QUESTION
Right now, i have cash RM60,000. Please assist me in making decision of investing unit trust which can give me roi (return on investment) 10% average per year , or put all RM60,000 as deposit of buying RM200,000 house (my fourth house) which can generate net monthly income RM500 (RM1500 (rental income) minus RM1000 (loan expenses) or RM60,000 i buy asb loan which can give me (return on investment) 5.5% per year. Which is more profitable in 7 years - As as at 2032, my decision of investing in unit trust or buying house or asb loan , which is better and good decision
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CONCLUSION
### **Recommendation**
1. **Buying a House (4th Property):**
- This option provides the highest return (RM95,180) over 7 years, combining rental income and property appreciation.
- However, it involves higher risk (property market fluctuations, tenant issues, maintenance costs, and liquidity concerns).
2. **Investing in Unit Trust:**
- This option provides a moderate return (RM56,922) but is subject to market risks.
- It is more liquid compared to property investment.
3. **ASB Loan:**
- This option provides the lowest return (RM27,282) but is the safest and most stable.
---
### **Final Decision**
- If you are comfortable with **higher risk and active management**, buying a house is the most profitable option.
- If you prefer **moderate risk and liquidity**, investing in unit trust is a good choice.
- If you prioritize **safety and stability**, the ASB loan is the best option.
Consider your risk tolerance, investment goals, and liquidity needs before making a decision. If you’re unsure, you could also diversify by splitting the RM60,000 between two or more options.
To determine the best investment option for your RM60,000, let’s analyze each option over a 7-year period (2025–2032) based on the information provided. We’ll calculate the potential returns for each option and compare them.
---
### **Option 1: Invest in Unit Trust with 10% ROI per year**
Assuming the unit trust provides an average annual return of 10%, compounded annually, the future value (FV) of your investment can be calculated using the formula:
\[
FV = P \times (1 + r)^n
\]
Where:
- \( P = RM60,000 \) (initial investment)
- \( r = 10\% = 0.10 \) (annual return)
- \( n = 7 \) years
\[
FV = 60,000 \times (1 + 0.10)^7
\]
\[
FV = 60,000 \times 1.9487
\]
\[
FV = RM116,922
\]
**Total Return:** RM116,922 - RM60,000 = **RM56,922** (after 7 years).
---
### **Option 2: Buy a RM200,000 House (4th Property)**
- **Initial Cash Outlay:** RM60,000 (deposit).
- **Net Monthly Rental Income:** RM500 (RM1,500 rental income - RM1,000 loan expenses).
- **Annual Rental Income:** RM500 × 12 = RM6,000.
- **Total Rental Income Over 7 Years:** RM6,000 × 7 = RM42,000.
Assuming the property appreciates at an average rate of **4% per year**, the future value of the property can be calculated as:
\[
FV = 200,000 \times (1 + 0.04)^7
\]
\[
FV = 200,000 \times 1.3159
\]
\[
FV = RM263,180
\]
**Net Profit from Property:**
- Future Value of Property: RM263,180
- Minus Loan Balance: Assuming you took a 90% loan (RM180,000) and paid down the loan over 7 years, the remaining loan balance would depend on the interest rate and repayment schedule. For simplicity, let’s assume the remaining loan balance is RM150,000.
- Net Equity in Property: RM263,180 - RM150,000 = RM113,180.
- Add Rental Income: RM42,000.
- Total Return: RM113,180 + RM42,000 = **RM155,180**.
**Minus Initial Cash Outlay (RM60,000):**
- Net Profit: RM155,180 - RM60,000 = **RM95,180**.
---
### **Option 3: Invest in ASB Loan with 5.5% ROI per year**
ASB loans typically provide a return of around 5.5% per year. Using the same future value formula:
\[
FV = 60,000 \times (1 + 0.055)^7
\]
\[
FV = 60,000 \times 1.4547
\]
\[
FV = RM87,282
\]
**Total Return:** RM87,282 - RM60,000 = **RM27,282** (after 7 years).
---
### **Comparison of Returns Over 7 Years**
| Option | Total Return (RM) | Notes |
|-------------------------|-------------------|-----------------------------------------------------------------------|
| Unit Trust (10% ROI) | 56,922 | Higher risk, depends on market performance. |
| Buy a House | 95,180 | Higher return, but involves property management and market risks. |
| ASB Loan (5.5% ROI) | 27,282 | Low risk, but lower returns compared to other options. |
---
### **Recommendation**
1. **Buying a House (4th Property):**
- This option provides the highest return (RM95,180) over 7 years, combining rental income and property appreciation.
- However, it involves higher risk (property market fluctuations, tenant issues, maintenance costs, and liquidity concerns).
2. **Investing in Unit Trust:**
- This option provides a moderate return (RM56,922) but is subject to market risks.
- It is more liquid compared to property investment.
3. **ASB Loan:**
- This option provides the lowest return (RM27,282) but is the safest and most stable.
---
### **Final Decision**
- If you are comfortable with **higher risk and active management**, buying a house is the most profitable option.
- If you prefer **moderate risk and liquidity**, investing in unit trust is a good choice.
- If you prioritize **safety and stability**, the ASB loan is the best option.
Consider your risk tolerance, investment goals, and liquidity needs before making a decision. If you’re unsure, you could also diversify by splitting the RM60,000 between two or more options.
If you use the **net rental income** from your house to invest in unit trust over 7 years, we can calculate the future value of these investments. Here's how it works:
---
### **Assumptions**
1. **Net Monthly Rental Income:** RM500 (as per your earlier statement).
2. **Annual Rental Income:** RM500 × 12 = **RM6,000**.
3. **Unit Trust ROI:** 10% per year (compounded annually).
4. **Investment Period:** 7 years (2025–2032).
5. You invest the **entire RM6,000 annually** into the unit trust.
---
### **Calculation**
This is a **future value of an annuity** problem, where you invest RM6,000 at the end of each year for 7 years, earning a 10% annual return. The formula for the future value of an annuity is:
\[
FV = P \times \frac{(1 + r)^n - 1}{r}
\]
Where:
- \( P = RM6,000 \) (annual investment),
- \( r = 10\% = 0.10 \) (annual return),
- \( n = 7 \) years.
\[
FV = 6,000 \times \frac{(1 + 0.10)^7 - 1}{0.10}
\]
\[
FV = 6,000 \times \frac{1.9487 - 1}{0.10}
\]
\[
FV = 6,000 \times \frac{0.9487}{0.10}
\]
\[
FV = 6,000 \times 9.487
\]
\[
FV = RM56,922
\]
---
### **Total Return from Rental Income Investment**
- **Total Amount Invested:** RM6,000 × 7 years = **RM42,000**.
- **Future Value of Investment:** **RM56,922**.
- **Net Return:** RM56,922 - RM42,000 = **RM14,922**.
---
### **Combined Return from Property and Unit Trust**
If you combine the returns from the property and the unit trust investment, here’s the breakdown:
1. **Property Investment:**
- Net Equity in Property (from earlier calculation): **RM113,180**.
- Rental Income Invested in Unit Trust: **RM56,922**.
- Total from Property and Unit Trust: RM113,180 + RM56,922 = **RM170,102**.
2. **Minus Initial Cash Outlay (RM60,000):**
- Net Profit: RM170,102 - RM60,000 = **RM110,102**.
---
### **Summary**
- By investing your rental income into unit trust, you would earn an additional **RM14,922** over 7 years.
- Combining the returns from the property and the unit trust investment, your total net profit would be **RM110,102** by 2032.
This strategy leverages both the appreciation of your property and the compounding returns of the unit trust, making it a strong option for maximizing your overall returns.
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