# Property investment not suitable for retirees. True?

Just read an interesting view about property investment for retirees. It said that property investment in terms of rental is not suitable for retirees. If we assume the property is not yet fully paid for, then the rental income is the remaining amount after deducting the maintenance expenses and mortgage repayment.  Assuming the property price is RM400,000 and the rental is RM1,800 and the total expenses is RM1,700. It meant the retiree would have just RM100 per month. Oh dear, it’s just RM3.30 per day. Enough for just one loaf of bread shared over two days, an egg per day and a tub of margarine to spread onto the bread for some taste. So, should retiree buy or no buy properties for rental?

Okay, if the property did not appreciate much, not even based on the usual inflation rates, then the retiree may really be stuck with nothing but the RM100 per month. However, if the property price has gone up based on the usual inflation rate, it would already be worth much more than whatever price paid for. In other words, perhaps by selling the property, the retiree may get higher returns than the RM100 per month mentioned above. Let’s look at some simple calculations below. .

Based on the same assumption of a RM400,000 property in the beginning and a 3% increase every year for 10 years, the said property price would be worth  RM538,000 after ten years. After 10 years of paying for the mortgage and assuming the retiree paid just 10% downpayment and the interest rate is 4.5%, the remaining amount owed to the bank should be around RM330,000. If the retiree were to sell the property, he would get back cash of RM200,000. Now, assuming he parks this money in FD giving him 4% per year, that would be RM8,000 per year or RM667 per month. This is way better than the RM100 per month PLUS, the retiree still actually have RM200,000 in bank for emergency use.

I would not be talking about what if the property has been fully paid for because if it has been fully paid for, then once the retiree sells the same property, he would have RM538,000 and with the same FD rate, he would get around RM1,800 per month. Not really that amazing but this should be sufficient and the retiree still has RM538,000 in the bank for any emergency use. So, I feel that property investment when done right is still suitable for a retiree. Please do it as young as possible and not one or two years before one is about to retire!  Happy retiring, with a fully paid for property.

written on 18 Apr 2015

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