If you are an owner, you are also expensing off through depreciation of your asset, plus any mortgage interest you have to repay back to the bank, but we assume here that the useful lives of the asset is going to stretch longer.
The first would be the Profiling of the Property.
This includes the location of the property, the floor plan, the finishing quality provided from the developer, the facing, the tenure lease of the property and so on and so forth.
In Singapore, location is one of the most important profile of a property, especially when we thought about being conveniently linked to transportation availability and also convenience to nearby malls and/or groceries shopping.
This brings to the next important point to note which is Rental Yield.
Rental yield is a function of two variables.
The first is how “cheap” you’ve purchased the asset from and how much it is valued at.
The second is how much rental you can get from the property that you are leasing to.
For example, if you purchase a 1 bedroom + 1 study in a central location area for $1m, and have them rented out at $2,800/month, this would equate to a 3.36% rental yield.
This is assuming an unleveraged number.
Most of the people though does some form of leveraging when they purchase a property so the actual yield is actually a lot higher, even after netting off the mortgage interest and other fees you have to pay.
There are ways you can increase your rental yield through a few creative ideas.
For instance, I know someone who’s partion a wall in the living and dining room area to make a 1 bedroom + 1 study to become 4 rooms, and start charging each tenant on a per room basis based on $1000/room. This way, he is able to obtain $4,000/month, which translates to 4.8% unleveraged rental yield.
Now that all the upside is taken care of, the last factor you probably have to look out for is cater for Risk Management.
In this world, not everything will go according to your plan so it is important that you cater for the risk downside when that happens.
For example, during bad times, it may be more difficult to find tenants that are willing to pay a premium rental for your room. It is also likely that the rental rates will be suppressed when times are bad and when they can find alternative cheaper place to rent elsewhere.
In addition to that, you’d also have to cater funds for wear and tear every once in a while, which might take up quite a bit too.
Last but not least, banks might also increase their mortgage interest which means you are paying more financing costs than the original rates when you make your purchase.
Ultimately, there are a lot of factors to consider from when you make your investment in property.
Property investing has been lucrative for most people because of what historically property has performed but historical date is certainly not a reflective of future performance and it would be foolish to think that we could extrapolate data like that.
But if you are savvy and prudent enough, property investing can still be a lucrative investment for you to make.