QUOTE(Chris Chew @ Apr 11 2014, 09:30 AM)
Definitely can boss. Bcz principal is paid but capital is back after 5 years and inline with Scenario 1 bcz the capital was paid upfront by cash.
But dont confuse him too much eh and I just use a very simple calculations without other minor costs involved.
The RM 450k at B - 2.40% for 35 years. The monthly installment is RM 2200 per month with approx RM 700 average principal a month and RM 1500 interest a month. But SEH is 2 years construction and EM is 3 years construction, so quite difficult for me to input the rough amount.
If i use EM, I guesstimate the progressive interest is 5% of RM 450k which is RM 22,500 and plus 24 months installments, RM 2200 x 24, RM 52,800. Total RM 75,300
So, RM 250k - RM 75k - RM 30k = RM 145k
Average ROI = 145k / 5 = RM 29k per year
COCR = RM 250k / 125k = 50%, average 10% A year.
I still see getting loan borrowing is one of the best way to leverage our cash flow with better COCR n ROI. Lol.
Bro chris, decent calculation...

I like calculation too, though I am not a calculative person...
The COCR looks indeed looks tempting in this context, but I presume generally it still relies on how much the total capital appreciation of the said property. RM 250k increase within 5 years will generate an attractive COCR if compare between scenario 1 and 2. However, this is fairly risky, esepcially for a flipper. For a conservative assumption, how about the capital appreciation just about RM 150k within 5 years?
If use back your example,
Scenario 1
If I buy cash, my initial capital is RM 500k and upon selling, my cost is 2% agent fee @ RM 15k + miscel cost like S&P at RM 15k.
Net profit after 5 years is RM 150k - RM 30k = RM 120k
Average ROI, 120k / 5 years = RM 24k per year
COCR = RM 120k / 500k = 24%, average 4.8% A year.
Scenario 2
If I pay RM 50k downpayment ( my capital ) and get RM 450k loan.
Progressive interest is 5% of RM 450k which is RM 22,500
24 months installments, RM 2200 x 24, RM 52,800.
2% agent fee @ RM 15k + miscel cost like S&P at RM 15k = 30k
Total cash you have dumped in RM 50,000 + RM 22,500 + RM 52,800 + RM 30,000 = RM 155,300
Net profit after 5 years is RM 150k - RM 155,300 = - RM 5,300
Average ROI = negative ROI
COCR = negative COCR
From the above example, you can clearly see that those have RM 500k cash is still having some ROI, but those with only RM 50k already make a lost! This is not factored in if there is BLR increase within that 5 years.
Thus, regardless how you calculate the ROI, the most crucial rule I always remind myself is - Find more money and dumped into flexi account, every single cent of interest that I save, it will convert to another single cent of my ROI...
This post has been edited by samkps: Apr 11 2014, 02:24 PM