Return on Investment (ROI)

Returns on Investment (ROI) when you purchase a second property looks at the amount of profit gain for your investment. What are the factors affecting your ROI?

Expenditure and Returns

When you purchased a second property, there is an Additional Buyer Stamp Duty of 7%. The investment amount tends to be 30% downpayment and a maximum of 80% loan.
1,000,000 Purchased Price
10% stamp duty = 100000
20% downpayment = 200000
80% loan = 800000

Monthly repayment: 4,048 based on:
2% Bank Interest Rate
20years loan

How much can a 1 million property rent fetch in the market?
According to recent transactions, most of the owners are willing to rent it out slightly lower as supplies are overloaded in the market and rental tends to be more negotiable. Which I see many are willing to negotiate at 2,200 to 2,400 monthly rental.

To be in the positive, one has to look at the potential expenses to determine the lowest let go price.

Potential Expenses:
Agent commission – 1 month rental
Iras Tax – 1 month rental
Vacancy Rate –  1 month rental
Maintenance and Sinking Fund: 2 months rental

Say if the rental is 2,200 per month. A second property investment will profit approximate 7 months of rental annually.

7 months x 2,200 / 1,100,000 = 1.4% returns

If this is the figure of your ROI, will you continue to invest?

That is not all, apart from rental returns the real profit actually comes from Capital Appreciation. How does one reap the best capital appreciation when it comes to investing in their second property? It all boils down to the point of entry vs the point of exit.

Capitalising on your second property

The rental return on your property is only 1.4% based on the above calculation. It is not even sufficient to cover the bank interest of 2% thus we require a good profit when we are selling the property.

10 years holding period:
Total Interest Paid: 125,481
Downpayment and stamp duties: 300000
10 years rental returns: 154,000 (7months of 2,200)

Total principal amount paid: 360164
Outstanding Loan: 439834

How much do you have to sell to make a good profit?

Totalling up expenses: 1225479
Returns over the 10years: 154,000
Any amount above 103% of 1071479 will make a positive sale for the property. Will property appreciate 200k in 10years holding period?
Amount quoted are in the worst scenarios.

How about holding it for 20years later?

20 years holding period:
Total Interest Paid: 171,296
Downpayment and stamp duties: 300000
20 years rental returns: 308,000 (7months of 2,200)

Total principal amount paid: 800000
Outstanding Loan: 0

Totalling up expenses: 1,271,296
Returns over the 20years: 308,000
Any amount above 103% of 963296 will make a positive sale for the property.

There are some investors which I have seen, at this stage are continuing to rent out their property and not selling their fully paid investment. Collecting rental returns monthly as part of their source of income. I personally think that is possible if you have many paid-up investments, otherwise…depending on your situation, we have a plan for you.

So can you invest in second property?

The answer is obvious…disregard the entry period of investing, as long as you have holding power and knows what to do to reduce risks. You can still reap profit as long as you are doing things right.

Property investing is a long-term real investment, and I am able to assist you in your investment to make it a fruitful one. We believe in building assets and make your nets worth unimaginable.

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