We all know that our profit from property investment is not simply the sales price of your property minus the purchase price of your property plus rental income collected over the years.

There are other costs involved and you have also used leverage (i.e home loan) to finance your purchase.

Here are the costs that you may have to incur (the list is not exhaustive):

Financing cost (i.e. interest).
Stamp Fees (i.e. Buyer Stamp Duty, Mortgage Stamp Duty, Seller Stamp Duty, Additional Buyer Stamp Duty)
Taxes (i.e. property tax, good & service tax)
Professional Fee (i.e. Legal Fees, Property Agent Commission, Surveyor Fees etc)
Upkeep (i.e. MCST Fees, Renovation Fees, Repair & Replacement Cost, Pest Control, Cleaning Fees etc)

Taking into account of the above costs, your profit is seemingly decreased. But is your return on investment still attractive?

Using one of my client’s property investment as our case study today, let’s us go through the steps I used to work out the money (or returns) earn from his investment and examine if his investment is worthwhile.

Case Studies

My client purchased his 2 bedroom apartment at Riviera 38 in Jun 2012 for around S$800,000 and is aiming to sell it for at least S$1,000,000. So far, he has collected about S$130,000 in rental income.

Here’s the breakdown of items to be considered in working out the returns he made from his investment:

1. Capital Invested

Initial Capital Invested

S$160,000

Note: During the time he purchased the property, he is able to loan up to 80% of the purchase price or property value for his 1^st property, whichever lower. For purchase made on or after 6 July 2018, the loan to value is tightened to 75%.

Principal Paid as of Aug 2019

S$118,504

Tips: you can use the Amortization Schedule Calculator provided by Realila.SG to helps you break down your total loan amount into Interest Paid, Principal Paid and Balance Due over the course of your loan.

2. Financing Cost

Interest Paid as of Aug 2019

S$82,570

3. Stamp Duties

d	Buyer Stamp Duty Paid	S$18,600
e	Mortgage Stamp Fee	S$500

Note: There are changes in the rates of buyer stamp duty, you may refer to the article “What is Buyer Stamp Duty & Additional Buyer Stamp Duty (ABSD)?” by PropertyNet.SG for the latest updates.

4. Taxes

Property Tax Paid

S$12,000

5. Professional Fees

g	Total Professional Fees Paid	S$26,400
	i. Legal Fee for Purchase	S$2,500
	ii. Legal Fee for Sales	S$2,500
	iii. Property Agent Commission for Resale (+GST)	S$21,400
	iv. Property Agent Commission for Rental (+GST)	S$5,778

6. Upkeep Cost

h	Total Upkeep Cost	S$31,200
	i. MCST Fee	S$19,200
	ii. Furniture + Lightings	S$10,000
	iii. Repair + Replacement Cost	S$2,000

With all the items listed out, we are now ready to work out the money (or returns) made from the investment of a 2 bedroom condominium if it were sold for S$1,000,000 in a couple of months.

Net Investment Gain/Loss = Total Investment Income (Capital Gain + Rental Income) – Total Expenses (c + d + e + f + g + h) = S$152,952 (Gain)

For holding the property for approximately 6.5 years, he would have made S$152,952. This may not sound exciting or rewarding. But we have to remember that he has used leverage (i.e. home loan) to finance his property investment.

So, lets us take a look at the rate of return and its annualized return taking into account his leverage.

Total Capital Invested = a + b = S$278,504

With a total capital of S$278,504 invested over the 6.5 years to generate S$152,952, the return on investment (%) is a whopping 54.91%, and on an annualized return basis, a very rewarding 6.97%.

Useful Tool: Annualized Return Calculator

So, how much money (or returns) have you made from your property investment? Is it rewarding or is it time to search for higher potential development?

You can now examine your investment and assess if there’s higher potential property investment out there.

Edwin Goh

Branch District Director, ERA

In my seven years of real estate career, I have seen many property owners losing their money or have their money stuck in their property investment. Mostly because of bad decisions made based on lack of information, bad advice and unchecked emotions. I would love to meet up with every one of you and help you in your real estate journey, but this may not be possible. So, I have started this blog to share my insights and hopes they will help you make a better decision.

If you are ready to begin your rewarding real estate investment journey with me, Whatsapp me today at +65 9004 5827, till we meet, good luck in your real estate investment journey.

Edwin Goh WJ on July 14, 2019 at 10:46 am

Hi DNA, thanks for your comment. It is my mistake for omitting the agent’s commission for the rental transactions and I have included it into the picture. Please see point 5(g)(iv).

To your other points raised:

– Mortgage insurance is a nominal amount and you may add it to the expense section if you would like to have a more precise calculation. As mentioned in the earlier section of the article, the list of cost listed in the example is not exhaustive, and you may include them where necessary. I have highlighted the major ones.

– The rent collected in the above case studies is the total rental income collected over the 6.5 years, there are definitely periods of breaks in between the 2 sets of tenants my landlord has and they are taken into account. If you take the total rental income of $130,000 over 6.5 years, the monthly rent is around $1,667. And the transacted rent for my client is between S$2,200 to S$2,650 for his 2 bedroom condo. By this calculation, you would be able to see that “breaks” are taken into account. In fact, he bought it before TOP, so the breaks are longer.

– Cost of repair and replacement are taken into consideration too under point 6(h)(iii), that will include a fresh coat of paint, breakdown of appliance etc.

– This is a sharing of how we can arrive on the return on investment on a property, henceforth, I would think it would be unnecessary to bring in personal income tax for consideration. Furthermore, income tax for different individuals varies and may be affected by their other investment and income streams too.

I hope I have addressed your concerns and, once again, thanks for your comments.

2 Comments

DNA on July 13, 2019 at 3:51 pm

Did you know that every nett rental income is taxable my Friend? If someone is a high income earner, he could potentially pay 22% on his extra income which is not in your calculation? This can be huge amount FYI and Where’s the rental comms that agents love to charge every yr or every 2yrs? It is not in your calculation as well? How abt mortgage ins or fire ins…etc? And it is assuming over 6.5yrs the ppty can be rented without a break in between which as a landlord I know it’s not likely. New tenant will want a fresh coat of paint, some minor touch up and your unit ended up empty for minimally 2weeks each renewal. These are cost as well.
- Edwin Goh WJ on July 14, 2019 at 10:46 am
  
  Hi DNA, thanks for your comment. It is my mistake for omitting the agent’s commission for the rental transactions and I have included it into the picture. Please see point 5(g)(iv).
  
  To your other points raised:
  
  – Mortgage insurance is a nominal amount and you may add it to the expense section if you would like to have a more precise calculation. As mentioned in the earlier section of the article, the list of cost listed in the example is not exhaustive, and you may include them where necessary. I have highlighted the major ones.
  
  – The rent collected in the above case studies is the total rental income collected over the 6.5 years, there are definitely periods of breaks in between the 2 sets of tenants my landlord has and they are taken into account. If you take the total rental income of $130,000 over 6.5 years, the monthly rent is around $1,667. And the transacted rent for my client is between S$2,200 to S$2,650 for his 2 bedroom condo. By this calculation, you would be able to see that “breaks” are taken into account. In fact, he bought it before TOP, so the breaks are longer.
  
  – Cost of repair and replacement are taken into consideration too under point 6(h)(iii), that will include a fresh coat of paint, breakdown of appliance etc.
  
  – This is a sharing of how we can arrive on the return on investment on a property, henceforth, I would think it would be unnecessary to bring in personal income tax for consideration. Furthermore, income tax for different individuals varies and may be affected by their other investment and income streams too.
  
  I hope I have addressed your concerns and, once again, thanks for your comments.

How much money (or returns) do you really make from your property investment?