negatif cashflow.. should buy or not?

this entry is conjunction with one of my old friend's dilemma whether to buy or not to buy an apartment in shah alam.

if you want to buy an apartment
for solely investment purpose
then you calculate that the monthly payment is rm750
and let say the maintenance is rm150
so, your monthly commitment is 750+ 150 = rm900 excluding quit rent and assessment
then you find out that the projected or current rental asking price is only rm850
and according to the location, the capital appreciation will not going to increase tremendously within 5 years
what should you do?

my advice is just simply dont buy
you have negative cashflow of rm50 per month
rm50 * 12 months = rm600 loss per year
if you hold it for 5 years means 6,00* 5 years = rm3,000 loss per months

we invest to make profit right..
so dont buy.
buy many other properties that surely and very high probability will give you a positive cash flow.
there are lots of these profitable property out there.. just find them.

once you get a negative cashflow, it will affect your limited resource
you need to pump in your salary into the monthly repayment
and this will affect your future investment portfolio..
will affect your buying power for your daily expenses too..

so, don't hesitate.
just ignore it, cancel its booking or sell it the fastest you can
for the loss or deposit you have spent, consider it as your property investment learning fee...

(for me, if the monthly repayment is rm900, the minimun rental rate should be rm1080..
use azizi ali's formula..
10 months rental income should enough to cover one year's commitment.
(900*12)/10 = 1080

the balance 2 months is for gap between tenant moving out and moving in and also repairing cost.)

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This blog is for information and experience sharing. The authors are not responsible for any loss or damages caused by the manipulation and application of information obtained from the blog.


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