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Thread: Rental Yield?

  1. #1
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    Default Rental Yield?

    Just wondering is there an official formula to calculate rental yield? What other costs should we take into consideration as well? Thanks!

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    Yield is normally expressed as a ratio of annual rental to purchase price.

    Example:
    Purchase price: $1,000,000
    Monthly rental: $5,000

    Annual rental = $5,000 x 12 = $60,000

    Therefore, Yield = $60,000/$1,000,000 x 100% = 6%


    I think yield of 4-5 % is considered very good.

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    Thanks for the info.

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    Sometime, it is good to know the passive income from rental after deducting all the the expenses like maintenance fee, insurance, monthly mortgage repayment, etc.

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    The misc deductions (loan interest, maintenance fees etc) is taken at 20% deduction from the gross rental income usually.

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    May I know is for gross or net rental income?

    Thanks


    [

    I think yield of 4-5 % is considered very good.[/QUOTE]

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    Hdb 20%! that's why i never give up my hdb. My privilage as a citizen!

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    come on you need mark to market your so called hdb investment ! Like that yield can even be 50%. I buy without viewing if you can find me a hdb flat now with yield of 10%.
    Quote Originally Posted by Komo
    Hdb 20%! that's why i never give up my hdb. My privilage as a citizen!

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    Quote Originally Posted by nobrainer32007
    come on you need mark to market your so called hdb investment ! Like that yield can even be 50%. I buy without viewing if you can find me a hdb flat now with yield of 10%.
    can buy oredi good...i cant even buy!

    in 07, resale 3rm flat only ard 150k...and rental can fetch 1.5k to even 2k!

    and i can only urge ppl to buy at tat time

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    Quote Originally Posted by jbond
    Yield is normally expressed as a ratio of annual rental to purchase price.

    Example:
    Purchase price: $1,000,000
    Monthly rental: $5,000

    Annual rental = $5,000 x 12 = $60,000

    Therefore, Yield = $60,000/$1,000,000 x 100% = 6%


    I think yield of 4-5 % is considered very good.
    should expressed it in term of market value of the property and not the historical purchase price

  11. #11
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    Singaporean should be entitled right? Unless you are single and below 35 of age?

    Quote Originally Posted by devilplate
    can buy oredi good...i cant even buy!

    in 07, resale 3rm flat only ard 150k...and rental can fetch 1.5k to even 2k!

    and i can only urge ppl to buy at tat time

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    HDB rental is by far the best, if one can buy it or not sell it to jump onto the private property wagon.

    Being more calculative, I use net rental yield and compare that to the mortgage rate to see if it's cashflow positive.

    Net yield = (gross amt - all related expenses (prop tax, mcst fees, even depreciate the reno/curtain/lighting)) / total cost (purchase price+stamp+legal)

    With this, some investments won't be too viable but then there is capital appreciation and bank deposits comparisons, which has driven the market.

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    Back to the question of azeoprop, is this calculation the official formula? Streetsine calculation did not mention about the legal and stamp duty fees but I agree that it should be included as per your comment below.

    Quote Originally Posted by gn108
    HDB rental is by far the best, if one can buy it or not sell it to jump onto the private property wagon.

    Being more calculative, I use net rental yield and compare that to the mortgage rate to see if it's cashflow positive.

    Net yield = (gross amt - all related expenses (prop tax, mcst fees, even depreciate the reno/curtain/lighting)) / total cost (purchase price+stamp+legal)

    With this, some investments won't be too viable but then there is capital appreciation and bank deposits comparisons, which has driven the market.

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    I have a different rental yield calculation as compared to conventional ones as the latter is assuming you paid your house fully 100% without any loan.

    So my rental yield formula is:

    [(Annual rental income) less (annual loan servicing i.e. interest + principal) less (annual property maintenance fee) less (tax on rental income) less (annual depreciation of appliances, furniture & fittings) less (annual property tax and annual TV license fee) less (agent fees paid amortised over the rent period)] divide by [downpayment paid for the property + stamp duty + legal fees] = x%

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    Oh yeah forget the agent fees.

    I think the "Official" formula is the one that relates best to your investment strategy and philosophy.

    Aggressive = don't care abt related cost, and probably more leveraged.
    Official = probably gross yield formula
    Conservative = nett of all expenses and included all cost.

    I take the more conservative approach coz there are other investments eg dividend stocks etc that can pay me off without the hassel of dealing with tenants and agent. And I assess any investment unleveraged - coz it all can be very profitable - just ask Lehman Bros.

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    Quote Originally Posted by Blue
    I have a different rental yield calculation as compared to conventional ones as the latter is assuming you paid your house fully 100% without any loan.

    So my rental yield formula is:

    [(Annual rental income) less (annual loan servicing i.e. interest + principal) less (annual property maintenance fee) less (tax on rental income) less (annual depreciation of appliances, furniture & fittings) less (annual property tax and annual TV license fee) less (agent fees paid amortised over the rent period)] divide by [downpayment paid for the property + stamp duty + legal fees] = x%
    u make a big mistake here....u shdnt include principal component for the annual loan servicing(just nid to minus interest paid to bank)

    by the way: ur calculation is actual ROI(factored in ltv ratio and mortgage rates)....and not rental yield

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    Quote Originally Posted by gn108
    Oh yeah forget the agent fees.

    I think the "Official" formula is the one that relates best to your investment strategy and philosophy.

    Aggressive = don't care abt related cost, and probably more leveraged.
    Official = probably gross yield formula
    Conservative = nett of all expenses and included all cost.

    I take the more conservative approach coz there are other investments eg dividend stocks etc that can pay me off without the hassel of dealing with tenants and agent. And I assess any investment unleveraged - coz it all can be very profitable - just ask Lehman Bros.
    buy hse without loan lor...super conservative

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    Quote Originally Posted by devilplate
    buy hse without loan lor...super conservative
    I knew that this response will come in.
    But again, it's an investment vehicle so I compare all with the same standard. Apple to apple.

    Eg I could pay-off a small MM unit in cash and then leverage my stock investment. Then my yield will look small on the property investment and hugh on the stock.

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    Quote Originally Posted by devilplate
    u make a big mistake here....u shdnt include principal component for the annual loan servicing(just nid to minus interest paid to bank)

    by the way: ur calculation is actual ROI(factored in ltv ratio and mortgage rates)....and not rental yield
    You are wrong. Loan principal repayment should be included in the formula if you are looking at total net returns on investment. Your assumption is that property value will stay put or even go up after a period of letting out but however, if you buy your property in a peak, you should factor in the potential cost of property price diving down! That is why so many pple commit suicide in a downturn bec they forgot to factor this in!

    ROI is best in measuring returns and payback period. Rental yield is only a hoax for those who don't consider the capital returns factor.

  20. #20
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    Quote Originally Posted by Blue
    You are wrong. Loan principal repayment should be included in the formula if you are looking at total net returns on investment. Your assumption is that property value will stay put or even go up after a period of letting out but however, if you buy your property in a peak, you should factor in the potential cost of property price diving down! That is why so many pple commit suicide in a downturn bec they forgot to factor this in!

    ROI is best in measuring returns and payback period. Rental yield is only a hoax for those who don't consider the capital returns factor.
    ???? i am not assuming anything....i am toking about actual return of investment...(NOT net rental after minusing ur loan, blah blah)

    principle amount paid towards ur ppty...

    if really wana go into details...shd also include number of days ur ppty is not rented out blah blah

    mabe cannot rent out?!?! negative yield!!!
    Last edited by devilplate; 23-08-10 at 12:24.

  21. #21
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    Quote Originally Posted by gn108
    I knew that this response will come in.
    But again, it's an investment vehicle so I compare all with the same standard. Apple to apple.

    Eg I could pay-off a small MM unit in cash and then leverage my stock investment. Then my yield will look small on the property investment and hugh on the stock.
    shdnt compare stocks with ppty....2 different animals

    just like cannot compare stocks with forex too....

    i tink ppty is more for wealth preservation....whereas, stocks/forex can really make u rich or bankrupt overnite

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    One should follow the way it is reported to IRAS for rental income. You will be able to know the nett amount whether Postive or Negative. Use this value and divide by the purchase price of your property + (stamp fee and legal fee, if you want to) *100 to get the nett rental return.

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    Rental yield is really a interesting concept - official definition is meaningless to those who have their own measurement yardsticks.

    But yes, no of days unrented is a factor for sure. Just the finer it becomes, the more painful it is to calculate.

    Anyway, keep the comments coming - as I'm learning new things from you guys.
    There are many ways to make $$ and to keep it or lose it - so I'm sure we can agree to disagree and move on. (How abt that poor rich soul who dropped like 15 condos to Resort World? )


    Quote Originally Posted by devilplate
    ???? i am not assuming anything....i am toking about actual return of investment...(NOT net rental after minusing ur loan, blah blah)

    principle amount paid towards ur ppty...

    if really wana go into details...shd also include number of days ur ppty is not rented out blah blah

    mabe cannot rent out?!?! negative yield!!!

  24. #24
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    Quote Originally Posted by Blue
    You are wrong. Loan principal repayment should be included in the formula if you are looking at total net returns on investment. Your assumption is that property value will stay put or even go up after a period of letting out but however, if you buy your property in a peak, you should factor in the potential cost of property price diving down! That is why so many pple commit suicide in a downturn bec they forgot to factor this in!

    ROI is best in measuring returns and payback period. Rental yield is only a hoax for those who don't consider the capital returns factor.
    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.

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    Looks like it is not so easy to earn income from rental...so much hidden costs popping up from nowhere.

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    That's why better to go for Capital Gain. It is more substantial.

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    Yes - not so easy and even more so, if you don't have a good and trust-worthy agent. And don't forget the sometimes demanding and attention-seeking tenant. Repair cost and taking your time can be irritating.

    So capital gain has to be there to make it all worthwhile.
    But for the most part, Singapore is a safe way to make money in property.


    Quote Originally Posted by azeoprop
    Looks like it is not so easy to earn income from rental...so much hidden costs popping up from nowhere.

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    It helps with a stable economy, garment, no serious natural disaster (except for some flooding) and most importantly in the right part of the world in terms of growth. [P.S. I am not pro or against Papayas]

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    Quote Originally Posted by DC33_2008
    One should follow the way it is reported to IRAS for rental income. You will be able to know the nett amount whether Postive or Negative. Use this value and divide by the purchase price of your property + (stamp fee and legal fee, if you want to) *100 to get the nett rental return.
    can u provide an example for my easy understanding?

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

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    Quote Originally Posted by rattydrama
    can u provide an example for my easy understanding?

    So when someone say 4% rental yield it can be meaningless cos we don't know what is the yardstick.
    Yah, thats what I wanted to know also.

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