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If You Have 2 Properties, Will U Sell Or Rent Out 1 Of Them?

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With the financial turmoil ongoing, perhaps better to sell than to lease it out.

1) If you bought your property at the peak, you are definitely going to lose money if you sell it now. However if you dont have holding power, then selling to cut loss will definitely be the only option for you.

2) If you bought your property >2 years ago, chance are, your rental income will be sufficient to finance your mortgage payment.

Then again, it also depend on what property we are talking about here.

 

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1) If you bought your property at the peak, you are definitely going to lose money if you sell it now. However if you dont have holding power, then selling to cut loss will definitely be the only option for you.

2) If you bought your property >2 years ago, chance are, your rental income will be sufficient to finance your mortgage payment.

Then again, it also depend on what property we are talking about here.

1) If the property is bought fully paid during the peak, there is totally no risk, just happily be a landlord.

be it low or high rental, still a happy landlord.

2) If bought >2 years ago & <5yrs ago, Hit n Run, sell it and run n watch for the next dip. Even under mortgage, there will be gains.

 

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How you manage your money, how thin you spread yourself are things that are personal hence that cannot be use as a case to rewrite the principle of maximizing returns for investment property.

E.g. A and B, both earning $100,000 per year bought the similar investment property at $1m each and A took a 90% loan while B took 50% loan, both over 25 years @ 3% per year.

Using the mortgage calculator, A’s annual interest mortgage payment for the first few years will be about $25,000, while B will be $14,000

Assuming the annual rental for the property is $60,000 per year, that will equate to an additional taxable income of (60K-25K) = 35K and (60K-14K) = $46K for A and B respectively.

As such because of the investment property, A will have to pay an addition, $5950 income tax per year, while B has to pay $7820 per year. (@14% tax rate)

In term of returns on capital outlay,

A invested $100,000 on the property and generate a return of $60K-5.95K-25K = $29.05K or 29.05% per year,

while B invested $500,000 on the same property generate a return of $60K-7.82K-14K= $38.18K or 7.63% per year

Hence from an investment point of view, it is clear that A is making his money work harder than B.

Correct me if I am wrong but if you factor in the monthly installments A is negative.

A $900k loan over 25 years, yearly installment is $36k.

A invested $100,000 on the property and generate a return of $60K-5.95K-25K-36k = -6.95k per year ie. negative returns.

B $500k loan over 25 years, yearly installment is $20k

B invested $500,000 on the same property generate a return of $60K-7.82K-14K-20k= 18.8k per year or about 3% returns.

B looks better off.

Edited by xebay11
 

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Correct me if I am wrong but if you factor in the monthly installments A is negative.

A $900k loan over 25 years, yearly installment is $36k.

A invested $100,000 on the property and generate a return of $60K-5.95K-25K-36k = -6.95k per year ie. negative returns.

B $500k loan over 25 years, yearly installment is $20k

B invested $500,000 on the same property generate a return of $60K-7.82K-14K-20k= 18.8k per year or about 3% returns.

B looks better off.

You have made a mistake by doing a double deduction. The $25K interest component is part of $36K yearly installment.

 

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You have made a mistake by doing a double deduction. The $25K interest component is part of $36K yearly installment.

OK thanks.

What should the actual figures be? I am confused.

Edited by xebay11
 

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If I'm the 100k pa earner, it only take me 10yrs and 5yrs to pay up that 1mil property. I will be able to save 15yrs and 20yrs of interest respectively.

I think my money will be smarter.!!

 

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If I'm the 100k pa earner, it only take me 10yrs and 5yrs to pay up that 1mil property. I will be able to save 15yrs and 20yrs of interest respectively.

I think my money will be smarter.!!

When comes to investment, its not about saving interests anymore; its about how to earn MORE profits to cover such interests. If the money used to pay off the loan can be invested into another property with higher yield than the interest saved, that is really smarter in investment sense.

Saving interest is not making the money work harder; its just savings lor. The definition of making money work harder means to get more yield than keeping it in the bank.

If credit risk and stability are in consideration, then like above said, its better to leave the money in a FD or savings account. H*ck, even banks also can close down, MAS only safeguard us up to $20K, so maybe now should really consider buying gold bars and hide under the bed.

Edited by zirhk3355
 

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When comes to investment, its not about saving interests anymore; its about how to earn MORE profits to cover such interests. If the money used to pay off the loan can be invested into another property with higher yield than the interest saved, that is really smarter in investment sense.

Saving interest is not making the money work harder; its just savings lor. The definition of making money work harder means to get more yield than keeping it in the bank.

If credit risk and stability are in consideration, then like above said, its better to leave the money in a FD or savings account. H*ck, even banks also can close down, MAS only safeguard us up to $20K, so maybe now should really consider buying gold bars and hide under the bed.

Modern pple has indulge in too much credit. The greed over that "immediate yield" makes them think they can roll even better, but gets nothing out in the end. They call themselves smart investors.

You just reminded how my grandpa started stocking up gold bars in his safe half a century ago. :good:

 

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Credit is a double-edged sword, no doubt. It gives a whole new definition to "living/investing within our means".

While I agree that seeking immediate/initial yield is detrimental to investment management, being too conservative about interests and risks will also lead one to nowhere. As much as you can see people going down on loans and credit, there are as many others who thrive because they are able to get loans and credit. Indeed, its all about the balance and foresight.

As for gold, I just read an article yesterday that reinforce this old-school investment. Precious metals had proven not to be significantly affected by the economy; you will never see gold price spiraling down as crazily as currencies or stocks. Its a solid investment simply because its a natural and limited commodity, not man-made paper value. Maybe its really time to consider it seriously.

 

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I am a landlord myself and I don't lead others to their grave even before the time they kick their bucket.

If head not so big, don't wear a big hat.

Ability to borrow is nothing to boast about. Ability to lend is something which I wannabe.

Play it well, the "could" will become reality. Not for beginners.

Economy heading for recession. Is it better to sell the 2nd property OR continue to lease it out? What's your opinion, GMC?

 

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If I'm the 100k pa earner, it only take me 10yrs and 5yrs to pay up that 1mil property. I will be able to save 15yrs and 20yrs of interest respectively.

I think my money will be smarter.!!

bad investment are usually made by people who make investment decision based on gut feelings rather than looking at the numbers, such as ROI and cashflow.

If saving on interest is a measurement of smart investment, then why didnt you consider accumulating $1m cash before buying the $1m property because in that way, you not only pay zero interest, but you get +% interest by putting your money your FD.

If you are 100K pa earner, care to share with us how you pay off $1m loan in 10 years?

 

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Modern pple has indulge in too much credit. The greed over that "immediate yield" makes them think they can roll even better, but gets nothing out in the end. They call themselves smart investors.

You just reminded how my grandpa started stocking up gold bars in his safe half a century ago. :good:

Our forefathers are all "modern" people during their times and greed doesnt only exist in recent years or recent generations, it existed since the beginning of mankind. And the big one which everybody remember, happens to be during our grandpa times, the great depression of the 1929, when people are borrowing money to speculate on stocks. Furthermore greed and overgearing is not a problem that is confined to only younger people but rather people of all ages and people who are ignorant about the risk of their investment and have poor financial planning.

When you invest in property (as oppose to speculating in property) you are always looking for medium to long term property appreciation rather than immediate gain because property is not a liquid asset like stocks where you can buy and selling with a click of a button.

 

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Our forefathers are all "modern" people during their times and greed doesnt only exist in recent years or recent generations, it existed since the beginning of mankind. And the big one which everybody remember, happens to be during our grandpa times, the great depression of the 1929, when people are borrowing money to speculate on stocks. Furthermore greed and overgearing is not a problem that is confined to only younger people but rather people of all ages and people who are ignorant about the risk of their investment and have poor financial planning.

When you invest in property (as oppose to speculating in property) you are always looking for medium to long term property appreciation rather than immediate gain because property is not a liquid asset like stocks where you can buy and selling with a click of a button.

The amount used to buy a property could be used to buy Reits too.

Reits may have potential to double or triple its value (present value) in the future compared to properties, which are still high.

So which is better, buy property or Reits? What's your opinion?

 

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The amount used to buy a property could be used to buy Reits too.

Reits may have potential to double or triple its value (present value) in the future compared to properties, which are still high.

So which is better, buy property or Reits? What's your opinion?

Reits is simply a "tool" use by property companies to avoid paying corporate taxes, hence its primary business is basically to manage the properties (not own) and distribute the profits generated from its properties.

As the saying goes, higher returns will mean high risk, hence when comparing the potential returns of reits you should also look at the risk involved too. The attractiveness of REITS is very dependent of the company's abiklity to generate profits from its properties because REITS is a dividend stocks.

If you look at the stock price of the REITS listed on Singapore exchange, I would say that ALL reits have lost more than 50% of the value since 2007. So suppose if you have chosen to sink your money in Reits instead of buying property, your investment would have been ->50% by now.

So which is better?

 

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Reits is simply a "tool" use by property companies to avoid paying corporate taxes, hence its primary business is basically to manage the properties (not own) and distribute the profits generated from its properties.

As the saying goes, higher returns will mean high risk, hence when comparing the potential returns of reits you should also look at the risk involved too. The attractiveness of REITS is very dependent of the company's abiklity to generate profits from its properties because REITS is a dividend stocks.

If you look at the stock price of the REITS listed on Singapore exchange, I would say that ALL reits have lost more than 50% of the value since 2007. So suppose if you have chosen to sink your money in Reits instead of buying property, your investment would have been ->50% by now.

So which is better?

If I buy the REITS now, it may also mean a 100% profits return when times are better.

For properties, which has not really dropped (Citigroup is predicting a 40% drop), it will not give a 100% returns, but may correct up to 40%, if Citigroup prediction is correct.

 

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