Home price RM380,000 and rental is RM1,600. Worth buying?
When the home price is RM380k and the maintenance fee is RM242 per month, is this a worth buy?
Now let’s look at a few scenarios.
How YOUNG is the buyer?
As the housing loan tenure is maximum 35 years period or up to 70 years old, whichever is lower.
If the buyer is 35 years old or younger, then he/she will be able to stretch the loan to 35 years. Now the property with zero down payment after rebate, then RM380k for 35 years at 3% interest rate will be RM1,463 per month.
Thus, RM1,463 per month plus maintenance fee of RM242 equal to RM1,705 per month. So the rental COULD NOT cover the repayment + maintenance fee. So if we take negative numbers as “not a good buy”, then this is “don’t buy” decision.
However, we can also look deeper into the monthly repayment to distinguish between the interest and principal payment too before we make our decision.
What if RENTAL could cover interest + maintenance fee?
Deep dive to discover how the mortgage repayment divided into principal amount and interest amount every year.
On the first year, the total repayment is RM1,705 x 12 months = RM20,460
And the interest breakdown for first year is RM11,315 + maintenance fee RM242 x 12 month = 2,904
First year interest + maintenance fee = RM14,219
If the rental is RM1,600 x 12 months = RM19,200 and this amount is actually covers both interest payment and also maintenance fee RM14,219. So number wise, just need about 4 years, buying is cheaper than rental and we could earn back some money if we manage to sell it back with the same price we bought.
Why sell same price after 4 years? Of course no! Just a conservative estimates to tell the story is this worth buying.
If we sell higher, means we earn more instead of break even compare to rent, and renting is forever with the price will increase over years, but mortgage repayment won’t.
In fact, what happens to the principal payment and the interest payment is that every year, the interest portion gets smaller while the principal gets bigger. The principal actually the capital which belongs to owner. Interest payment belongs to the bank. So, as long as the rental covers interest fully and the balance is contributed to the principal, the tenant is making the owner richer every month, slowly.
What happens if OLDER buyer?
For age above 35 years old, the maximum loan period may only have 70 years old - their age which is lesser than 35 years.
Example a 45 years old buyer, then the maximum loan period is 25 years only. The calculation are the following:
The monthly repayment is RM1,802 per month + RM242 maintenance fee = RM2,044 per month.
First year, the total repayment is higher amount at RM24,528
But the total interest and maintenance fee remain the same amount = RM14,219 only.
Higher monthly repayment due to shorter loan period will cover more on the principal and exactly how the loan period is shorter.
This mean this is faster and about 3 years to be cheaper than renting the house for RM1,600.
Thus, if you plan to rent more than 3 years, buying is obviously better.
But… what about other costs? Renovation, electrical appliances, stamp duty, legal fee and more???
Yes! We better to include all these before we make a purchase, by understanding the actual amount we need to pay can help to manage the risks.
So, let’s have an appointment to find your perfect home without breaking the bank. It’s free of charge even though you did not make a purchase after the session.
Tap the WhatsApp link here https://wa.me/60127772756?text=FindPerfectHome to schedule an appointment.
For this! RM380,000 is a condominium in Bukit Mertajam, if you are interest to buy a property in Bukit Mertajam, do not wait to buy, buy and wait instead.
REMEMBER this chart too…
It’s called Malaysia House Price Index (MPHI) and it tells of the typical price increase over a certain of time.
So, while we are obsessed with many of the numbers we discussed above, the home we bought is also increasing in value every year too.
Let’s also look at a simple calculation yeah, it’s a comparison of the price change over period of 10 years.
We get the search result for 3.96 per cent from 1997 until 2021 from Google “Malaysia Home Price Index Average”
Now, the home price we discussed in the above?
It’s RM380,000 x 3.96% = RM15,048
RM15,048 ÷ 12 months = RM1,255. In other words, this mean that the property price increased RM1,255 every month.
This is why when we buy the right property, chances are we would gain profits when we sell and we could use the profit to upgrade a bigger home or continue next investment and so on.
Buying with confident!
You can do it too, with me and it’s free of charge. I am Cheston Choo, in this industries since 2013, hope my sharing could help you in better decision.
Feel free to contact me to schedule a coffee session 😉
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