21 March 2016

property tips (6)

Buy or rent?

It is always the question asked by people who just moved to a new place.

In most of the cases, it simply 'YES'. Depending on situation however, the answer may be 'NO'. For example, when I moved outside KL due to work commitment I found it is better to rent rather than buying house.

Some people did advise me to buy house instead of renting. To them, I can always get back the money that I pay to the bank later on after I sell that house when I move back to KL. The logic is there and since property always appreciat, I will get more than I paid to the bank.

After that, I did my calculation and here is the details.

When I first got the news that I have been transferred to outside KL, I did a simple survey by asking my friends who familiar with that particular district on where is the best area to live. It has to be near to the office and school. The place should also not so far away from town and hospital.

After that, I did an online survey to check both the rental rate and the market price of the house in that area.

Lets assume the house price is rm400k. If I get a loan of RM370k at 4.5% interest rate for tenure of 35 years, my monthly installment would be around RM1800 per month. If the rental of the same house is just RM1200 for partially furnished, I would rather rent that house. After that I will find a house that yield higher that rm1200 at the same price tag at other location I.e. Klang Valley or Penang or JB.

Assuming I can rent my house at KL at RM1900, in principal I get my tenant to pay the house at KL and at the same time he/she partially pay for my house that I rent in another town.

In conclusion, yes or no depends on situation. Different location may yield different result. You have to calculate the difference between the rental rate and the monthly installment that you are going to commit to the bank every month. If rental rate is higher you need to consider to buy. Othwerwise, you need to further study in how much you will gain should you buy another house in better location. By doing this, you will optimize your money and let them work for you.