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Thread: Is this reasoning flawed?

  1. #1
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    Default Is this reasoning flawed?

    Hi,

    I was having a conversation with an agent recently and the following example came up and after some reasoning, I had a conclusion but I think it's fundamentally flawed somewhere... hopefully someone can point out what's missing.

    Assuming a property of 1.2 mil. This place is tenanted at 3.2k monthly for 2 years and the property is over 10 years old freehold. I did some simple calculation and thought that it's a bad buy due to the following reasons.

    At 80% loan, this place will be 960k and monthly will be at about 2.8k for the current low interest rate. With property tax of 10%, assuming at $3000, that make it $36k annual, or $300 per month. If the maintenance fee goes at $300 monthly, it will mean that the owner needs to pay 2.8+300+300= 3.4k. In other words, the owner is making negative yield and needs to pay $200 every month out of his own pocket for that unit.

    Take a few possible scenarios in terms of capital appreciation gains, like if property price goes upwards and they place is now worth 1.5mil. The rental rate needs to go up more in order to attract future buyers at about $4300 if interest rates remain constant, or else no one should be interested in the place just like how it's a bad buy now (and that's not considering the age of the property yet).

    If property price dip below 1.2 then the buyer is bleeding on both capital gain and rental.

    More scenarios:
    Property up/rental up more/IR same = can possibly sell with some interested buyers
    Property up/rental up but not enough/IR same = can't sell because probably no one will buy
    Property up/rental up more/IR increase = cannot sell because loan is too expensive
    etc

    If I try all the possible permutations for property price + rental + IR, it will seem quite foolish to make the purchase.

    Now apply the the same logic across all properties, For another property at 2.9 mil, it would seem reasonable for the rent to be at 8.2k minimum to cover cost, even though it's still a bad buy because of poor rental yield. Yet I'm seeing properties at this price range renting out at 8k (Levelz) in propertyguru. Am I missing something or are these units just not "buy-able" ones?

    I'm under the impression that this reasoning might be fundamentally flawed, or I'm missing something altogether. What if someone loan at 50-70%? In that case the yield will seem better but he would have paid more upfront in the first place, in which case he can possibly sell later for capital appreciation, but he will still be 'trapped' with the possibility of not finding buyers for the place due to low rental rate and high property price later, or any of the scenarios described above.

    Can someone point out if this is flawed to being with and where are the holes?

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    Things you didn't consider:
    (1) length of mortgage (you take too short period).
    (2) When Interest rate is higher, rental yield also higher.
    (3) Capital appreciation due to inflation (assume average 3% p.a. for developed countries, 5% for Singapore?).
    (4) Interest is deductable from rental income for income tax purposes.
    (5) property tax is based on Annual value (AV) and not on price of property and not on actual rental value (which may be 1.5-2x that of AV).
    (6) ???

    Quote Originally Posted by Nestor
    Hi,

    I was having a conversation with an agent recently and the following example came up and after some reasoning, I had a conclusion but I think it's fundamentally flawed somewhere... hopefully someone can point out what's missing.

    Assuming a property of 1.2 mil. This place is tenanted at 3.2k monthly for 2 years and the property is over 10 years old freehold. I did some simple calculation and thought that it's a bad buy due to the following reasons.

    At 80% loan, this place will be 960k and monthly will be at about 2.8k for the current low interest rate. With property tax of 10%, assuming at $3000, that make it $36k annual, or $300 per month. If the maintenance fee goes at $300 monthly, it will mean that the owner needs to pay 2.8+300+300= 3.4k. In other words, the owner is making negative yield and needs to pay $200 every month out of his own pocket for that unit.

    Take a few possible scenarios in terms of capital appreciation gains, like if property price goes upwards and they place is now worth 1.5mil. The rental rate needs to go up more in order to attract future buyers at about $4300 if interest rates remain constant, or else no one should be interested in the place just like how it's a bad buy now (and that's not considering the age of the property yet).

    If property price dip below 1.2 then the buyer is bleeding on both capital gain and rental.

    More scenarios:
    Property up/rental up more/IR same = can possibly sell with some interested buyers
    Property up/rental up but not enough/IR same = can't sell because probably no one will buy
    Property up/rental up more/IR increase = cannot sell because loan is too expensive
    etc

    If I try all the possible permutations for property price + rental + IR, it will seem quite foolish to make the purchase.

    Now apply the the same logic across all properties, For another property at 2.9 mil, it would seem reasonable for the rent to be at 8.2k minimum to cover cost, even though it's still a bad buy because of poor rental yield. Yet I'm seeing properties at this price range renting out at 8k (Levelz) in propertyguru. Am I missing something or are these units just not "buy-able" ones?

    I'm under the impression that this reasoning might be fundamentally flawed, or I'm missing something altogether. What if someone loan at 50-70%? In that case the yield will seem better but he would have paid more upfront in the first place, in which case he can possibly sell later for capital appreciation, but he will still be 'trapped' with the possibility of not finding buyers for the place due to low rental rate and high property price later, or any of the scenarios described above.

    Can someone point out if this is flawed to being with and where are the holes?

  3. #3
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    allow me to explain....

    $1.2 mil at 80% loan, this place will be $960k and monthly will be at about $2.8k for the current low interest rate. But of the $2.8k only $800 will be interest cost. You want to calculate ROI you cannot take the full repayment cashflow as cost.

    Also remember that if you had $1.2 mil as cash and you kept it in bank you will get (at 0.1%) or $100 per month as returns.....

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    if u want positive cashflow+FH status....only MM is possible....tats y MM still sellable despite the criticism

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    Long story, same conclusion.

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    I think the key is to get a decent spread on your yield. One cannot expect the tenant to pay the entire "capital" or "equity" of your property. Say if one takes 80% loan and 20% equity, one must be prepared to slowly top up the equity value of the property over time. After all, when you sell, your loan will be paid down as well. But you can still achieve postive cash flows in some projects e.g. Geylang, some suburbs near MRT and someone mention above MM (I'm not sure though).

    If you compute the way above, very few properties will meet your criteria, esp when interest rate increase in the future. The key is to compare the interest that you pay vs the rental that we receive net of expenses. Remember you only pay up 20% equity upfront. If your loan gets fully paid, you get 100% equity. If your tenant pays for both your interest and your principle repayment - he is effectively paying for the house for you. It's not easy to find tenants that are that stupid.

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    if one can assume that property prices and rentals will trend upwards over time. It is possible that the rentals can cover the installments completely. (assuming that rentals will rise over time). I am not saying it will happen immediately, but very possible in a few years times if you've timed the market properly.

    Having said that, it also important to have spare cash, just in case u can't find a tenant....

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    I do not see rental going up much given the flooding of existing and TOP unit in the pipeline. Tenants rae spoilt for choice.
    Quote Originally Posted by sh
    if one can assume that property prices and rentals will trend upwards over time. It is possible that the rentals can cover the installments completely. (assuming that rentals will rise over time). I am not saying it will happen immediately, but very possible in a few years times if you've timed the market properly.

    Having said that, it also important to have spare cash, just in case u can't find a tenant....

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    Low end of the rental market rising, top end of the rental market coming off. At some point, these 2 will converge at an equilibrium point.

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    Quote Originally Posted by Nestor
    Hi,

    I was having a conversation with an agent recently and the following example came up and after some reasoning, I had a conclusion but I think it's fundamentally flawed somewhere... hopefully someone can point out what's missing.

    Assuming a property of 1.2 mil. This place is tenanted at 3.2k monthly for 2 years and the property is over 10 years old freehold. I did some simple calculation and thought that it's a bad buy due to the following reasons.

    At 80% loan, this place will be 960k and monthly will be at about 2.8k for the current low interest rate. With property tax of 10%, assuming at $3000, that make it $36k annual, or $300 per month. If the maintenance fee goes at $300 monthly, it will mean that the owner needs to pay 2.8+300+300= 3.4k. In other words, the owner is making negative yield and needs to pay $200 every month out of his own pocket for that unit.

    Take a few possible scenarios in terms of capital appreciation gains, like if property price goes upwards and they place is now worth 1.5mil. The rental rate needs to go up more in order to attract future buyers at about $4300 if interest rates remain constant, or else no one should be interested in the place just like how it's a bad buy now (and that's not considering the age of the property yet).

    If property price dip below 1.2 then the buyer is bleeding on both capital gain and rental.

    More scenarios:
    Property up/rental up more/IR same = can possibly sell with some interested buyers
    Property up/rental up but not enough/IR same = can't sell because probably no one will buy
    Property up/rental up more/IR increase = cannot sell because loan is too expensive
    etc

    If I try all the possible permutations for property price + rental + IR, it will seem quite foolish to make the purchase.

    Now apply the the same logic across all properties, For another property at 2.9 mil, it would seem reasonable for the rent to be at 8.2k minimum to cover cost, even though it's still a bad buy because of poor rental yield. Yet I'm seeing properties at this price range renting out at 8k (Levelz) in propertyguru. Am I missing something or are these units just not "buy-able" ones?

    I'm under the impression that this reasoning might be fundamentally flawed, or I'm missing something altogether. What if someone loan at 50-70%? In that case the yield will seem better but he would have paid more upfront in the first place, in which case he can possibly sell later for capital appreciation, but he will still be 'trapped' with the possibility of not finding buyers for the place due to low rental rate and high property price later, or any of the scenarios described above.

    Can someone point out if this is flawed to being with and where are the holes?
    I assume that you used less than 0.5% interest rate for 30 years to get $2,800 instalment. If you use 2.5% (which is still optimistic but more realistic), the instalment will be $3,800. So the top-up will be $1,200.

    Due to our efficient banking system, the liquid injections at US came directly and immediately into economy via low interest rates at US banks and our banks. So we are experiencing a lot of inflation in our property now. The problem is what you have found discovered: the landlord ends up with a negative 'yield' (according to your definition). Hence we are in the bubble territory.

    This warning sign was highlighted for US in an article below in 2006, 2 years before the bubble popped in 2008, and I think we are heading in that direction 2 years later: http://www.naturalnews.com/016241.html

  11. #11
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    My advice to you considering the way you calculate, invest in reit. No need bank borrowings positive cashflow right away and $5000 enough to start it off.



    Quote Originally Posted by Nestor
    Hi,

    I was having a conversation with an agent recently and the following example came up and after some reasoning, I had a conclusion but I think it's fundamentally flawed somewhere... hopefully someone can point out what's missing.

    Assuming a property of 1.2 mil. This place is tenanted at 3.2k monthly for 2 years and the property is over 10 years old freehold. I did some simple calculation and thought that it's a bad buy due to the following reasons.

    At 80% loan, this place will be 960k and monthly will be at about 2.8k for the current low interest rate. With property tax of 10%, assuming at $3000, that make it $36k annual, or $300 per month. If the maintenance fee goes at $300 monthly, it will mean that the owner needs to pay 2.8+300+300= 3.4k. In other words, the owner is making negative yield and needs to pay $200 every month out of his own pocket for that unit.

    Take a few possible scenarios in terms of capital appreciation gains, like if property price goes upwards and they place is now worth 1.5mil. The rental rate needs to go up more in order to attract future buyers at about $4300 if interest rates remain constant, or else no one should be interested in the place just like how it's a bad buy now (and that's not considering the age of the property yet).

    If property price dip below 1.2 then the buyer is bleeding on both capital gain and rental.

    More scenarios:
    Property up/rental up more/IR same = can possibly sell with some interested buyers
    Property up/rental up but not enough/IR same = can't sell because probably no one will buy
    Property up/rental up more/IR increase = cannot sell because loan is too expensive
    etc

    If I try all the possible permutations for property price + rental + IR, it will seem quite foolish to make the purchase.

    Now apply the the same logic across all properties, For another property at 2.9 mil, it would seem reasonable for the rent to be at 8.2k minimum to cover cost, even though it's still a bad buy because of poor rental yield. Yet I'm seeing properties at this price range renting out at 8k (Levelz) in propertyguru. Am I missing something or are these units just not "buy-able" ones?

    I'm under the impression that this reasoning might be fundamentally flawed, or I'm missing something altogether. What if someone loan at 50-70%? In that case the yield will seem better but he would have paid more upfront in the first place, in which case he can possibly sell later for capital appreciation, but he will still be 'trapped' with the possibility of not finding buyers for the place due to low rental rate and high property price later, or any of the scenarios described above.

    Can someone point out if this is flawed to being with and where are the holes?

  12. #12
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    REITs are 1 of the worst thing to invest in, other than ILPs. The only good thing is that you just need small figure of even just $1000 to start with. (that very much tells you who they are meant for. If you want to make money, follow the rich, don't invest in those designed for the poorer group).

    Quote Originally Posted by nobrainer32007
    My advice to you considering the way you calculate, invest in reit. No need bank borrowings positive cashflow right away and $5000 enough to start it off.

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    Nestor, you're looking at the wrong figures. You should be looking at ROA, where R is the "EBIT".

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    Quote Originally Posted by teddybear
    REITs are 1 of the worst thing to invest in, other than ILPs. The only good thing is that you just need small figure of even just $1000 to start with. (that very much tells you who they are meant for. If you want to make money, follow the rich, don't invest in those designed for the poorer group).
    reits not so bad la...hehe....i tink better den UTs?

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    Quote Originally Posted by Nestor
    Hi,

    I was having a conversation with an agent recently and the following example came up and after some reasoning, I had a conclusion but I think it's fundamentally flawed somewhere... hopefully someone can point out what's missing.

    Assuming a property of 1.2 mil. This place is tenanted at 3.2k monthly for 2 years and the property is over 10 years old freehold. I did some simple calculation and thought that it's a bad buy due to the following reasons.

    At 80% loan, this place will be 960k and monthly will be at about 2.8k for the current low interest rate. With property tax of 10%, assuming at $3000, that make it $36k annual, or $300 per month. If the maintenance fee goes at $300 monthly, it will mean that the owner needs to pay 2.8+300+300= 3.4k. In other words, the owner is making negative yield and needs to pay $200 every month out of his own pocket for that unit.

    Take a few possible scenarios in terms of capital appreciation gains, like if property price goes upwards and they place is now worth 1.5mil. The rental rate needs to go up more in order to attract future buyers at about $4300 if interest rates remain constant, or else no one should be interested in the place just like how it's a bad buy now (and that's not considering the age of the property yet).

    If property price dip below 1.2 then the buyer is bleeding on both capital gain and rental.

    More scenarios:
    Property up/rental up more/IR same = can possibly sell with some interested buyers
    Property up/rental up but not enough/IR same = can't sell because probably no one will buy
    Property up/rental up more/IR increase = cannot sell because loan is too expensive
    etc

    If I try all the possible permutations for property price + rental + IR, it will seem quite foolish to make the purchase.

    Now apply the the same logic across all properties, For another property at 2.9 mil, it would seem reasonable for the rent to be at 8.2k minimum to cover cost, even though it's still a bad buy because of poor rental yield. Yet I'm seeing properties at this price range renting out at 8k (Levelz) in propertyguru. Am I missing something or are these units just not "buy-able" ones?

    I'm under the impression that this reasoning might be fundamentally flawed, or I'm missing something altogether. What if someone loan at 50-70%? In that case the yield will seem better but he would have paid more upfront in the first place, in which case he can possibly sell later for capital appreciation, but he will still be 'trapped' with the possibility of not finding buyers for the place due to low rental rate and high property price later, or any of the scenarios described above.

    Can someone point out if this is flawed to being with and where are the holes?
    What is fundementally flawed abt your calculation is that you considered only how much $ u need to service the mortgage plus maintenance fee plus property tax. Only the maintenance fee and property tax cannot be retrieve but the mortgage goes into the bank and u will get it back after u sell that investment property minus the bank interest for early settlement (assuming u didn't complete the loan term). U are too fixated about the current committment and not the long term.

    The key question is how much do u intend to sell that property to ensure that u don't lose that $ that goes into servicing the loan. By selling it again at 1.2m, u already got $2.8k times 24 months - $10k bank penalty (assumed) = $57.2k investment returns. That is why pple don't sell when market is not doing well (provided u have the capital to continue financing the mortgage). If you sell higher, u make more returns. Just try not to sell lower.

    Regarding no interest to buy your property when rental is so low but the cost of property is high, this is a genuine problem so sell when tenancy expires or terminate the lease but lose one month rental to penalty (small amt compared with the profit of selling the property).

    Hope this clarifies.

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    thats why focus on property with upside potential be it OCR, CCR, RCR. Best is location x3 which is fairly easy to rent out in bad times.

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    No, worse than UTs. I would rather be REITs managers than UT managers because many expenses can be charged to company's account and can still have discretionary to use leverage to improve short-term performance etc and collect more bonuses. Don't understand why people like these middlemen so much when they hate insurance agents and property agents and other agents? They are no difference, except the former cream more from you than the latter and have better titles and some people like them even more (to get creamed by them!)

    Quote Originally Posted by devilplate
    reits not so bad la...hehe....i tink better den UTs?

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    Very interesting inputs, so it doesn't sound like it's not really flawed.

    The key question is how much do u intend to sell that property to ensure that u don't lose that $ that goes into servicing the loan. By selling it again at 1.2m, u already got $2.8k times 24 months - $10k bank penalty (assumed) = $57.2k investment returns. That is why pple don't sell when market is not doing well (provided u have the capital to continue financing the mortgage). If you sell higher, u make more returns. Just try not to sell lower.
    It never occurred to me that selling the unit back at the same purchased price actually still make you money, so this definitely is a plus point to me.

    If you compute the way above, very few properties will meet your criteria, esp when interest rate increase in the future. The key is to compare the interest that you pay vs the rental that we receive net of expenses. Remember you only pay up 20% equity upfront. If your loan gets fully paid, you get 100% equity. If your tenant pays for both your interest and your principle repayment - he is effectively paying for the house for you. It's not easy to find tenants that are that stupid.
    This is exactly why I was under the impression that something must be wrong. Very few properties seem to return a positive number from the calculation actually. I can understand that previous owners buy at a much lower price and is getting good rental now, but selling it higher than what the rental returns and yet still being able to attract buyers is what makes it confusing for me. This thread cleared it up a little for me though. It sounds like first owners are always the best in this case as well as MM units or small units!

    I assume that you used less than 0.5% interest rate for 30 years to get $2,800 instalment. If you use 2.5% (which is still optimistic but more realistic), the instalment will be $3,800. So the top-up will be $1,200.

    Due to our efficient banking system, the liquid injections at US came directly and immediately into economy via low interest rates at US banks and our banks. So we are experiencing a lot of inflation in our property now. The problem is what you have found discovered: the landlord ends up with a negative 'yield' (according to your definition). Hence we are in the bubble territory.

    This warning sign was highlighted for US in an article below in 2006, 2 years before the bubble popped in 2008, and I think we are heading in that direction 2 years later: http://www.naturalnews.com/016241.html
    It is actually computed at 0.8% spread across 35 years. Thanks for the link it's really informative but kinda weird to have a health researcher writing about real estate.. still it points out most of the stuff I noticed in the thread.

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    In short, you should be comparing the rental against the interest and see if the property still gives you a positive carry. In addition, some properties give you capital gains upside as well. Do not listen to all those rubbish about luxury fetching the best yields - it is the opposite. Just an indication from a recent CIMB report:-

    Worst yielding properties in SG compiled:-

    1. Ardmore Park - Rental PSF 6.15, Rental yield 2.2%
    2. The Claymore - Rental PSF 5.13, Rental yield 2.0%
    3. Four Seasons Park - Rental PSF - 5.31, Rental yield 2.2%
    4. MBR - Rental PSF 5.46, Rental yield 2.3%

    Best yielding
    1. Lakeshore - 3.72, 4.9%

    The rest OCR/RCR
    Mostly range between 3.5% to 4.5%. Unlike the CCR properties, none hit below 3%.

    What does this tell us, the tenants are not valuing the luxury segment as much as the buyers of these properties. The owners have no choice but to drop yields to 2% only. At 2% yields, it is no wonder that the price cannot move much higher anymore. One should look past all the BS in this forum about how "luxury" is undervalued (these people have no concept of yields - someone in the d'Leedon thread just mention Ardmore fetches the best rental yields - this person just has no brains) - it makes no sense. How can anything that can only fetch a 2% yields - a LEMON investment from a yield perspective - be undervalued? If these luxury property prices were to increase further, the yields will drop to 1%. There is a reason the prices are not moving - but no property experts will tell you - because they need to move the numerous empty units.

    The other argument is that "PRC" rich men will come and snap up all the "luxury" properties even if they fetch lousy returns because of "prestige". Up till today, they haven't come in droves yet.

    And even if Lakeshore increase to $1000psf, one will realise that it still fetch close to 4% yields - double that of Ardmore Park. If an investor/retiree is looking for blue chip stable monthly cash flows and returns, it definitely looks more promising that "iffy" ideals of PRC will anyhow snap up poor-yielding properties. I'm not invested in Lakeshore - it's just an example.

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    agree that owners of luxury condos in "prime" districts are just lambs waiting to be slaughtered. but they refuse to admit it and continue to dream. well, you can stop dreamers from being stupid.

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    The minority will not admit it, majority wins in property or the minority? Its the majority.

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    You just quote 1 example to make your case as though like real that OCR properties are easy to rent out and get high rental yields and criticised all CCR properties as shit by just showing a few examples with worst yields. Let me show you with hard fact that you are full of bullshit.
    For 1 thing, CCR properties cannot be measured by yield at a point alone as your OCR properties could be without tenants for long time and not reflected in the URA data whereas the CCR properties will always be tenanted, just a matter of yield. Another thing, rich people looks for choice units and choice estate, not concerned about yield.

    Ok never mind, you like to insist on yield shown on URA data, let me point an example to show others here that your mouth is full of rubbish (the rest for forumers to go dig for gold in CCR properties that is still seriously undervalued; The example below is 1 of the CCR property in lousier location but very good yield):

    - The Pier at Robertson, median rental $7.01 psf pm, median yield now = 4.7% (note: this is "MEDIAN Yield" not max yield!). This probably also comes with excellent capital appreciation as well since it is FH vs Lakeshore 99LH! You can hold and earn rental for perpetual while the Lakeshore will be forced taken back in 99 years!

    See, I just need to quote 1 example to show that you are all lies, where got all CCR properties poor yield and below 3%?
    (Please go check and proof that what I said is lying otherwise if you can't prove that means you are lying!).

    Quote Originally Posted by Wild Falcon
    In short, you should be comparing the rental against the interest and see if the property still gives you a positive carry. In addition, some properties give you capital gains upside as well. Do not listen to all those rubbish about luxury fetching the best yields - it is the opposite. Just an indication from a recent CIMB report:-

    Worst yielding properties in SG compiled:-

    1. Ardmore Park - Rental PSF 6.15, Rental yield 2.2%
    2. The Claymore - Rental PSF 5.13, Rental yield 2.0%
    3. Four Seasons Park - Rental PSF - 5.31, Rental yield 2.2%
    4. MBR - Rental PSF 5.46, Rental yield 2.3%

    Best yielding
    1. Lakeshore - 3.72, 4.9%

    The rest OCR/RCR
    Mostly range between 3.5% to 4.5%. Unlike the CCR properties, none hit below 3%.

    What does this tell us, the tenants are not valuing the luxury segment as much as the buyers of these properties. The owners have no choice but to drop yields to 2% only. At 2% yields, it is no wonder that the price cannot move much higher anymore. One should look past all the BS in this forum about how "luxury" is undervalued (these people have no concept of yields - someone in the d'Leedon thread just mention Ardmore fetches the best rental yields - this person just has no brains) - it makes no sense. How can anything that can only fetch a 2% yields - a LEMON investment from a yield perspective - be undervalued? If these luxury property prices were to increase further, the yields will drop to 1%. There is a reason the prices are not moving - but no property experts will tell you - because they need to move the numerous empty units.

    The other argument is that "PRC" rich men will come and snap up all the "luxury" properties even if they fetch lousy returns because of "prestige". Up till today, they haven't come in droves yet.

    And even if Lakeshore increase to $1000psf, one will realise that it still fetch close to 4% yields - double that of Ardmore Park. If an investor/retiree is looking for blue chip stable monthly cash flows and returns, it definitely looks more promising that "iffy" ideals of PRC will anyhow snap up poor-yielding properties. I'm not invested in Lakeshore - it's just an example.

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    Still doesn't change the fact those 2% yields are all in CCR and that the AVERRAGE YIELDS is the lowest in CCR - dropping to 2% sure sounds desperate to me. For those properties that only fetch 2% yields, it probably means prices have close to plateaued, unless there is future development and new transportation links that may result in capital gains. So I'm just trying to say, do your own research and always remember to divide the rental by the cost of investment.

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    Quote Originally Posted by Wild Falcon
    In short, you should be comparing the rental against the interest and see if the property still gives you a positive carry.
    Sorry Wild Falcon but I don't really understand that... are you able to give a simple example mathematically to illustrate the above?

    Say if the 1.2 mil unit is rented out at 3.2k - 600 = 2.6k (tax+maintenance), and montage is 2.8k with 800 being interest, how do you do the comparison? 2.6k - 800? It's looks wrong since it still doesn't look like a good deal with the buyer...

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    rental yield after factoring in overheads > mortgage int rates

    means u borrow cheap and achieve higher yield

    i tink we came up with a detailed ROI calculation b4....actual return can be alot higher den u tot as int rate is so so low now...hehe

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    Quote Originally Posted by devilplate
    rental yield after factoring in overheads > mortgage int rates

    means u borrow cheap and achieve higher yield

    i tink we came up with a detailed ROI calculation b4....actual return can be alot higher den u tot as int rate is so so low now...hehe
    So from the example I gave, 3200 monthly - 300 maintenance - 300 monthly tax = 2600 net rental

    rental yield = [2600 * 12 / 1200000] * 100 = 2.6%
    interest rate loan = 0.8% for the first year

    so as long as the interest rate goes below 2.6% its positive returns

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    Quote Originally Posted by Nestor
    So from the example I gave, 3200 monthly - 300 maintenance - 300 monthly tax = 2600 net rental

    rental yield = [2600 * 12 / 1200000] * 100 = 2.6%
    interest rate loan = 0.8% for the first year

    so as long as the interest rate goes below 2.6% its positive returns
    yes...u got it....3.5% nett yield is safer...2.6% abit low for comfy

  28. #28
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    teddybear is offline Global recession is coming....
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    Stop beating around bush after your lies exposed! Many OCR projects only about 3%+/- yield but with disappointing price growth record and no investment value or long-term potential to speak of and can only be rented out to shady people who disappear after damaging lots of things in properties that needs lots more money to restore than what can be covered by even the security deposit. Many people have experienced this and you never experienced? You never rent out OCR properties before is it?

    Quote Originally Posted by Wild Falcon
    Still doesn't change the fact those 2% yields are all in CCR and that the AVERRAGE YIELDS is the lowest in CCR - dropping to 2% sure sounds desperate to me. For those properties that only fetch 2% yields, it probably means prices have close to plateaued, unless there is future development and new transportation links that may result in capital gains. So I'm just trying to say, do your own research and always remember to divide the rental by the cost of investment.

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    Quote Originally Posted by teddybear
    Stop beating around bush after your lies exposed! Many OCR projects only about 3%+/- yield but with disappointing price growth record and no investment value or long-term potential to speak of and can only be rented out to shady people who disappear after damaging lots of things in properties that needs lots more money to restore than what can be covered by even the security deposit. Many people have experienced this and you never experienced? You never rent out OCR properties before is it?
    err...nid to choose the right profile lor...so far, my worse restoration involved hacking concealed a/c pipes....tats in D11 and angmor family....heng suay one la....they on a/c almost 24hrs and nvr service the a/c

    nowadays, i pay for a/c servicing....scared liao

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    Quote Originally Posted by devilplate
    yes...u got it....3.5% nett yield is safer...2.6% abit low for comfy
    Hmmm but I still don't get this part... based on the calculation the yield is 2.6% vs first year interest rate of 0.85%.. so by right it's positive return since 2.6% > 0.85% for first year and maybe reduce drastically in the later years as IR increase to it's normal 2.5-3%

    However based on the first year, if we calculate it in terms of cash, we have 2600k (after deducting $600 from tax and maintenance) vs a loan of approximately 3500k based on 0.85% loan at 32 years for 1.2 mil property.

    In other words the owner need to pay up $900 monthly even though the first calculation proved that it's a positive carry.. that can't be good right?

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