The primary objective of getting a rental property is simple: to generate a stable source of income. Many have been doing this as a form of investment. Just like all other investments, there are bound to be both pros and cons when investing in a rental property. Needless to say, not all rental properties are income-producing and definitely, not all are a good investment. Now you must be wondering which particular rental property is a worthwhile investment and one that allows maximum returns. The following six tips may not definitely guarantee you good investment returns, more or less you would not go too wrong and be on the safe side.
Invest in affordable and completed properties
You should always start investing in a property that you are able to afford so that you would not be troubled by the excessive debt that you would have to pay off. This is because the objective of getting a rental property is to ensure that there is cash inflow and not have the profitability of the rental yield sabotaged.
Completed properties are considered to better since you would be able to rent them out quickly without having to wait. There may be unforeseen circumstances that might happen to uncompleted properties; delays are common and what’s worse is if the uncompleted property is never completed.
Note the property cycle
It is important to understand which phase of the property cycle the market is in now as it may determine how quickly you are able to secure a tenant and whether it will allow you to secure a lucrative rental yield. You may ask what the property cycle is, and which phase is the best to invest? First, let’s understand the property cycle in Singapore, as there are 4 phases involved.
The first phase is the value stage. This is the phase where prices are flat and the market is stable; a small amount of investors would also start entering the market anticipating for future price surge. The second phase is growth – where economic activity starts to pick up, landlords start to ask for higher rents and competition for prime locations rises. A large amount of investors will start to enter to the market.
The third phase is the peak, where prices record rapid gain, bank lending rates decrease thus increasing the take-up of mortgages. With this, the number of investors in the market surges. The last phase is correction: this is the phase where real estate prices follow a downward trajectory. Investors gradually withdraw from the market, rents fall and the number of vacant premises rises.
With this knowledge, we can now dive deeper into the analysis. There is actually no specific stage that is the “best” for investment since at any stage of the property cycle, it is possible to make a sound investment. This is because the property cycle is not the only determining factor when it comes to real estate prices and there are many other factors that would affect your purchase.
A location that you are familiar with will allow you to better understand the advantages and disadvantages of the location. This will allow you to make a more informed choice and that will ensure good rental yield or capital appreciation.
According to the rental market report in 2018, properties in the city fringe are rather popular and properties that are close to amenities are a good bet. Why is the city fringe so popular? This is because the close proximity of all the different MRT stations ensures that traveling is convenient, properties at city fringe are of great value since they are still affordable. It is also a precinct of possibilities with numerous amenities such as cafes, schools, and libraries for people to enjoy.
Read our AreaInsider series if you need comprehensive insights on the best areas to live or invest in.
Secure financing and the right mortgage
There are many different types of mortgages in the market, so it is important to choose the right mortgage that suits you. At the time of writing, the US FED rate is remaining relatively constant and FD rates are on the rise. Given this information, SIBOR-rate loans could be a better choice instead of choosing a loan package with its interest rate pegged to a bank’s Fixed Deposit (FD) rates. This is because there will be a significant amount of cost savings if the FD pegged rates packages were to have an interest rise.
For the uninitiated, you can always get a free consultation with the experts, who will help you navigate through the technical jargon and act in your best interest.
Property agents are the ones people think of when it comes to buying, selling or renting a property. Whether you will get a good price or not, the agent plays a very important role, thus it is important to have a good agent. A good agent would be able to help you secure a tenant quickly and screen the prospective tenant since they would make the effort to curate for the best landlord-tenant match.
Looking for an investment property in Singapore? Find an agent to take the hassle out of your home search.
A tenancy agreement is a detailed and legally-binding document. In the event of any legal disputes, the final outcome often hinges on this document. Therefore, it is very important to ensure that there is a tenancy agreement in place between the landlord and the tenant so that the rights of both parties are protected.
With the aforementioned pointers taken into account when you are thinking of financing your rental property, it will definitely help you determine whether or not you are buying into a sound investment. That being said, all investments are still coupled with risks and rewards, so be careful before making any decisions.
Article by Thomas Chew, Maestro, Redbrick Mortgage Advisory