Saturday, July 10, 2010

Property 101 - Timing - When to Sell ?

Question: Let say you have invested in a property, have you ever think when is the best time to sell it to maximize the profit?

Very tricky question. This depends on many factor:

1. What is your profit target? Is the offer price able to meet your target?
- RM50,000, RM100,000, RM200,000?
2. Do you have holding power to hold it for another few years?
- Rent it out, and top up the different per months until the property price go higher?
3. How is the supply vs demand at that area? Is supply > demand at this moment?
- Are they many owner rushing to sell it after VP? Should you wait till the demand > supply then only sell?
4. How much is the cost to sell now compare to the cost sell later?
- Penalty from bank due to lock in period of the loan?
- Property gain tax ?
5. Is this leasehold or freehold property?
- Leashold property take longer time to process and your property will be leave empty while waiting for the sales of property to complete.
6. Is the property deliver in good quality, good design, good community, good environment and good place to stay?
- If above all is positive, yur property will command much better capital appreciation.

Maybe I take the soon to be VP - Sutera Damansara as example.

Let's Assume
Property Purchase Price: RM440,000
Loan Amount: RM400,000
Installment Per Month: RM2,000

If Owner Sell immediately after VP
Selling Price: RM540,000

Time to Find Buyer: 2 months
End to End Processing Time: 8 months
Total Waiting Period: 10 months
Estimate Waiting Cost: RM2,000 x 10 = RM20,000

Bank Penalty = 3% x RM400,000 = RM12,000
Selling Agent Fee = 2% (subject to negotiation) x RM540,000 = RM10,800
Selling Lawyer Fee = RM4,000
Property Gain Tax = RM3,000
Total Cost: Rm20,000 + RM12,000 + RM10,800 + RM4,000 + RM3,000 = RM49,800

** Assumption:
- S&P Lawyer Fee free
- Loan Lawyer Fee free
- Interest Free During Construction
- Selling price benchmark based on OSK current selling price
- Loan Lock in is 5 years

Profit if sell immediate after VP: RM540,000 - RM440,000 - RM46,800 = RM50,200

You would be able to cash back: RM40,000 (downpayment) + RM50,200 (profit) = RM90,200

If Owner Rent It Out and Sell after 5 Year Counting from S&P Date
Rental : RM1,500
Time to Find Tenant: 2 months
Rental Agent Fee : RM1,500 (1 month rental)
Basic Renovation Cost : RM15,000
Selling Agent Fee = RM15,000
Selling Lawyer Fee = RM5,000

Total Cost : RM2,000 x 2 + RM1,500 + RM15,000 + RM15,000 + RM5,000 = RM40,500

Estimate Amount to Top Up per month : RM500 (bank installment) + RM200 (misc) = RM700
Estimate Holding Cost per Year: RM8,400

** Assumption:
- Renovation take 1 month to complete
- Rental benchmark based on Park Avenue Condo, Armanee Condo at surrounding area.

If property price at Damansara Damai area

Growing @ 5% a year, in 2013 it is worth RM625,117
Growing @ 7% a year, in 2013 it is worth RM661,523
Growing @ 10% a year, in 2013 it is worth RM718,740

For 5% scenario: Profit if sell in 2013: RM625,117 - Rm440,000 - RM40,500 - (RM8,400 x 3) = RM119,417
For 7% scenario: Profit if sell in 2013: RM661,523 - Rm440,000 - RM40,500 - (RM8,400 x 3) = RM155,823
For 10% scenario: Profit if sell in 2013: RM718,740 - Rm440,000 - RM40,500 - (RM8,400 x 3) = RM213,040

Should I sell the property immediately after VP or later?

- If I confident I can earn >= RM150,00 within 3 years, with the cash I receive (RM90,200) by selling the property in 2010, I will sell immediately
- If the property quality is bad, and foresee the demand for this property is low, as it will impact the capital appreciation rate (5% and below), I will sell it immediately
- Lastly, if I have no holding power, need cash immediately, I will sell it immediately

Just some thought, please share if you have other view....

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