Income Investing - Rental Property

What do you need to know about property investment? Renting out a property gives one monthly income. It is similar to investing in a REIT except that you own the property. What are some things that one should note when buying a property for rental income?

Though I do not have a rental property, I do own my own property which I live in. As such, I believe I roughly have an idea of how mortgage loans work and how much one can get from rental income by investing in a property. Note that I am not focused here on buying properties for "flipping" or investing for capital gains. I am basically touching upon property investment for rental income. Should the property gain in value over the years, that is an added bonus.

BUYING PROPERTY IN SINGAPORE

Most people know that land is scarce in Singapore. I believe it was Robert Kiyosaki who also once mentioned in his book about property investment in Singapore. Even international movie stars like Gong Li and Jet Li have also bought property in Singapore before. Jim Rogers moved to Singapore to be closer to China.

Okay, the Jim Rogers case is not really related to property investment but you can tell from the decisions these people make, living in Singapore is something desirable. Singapore also boasts one of the highest standard of living in the world. As such, property investment in Singapore makes sense for both the locals and foreigners.

In Singapore, locals are given special priviliges to own property while foreigners need to apply if they wish to purchase restricted property like vacant land, bungalows, terrace houses and semi-detached houses. For public housing, the minimum requirement is usually that of being a Singapore Permanent Resident. Other rules do apply to. Check the HDB website here for eligibility requirements

WORK OUT YOUR BUDGET AND SHOP FOR THE BEST LOAN

Property investment requires a huge budget. To purchase a rental property, you will need to be able to pay the initial downpayment, monthly mortgage loans and monthly maintenance expenses. Banks will only lend you money based on the amount you are earning. Thus, the mortgage loan that you get cannot exceed a certain percentage of your monthly income (or combined monthly income if you are married).

Different banks give different loan packages so do shop around though a mortgage consultancy firm first. These mortgage consultancy firms usually tie up with the various banks and thus have a clearer picture on the best rates available. Ask them to do a comparison for you. The rates that they offer are usually the same as those offered by the banks so there is no additional cost to you. It saves you a lot of time too so it is much better to get a mortgage consultant instead of doing the comparison yourself. Of course, if you already have an idea of what the best rate in town is, then you can skip the mortgage consultants.

The key to earning income from a rental property is to make sure that your RENTAL INCOME exceeds that of the MONTHLY EXPENSES (e.g. mortgage loans, property tax, etc)

RENTING OUT THE PROPERTY

Get an idea of what the rental rate for your area is. Hire a few property agents if you are lazy to do your own leg work. Surf the internet for info. Usually, you will see similar properties and will be able to gauge the rental income that you can get.

RISKS INVOLVED

There are many risks involved when it comes to purchasing a property.

Firstly, there is the risk that you might not be able to get a tenant for periods of time especially when the rental market is down. You might need to lower you rent to an unprofitable rate just to attract tenants. Therefore, I believe that it is important that you always have spare monthly cash to afford paying the monthly mortgage installments should that happen.

Secondly, there are times when the property value drops. How will that affect you?? There is a little known clause involving bank loans that the bank is only willing to lend you a certain percentage (e.g. 80%) of the property's value. For example, a property could cost $1 million and the bank's maximum loan to you could be $800,000. Should the property value drop to $500,000 someday, the bank reserves the right to ask you to top up the difference between the maximum it can lend you and what you have already borrowed. In this case, it will be a whopping $400,000!! Of course, this scenario might or might not happen so it is something that you ought to consider when looking to buy a property.

READ THE ENTIRE SERIES:
1. Income Investing #1 - High Dividend Yield Stocks
2. Income Investing #2 - REITs
3. Income Investing #3 - Canroys
4. Income Investing #4 - Rental Property
5. Income Investing #5 - Bonds

Another Day at Starbucks

It is another day at Starbucks for me.

People are studying all around me. Some people are sipping coffee. Some are surfing the internet. The guy sitting next to me is busily monitoring the stock market. The Starbucks staff are busily chatting away as they serve customers the coffee. The aroma of the coffee and the jazz music that is playing at the background helps to soothe my nerves and gives me comfort.

I see people getting off the bus stop and from where I am sitting, I can also see people waiting for the train.

The weather is really hot and I am enjoying the aircon. The caffe latte (whatever remains of it) sits on the table in front of me.

I have been reading this blog by a Malaysian full time blogger and have found some useful tips for my own blogging. You can read his blog here.

Record Earnings from Adsense ($4.85 in A Single Day)

On a happy note, I earned like a record $4.85 from Google's Adsense while I was sleeping last night. Apparently, my articles on Canroys ranked pretty high up Google's search pages. Not too sure how I did it but when I checked again just now, the rankings have gone all the way down.

Imagine the power of the residual income I will be able to earn if Adsense gives me $485 per day instead of $4.85 per day. I will be laughing my way to the bank! Hahahahah

Sold off Hongguo for a profit of over $3000

On the investment front, I sold off one of my small cap stocks (Hongguo) last week before the long weekend. Managed to earn over $3000 from an initial investment of $5000. Quite pleased with my results and am looking to enter into it again should the price drop once more.

I have also been looking closely at the performance of my REITs and wondering whether I should cash out of Suntec REIT which I have entered into at $1.02. The current price is now at $1.12 so it is a profit of $1000.

Financial Standing

How do I compare to the rest of Singapore? I think I should be at least above average in my savings and investment =)

I have $13K in my CPF OA, $14K in my CPF SA and $20K in my CPF MA.
Me and my wife have $100K+ in liquid cash sitting in the bank
I have $80K+ in stocks.
I have $50K in cash value in my insurance policies (Whole Life and Invesment linked plans)
Me and my wife have a flat that is valued at $550,000 when I last checked the HDB website resale price.

I believe that I have an abundance which some people do not have.

Yet, I am pretty sure that there are people out there who are like a hundred times richer than me.

Time to work harder!!!!

Income Investing - Canadian Royalty Trusts

This is part 3 of a 5 part mini-series on my thoughts about Income Investing. Today, we will focus on investing in Canadian Royalty Trust and how you can benefit from such an investment.

Canadian Royalty Trusts (Canroys)

Canadian Royalty Trusts very often tend to be related to energy. They are usually involved in oil and gas mining with the occasional coal mining. Some of the newer trusts actually focus on synthetic oil and coal. Because of they pay out majority of their cash flow as dividends (distribution), they enjoy a special tax exempt status compared to corporations. Many of these trusts actually do pay out a monthly dividend similar to REITs.

Canadian Royalty Trusts are able to grow their amount of reserves and do so primarily through the acquisition of other companies. A Canadian Royalty Trust basically controls an operating company which operates and runs the oil and gas fields.

Canadian Royalty Trusts run the risk of depleting their existing gas and oil reserves. This could result in their distributions being reduced over the years. It is therefore important to take into consideration the reserve life of gas and oil fields.

Another risk of Canadian Royalty Trusts is the expected tax change in 2011 that will remove their tax exempt status. This is because the ruling party in Canada believes that such royalty trusts are actually causing them lost revenue in the region of hundreds of millions of dollars. The announcement of the proposed tax changes caused a huge drop in the prices of many of these trusts. The so called "Halloween Massacre" came about just when some corporations announced their intention to covert into trusts structures. Any hope of this tax being removed is if the Liberal party comes into power.

Many Canadian Royalty Trusts are also exploring the option of coverting back into corporations with the removal of this special tax exempt status. With a 4 year grace period till the 2011 dateline, a coversion to a corporate structure will allow these trusts to reduce distributions and re-invest money for expansion. Other options also exist which include transforming into Master Limited Partnerships - which will enjoy tax advantages in the U.S.

Canadian Royalty Trusts are traded publicly on both the U.S. Stock Exchange as well as the Toronto Stock Exchange. To invest in these trusts, you need to have access through a brokerage firm to either the US stock market or the Canadian stock market.

Investors invest in Canadian Royalty Trusts primarily for their high dividend yields. With the proposed tax changes, the future of canadian royalty trusts are a bit more uncertain and 2010 could prove a volatile period with all the expected changes.

The writer owns Canadian Royalty Trusts in his portfolio. He likes the monthly dividends he receives but is uncertain about the viability and certainity of Canroys in the future.

READ ENTIRE SERIES:
1.Investing in High Dividend Yield Stocks
2. Investing in REITs
3. Investing in Canroys
4. Investing in Rental Property
5. Investing in Bonds

SEE RELATED POSTS:
Read : The 25% Cash Machine
Read: Dividends I have Received Thus Far

MOST POPULAR POSTS:
The Road to Financial Freedom (10 part series)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint
#10 - Congrats! You have Achieved it!

Income Investing - Real Estate Investment Trusts (REITs)

This is part 2 of 5 on a mini-series based on some of my thoughts about Income Investing.

Read Previous Posting here: Income Investing - High Dividend Yield Stocks

High Dividend Yield stocks are a good way to do income investing as they give out dividends monthly,quarterly or annually. Another good way to do income investing is to invest in Real Estate Investment Trusts or REITs as they are commonly called.

What are REITs?

Real Estate Investment Trusts or REITs are basically like a common stock traded on the stock market just like any other stock. The only difference is that they invest primarily in property and are given tax breaks for paying out a certain amount of their profits as distribution. REITs earn money through the rental income they derive from the properties they own. Investors like REITs for their high dividends (sometimes much higher than those of normal stocks) as well as their defensive nature in a volatile economic climate.

Things to note about investing in REITs

REITs need to secure funding every now and then be it for acquisition projects or simply to refinance their existing loans. In 2008 when the credit crisis was pretty severe, concerns about these REITs getting funding caused many REITs counter to drop in value. Some REITs also had to issue rights so as to raise funding to improve their overall gearing.

When I buy REITs, the things I look out for include the following:

1. Yield - This is similar to the dividend yield that we talked about in the earlier postings. For REITs, I would prefer to have a yield of greater than 5% with the REIT increasing its distributions every year.

2. Net Asset Value - This is the value of all the assets held by the trust. If the price is trading at a discount to the Net Asset Value (NAV), it presents a good buying opportunity.

3. Net Gearing - This determines how leveraged the trust is and how much debt it is taking on. While it might be good to have a low net gearing, having too low a net gearing could mean that the trust is not making enough use of leverage.

4. Parent Company - Some REITs are tied to certain parent companies. These REITs will usually be able to secure funding even during bad times and thus often trade at a lower yield compared to REITs who do not have a strong parent company.

5. Other Risks - Some REITs might be too focused on a certain country (e.g. Japan or Indonesia). Other REITs might be too focused on a certain sector (e.g. office rental space). Should there be a downturn in these countries or sectors, the distributions by the REITs could be affected. Currency risk is also another factor to consider when purchasing REITs. If the REITs receives its rental income in another currency, the depreciation of that currency could affect its distribution.

I currently own a few REITs in my own portfolio. The REITs include First REIT, Suntec REIT and Ascott REIT. I have also been monitoring Realty Income which is listed in the NYSE.


SEE RELATED POSTS:
Read : The 25% Cash Machine
Read: Dividends I have Received Thus Far

MOST POPULAR POSTS:
The Road to Financial Freedom (10 part series)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint
#10 - Congrats! You have Achieved it!

Income Investing - High Dividend Yield Stocks

I am starting another mini 5 part series. This time, the topic will be on income investing and the various instruments that an investor can invest in to obtain an income.

Posting #1 - Investing in High Dividend Yield Stocks


Some people call this high yield investing. Investing in high dividend yield stocks basically means buying stocks of companies or corporations that have the habit of paying out dividends (a.k.a cash) every month or year. After reading this article, you should be able to know how to compute dividend yield for a certain stock, understand what high dividend yield means and also have an idea of some of the high dividend yield stocks that are available in the market including how to search for them.

Calculating a Stock's Dividend Yield

It is really simple to calculate a stock's dividend yield. The method I use is simply to take the amount of dividends given out each year divided by the price of the stock and multipy by 100. For example:

If price of ABC stock is $10.00 and the dividends for that year is $1.00 , the dividend yield works out to ($1.00 / $10.00) * 100 = 0.10 * 100 = 10%

The dividend yield of the stock works out to be 10% per annum. The reason this number is important is because it gives you a basis to compare the yield with other similar stocks. Thing to note is that comparing dividend yield between 2 stocks might not be a good basis alone as the higher yielding stock might have a lower price due to certain factors that have occured after the last dividends that it paid out. This accounts for its seemingly higher yield.

Another good reason for having the yield is that it gives you a rough gauge of how much dividends you can expect to get each year based on your invested capital. IF the dividend yield of the stock is 10% and you have invested $10000, you can expect to receive $1000 per year in dividends.

What is considered a high dividend yield stock?

I would like to think that a high dividend yield stock is basically one that has a relatively higher yield compared to peers in a similar industry. Most people however compared dividend yields across different stocks in different industries and buy the stocks with the highest dividend yield. For me, a high yield will be one that gives me a better return than the bank's fixed deposit.

Looking for High Dividend Yield Stocks?

If you are looking for high dividend yield stocks, you can check out S&P's Dividend Aristocrats List which provides a filter on various dividend yielding stocks. Another simple way is to simple search using Google. Just key in the words High Dividend Yield Stocks and you will get lots of suggestions from various websites and blogs.

READ THE ENTIRE SERIES:
1. Investing in High Dividend Yield Stocks
2. Investing in REITs
3. Investing in Canroys
4. Investing in Rental Property
5. Investing in Bonds

SEE RELATED POSTS:
Read : The 25% Cash Machine
Read: Dividends I have Received Thus Far

Buying a Car : The Hidden Costs

Buying a car is like cutting a hole in your wallet. The upfront downpayment for the car and the cost of monthly maintenance is seriously high.

Let's not talk about the monthly installments that one has to pay for the car loan. Let's just explore the cost of maintenance alone:

Road Tax ($700 to $1000)
Road tax that you pay depends on the type of car you are driving. In Singapore, expect to pay around $700 per year for a 1.6L car.
Carparking ($2400 - estimated $200 per month)

At the cheapest, car parking will cost you easily $200 per month. This includes parking for both work and home. If you work in town and drive there, the costs will be much more.

Motor Insurance ($500 to $1600)

This depends on a whole host of factors such as the age of driver, model of car and whether you have been involved in an accident before. One should expect to pay in the region of $800 to $1200 if you have never been involved in an accident. (See how you can save money on insurance)
Petrol ($3600 - estimated $300 per month)
This depends on how much you drive per week. But you can roughly expect to be filling up at the station every week. Depending on the grade of petrol that you pump, you can expect to pay $70 to $100 for a full tank.

Car Washing ($100)

Let's say you only wash your car like once a month, it will still cost you easily $100 per year.

Maintenace ($500)

Changing tyres, aircon filters, etc , etc.. Everything seems to need replacing after a few years. Expect to be paying up to $200 to $300 for each servicing trip you make.


THE HIDDEN COSTS

Adding up all these hidden costs, you will see that owning a car involves paying up to $8000 per year. This does not include your monthly installment payments and also other charges like ERP. That is close to 2 months salary for most people!!!

Good luck if you intend to buy a car anytime soon.

Online Income From Adsense

The Beginning

My journey into the world of Adsense began when I started this blog. I wanted to explore ways of earning income online. That was about a year ago and I would not say that I am earning as much as some professional bloggers are. The amount that I am earning in Adsense income however has slowly and steadily increased over the year.

For a start, look at my first update on my adsense earnings here
I was earning less than $1 per month then but it was slowly increasing!

The Journey

I started to explore other methods of increasing my online income but so far, I have narrowed it down to Google's Adsense. Though I know the existence of other affiliate programs, my decision was to concentrate on increasing my income from Google's Adsense. I read up quite a fair bit and am glad to say that I can earn an average of $10 to $20 per month now based on Google's Adsense alone.

Just for the month of August 2009, I earned $14.75 while the earnings from Sep 2009 are likely to be slightly higher. The reason why I blog is mostly to sort out my thoughts but earning a passive income on the sideline does provide some added motivation. To konw that each and every post I make has the potential to earn me money in the future keeps me going and makes me disciplined in my postings.

The Goal

I started out with a simple goal of increasing my adsense earnings to $1 per day. Until today, I have not been able to achieve it. But I will keep on trying. Of course, my dream job will be to just stay at home and blog =)

Who knows? Perhaps that could be a possibility in the future!