I think we both agree that when u live inside the property the return not so good..

Now we try if we were to rent out the property if including rental income will it be much better as such .

can you advice the following assumption in getting the figure for IRR.

Present value of the property ? cost + stamp duty

Fv of the property ? Earnings – Agent Fee

PMT – rental per month assuming the following eg rental for 11 months minus interest expenses for 12 months minus property tax per month minus agent commission per month minus maintenance fee per month . * 0.82 to 0.84 (taxable income on rental income )

N = number of years.

I wanted to try to use the TVM to calculate the IRR.

I think the rental income of 10 months is very optimistic in your previous article as it does not cover the following.

1) interest expenses if one were to use leverage (we have to use the average of sibor + spread usually at 3-5% average during that period )

2) monthly maintenance fee

3) agent Fee usually a 2 year contract we will have to pay 1 month agent fee

4) vacancy rate usually we use 1 month per year

5) property tax per month on a rental property

6) lastly income taxable on your rental income.

depreciation excluded as we already have a future value which is the sales price.

There is also some consideration when buying a newly build unit.

When u buy the unit your cash flow is negative for the first 3 years plus incurred some interest expenses when the building start to construct.

So assuming u pay a down of say 25% on a building worth 750k today . ur initial outlay is 187500 + stamp duty 17100 (this is not ABSD rather just normal stamp duty )

u take delivery 3 years later your initial capital should be – 210912 + stamp duty = 230147.17

your PV should be 230147.17 assuming a 4% return of Special Account. instead of the starting figure of 187500

I wanted to use the hurdle of RFR to try to calculate the return ..

For discussion sake i will use 4% on the SA as one can shift their OA into SA to juice that extra return .

so if my capital is 204600 (include stamp duty not absd )

25 years later this amount will grow to 545k so this should be the RFR. The above have no gearing .

If i were to use leverage of 4X whats my additional gain.

i think a cap rate of below 4% does not make much sense reason being one can choose to contribute voluntary into SA every year using the cash flow to earn a 4% return + got a income tax rebate base on your income tax bracket assuming u are a high bracket of 18%. the total return is actual 4% *1.18 = 4.72% P.A on subsequent per month contribution.

]]>From your article, do you think that leasehold and freehold value seems to be about the same before 20 years old and thereafter difference start to widen in after 20 years on the condo?

]]>How are the figures like the net asset value and absolute gain/loss computed from the HDB info ?

Are there openly published rental historical growth figures for each estate ? Otherwise,selecting a rental growth rate also appears to be an art and this can affect the xirr computations as well.

Where are the Bala coefficients taken from ?

Is the spreadsheet something we can build ourselves and use it for future planning such as for selling of our flats ?

]]>If you buy it as an investment, perhaps we should treat it as an investment. i don’t think many would considered the second property they purchased as a home to live in.

I got probably the same figures as your free hold calculation so i am not disputing that. i think if someone gets a 5-7% a year over so long it is rather decent.

the return of your property is not just in the rent but in its appreciation.

]]>In the above comment, when you say ‘the sample size is damn small’ , are you referring to the relatively short length of the 10 year backtest he used or the size of the stock universe ,eg. SGX , ? What then would be a reasonable sample size?

]]>The parts on sequence of returns risk has been especially illuminating,especially when the headline returns of any strategy tends to lead one to think in terms of ‘constant returns per year’ over the investing horizon.

The contents in this article are gold and the projected returns are slapped with the necessary warning labels before readers go away with the wrong conclusions – it is responsible writing for the investing public and kudos to you for doing so!

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