Is Rental Income a Good Passive Income

[focus]

Real case, my own:

D11, 2br luxury condo, about 800 sq ft, purchased for S$550K in 1988, during the Asian Financial crisis, with corporate tenancy at S$3200 per month. 90% LTV, staff loan at 3.5% interest.


After the $3200 per month corporate tenant left, unit was rented out to Indonesian mother and schooling daughter at $2200 per month. Had to spend $30K to renovate the bathrooms and the kitchen. Without renovation, no takers. Rental can drop, be prepared.

In 2005 I had to sell but best offer was S$580K versus my minimum S$600K asking price. I lost my job, staff loan becomes ordinary loan with 5.5% interest. After 6 months without tenant and not able to sell at my asking price, I rented the unit to an Indian IT couple for $1600 per month only. Rent can drop further, be prepared. Interest can go up, be prepared.

Property is good for passive income and capital appreciation, if you can hold on to it during the bad times. Try to time your purchase. Best time to buy is any crisis, when the rest are scared.

Thanks for your sharing Always good to hear people who have gone thru' the various cycles.

[andy]

do u think next 7y, median income for family earning 12k now can go up another 60%?

Not really since Singapore GDP/capital already USD50K, one of the highest in the world depending on which method you use.

However I don't think we can get another 60% appreciation in another 7 year unless
- population increase by another 25% to 8m
- GDP continues to inch up
- QE4 and QE5 becomes imminent

[phantom_opera]

Not really since Singapore GDP/capital already USD50K, one of the highest in the world depending on which method you use.

However I don't think we can get another 60% appreciation in another 7 year unless
- population increase by another 25% to 8m
- GDP continues to inch up
- QE4 and QE5 becomes imminent

I will take 40pc in 3y and run

[andy]

I will take 40pc in 3y and run

But what to do with the paper money at less than 1% return.

I can think of one use during this ghost month;-)

[30years]

Hi.. Are you still vested?

Yes, I am still vested.

In Sg I still have one 3 rm HDB flat. No one million, no sell.

No other property in Sg. Overseas got some.

[CondoWE]

I've been talking about this.. Very hard to replicate passive income from properties at current yield.

But if you are interested in capital appreciation while letting someone pay for your installment, then property is good.

From my tabulatino above, you will get an ROI of 10% yearly(incl. principal repaid) or -0.6% yearly (exclude principal repaid).


And as can be seen, if interest rate do rise to 3% without corresponding rise in rental , you will have to see a drop in sale price to make buyers bite.

Yes, I'm totally agreed with you. Once the interest rises, those who loaned big amount with 30yrs loan period will have high risk !

But It still possible to have 3~5% rental yield as passive income if you can loan lesser and try to discharge it as fast as possible so the interest incurred will be minimized and lesser risk in case interest raise sky high. But again it still depends on individual capacity la…. .

We invested properties since 2000..Yr 2005, I bought my 2nd 580K 3 bedders pc at West for own stay with 60% loan and discharged it after lock in period on 2008 due to the high interest rate(3.25~3.5%, If i remember correctly). Yr 2009, I rent out this pc and bought a 4rm HDB for own stay so that I can increase my passive income from 1 to 2 unit .

Currently, I have 2 pc fully paid, 1 pc still servicing 60% loan and all are currently rent to corporate professional engineer n manager with the rental fee of 2.8~4K. The 3rd one is using the rental fee to service the loan so not much passive income after the deduction of all cost incurred.

Here is my 2nd PC passive income tabulation and it's still pretty attractive now,

Fully paid included interest after 5 yrs - S$580000 +20000(est) = S$600000.
Assume rental fee at lower – S$3600x12=43200 (currently 3.8K)
Agent fee – S$1926 includes 7% GST for 1 year
Property Tax –S$4320
Condo maintenance fee – S$300x12=S$3600
Rental maintenance fee – S$300~S$500
Gross rental yield – (43200-1926-4320-500-3600)/600000=32854/600000= 5.48%
Monthly gross rental return – S$32854/12= S$2738 !

[Ringo33]

Yes, I'm totally agreed with you. Once the interest rises, those who loaned big amount with 30yrs loan period will have high risk !

But It still possible to have 3~5% rental yield as passive income if you can loan lesser and try to discharge it as fast as possible so the interest incurred will be minimized and lesser risk in case interest raise sky high. But again it still depends on individual capacity la…. .

We invested properties since 2000..Yr 2005, I bought my 2nd 580K 3 bedders pc at West for own stay with 60% loan and discharged it after lock in period on 2008 due to the high interest rate(3.25~3.5%, If i remember correctly). Yr 2009, I rent out this pc and bought a 4rm HDB for own stay so that I can increase my passive income from 1 to 2 unit .

Currently, I have 2 pc fully paid, 1 pc still servicing 60% loan and all are currently rent to corporate professional engineer n manager with the rental fee of 2.8~4K. The 3rd one is using the rental fee to service the loan so not much passive income after the deduction of all cost incurred.

Here is my 2nd PC passive income tabulation and it's still pretty attractive now,

Fully paid included interest after 5 yrs - S$580000 +20000(est) = S$600000.
Assume rental fee at lower – S$3600x12=43200 (currently 3.8K)
Agent fee – S$1926 includes 7% GST for 1 year
Property Tax –S$4320
Condo maintenance fee – S$300x12=S$3600
Rental maintenance fee – S$300~S$500
Gross rental yield – (43200-1926-4320-500-3600)/600000=32854/600000= 5.48%
Monthly gross rental return – S$32854/12= S$2738 !

From cash flow point of view it look great but in terms of return on equity it is bad especially when borrowing cost is low.

[CondoWE]

From cash flow point of view it look great but in terms of return on equity it is bad especially when borrowing cost is low.

Many investors will advice you to loan as much as you can but the problem is can you scope the loan service if you are out of job, Ecomonic crissis or any rainy day which affect your yield return? Everyone want good debt but once the Good debt turn ugly, and you will get into trouble if you do not have sufficient holding power leh... !

I'm kiasu n kiasi person, so I prefers go with my own means with some backup plan lor .

[Ringo33]

Many investors will advice you to loan as much as you can but the problem is can you scope the loan service if you are out of job, Ecomonic crissis or any rainy day which affect your yield return? Everyone want good debt but once the Good debt turn ugly, and you will get into trouble if you do not have sufficient holding power leh... !

I'm kiasu n kiasi person, so I prefers go with my own means with some backup plan lor .

If yiu already own multiple properties with less than 60% loan, there is really nithing to worried about. Plus property with less that60% loan will be more than paying for itself.

[CondoWE]

If yiu already own multiple properties with less than 60% loan, there is really nithing to worried about. Plus property with less that60% loan will be more than paying for itself.

Ah B said sg properties will down >50% so must prepare $$$ in case need to top up .

[Laguna]

frankly speaking, if it is not for the capital appreciation, I would not invest in properties as source of passive income.

Reasons :
1. I hate to pay taxes. U need to pay stamp duty upon purchase, property tax, income tax.....now got ABSD, SSD....oops, look like I am working very hard for the Govt to let them hv more income out of me

2. tenants at time are so so so hard to serve. Good tenants with >5k budget is difficult to find.

3. when u take back the properties after tenancy, it is always in such a shit conditions, u need to spend on the cleaners at least $600, white paint needed, etc etc...

4. Not a liquid asset class. This will pose danger if u need cash in a down market.

So, I rather hv passive income, a true passive income. The cash just come in, and TAX FREE...and I can cash out anytime....

[CondoWE]

frankly speaking, if it is not for the capital appreciation, I would not invest in properties as source of passive income.

Reasons :
1. I hate to pay taxes. U need to pay stamp duty upon purchase, property tax, income tax.....now got ABSD, SSD....oops, look like I am working very hard for the Govt to let them hv more income out of me

2. tenants at time are so so so hard to serve. Good tenants with >5k budget is difficult to find.

3. when u take back the properties after tenancy, it is always in such a shit conditions, u need to spend on the cleaners at least $600, white paint needed, etc etc...

4. Not a liquid asset class. This will pose danger if u need cash in a down market.

So, I rather hv passive income, a true passive income. The cash just come in, and TAX FREE...and I can cash out anytime....

I do agree everyone want true fast and high passive income w/o or low risk and taxfree with minimum work done but where on earth got this lobang? IMHO, I believe no pain no gain so pay some investment cost and work to get more passive income is more realistic lor .

[andy]

I will take 40pc in 3y and run

Agent called. Got cheque for 33% over 3 years.

Think it's seller's market now

[Laguna]

Agent called. Got cheque for 33% over 3 years.

Think it's seller's market now

TO be more correct, it is the developers' market

[chestnut]

For me, I love properties for passive income. Why?

1. Properties are like capital protected. No matter after how many years, when u sell, you still can get some capital-hopefully higher.
2. You collect money every month. Unlike stocks (dividend) or bonds - every 6 months or 1 year. So my bulk of retirement monthly income will come from there.
3. Not so volatile. Need to check regularly, unlike stocks.

So the bulk of my money is placed in properties. I do dabble in stocks, dual currencies, notes/bonds.

When retire in a couple of years, just sit back, every month collect rental. Shiok.
Travel the world and enjoy.

[minority]

I do agree everyone want true fast and high passive income w/o or low risk and taxfree with minimum work done but where on earth got this lobang? IMHO, I believe no pain no gain so pay some investment cost and work to get more passive income is more realistic lor .

I agree with this. Any form of income have a overhead. These are just the overhead . Government tax to gain as a national growth to redistribute wealth and fund development. Also its a sensitive commodity that would directly impact the nations well being tax is necessary tool use to regulate it dont get over traded.

Take it as a over head to improve your product yield. or R&D. coz if government no $ where they build the nice nice infra the further enhance the nation value and in directly increase ur rental yield?

Have to be realistic all business have overhead. Business have labour cost, rental cost, material cost. Stock trading have brokerage, Fund mgr cost, GST. Even if u do ur own farming u also need to buy seeds, water, and pay labour to farm it.

Its all part of a business overhead. so be realistic.

To me passive income is positive cash flow that would not take up more than 20% of my time. and is not my primary source of income.

[seletar]

frankly speaking, if it is not for the capital appreciation, I would not invest in properties as source of passive income.

To me, to get passive income from property rental depends on how fast one can pay off the property, 30 years is way too long.

Using my paid up FH commercial property as an example, each year 3 months of rental goes to overheads such as maintenance and taxes, while 9 months rental goes to my pocket.

It took me 8 years to pay off this property. To do this, for 8 years all my rental income from this property as well as top-up from my pocket went to paying off the loan.

It helps greatly that I bought this property many years ago when price was low and I have a very good tenant. Now this property is worth over 60% more than what I paid for it, so there is capital appreciation.

But I agree that nowadays it's very tough to invest in SG properties for passive income and capital appreciation unless price drop significantly.

[cnud]

Just curious why 10 years nett rental profit and is the capital appreciation over 3 years or 5 years?

Just a sum I figured myself. If I can earn 10 years worth of nett rental profit up front, right now. Why not?

Sooner we'll realise that rental income only pays the bill so that capital appreciation can be realised. It's still the capital appreciation that will bring in the money. Not rental income.

[chestnut]

Just a sum I figured myself. If I can earn 10 years worth of nett rental profit up front, right now. Why not?

Sooner we'll realise that rental income only pays the bill so that capital appreciation can be realised. It's still the capital appreciation that will bring in the money. Not rental income.

Rental income is important. Give you an example.

Bot Anchorage @ 900k - 1507sq ft. TOP i think 1997.
Rental say average gross - 45K (now of course way more). But put conservative figure.
Net rental after deduct interest, maintenance, etc.. - 35K
Rental over 15 year - 525K.
Of course now worth > 1.8M.
Assuming no capital gain - Still made a cool 525K.

Still better then living money in the bank.

But those days of huge capital gains are over.

Those days, I only down 10%.

[hopeful]

Rental income is important. Give you an example.

Bot Anchorage @ 900k - 1507sq ft. TOP i think 1997.
Rental say average gross - 45K (now of course way more). But put conservative figure.
Net rental after deduct interest, maintenance, etc.. - 35K
Rental over 15 year - 525K.
Of course now worth > 1.8M.
Assuming no capital gain - Still made a cool 525K.

Still better then living money in the bank.

But those days of huge capital gains are over.

Those days, I only down 10%.

okay, you down 10%. so you borrow 810k.
from your figures, interest is 45-35 = 10k.
your interest rate at that time is 10/810 = 1.23% ?

[chestnut]

okay, you down 10%. so you borrow 810k.
from your figures, interest is 45-35 = 10k.
your interest rate at that time is 10/810 = 1.23% ?

I just give average... Along the way, I took up smart mortgage where I dont even pay interest.

[cnud]

Agreed that nowadays it's tough to make from investing in properties. 40% down, ABSD, SSD, etc...

Properties should be bought and not sold. Best suited for medium term horizon or own stay.

[graveyard]

Agreed that nowadays it's tough to make from investing in properties. 40% down, ABSD, SSD, etc...

Properties should be bought and not sold. Best suited for medium term horizon or own stay.

all these regulations could also push up rent as it becomes increasingly expensive and harder to own properties. If supply of rentable housing comes down, rent will rise. I still think rental income is a good type of passive income. Let’s face it, most of us are not indispensable to our company. one day you may lose your job and this form of passive income may save you. Your tenant helps to pay your mortgage and your property will hopefully appreciate over time (very likely nowadays) giving you a potential huge capital gain.

[roly8]

frankly speaking, if it is not for the capital appreciation, I would not invest in properties as source of passive income.

Reasons :
1. I hate to pay taxes. U need to pay stamp duty upon purchase, property tax, income tax.....now got ABSD, SSD....oops, look like I am working very hard for the Govt to let them hv more income out of me

2. tenants at time are so so so hard to serve. Good tenants with >5k budget is difficult to find.

3. when u take back the properties after tenancy, it is always in such a shit conditions, u need to spend on the cleaners at least $600, white paint needed, etc etc...

4. Not a liquid asset class. This will pose danger if u need cash in a down market.

So, I rather hv passive income, a true passive income. The cash just come in, and TAX FREE...and I can cash out anytime....

thx for sharing. indeed true!!

[indomie]

How lucky sg kids whose parents owned rental property. They are certain of regular income. That's even better than unemployment benefit, because it inflation adjusted.