Rental Yield?

[limfc]

So when someone say 4% rental yield it can be meaningless cos we don't know what is the yardstick.

very much depends on who is that 'someone' lar...

if that someone is an agent who is marketing the unit, of coz quote the gross yield lar... mask all the other 'hidden' cost mah.... rite?

and if i'm the buyer, i definitely measure by nett yield! then tell agent actually not 4%, only 1% after all the taxes and expenses! can try to ask to lower the price pls?

in this case, we are both right... just different perspective?

[isaaclim]

Gross rental yield = Annual Rental income / Purchase price X 100%

Net rental yield = (Annual Rental income - All expenses such as Maintenance fees, Agent Comm + setup cost) / Purchase price X 100%

Setup cost = Curtains, Lighting, Furnitures, cleanning + etc...

If Net rental yield > monthly installment, then this is called "Money PRINTING MACHINE"... This is the ideal scenario for investment.

[amk]

Your calculation is too conservative. Shouldn't include principal repayments as there won't be equal basis for comparison of a property. Principal repayment amount depends on the loan tenor. A 50 year old owner loan profile is different from a 20 year old.

his "calculation" is simply wrong, just as devil pointed out. and very misleading. hope no one takes it seriously. Your simple example shows how wrong it is (how can it "minus" the principal repayment ? )

there is no "official" formula for "rental yield". the only "official" one is the gross yield, that is simply gross rental over gross purchase price. This just gives u an idea of the fundamentals. So you can see roughly if the rental supports the purchase price. After that, the actual yield achieved by individual investor depends entirely on his individual situation. (tax status ? various fees ? etc)

For now, clearly prime area pty rentals do not support the price. So they are all gunning for capital gain. Whether this is logical/normal or not is your judgment. You make the call.

[blackfire]

his "calculation" is simply wrong, just as devil pointed out. and very misleading. hope no one takes it seriously. Your simple example shows how wrong it is (how can it "minus" the principal repayment ? )

there is no "official" formula for "rental yield". the only "official" one is the gross yield, that is simply gross rental over gross purchase price. This just gives u an idea of the fundamentals. So you can see roughly if the rental supports the purchase price. After that, the actual yield achieved by individual investor depends entirely on his individual situation. (tax status ? various fees ? etc)

For now, clearly prime area pty rentals do not support the price. So they are all gunning for capital gain. Whether this is logical/normal or not is your judgment. You make the call.

His calculation to include principal repayments is for cash flow analysis based on individual basis. Ideally, the cash inflow should match the outflow, with no additional cash outlay or best with some cash leftover, the asset will then be deemed as cash generating (not just only income).

[mantrix]

Gross rental yield = Annual Rental income / Purchase price X 100%

Net rental yield = (Annual Rental income - All expenses such as Maintenance fees, Agent Comm + setup cost) / Purchase price X 100%

Setup cost = Curtains, Lighting, Furnitures, cleanning + etc...

If Net rental yield > monthly installment, then this is called "Money PRINTING MACHINE"... This is the ideal scenario for investment.

I disagree with the last statement. If I take 40 yrs loan, it is easy for rental income to cover and exceed instalments (or say if one puts in 50% as downpayment and only borrows 50%)

Some parametes need to be put in place - eg borrow 80% over 20 years and if rental still exceeds instalment then that can be considered good...

[devilplate]

I disagree with the last statement. If I take 40 yrs loan, it is easy for rental income to cover and exceed instalments (or say if one puts in 50% as downpayment and only borrows 50%)

Some parametes need to be put in place - eg borrow 80% over 20 years and if rental still exceeds instalment then that can be considered good...

calculate until like tat, dun nid to buy liao

[blackfire]

I disagree with the last statement. If I take 40 yrs loan, it is easy for rental income to cover and exceed instalments (or say if one puts in 50% as downpayment and only borrows 50%)

Some parametes need to be put in place - eg borrow 80% over 20 years and if rental still exceeds instalment then that can be considered good...

To put in simply, if you include HL principal repayment, you are not calculating the yield or the returns of the investment, you are basically determining the cashflow and the affordability of the investment to you as an individual. Principal repayment is not fees or cost to you, it is still your money at the end of the day, but in the form of reducing the HL.

[scsc]

I disagree with the last statement. If I take 40 yrs loan, it is easy for rental income to cover and exceed instalments (or say if one puts in 50% as downpayment and only borrows 50%)

Some parametes need to be put in place - eg borrow 80% over 20 years and if rental still exceeds instalment then that can be considered good...

Just add another layer to calculate WACC to find the leverage...
should give a very conservative return % (especially for high loan % + high stressful mortgage interest rate % )

as stated by some, gross rental yield should be the general standard understood by every folks... Net yield depends on individual takes..

[jlrx]

There is a trade off between capital appreciation and rental yield. Properties with higher rental yield tend to have lower capital appreciation, and vice versa.

Personally, the more important consideration in property investment is capital appreciation and not rental yield.

In fact, I have some properties with no rental yield but tremendous capital appreciation, and I find that even better as I don't have to deal with the tenants. The value of my time to settle a tenant's issues may already exceed the rental for the entire month.

[devilplate]

There is a trade off between capital appreciation and rental yield. Properties with higher rental yield tend to have lower capital appreciation, and vice versa.

Personally, the more important consideration in property investment is capital appreciation and not rental yield.

In fact, I have some properties with no rental yield but tremendous capital appreciation, and I find that even better as I don't have to deal with the tenants. The value of my time to settle a tenant's issues may already exceed the rental for the entire month.

u owned many landed ppty and leave it vacant ar

[hyenergix]

Still must add repair cost, especially for landed property. Must also consider bad tenants who don't pay rent on time, damage your furniture or bring in illegal over-stayers. Buying for rental yield is simply not worth it in this market.

[DC33_2008]

Why iin particular repair cost for landed property? Condo has repair cost too. Iti s not that substantial for landed property. The deposit is meant to cover the landlord for damages. Most of the time is minor works. Hence, it depends the profile of the tenants, type of condos (mass or prime market?), etc.

Still must add repair cost, especially for landed property. Must also consider bad tenants who don't pay rent on time, damage your furniture or bring in illegal over-stayers. Buying for rental yield is simply not worth it in this market.

[blackfire]

There is a trade off between capital appreciation and rental yield. Properties with higher rental yield tend to have lower capital appreciation, and vice versa.

Personally, the more important consideration in property investment is capital appreciation and not rental yield.

In fact, I have some properties with no rental yield but tremendous capital appreciation, and I find that even better as I don't have to deal with the tenants. The value of my time to settle a tenant's issues may already exceed the rental for the entire month.

what is the logic for property with higher yield tend to have lower capital appreciation?? U mean a property with low yield is good to invest for capital appreciation??

[rattydrama]

Just add another layer to calculate WACC to find the leverage...
should give a very conservative return % (especially for high loan % + high stressful mortgage interest rate % )

as stated by some, gross rental yield should be the general standard understood by every folks... Net yield depends on individual takes..

Love this forum.

So can anyone confirm this statement "gross rental yield of 4% is considered good?"

So essentially net rental yield will be very individual. Some paid in full while others took 80% loan and need to minus off the interest payment + all the miscs charges, taxes (streetsine say 20%) turn out to be 3% should be quite good in my opinion. (But not deducting principal repayment hor)

invest if you have spare cash and good cash flow reserve.

like that sure to support propertism.

[devilplate]

Love this forum.

So can anyone confirm this statement "gross rental yield of 4% is considered good?"

So essentially net rental yield will be very individual. Some paid in full while others took 80% loan and need to minus off the interest payment + all the miscs charges, taxes (streetsine say 20%) turn out to be 3% should be quite good in my opinion. (But not deducting principal repayment hor)

invest if you have spare cash and good cash flow reserve.

like that sure to support propertism.

4% gross rental yield for FH ppty considered good in my book

[rattydrama]

wat about Leasehhold property??

[devilplate]

wat about Leasehhold property??

depends on age? anyw, 1-2bedders usually enjoy higher rental yield den bigger units?

[rattydrama]

Lets say below 20 years LH project.

Yep 1-2 bedder better rental yield = agree on this.

[isaaclim]

I disagree with the last statement. If I take 40 yrs loan, it is easy for rental income to cover and exceed instalments (or say if one puts in 50% as downpayment and only borrows 50%)

Some parametes need to be put in place - eg borrow 80% over 20 years and if rental still exceeds instalment then that can be considered good...

Well... Time is GOLD

[devilplate]

Lets say below 20 years LH project.

Yep 1-2 bedder better rental yield = agree on this.

probably 4.5-5%?

[rattydrama]

probably 4.5-5%?

Tanglin Regency can match. :-)

[blackfire]

Tanglin Regency can match. :-)

What is an attractive rental yield depends a lot on the current interest rate, especially so if your HL amount is high. With a low current low HL interest rate of less than 2%, 4% yield is very good. But if the interest rate were to climb to 5%, essentially all the rental income is used to pay the bank to service the interest. In this case, u are only waiting to sell for capital gain.

[amk]

So can anyone confirm this statement "gross rental yield of 4% is considered good?"

u should have asked "how many think..."...

for me, 4% very good already.

I'm doing 3% only. already contended.

[devilplate]

What is an attractive rental yield depends a lot on the current interest rate, especially so if your HL amount is high. With a low current low HL interest rate of less than 2%, 4% yield is very good. But if the interest rate were to climb to 5%, essentially all the rental income is used to pay the bank to service the interest. In this case, u are only waiting to sell for capital gain.

for the past decade, mortgage rate was like 3.5% on average? shd be safe for 4% yield...and looks like US will keep the interest low for long....if US turns robust and up interest rates...ppty prices shd go up too...den can decide to sell too

[jlrx]

u owned many landed ppty and leave it vacant ar

Not just landed. When the property is old, firstly the rent is not high and secondly the types of tenants are more problematic. Then it's better to leave them vacant.

what is the logic for property with higher yield tend to have lower capital appreciation?? U mean a property with low yield is good to invest for capital appreciation??

The logic is that higher yield usually means either leasehold or new properties with lots of fixtures like branded ovens which depreciate very fast. Something is depreciating - either the lease or the fixtures.

On the other hand, old freehold properties especially landed or enblocable condos in very prime locations have hardly any depreciation in the lease or fixtures but also very low rental yield. You are essentially holding the land.

PROPERTISM Rule No. 2 - Land is more valuable than air.

I have two properties at opposite extremes. One gives me 8% rental yield but no capital appreciation; while the other gives 0% rental yield and has tripled in price!

That's why I say that capital appreciation beats rental yield. The reason is very simple. To play the capital appreciation market you need very deep pockets and holding power, hence there is less competition.

On the other hand, the rental yield market is accessible to anyone who can put down a downpayment. The competition is very tough and profit margins will be squeezed. Same as in any business.

[TS]

for the past decade, mortgage rate was like 3.5% on average? shd be safe for 4% yield...and looks like US will keep the interest low for long....if US turns robust and up interest rates...ppty prices shd go up too...den can decide to sell too

Can try to sell if interest rates go up, but property is not so liquid (unlike stock which you can dump) and selling during unrosy times can be challenging. Just have to ensure have enough holding power for few yrs even when interest goes up 5%. Better still, even if unit cannot be rented out.

[hyenergix]

With so many property launches in July/Aug (note ST article on Aug 24, 2010, Property launches picking up speed, Developers wary of looming market uncertainties: Wing Tai boss, By Robin Chan), if these new properties TOP in the next 1-3 years, then there could be a glut of MM units.

By then interest rate will go up and competition will increase, yield will definitely drop. Unless we have a very good economy to sustain (a big question mark). Already see quite a number of properties selling with tenancy. If the landlords are making $, why would kill the golden goose?

[rattydrama]

With so many property launches in July/Aug (note ST article on Aug 24, 2010, Property launches picking up speed, Developers wary of looming market uncertainties: Wing Tai boss, By Robin Chan), if these new properties TOP in the next 1-3 years, then there could be a glut of MM units.

By then interest rate will go up and competition will increase, yield will definitely drop. Unless we have a very good economy to sustain (a big question mark). Already see quite a number of properties selling with tenancy. If the landlords are making $, why would kill the golden goose?

Well said. I fear this will happen as it has happened before. However, in the past downturns, there was no mm units. Will investors liquidate the bigger units and hold on to mm units since quantum is small? Or the other way round?

It is interesting to know.

[devilplate]

With so many property launches in July/Aug (note ST article on Aug 24, 2010, Property launches picking up speed, Developers wary of looming market uncertainties: Wing Tai boss, By Robin Chan), if these new properties TOP in the next 1-3 years, then there could be a glut of MM units.

By then interest rate will go up and competition will increase, yield will definitely drop. Unless we have a very good economy to sustain (a big question mark). Already see quite a number of properties selling with tenancy. If the landlords are making $, why would kill the golden goose?

read tat article with a pinch of salt.....he got his own agenda if u read carefully and if u noe his 'position'

[devilplate]

Can try to sell if interest rates go up, but property is not so liquid (unlike stock which you can dump) and selling during unrosy times can be challenging. Just have to ensure have enough holding power for few yrs even when interest goes up 5%. Better still, even if unit cannot be rented out.

wat i am trying to say is: if US economy turns robust...sibor rate will increase and most likely ppty prices in SG will increase too(unless its stagflation scenerio)

in fact, i wish interest rate to go up....ppty go up further, i have the opportunity to cash in or if prices plunge, i can buy too! i love spikes or crash!