Question: 

Hi, I’m Lisa. I intend to find myself a personal residence. Lately, I had discovered a condominium known as the Waterfront. It is one of the nicest places to live in Kota Kemuning, a matured township in the Klang Valley. 

The asking price of a 980 sq. ft. unit at the Waterfront is around RM 500,000. It consists of 3 bedrooms and 2 bathrooms. Its maintenance fee is presently set at RM 0.25 psf. 

The rental prices of units measuring 980 sq. ft. at the Waterfront are now being advertised at RM 1,500 – RM 1,800 a month. 

My question is – Should I buy or rent a unit at the Waterfront? 

 

Answer: 

I believe the answer lies with the individual – Lisa. 

Is it suitable for Lisa to buy her own home or rent it? 

In this article, I’ll share 4 key factors where Lisa can consider before making her final decision. They are as follows: 

 

1. Affordability 

Here, I’ll tabulate how much Lisa needs to afford a unit at the Waterfront which is now priced at RM 500,000. Let’s assume that Lisa is below 35 years old and is planning to finance her home purchase through 10% in downpayment and 90% in mortgage at an interest rate of 4.5% per annum. 

Lisa may need to prepare the following in initial capital outlay: 

 

No.

Expense Items to Prepare For

Estimated Amount (RM)

1

10% Down Payment

50,000

2

SPA Legal Fees

3,950

3

SPA Stamp Duty

9,000

4

Loan Facilities Legal Fees

3,600

5

Loan Stamp Duty

2,250

6

Valuation Fees

1,050

7

Renovation & Furnishing Expenses 

(Max: 10% of Property Price)

50,000

Lisa’s Total Maximum Initial Capital Outlay

119,850

 

In addition, her mortgage payment works out to be RM 2,129 per month where RM 1,573 will be her interest payments to the bank. The balance of RM 556 will be the repayment of her loan principal. 

Let’s assume that local banks adopt a maximum debt-service ratio (DSR) of 60% for a borrower. Hence, Lisa would need to earn at least, RM 3,550 to qualify for the mortgage. But, if Lisa has existing debts such as car loans, credit card debts, personal loans … etc, then, Lisa would need a higher monthly income to qualify for her mortgage. 

 

Min Monthly Income x Max DSR = Mortgage Payments 

RM 3,550 x 60% = RM 2,129

 

Personally, on the safe side, it is safer to cap your DSR at 30%. Thus, if Lisa does not have any outstanding debt, the minimum amount of income needed works out to be RM 7,100. But, if let us say, Lisa has a car loan instalment of RM 1,000 per month, then, the minimum income needed would be RM 10,500 a month. 

 

In brief, if Lisa does not earn at least, RM 7,000 a month and does not have RM 150,000 in spare cash-in-hand (initial capital outlay + 1-year buffer of mortgage payments), then, Lisa has no choice but to rent the unit. 

 

Affordability Measures

Cash-in-Hand

Minimum Monthly Income

Criteria

RM 150,000

RM 7,000 (assuming no debt)

 

#2: Life Goals … 

If Lisa has fulfilled both the affordability measures stated above, she is qualified to choose – to buy or to rent. 

 

Supposedly, Lisa has RM 150,000 in savings and is earning RM 7,000 in monthly income. She chooses to buy her unit at the Waterfront, thus, spent RM 120,000 in initial capital outlay, leaving behind RM 30,000. If her expenses had grown to RM 5,000 per month (inclusive of the mortgage payment), then, her RM 30,000 would only last her for 6 months if she is to lose her source of income. 

 

In other words, Lisa cannot afford to stop working after buying her home. 

 

But, if Lisa chooses to rent the unit at RM 1,700 a month, she would retain a big chunk of her RM 150,000, enabling her to pay monthly rent comfortably for 6-7 years. If Lisa’s monthly expenses is RM 5,000 (inclusive of rent), the amount will be sufficient to last her for 2.5 years if Lisa loses her source of income. 

 

Thus, Lisa will be more flexible to take a break, make a career switch, kickstart a business, or even to invest in stocks if she chooses to rent instead of buy. 

 

Choices

Buy

Rent

Financial

Flexibility

If You Intend to

Continue Working to Rebuild Your Finances

If You Intend to Enjoy

Financial Options with Cash-in-Hand

 

#3: How Many Properties Do You Want to Have in Your Lifetime? 

If Lisa envisions herself to own 1 property in her lifetime, then, she should buy. 

 

If Lisa sees herself to be an investor with a portfolio of properties, then, renting is more practical than buying. 

 

Why? 

 

This is because your personal residence is not an income-producing asset. Thus, it does not improve your eligibility to a higher loan amount which is a source of financing to your investments into the second, third or fourth property. 

 

If Lisa has RM 150,000 in savings, she may opt to invest in a property where the price is RM 250,000. She may rent it out for RM 1,000 per month. Here, I would explain Lisa’s possibility of buying her next property if she opts to buy or to rent a unit at the Waterfront with the following table: 

 


Option

Buy Waterfront 

@ RM 500,000

Rent Waterfront & Invest

in a RM 250,000 Property

Initial Capital Outlay
(DP+Legal+Reno Fees)

RM 119,850

RM 59,900

Savings Left 

(Savings – Initial Capital Outlay)

RM 30,150
(RM 150,000 – RM 119,850)

RM 90,100
(RM 150,000 – RM 59,900)

Monthly Income
(Monthly Income + Rent Income)

RM 7,000
(RM 7,000 + RM 0)

RM 8,000
(RM 7,000 + RM 1,000)

Maximum Debt Repayment

Based on DSR @ 60%

RM 4,200

RM 4,800

Current Debt Repayment

RM 2,129

RM 1,064

Usable Debt Repayment Quota
(Maximum Debt – Current Debt)

RM 2,071
(RM 4,200 – RM 2,129)

RM 3,736
(RM 4,800 – RM 1,064)

Maximum Loan Eligibility
Rule of 200

RM 414,200
(RM 2,071 x 200)

RM 747,200
(RM 3,736 x 200)

 

I’m not saying that it is not possible for Lisa to buy her second property if she is to choose to buy the Waterfront unit at RM 500,000. What I reckon is – Lisa will find it easier to afford her second property if she chooses to rent and invest her money into a tenanted investment property. 


#4: Capital Appreciation 

You may ask: ‘But, won’t Lisa’s house appreciate to RM 1 million in 10 years?’

 

Let’s discuss. I was informed, perhaps you too, that property prices, in general, will double every 10 years if they are well-located. So, let us assume that Lisa’s wishes turn out to be true. Her Waterfront property did appreciated in price to RM 1 million in 10 years. 

 

The question is: ‘Who can buy?’ 

 

In 10 years time, a prospective buyer would need to prepare the following: 

 

No.

Expense Items to Prepare For

Estimated Amount (RM)

1

10% Down Payment

100,000

2

SPA Legal Fees

7,450

3

SPA Stamp Duty

24,000

4

Loan Facilities Legal Fees

6,750

5

Loan Stamp Duty

4,500

6

Valuation Fees

2,050

7

Renovation & Furnishing Expenses 

(Max: 10% of Property Price)

100,000

Lisa’s Total Maximum Initial Capital Outlay

244,750

 

His mortgage instalment works out to be RM 4,259. If he prefers to keep a safe DSR of 30%, he needs to make at least RM 14,200 in monthly income (he needs more if he has outstanding debt). 

 

Affordability Measures

Cash-in-Hand

Minimum Monthly Income

Today @ RM 500,000

RM 150,000

RM 7,000 (assuming no debt)

10 Years Later @ RM 1 million

RM 250,000

RM 14,200 (assuming no debt)

 

Do you believe that, in 10 years time, the locals residing in the vicinity have the ability to grow their monthly income to above RM 10,000 and save up as much as RM 200,000 and above in cash reserves to buy over your million-ringgit real estate? 

 

If the answer is yes, then, you may consider buying the property. 

 

If not, then, you may consider renting the property instead. After all, growth in property price is greatly dependent on the local population’s ability to increase their wealth over the long-term. 

 


Conclusion: To Buy or To Rent

So, should Lisa buy a unit or rent a unit at the Waterfront? Here, I’ll summarize what we’d discussed in the table below: 

 

Option

Buy

Rent

Cash-In-Hand

> RM 150,000

< RM 100,000

Monthly Income

> RM 8,000 

< RM 7,000

Life Goals

Plan to Continue Working

Plan for a Career Switch or Start a Business

Properties

One to Stay for a Lifetime

Multiple Properties

Capital Growth

Believe it will increase

Do Not Believe it will appreciate a lot

 

What say you? If you’re Lisa, would you buy or rent a unit at the Waterfront? 

 

Please leave your comments below: 

 

 

 


Ian Tai
Ian Tai

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia.

    1 Response to "Should I Buy or Rent My Personal Residence?"

    • Fendi

      totally make sense. Am new in learning all this but as i know In decision making, we all need to make careful evaluation and closest estimation. Jangan buat sesuka hati walaupun ada duit. In this instance, Lisa needs to make projection in few years down the road, is the worth of the property in line with the people’s wealth development. Looking at local ability, it wudnt be very easy to find the candidates that may afford such high prices.

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