20180817 Summary of Property vs Mutual Fund (and Rental)

20180817 (Fri)

The Range of Comparisons: Property Investment vs Financial Investment

Using the calculated modals in the last few days, the comparison are below:

Cost of property

RM762,292 (cost after 20 years)

Property yield:

RM1.762 mio (capital gain after 20 years)

RM2.375 mio (conservative Rental RM1,000)

RM2.353 mio (Medium risk Rental RM1,400)

RM4.031 mio (High risk Rental RM2,000)

Mutual Fund yield:

RM9.385 mio (20%)

RM4.492 mio (15%)

RM2.968 mio (12%)

RM2.004 mio (9%)

RM1.661 mio (7.5%)

RM1,594 mio (7.16%)

Saving Acc yield

RM1.043 mio (3%)

RM1,305 mio (5%)

The conditions for property investment ideally should satisfy the below factors:

Property has a rental yield (2.4%)

Property has appreciation average of market (6.5% p.a.)

Loan interest is kept at normal level (4.55%)

Investment term has to be medium to long (10 – 20 years)

And, return of investment in financial market is assumed to be conservative (like property, it is conservative).

If aggressive investment is used, like above 10%, the risk is obviously higher and the comparison becomes very speculative. So, it would defeat the purpose of comparing like to like.

IN SUMMARY, if you are paying a monthly repayment of RM3,176 for a mortgage of RM500,000 to a property, and this property earns a conservative rental income, you can actually make an equivalent investment outcome compared to a mutual fund return of about 9%. If you manage well the rental return, your property investment would even out perform the mutual fund. If your expectation is higher than 9% return, you would likely favour investment in mutual fund and higher risk instruments rather than property.

Leave a Reply

Translate »