Calculating Expected Rental Yield in 4 Straightforward Steps
When you buy a resale property, you know exactly what you are getting. You can walk through the home and touch it. The home has a track record of established values, rents, rental yields, and capital appreciation.
This isn’t the case with new launches. You can’t touch it because it hasn’t been completed. It has no track record because it hasn’t been occupied. As a result, you must forecast the new flat’s potential for capital appreciation and rental yield.
Forecasting capital appreciation and rental yield are two separate exercises. In this column, I will outline the steps for determining the expected rental yield for a new project.
Next week, I will outline the steps for forecasting potential capital appreciation for a unit from a new launch.
Singapore’s transparent marketing information and technology make it straight forward to analyze property.
Once you have identified the unit, you can forecast your rental income by compiling rental information from nearby, occupied apartment buildings.
For example, say you are interested in determining the expected rental yield for the Waterfront@Faber, which is located in District 5 and scheduled for occupancy in 2018.
The quickest way to do this is to use SRX Property’s advanced analytics application, SRX AnalyzerTM, to compare the rents of existing, nearby apartments.
For the Waterfront@Faber, we select the five closest condos with a significant number of rentals: Botannia, Carabelle, Monterey Park, The Infiniti, and Faber Crest.
We will take the average rent of all the leases in these apartments. We are not concerned if these buildings are older and less chic than our new launch. The most important determinant of rent is location.
In addition, we are conservative investors so we are happy to use conservative estimates of rent rather than guesstimate the rent that we could get for our modern unit several years from now.
The average rent psf in the neighbourhood is $3.21.
Next, we calculate our expected rental yield, which is the projected annual rental income divided by the purchase psf or ($3.21*12)/$1,233.
We can expect to earn a rental yield of 3.12%.
How does this rental yield compare with the national average?
Check out SRX Property’s Rental Yield heat maps on nearby pages in the Straits Times Classified section or visit SRX.com.sg/research.
Calculating the expected rental value for a new launch is that straightforward. However, we encourage you to conduct your analysis with assistance from experienced professionals before you make a final investment decision.
In order to find a qualified professional, go to SRX.com.sg/srx-agents and search by “SRX Info Designation” for agents who are experts in the use of SRX Analyzer.