QUOTE(DesRed @ Dec 27 2020, 10:07 PM)
Could you explain how yield factors into purchasing a property for your own-stay?
Or is the yield between other investments vs investment property?
For own stay, if one is not in a hurry to buy a house for wedding or whatsoever, one would be better off renting than buying at current condition due to the low rental yield.
Why? Because one can get better return elsewhere, and use the return to pay for rent (with additional cash).
For example, ASB and buying this lelong unit
ASB just paid 4.25% this year.
Return from ASB = 42500 (RISK FREE)
Rental = 28000 (2.8% net rental yield using the lelong unit case above, non-lelong units will be worse at the moment)
Net earnings = 14500
If I had the money (e.g. 1m) to choose between buying and renting, I would all-ined into ASB, and use the return to rent instead of buying (please keep in mind we havent include the miscellaneous cost e.g. lawyer fee, stamp duty, MOT, wear and tear into consideration).
People keep saying property investment is for long term. Yes, I agree, but if our entry price is fcked up, it is not a wise investment decision.
Property investment is no longer attractive because of too many 'gurus' in the past selling the quick-to-rich dream to the public and indirectly jackuping the market prices so much. But again, the market price is the price you pay not the value you get.
To get value properties,
- for cash buyers, the net rental yield would need to be
AT THE VERY LEAST higher than risk free investment like ASB. So in this case, 4.25% (after including all the miscellaneous fee mentioned above + furnishing). To simplify, a property is a value buy if the gross rental yield is 7% - with the assumption that the rental rate doesnt drop further from here. According to my case studies, rental rate in my studied area has been decreasing since 2016. So, to be more conservative, what a value investors should aim for is a minimum of 8% gross rental yield.
- for loan buyers, god bless you if you are highly leveraged
PS. I do not include capital appreciation into account because there are more supplies than demand now in the market. Overhang issues are getting worse, I do not foresee property to appreciate in the near future especially when most property investors (flippers and landlords) are feeling the heat.
- flippers cannot flip due to prices inching downwards (when they cannot flip, the only way out is to rent or dispose it at lower price, most people would choose to rent if possible, and if thats the case, all flippers become landlords; this increase the supply to the rental market, and further reduce the rental rate and yield)
- landlords have to topup to cover the gap between the loan and the rent