10 Crucial Aspect To Think Of Before Investing In Property Market.

Property is one of the best investment options because it has many merits, not only is it a stable investment, investing in property can add to our source of income and act as a hedge against inflation. A common Singaporean dream is to own a second property that we can rent out to earn rental income. Many of us see this as a gateway to achieve financial freedom earlier or to provide an income in our retirement, or even enabling us to indulge in greater luxury.

What many of us don’t realize is that owning an investment property can be very costly. It’s not as simple as buying a property and ensuring we receive decent returns on our investments or renting it out at the market rate. There is a lot more at stake and we need to go in with our eyes open. Buying new BTO launches or resale HDB for example, has its own pros and cons to be considered before a buyer act on it. Overstretching ourselves may be a bad decision that ultimately cripples our financial future. Here are 10 things we need to consider when we’re looking to buy an investment property.

1. Mortgage Repayments

Everyone knows we will have to take a home loan when we buy an investment property. In fact, it’s what enables us to buy such a property in the first place, by putting down as little as 20% for new BTO launches. However, we should not use this to overstretch our financial resources. We can end up in a situation where we have to fork out a substantial amount of the mortgage out of our pockets if proper calculations are not being applied before investing. This situation usually arises when we are limited on the number of years we’re able to stretch our home loan or the amount of loan we’re able to take because of the number of properties we currently own or even the amount of debt we’re already carrying. We should also avoid scenarios where we’re at the edge of our finances, as any slight blip in the economy, rental market or property valuation may suddenly put us in a situation where we cannot afford to keep the investment property. This may end up with us having to selling it urgently, and receiving a lousy valuation. Click here on types of mortgage packages that suits you.

2. Property Agent Commissions

While this is not a hidden cost, it can be overlooked when calculating our cashflow and returns from our investment property. This entails paying a commission to our property agent, usually a month’s worth of rental for every 2 years for his or her work renting out our property. The property agent knows that this is a recurring business and we’ll need to engage him or her each time renewal comes up or if we need to find a new tenant. This way, our agent may be incentivized to manage our property well, including getting a good rental rate, ensuring prompt payment, helping with sprucing up the place to rent it out and several other ways

3. Maintenance Fees

Majority of condominiums in Singapore require us to pay a maintenance fee each month. This fee is no small matter and can easily amount to approximately 10% of our rental income each month. Such fees are usually used to maintain condominium facilities, such as swimming pools, tennis courts or gardens, ensuring adequate security measures as well as hygiene and cleanliness. It can also vary depending the kinds of common facilities in the condominium, size of the condominium and age of the condominium. It also differs according to the size of the properties in the condominium – where larger units have to pay more. Well, if you’re staying in a BTO or HDB flats, you have skimped on this.

4. Upkeep of premise

Miscellaneous costs are quite important to account for but not very apparent in everyone’s calculations. This cost component includes furniture, if included in the rental package, water heater, carpets, air-conditioner as well as any repairs or maintenance works required within the home.

Such expenses could be unpredictable. Also, whenever we renew tenancy agreements, both existing and new tenants may have requests for a fresh coat of paint, repairing broken lights, replacing an old furniture or something to that effect. For older apartments, this type of expenses can add even quicker due to the age of the property.

5. Property Tax

Property taxes on properties that are rented out (non-owner-occupied) are applied very differently to those we live in (owner-occupied). Click here to calculate your property tax.

For investment properties (or non-owner-occupied properties), we have to pay approximately 10.7% on the first $45,000 of our property’s annual value, and incremental percentages for every $15,000 increase in our property’s annual value up to $90,000 (where anything above it will incur a 20% charge). This compares to under 4% for properties we live in (or owner-occupied properties).

6. Insurance

Fire insurance is the basic type everyone should buy – this covers the building’s structure, fixtures and fitting. This insurance will basically reinstate your property back to its original condition. Since you’re not living in the property, you may not have much material possession to insure, but a home content insurance policy may also be sensible to cover your furnishings and renovation works. This is an affordable cost component that will insure you for a potentially large liability. Premiums may amount to less than 1% of your rental income. Even if you applied for new launch BTO development, you’re required to buy insurance from the HDB.

7. Income Tax

Any rental income counts towards our personal income tax. If this causes us to jump into a higher tax bracket, it may be even more costly for us. If your rental income inflates your income by $40,000, you will definitely be pushed into a higher income bracket. At bottom end of the spectrum, this means even you’re a retiree, anything above $20,000 will be counted as taxable income. Conversely, if you’re renting a property, you cannot deduct it off your income tax. So, consider this carefully if you’re gunning for such a strategy.

8. Monitoring Costs

Imagine renting out a condominium and realizing two years down the road that it has not been well-kept and is in a poor condition. Not only will we need to spend money to spruce it up for the next tenant, we will also quickly realize that its value may be heavily affected. This is why it’s so important to monitor the condition of our properties. Also, any illegal activities taking place may have implications on us as the property owner.

9. Weak Economy

This is another area many people tend to conveniently overlook. In the event you’re not able to rent out your property, you may fall into seriously financial stress with mortgages and all other costs still due every month. Therefore, a certain amount of caution should be employed when it comes to purchasing a new HDB launch for example as an investment tool. Potential buyers would need to foresee economic issues and be able to handle them when they come.

10. Administrative Expenses

You may not have the experience of knowing everything that is deductible (or those that you should be depreciating) or even the time to take care of it. Therefore, hiring a professional such as an accountant would be beneficial for you as they could help you with managing the cost related to the said property.

For summary, you need to keep in mind that how effectively you manage your investment will determine whether or not the investment helps you reach your financial goals.

Post a Comment


  1. Wow..good info sally.. Thanks for sharing!

  2. Walaupun tidak berapa fhm sgt bab ni.. Tapi perkongsian sally ni amat berguna buat bakal2 yg nk buat pelaburan harta..

  3. pasal property ni emi mmg tak reti sgt haha. kena blaja jgk la sedikit sbyk pasal property melalui pembacaan

  4. Bagus info ni, pelaburan memang perlu tapi kena berani ambil risiko

  5. Yeah all needs to put into consideration for a property investment.Best to Think twice and discuss with loved one

  6. Banyak kena tengok kalau nk beli hartanah ni.. jgn nanti kt berhutang keliling pinggang

  7. Ingat berkenan ja beli... Rupanya tak sebab kena pertimbangkan banyak perkara. Thanks for info.

  8. Samalah x berapa faham tp pelaburan mmg sangat2 penting sbb dgn ekonomi yg semakin memnuncak ni perlu bijak utk meningkatkan taraf hidup


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