If we are investing in properties for rental yield, hoping that the rental income will become a passive income. Housing and commercial properties are most sought after by investors. Housing units may not achieve better rental yield than shops.
| Description | Housing Properties | Commercial Shops |
| Tenant’s Background | In general, the unit is rent out to those who cannot afford to buy. (Mass market) | In general, the unit is rent to business owners to run their businesses. (Economic power) |
| Purpose of Rent | The tenant needs to rent for their own stay. It is considered an expense and consumes personal wealth | Tenant is creating wealth through the rental. In general, the revenue needs to be more than the rental expense. |
| Location of the property | Location is not that important if the tenant accepts it. | Location is very important, if business picks up and flourish, the tenant will not move easily. Renovation and moving elsewhere is a major cost consideration. |
| Probability of delay in paying rental | Delay is likely | Delay is a less likely and lesser headache to the owner |
| The probability to increase rental | Not easy to increase rental. The tenant can move to other places easily. | If business is good, it is easy to increase the rental. |
The majority (especially my mother’s generation) will make the mistake that as long as the rental income is much more than monthly housing expense or mortgage, it is considered as a good investment. My mother always thinks that after renting to the tenant after X amount of years where the tenant pays for your mortgage, the property will be fully paid and the unit will be yours. I see a flaw in this theory, there are property taxes, rental income tax, maintenance fees, repair cost, the number of months without a tenant will be considered loss of income. The above reasons justify the need for a minimum 5% rental yield in Singapore and a minimum 10% rental yield in Malaysia. If you cannot achieve a 5% rental yield, it is better to invest in REITs.
I will still invest in property for my own stay if the property is a cheap, good, and beautiful unit.
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