Christine asked 10 years ago
Hi KcLau, I am Christine (34 years old). I am very confused now because I do not know what decision should I make. I own a walk-up apartment and it is renting out at rm1000 monthly and house loan installment is rm596 monthly. I bought this property in 2011 with a price of RM145K. Currently I can easily sell this property at 400K. Do you think that I should sell this property and set the profit as fixed deposit? Or I should just keep this property (but I think 400k is almost the maximum that this property 800sq ft can go for and that is the highest profit margin it can have)? I am very struggle now and I do not know how to do analyzation in this investment and make good decision. I will appreciate if you can give me some advice on this.
KCLau Staff answered 10 years ago
Hi Christine, once you sell your property and convert it to cash, you still need to invest it somewhere other than FD. To help you answer your questions, you need to understand the rate of return you can get from the capital.
Assuming the property is 400k and getting RM12k yearly return, giving a return of 3%. There is also another return of capital appreciation, due to inflation, it can be another 2-3% each year.
If your loan is RM100k, meaning your equity of the property is RM300k. It will be more complicated to calculate the actual return, but it will be higher than 5% due to the leverage effect.
Now if you sell it and put it in FD, only getting 3-4%, which is lower than keeping the property.
Sophisticated investor will cash out the money (maybe through refinancing) and invest in other properties or stocks to get >10% return. That’s what I will do.