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Over here we want to highlight the definition of rental yield:
Rental Yield = Total Annual Rental Payment / Property Value x 100%
In Singapore today, the rental yield for private residential properties average around 3%. And what this means is, if you own a property that has a valuation of $800,000, you will expect your tenant to pay you a total of $24,000/year or $2,000/month.
Note that since usually we only put down a portion as down payment, and the remaining to be financed by bank loan, so there will be a leverage effect on the ROI.
Just for illustration, assume we put down a 25% or $200,000 as down payment, the ROI will be $24,000 / $200,000 x 100% = 12% instead.
However, note that this 12% hasn’t account for the necessary expenses that we need to deduct to derive the final cash-on-cash return. Rather, it’s just for illustration on the impact of leverage. We will go into the details during our consultation.
But first, you have seen how rental yield is a critical element when assessing whether a particular development is worth investing. Now, you can start by looking at the surrounding rental transactions to get a rough estimate on the rental payment you can expect.
For example, check out the cluster of private non-landed developments at Pasir Ris. Observe the average price and rental transactions based on the average of the past 6 months data pulled out on 30 July 2020.
As you can see from the figures, generally the newer the development, the higher will be the rental rate that tenants are willing to pay. If you are considering to invest in a development that’s still under construction, you can add a premium to the rental transactions of older developments nearby, as an estimate for your rental yield.
That’s all for now! We will go through more in-depth elements during our consultation 🙂
First – Before we jump on a call with you, please finish reading the case study above to have a better understanding on the fundamentals of real estate investing. This will help us to go directly into customising a dedicated plan for you.
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