Property Investment 101: Calculating the ROI on your property investment when you sell

Property Investment 101: Calculating the ROI on your property investment when you sell

I was happily listening to YouTube music for free when an ad with a PAID video started and it was someone sharing why we should invest into the stock market and avoid property investment. He (the person in the video whom I do not know who) said property investment return is low and it’s also slow and thus when we think of property, it should just be for own stay purpose.

Now… I love the stock market and remain very much invested. However, to say property investment is just for own stay is very wrong yeah. Sorry, I repeat. Very wrong. Perhaps we look into just 5 things about this type of video on how stock investment is way better than property investment?

Why stock market gurus ALWAYS like to target property investments?

This is my personal opinion. If one were to buy a property, one needs to pay a 10 percent deposit. This is maybe RM50,000 for a RM500,000 property. If this RM50,000 is invested into the stock market instead or some portion of it was used to pay for the lessons from the stock guru (who has to pay for his Youtube Ad), then maybe this RM50,000 will give every high Return On Investment (ROI), right?

That’s not all. Every month, the mortgage for the RM500,000 property would be around RM2,500. If only this amount could have been invested into the stock market or even turned into more money for stock investments. Then the ROI would become super high, right? Stock market can go up and down in seconds or minutes. This is because you can buy now, sell later, buy today, sell tomorrow if the price have gone up. You can even buy now, sell few minutes later if the price of the shares have gone up for whatever reasons. Meanwhile with property investment, nothing happens for years… 🙂

How come these stock gurus do not focus on investing versus doing videos?

Maybe because teaching is additional earnings? Maybe when the stock markets are closed, they can earn extra money from teaching people how to invest? After the US Stock market closes, the Asia stock market starts. After BURSA is closed, we can still continue to buy and sell stocks in Thailand, Indonesia etc since they are one hour behind. Once Thailand, Indonesia market closes, we could focus on UK since they are still morning when our stock market closes?

Actually, when UK’s market closes, we can then continue with the US stock market? Now that you realize all these; stock markets can continue to open even as another closes all across the world, then why this stock investment guru still have time to create stock investing courses to teach people how to invest instead? Oh… maybe they recorded those videos earlier…

How come the ROI calculation for stock and property is NOT the same?

If we invest RM50,000 into the stock market and it gives a return of RM5,000 the return is RM5,000 divided by the investment (RM50,000) and thus the ROI (return on investment) is 10 percent. This is definitely a wow number considering FD rate is just 2.5 percent today. What they did not tell you is that stock prices can move up or down too…

Now… when it comes to property investment, suddenly the calculation becomes like below.

House price is RM500,000. After 2 years, house price went up by 5 percent, so it has gone up by RM25,000. ROI for this is RM25,000 divided by RM500,000 which is… 5 percent (as above). 5 percent divided by 2 years means just 2.5 percent per year. Aiyo… this is so little. How to compare to the ROI from stock market investing?

I remind everyone. Return on Investment means based on your invested amount. For a RM500,000 home, we have invested just 10 percent which is RM50,000. If home price went up by just RM25,000 over 2 years, that’s RM25,000 / RM50,000 * 100 which is 50 percent and divided into 2 years = 25 percent.

Property price never increase mah, so they suffer losses lah

Note – Property prices do NOT rise for every property, in every area, for all types or for every transactions. However, when we look at all the transactions versus all the value, then we should realize property prices are rising. Take a look at the data from NAPIC as below.

Look at the transactions volume versus the transactions value. Majority of transactions MUST have an increase in price or else the below number does not happen.

How to explain my friend who sold his / her property at a lower price then??

Anyone who sold their property at a lower price is NOT due to the market. It’s because they bought the property at a price which was too high in the first place. Exactly same will happen if this person went to buy an overpriced company shares too. They could have sold lower because they wanted the cash, so they are willing to sell faster and thus lowered their price. Many other reasons but for majority of everyone else, the price they sold has shown a higher transaction price instead.

This is NOT about which is better yeah

Some people cannot afford to wait for a few years for the property investment to give great returns. Please do not go into property investment if you are this group. Stock market is way better for you.

Some people are scared and cannot afford volatility. They are worried as soon as the stock price fall and would sell even if the fundamental remains intact. For this group, stock market is not for you. Maybe better to invest into the Fixed Deposit where they give 100 percent guaranteed returns instead.

Some people cannot accept low returns from Fixed Deposits, cannot accept volatility and cannot accept the long time for the property investments. For this group, maybe better to just keep earning way more money than what their expenses are. Perhaps earning is the key.

Everyone has their own unique thoughts about what’s best for them. This is what I want to explain. Choose the one you like. No need to tell me. Happy investing!

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