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.