To sell or rent – a question we’ve heard numerous times in the past 6 months. The answer is not as straight forward as it seems. Owning rental properties can be a lucrative long-term investment and provide a steady source of monthly income to supplement our lifestyle. That said, many areas across the country are experiencing a strong sellers’ market, leaving owners wondering if they should cash in while they can
Recent dilemma that landlord’s are faced with – is this the right time to sell my property or should I continue renting out my property since rental rates are at an all time high, yet I am also faced with imminent increase of fast rising interest rates.
As investors ourselves, we always focus on 1 thing,
What is the main objective of this property?
and what is the horizon we envision in terms of the duration we want to hold onto an investment property. Is it a form of legacy planning to past down to our children or are we looking to generate the highest profit in the shortest time for the maximum Return On Investment? Once you have a firm objective laid out the decision comes easier.
An example if you are an investor looking to maximize your gains here’s what you should be taking note of – I will be using Caribbean at Keppel Bay an 18 year old Resale condo with 969 units, located in District 4 harbourfront area, for illustration.
Example 1: Caribbean at Keppel Bay
The average rental transactions in Year 2020 for the 3 bedroom size 12++sqft were at an average of $5200 per month, but in today’s market Year 2022 the average rental is as high as $6500, Which is an increase of 1.3k. By locking in a 2 years lease now, we would be getting an additional $31,200 in rental income. Here’s a look at the rental movement for Caribbean since 2020 till date and we can see it has risen almost 30%.
Now, how about the sales transaction price movement for the 3 bedrooms in Caribbean at Keppel? In year 2020, we can see the 3 bedder 12++sqft was previously sold in the range of $1.8mil+ . Fast forward to today year 2022, the latest transactions for the similar unit type are at an average quantum of $2.2+mil. That marks a price increase of almost $500,000!
If you are investor looking to maximize your profit your key consideration would be the opportunity cost – “should you be selling your unit in the current peak market or should you hold onto your property just to enjoy an additional $31,000 in rental for the next 2years”
Looking at the price movement of 3 bedder categories in Caribbean at Keppel Bay from Year 2011 The psf has increased from avg 1500psf to 1800psf in 2022. Looking at this price trend it has taken a total of 11 years for Caribbean to reach new highs. By taking the opportunity to cash out at this point, it will ensure you are taking back your profits at the optimum peak.
Example 2: Amaryllis Ville
Here’s another development Amaryllis ville, an 18 years old condo located at District 11 near newton MRT with 311 units. In the same timeframe, rental in 2020 for the 2 bedrooms were being transacted at an average of $3700 per month. In the year 2022, they are going for an avg of $4500 per month.
2 bedder Prices at Amarallyis ville rose from an avg of $1.5m in 2020 to $1.8+m in 2022. Similar scenario whereby we see both the rental rates and value of the property increasing too.
By comparing the respective increases of both rental and sale prices of what our property can command when we sell it off, it will help us make an informed decision on whether we should sell our property now or continue to rent it out.
There are also other factors to determine such as the tenure of the property and unit size you are holding onto. If the property is of freehold tenure we can take advantage and continue renting during this undersupply period for the highest yield without having to worry about the age of the property and the lease dwindling down.
Example, if you own a freehold property that is fully paid, it might make sense to enjoy the high rental rates you can command now for your property. On the flip side if you currently have a mortgage for your property, with the current high interest rates, you can breakdown your net rental returns to determine whether your should continue renting or take advantage of the peak market to sell.
Using the above Amaryllis Ville as a quick guide on your breakdown
- Assume your purchase price at 1.5m
- With a mortgage loan of 75% of your purchase price at 1.125m
- And current interest rates at 2.5%, your interest cost monthly is at an avg of $2250
- Factoring in your property tax and maintenance cost at $750 monthly
By renting out at the high of $4500, your net rental returns per month would be $4500 – $2250 (your interest cost) – $750 (your property tax and maintenance) = $1500
That’s a total nett rental return of $18,000 per year.
By comparing the rental return of $18,000 against the capital increase of an average of about $150,000 per year for Amaryllis ville, we can see by selling, it will give us much better returns.
In Conclusion
Ultimately depending on your investment objectives and horizon and also the types of property you hold, its nevertheless a good time to look at the health of your property portfolio to see if you need or should restructure it to allow it to give you optimal returns.
If you need an in-depth property assessment, speak to us today!