Tibits I learnt from "PEACE Investing"

So the 5th book, I'm reading to learn more about investing in Residential Properties in Singapore. You can find the previous post here


So off we go:

This book is more about renting than flipping it seems (which makes more sense and is less speculative to me).

Focus is on high yielding properties

• Properties must already TOP so you can rent immediately
• Make it easier to rent by pricing rents slightly below market
• Property must generate positive cashflow like a business
• Focus on acquiring cash cow properties

If rental income cannot service debt, try to borrow less until rental income can service debt. This provides safety during down cycles.

Author's calculation of ROE is Net Rental Income over Equity Invested.

For Equity portion:

• Deposit amount + Stamp Duty (include any renovation, furniture and repairs for conservative cost?)

For Costs

• Property Tax
• Mortgage Interest+installments
• Comissions
• Replacement/Repair costs
• Property Maintenance Fees

Target ROE for a property, looking for at least 10%.

To find undervalued properties, estimate replacement costs

• check URA website on land prices of the area
• estimate cost to be about 400$psf (my guess that it is about 30%?, not sure as I am not familiar with developers)
• Add both together to get replacement cost
• Generally, developers look to make at least 20% profit from sale price

If an older condo $psf is below replacement cost, it is most likely undervalued. However, cross check your estimation with ROE.

Keep appreciating properties but you may switch to properties with higher ROE. By buying undervalued and selling overvalued, this allows investor to acquire more properties. From there create enough cash cow properties to retire.

Manage property portfolio by

• Looking for properties that generate consistent rentals
• Selling underperforming properties
• Selling when property value is very expensive and rental returns don't make sense anymore

Properties to Avoid

• Properties that cannot produce decent cashflow and perhaps hard to sell
• Properties that are costly to maintain and hard to sell (due to the property being outside of affordability range of many buyers)
• Properties with very short leases left
• Properties that are remotely located with very few neighbours (suggest hard to rent, low rental demand and slower price appreciation)
• Mickey Mouse properties in a town full of families unless you are in a town with many singles

Do take note if property is near a developing MRT or mall, do hold it as a future catalyst for price appreciation (estimated of at least 20% upside).

Do realise that unrealised gains are illusions of wealth as it could be killed by oversupply.

Recommend only 20% of income to service home loan, this ensures you have funds to invest

Look for properties with at least 5% gross rental yield

•  Gearing from 50-70% depending on how much cashflow required

And that's all for this post.

Hope you enjoyed it.