# Should I invest in one or two properties with RM 700,000?

## When it comes down to the two options which one do you think is the better investment decision?

Regardless of Tay Tay’s opinion, to answer this question, we will first assume that you fulfill the criteria needed to qualify for the maximum amount of mortgage that you are eligible to borrow. (You may do the calculation using our mortgage calculator.)

 Based on this calculation, an investor can afford to invest in RM 700,000 worth of property/properties if he/she:- 1. Is below 40 years old 2. Has a minimum cash reserves of RM 100,000. 3. Has  a net income of RM 5,000 per month. 4. Able to qualify for Debt-Servicing Ratio (DSR) of 70%. 5. Has no outstanding liabilities like car loan, mortgages, personal loan, credit card debt,… etc. If the investor has existing debt obligations, he needs to earn more than RM 5,000 per month in net income or has a cash reserves of more than RM 100,000 to buy or invest in properties worth RM 700,000.

First, there is no absolute right or wrong answers to this question. Your decision should be based on your personal objective for investing in properties. It is helpful to have an investment plan crafted out beforehand.

However, if you are still contemplating on the two options above, let us break it down for you. For the sake of simplification, we’ll call the first option which is purchasing a nice condominium unit worth RM 700,000, Plan A and the second option which is buying two medium-cost apartment units worth RM 350,000 each, Plan B.

Here are 7 key considerations that would be helpful in making a better choice between the two.

 NOTE The calculations below are based on:- Loan Tenure: 30 Years Interest Rate: 4.5% Down Payment: 10% of Property Value

### 1. Rental Income

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 Plan A B Price RM 700,000 x 1 RM 350,000 x 2 Expected Yield 4.5% 4.5% Monthly rental RM 2,625 / month RM 1,313 / month

If you intend to earn 4.5% in rental yield

Plan A
You may price the rental for your condo unit at RM 2,600 per month. The questions you need to ask are, ‘Who are your potential tenants and are they willing to pay RM 2,600 a month in rent and why?’

Plan B
You may price the rental of each apartment unit at about RM 1,300 a month. Thus, you could aim for tenants who are earning much lesser. It may be an advantage to you as a landlord as there are more tenants in the B40 & the M40 income group as opposed to the T20s. After all, Malaysia is still not exactly a nation filled with rich people. Tenant’s affordability is an issue when considering a unit to rent, thus affecting your investment returns as a landlord.

### 2. Renovation Costs

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Let’s assume, both units in Plan A & Plan B, are bare and you intend to rent out your units fully-furnished. How much should you put aside to renovate or refurbish your unit? It depends on the potential tenants that you are trying to attract. For example:-

Plan A
If you are planning to attract tenants who will pay RM 2,600 a month in rent, you may need to spend more on making your unit stand out to impress potential tenants who have greater spending power. You can skimp on renovation. However, by doing so you may be putting yourself at risk of losing a potential tenant.

Plan B
However, if you are going for tenants who are earning lesser, you should spend much lesser as overpaying for renovation does not makes sense if it does not bring in substantial increase in rental and return on investment to you as a landlord.

### 3. The Mortgage Amount

 Plan A B Price RM 700,000 x 1 RM 350,000 x 2 Mortgage RM 3,154 RM 1,577 x 2

Is there a difference between the two plans? In terms of numbers, not much. Their difference lies in the risk of losing a tenant.

Plan A
Supposedly, you have a tenant that pays a monthly rent of RM 2,600 for your unit. If he moves out, the questions are: ‘How quick are you able to secure a new tenant that is willing to pay RM 2,600 a month?’ This is because, if you fail to do so, you may incur the full mortgage payment of RM 3,154 for the months when your property is vacant.

Plan B
However, let us assume that you have two tenants that pay RM 1,300 a month each for your units. If one of the two decided to leave, you’ll still receive RM 1,300 a month from the other tenant while searching for a new tenant for the vacant unit. Hence, the impact of losing a tenant to your finances is not as severe as in Plan A.

### 4. Initial Entry Fees

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 Plan A B Price RM 700,000 x 1 RM 350,000 x 2 Down Payment (10%) RM 70,000 RM 35,000 x 2 Entry Fees RM 29,810 RM 13,880 x 2 Total Initial Capital RM 99,810 RM 97,760

The entry fees, comprising of SPA legal fees, SPA stamp duty, loan legal fees, loan stamp duty and valuation fees between Plan A and Plan B are different. The key difference between the two is the SPA stamp duty for Plan A, which is more expensive than Plan B, thus, resulting in a higher entry fees.

### 5. Loan to Value (LTV) on the Next Property

 Plan A B Price RM 700,000 x 1 RM 350,000 x 2 LTV on Next Property 90% 70%

According to Bank Negara Malaysia, a borrower who has 2 or more existing residential mortgage loans would only be eligible for as much as 70% financing for the purchase of the next residential property. Hence, if you opt for Plan A (if it’s your 1st property) instead of plan B, you are still eligible for 90% financing when you purchase the next property in the future.

### 6. Future Potential Buyer of your Properties

 Plan A B Original Price RM 700,000 x 1 RM 350,000 x 2 Appreciate to: RM 800,000 x 1 RM 400,000 x 2 Potential Buyer’s 10% Down Payment for one unit RM 80,000 RM 440,000

Supposedly, your portfolio (both Plan A & Plan B), had appreciated by RM 100,000 after years of holding on to them. Now you’ve decided to sell your property to reap the investment rewards that you truly deserve. If you opt for:

Plan A
Your potential buyer needs to prepare a minimum of RM 120,000 in cash reserves to buy your unit. The RM 120,000 is inclusive of down payment of RM 80,000 and several initial entry fees stated in Point 3. Thus, it may take more time for you to secure yourself a buyer.

Plan B
Your potential buyer needs to prepare RM 60,000 in cash reserves to buy your unit. The chances of finding a buyer is a lot quicker as the unit is substantially lower in price. In addition, you have the option of selling only one unit and keeping the other unit to yourself.

### 7. Future Selling Price of your Properties

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 Plan A B Original Price RM 700,000 x 1 RM 350,000 x 2 After Appreciation RM 800,000 x 1 RM 400,000 x 2

Here, we’ll focus on the potential selling price of your units, especially in a buyers’ market. Generally, properties that are priced higher would have higher levels of price disparities as compared to lower-priced properties. For example:

Plan A
A similar unit to yours could be asking for RM 700,000 – RM 750,000 in a depressed market. It depends on how ‘desperate’ owners of other similar units to yours are in selling off their properties. The degree of urgency is subjected to the owners’ ability to pay their mortgages. In this case, the mortgage would be RM 3,154 a month. If a portion of these owners cannot afford to bleed cash over the long run, they might become desperate sellers. They would be willing to sell their units at lower prices, thus affecting the potential selling price of your unit.

Plan B
A similar unit to yours could be asking for RM 370,000 – RM 385,000 in a depressed market. Chances are the level of desperation from the owners of similar units to yours are much lower compared to Plan A. This is because, for one medium cost apartment unit, the mortgage is much lower. In this case, it is RM 1,577 a month. It is more likely that owners would continue to service their mortgages while waiting for a recovery in the property market. Thus, prices of properties that are lower-priced are more stable than the ones that are higher-priced.

Conclusion

So, should it be Plan A or Plan B you ask? Well, it depends on your financial standings, investment objectives and your risk profile.

For instance, if you are conservative and do not wish to have too much debt on a single property, then, you may opt for Plan B. That way you can spread your investment to two medium-cost apartment units. Otherwise, you may opt for Plan A where your financial commitment is heavier on one piece of property.

This article was originally published as If I can invest in properties worth RM 700, 00 by KCLau.com.

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