11-12-2012, 01:54 PM
(11-12-2012, 11:32 AM)money Wrote: [ -> ](11-12-2012, 11:07 AM)mobo Wrote: [ -> ]Sure, happy to share my experience here. There are many hidden costs in collecting rent from investment properties, a lot of times it can be quite hard to track because some items are quite random and are incurred in an ad-hoc manner. However, I found out that over the years if you average it out it’s quite consistent actually.
1. Property Tax – Quite a big hit @ 10%, effective tax rates tend to be slightly <10% when rents are rising and >10% when rents are stable or falling. This is because IRAS AV is like a moving average that is slower to reflect actual rent markets
2. Income Tax – If you are still working, likely you will clear the first $20,000 bracket and the rent will be further subject to income tax ranging from 4% - 20% depending on your employment income. Through creative deductions on interest and operating expense, you can bring down the tax slightly.
3. Conservancy / MCST / Landscape Costs – For HDB, landlord needs to bear conservancy, condo would be the MCST maintenance fee and sinking fund contribution and for landed will be general landscaping costs.
4. Depreciation / Rental of furniture – Generally most residential units are leased out furnished or at least semi-furnished in Singapore. Most landlords here choose to purchase furniture themselves, this needs to be depreciated accordingly over 2 – 5 years depending on what furniture it is and the quality of it. It is becoming popular among some landlords to lease furniture sets from companies, for this case of course the costs of such furniture rental need to be taken into account
5. Structural / Interior Insurance – Structural insurance is definitely a must. Interior (renovation/fitting/furniture) insurance depends on preference. Personally I always buy both because they are not very expensive and gives me the peace of mind. Paying $100,000 to refit everything in the event of a fire is not funny -_-;;
6. Major Capex – Very hard to predict because it depends on what breaks down and at what time. Some of the big ticket items include air-con (happened to me once, had to change the whole compressor after it broke down and the model was obsolete), stove and oven, fridge, plumbing, electrical wirings automated gates if landed. If you are very strict on accounting, technically need to accelerate depreciation and write-off when that happens!
7. Minor Maintenance – All the very nitty gritty stuff that comes along the way. Standard rental clauses usually have tenants pay for <$100 breakdowns like changing light bulbs, soap holders, regular air-con cleaning etc. But there are still other stuff like curtains, structural defects like ceiling cracks, torn laminates, pest control, changing taps, carpet foaming that usually landlord needs to pay.
8. Agent Commission – In the event lease not renewed or terminated due to exercise of diplomatic clause, most landlord will go through agents to get a new tenant. Standard commission is 1 month gross rent for a 24 month lease.
9. Vacancy Cost – Prudently it is good to accrue for around 0.5 – 1 month for every 2 years although past 2 years the economy was quite good and I managed to get tenants back to back with at most 1 week gap.
10. Tenant Damages – By right, landlords are entitled to seek reimbursements for any damages to the unit or fittings caused by the tenant. But sometimes tenants will play punk and insist they are not to be blamed and argue from all angles. At the end of the day, you might not be able to fully recoup the damages from tenant. I had an idiot tenant family of 5 once. Apparently I do not know what sort of detergent they used, but it badly damaged the parquet flooring resulting in blackened strips and popped out tiles. Tenant refused to pay citing poor finishing and hot weather as reasons. End up we settle by him reimbursing me $500. That was nowhere near enough for me to fix & change the tiles and repolish.
thank you for the wonderful sharing, i get the full picture now
it is certainly not as easy as i thought. i had the impression that collecting the rental will be the hardest cos quite "embarrassing" to chase for rental if tenant pays late. Now i realise there are at least 10 other things to consider
No probs
Collecting rent has been relatively painless for me as I only rent out to big companies and their expatriates or decent above middle income families. From what I gather asking around, it seems landlords who have particular problems with collecting rent are usually those either have very old and rundown properties attracting less than ideal tenants or those who choose to split lease one unit to multiple single or double tenants. These have a higher risk of running late on payments or doing a “midnight disappearance”.
(11-12-2012, 11:42 AM)Musicwhiz Wrote: [ -> ]Wow mobo thank you for the comprehensive list. Perhaps I should create a separate sticky thread and label it "10 things to look out for when renting out an apartment"?
But seriously, this laundry list makes me feel that collecting dividends is so much more hassle-free compared to owning a property and renting it out!
Haha yes from a dividend vs net rent point of view, it definitely makes more sense to go for a diversified portfolio of stocks. But we all know the key reason most investors cum speculators go for property is a combination of cheap credit and potential to flip at a higher price. I doubt the throngs of people crowding out showrooms every weekend are there for the rent income.
I hoped the list was useful to some extent to correct some misconceptions on being a rent collecting landlord because most people I spoke to seem to only consider financing arrangements in buying the property and hardly anyone talks about operational costs in running the property.