Planning to own investment property? Here are 10 costs that you need to add to your calculations
One of the common Singaporean dreams is to own a second property to rent out and earn rental income. This comes as a plan to achieve financial freedom early, or provide an income once one retires. What people don’t know is that there is a lot of financial muscle that it to be flexed in the process. Overstretching our finances can be a costly decision. Here are 10 things you need to consider if you plan to invest in a property.
Almost everyone needs a mortgage to buy an investment property. Regardless of what you will get in rent, you need to ensure that your numbers add up. Otherwise, you will have to dish out a substantial amount of money from your pocket to pay for the mortgage. Avoid edging yourself financially and put into consideration any risk such as a slide in the economy which put people in a bad position to repay their loans.
Property agent commission
This is not a hidden cost when purchasing a second property yet most investors tend to overlook it. Agent commission amount is less than 5% of monthly rent. Agents play a crucial role in managing the property, getting reasonable rental rates, ensuring prompt payment and help in sprucing up the place to rent it out quickly.
Majority of condos in Singapore require maintenance fee each month. This fee maintains facilities such as tennis courts, gardens, security, hygiene and cleanliness. Larger units pay more maintenance fee.
Property tax is charged by a government to landlords. Here are the figures: 10.7% on the first $45,000 of annual property value, an incremental percentage for $15,000 increase in property value of up to $90,000. Anything above $90,000 get 20% charge.
It’s mandatory to insure your property even if you do not live on it. Fire insurance is a primary type of insurance in Singapore. However, since you are not the one living on the property you have less to insure, thus lower premiums.
Income tax is another financial component investors overlook when purchasing an investment property. If your income inflates by more than $40,000, you will be pushed into higher income bracket. If you are at the other end of the spectrum, properly a retiree, anything more than $20,000 is considered taxable income.
If you leave your renting condo for two years, you will realize that it had deteriorated into poor condition. This means sprucing things up for the next tenant or reducing the rent. This is why monitoring the state of our property is essential.
An average man does not have control over the economy. If the economy gets affected, you may be subjected to financial stress with mortgages and another cost which remain constant despite low rental fees. There are also other private residential units coming up which might cause weakness in the rental market. This might get worse if the government continue to tighten foreign labor policies.
Other factors to consider are administrative expenses which come up to a small fee but is worth your time if you plan to invest in more than one property.