Should I sell my house ? Any thoughts ?

[bigfranck22]

I recently bough my second property from developer (developer unit).

Price is around 900k

I took out a loan from the bank , loan amount is around 1mil in which I have a cashback of 100k.

My first unit and second unit is in the same developement/condo

My first unit I did the same strategy whereby I take 100k cashback to finance lawyer fees and renovation.

Manage to rent it out at RM 6.5K and the instalment is around RM 4.3K excluding maintenance. All in all, I would rack in RM 1.5K nett profit after deducting all the fees. Basically, its free real estate whereby I don't put a single cent and own that property and the property is generating positive cashflow. Rental yield is around 8%. - 9%. The rental there is slowly climbing hence I feel I can push to RM 6.6k / RM6.7K next year.

I consider this a very good deal in this oversupply market and when the developer notify me there is this last unit where the initial buyer loan is rejected. I quickly booked it.

Recently I gotten an offer for around 1.3mil for my second unit, mind that I have not even collect my keys yet. Would you exit right now or just let tenant built the equity for you while you milk the sweet sweet RM1.5K nett profit per month.

Calculation

100K Cashback + 300K Sales of Proceed = 400K in the span of 1 year, would you sell it ?

The 300K profit , I will apply for my once in a lifetime waiver on RPGT to waive the hefty 30% tax on selling within year 1.

P.S. : This is not an advertisement for the condo/guru so I would not be dropping names of the condo and I am not affiliated to any gurus nor I joined any property guru clubs.

 

[mattmanticus]

@bigfranck22

1. You dont exclude maintenance fee, its part of your cost.
2. You dont add your cashback into your sale 'profit', its not free money, you have to pay it back.
3. Honestly its too soon to calculate you have 8% yield, you need to add in months when u have no tenants, damage, assesment tax, insurance etc
   

well since you already have 1 unit rented out, i would sell the 2nd and just enjoy the quick profit. Managing 2 units is very diffrent from just 1. Lets say you have bad luck, and the 2 condos become vacant same time, thats 9k you have to pay with your own cash

 

[bigfranck22]

@mattmanticus

1. Yes, you are correct so after deducting all that cost is around 1.2k nett profit already deducted all the maintenance fee
2. If I sell it for 1.3m, then its free money, its just tat this money is from the bank rather than the buyer. If I dont sell it, assuming steady stream of tenants, they are actually paying back the money on behalf of you
3. Hmm, what would be the appropriate rental yield formula as I am just taking rental x 12 / loan amount

 

[mattmanticus]

@bigfranck22 Cashback is not free money. if you take a 1mil loan with 100k cashback, you still have to pay back 1mil to bank

 

[podlife]

@bigfranck22 I, for one, would like to understand your numbers even at base level.

A unit valued at 1mill, renting for 6.5k monthly, doesn't sound remotely possible.

The property my employer rents out for me is valued at 4.5mil, was bought for 2.5 mill in 2017 and rents out for RM4.5K (which is already a number far above what most individuals can pay for rent, so my floor is mostly empty). It's in central KL.

I'm not saying a 6.5k rental price is impossible. I'm saying a rental price on a property valued at a mere 1mill is impossible. It would make a yearly Rental Yield of roughly 8% nearly double the central KL average (and 6% after loan repayment).

On a more personal "Risk Manager take", which I was for a a few years, the fact that you haven't included rental income tax, petty taxes, maintenance fees and duties, also indicate to me that you probably never purchased property in your life and that you're simply posting big and very approximate numbers online. To say nothing of the one that simply do not fit the market or the fact that you don't understand the concept of cashback.

(I wouldn't accuse you to promote anything since you removed it from your post, but the fact that this promotion was there at first, doesn't do you any favor.)

 

[bigfranck22]

@podlife

1. It's a developer unit selling 900k, I am required to take loan against the SPA price in order to take out a loan of 900k. SPA price is around 1.1mil. Note that bank valuation works abit different as I have friends in the valuation dept. They will not give anything higher than SPA price if there is developer unit left, especially those that have rebate
2. Have a look at dual keys nearby sunway area, 4 rooms rental is around 8k to 9k. But I am not around sunway area but near there and the student market is truly insane especially when u rent to rich China students
3. I did not remove anything from the post rather just edit to add in some context.
4. I have everything stamped for my first rental property, I myself also do not believed it at first so yeah I wouldnt blame you if you say that I am bluffing.
5. I have simplified everything on the taxes and maintenance side to make the post more readable. I am not working in Malaysia hence reporting rental taxes minus off the loan interest, I will not be paying much on the taxes since the taxes on the rental profit should be below the threshold
6. The nett nett profit is around RM1.2k per month after deducting all the assessment, maintenance fees, indah water.
7. I do understand the concept of cashback, essentially u r just taking bigger loans, but my question is would u sell it or continue holding it to build equity and have the passive income. In my case, my cashback is "free money" since tenant is paying for it. Again you may argue that since the loan is under my name, hence its not free , I totally understand that just that , I am not paying for the loan.
8. Again I am not promoting because its already sold out and I have gotten the last unit from the developer and again its already built!

 

[dongchau123]

@bigfranck22 short answer. sell.

even 1.5k per month x 60 months is 90k. your profit is 300k+. what are you considering? you think that area gonna appreciate again? like 1.5m in 5 yrs?

and dont need to mention guru. just remove from ur thread, not relevant unless you promoting so called Guru.

 

[elle9406]

@bigfranck22 Few quick thoughts as I am a landlord myself. You need to calculate your legal fees, stamp duty, renovation, it all adds to the total cost pf your property.

You need to keep in mind if you get retrenched/economy crashes and rental drops can you still service the loans? If you can then it shouldn’t be a problem to keep both and tenant them out. I echo the other user who mentioned calculating your maintenance as well as months when you cant get tenant/tenant doesn’t pay etc.

There’s also cost of maintaining the property but since this is presumably a new unit things shouldn’t break down that quickly, but with the current built quality you might be looking at fixing issues in 2-3 years.

Then there’s income tax. Do count that in. Do note you can deduct interest on your loan.

 

[ewaldron1988]

@bigfranck22 Some sucker is offering u 1.3mil for something u paid 1mil for that is not even built yet. Sell as fast as possible u basicly earned 30% just by doing nothing.

 

[bigfranck22]

@ewaldron1988 Its already built, its a developer unit, the rental is around 6.6k RM while the instalment is around 4.3K

 

[ewaldron1988]

@bigfranck22 Look either way 1.3mil is straight away 30% profit. How long u need to rent out to get that number alot alot alot of years.

 

[newbie2016]

@ewaldron1988 If their numbers hold, probably 5 years to get 200k.

Rental profit + Principle + 0% rpgt.

If they use the rpgt waiver, id estimate 8 years. (im eyeballing it)

If OP can take the risk... Seems a good hold.

 

[ewaldron1988]

@newbie2016 After reading it again, I would say OP is an idiot. He brought a 900k condo with a 1 mil full loan, his mortgage is 4k+ a month so his bank loan basicly looks like this.

Mortgage loan = 1mil at 4.2%with 0% down for 30Y = 4.3-4.4k

At the end of his 30year tenure he would have paid the bank 1.58mil. Now I don't know about u but OP would need the property to be at 1.8mil to breakeven (after lawyer fee, agent fee, Capital gains tax assuming he used his RGPT alrd). He is currently very screwed cuz the condo market is flooded right now, if its semi D or blanglo he would need that property to go up 2x to breakeven.

Then there is the point on rental, in this market who is paying 6k a month condo rental (maybe penthouse units can get this price but 900k won't be penthouse) the renters could buy 2 units with that monthly commitment.

The conclusion is OP mistook his 1.5mil loan from the bank as his equity, what's worse is that he have 2 units so that's 3mil loan owed to the bank (his networth is (negative 3 mil) if I were him I would sell it straight away for 1.3mil as that's 300k profit there and call the bank to for balance enquiry for the 1st unit he brought. OP is leveraged to the tits now.

 

[newbie2016]

@ewaldron1988 1mil @ 4.2% @ 30 years yields about RM 4.8k a month and RM1.7xxx million total owed. According to my calculators.

OP says they have the proof of such returns, shrugs. Id take the 300k tho, one unicorn rental is all that is needed imo.

My own condo unit bought last decade at rm225k yields... 7+% so it's not totally unheard off to get high returns.

 

[ewaldron1988]

@newbie2016 Either way OP better take the 300k or he will be very screwed, he is around 3.4mil in debt paying off 2 very very very expensive condo with 0% down. If the condo depriciate or stay flat he is going to lose alot of money even if he gets a sucker to pay 6k rent permonth. Worst case he might even need to declare bankrupcy to get out of this 2 deal.

 

[bigfranck22]

@ewaldron1988 hey sorry I missed your comments, I would argue back your point is valid if I am buying for own stay. But right now I am renting it out, with a positive cashflow of RM 2.xK per month. At the end of the day, I don't really care how much the bank earns, even after servicing the loan let's assume it to be 1.8mil, this 1.8mil is not paid by me anyway, its paid by the tenant isn't it. Well there may be cost here and there but yea u get the idea.

There is no expenses on my side as rental mostly covers up everything. Please do help me understand your point more clearly, if the condo depreciate to 800k, I sold it off, on paper I lose 200k but the whole loan is serviced by the tenants, and I put 0 down.

I earn 800k regardless. IMO as long as rental covers instalment and have surplus to covers all the maintenance fees. I dont really care how much the banks earn, again the loan is not serviced by me, its by the tenants, well assuming there are steady stream of tenants of course.

Its a win win situation

My first unit is rented at 6.5K already and already sent for stamping. Some people might just need the space temporary, look at the rental at Bangsar South, the rental is almost the instalment as well but why wouldnt they buy ? Again look at students area, I do know a few condos near a prestigious uni renting 2.5k to 3k per studio and the demand is still very strong. Why wouldnt they buy instead ? Because they will only be there temporary. It's like you getting dispatched to overseas and have no option to only rent, does not make sense for you to buy. Rental is the direct reflection of the demand for that particular space.

 

[ewaldron1988]

@bigfranck22 Dude u have no idea how deep of a hole u are in right now..... No matter what happens today u owe the bank 1.8mil now, unless u can garuantee that ur unit will never drop in price and ur unit will always get 6k rent for 30y straight untill the day u pay it off there is no point in having this mentality. The best way to put it is to sit down and count how much ur "tenant" have paid to the bank for u and call ur bank and ask them how much u still owe them. I can assure u, ur principle has not change abit and u still owe them ur initial borrowed ammount.

To the point if condo depreciated u sell for 800k u lose 0, bro u buy the condo with 1mil loan with 0 down. If the condo goes to 800 k and u sell it after all the tax, lawyer fee, agent fee and so on u get 730k. U still have to pay back the bank 270k out of ur pocket lol, did u think u can just walk away like that?

It's not a win win, it's bank win u lose. U are 1.8mil in debt if shit hits the fan and the condo drops in value or u can't rent it out at profit, u will have to still keep paying from ur pocket. Basicly if u can't let go of the unit above market price (to cover for agent fee, tax and lawyer fee) the only way out for u is bankrupcy

The 1.8mil is for 1unit, u have 2 unit so u owe the bank close to 3.6mil including intrest.

 

[bigfranck22]

@ewaldron1988 Anyway, I sold off the unit off just to get the ease of mind since I am not based in KL

I cant guaranteed the property price would not plummet but hear me out but if you are fixated on the interest thing then no one in their right mind would buy a house to live anymore.

Because its just does not make economical sense to buy a 600k house to end up paying 1mil at the end of the loan tenure.

Your point basically is just saying rental today may not be the rental tomorrow and yes I do agree on that but as of right now it's a 0 money down deal where by I can get 2.5K RM per month and I will be putting back the profits into the loan account to minus of the interest.

Again assuming the rental steadily grows or not grows, at the end of the day I did not pay shit on this property and even I sell it off at 100K after repaying the loan , I still earn because all these while the tenants are paying for it. The whole 1.8mil thing is paid by tenants. I will need to emphasise again , I paid RM0 , it's literally free real estate. Well downside would be the risk that I am carrying along with me.

Again I do understand your points of saying that rental may drop tomorrow but I can also say rental may increase tomorrow hence its not so logical to just base off 1 speculation and say this is total shit. What we can do is to see current rental data which as of right now and for the past 3 years since the condo has been built , the rental data has been pretty healthy.

 

[ewaldron1988]

@bigfranck22 Anyway if u sold of 1unit good for u. But honestly ur 0% down get cashback then tenant pay for u method is how alot of people went bankrupt last year. Alot of people were buying a few units like this, let's just hope u are not 1 of those people.

 

[bigfranck22]

@ewaldron1988 Yup, what they were doing is compress loan and get all the cashback and all the gurus promise positive cashflow but end up all negative cashflow. What they were doing is buying before the building is built and the gurus promise sky high rental, and they din even do research on the rental in that area.

I view my case a bit tad diff cuz I did not join any clubs, research before investing, found out there is cashback, and research again even after cashback, rental still able to cover instalment and by alot.

Let's hope everything goes well, but I do say your point is valid and I appreciate the inputs. I love these kind of exchange !