Save on petrol, save on holidays, save on car purchase BUT no property to call our own?

Save on petrol, save on holidays, save on car purchase BUT no property to call our own?

Personal Finance GURU who does NOT think property investment is critical?

I am always rattled when some personal finance guru teach people how to save on petrol, save on holidays, save on food expenses and even think rationally and buy a car which is fitting for need versus showing off BUT they said renting a place will save money versus buying a property because the interest payment will eventually be so much more than the property price.

Let’s start at the super high interest portion which we have to pay when we buy a property. I know, they will also say must include the maintenance fees lah… the statutory payments lah… The biggest portion is definitely the interest, so let’s look at it.

Mortgage interest is too much or too high?

Actual calculation of a RM500,000 property. 35 years x 12 months x RM2,061 per month = RM865,620. You see… mortgage interest alone is RM365,620 yeah. Crazy meh? Pay so much… just for the interest?

Okay, it’s true. Not many would prefer to buy a RM500,000 property and in the end, have to pay extra RM360,000 on top of the RM500,000 lah. Should we now focus on save, save and save and forget buying a property then?

Now let’s move to the rental model, okay? Below is the calculation if one were to rent from the day they started to work until the day they retired and AFTER retirement until the day they leave this world.

Start at 25 and working till 60

If we start working at 25 and we work until 60, that is 35 years of working life. Assuming we save a lot of money by renting versus buying since buying meant we need to pay interest while renting is cheaper, more flexible etc etc etc.

35 years x 12 months x RM1,500 (rental of a typical RM400,000 high-rise unit or a landed property in some suburb). This will come up to RM630,000. Who owns this RM630,000? Of course… it’s the one who rented the place lah, you think the one who is renting meh?

Retire and renting another 20 years

Now, post-retirement calculation could as follows. The person would continue to rent, so maybe it’s the below. By the way, we assume rental does NOT increase. Somehow the owner is a very nice person. (Not talking about me. I am a nice person but I do increase rental)

20 years x 12 months x RM1,500 equals to RM360,000.

In total from the day we started working until the day we say goodbye, it’s close to RM1 million which used to be our money but transferred to the home owner instead.

We assume the home price remain exactly the same 35 years later, okay?

If the home price remains exactly the same 35 years later (which is impossible due to inflation etc), this person would own a RM500,000 property when he reaches 60 years old. I repeat. He / She has a RM500,000 property which is now an asset and could be sold for RM500,000. Whichever way, whatever way the person wants to spend this RM500,000 is up the person. Even more importantly, whatever we pay for this home is a ‘rental.’ Technically, all our “rental” is paid back to ourselves. Principal part belongs to us and interest portion belongs to the bank.

Learn from everyone but never forget property, else it’s poverty

The only reason why the next and the next and the next generation continue to be poor is because all the money they earn are all paid as rental to the home owner. Meanwhile the home owner would have fully paid for the home using the rental at the end of 35 years and they could continue repeating this process with the next tenant and the tenant’s next generation and so on. This is why in many countries, people without a property face poverty.

Or maybe we are able to earn by far more than the rental, then it’s okay to skip property investment. Just like some billionaires who does not own a property. If we are like them, skip any investment yeah. We already have enough money to spend as we want. Property is just an inconvenience if we are already super rich.

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