maintenance fees Archives - Holland Property

9 Criteria In Choosing A Right Property For Rental Yield

hollandproperty — Fri, 25 Sep 2020 07:27:28 +0000

8 Criteria In Choosing A Right Property For Rental Yield

One of the most significant advantages of property, as an asset class, is that it can generate rental income.

During the early years, rental income can help to offset costs such as taxes and mortgage interest rates.

In the later years, when your home loan is paid up, the rental can ensure a constant stream of passive income during your retirement.

However, not just any property will do when it comes to rental income. Some properties are easier or harder to rent out, while others – due to inherent factors like higher costs – are less profitable as rental assets. To avoid the common pit traps, consider the following criteria when choosing a property for rental:

Rental Rates and Demands of Surrounding Properties

Before committing to a property with good rental yield, it is essential to research on how well the nearby projects are doing in terms of occupancy and rental rates.

For example, to determine if Stirling Residences is a good buy, you can look at the relatively new Commonwealth Towers and recently T.O.P. Queens Peak. While these two projects are directly linked to the Queenstown MRT, Stirling Residences is only 3 minutes walk away with NO MRT noise.

A quick check shows that both projects enjoy high rental transaction volume.

Based on the latest rental transactions, a 441sf level 28-30 one-bedder at Commonwealth Towers can fetch $2,500 and a 431sf Queens Peak level 19 floor unit at $2,700. A level 19 441sf unit at Stirling Residences was sold for $844,000. Using $2,500 to $2,700 as a guide, we would be looking at between 3.55% to 3.83% rental yield for Stirling Residences. I must say this is a very decent rental return. Perhaps Stirling Residences might fetch a better rental rate because it will be the newest condo when it T.O.P. in a year or two.

Do take note, for newly T.O.P. projects, there will be fierce competition for tenants. Supply and demand will dictate the rental rates. Tenants have a lot of choices and can afford to pick and choose. For landlords who want to rent out fast, they must be willing to accommodate more requests and accept a relatively lower rent. For those who are willing to wait until most units are taken up, they can then demand a higher rent. Also, rental generally goes up after the first cycle, when supply is lower.

Size of the Development

There is always an ongoing debate, whether smaller or larger development is better.

My take is, for investment purpose, go for a bigger development with between 500 to 1,000 units or even more.

While larger developments mean more competition for tenants, it is more than compensated by better, bigger and more facilities.

Mega project such as Treasure at Tampines, with 2203 units, boasts of 13 (!!) pools, 9 (!) function rooms, a 2500sf 24-hour gym, reading room and culinary studio.

Another best-seller, Parc Clematis (1468 units), will have 400,000sf of facilities, that include beach pool, three 50m pools, four themed clubhouses, gym, dance studio, two tennis courts and two basketball courts!

Life will never be boring in such large developments! Most tenants will love where the action is.

Age of the Development

Another perennial question is: is a new launch or resale condo a better investment choice?

I have covered at great length on this topic in my article on “Investment Property: 6 Reasons Why New Launch Is Better Than Resale”

Many buyers are fixated on the price PSF, hence opt for a resale condo, but the savvy investors look past $PSF (see my article on “4 Reasons Why People Still Buy When The Price PSF Is So High”).

Based on my experience, the newer condos, with nicer facilities and designs, are easier to rent out. While you may be paying more in terms of PSF (but lower in gross price), the rental yields are better. It is our human nature to like all things new and nice.

Tenants also prefer newer condos which give them lesser worries about breakdowns and repairs, especially with air-conditioners and appliances.

Upkeep of Facilities

This is a concern for older resale condos if you want to buy them to rent out. You need to ensure that advertised facilities, such as gyms, BBQ pits, pools, are well maintained. Don’t underestimate the problems this can cause you as a landlord.

In 2017, for instance, the lifts at People’s Park Complex became notorious, as some residents had to wait as long as one hour to get home. It was a nightmare for the landlords, as some tenants demanded to renegotiate, claimed they had been cheated for renting there, etc.

Sometimes it can also happen to newer condos, as in the case of The Seaview condo. On July 3 2015, the residents of sued the developer, architect and contractor for $32m over swimming pool tiles popping up, falling concrete blocks, foul odours, sewage issue and various other defects. Eventually, the case was settled out of court for an undisclosed figure.

Maintenance Fees

The management fees for most condos are around $300-400 per month, but this can vary widely. Maintenance fees can impact your rental yield, so it’s often the tie-breaker when comparing between two different condos.

For example, if condo A and B both cost the same, and have the same location and facilities, then the one with the higher maintenance fees would be the worse choice.

As maintenance fees are not immediately advertised in listings, you’ll have to ask to find out.

It is interesting to note that maintenance fees are generally lower for larger and newer condo projects.

For instance, the maintenance fees at Treasure at Tampines starts from $150 a month for a 1-bedroom and up to $264 for a 5-bedroom unit.

For the 1410-unit Parc Esta, the fees range from $170 for a 1-bedroom to $230 for a 5-bedroom.

At the 23-year-old Jervois Lodge, with only 108 units, the maintenance fee for a 958sf 2-bedder is a whopping $583!

Accessibility and Amenities

Don’t just check for nearby MRT stations, shops, etc.; check if the accessibility and amenities are also relevant to your intended tenant demographic.

For example, an MRT station is often one of the most important considerations for students, who likely don’t drive (and can’t afford to keep using Private Hire cars).

On the other hand, an affluent expatriate, who wants to rent in a peaceful enclave, may prefer not to have the noisy MRT station nearby (they probably drive or use Grab and will never use it anyway).

Likewise, take an integrated development like Marina One Residences or DUO Residences. These have offices and high-end retail within the same development. While impressive, it may not mean much to families whose priority is to have their children near schools (not the case for either of those developments).

Know who you’re renting to, so you can properly gauge whether the amenity or accessibility is an issue to them.

Appropriateness of Floor Plan and Layout

Some unit layouts are better for rental. For example, if you want to live in the same unit while also having a tenant, a dual-key layout may be a viable option (as your tenant will have greater privacy).

For locations near to international schools or in the more upscale neighbourhoods (such as Holland and Bukit Timah), where the tenants are more likely to be families, it would make more sense to buy two or three-bedroom units (if budget permits).

On the other hand, for city-centre developments, like The M or Marina One Residences, which are more than likely to attract singles or couple professionals, a one or two-bedroom units would make more sensible investment options.

In many new condo projects these days, developers have come up with many different layouts to cater to buyers with different needs and budget.

For example, at Stirling Residences, there are two-bedroom (635sf) and two-bedroom premium (678sf). The main difference between them is, the former has one bathroom and the latter two. The price difference is about $70,000. The question is, which would you choose for your investment property?

If you’re uncertain which floor plan is better suited to you, drop me a message. I can help to explain which configurations or layouts are better for different tenants.

Picking the Right Unit

The goal of buying an investment property is to keep the costs low to maximise returns. Even after shortlisting the best projects that tick all the boxes, the question is, how do you pick the right unit for best rental returns?

Investors don’t always go for pool-facing units, highest floor units or unblocked view units. They usually come with premium price tags, but do they necessarily give you a better return?

We know with every floor up you would be paying more; in the case of Stirling Residences, it’s about $6,000 per floor. So would you choose the highest level you can afford or the lowest floor at a much lower price?

One of my clients bought a 2^nd floor one-bedroom unit at Waterfront Isle from the developer for $577,000. The view sucks because it faces the HDB flat, which was so close I felt I could actually touch it (sorry, I know I am exaggerating). But guess what? I never have a problem helping my client to find tenants from day 1. The rental yield is 4.2%. A 12^th floor unit, on the other hand, that costs $40,000 more is also renting out with the same rental yield.

I will discuss in more details in another article how do you pick the right unit.

Future URA Plans

Knowing the future URA plans nearby is also helpful to foresee the catchment of tenant pools. Chances of capital appreciation are also very high.

For example, under the URA Master Plan 2019 for Upper Bukit Timah, there will be a new Transport Hub near the Beauty World MRT. That could interest investors in properties like Daintree Residence and Verdale.

If you would like to know where are the hotspots where there will be upcoming development plans, drop me a note.

Finding the right property for good rental yields sometimes is not as straightforward as it seems. If you would like to know more, you can make a virtual appointment with me via the calendar below or drop me a note.

Danny Han has always been in the people’s business, having spent 23 years as a church pastor, five years as an insurance agent, and the last 16 years as a property consultant.

Danny has a genuine interest in people and firmly believes in personal integrity. While helping homeowners with their property needs, their interest always takes precedence over his personal gains. Hence, Danny has consistently earned his clients’ complete trust and loyalty. Many of them have become his personal friends.

Danny received his Diploma in Mechanical Engineering from Singapore Polytechnics and Bachelor of Science from Oklahoma Christian University of Science and Arts in Bible & Psychology.

Besides keeping abreast of the property market trend and constantly equipping himself to better serve his clients, Danny is a passionate foodie, a weekend cyclist, and an avid hiker.

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SKYE AT HOLLAND

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The post 9 Criteria In Choosing A Right Property For Rental Yield appeared first on Holland Property.

7 Mistakes People Make When Comparing Property Prices

hollandproperty — Wed, 19 Aug 2020 15:18:45 +0000

7 Mistakes People Make When Comparing Property Prices

Most of us know that “doing our homework” is a vital step of the property buying process, and this includes comparing property prices. Whether you’re a home owner or pure investor, property is a big-ticket item; one where even a difference of half a percentage point can mean saving tens of thousands of dollars in the long term. However, many property buyers also compare prices incorrectly; and this can lead to unexpected levels of risk or disappointment.

In this article, we’ll address the most common mistakes to avoid:

Mistake 1: Comparing Property Prices Using Listing Prices Instead of Transaction Prices

You would have heard by now that you should compare prices of surrounding properties when buying a home. However, it’s a common mistake to visit property portals and compare listing prices to the property you’re interested in. This erroneous comparison will give you a misleading impression.

For example, you might see that your seller is asking for $1.4 million, but the list prices of comparable properties are all $1.5 million; this may lead you to believe you’re looking at a bargain. But this is a misperception because the listing price is rarely the actual market value of the property (a seller can ask for any price they like, but it doesn’t mean they will succeed at getting it).

Most listing prices have room for negotiation; the actual transaction prices of comparable properties tend to be lower than the listings suggest. This is not to say there aren’t any case when the listings maybe under-value properties.

A more accurate way would be to check the transaction prices by looking at the caveats lodged with URA. Even then, by merely looking at the transaction prices, it still may not paint the whole picture. Data from the URA website don’t show the unit numbers. The actual level and facing of the units will have a bearing in the disparity in prices. For example, you need to take into consideration the difference between quiet facing and road facing, with and without direct west sun, and with blocked and unblocked view.

For more comprehensive data and comparative analysis, drop me a message, and I can help you to check.

Mistake 2: Relying on Transaction Data When The Volume Is Too Low

Even if you have access to real transaction prices, you need to factor in the volume. This is a common problem for boutique developments with very few units and transactions (e.g. Urban Edge @ Holland V, Edge @ Cairnhill), or very old projects where there have only been one of two transactions in the past five years.

In these cases, the average prices can be misleading, as one unusually high or low transaction will skew the figures. For example, if the last unit sold in a 60-unit development happens to be a penthouse or a ground floor unit, the low $PSF price will significantly skew the prices downwards.

And if the last transaction was three years ago, the price will not give an accurate reflection of the current market condition. It is not unusual that the bank’s valuation may not match the current market price because it still relies on outdated transaction prices.

Mistake 3: Forgetting To Include Maintenance Costs When Comparing Condos

Two developments can have broadly similar facilities but have a big difference in maintenance costs.

There are a few factors that can affect the cost of maintenance:

The size of the development: Generally, bigger projects have a lower maintenance fee because the cost is spread over more units. Conversely, the maintenance fee is relatively higher for projects with fewer units.
The age of the development: Older projects are more costly to maintain with more repair and renovation works involved. There is usually a sinking fund component which goes to major works, such as overhauling of lifts, upgrading of facilities, and improvements of the grounds.
Size of the unit: The exact amount of maintenance fee will depend on the share value of each unit, which is determined by the size of the unit.
Ratio of the number of lifts to units: The cost of maintaining the lifts is relatively higher than other facilities, such as pool and gym. So, you can expect a higher maintenance fee for low-rise condos and those with private lifts.
The quality of the management council and its property manager can also affect the cost of maintenance.

Many home buyers often overlook maintenance fee when working out potential yield and return between different developments. So be sure to find out.

Mistake 4: Forgetting To Factor In The Tenure When Comparing Property Prices

When comparing prices between units, don’t forget to check whether you’re comparing condos with similar tenure i.e. freehold vs freehold and leasehold vs leasehold.

This is to ensure an apple-to-apple comparison, as freehold units typically cost about 15 to 20 per cent more than their leasehold counterparts. Hence, don’t expect freehold properties to give as much or higher rental yield than leasehold properties, all other things being equal. Typically, freehold condos give around 2 to 2.5 per cent yield (sometimes even lesser); whereas leasehold condos more than 3 per cent.

If you are planning to buy leasehold properties, don’t forget to factor in lease decay. A property may appear much cheaper despite having similar location and facilities due to the lower remaining lease and the more apparent signs of ageing.

Mistake 5: Ignoring Qualitative Factors or Your Original Intent

Don’t compare property prices so much that you forget your original intent.

For example, if you’re buying for pure home ownership, then you should better focus on non-financial factors such as:

Proximity to the workplace or choice school for your children
Closeness to parents (especially if you need their help to look after your child)
Healthcare needs (is there a hospital, dialysis centre, clinic, etc. nearby?)
Amenities that matter to you (e.g. MRT station, market, malls and park. Or you may prefer quiet enclaves even if there’s no MRT station)

If you are buying for investment, an important consideration would be whether it is easy to find a tenant. Rentability and prices usually go hand in hand. An old walk-up apartment may be cheap but is run down, inconvenient, and unattractive to many tenants. Or potential tenants might be put off due to inaccessibility by public transport or lack of nearby amenities.

Mistake 6: Only Comparing Price-Per-Square-Foot

Generally, home buyers tend to focus on the price-per-square-foot.

Typically, older condos are lower in price-per-square-foot when comparing to the new launches. The same applies to bigger condos versus smaller condos.

By purely looking at the price-per-square-foot to compare property prices may not be the best guide.

In my other article, “Why Do People Still Buy When The Price PSF Is So High?”, I pointed out that there are other factors to consider:

Projected rental yield: A smaller new apartment may be much higher than a bigger older apartment in terms of price-per-square-foot, but the rental yield is higher. If you are buying for investment, rental yield and ease of renting out are more important than size and lower price-per-square-foot. On the other hand, for an own-stay property, your consideration would be different. However, buying for own stay doesn’t mean you should not put on the hat of an investor. Read my article on: “Home Buyers versus Investors: Do You Need A Different Mindset?”.
Lower quantum versus higher price-per-square-foot: Investors are more concerned about affordability (which also means easy to enter and exit) than price-per-square-foot. A bigger condo may have a lower price-per-square-foot, but because of the size, the price may be out of reach.
The difference in the layout: When comparing prices, do take a closer look if there are any oversize balcony and air-con ledge, double-volume ceiling, open roof terrace and bay window. These unusable or impractical spaces make the apartment looks spacious on paper (hence lower price-per-square-foot), but you are not getting what you are paying for.
Facing, level and view: These factors can have a significant bearing on the price, as pointed out in the first point above. For example, the price difference for every level can be between $3,000 to $5,000. When comparing prices, just be sure to use the right criteria as a basis for comparison.

Mistake 7: Confusing The Average With The Median

Some buyers are confused when they see “conflicting” reports, where one report is giving the average unit price, and the other is giving the median. They may also make the mistake of comparing the average price of a property to the median prices of surrounding properties, or vice versa.

To be clear, median and average are not interchangeable terms. The median is the middle price in a range of units, whereas the average adds all the unit prices and then divides them between the units. For example:

Say we have five units in a small block:

Property A – $1.5 million
Property B – $1.55 million
Property C – $1.65 million (Median)
Property D – $2.2 million
Property E – $7.6 million

The median is simply the one in the middle (property C), so the median price in this block is $1.65 million.

The average requires us to add up all the costs ($14.5 million) and divide them between all five units, resulting in an average price of $2.9 million.

(If the average price seems high, it’s because property E costs so much more. This is why some reports use the median, when there’s a risk that exceptionally high or low-cost outliers will skew the results too much).

When you are comparing property prices, be sure that you are clear about these two terms.

Finally, do remember to look beyond price when comparing properties.

You also need to consider some currently intangible factors, such as upcoming future developments, or the specific state of the individual unit (in HDB flats, loan shark activity can make one specific unit very cheap!)

For a second opinion or a more holistic look at a unit, drop me a message and I’d be glad to help. Or you can book me via the calendar below for a zoom meeting.