Which type of small condo is the best for rental yield?

[wira]

The so-called "abysmal" yield is not really "abysmal" at all!
There are many people who just don't understand the power of real estate, which is why look at the property magnates in Singapore, the like of Ng Teng Fong, Quek Leng Beng, etc - they all got rich from properties!

I will tell you a secret that BBCWatcher and many, either they are ignorant or they simply won't tell you!

Say, you bought a property at $1M.
You financed it with 80% loan paying 1.5% p.a. interest rate, while only paying $200k cash upfront (this is your investment capital).

Now, you rented out your property at $2500 pm, or $2500x12 / $1M = 3% p.a. rental yield.
So, this is the rental yield that BBCWatcher told you about, the "abysmal yield", they are low, as compared to CPF SA 4% interest that BBCWatcher like to shout out loud to you about!

Wait a minute, did you stop to think, hei, you only come out with $200,000, not $1M, why you calculate your rental yield by dividing by $1M?
So, the smart one will calculate their rental yield this way:
Rental yield
= (rental income - interest expenses) / (your capital invested)
= ($2500x12 - $800,000x0.015) / $200,000
= 9.0% p.a.!

So, the truth is, your rental yield for your $1M property renting out at $2500 p.m. is not 3% p.a. that BBCWatcher wanted you to believe, but really it is 9.0% p.a.!
Now, you compare this 9.0% p.a. to 4.0% paid by SA, are they big difference?
BBCWatcher may now tell you 9.0-4.0 = 5.0% p.a. not that great and not worth it considering the risk involved! Really?

Ok, let me give you another illustration again:
You start with $200,000 and you put this money into CPF SA earning 4% p.a. 30 years later, your pot of money becomes
= $200,000 x ((1+0.04) to power of 30)
= $200,000 x 3.243397
= 648,679

Let say instead of 4% p.a., now you get 9% p.a. (say, through your property investment), your pot of money starting with $200,000 now becomes
= $200,000 x ((1+0.09) to power of 30)
= $200,000 x 13.267678
= $2,653,535 = $2.653 Millions!

So, the difference between $2.653M and $648k = $2.005 Millions! Wow!
So it determines whether you become a Millionaire with just $200k or a pauper!
This above is considering rental income only and still does not include the capital gain you will get as a result of inflation and money printing!

So, there you are, this is the secret of how Ng Teng Fong and Quek Leng Beng become BILLIONAIRES!
Do you want to be a Millionaire (and on to become Multi-millionaire and even Billionaire)?
Or you want to be a pauper (after factoring in the escalating costs of living in Singapore) listening to BBCWatcher?
It is all up to you!

You are painting the wrong picture and giving wrong impression.

For a $1m with 80% loan. Even with 30yr loan period at low interest of 1.2% your monthly payment is $3.3k. Your rental is only getting you $2.5k so you are already having a negative cash flow ( need top up $800a month to service loan).
Add to that maintenance fees, property tax , rental income tax your cash outflow will be more.
And interest rates is set to rise so you’re mthly payment will increase to >$3.3K.

 

[MikeDirnt78]

You are painting the wrong picture and giving wrong impression.

For a $1m with 80% loan. Even with 30yr loan period at low interest of 1.2% your monthly payment is $3.3k. Your rental is only getting you $2.5k so you are already having a negative cash flow ( need top up $800a month to service loan).
Add to that maintenance fees, property tax , rental income tax your cash outflow will be more.
And interest rates is set to rise so you’re mthly payment will increase to >$3.3K.

Cash flows from rental can always be manipulated by adjusting tenor of debt and loan amount of property.

Basically if one is 80% loan, this person is leveraging to the max. And he shouldn't be looking at cash flows. Instead the focus is on the potential capital gain.

If you opt for lower loan and shorter tenor, monthly mortgage is lower. However the leverage effect is lower. But potentially positive cash flows.

 

[gerdhold]

I think one just needs to be careful with estimating costs as they add up quickly.

a 1mio property draws something like 25k stamp duty.
even if you assume you don't pay any commission at time of liquidation, you are immediately -12.5% (assume 80% financing) the moment you enter that trade.

 

[Majestic12]

What you are talking about is Return on Equity, which isn't without risks depending on the market at that point in time.

It is surely not a coincidence that the super bond bull cycle fitted in nicely with the appreciation of real estate worldwide.

And why do you have to use such extreme outliers? I have numerous clients who became very wealthy from the boom in real estate - and they are telling me that the golden era is over.

The so-called "abysmal" yield is not really "abysmal" at all!
There are many people who just don't understand the power of real estate, which is why look at the property magnates in Singapore, the like of Ng Teng Fong, Quek Leng Beng, etc - they all got rich from properties!

I will tell you a secret that BBCWatcher and many, either they are ignorant or they simply won't tell you!

Say, you bought a property at $1M.
You financed it with 80% loan paying 1.5% p.a. interest rate, while only paying $200k cash upfront (this is your investment capital).

Now, you rented out your property at $2500 pm, or $2500x12 / $1M = 3% p.a. rental yield.
So, this is the rental yield that BBCWatcher told you about, the "abysmal yield", they are low, as compared to CPF SA 4% interest that BBCWatcher like to shout out loud to you about!

Wait a minute, did you stop to think, hei, you only come out with $200,000, not $1M, why you calculate your rental yield by dividing by $1M?
So, the smart one will calculate their rental yield this way:
Rental yield
= (rental income - interest expenses) / (your capital invested)
= ($2500x12 - $800,000x0.015) / $200,000
= 9.0% p.a.!

So, the truth is, your rental yield for your $1M property renting out at $2500 p.m. is not 3% p.a. that BBCWatcher wanted you to believe, but really it is 9.0% p.a.!
Now, you compare this 9.0% p.a. to 4.0% paid by SA, are they big difference?
BBCWatcher may now tell you 9.0-4.0 = 5.0% p.a. not that great and not worth it considering the risk involved! Really?

Ok, let me give you another illustration again:
You start with $200,000 and you put this money into CPF SA earning 4% p.a. 30 years later, your pot of money becomes
= $200,000 x ((1+0.04) to power of 30)
= $200,000 x 3.243397
= 648,679

Let say instead of 4% p.a., now you get 9% p.a. (say, through your property investment), your pot of money starting with $200,000 now becomes
= $200,000 x ((1+0.09) to power of 30)
= $200,000 x 13.267678
= $2,653,535 = $2.653 Millions!

So, the difference between $2.653M and $648k = $2.005 Millions! Wow!
So it determines whether you become a Millionaire with just $200k or a pauper!
This above is considering rental income only and still does not include the capital gain you will get as a result of inflation and money printing!

So, there you are, this is the secret of how Ng Teng Fong and Quek Leng Beng become BILLIONAIRES!
Do you want to be a Millionaire (and on to become Multi-millionaire and even Billionaire)?
Or you want to be a pauper (after factoring in the escalating costs of living in Singapore) listening to BBCWatcher?
It is all up to you!

 

[OngHuatHuat]

How you get -12.5 %?

I think one just needs to be careful with estimating costs as they add up quickly.

a 1mio property draws something like 25k stamp duty.
even if you assume you don't pay any commission at time of liquidation, you are immediately -12.5% (assume 80% financing) the moment you enter that trade.

 

[MikeDirnt78]

The so-called "abysmal" yield is not really "abysmal" at all!
There are many people who just don't understand the power of real estate, which is why look at the property magnates in Singapore, the like of Ng Teng Fong, Quek Leng Beng, etc - they all got rich from properties!

I will tell you a secret that BBCWatcher and many, either they are ignorant or they simply won't tell you!

Say, you bought a property at $1M.
You financed it with 80% loan paying 1.5% p.a. interest rate, while only paying $200k cash upfront (this is your investment capital).

Now, you rented out your property at $2500 pm, or $2500x12 / $1M = 3% p.a. rental yield.
So, this is the rental yield that BBCWatcher told you about, the "abysmal yield", they are low, as compared to CPF SA 4% interest that BBCWatcher like to shout out loud to you about!

Wait a minute, did you stop to think, hei, you only come out with $200,000, not $1M, why you calculate your rental yield by dividing by $1M?
So, the smart one will calculate their rental yield this way:
Rental yield
= (rental income - interest expenses) / (your capital invested)
= ($2500x12 - $800,000x0.015) / $200,000
= 9.0% p.a.!

So, the truth is, your rental yield for your $1M property renting out at $2500 p.m. is not 3% p.a. that BBCWatcher wanted you to believe, but really it is 9.0% p.a.!
Now, you compare this 9.0% p.a. to 4.0% paid by SA, are they big difference?
BBCWatcher may now tell you 9.0-4.0 = 5.0% p.a. not that great and not worth it considering the risk involved! Really?

Ok, let me give you another illustration again:
You start with $200,000 and you put this money into CPF SA earning 4% p.a. 30 years later, your pot of money becomes
= $200,000 x ((1+0.04) to power of 30)
= $200,000 x 3.243397
= 648,679

Let say instead of 4% p.a., now you get 9% p.a. (say, through your property investment), your pot of money starting with $200,000 now becomes
= $200,000 x ((1+0.09) to power of 30)
= $200,000 x 13.267678
= $2,653,535 = $2.653 Millions!

So, the difference between $2.653M and $648k = $2.005 Millions! Wow!
So it determines whether you become a Millionaire with just $200k or a pauper!
This above is considering rental income only and still does not include the capital gain you will get as a result of inflation and money printing!

So, there you are, this is the secret of how Ng Teng Fong and Quek Leng Beng become BILLIONAIRES!
Do you want to be a Millionaire (and on to become Multi-millionaire and even Billionaire)?
Or you want to be a pauper (after factoring in the escalating costs of living in Singapore) listening to BBCWatcher?
It is all up to you!

You are sounding like a property agent.

Only telling the good stories.

 

[wira]

How you get -12.5 %?

THink he assume your capital $200k and already lost $25k for stamp duty before earning any returns. So $25k / $200k.

 

[MikeDirnt78]

How you get -12.5 %?

I thought you are a Maths tutor.

25k / 200k is the leveraged loss.

 

[OngHuatHuat]

Longer tenor , lower monthly mortgage repayment.

Cash flows from rental can always be manipulated by adjusting tenor of debt and loan amount of property.

Basically if one is 80% loan, this person is leveraging to the max. And he shouldn't be looking at cash flows. Instead the focus is on the potential capital gain.

If you opt for lower loan and shorter tenor, monthly mortgage is lower. However the leverage effect is lower. But potentially positive cash flows.

 

[OngHuatHuat]

It is not applicable for my case.

I thought you are a Maths tutor.

25k / 200k is the leveraged loss.

 

[MikeDirnt78]

Longer tenor , lower monthly mortgage repayment.

Oops you got me.

Yes my point is the cash flows aspect can be manipulated.

 

[OngHuatHuat]

If you calculate like that, higher capital means lower % loss.

THink he assume your capital $200k and already lost $25k for stamp duty before earning any returns. So $25k / $200k.

 

[MikeDirnt78]

If you calculate like that, higher capital means lower % loss, it doesn't make sense.

Because higher capital means lower leverage.

Remember leverage increases potential gain/loss.

 

[OngHuatHuat]

Actually there are 1 bedders at other areas as well, but more expensive

hi all, been doing some research on this area.... im quite optimistic on the geylang area... theres some potential i feel.... what do you guys think?

thanks

 

[OngHuatHuat]

How is the rental potential near Potong pasir? Is 800 meters considered a very long walk?

Quite a number of advert leh.


https://www.propertyguru.com.sg/sin...ayoh&maxprice=600000&tenure[]=F&tenure[]=L999

 

[OngHuatHuat]

Hope can get this condo somewhere in the middle or towards the end of the year. Pray everything goes well for me.

No good reason but I purchase some anyway.

 

[BBCWatcher]

Because higher capital means lower leverage.
Remember leverage increases potential gain/loss.

In other words, the bank (lender) must always be paid first. The borrower (you) is responsible for all the downside risk, including the stamp duty right off the bat.

....Unless the real estate downturn is big enough. Then, at least in certain places, strategic default becomes an attractive option. You lose everything associated with that property (and you lose your credit score), but you lose much less than continuing with the charade. And when you walk (or run), that means the bank loses, too, potentially even more than you lose. That’s exactly what happened during the Global Financial Crisis.

And that’s why a prudent, well regulated, well governed bank insists on a down payment, security of title (including a mortgage lein), and property insurance. But if there’s a big enough real estate market bubble that bursts, it can overwhelm even these defenses. That, in turn, explains why the government gets concerned about real estate appreciation — and why the government will “never” allow real estate in Singapore to appreciate too quickly. It’s because of the leverage and the systemic risks. (Never say never, but the government openly admits its concerns here.)

 

[andyhtc]

How is the rental potential near Potong pasir? Is 800 meters considered a very long walk?

Being near the city centre, the rental potential should be still okay if you are willing to negotiate on the rental. However, the cash flow is still quite negative at the moment. This is an unhealthy sign and it points towards an oversupply. A healthy one will allow the landlord to just cover the instalment or enjoy a slight positive cash flow.

Human moderate walking speed is about 60 to 70 m per min. That will be about 11-13 min without the traffic lights. I would consider that long but bearable for rental units. Below 600 m or under 10 min walk will be much better.

 

[andyhtc]

Hope can get this condo somewhere in the middle or towards the end of the year. Pray everything goes well for me.

Private property prices are already rising, as the government cuts down on subsidised ECs and cash-rich enbloc owners look for replacement homes. Even condos on the verge of Seng Kang is selling like hot cakes at $1,300 psf recently and land parcels are being sold at ever higher prices.

 

[andyhtc]

Why do investors purchase real estate for investment at such abysmal yields?

Other reasons are lack of other reliable investment tools that you can actually see and feel, and having faith in the Singapore economy in the long run.

To the man in the street, other than fixed deposits and government bonds, this is the next safest class of investment and easily understood.