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Investing in a Condo?

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Old 28-07-2020, 06:09 PM   #1
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Investing in a Condo?

Anyone works out the sum before? I think condo investing should be much more complicated than normal stocks/bonds investing

I am looking at a 700k condo which can yield 2% rental. If I were to pay half in cash, the mortgage seems to be $1500 per month and I can cover by renting out the condo

Say if the condo price raise 4% per year and 10 years later, it be worth about 1mil. Remember i only took out 350k of my capital and the return is 300k

(650k/350)^(1/10)=6.3%.

Thoughts?
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Old 28-07-2020, 06:39 PM   #2
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I think you are too optimistic about the capital appreciation of 4% p.a. It is quite unlikely for a $700K condo to be worth $1M ten years later.

But I do think it is not difficult to achieve net rental yield of 6.3% even with only the minimum 25% downpayment. For your $700K example, 25% downpayment plus stamp duty/legal fee will be approx. $193,500.

Monthly rental of $2,200 minus mortgage interest, maintenance and property tax should give you slightly more than $1,000 a month.

Annual returns:
$12,000 / $193,500 = 6.2% without taking into account any capital appreciation. Any capital appreciation is a bonus but your expectation of a $300K gain in ten years on a $700K property is a thing of the past.
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Old 28-07-2020, 07:05 PM   #3
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I think you are too optimistic about the capital appreciation of 4% p.a. It is quite unlikely for a $700K condo to be worth $1M ten years later.

But I do think it is not difficult to achieve net rental yield of 6.3% even with only the minimum 25% downpayment. For your $700K example, 25% downpayment plus stamp duty/legal fee will be approx. $193,500.

Monthly rental of $2,200 minus mortgage interest, maintenance and property tax should give you slightly more than $1,000 a month.

Annual returns:
$12,000 / $193,500 = 6.2% without taking into account any capital appreciation. Any capital appreciation is a bonus but your expectation of a $300K gain in ten years on a $700K property is a thing of the past.
75% loan at 2% 30 years mortgage is about 2k a month payment. how u get 1K positive cash flow per month?
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Old 28-07-2020, 07:06 PM   #4
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I think you are too optimistic about the capital appreciation of 4% p.a. It is quite unlikely for a $700K condo to be worth $1M ten years later.

But I do think it is not difficult to achieve net rental yield of 6.3% even with only the minimum 25% downpayment. For your $700K example, 25% downpayment plus stamp duty/legal fee will be approx. $193,500.

Monthly rental of $2,200 minus mortgage interest, maintenance and property tax should give you slightly more than $1,000 a month.

Annual returns:
$12,000 / $193,500 = 6.2% without taking into account any capital appreciation. Any capital appreciation is a bonus but your expectation of a $300K gain in ten years on a $700K property is a thing of the past.
Thanks.

But i don't understand your calculation

if you borrow 500k for 2% 30years,
Mortgage payment breakdown
Your monthly payment
$1,848.10

The monthly rental yield may be just enough to offset it
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Old 28-07-2020, 07:09 PM   #5
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You didnt account for the risk that you might not be able to find tenants for your unit. With the pandemic, the future of SG is nebulous to say the least.
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Old 28-07-2020, 07:10 PM   #6
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Anyone works out the sum before? I think condo investing should be much more complicated than normal stocks/bonds investing

I am looking at a 700k condo which can yield 2% rental. If I were to pay half in cash, the mortgage seems to be $1500 per month and I can cover by renting out the condo

Say if the condo price raise 4% per year and 10 years later, it be worth about 1mil. Remember i only took out 350k of my capital and the return is 300k

(650k/350)^(1/10)=6.3%.

Thoughts?
There are a lot of condo which see no price appreciation over the past 7 years. Your estimation of 4% gain per year is incredibly optimistic.
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Old 28-07-2020, 07:13 PM   #7
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75% loan at 2% 30 years mortgage is about 2k a month payment. how u get 1K positive cash flow per month?
He is assuming the interest as cost, the capital repayment portion is not considered cost. So even though you might not get any cash on hand, $1000 capital repayment is considered as gains.
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Old 28-07-2020, 07:15 PM   #8
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thank all for clarifying. sound it not viable

actually i am looking at punggol area condo as there is a digital district coming up. I assume expat need home to live

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Old 28-07-2020, 07:35 PM   #9
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thank all for clarifying. sound it not viable

actually i am looking at punggol area condo as there is a digital district coming up. I assume expat need home to live
If you lower your expectations then its OK as the rental will likely be able to cover mortgage and other expenses.
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Old 28-07-2020, 08:15 PM   #10
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I don't necessarily go all in for REITs but I kinda concur with what this blogger said on getting a condo: https://singaporestockpicker.wordpre...-2nd-property/

Please DYODD.
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Old 28-07-2020, 08:34 PM   #11
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doesnt sound too good

Assume you still having a mortgage on your first property as you mention paying half in cash. 2nd property can only loan up to 50%.
There is also ABSD of 12%.

seems like a lot of cash layout for a lot of uncertainty. If this is only a part of your "portfolio" then maybe, if its your only investment, quite illiquid
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Old 28-07-2020, 08:45 PM   #12
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Net rental yield of 6+% is hardly achievable these days. If one is looking for rental yield, a very safe ballpark to base your numbers are around 2-4% on a net basis and the higher end of the spectrum is probably for very specific projects.

Or are homeowners seeking to rent out just not realistic enough when they factor in their cost as a landlord. Rental is never perfect nor guaranteed even in good times.
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Old 28-07-2020, 08:49 PM   #13
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My capital appreciation had been 5% for the past 5 years.

Likely to be more difficult over the next 5 years.
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Old 28-07-2020, 09:00 PM   #14
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He is assuming the interest as cost, the capital repayment portion is not considered cost. So even though you might not get any cash on hand, $1000 capital repayment is considered as gains.
Yes I only included the interest component. Because when you sell after ten years, the principal repaid is effectively a cash gain.
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Old 28-07-2020, 09:01 PM   #15
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Net rental yield of 6+% is hardly achievable these days. If one is looking for rental yield, a very safe ballpark to base your numbers are around 2-4% on a net basis and the higher end of the spectrum is probably for very specific projects.

Or are homeowners seeking to rent out just not realistic enough when they factor in their cost as a landlord. Rental is never perfect nor guaranteed even in good times.
Is the 2-4% net rental yield based on full purchase price or the initial downpayment?
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