How to finance your real estate investment for maximum return?

When you want to take up a loan for your real estate investment, you may be confused by different loan packages offered to you. However, the 3 major factors that will affect the return of your investment are loan amount, tenure and interest rate.

Making decision to finance your real estate investment through a mortgage loan can be as simple as answering the following 3 questions.

How much should I finance?
If your real estate investment is worth borrowing, go for the maximum loan amount available to you; otherwise do not borrow to invest.

If a real estate investment is worth borrowing, the more you borrow, the higher the return, and the sooner you will take back all your capital. See our previous article “Why you want to take up a loan for your real estate investment?” for such real case in Johor Bahru. (If you’re not already a subscriber to Real Estate Investment in Johor Bahru, enter your email address in the box beside this article and subscribe to receive our FREE latest update via email.)

How long the tenure should I choose?
Try to get the longest tenure available to you when you apply for a mortgage loan for your real estate investment. Why? Simply put, to minimise your holding cost – monthly loan repayment.

By selecting the longest tenure you enjoy the lowest monthly repayment. In other words, you will be able to save more money every month. You can save these monies for rainy day and earn interest from savings or fixed-deposit accounts, or invest them in other places.

The best thing is you still can repay the outstanding loan amount anytime with the extra cash you saved. And when you reduce your outstanding loan amount, you still can choose to shorten the tenure or reduce the amount of monthly repayment. This is because mortgage loan interest is calculated based on the outstanding loan amount.

Since the longer the tenure the lower the monthly repayment, invest in real estate while you are young. This is not quite a fair game for elders. Monthly repayment for a man at age 55 years can be double of the monthly repayment for a man at age 35 years!

Which interest rate package should I choose?
You may think this should be the easiest question to answer – just take the lowest interest rate of course. Yes, if you are talking about the lowest interest rate within the lock-in period of your loan.

Nowadays you will find almost every loan package offered by banks comes with a condition of lock-in period. All banks want to lock you in for a certain period of time before you can repay the full loan amount. You are required to pay a penalty fee of around 3% of the total loan amount if you want to repay the balance loan amount or sell your property within the lock-in period.

You may want to sell away your property within the lock-in period when the price is right. So make sure you factor in the penalty fee as part of your selling costs.

Some bank like Maybank offers lower interest rate in the first few years of repayment. Ask banks to give you quotations of different interest rate packages with the maximum loan amount and tenure available to you. Select the package with the minimum monthly repayment within the lock-in period.

In short, in order to get the maximum return from your real estate investment which is worth borrowing,

  1. Choose the maximum loan amount – for the highest return
  2. Select the longest tenure – for the minimum holding cost
  3. Select the interest rate package with the lowest monthly repayment within its lock-in period – for the minimum holding cost
About The Author


Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.


  • KCLau

    Reply Reply December 14, 2008

    Hi OngKL,

    Last time, there are fixed interest rate home loan package available. But nowadays, this kind of offer is getting less.
    Some investors pointed out that it is safer to use a fixed rate mortgage because we don’t have to worry about interest rate hike in the future, which might affect the monthly instalment amount.

    What do you think about this?

    • ongkl

      Reply Reply December 14, 2008

      Thank you for your comment, KC.

      Yes, there is virtually no more fixed interest rate mortgage in the market now. But no worry, it can be a good thing for real estate investors and home buyers to choose floating interest rate in this period of time of economy crisis.

      I will post an article tomorrow to discuss this issue.

    • Paul Tan

      Reply Reply August 15, 2009

      Just fyi, ING is currently offering 4.85% fixed rate home loans.

  • Liew

    Reply Reply April 10, 2009

    Is it good point to take loan as long period year as possible?

    • ongkl

      Reply Reply April 10, 2009

      Hi Liew,

      Yes, one should go for the longest period of tenure for a loan in order to minimise the major monthly cost – monthly installment, so that his/her monthly cash flow will be maximised. With the maximum cash flow, extra cash can be accumulated and used to repay the loan anytime in future with the flexibility to manipulate the cash on hand.


  • Sarah Tan

    Reply Reply April 27, 2009

    Hi, pls give comment.
    setia indah-22×70 double storey terrace house with dwnpayment +95%loan, free legal fee, but rebate RM8888 is the best offer they could give us. The location is nice and the building is nice too, key handover soon by October 2009. Im considering it to Desa Tebrau Corner lot with selling price at RM288K only ! Which gave a better investment value at this period? Can I afford to pay monthly installment with monthly income of RM 6000? If the loan % is going to increase by next year, which means I need to pay monthly (3.5% now = RM 1310) even higher?

    • ongkl

      Reply Reply April 28, 2009

      Hi Sarah,

      You can loan up to the limit that the monthly installment shall not exceed 30% of your monthly income. With a monthly income of RM6000, you can afford loan(s) with monthly installment of RM1800. This amount is the alloweable total monthly installment of all loans if you are applying for more than one loans.

      For a 95% loan of RM288k property, tenure 30 years, interest 3.5%, montly installment is RM1228.59.

      We need more details about these two properties like purchase prices, intention of investment (for rent or for own staying), expected rental income (if any) and other costs such as budget for renovation and furnishing work (if any), in order to evaluate which one is better. Location wise both are located in good areas.


  • Jess

    Reply Reply May 5, 2009

    Hi OngKL,

    Just would like your opinion regarding interest rate. Currently, bank interest rate for housing loan at its’ lowest and should not be a problem if we could take a loan of 90% to 95% of the purchase price. What happens when the interest rate rise and cause our property investment to become negative in cashflow whereas the current rental are on the high side and might be difficult to increase the rental further? I would like to know what is your comment or action to be taken when such situation arises? Please comment.

    Thank you.

    • ongkl

      Reply Reply May 6, 2009

      Hi Jess,

      As discssed in our previous article “Inflation may come back soon (or it has never left?)”, if the inflation is comng back which causes interest rate to go up, your cash flow from rental property should increase also.

      However, in order to have a healthy cash flow from your investment regardless of economy condition, we encourage for each investment property, monthly installment should not exceed 60% of the income (rental) generated. For example, if you collect RM1000 every month from a rental apartment, keep your monthly installment below RM600, which should be equivalent to a loan amount of RM130k with interest rate 3.75% and tenure 30 years.

      This is to give some room to maintain a positive cash flow should the bank revise interest rate to even double of the existing rate.


  • Jess

    Reply Reply May 6, 2009

    Hi OngKL,

    Thanks for the clarification and comment. However, I’m interested to know how does the 90% financing which you have mentioned in your previous articles incorporate to what have been mentioned here about monthly installment should not exceed 60% of the rental income? I find both ideas are a bit contradictory. Hope you could clarify further on that.

    Once again, thank you in advance for your guidance.

    • ongkl

      Reply Reply May 7, 2009

      Hi Jess,

      If you look at our apartment in Tampoi (“How to increase the return of an investment property to more than 20%?”), we did follow the guideline of monthly installment being less than 60% of rental income.

      However, if you look at the latest case study from our reader in Penang (“How to turn a property to become worth borrowing/leveraging?”), the main objective was to turn the property to become worth borrowing. There is always a trade-off. Sometime we just can’t have the best of both worlds unless we do it right in the beginning. In this case, because the rent was low (RM600), if the reader loaned 90% she couldn’t keep the monthly installment below 60% of the rental income.

      That’s why we suggested the reader in the article to loan just RM40k (or 38%) only in order keep her monthly installment at RM184 only.


  • Jess

    Reply Reply May 7, 2009

    Hi OngKL,

    Thank you for the clarification. You have made things clearer by elaborating with further explanation.

    Thank you very much for sharing with all of us.

  • Real estate

    Reply Reply September 24, 2011

    tHIS article is very useful! especiall when u explain the 3 factors!do you have any article about how to reduce the risk?

  • Adelyn

    Reply Reply February 24, 2012


  • Jack

    Reply Reply September 30, 2012

    Hi kl , good evening

    I notice the question I posted is pending ” moderation ” … But it was in June 2012 and now is going into oct 2012 next week.

    I am a straight shooter and I hope to find honest answer .

    Here is my question again :

    I have checked in whether propertyguru or iproperty website n even I ask ask any agents in both Johor and kl including mount Kiara …I noticed that all properties if we buy for investment are generating ” negative yield ” which means the monthly rental is not sufficient to cover the monthly loan repayment if we take 70% loan and the situation is worst if we take 80 0r 90% loan and bin these cases we have to cough out additional money to pay the monthly bank loan as our rental is not enough to cover the monthly bank loan repayment order words we have to subsidise the tenants to stay at our place !!!!!

    From my calculation , only if we take 60% loan … We just about to break even ie monthly rental just enough to cover the monthly bank Liam repayment ??

    Take Marc in kl or any other in mount Kiara or Johor and tell me if I am wrong .

    If there are any agents who read this and can prove to me that I can get positive cash flow from investing in properties , I will buy 5 units right away !!!

    Currently from my investigation , we all have to forget about buying properties for investment ..why ( if u may ask ) .. It is because the monthly rental is insufficient to cover your bank monthly repayment if u ate thinking of borrowing 90, 80 or 70% Liam from the bank !!!

    Going forward , the obvious thing to happen as I can see is for property prices to drop further in near future nobody is getting any positive yield in the current situation


    • Mahsk

      Reply Reply January 27, 2013

      Jack, I can think of there are 2 possible reasons for your observation. Probably you had left with an option to have short loan tenure (and hence compensated with bigger capital as down-payment to break even) or you had been finding hard enough for worthwhile investment.

      • Mahsk

        Reply Reply January 27, 2013

        typo…or you had not been finding hard enough for worthwhile investment.

        My experience there are still quite opportunities out there that provide at least 6% ROI on your investment. For that to work out, you had to be in the 30s age profile. Beyond 40, this will get more challenging.

        As OngKL said, property investing is not a fairer game for the elders…

  • Vinxon

    Reply Reply October 24, 2012

    Jack, you are right. Now property agents and buyers have “goreng” the price of properties to too high till the level whereby there is practically negative cash flow. This is not called investing anymore. No point to buy if you have to bear with negative cash flow. I suggest you think of other alternative to invest your money in. That is my two cents.

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