Buying a property to let
Becoming a landlord is an exciting opportunity. Few people has the chance to do profitably. The key to a successful investment is to carefully plan out your finances and select the right property.
Plan your budget
Ideally the tenants’ rent will cover your mortgage payments as well as some overheads. Make sure you have researched the rental market in your area so that you can set a realistic rentals. If your price is too high, you risk not being able to rent out your property. Too low, you will not be able to cover your monthly mortgage payments and other overheads. In Singapore, you can check the rentals at www.ura.gov.sg and www.hdb.gov.sg
Remember, you should do your finances before committing to a property.
Upfront costs to consider
- Downpayment for the property, stamp duty, legal fees, GST
- Incorporation cost – are you using a company to invest or co-share the investment?
- CPF withdrawals limit
- Cost of minor repairs required before tenants move in (eg painting works, plumbings, etc)
- Furnishing costs – do you want to let your property out with furniture?
- Agents – are you using an agent to help you?
Ongoing costs to consider
- Utilities, facilities fees, house keeping fees – is this co-share or tenants pay in full?
- Maintenance and repair of the property
- Void periods – what happens if the property doesn’t have a tenant? Are you able to cover the monthly mortgage payments?
- Arrears – what happens if your tenant is late in payments?
Costs to exit
- Seller stamp duty, costs of terminating your mortgage, legal fees
- Outstanding mortgage, CPF accrued interest – do you have a profit after paying out the outstanding mortgage?
- Cost of terminating your tenant’s contract
- Agent’s commission
Selecting the right property and tenants
Once you are ready to commit to an investment property, you should start and plan how find the property.
Choosing a property
Since this is going to be an investment property, rental incomes are the most important factor to consider. As such, you should study the area and buy in a location that you know will be attractive to your prospective tenants.
You should consider
- Good transportation to the city/town
- Walking distance to and from public transport
- Walking distance to nearby amenities like shopping malls, clinics and food centres.
- Close to Universities if you are looking for students/ faculties rentals
- Close to good schools, international schools if you are looking for family rentals
- If you plan to furnish your property before letting, you should consider the styles and quality of the furnishings and how it will suit your prospective tenants.
Renting out your existing property
If you have plans to rent out your existing property, its important to check with the authorities. For example, if you want to rent out your HDB flat, you will need to check with HDB. For private condos and apts, you may need to check with URA and your condo management office.
Choosing your tenants
Finding good tenants is not an easy task.
Setting your rentals
Make sure you have researched the rental market in your area so that you can set a realistic rentals. If your price is too high, you risk not being able to rent out your property. Too low, you will not be able to cover your monthly mortgage payments and other overheads. In Singapore, you can check the rentals at www.ura.gov.sg and www.hdb.gov.sg
Its important to check your tenants’ documents and get professional references before offering the agreement. You should be comfortable with your new tenants. You may consider getting a lawyer to do a search on your tenants or DIY a credit check at Credit Bureau Singapore to make sure they will be able to make their rental payments on time.
Being a good landlord
Once you are officially a landlord, its your responsibility to make sure that the property is well maintained and keep your tenants happy.
- You should not enter the property when the tenants are not around or without their permission
- You should give them a list of relevant emergency phone numbers and your contact details
- You should respond to any problems that are in your interest swiftly, eg a broken aircon unit
- You should keep your tenants updated on news considering the property, eg you have plans to increase the rentals or sell the property. Its always good to start the negotiation early.
- Always maintain good relations with your tenants and visit them occasionally to ensure that both you and tenants have each other interests at heart