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Hi Dennis,

The rental yield for a HDB flat is almost often more than the rental yield of a private property due to the lower price of the HDB.

If I were to have both HDB & private property, does it make sense to rent out the HDB & stay in the private property, even though the rental is not enough to cover the mortgage of the private property?

Or stay in the HDB & let the private property's rental cover the mortgage despite the lower rental yield?

Now, do which is more sensible? Absolute cash flow or yields?

Hi Ironman,

I worked out a simple possible scenario to illustrate your question.

HDB
Cost : $400,000
Rental Yield : $2,500 or 0.625%

Private Property
Cost : $1,000,000
Rental Yield : $4,500 or 0.45%
Assume monthly mortgage payment of $3,000

Therefore, if you choose the higher yield option and stay in private property, your net cash flow after mortgage will be negative $500 because you don't earn rental from your private property.

On the other hand, if you choose the "lower yield" in this case and stay in the HDB, your net cash flow will be a positive $500 because the rental yield from your private property is able to cover the mortgage payment.

Therefore, absolute net cash flow to me would be more important than a Percentage yield.

Hope this helps

Samuel wrote:Hi Ironman,

I worked out a simple possible scenario to illustrate your question.

HDB
Cost : $400,000
Rental Yield : $2,500 or 0.625%

Private Property
Cost : $1,000,000
Rental Yield : $4,500 or 0.45%
Assume monthly mortgage payment of $3,000

Therefore, if you choose the higher yield option and stay in private property, your net cash flow after mortgage will be negative $500 because you don't earn rental from your private property.

On the other hand, if you choose the "lower yield" in this case and stay in the HDB, your net cash flow will be a positive $500 because the rental yield from your private property is able to cover the mortgage payment.

Therefore, absolute net cash flow to me would be more important than a Percentage yield.

Hope this helps

Hi Samuel,

Gross Rental Yield is calculated as Monthly Rental x 12 divided by purchase price.

In this case, the Revised Gross Rental Yield for the HDB flat S$400,000, with rental of S$2,500 is actually 7.5%.

While the private property, if S$1 million has rental of S$4,500 is actually 5.4%.

Of course NETT Rental Yield would be lower, need to deduct all related recurrent costs to the property. eg. maintenance, property tax, etc, etc.

I think you need to ask yourself, what is the Primary objective? If the objective is to get ahead financially, then the Absolute Positive Cashflow per month will get you ahead as Samuel has shared.

However, if you feel very strongly to live in Condo, then you just know that this is a Conscious Decision.

Actually, in a few years' time, it might be possible for you to buy a 3rd property by taking an Equity Loan on the Condo (provided you didn't use too much CPF for the condo and that the Market Valuation stays constant or go up while your Housing Loan outstanding reduces over time).

When that happens, you can have 2 properties on Rental. This is why I bought a condo in April 2010 as I want this process to start sooner than later.

Hi Dennis,

thanks for the clarification and correction of the rental yield calculation.

What is the mechanics of an equity loan like you mentioned in the previous post?

Samuel wrote:Hi Dennis,

thanks for the clarification and correction of the rental yield calculation.

What is the mechanics of an equity loan like you mentioned in the previous post?

Hi Samuel,
for example, one bought a property for S$1 million and took a S$800,000 loan. A few years later, loan might reduce to S$700,000 and Market Value of property might go up to say S$1.2 million.

It might be possible to get additional loan of say, S$200,000, to increase loan back to S$900,000. This additional loan is called an Equity Loan. The S$200,000 Cash can then be used to invest in another property.

Samuel, thanks for your views. Having absolute positive cash flow is of coz more pragmatic....but as Dennis has pointed out, it is the desire to stay in a private property that 'complicate' matters.

It is akin to suffer now, enjoy later or vice versa.....

Ultimately, it is also for the capital appreciation in the long run. Just that it is more difficult to sniff out properties which are 'under-valued' during the current market sentiments.

Now that it was mentioned, I vaguely remember about this equity loan which was mentioned during the 1 day financial seminar. To own the 3rd property, there's a minimum sum of $100K requirement in the CPF, rite?

Btw Dennis, when is the next property investment seminar? I've signed up for it earlier but could not attend the earlier ones.

Dennis Ng wrote:

Samuel wrote:Hi Dennis,

thanks for the clarification and correction of the rental yield calculation.

What is the mechanics of an equity loan like you mentioned in the previous post?

Hi Samuel,
for example, one bought a property for S$1 million and took a S$800,000 loan. A few years later, loan might reduce to S$700,000 and Market Value of property might go up to say S$1.2 million.

It might be possible to get additional loan of say, S$200,000, to increase loan back to S$900,000. This additional loan is called an Equity Loan. The S$200,000 Cash can then be used to invest in another property.

Hi Dennis,

May I pls know what are the factors you'll consider before deciding whether to sell an investment condo versus taking an Equity Loan on it?

ironman wrote:Samuel, thanks for your views. Having absolute positive cash flow is of coz more pragmatic....but as Dennis has pointed out, it is the desire to stay in a private property that 'complicate' matters.

It is akin to suffer now, enjoy later or vice versa.....

Ultimately, it is also for the capital appreciation in the long run. Just that it is more difficult to sniff out properties which are 'under-valued' during the current market sentiments.

Now that it was mentioned, I vaguely remember about this equity loan which was mentioned during the 1 day financial seminar. To own the 3rd property, there's a minimum sum of $100K requirement in the CPF, rite?

Btw Dennis, when is the next property investment seminar? I've signed up for it earlier but could not attend the earlier ones.

Nope, the min sum is not S$100k. And if a person is NOT using CPF to invest into the property, this CPF Min Sum requirement does NOT affect the investment at all.

The next Secrets to Making Money in Property Seminar is on 7 Aug 2010. You might be glad to know that you have registered and paid early, becos for those who didn't register previously, the price has been revised to S$798.

Details are here:

http://www.masteryourfinance.com/web/in ... &Itemid=35

dragon wrote:

Dennis Ng wrote:

Samuel wrote:Hi Dennis,

thanks for the clarification and correction of the rental yield calculation.

What is the mechanics of an equity loan like you mentioned in the previous post?

Hi Samuel,
for example, one bought a property for S$1 million and took a S$800,000 loan. A few years later, loan might reduce to S$700,000 and Market Value of property might go up to say S$1.2 million.

It might be possible to get additional loan of say, S$200,000, to increase loan back to S$900,000. This additional loan is called an Equity Loan. The S$200,000 Cash can then be used to invest in another property.

Hi Dennis,

May I pls know what are the factors you'll consider before deciding whether to sell an investment condo versus taking an Equity Loan on it?

Hi Dragon,

it is not a Simple "tick this box" kind of checklist to decide.

If I intend to hold a Property long term, factors such as Location, the age of the property (remaining lease), the Property market Cycle, etc, all might affect the decision to hold or sell.

Dennis Ng wrote:

dragon wrote:

Dennis Ng wrote: Hi Samuel,
for example, one bought a property for S$1 million and took a S$800,000 loan. A few years later, loan might reduce to S$700,000 and Market Value of property might go up to say S$1.2 million.

It might be possible to get additional loan of say, S$200,000, to increase loan back to S$900,000. This additional loan is called an Equity Loan. The S$200,000 Cash can then be used to invest in another property.

Hi Dennis,

May I pls know what are the factors you'll consider before deciding whether to sell an investment condo versus taking an Equity Loan on it?

Hi Dragon,

it is not a Simple "tick this box" kind of checklist to decide.

If I intend to hold a Property long term, factors such as Location, the age of the property (remaining lease), the Property market Cycle, etc, all might affect the decision to hold or sell.

Thanks for the clarification, Dennis.

Dennis Ng wrote: Nope, the min sum is not S$100k. And if a person is NOT using CPF to invest into the property, this CPF Min Sum requirement does NOT affect the investment at all.

The next Secrets to Making Money in Property Seminar is on 7 Aug 2010. You might be glad to know that you have registered and paid early, becos for those who didn't register previously, the price has been revised to S$798.

Details are here:

http://www.masteryourfinance.com/web/in ... &Itemid=35

Currently, I do not have any property after selling my HDB. My gf owns a HDB using her CPF. For us to jointly purchase another private property, the min CPF is $56K for her, rite? Then I'll also use my CPF to fund for this property.

In future, if we want to purchase a 3rd property, the CPF min sum will come into play?

Yes, I'm glad we signed up for the seminar earlier....which I think is an under-valued purchase

Hi Dennis,

How do I sign up early and pay early to get the special price?

star88 wrote:Hi Dennis,

How do I sign up early and pay early to get the special price?

the special price of S$798 needs a special quote. You can email me at dennis@masteryourfinance.com and I'll email you.