fbpx

20180820 What is ‘YP’?

20180820 (Mon)

But, the value calculated (YP) is way less the asking price! How can it be?

The free market determines the price of property. Willing seller and willing buyer. So, there is no “RIGHT” price. Demand and supply is constantly changing. Hence, you can have different price for the same property over a period of time!

Take for example, you have an apartment renting at RM1,600 per month, and based on the YP calculation, it is worth RM384,000. But, the most recently transacted price of similar unit next door was RM500,000. How can it be? The owner sold it and the purchaser kept on renting out the unit at RM1,600. Isn’t he making a loss?

The answer could be a resounding “YES!” BUT, he does not think like that! He thinks that he could use leverage to benefit from this investment. He could use bank money to own this investment, and slowing paying off the borrowing. Eventually, he would enjoy the two aspects of property investment – the capital appreciation and passive rental income.

He can use this passive rental income for more investment. In total, he could have bigger return in the near future. His property appreciation might be 5% and his rental income could have some gains too!

From the previous calculations, his investment of RM500,000 might give him a return of RM2 mio in 20 years. If he does nothing now, his monthly RM3,176 saving in 20 years will just merely give him a RM1 mio return in savings account!

So, the market value of a property is really not about how much it would generate in rental return or the cost of construction of building or total sum repaid to bank under mortgage.

Leave a Reply

Translate »