Singaporeans and Their Flaws

Singaporeans are a funny bunch. On paper, they top the best O and A levels. The average Singaporean is probably far more intelligent and knowledgeable than the average American or Brit. The typical Singaporean is hard working, honest, obedient and knowledgeable. They probably make the best employees.

They don't however, make the best leaders. The top 5 - 10% of Singaporeans probably pales in comparison with the similar echelons in the US and UK. Singaporeans lack creativity, having it stifled since Primary school. They lack confidence to express themselves, don't know how to apply their knowledge to enrich themselves.

In the story of the wood cutter, the Singaporean worker symbolises the cutter who forgot to sharpen the axe. While the American and British counter parts probably chop much less, but sharpen their axes a lot.

It is up to the Singaporean to learn how to extract the best of the two cultures. 

Birmingham vs Manchester

https://sg.finance.yahoo.com/news/north-uk-sees-investment-surge-020033544.html



I disagree. The fastest growing city north of Cambridge will be Birmingham, in terms of total returns (rental yield + capital gains). Mark my words. This article came about simply because I see too many cranes building high rise apartments in Manchester city centre lately. 

Negative Gearing is a Farce! Cashflow is Paramount in Real Estate

My two worst purchases so far are in Australia. Both happen to be off plan. After one year renting my property and getting a relatively high yield of 5.7%, I can hardly cover my costs.

Take for example this:

Downpayment for a AUD398,500 townhouse: 20% = AUD79,700.
Stamp Duty 2% = AUD8000.
Total downpayment = AUD87,700

Rental income = AUD22,880
Letting fee = 8.8% = AUD2006
Body corp = AUD2000
Council Tax = AUD2000
Water rates that landlord need to pay???? = AUD1800
Misc = AUD300
Interest on 80% of 398,500 X 4.35% = AUD13,868
Net income = AUD826???

A measly AUD826 to show for.

Return on equity = 826 / 87,700 = 0.94%. That's worse than fixed deposit!

net operating income is the income you get from rental after deducting all expenses, except interest cost.

826 + 13868 / 398,500 = 3.69%. That's almost a full 2 percentage points less than the gross yield.

Lessons learned:

1. Don't buy unless your NOI is at least 2 percentage points above borrowing costs. For Tingalpa, it has to be at least 6.35%. Gross 8.35% to worth considering.

2. I came to the conclusion that Australian properties simply are too bubbly and the yields too low.

3. If yields are so low, it is either an indication that prices have risen too much relative to rent, or rental demand is very low due to oversupply.

My St Kilda property is going to bleed even more money. So far my Manchester house was my best buy from a cashflow perspective. It generates over GBP10k per year.

You cannot build a portfolio without having cashflow positive properties. If every property causes you to bleed cash, you won't have holding power. Eventually you will go bankrupt.

By David Lines |  August 12, 2016

Why is cash flow important to the buy-to-let investor?

Cash flow in a nutshell

When you listen to buy-to-let investors, you’ll often hear the words ‘cash flow’. There are two types of cash flow: positive and negative. Positive cash flow is what you’ll aim for as an investor even though at certain stages of the cycle it may not be achieved.

In this post, I’ll look at what cash flow is and why it’s so important to the buy-to-let investor. I’ll also take a brief look at how to manage cash flow.

What is a property investor’s cash flow?

Put simply; cash flow is the amount of money coming in versus the amount of money going out. If your rent is higher than your costs, then you’re in a positive cash flow position. If your rent is lower than your costs, then you’re in a negative cash flow position. Obviously, having positive cash flow is where you want to be. However, for reasons we’ll explore in a moment, this ideal isn’t always possible.

Whilst I always try to invest for positive cash flow sometimes I am happy with negative cash flow if the capital growth potential is much more appealing. Now sure, I have to rely on property prices to rise for me to be in profit. And as we all know, property prices can go down as well as up. It is how the property cycle works, and can be good news for the canny investor. However, that is a subject for another post.

Take care of cash flow, and it will take care of you

Even if your rental income is more than your mortgage payments, this doesn’t mean you’ll have positive cash flow. You have to take into account other costs, too. These include repairs and maintenance, finding tenants, and the legal issues that come with being a buy-to-let investor.

I’d recommend paying for professional property management, too. Some investors prefer to become buy-to-let landlords and do all the property management work themselves. Personally, I’d rather be researching my next profitable property as a buy-to-let investor than mending a dripping tap at two o’clock in the morning.

Overestimate your costs and underestimate your income

Always be conservative with your cash flow projections. Overestimate on costs. Underestimate on income. Allow for a few weeks’ vacancy, when you don’t have a tenant. If your mortgage rate is 3.5%, calculate your mortgage at 4.5 - 6.0%. If your research shows that a rent of £900 is achievable, work your numbers out at £850.

Doing these simple mathematical tricks will give you plenty of contingency in your cash flow projections. Any slippage from expectations or reality is quickly absorbed. And if you don’t have any vacant periods, it’s a big bonus to your cash position at the end of the year.

How cash flow affects the buy-to-let investor

Let’s say you have bought a property for £200,000, with a £50,000 deposit. You pay interest only on your mortgage at 3.5%. The rental value is £900 per month. The table below shows the difference between a conservative and optimistic cash flow estimate:

	Conservative per Annum (per month)	Optimistic per Annum (per month)
Rent	£10,200 (850)	£10,800 (900)
Property Management Fees	£960 ( 80)	£840 (70)
Mortgage	£6,756 (563) @4.5%	£5,232 (436) @3.5%
Maintenance & Repairs	£840 (70)	£600 (50)
Void Periods	£675 (56) – 1 month vacant	£0
Net per Annum (per month)	£969 (81)	£4,128 (344)

                                                                                              

You’ll see that in the example given you end up with a net positive cash flow. If you base your calculations on the conservative scenario, then anything more will be a bonus. You have also allowed for an increase in interest rates, and a vacant period, with lower-than-market rent. Knowing that you’ll still have positive cash flow even if all of these scenarios happened all at once will certainly help you sleep at night.

There will be some tax to pay on your rental income, but with positive cash flow you should be able to repay the mortgage quicker and increase your positive cash flow even further.

Dan’s story

One of our clients, Dan­, who was a gas inspector and serviceman, – had his negative cash flow turn into a £2,000-per-month surplus. Despite his business being decimated as a result of the recession, he found himself in a position of not having to work. As interest rates fell, his net rental income rose. The positive cash flow from his property portfolio was enough to sustain his lifestyle. Now, for someone who had worked six days a week every week just to keep the wolf from the door, this was something of an eye-opener. But he didn’t rest on his laurels. Dan managed to get a job with British Gas, working fewer hours than before and banking most of the £2,000 surplus as he builds up his personal wealth faster than he could ever have dreamed.