Wednesday, July 22, 2009

Investing in a property for rental

Hi Mr Tan,
My wife and I own a HDB executive apartment, fully paid with CPF and cash.

We have some investments. We are considering to cash them for 20% down payment for a private property. We will rent the property to pay the monthly instalment.

Should we go for a second property or continue investing in equity? We are now in our 40s. It is for retirement use.

This is a personal view. It is all right to buy a property for one's occupation but not a good idea to invest in a property for rental.

I dislike investing in a physical property for the following reasons:
a) the price is too high
b) the return, after deducting expenses, is too low
c) it is a hassle to rent out the property
d) it does not offer diversifcation.
e) it is highly speculative and depends on making the right decision on timing and choice of property.

Investing in REITS may be a better idea, as it offers the same opportunity to make the same kind of potential gain as physical property, has less hassle in managing the property and offers diversification over several properties.

All the best in your decision!


Anonymous said...

Very illiquid

Chris said...

I disagree. Property rental has very high yields if you spend time to do your homework. Perhaps it is not so good in Singapore but in many other countries, property rental yield approximately 8-15% returns. Plus, you only need around 10-20% downpayment and the tenant pays the installment. My suggestion is to do alot of planning, ensure the location is good (that is the key) and calculate the yield. If it is lower than 7% it is not attractive. Plus, property is a good hedge against inflation. Broaden your horizion and expand across borders. Dont only look at Singapore. The world is quite big with many opportunities.

Anonymous said...

Property is cheap or yield is high overseas for a reason.

Know the right reason(s) and also how things will go with time.

Maurice said...
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