Rental Income

JC Project Freedom Rental Income
Image by Jörg Hertle from Pixabay

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.

DescriptionHousing PropertiesCommercial Shops
Tenant’s BackgroundIn 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 RentThe tenant needs to rent for their own stay. It is considered an expense and consumes personal wealthTenant is creating wealth through the rental. In general, the revenue needs to be more than the rental expense.
Location of the propertyLocation 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 rentalNot 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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