How do you calculate rate of return on property?
Wednesday, 18 March 2009 20:44
Lim Boon Ping
By international standard, all property investors should be looking at minimum 6% yearly return when it comes to property investment. Here's how you calculate the rate of return:
Rate of return = Net Annual Rental / Price
Scenario 1. Double Storey Shop House at Taman Johor Jaya
Monthly Rental: RM2000
Price: RM400,000
Therefore,
Rate of return = (RM2000 x 12) / RM400,000
= 0.06 or 6%p.a.
Remarks: Attractive investment.
Scenario 2. 8th Floor Office Suite at City Plaza
Monthly Rental: RM4400
Price: RM600,000
Maintenance Fees (monthly): RM1900
Therefore,
Rate of return = (RM4400 - RM1900) x 12 / RM600,000
= 0.05 or 5%p.a.
Remarks: Less attractive investment.
Let me share with you a rule of thumb i often use without having the hassle of going through the above calculation.
Whenever you see the price, take off the last two digits, if the monthly net rental is at least half of this new figure, then rest assured, as you are getting minimum 6%.
Take scenario 1 for example, the price is RM400,000, after taking out the last 2 digits will be RM4,000, and the monthly net rental is RM2000, which is exactly half of RM4,000, there you are, you have a rate of return of 6%p.a. Try it out with other numbers yourself and verify with the formulae given above using calculators to see if it works.
I've provided you the above the simplest model on rate of return calculation, but please also note that rate of return is only ONE OF THE MANY FACTORSthat should taken into consideration when it comes to property investment. I shall share with you in near future on other factors affecting property invesment decision making process.
Last Updated on Wednesday, 18 March 2009 20:52
What does 3+1 mean in a property transaction?
Sunday, 01 March 2009 23:39
Lim Boon Ping
3 + 1 simply means that in any property transactions, the vendor (owner) will usually give the purchaser a time frame of 3 months (free of interests) plus 1 month (with interests) in order to complete the whole conveyancing (property transfer) process.
In other words, should the purchaser's took more then 3 months to pay the vendor the full settlement sum, the purchase can be charged interests on the amount owning, based on an agreed rate, normally between 8%pa to 10%pa.
What if the case drag on to longer than 4 months? In most instances, the purchaser can request for extension, bearing similar interests, this is however not automatic, and it is really depends on the decision of the vendor whether or not to accept your request. This is also why sometime, we also see 3 + 2, or even 4+ 1 which came into existence. But this 3+2 or 4+1 is normally pre-agreed upon signing the Sale and Purchase Agreement.
Therefore, always do a regular check on your solicitors (probably once or twice in a month) to find out the progress of the transfer process, so as to avoid your 10% deposit being forfeited by the vendor as a result of non-compliance of time frame given.
|
Landowners, beware!
Sunday, 01 March 2009 23:27
Lim Boon Ping
A Thai woman found herself losing her valuable land in Penang, to a con-woman, who forged that Thai woman’s documents, and sold it to a third party. The Federal Court held that the rights of a bona fide purchaser must be protected. So, she lost her land.[1]
I’m not going to comment too much on the court’s decisions except the fact that this is a wrong decision where no one can change it besides the parliament. Many articles are available on this, do your own search on that case reference below, and you should be able to understand the whole case in detail.
It’s my duty however to share with you few tips on how to save yourself from con-man:
(1) Always engage a trustworthy lawyer ( solicitor ) to represent you
· Some lawyers are better in criminal cases (advocates), some lawyers specialize in intellectual property rights, and some lawyers are busier than others (always not in office). Always ensure your lawyer is well-versed in conveyancing cases and can always/readily attend to your case personally rather than his legal clerk. You might find this amused, but I’m telling you that many house purchasers or owners haven’t even got a chance to see their lawyers throughout the whole transaction, they only get to see the legal clerk!
(2) Always request for Quit Rent copies for MORE than one year
· Previously, we only request the most updated/current quit rent receipt in most instances. However, should you have any doubt on the land’s ownership, be brave to ask for quit rent receipt for the past few years as well. Normally, conman will have only one year receipt the most.
(3) Talk to the neighbours
· Before purchasing this land, do visit the said land for a couples of times yourself, to see if you can get a chance to speak to the neighbouring owners, or talk to people at the closest coffee shop you can find, ask them about the ownership of the land, you will be surprised, very often, you can get very good indication from them.
(4) Always caveat[2] your own property when necessary
· What do I mean by necessary? Do I caveat ALL my properties? No, you don’t have to caveat everything. If you have lands, which are free of any encumbrances, vacant and idle, please always engage a lawyer to enter private caveat[3] on your property on a regular basis (renewal is required after a fixed term).
· For your extra reading, the right of a registered proprietor to enter a private caveat against his own land under the National Land Code 1965 was considered in two recent decisions of the High Court, namely, Eu Finance Bhd v Siland Sdn Bhd[4] (M &J Frozen Food Sdn Bhd, Intervener) and Hiap Yiak Trading Sdn Bhd & Ors v Hong Soon Seng San Bhd[5]. For your information, these two cases’ decisions conflict with each other. For those of you who are too busy to go through these law cases, well, just take my word for it, always register a private caveat on your property when necessary.
(5) Charge your land to finance institution
-Always remember, land which are free of any encumbrances, vacant and idle are easy targets for conman. If there are bank charges on the land, your land are normally much safer. If you don’t mind, you may also consider taking up a small amount of mortgage loan from the bank using this land as collateral.
Until such time when the Boonsom Boonyanit’s decision being overturned or the emerge of a proper amendments to our National Land Code, we will always be exposed to the threats of land forgery/fraud cases and we are not protected at all by the court of law in our very own country. Henceforth, do consider doing the above pre-cautious steps I mentioned above.
© 9th March 2007 Lim Boon Ping
Note: This column is brought to you by Tiram Realty for your information only. It does not constitute legal advice. You should therefore seek professional legal advice for your specific needs. Neither the Tiram Realty and Lim Boon Ping shall be liable to any reader who suffers losses as a result of relying on this column.
[1] Adorna Properties Sdn Bhd v Boonsom Boonyanit @ Sun Yok Eng [2001] 1 MLJ 241
[2] In layman terms, i.e. to freeze your property from any dealings/transfer/transactions
[3] 323(1) of the National Land Code 1965
[4] [1989] 1 MLJ 1965.
[5] [1990] 2 MLJ 155.
|
