10 Things to look out for when renting out an apartment

[Temperament]

Actually there's a shortcut for quick back of the envelope calculations if you want to find out roughly your cashflow position when considering buying a "standard" property like a condominium for rent.

Looking at it in terms of yield will be faster and allows you to have a fast calculation no matter the price of the condo:

For eg, if you go into a showroom and look at a $1million 1,000 sqft suburb condominium and thinking of buying it, with a 80% LTV 1.6% interest. But you worried whether cashflow will be negative, on the spot take out calculator and do this:

1/12 x Purchase Price x Gross Yield x 80% - Monthly Instalment = Monthly Cashflow

In our above example will be 1/12 x $1,000,000 x 3.75% x 80% - $2,800 = -$300, i.e. negative cashflow.

Gross yield assumption of 3.75% should be relevant for most normal condos in Singapore while instalment can be worked out using any financial app on smartphone. I have assume 1.6% i/r over 30 years in this eg.

Formula also lets you on the spot calculate how sensitive the cashflow is to a sudden change in i/r, so you can plan out when deciding what sort of variable / fixed loan package you want.

The only thing to take note is shoe box units tend to have a higher gross of ~4.5%. But from what I heard vacany costs is usually much higher compared to normal units, so you might need to take a larger discount than the 20% I recommend when calculating net yields. How much I am not sure as I have no experience with shoe boxes.

Thanks!
i agree it's a very good practical guide for cash flow calculation for first time landlord who needs to take a loan from the bank. Even a layman with basic maths can understand. Thanks.
Shalom