Posts Tagged ‘property’

Case Study… Investing in Property

Do you ever think about investing, maybe in property? If you have yet to join this facebook group, consider it. Click here…

Ok, in this short post here, just want to do some simulation. If you were to invest in a condominium, what should you consider.

Just some number crunching first. Based on some assumption and the situation may vary from time to time.

1. Assuming you get a condominium at RM 230,000. You have the budget to pay the 10% down payment (RM 23,000) and around RM 7,000 misc fees (SPA, stamp duty, transfer of title).

2. Therefore, you need to get a bank loan of RM 207,000. At the current market situation, if you manage to get a bank to finance you at BLR-2.0 and free moving cost (meaning the bank absorb the fees for loan agreement, stamp duty and so on).

3. For the amount of loan, and with the tenure of 30 years, and assuming the interest rate won’t suffer any increase in the foreseeable future, your monthly installment will be around RM 950.

4. The condominium at this price range, can easily cost around RM 250 per month for the maintenance fee. It totals up the monthly cash outflow of RM 1200.

5. In order to make it just nice that you do not have to come out any money every month, the rental should be at least RM 1200.

Let’s say for the investment horizon of 5 years.

1. In total of the 5 years, the total cost (assume the interest rate remains the same) is the upfront of RM 30,000 and the total 5 years cash outflow of RM 72,000. The rental has been very stable and you have just balanced the cash flow every month, therefore you did not pay a single cent for the period.

2. After 5 years period, you should now still owing the bank for around RM 185,000.

3. Assuming the property market is really good and you manage to sell the condominium at price of RM 300,000.

4. After settle the bank outstanding loan, you have in hand RM 115,000. So you minus out the initial RM 30,000, your profit is RM 85,000. If compared to the initial value of the property, the total 5 years return is 36.95% or simply 7.39% a year without compounding. If you were to look at the initial cash investment that need to put in, it is RM 30,000 against RM 85,000, or simply 280% return rate. 

Remarks:

1. In this simulation, the rental income is assumed to be good enough to cover the monthly cost. Therefore you do not have to scarifies your life style, or other investment plan in hand to support the property investment. This is risk number 1 that you need to consider. If you do not have this kind of cash flow in investing, consider twice.

2. It is assuming the rental is constant cash flow, which means you do not suffer any lost due to vacancy. This is risk number 2. If you are not confident that the house could always be occupied, and you do not have the confident to keep paying the installment and maintenance fees with your own pocket money when nobody is renting your property, consider twice.

3. It is assuming no cost on any serious repair. If you don’t have the confident to find tenant that can take good care of the house and no serious cost involved within the investment horizon to repair the house, consider twice.

4. The simulation above is perfectly ideal investment scenario which it is a sure win situation. I wish I could find one. If there is any good opportunity like this, please don’t be hesitate to share.