Investing Rental Property for Child Education Fund in Future, Is It Workable?

Investing Rental Property for Child Education Fund in Future, Is It Workable?

What is the best way to plan your child education fund for their study at university or college in future? Is it workable to plan the education savings fund by owning rental property? It is workable for me. Below is the ROI calculation for a low income rental property:

§  Rental Property Price = RM200,000

§  Down Payment (10%) = RM20,000

§  Mortgage Monthly Installment = RM797.64

§  Mortgage Package = BLR – 2.4% = 5.8% – 2.4% = 3.4%

§  Mortgage Loan Tenure = 30 years

§  Rental Rate = RM1000 (Assume zero cash flow investment, house rental income is sufficient only to cover all the costs include loan payment, maintenance fees, and etc)

CHILD EDUCATION PROGRESS IN MALAYSIA

Age 0 – 4 = Baby stage
Age 5 – 6 = Kindergarten
Age 7 – 12 = Primary School (standard 1 to 6)
Age 13 – 17 = Secondary School (form 1 to 5)
Age 18 = Enter to University / College

CHILD EDUCATION FUND VIA RENTAL INCOME

Age 0 = Buy a rental property
Age 1 – 16 = Collecting rentals
Age 17 = Selling property within 1 year
Age 18 = Cash is on your hand and ready to pay for University / College fees

If you buy a rental apartment for your newborn baby from day one, you may have 16 years (or equivalent to 192 months) to rent out your property and collecting rentals before you sell the property at 17th years and get the cash ready for your child’s university fees.

§  16 years = 192 months to collect rentals

§  Accumulated principal paid (on 192th months) = RM73,382.28

§  Mortgage Loan Balance (on 192th months) = RM106,617.72

Don’t forget about the capital gains on rental property! Basically, house price appreciation over the years is a norm thanks to the inflation. Assuming the property value appreciation is growing 2% annually for 16 years. By the time, selling rental property at RM274,557.14 could earns you gross profit of RM167,939.42.

§  Selling Price (after 16 years) – Loan Balance (after 16 years) = RM167,939.42 (gross profit, cash on hand)

Don’t you think that is a great investment?

HOUSE RENTAL RATES

Bear in mind, we haven’t taken into consideration on the appreciation of rental rates. We might not able to predict what will happen to the rental rates on 16 years later. But, do you think it will remain the same, RM1000, since the past 16 years ago? Perhaps our auntie uncle readers here may share with us about the history of rental market in Malaysia?