# Worried. I paid more but it’s mostly for interest. Did I lose money?

Did I lose money from my property investment? Many say property price went up by 5%, so the return is 5%? Paid so much for interest, surely everyone buying a home is suffering losses? *Header image source is propsocial.my

My story of my first home (Name of apartment is Villa Kejora)

I bought a property and I believe I will earn some money (not lose money) after 5 years. In the mean time, I stay there and after 5 years, I realised that the price has only moved very slightly every year. Then, I look at the mortgage calculator and I realised that the monthly repayment I paid mostly went to interest. Then, when I compared the interest amount to the property price increase and minus all the other costs, I lost money! Oh dear, I have been fooled to buy a property by someone… Should have bought some dividend stocks instead… Let’s be sure about this, shall we?

How much?

Referring to the first image would show that the first property I bought in 2002 was RM123,000. Downpayment of 10% and interest rate of around 5%. (so that our calculation is even more conservative). Monthly repayment is around RM594.

Image 1

How much is the interest?

Now, if we look at image 2, this will show the payment schedule divided into principal and interest payments every year. This showed very clearly that as we pay, we are only paying a little of the principal but a lot of the interest. In fact by the end of Year 10, we have only paid RM20,654 for principal payment but we have already paid RM50,657 for interest alone! Oh dear, already losing so much money…

Image 2

I stayed there many years before moving on to a condo which was much bigger in size. Let’s assume I stayed there for 10 years. That meant that I have saved on RENTAL for 10 years. Rental at the time was RM500 per month. Staying there 10 years meant RM500 x 12 months x 10 years = RM60,000 of paying rental. As everyone knows, with rental, the one getting richer would be the landlord yeah.

Calculations wise, we can also look at image 3 below.

Image 3

We would see from image 3 that the interest payment of RM50,657 which seems a lot is actually just RM422 per month over 10 years. In other words, we did not lose money yeah. Our rental amount which we saved is still bigger than the interest amount we paid to the bank over the 10-year period.

What was the price I sold it?

I sold it at RM215,000. That’s RM215,000 (selling price) minus RM123,000 (buying price) = a gross profit of RM92,000. What is the Return on Investment (ROI) then? Since the interest amount is already covered by the savings from rental, we can use the downpayment as our only investment. That’s RM12,300 in the beginning.

Gross ROI = RM92,000 (total returns) divided by RM12,300 (initial investment) = 7.47% per annum. It’s not something amazing but okay lah. You get to stay for free… You get to earn a return which is healthy over 10 years and you get to be called a homeowner too.

Maintenance fee? Lawyer’s Fee? Stamp Duties?

If… after reading all these and one still wishes to argue that it’s better to rent, then you rent lah. It’s a choice and I do not gain anything from it. I did not lose money if no one buys property yeah. I do not have any property to sell you anyway and am not from the developer, not a real estate agent and not from the banks who hopes that you take up a loan with them yeah. Haha. Happy reading and if you also started small like me, do share this with your friends.

Oh yeah… how much is that property I sold in 2012 today? Latest asking prices as per propertyguru.com.my site as below:

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