Many would have thought it's a loss, but let's see.
The last time I did a poll on my Instagram asking "If your investment property’s monthly rental can’t cover the expenses, is it a win or loss?"- many felt that it’s a loss. To determine if it's true, I’ll do up a simple illustration and you can decide whether rental properties in Singapore are still worth investing in.
I have randomly picked a 2BR+Study unit in Parc Vera for this example. #14-08, a 872 sqft unit was transacted at 988K in July 2022. Let’s round it up to 1M, and assume the maximum 75% loan was taken over 30 years.
UPFRONT COSTS OF INVESTMENT
Purchase price: 1,000,000
Buyer stamp duty: 24,600
Downpayment: 250,000
Legal fee: 3,000
=========================
Initial investment outlay: 277,600
=========================
We will then compare the cost versus revenue for the next 30 years.
MONTHLY EXPENSES
Bank instalment (assuming an average of 3% IR): 3,162
Maintenance fee: 350
Property tax: 200
=========================
Net expenses over 30 years: 1,336,320
=========================
MONTHLY RENTAL
A 2BR+Study property in Parc Vera has fetched a rental range between 2100-3300 so we will use the median of 2,700.
=========================
Net rental over 30 years: 972,000
=========================
That's a whooping expenditure of 364,320 over 30 years!
But is it really an expenditure?
So here comes the BIG QUESTION!
Fast forward to 30 years ahead ... Now that you have been spending out of your pocket throughout, should there be no capital appreciation and you have to sell at your purchase price- is it a win or a loss?
SALE PRICE: 1,000,000
Outstanding loan: 0
Legal 3K
*To simplify the calculations, I’ll assume there’s no CPF used in this property purchase.
=========================
Net Sale Proceeds: 997,000
=========================
Now, let's take a step back and look at this investment property as a whole- how much did you earn with your 277,600 initial cost of investment?
SUMMARY OF FUNDS OVER 30YRS
Net sale proceeds: 977,000
Net rental received: 972,000
Net expenses: (1,336,320)
Initial cost of investment: (277,600)
=========================
Net returns on investment: 355,080
=========================
This translates to an investment returns of about 128% over 30 years, equivalent to 4.2% per annum! Not forgetting you will also have a fully paid property which you can continue to rent out for higher returns.
As much as it may feel like a loss monthly, it's still a win at the end of the day when you have someone paying off your mortgage with you. Question is- how much returns is your investment property generating, and is it enough for you?
Of course, the above calculations are simplified for explanatory purposes and there are other factors to consider i.e. loss of rental income when there is a vacant period during transitions, the maintenance cost of inventory items and etc. You may also wonder about these:
What if you have used CPF?
What if you took a smaller/shorter loan amount?
What if you want to sell sooner i.e. 10/15/20 years?
How do you can earn better rental to maximise your returns?
If you'd like to learn more or tailor the calculations to find out about your property portfolio's health status, just slide us a DM today to get in touch!
Comentários