Stocks and unit trusts are for liquidity. Generating 5% of dividends, 20% of capital gains is well and good for financial instruments.
I realise also that investments should be run like a business. My net profit margin for real estate is currently around 20%. I should improve it to around 35%. That means my EBITDA to Interest Expense should be above 1.5x. I should lower my gearing or go for high cashflow properties that yield above 15% in future. Eventually I should get there.
After holding on to my properties for above 7 years, it is also time to harvest or sell those that are well in profit or have not much upside left.
I don't intend to increase my exposure to Singapore properties. Below is a list that I draw up. It is very much like the PE to Growth Ratio by Peter Lynch, the legendary stock investor. Cap rate + projected rent increase - borrowing cost gives me the "differential". The bigger the differential, the more underpriced a city is.
Singapore is in the "SELL" zone. This means that I should either lighten up my exposure or sell before I buy. Singapore is let down by negative rent increases due to oversupply, and a very low Net Operating Income or Cap Rate.
Cities like London is still a "HOLD" as chronic shortage cause rents to continue to rise. Yields may be low, but the speed of the rent rise makes up for it. Australian cities like Melbourne and Brisbane are "SELLs", hampered by very high borrowing costs and low rent rises (due to elastic supply).
The cities I would focus on are Birmingham, Manchester, Dublin and Belfast. The most interesting city is Dublin, which is set to draw investments out of London due to the Brexit. It has a low tax rate vs the EU, and its economic growth is a phenomena 7 - 10% per year, faster than Singapore's.
| City | Rent increase | Cap rate | Borrowing cost | Differential | Decision | Rank | |
| Singapore | -2.50% | 2.50% | 1.80% | -1.800% | SELL | 13 | |
| London | 4.00% | 3.00% | 3.50% | 3.500% | HOLD | 5 | |
| Birmingham | 3.00% | 5.50% | 3.50% | 5.000% | BUY | 3 | |
| Manchester | 2.50% | 6.00% | 3.50% | 5.000% | BUY | 3 | |
| Hong Kong | 5.50% | 0.75% | 3.50% | 2.750% | HOLD | 9 | |
| Melbourne | 2.00% | 3.00% | 4.25% | 0.750% | SELL | 11 | |
| Brisbane | 1.00% | 4.00% | 4.25% | 0.750% | SELL | 11 | |
| Auckland | 5.00% | 2.90% | 4.85% | 3.050% | HOLD | 7 | |
| Christchurch | 3.00% | 4.00% | 4.85% | 2.150% | SELL | 10 | |
| Lisbon | 2.00% | 4.30% | 3.50% | 2.800% | HOLD | 8 | |
| Dublin | 4.00% | 5.90% | 3.50% | 6.400% | BUY | 1 | |
| Belfast | 2.00% | 6.50% | 3.50% | 5.000% | BUY | 2 | |
| Edinburgh | 3.50% | 3.50% | 3.50% | 3.500% | HOLD | 5 | |
