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Thursday, April 21, 2011

Can you afford a property for investment?

This is for INVESTMENT. I will work on an example and you see whether you can afford that or not.

RM300,000 double storey linked house (outside KL or Klang Valley)
Rental RM800 per month
Salary RM4000, spouse RM3600
Bank loan RM270,000 for 30 years
Installment per month RM1300
Cash RM30,000 to pay down-payment.
Then withdraw EPF RM30,000 and now having cash RM30,000

As we know, many people don’t have money left at the end of the month.
Rental income is just $800, how to pay the installment of RM1300?

Rental is RM800 per month, and assuming on average of few years, you can only get 10 months of rental income per year due to change of tenant, expenses, etc.
So your rental income per year is RM8,000.
Your installment per year is RM15600.
You short of RM7,600.

Where to get the RM7600?
You and your wife commit one month of bonus each year, RM4000 + RM3600 = RM7600.
Some companies or some banks normally pay out minimum 2 months of bonus.
One month you commit to property and the other month to minus tax and EPF and other things that you need to use or pay.

One Big question.  What if there is no tenant?
Will you buy a property that is no tenant? You need to survey before you buy. We just assume market is bad and sometimes no tenant.

In the above, you have already buffered that you only have 10 months rental income in a year. With RM30,000 cash in hand, you can afford to suffer another 23 months without rental. 
If you always have tenant and only occasional no tenant, the RM30,000 can last for more than 10 years. After 10 years, you decide whether to sell or not.

With RM4000 per month salary, you will also be adding RM276 per month into your EPF Account Two that later can also be withdrawn to pay the installment. With bonus, after 5 years, your EPF account two will have more than RM20000 and you can instruct EPF to pay your installemt. That will also last you for 1 year plus.

The above example is on buying a high price house with low rental income.
You can look for condo that is cheaper and with high rental income, and therefore the financial situation will be better. But normally condo appreciation is less than house.

Whether we can afford the property for INVESTMENT depends on our income or salary, savings, rental income, property price, etc.



More on property and my blog.


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About Me

Dollar Cost Averaging and PEGGY Method. Sharing info on cheap (low PE) company with high growth, low Gearing or Net Cash and High Dividend Yield.

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The information contained in this blog is my personal diary and has been prepared solely for myself. Without any previous reading material or discussion, by just reading my blog contents, reader may misunderstand the contents.
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