Passive income has been the talk of the town lately, but is buying to let still feasible?

There are many youngsters who are looking at house for rent in Seremban as buying a house is too expensive. Most people nowadays are working more than just one job to earn some extra passive income. Furthermore, property market is still considered as a popular investment. Are you thinking of buying a property for investment purpose, or to earn some passive income? However, with the recent property hike, although at a slower pace, you are still unsure if buying a property is a good way to earn some passive income as the property market is not stable yet and prices are still fluctuating.

house for rent in Seremban
Passive Income

Although our country’s currency is weak compared to the previous years, this does not stop people from investing in the property market. This article will elaborate on the feasibility of buying a buy to let property in Malaysia.

1. Right target market

Think about your target tenants. Finding the right target market is essential for people who are in the property market. Determine the potential target market depending on the location of your property. Young couples are more likely to rent a place instead of buying as they are not fully settled down yet. Furthermore, buying a property is still a big commitment for them. As for students, they are more likely to be interested in renting a room instead, as all they need is just a room to sleep and study. Furthermore, it is only for a short period.

2. Potential rental yield

A rental yield is the percentage you get in return based on the rental you get from your property after deducting costs incurred in maintaining your property versus total property price. As for capital gain, it is the gain or loss after you sell your property.

In order to know if your property is generating money flow from the rental that you collect is much more than comparing the rental you collect with the monthly installment that you pay, as you will also need to take other costs involved into consideration as well.

To calculate the rental yield, you may use the formula below:

Net rental yield = [(monthly rental x 12 months) - annual maintenance cost] / property price] x  100

Let us say you are buying a RM750,000, 672 sq ft condominium unit at Verve Suites, Mont Kiara, with RM0.33 maintenance fee per sq ft. The rental rate in the market will then be RM2,800 for a furnished unit, which is equivalent to RM3,500 per annum.

Based on the calculation following the formula above, the net rental yield will then be 4.01% per year. However, the mortgage is not included yet. After taking your mortgage into consideration, your net rental yield will then be -1.16% per year based on the formula below:

Net rental yield = [annual rental - annual cost of maintenance - total instalment] / selling price x 100

Based on the calculation above, the property looks promising as a buy to let investment, and is definitely better than putting your cash in a bank under the fixed deposit scheme with a 4.15% interest rate.

3. Miscellaneous costs

Buying a property involves other miscellaneous costs as well as you are not only paying for the property price only.

a. Property tax
Property tax is payable for all properties that include shops, lands and factories. Property tax comes in assessment tax where it is based on the annual rental value of the property; and quit rent where it is calculated on a yearly rate.

Assessment tax
Quit rent
6%, flat rate
Paid once yearly for landed property
Can be paid in two instalments
RM0.035 per sqaure foot/year
Based on the annual rental value of property

b. Rental income tax
Rental income tax is only applied to those who have a total rental income of more than RM5,000. However, the cost related with your buy to let proeprty is able to get offset against the rental income.

c. Real property gains tax (RPGT)
Real property gains tax applies to property that is sold lesser than 5 years after purchasing. RPGT charges only the profits that you get after minusing the original property price, renovation and incidental costs, such as stamp duty, legal fees, advertisement fees and etcetera.

Year
Percentage (%)
1st year
30
2nd year
30
3rd year
30
4th year
20
5th year
15
6th year
0

The imposement of RPGT has its own pros and cons, with lesser impact on genuine buyers as compared to property investors. It is entirely up to you to decide whether it has more pros than cons or vice versa.

In conclusion, you will need to plan ahead and do your research before buying a property in Malaysia. Set realistic goals, build a budget and stay within your means to prevent yourself from getting into a financial debt. Know that there will be its advantages and disadvantages when it comes to investment in the property market.

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