This is an Author’s Cut from [大] Post that explains about property valuation methods. There are many assessment methods but for us, we believe in valuation derived from rental yield.
Background
When purchasing a flat, we should determine it’s value so we don’t overpay for it. (And never ask property agent if the price is right lol). To make life simpler, remember this Model Number before we purchase a new flat (99 year lease),
15
If the new property is priced lower than 15 years of rental, you will be better off buying it than renting an apartment. This number is a very conservative estimation and being conservative is our advantage as a Singaporean ^^ Proud of being Kiasu & Cheapskate ^^
Example
For example, you want to buy a flat in Kallang cause it’s near to city. First determine the rental rate. Let’s say $2.5k/mth for 3rm flat.
15 years of rental = $2.5k x 12 x 15 = $400k.
According to Model 15, we would be better off buying a flat instead of renting if the flat is selling for $400k or less.
Justification
How did we come out with this number 15? Go back to [大] Post, read up about Rental Income Approach. Put these variables below in and you should reach this number +-15 years.
如果不要失误，
就请相信十五。
(Make No Mistake, Believe in Number 15)
Cheers!
M.M.
[g] Rental Growth
0%
Cause we are Conservative
[R] Net Operating Rental Income
Depends on Location. But doesn’t matter anyway if you know what i meant.
[e]: Discount Rate or Expected Return
5%
Anything less than 5%, it’s better to invest elsewhere
[t]: Time Interval of Rental Adjustment
1 yr
Usually Rental are adjusted every 2 – 3 yrs. But… haha
[n]: Number of Lease remaining
99 yrs
Singapore properties are usually 99 yrs lease.
Majulah Millennials 