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The one thing I do not like about people who collect rent from property is they quote gross rents as if it were the same as dividends collected from investing in stocks.

Dividends are straight forward, they are tax exempt and no other further expenses are incured along the way. My personal experience over the years "managing" my parent's properties show that generally net rents are consistently about 80% of gross rents even if it's free & clear. Many people are over-estimating their income by 25% when they just happily quote what they get from their tenant each month as "passive income".

Another thing about all these ST articles - As we learn from the $7000 taxi driver saga, ST journalists hardly conduct any investigation to verify claims made by their subjects and publish such articles at face value based purely on what the they say.

Particularly at risk of interest conflicts are people in the insurance / property agency line or gurus who make their living peddling courses, books and workshops. Readers should note that playing the part of the successful tycoon on the Sunday Times column is basically free advertising for them.
(11-12-2012, 09:41 AM)mobo Wrote: [ -> ]... My personal experience over the years "managing" my parent's properties show that generally net rents are consistently about 80% of gross rents even if it's free & clear.

Hi mobo, can share a little more the net rents is about 80% of gross rents? i dont have a property so like to learn a little more about properties and rental, thanks in advance
If you think about it, it makes sense. Gross rental is simply the gross amount charged to the tenant, but the landlord has to bear other costs such as property tax, conservancy charges (condo fees if it's a condo) and utilities. Though for some cases I think the landlord prices in the utilities into the rental, but it's tough to control how much electricity, water and gas your tenant uses.

So if you deduct all those, it's probably around 80% which you get to keep as net rent.
(11-12-2012, 10:09 AM)Musicwhiz Wrote: [ -> ]If you think about it, it makes sense. Gross rental is simply the gross amount charged to the tenant, but the landlord has to bear other costs such as property tax, conservancy charges (condo fees if it's a condo) and utilities. Though for some cases I think the landlord prices in the utilities into the rental, but it's tough to control how much electricity, water and gas your tenant uses.

So if you deduct all those, it's probably around 80% which you get to keep as net rent.

Pending for more experience shared by other, let me share my indirect experience

The expenses are
- Property tax
- Agent fee (amortize into the contracted period)
- Maintenance cost
- Misc cost

The allocation of expenses is about 15%-20% of the rental, which is tally with others experience.
Quote:Posted by NTL
To Temperament :
Under current interest rate environment, I will think it is better to buy a property and take up a low interest rate loan, rather than to pay in full. Even when having the money to pay, I think it will be better to invest it and get a 4-5%pa return. When interest rises near or above the investment return, then do lump sum payment.
Thanks for the sharing.
i did try when i first book the purchase.
i found:-

1st choice
1) i have to pay a lot of "miscellaneous fees". Even the conveyancing charge by the law firm is higher.

2) Mortgage loan charge by bank is not straight forward. i think it may be hiding somewhere a penalty if i do a lum sump payment when interest rise.

3) i think there is a locked in period of 1-3 years for the loan. That is i can't do a one lump sum payment during this period.

4)Which investment instrument that can yield 5% p/a and at the same time allow me to withdraw the whole capital invested at any moment to pay up all for the mortgage loan?

These then are the considerations. i had tried. May not tried hard enough. if you have some "lobang" i am always willing to listen and learn.

Alternate 2nd choice:
Incidentally, how about after paying up for the property, then mortgage the property to the bank and then invest the loan obtained to get higher yield. These 2 practices are definitely occurring in the Market.

Which is better if you have a choice? 1st or 2nd choice.
Any expert in investment calculations willing to share FOC.
It's always paid to learn but not necessary pay ($) to learn. Big Grin
Shalom
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.
(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 Smile

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 Sad
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"? Tongue

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! Big Grin
The early penalty i think is 1-1.5% of outstanding loan amount. Think the legal convencying fees depends on the loan quantum and property value too. I read some years during the latest crisis in '07 that some smart investors re-mortgage their fully/ almost-fully paid up condos to bank and got cash to buy REITS which were yielding in the high 10s-%.

I guess if you are asset-rich with determinable cashflow, using your spare private property to generate such good returns in sudden market swing is not a bad idea.

Only private property will be available for term refinancing. HDB can?
(11-12-2012, 10:33 AM)Temperament Wrote: [ -> ]
Quote:Posted by NTL
To Temperament :
Under current interest rate environment, I will think it is better to buy a property and take up a low interest rate loan, rather than to pay in full. Even when having the money to pay, I think it will be better to invest it and get a 4-5%pa return. When interest rises near or above the investment return, then do lump sum payment.
Thanks for the sharing.
i did try when i first book the purchase.
i found:-

1st choice
1) i have to pay a lot of "miscellaneous fees". Even the conveyancing charge by the law firm is higher.

2) Mortgage loan charge by bank is not straight forward. i think it may be hiding somewhere a penalty if i do a lum sump payment when interest rise.

3) i think there is a locked in period of 1-3 years for the loan. That is i can't do a one lump sum payment during this period.

4)Which investment instrument that can yield 5% p/a and at the same time allow me to withdraw the whole capital invested at any moment to pay up all for the mortgage loan?

These then are the considerations. i had tried. May not tried hard enough. if you have some "lobang" i am always willing to listen and learn.

Alternate 2nd choice:
Incidentally, how about after paying up for the property, then mortgage the property to the bank and then invest the loan obtained to get higher yield. These 2 practices are definitely occurring in the Market.

Which is better if you have a choice? 1st or 2nd choice.
Any expert in investment calculations willing to share FOC.
It's always paid to learn but not necessary pay ($) to learn. Big Grin
Shalom
(11-12-2012, 10:09 AM)Musicwhiz Wrote: [ -> ]If you think about it, it makes sense. Gross rental is simply the gross amount charged to the tenant, but the landlord has to bear other costs such as property tax, conservancy charges (condo fees if it's a condo) and utilities. Though for some cases I think the landlord prices in the utilities into the rental, but it's tough to control how much electricity, water and gas your tenant uses.

So if you deduct all those, it's probably around 80% which you get to keep as net rent.

Utilities, telephone and internet charges are borne by tenant. This is standard practice.
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