The other day i ran into a long time friend of mine in one of my neighbour grocery store, so we talked for a while. We talked about our university life, our job, our busy life and how many companies he has switch before came to the current one. Just a year ago he bought himself a house and he is living in his own house currently, but then he is in a dilemma.

Because of his new job, he has to travel nearly 45 minutes to work which does not include the time he has to spend in traffic jam. At the same time, he got an offer from his friend to rent his house – For RM1,200 a month which is just enough to cover his monthly instalment.

He has also found a room near to his new company which cost him RM200 a month. So now he is in a dilemma; whether he wants to trade off his comfort, which is his own house, for a small room to live with other housemates who he has no idea of.

I think it’s a typical dilemma faced by many of us nowaday; comfort or delay gratification. A lot of us choose comfort first of course, which is natural.

So i explain a bit to this old friend of mine. If he chose to move to a RM200 rental room, and getting RM1,200 in return in term of rental income, he saves RM1,000 every month on the housing loan. That add up to RM12,000, which is significant. But if he chose to stay in his own house, he will continue to pay the monthly instalment RM1,200. Compare to first choice, he paid up to RM 12,000 to the bank in a year. One make him richer but another make him poorer. Of course he will get comfort of home if he chose to stay in his own house.

He got the point i made, he nodded in silent and reluctantly. Probably he was still waiting for the one last encouragement for him to stay in his own comfort of home.

 Simply because the monthly rental income only cover up to 95% of my monthly instalment and i still have to fork out RM200+ for maintenance fee. That come up to nearly RM300 in negative cash flow, putting my condominium in the liability category.

Well, other people or the bank might tell you it’s an asset, they are not lying to you. But it’s not the whole truth. They just didn’t mention whose asset it is. It’s the bank’s asset because you are paying the bank interest. Remember, asset put money from your pocket while liability takes money from your pocket.

 Having said that, the ideal rental property will provide you positive cash flow. If let say the rental income is more than enough to cover your monthly instalment plus maintenance fee with money left, then the property will consider as a asset.

 So when buying your property for rental income, you need to know in advance: how much monthly instalment, maintenance fee, etc you will need to pay every month in the future and how much you can get as rental income. As RK says; the deal is determined when you bought the property not when you sell the property, which is true in my case.