31-12-2010, 08:28 PM
Hi folks, happy new year:
Here some example to share or to discuss on property subject.
Mary bot a pty last year at $250k and now the market price is $390k, over the weekend she sit down and have a deep tot on whether to sell or to carry on renting out.
Below is her work-out, based-on some simple small amount using old rule of 90%/10%
to compare "whether to sell or to rent."
Pty cost $250,000
Downpayment (10%) $25,000
Mortgage (90%) $225,000
Loan tenure 25 yrs
Monthly installment $1,450
Outstanding loan as at 31/12/2010 $185,000
Assumption
Rental (based-on cost) 900x12/250,000 = 4.32%
Rental yield (based-on market price) 900x12/390,000 = 2.77%
Annualised rental appreciation rate (compound) : 5.72%
IF SHE SELLS
Pty selling prices $390,000
Less: outstanding loan $185,000
Nett Amount $205,000
She has excess cash flow as she does not have to pay a monthly mortgage $1450 x 36 = $52,200
Assuming she choose to invest her capital gain and amount that she 'saves' from monthly installment at a nominal annual return of *6% p.a. She expected total return after 3 yrs is $302,403 (* 6% p.a. Return 'over 3 years' not sure whether this target is achievable, must ask the expert )
IF SHE RENT OUT
If she rent out the pty at $900 a mth, these are her finances after 3 yrs:
Monthly loan installment $1,450
Less: mthly rental received $900
Mthly net cash outflow $550
Total cash outflow for the next 3 yrs $19,800
Pty value after 3 yrs @5.72% annual appreciation $460,825
Nett cash $296,320
Less: Cash outflow during 3 yrs -$19,800
Total net proceed $276,520
Based-on the calculation above, selling appears to be the better option for her solely on the financial consideration and other factors such as potential capital gain and her future needs for the property.
Here some example to share or to discuss on property subject.
Mary bot a pty last year at $250k and now the market price is $390k, over the weekend she sit down and have a deep tot on whether to sell or to carry on renting out.
Below is her work-out, based-on some simple small amount using old rule of 90%/10%
to compare "whether to sell or to rent."
Pty cost $250,000
Downpayment (10%) $25,000
Mortgage (90%) $225,000
Loan tenure 25 yrs
Monthly installment $1,450
Outstanding loan as at 31/12/2010 $185,000
Assumption
Rental (based-on cost) 900x12/250,000 = 4.32%
Rental yield (based-on market price) 900x12/390,000 = 2.77%
Annualised rental appreciation rate (compound) : 5.72%
IF SHE SELLS
Pty selling prices $390,000
Less: outstanding loan $185,000
Nett Amount $205,000
She has excess cash flow as she does not have to pay a monthly mortgage $1450 x 36 = $52,200
Assuming she choose to invest her capital gain and amount that she 'saves' from monthly installment at a nominal annual return of *6% p.a. She expected total return after 3 yrs is $302,403 (* 6% p.a. Return 'over 3 years' not sure whether this target is achievable, must ask the expert )
IF SHE RENT OUT
If she rent out the pty at $900 a mth, these are her finances after 3 yrs:
Monthly loan installment $1,450
Less: mthly rental received $900
Mthly net cash outflow $550
Total cash outflow for the next 3 yrs $19,800
Pty value after 3 yrs @5.72% annual appreciation $460,825
Nett cash $296,320
Less: Cash outflow during 3 yrs -$19,800
Total net proceed $276,520
Based-on the calculation above, selling appears to be the better option for her solely on the financial consideration and other factors such as potential capital gain and her future needs for the property.