigger properties like office space and hotel buildings. High net worth individuals who want to stay low-key also go through him to get more financial firepower for the deals they are doing.
Says Mr Khoo of his plans: "I don't have a target as to how much I want to acquire. I want to get some prime property in Iskandar, and build a name for myself as an expert on Malaysian property."
He is bullish on the Iskandar region, which both countries see as an alternative for Singaporean businesses, and a location that is just an hour away.
"In five years' time more Singaporeans will want to stay there, instead of Johor Baru where there are still worries about crime," he says, noting that the infrastructure there is being developed well.
Now, Mr Khoo's rental income adds up to around $3,000 a month after deducting loan repayments and maintenance fees. He also earns commissions from property deals.
"I would call myself thrifty. But if I want to upgrade my lifestyle, this is not enough," he says.
He says property prices have gone up in Malaysia and Singapore and it is harder for investors to find attractive buys now. Even though his investments are highly leveraged, he is undeterred. "If the market falls, I can cut rentals and still break even," he says.
"But it is not so easy now. Developers are building a lot, and supply is coming up in Singapore and KL. So I might try to cash out in 2016 or 2017."
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