12th Mar 2024 | Written by Pang Chun Enn
Profiting from Property:
Deciding between Renting or Selling your
Investment unit?
In Singapore, property investors have a few avenues available to them when it comes to earning and profiting from the dynamic property market.
From residential to commercial and industrial properties, each offers distinct avenues for generating profits in the real estate sector.
However, today we are going to focus on Residential property's two main avenues of profitting.
1. Rent out your unit and gain passive monthly income
2. Sell your unit upon seeing an increase in value
Now let’s break it down this two avenues of profitability for your unit and which option might be best for you
Scenario 1.1:
Renting out 2-Bed Condo with a 75% loan
In Singapore among local investors, the acquisition of 2-bedroom units is the most common. This preference stems from their appeal to a broad tenant base, facilitating consistent rental yields.
Additionally, as the quantum is reasonably easier to enter, positioning them favourably for future profit realisation.
Hence, the profile we are going to use in this example is a young couple who owns a 2-bedroom New Launch Private Condominium as an investment unit to rent it out to gain passive income.
Before we begin, take the average of the 2-Bedroom Condominium unit cost and monthly rental.
Purchase Cost: S$1,600,000
Rent: $3,500
Now, to find out your actual profits for your rental, you will need to deduct your monthly mortgage, property tax, Management Fee and Agent’s Commission + GST. For the calculation to be simpler, I will divide all the costs into monthly as well.
Upon your unit’s legal completion with a purchase price of S$1,600,000 and loan of S$1,200,000
Monthly Mortgage at a conservative rate of 3% interest rate:
S$5,690/Month
Assuming your unit’s Annual Value is $42,000 ($3.5k x 12 months) and using Non-Owner Occupied Rates
Property Tax: S$4,440/Year
Monthly: S$370/Month
On average, the management fee for a 2-bedroom unit will be around $900 per quarter.
Management Fee: S$3,600/Year (S$900 x 4 quarters)
Monthly: S$300/Month
For a 2-year lease, you will need to pay the agent a 1-month rate + GST. Using S$3,500 and 9% GST,
Agent Commission: S$3,815
Monthly: $159/Month
As seen in the calculation above, with a loan of 75% when purchasing your unit, you will still have to fork out an estimated $3,019 per month using CPF/Cash.
Scenario 1.2:
Renting out 2-Bed Condo without any loan
In this scenario, we will assume you make a full payment for the purchase of a 2-bed New Launch Condominium with the same numbers as Scenario 1.1. With full payment, it means there will not be any monthly mortgage. Below are the calculations
Without your monthly mortgage, you will be able to realise actual profit as seen in the calculation above. A monthly passive income of $2,671 will come from your unit.
Scenario 2:
Selling your unit after the Temporary Occupation Period (TOP) or after Seller Stamp Duty
Let us look at the average Profit/Loss for 3 New Launch Projects that TOP-ed recently crossed their 3-year Seller Stamp Duty period when owners started selling their units.
In each newly TOP-ed New Launch, I will also include the time required to break even with the average potential profit from a sale with Scenario 1.2’s monthly profit ($2,671) from renting out your unit.
Treasure At Tampines
TOP
2023
Average Gain
$169,736
Average Profit/Loss Percentage
20%
Est time to breakeven sale profit
5 Years 4 Months
Parc Clematis
TOP
2023
Average Gain
$270,600
Average Profit/Loss Percentage
23%
Est time to breakeven sale profit
8 Years 5 Months
The Florence Residence
TOP
2023
Average Gain
$224,961
Average Profit/Loss Percentage
22%
Est time to breakeven sale profit
7 Years 0 Months
As seen by the statistics from these 3 new launches, some owners have realized capital gains of at least 20% when opting to sell their units upon TOP or after their Seller Stamp Duty period rather than renting them out for passive income.
Additionally, it's worth noting the estimated breakeven timeframe for units is calculated with owners who purchased it without any loans.
In conclusion…
This article aims to help you understand the pivotal decision between renting and selling property, offering deeper insights into the potential financial outcomes and 'hidden' costs. Often, landlords solely focus on the monthly rental rate without fully considering the 'hidden' costs involved, while tenants may not grasp why landlords occasionally counter with higher rates to cover these costs.
The decision between renting and selling ultimately depends on your personal real estate goals and asset progression/management. While rental income can provide steady cash flow in some cases, it may also take several years to match the potential capital gains from a sale.
However, some investors may prioritize long-term asset retention despite the costs. Whatever your timeline or objectives may be in the property market, it's crucial to consider your options carefully.
Wrapping up…
If you're seeking professional guidance or insights tailored to your specific properties and goals, don't hesitate to reach out. I am here to help you navigate the complexities of real estate and make informed decisions for your portfolio.
Pang Chun Enn
R065301I
Treasure At Tampines - TOP 2023
Source: Soreal
Parc Clematis - TOP 2023
Source: Soreal
The Florence Residence - TOP 2023
Source: Soreal
Disclaimer:
The information provided in this blog is opinions and it is for informational purposes only. It should not be construed as professional advice. The views and opinions expressed are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All content provided is intended to encourage discussion and exploration of topics related to the rental market. Readers are encouraged to conduct their own research and consult with relevant professionals before making any decisions. The author takes no responsibility for any actions taken based on the information provided in this blog.