Cory Diary : Rental Income - Why I have to invest in property

Scenario of Rental Income

Property Price : $1,140,000

Monthly Rental : $3300

Yield at Cost : 3.47 %

Annual Net Income

After considering below

1. Condo maintenance cost : 400 monthly

2. Rental Agent fee = 0.5 month annual.

Monthly Net income  : $3300 - 400 - (0.5 month / 12) = $2763

However, usually people borrow quite an amount to finance the purchase. So there is leverage in play. And this is where Math becomes complex.

3.. How much you leverage

4. Stamp Duty & Fees : 2.72% one time

5. Interest Cost.

 

Let's assume item 4 in build into the condo valuation. Basically ignore.

Leverage resulting I need to pay $606 of interests portion monthly

Monthly Net income  : $3300 - 400 - (0.5 month / 12) - 606= $2157

Implied, Annual Net Income = $25, 884

YIELD

Now, let's talk about Yield. Yield at Cost based on net income : 2.3 %.  This Math sucks right ?

One thing to note. Property valuation can change with time. If property valuation increase 35% after 10 Years. The capital returns are  then plough  back into the monthly income in simplify manner.

Yield at today valuation approximately 4%. Basically doubled. And that's before property tax, tenant issues, empty months, .... alamak. Still no good enough.

However let's assume 33.3% of the property is my money injected. The rest are borrowed.

At current valuation yield will be 6.9%, or 12% if price increase by 30% 10 years later.

This are all rough estimation. Should I just stick with Reits or it can be another form of diversification that we cannot afford to miss as I like the Maths now.

Rental Income Tax (updated from feedback)

Depending on one tax status. Can varies widely between a retired and a director level salary income tax.

Please DYODD.

Cory

2020-1115

Cory Diary : The Interesting and the Exception - CPF Read

For the past couple of days I have been reading up on how to optimize my CPF. With multiple queries to CPF. Their service is top mark so if you have any question, they are the key folks to go to. Do note following is what i understand and could be wrong so please DYODD.

My notes.

1. CPF Transfer to loved ones

There is no Tax Incentives. Both Givers and Receivers need to meet certain condition for this to happen. From OA to either SA or RA depending on receivers age. The Givers also need to have certain amount of CPF before this is allowed.  One thing that caught my surprise is that they have a rule where if your love ones passed away, the unused portion of the CPF given by you will be returned back to your CPF. I thought this is interesting. (link)

2. Income Threshold for Spouse/Siblings

What is interesting is that "To claim tax relief for cash top-ups for your spouse or siblings, the spouse or siblings must not have an annual income exceeding $4,000 in the year preceding the year of top-up."

"Annual income includes taxable income (e.g. trade, employment and rental), tax exempt income (e.g. bank interest, dividends and pension) and foreign-sourced income regardless of whether it has been remitted to Singapore. This income threshold does not apply to parents, grandparents, handicapped* spouse or handicapped* siblings.

*Incapacitated because of physical or mental infirmity."

3. Tax Benefits can go up to 14K

"Cash top-ups can be made to any recipient. You can enjoy tax relief of up to $7,000 per calendar year if you are topping up for yourself and additional tax relief of up to $7,000 per calendar year if you are topping up for your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings."

4. MediSave BHS (The Basic Healthcare Sum )

For CPF members aged below 65 in 2020 . The prevailing BHS is $60,000, and will be adjusted yearly. At current times, the interest rate at 4% will not be able to cover the annual increase even at max $60, 000 amount in MediSave. So if you are banking on overflow to other accounts by itself may need to take note that your cash flow will not happen currently.

5. OA and SA as Saving Accounts

There is limit on the amount allowed in SA account. Currently $181k. Basically cleared off when moves to RA. There is multiple articles on SA shielding such that the FRS is  fulfilled using OA monies so something you need to search about. For now before age 55, the interests from OA and SA are quite attractive than putting them in banks assuming you will meet the FRS amount regardless.

So why as form of Saving ? Because we are allowed to withdraw the monies as long FRS is met as we needed.

6. Basic Plan ( correction 14th Nov 20 )

If we intend to leave a sizeable amount of monies in our RA to our loved ones after we passed away, Basic plan (updated) will provide quite an amount left depending on when we get called, for an acceptable cut in our monthly withdrawal from 65. Check my earlier article on this. ( link )

7. Nomination

Can be done online. As I understand every time you get married, the earlier nomination gets invalidated. That's how I interpret ! What if I remarried ? hmm hmmm ... so better to do nomination again ?

Additional note. If marriage is not registered in Singapore ROM or ROMM, need to notify CPF. ( link ).

8. CPF Housing Refund

Can be done online. There is a limit of 5K each day using PayNow. Check my earlier article.

9. Discounted Singtel (ST) shares

Don't have to sell our shares.

"You may only apply to transfer your discounted Singtel (ST) shares to your own Central Depository account after you have reached 55 years old and have set aside the Full Retirement Sum (FRS) in the Retirement Account. The FRS can be set aside fully with cash, or with cash (i.e. at least the Basic Retirement Sum) and property"

10. Silver Support Scheme

Often we hear about old people clearing table but not much is mentioned how much help was given from Silver Support Scheme. I thought this is interesting and that our gov is not as heartless as we think it is. Singaporean only. ( Link ) . What is good about this scheme is you do not need to apply ! 

I think there will be more interesting find in CPF website. Strongly suggest people visit them.

Cory

2020-1114

Cory Diary : Asset Allocation Updates - 2020-1110

What I see ...

With the American elections kind of over, the Win by Biden is not clean unfortunately. There could be rounds of litigations. So this may linger longer than expected. Will there be blackswan ? 

At the same time, appears the world is emerging out from Covid-19 as Vaccines started making large progress. Interestingly, each major countries have their own "Sputnik" to show off. Maybe time to get off the rubbery stocks if one is invested. I don't have such issue. ha ha. .. .. ...

Across the causeway, things aren't getting better. While locally here, the progress on green lanes is on the way. Hopefully, our neighbor do not add more complexity to the situation as the island is getting back to the New Normal. This will help the Reits and basic social services. Will banks suffer the same fate as Telco when introduced with uneven competition ?

As I grow out of 50th, retirement financials will be key as I have two toddlers to care for. Some people may feel why that late. Frankly I feel timing has not been better. We come to this world to experience life and given the opportunity and affordability, I would try. I do not want to miss something and wasted the chance in this life when we can. 

There will be now more focus on getting CPF sized right with the right characteristic suitable for the family. At the same time maintaining the right balance on equity front to generate enough dividends and hopefully growth in risk mitigated manner. I still have housing loan to pay up so cashflow from rent will be something to watch. This is in addition to making sure our parents are cared for. Quite a delicate balance.

Lastly, do I look forward for grandkids ?  No lah.  Think I have what is needed to experience life full circle already. Maybe just to make sure the girls are given the best chance to succeed. Since young, I have always been self aware of my limited ability so already feel blessed in achieving something I never dream of today.

Finally, never takes thing for granted. Treasure what I have. Don't make the mistake that the Grass is always greener on the other side. 

Cory

2020-1110