There are typically four ways to make money with Real Estate investing:
- Capital Appreciation (The old adage Buy Low/Sell High)
- Positive Cashflow (Rental Income less Monthly Operating Expenses – typically mainly including the mortgage, Maintenance fees, property taxes)
- Mortgage Principal Paid by the tenant each month
- Tax advantages (Depreciation, amortisation…)
I am primarily a Cashflow investor.
Capital Appreciation is also important but if you ask me what I would choose between getting $100,000 today vs $1,000 per month forever, I would hands down pick the latter. Of course, I wouldn’t say no to $100,000 cash but this hypothetical scenario is good for someone to test their investor profile.
If you picked the $100,000 now option, there’s nothing wrong, it just means you are mostly likely primarily attracted by Capital gains which will gear you towards certain types of investment.
That being said, a good investor always strives to invest in assets that procure both positive cashflow and capital appreciation.
Let’s take a look into the various types of properties in the Singapore market context:
| Property Type | Residential | Commercial | Industrial |
| Capital Appreciation | Mid | ? | Low |
| Gross Rental Yield | 2%-3% | 5% | 5%+ |
| Cash Outlay | Low/Mid | High | Low/Mid |
| ABSD* | SC 1st, 2nd, 3rd+: 0%, 17%, 25% PR 1st, 2nd, 3rd+: 5%, 25%, 30% |
None | None |
| Scalability | Low | Low | High |
*Note that new cooling measures have been put into effect as of 16 Dec 2021 with higher Additional Buyer Stamp Duties on Residential multiple properties. Source: https://go.gov.sg/coolingmeasures
This table is an over simplification of the market as there are multiple factors to take into account and exceptions for each category but generally speaking, this is how I see the Singapore property landscape.
Residential properties include HDB, private condos, landed properties.
The pros in terms of investment is that in the right location and over a certain holding period, you can expect to get some mid to high capital appreciation overall. The fact that cash from CPF OA can be used as downpayment and stamp duty results in a relatively low cash outlay to fork in usually compared to commercial properties.
The downside is that Additional Buyer Stamp Duty applies from the 2nd property for Singapore Citizens and even from the 1st property for Permanent Residents which makes it very difficult to scale and own multiple residential properties in Singapore.
So investing in a residential property might make sense for those looking for capital appreciation on one property only.
Commercial properties in Retail or offices are directly affected by the health crisis and the Work From Home trend. As a result, vacancy rates are high, the future of this asset class is uncertain and the entry ticket is very high. So only mature investors typically invest in commercial properties.
This is why I decided to focus on Industrial property investing. There are 2 types of Industrial properties in Singapore: B1 (Business 1) and B2 (Business 2)
B1 is usually intended for light and clean industrial use while B2 sites may be used for heavy industries that have a greater environmental impact.
Industrial properties are substantially cheaper than commercial assets which can give a rental yield of 5%+ or more for dual keys or room rentals. The right industrial unit can produce great positive cashflow even though the capital appreciation potential is low as prices tend to remain flat over the years.
Here’s what my first industrial property deal look like:
- Unit Price: $700,000
- Rental: $4,000
- Mortgage: $2,300
- Maintenance fees: $200
- Property Tax: $250
- Positive Cashflow: $1,250
How I make money for my friends:
On this deal, I got an 80% Loan to Value (LTV) Bank loan from the bank, meaning that I had to put 20% down plus setup costs. This added to about $165,000. I brought friends in the deal to pay for this $165,000 one time investment and because the deal cash flows handsomely, I’m able to give my investor friends a share on that profit that I pay monthly.
How to Buy Property Using Other People’s Money
Buying Real Estate only takes 3 main steps:
- Find a great deal
- Get a bank loan
- Pay for the downpayment
I focus on (1) and (2) and I bring my friends in the deal to cover (3). My friends are happy to get a much higher return on their money vs leaving it on a Fixed Deposit or worse, a Savings Account. They get a steady cashflow (or monthly pay raise) without doing any of the work or managing the tenants, banks, lawyers etc… I manage it all to make it easy for partners.
My goal is to grow a portfolio of 20 properties in Singapore and bring close friends and family along with me.
If you’d like to be the first in the know when I close a new deal, send me an email.