REC weekly #122: Is achieving both capital gains and rental yield still possible?

rec weekly 122 cover image

In continuation for the previous article “what en-bloc owners must know about the property market”, this is the final part of the en-bloc mini-series – “Prudent Strategies for Asset Growth”

In this final part, I will share 3 common strategies that en-bloc owners will likely be considering and provide my views in a series of 3 articles.

In the previous article REC weekly #121, case study 3B, a scenario of buying a right sized home and investing the rest of funds in liquid assets. In this article, I will be discussing about how investors can still get the desired Twin Engine Growth – both capital gains and rental yield.

Case Study 3C- Buy Right Size Home and invest part of funds in carefully selected Oversea Properties

Similar to Case Study 3B, the home buying decision process is the same. The difference here is to put some investment funds into carefully selected overseas properties.

Overseas properties have been in the lime light for numerous reasons. From investors making bad investments due to the developers going bankrupt, to investors being ill-informed about the property locations they buy. As a result, the Council of Estate Agents (CEA) came out with guidelines for property agents to follow, a move that will protect overseas property investors and ensure that property agents do due diligence.

Over the past 3 years, I am happy that many of my friends and clients including myself who bought carefully selected properties in Philippines have enjoyed 5-6% net rental yields. Investors have also enjoyed Return on Investment (ROI) of >30% (about 10% p.a), their Return on Equity (ROI) would be much more. Some have already exited their investments with real profits, and some have kept their properties to enjoy passive income. When proper due diligence and selection is done, investors can enjoy twin engine growth – Capital Gains and Income.

Here is a real example of how buying an overseas property in Philippines works. One of my clients bought 4 studio units (this type of units suited the local demand) which costs S$500k, net rental yield per month works out to be $2,400/-. The returns looks a lot like renting out a HDB flat, however the difference is you are buying a freehold property in a rapidly developing country with 100 million population, which have many middle class to support the market and will have even more over the next decade.

If you like to understand more about specific details about this market, I will be releasing a separate article which will discuss the entry, management and exit strategies. Stay tuned.

There are few ways to maximize your en-bloc proceeds, what I will suggest is to be conservative. An investor who wants to take more risks could purchase more oversea property assets, or keep less liquid cash which can be invested in more financial assets.

By doing this, you would now have

  1. Spacious home $600k
  2. $400k of liquid cash
  3. $500k of financial assets generating about $25k income /year (not including any CPF you may have set aside in your CPF retirement account)
  4. $500k of overseas property assets generating $28k income / year (not including any capital gain)

 

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