How to Buy a House: 12 Dumb Mistakes to Avoid

Updated: Jan 15

You've worked hard and saved over the last couple of years.


You believe it's time to buy a new house.


You can imagine the house. Your friends are going to be impressed. Your mum and dad are going to be proud.


Admit it. You want this house to be an extension of you. It's going to be a testament to your success. It's going to be a nest for your family.


These aspirations are perfectly alright.


However, a house is a significant purchase that is probably going to stick with you for many years. Once you've pulled the trigger, you can't undo the purchase. An oversight could cost you many years of suffering. It is monumentally important therefore to avoid mistakes in the process.

No use in crying over spilled ice-cream

So, how do you avoid the suffering that plagues many home buyers who've made bad purchase decisions? You avoid these 12 mistakes of course!

  1. Opening iProperty and Looking for a Property to Buy

  2. Skipping the Neighbourhood Research

  3. Researching Like You're a PhD Student

  4. Assuming All Developers Deliver

  5. Paying an Exorbitant Premium for Proximity to LRT or MRT

  6. Agreeing to Buy Without a Professional Inspection

  7. Thinking You Can Get a Mortgage

  8. Paying an Earnest Deposit Directly to the Owner

  9. Neglecting to Put Everything in Writing

  10. Using the Same Lawyer for the Sales & Purchase Agreement

  11. Taking Vacant Possession Without Inspection

  12. Thinking Like an Investor Not an Occupant

Read on for a detailed explanation...


Opening iProperty and Looking for a Property to Buy


If you're hungry, you can open your Grab Food app and pick anything that fancies you in the moment. If you want to buy a property, you can't do the same. Buying a property requires a well-thought out plan.


You must know what you need; now and in the future. You should understand how much you can afford and the costs related to purchasing and keeping that property.


These are some questions you need to ask:

  1. Is it an apartment or landed property?

  2. Will your family grow in the next few years?

  3. How much space will you need? How many rooms?

  4. How will you and your spouse get to work - public transport or your own transport?

  5. Where do your children go to school / day care?

  6. What amenities will you need in the area?

  7. Do you need to stay close to your parents, siblings or relatives?

  8. How much can you afford in terms of downpayment and closing costs?

  9. What will your cash flow on the property be?

Carefully ascertaining your needs and finances will guide you towards a property that you will not regret buying to stay in. Therefore, ensure that your purchase is a deliberate and planned process. Don't go in blind.


Once you've identified your budget, location, and type or property, you can start looking on iProperty.


Skipping the Neighbourhood Research


When you live in a property, you also have to live with other people in your immediate vicinity. You have to be sure you're alright with them. If you're a family for example, you may not want the neighbouring houses to be student accommodation.


You may not want to live in an apartment where the majority of owners are doing short-term rentals. You probably don't want to live 3 doors away from where a gruesome murder took place or next to a house that has a reputation for being haunted.


You definitely want to avoid neighbours who are unfriendly, noisy, and uncouth. Unfortunately, you cannot avoid them after you buy the house. You must do your research before.


Knock on your future neighbours' doors. Talk to them. Take a walk around the neighbourhood. Go sit in the neighbourhood park and observe the people there. Visit the shops, speak to people and get a feel for the place. You may have to do this a few times but it will be well worth the time.


Check crime statistics in the area. You can check with the local police station. I find police officers to be very friendly in general. Strike up a conversation with them. Google also has resources on crime statistics.


If you love the neighbourhood, you're one step closer to owning a home.


Researching Like You're a PhD Student


This may sound paradoxical but it's not. You must do your research but avoid excessive and pointless research. I've met quite a number of people who don't make any decision due to information overload.


There's a term for this - paralysis by analysis.


You must distinguish what's important information and what's not. For example, while it's important to know your neighbours in general, you don't need to know their income levels and job designations.


The current state of the property market like property overhang is of no use to you when you're buying to stay.


Don't let yourself get carried away with so much research that you become indecisive. This is as bad as buying the wrong property. Research should be tempered with common sense and practicality. Let them guide you as to what information is useful and what is not.


The next mistake is definitely worth some research...


Assuming All Developers Deliver


If you're buying from the primary market, remember this; not all developers are equal. When it comes to buying property, it is nearly always a good idea to stick with developers who have a solid track record of delivering projects on time and in good quality.


Delays in completion can cost you a lot in interest. If you're not aware, your bank releases payment to the developer in stages as the development progresses to completion. You pay interest on the sums released. Therefore, if the project stalls, you'll continue paying interest and not have a property to live in.


Bad quality projects are in uncomfortable numbers. I've received many forwarded videos of crazy leaks. One video showed an elevator that looked like a shower cubicle with a rain shower.


In order to separate the wheat from the chaff, look at developers' past projects. Ask friends who've bought their projects, checkout forums, and use Google.


Paying an Exorbitant Premium for Proximity to LRT or MRT


A property expert whom I have a lot of respect for, Mark Chua, once wrote this on Facebook:


Just because a property is highly rentable and is located next to a MRT station – it doesn’t necessarily mean that its price will appreciate forever.

Properties that appeal to Renters tend to reach a stagnation point. Why? Renters just help you subsidize your Mortgage. But, only Owner-Occupiers that want to BUY your Property will drive prices up over time.

WHAT DO OWNER-OCCUPIERS REALLY WANT?

What about Boosters like Shopping Malls, MRT, Cafés, Highways, Goreng Pisang & Char Kuey Teow stalls? Sure, some of these boosters may appeal to Owner-occupiers, but I don’t really give 2 hoots about them. . Remember folks – Owner-Occupiers tend to be affluent families with precious little children. In general, these folks will drive up the price of your property; NOT the yuppie that drinks Café Latte in the morning, does Hot Yoga, and takes the MRT to work. . Proximity to SCHOOLS with a good reputation is simply a must for many family buyers. Some purchasers are even willing to pay a premium so that their little lambs are within a short distance from their favoured schools.


From my experience, most parents are willing to sacrifice and take a longer drive to Work just so their children can be nearer to school. Lauren & I are one of these parents.


Think about whether you're really going to be using the MRT or LRT. Even then, feeder buses service a lot of areas not close to the stations. Mont Kiara for example, is not close to an MRT or LRT station but has 2 feeder buses that connect to them.


You will find gaping price differences between properties that are closer to rail stations and those that are not. If a feeder bus can get you to a station, save that couple of hundred thousand for your renovation.


Agreeing to Buy Without a Professional Inspection


Before signing a sales and purchase agreement, have the property you're going to buy professionally inspected. In developed countries you can easily find such professional services. In Malaysia it's not as easy.


If you Google "home inspection services Malaysia," you'll find companies that do this but as I've never used these companies' services, I'm not going to recommend any. In the past I've used my contractor to do home inspections.


As someone in the real estate business, I've seen plenty of buyers get painfully surprised with defects after purchase. For primary projects, there is a warranty period. In the sub-sale market, you may not have much recourse.


Things that you need professional help to check would include roofing, plumbing, electrical wiring, cracks, drainage, and the presence of pests to name a few.


What you should do, is to have a clause in your offer to purchase that states your offer is subject to a professional inspection of the house to verify that it does not have major defects.


Thinking You Can Get a Mortgage


I'm not a pessimist but a very good friend of mine who shaped my work culture once told me, "assumption is the mother of all fuckups." He was one of the best project managers I knew to this date.


Never assume getting a mortgage is going to be easy. Before you go out to purchase a house, know exactly how much you can afford to spend on mortgage instalment payments. Then check you debt-service ratio (DSR). If DSR is a foreign word to you, download my book, The Ultimate Guide to Buying Property, and read Chapter 4.


Very briefly, your DSR tells the bank how much you can borrow based on your income and the existing debts you have to service. If the ratio is too high, you may not get a loan.


However, your DSR is not the only factor banks look at. There's CTOS and CCRIS reports. Banks rely on these reports to see if you're creditworthy. You may have great income and cash reserves but if your CTOS report is not favourable, your mortgage application may get rejected.


You can get your CCRIS report from Bank Negara either online or by visiting their office. You can get your CTOS report online.


Better still, build relationships with a few mortgage bankers. They'll be able to tell you with reasonable accuracy how much you can borrow and your eligibility.


Paying an Earnest Deposit Directly to the Owner


If you're buying a sub-sale property, you will be paying a relatively hefty earnest deposit when you sign the offer to purchase.


The offer to purchase is a prelude to the sales and purchase agreement. It contains the agreed price and other conditions of your offer. It is sealed with an earnest deposit usually amounting to 2% or 3% of the purchase price.


This should never be paid directly to the vendor or owner. It should be paid to your agent's agency or your lawyer's client account as stakeholder.


It is not uncommon for an offer to purchase to be aborted. This can happen for numerous reasons - chief amongst which is the purchaser's inability to secure a mortgage. Other times it could be because one party has not honoured the conditions in the offer.


When this happens and the breach is on the owner's side, you're supposed to get a refund of your earnest deposit and damages. It can get very difficult to claim this deposit back if it is in the owner's account.


Real estate agencies and law firms on the other hand are bound by regulation to keep your deposits safe and return them accordingly. Malpractice can happen but it is to a much lesser degree.


Neglecting to Put Everything in Writing


You view a property that has been advertised as fully furnished. You fall in love with it. Especially because of the paintings and stunning carpet in the living area. You make an offer and it is signed and sealed.


In your offer, there is no mention of the paintings and stunning carpet. You verbally asked the agent and she said everything's included.


When you sign the sales and purchase agreement, you notice in the included inventory that the paintings and carpet you love so much are not mentioned. You ask the owner and he says he never said he'd include those items.


Your agent says the owner's a prick.


What can you do?


Absolutely nothing.


Had this been explicitly stated in the offer to purchase, the owner would be legally bound to provide the paintings and carpet. If he refuses, you can abort the sale, get a refund of your earnest deposit and claim damages.


Yes, that's how important having everything in writing is.


Using the Same Lawyer for the Sales & Purchase Agreement


Going by the letter of the law, the same lawyer or firm can't represent both vendor and purchaser. Yet, it happens very often.


It happens because many lawyers will tell you that if you used the same lawyer as the other party, you'd get a hefty discount. There's a serious conflict of interest with this. If there's a dispute, who does the lawyer represent?


90% of the time, nothing goes wrong. However, something can go wrong and when that happens, you may find your best interest at stake.


Alternatively, you can opt not to be represented. So only one party bears the cost of the legal fees but this means you need to know how to draft a sales and purchase agreement or learn how to draft one and handle legal groundwork like title search. If all this sounds alien to you, get representation.


And make sure your lawyer is only serving your interest.


Taking Vacant Possession Without Inspection


When you get the keys to your property ensure you do a thorough inspection with your agent or developer's representative.


Reputable developers will provide you with a comprehensive form to use as a guide for checking defects.


You can also use your sales and purchase agreement as a guide. Ensure everything in the inventory is there. Verify that all the conditions have been met. See that there are no defects.


If you need assistance, bring your contractor or employ the services of a professional company.


Do this before starting any renovation work or moving in. Otherwise, it may look like the defect originated from your side.


Thinking Like an Investor Not an Occupant


In my book, I highlight that there's a significant difference in buying-to-stay and buying-to-rent. The mistake many house buyers make is thinking too much like an investor. They look for hotspots, crave boosters, and perform copious amounts of investment analyses.


Take a step back and zoom out. You're going to be living in this house. What's important to you? You should be looking for a house that you never want to sell. Some of the happiest home owners I've met, bought their properties only on the basis that it met their needs.


For example, it was close to their parents' house. The kids' schools were nearby. The house felt warm and cosy. There was a playground that the kids loved. It was easy to get to work.


When you think solely as an investor, your actual needs can be overshadowed by perceived investment value. The two don't always go hand-in-hand.


Being right next to an MRT station for example may mean that you have to settle for a smaller house due to price.


Just because a particular apartment can fetch good returns via AirBnB does not necessarily make it a place you may want to live in.


I hope this review of mistakes helps you with your next house purchase. Print out this post or write down the 12 mistakes as a guideline when you are house hunting. Good luck!

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