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

a

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 1st property, whichever lower. For purchase made on or after 6 July 2018, the loan to value is tightened to 75%.

b

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

c

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

f

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.

 

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