20180815 (Wed)
In investment of property with rental yield coupled with capital appreciation, there is cost of maintaining the property! How do you estimate that?
Previous assumption was RM1000 rental for an apartment condo of RM500,000 over 20 years time. This apartment condo when maintained would have cost, e.g.
0.20 per sqf = RM200 per month
10% Sinking fund = RM20 per month
Other costs = RM50 per month
Bad Tenant = 2 months rental not paid (or agent fee)
Total = 270 + 167 = 437
For a partially furnished apartment (RM1,400 rental), the net collection per month is only:
RM1400 – RM437 = RM963
So, in a very bad scenario the total rental yield over 20 years is
RM963 x 613.617 = RM590,913 (Rented at RM1,400).
RM563 x 613.617 = RM345,466 (Rented at RM1,000).
Very conservatively, a RM500,000 property rented out RM1,400 or RM1,000 per month for 20 years would have a value of earning
Rented RM1,400 — 1,761,822+590,913 = RM2,352,735
Rented RM1,000 — 1,761,822+345,466 = RM2,107,288
So, rented property is able to give a fairly good return of over RM2mio in 20 years if the proceed of the rental is invested well. This is equivalent to a mutual fund return of 9%.
In other words, if you could get a consistent return of more than 9% from your other investments, property might NOT be a profitable vehicle of investment.