This is a common question from 1st time property buyers.
1) Initial sum
Besides 20% down payment, factor in transaction costs like stamp duty, legal fee and budget for renovation/furnishing.
Always use your own money. If you need to borrow even the 20% down payment from others, you are not ready to buy yet.
If money comes from somebody else (say, your parents), you may make reckless decisions because it is not your hard-earned money.
Never borrow from people you barely know or from money lenders.
If you are not using your own money, the purchase will leave you with unnecessary stress along the way.
If you must borrow from or co-invest with family, relatives or friends, lay down clear terms and conditions — how and when you will pay them back, at what price you will cut loss or sell for profit, etc.
2) Ongoing payments
A general guideline: Monthly mortgage payment shouldn’t exceed 35% of your monthly income.
If it is an investment, the rental income should at least cover your mortgage payment, maintenance fee, property tax and necessary repairs.
Target to have at least 4 to 5% net return. Remember you have to set aside some buffer in case of increase of interest rate, decline in rental market, delayed payment/vacancy, revision of maintenance fee, etc.
3) Other considerations
If it is an investment property, do you have the holding power?
If you don’t, you may be forced to sell during economic downturn, or when you have a change in fortune.
Price fluctuations and transaction costs can wipe out all your previous rental return. It may leave you with little profit or even a loss.
Do you have other plans in the near future? For instance, money set aside for your wedding or further studies?
Buy only within your comfort zone. If you don’t feel comfortable buying a property at the expense of your current lifestyle, or sacrifice too much of your social life because of the purchase, it’s better to drop the idea altogether before you regret.
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