As a property investor, we are looking for a good rental yield return property to invest. Basically, the rental yield is base on property value.
Rental Yield = (Monthly Rental x 12)/ Property Value
Today, one of my friend was asking the property value here is refer to purchase price or current market value? What do you think?
Here are some case study for the difference and let’s check it.
Example: Apartment A
Bought of year 2013
Purchase Price = RM 200,000
Market Value = RM 260,000
Monthly Rental = RM 1000
Case Study 1 : Property value = Purchase price
Rental yield = (RM 1000 x 12)/ RM 200,000 = 6%
Case Study 2 : Property value = Market value
Rental yield = (RM 1000 x 12)/ RM 260,000 = 4.6%
As a investor, we need to invest in a property with good rental yield and at least able to cover the loan interest rates, otherwise no point to take the risk into property investment. With the above case, if your interest rates is higher than rental yield 4.6%, what should you do?
Solution 1 : Refinance your property
Since your property value was increase now with market value now RM260,000, you may always go to the bank for refinance your property and get the cash out as capital for invest another good deal property or other investments purpose or child education fund or personal use etc. There are a lot of things can be done with property if we know how to capitalized it.
Solution 2 : Increase rental
If the rental yield is less that the loan interest rates, then you may need to increase the rental. If you increase from RM1000 to RM 1200, can it able to cover your interest rate? The rental yield is 5.5% now!
Rental yield =(RM 1200 x 12)/ RM 260,000 = 5.5%
Solution 3 : Sell off the property
Base on case study above, after 2 years, the Apartment A market value is RM 260,000. If don’t like the solution 1 and solution 2, then you may consider this solution 3 which is sell it off at the market value. Then take the money to invest into another good deal property or others usage as you plan to.
However, please don’t forget to factor in the capital appreciation value in property investment. As example case study above, Apartment A was bought on year 2013 and just within 2 years, the appreciation value is RM60K and the compound annual growth rate (CAGR) is 14.02%. It is a good number to invest?
The discussion study here do not have which formula is right or wrong or which solution is good or bad. All depends on individual choice and either keep or flip strategy, no both ways, don’t you agree?
How you will play this game to win if above case? Do comment at below and share us more your opinion to maximize the property investment ?
