Buying a 600k condo, having a 300k cash?

A reader wrote in with an interesting question. I think there are many buyers who are really cash rich but may either hold back or are thinking of the best way to proceed. Among my many colleagues, I already know many whom if they want could just view a unit or two and issue a cheque as downpayment on the spot. However, they may not think of property investment as the main investment for them under the current situation.
The question from the reader as follows:
Assuming you are buying a 600K condo and you have 300K in the bank, how much loan would you still take? Do you go for the maximum allowable loan amount (90%) or do you actually use the 300K as downpayment so that you only need lesser loan and thus lower monthly repayment? Which one makes more financial sense? Or would you take 90% loan and put the 300K in the loan account (say Flexi-loan) to reduce the interest?
My answer – Actually, it’s hard to answer your question as every one is so different in what they intend to do. Also, whether it’s first home, investment purpose and even risk appetite. Your two suggestions above are okay! (i) Put in more, lower installments or  (ii) “throw” it into a flexible account to reduce interests. Both are fine, actually.
Personally, if I have an extra 300k in the bank and I could still qualify for 90 percent loan, I would take up 90 percent loan instead. I would then use whatever remaining to buy up another unit, whether with 90 percent loan or even 70 percent loan. By doing this, besides having a place to stay, I would also be starting my property investment journey by using other people’s money (via rental). Note, I would ONLY focus on secondary property for this case. I do not wish to take more risks because 300k is a lot of money and I would prefer to take a calculated one. I would already know if that secondary property that I am buying could be rented out easily or not as there are today lots of reference points or I could ask my friendly neighbourhood agents too.
The basic assumption must be followed though. We should not overstretch ourselves too much. As for RM300k, I seriously think it’s enough for 2 properties conservatively. If you ask the more aggressive ones, I think they may tell you that with this 300k, you could become a millionaire in no time. Haha. Just be reminded that risks increase when we aim for fast returns, regardless of the type of investments.
The market is really soft currently thus we should be able to get pretty good deals. Unless another crisis happens, there is no way market will be down forever. Uncertainty Means New Opportunities. Last but not least is that, keeping 300k under your bed versus a staying in a fully paid rm300k home has no difference. Our only gain would be the rental that we would need to pay if we were renting instead of owning. Of course the home you are staying should continue to appreciate but if you are staying, would you sell and move? Get my meaning? Paper gain means nothing if we are not using it to build more. Read here: We have limited wealth, thus stay focussed on building it up  Happy investing.
written on 21 Feb 2016
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  1. Janice Chen avatar
    Janice Chen

    How about I put it into a different perspective?
    Assuming I have on-hand RM50k and I do not see of any new big purchase within this year, should I put the RM50k as FD (3.15%) or put it into house advance payment to reduce the interest rate (4.45%). Though the savings are not significant, to withdraw advance payment, bank charges RM50 for each transaction.

    1. Hi Janice, if there are nothing else that you are aiming at, I think reducing interest is a better option.

  2. I think you should seek for personal financial advice. 🙂

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