The Hidden Business of Being A Landlord: What Does Your P&L Statement Say?

The idea of being able to own an investment property is very attractive especially in Singapore.

It is often considered as the ultimate way to secure your future retirement – a way to receive income regularly through the monthly rent.

However, this does not mean it is a foolproof way as this is hardly a passive form of income.

Unlike paper-based investments, you actually have to take active control and manage your investment property.

This is where I recommend that you view your investment property as an actual business that has a P&L statement attached to it.

P&L (Profit & Loss) Statements Are Able to Provide a Sense of Detachment

If you run a business, the P&L statement is something that should be very familiar to you.

This statement helps with tracking of incoming revenue and outgoing expenses.

For your investment property, the incoming revenue will be the rental payments made by your tenants.

But the outgoing expenses you have to consider will be plenty.

There are:

• Bank interest payments on your loan
• Property tax
• Maintenance fees
• Agent commission
• Income tax on rental income

Scenario: An investor purchases a 2-bedder unit at Silversea for $1.9M

I am using a 2-bedder unit at Silversea as an example for this case.

The recent transactions for a 2-bedder units in this development is between $1.88M to $1.95M.

Recent rental transactions are between $5200 – $6300 per month.

For Silversea, the quarterly maintenance fees (inclusive of sinking funds) is about $1450.

#1: Bank Interest Payments

Assuming an investor were to purchase a 2-bedder unit at $1.9m.

• first property
• 29-year loan
• 2-year fixed home loan of 3.75%
• max loan LTV of 75%

Here is the loan repayment schedule from DBS.

Here you can see that most of your payment will go to your interest instead of the principal in the first few years.

This is the cost of borrowing money from the bank.

To simplify things, I considered the interest payments of 2024 and 2025.

This adds up to $104K.

#2. Increased Property Tax From 2023 Onwards

From 2023 onwards, property tax will be increased. It will also be further increased in 2024 again.

This should also be taken into consideration in your P&L calculations.

Being a non-owner-occupied residential property, the tax rates is much higher than owner-occupied properties.

For the case of Silversea, I took the time to find out the annual value so I could calculate out the actual property tax to be paid.

2023 Property Tax for a 2-bed rental unit in Silversea
Annual value: $34,800/-

First $30,000 (11%) $3300
Next $4,800 (16%) $768
Total: $4068

2024 Estimated Property Tax for a 2-bed rental unit in Silversea
First $30,000 (12%) $3600
Next $4,800 (20%) $960
Total: $4560

Based on the information above, I generated a simple spreadsheet that shows a breakdown of your outgoing expenses vs incoming revenue.

Based on the above, you can see that there is only a single line of incoming revenue while you have multiple lines of expenses to take into consideration.

The potential nett profits after 2 years of renting out your investment property?

About $13K over a period of 2 years.

Take note, that I have yet to include other hidden expenses like:

• additional income tax from rental income
• wear-and-tear on furniture and other household appliances

Some Observations on Human Behavior

In May 2022, I wrote this article below to encourage landlords to consider cashing out on their investment properties.

I shared about how some older properties were appreciating in value in the recent years.

There was a significant upswing in the prices based on the transaction data.

This represented an opportunity because this upswing rarely happens – older resale properties tend to stagnate in value.

The article captured some attention and shares. But what was most interesting was the comments received.

What I can sense when I answered the comments was this:

There are a lot of emotions involved especially when you ask people to cash out of the investment properties!

Everyone’s opinion here makes sense – especially when it is valid.

For example, this commenter saying that en-bloc is a possible exit strategy instead of selling the property.

While this is indeed possible, it doesn’t mean it would happen.

This is especially when we hear news about:

• Government is releasing more land for sale to developers
• En-bloc failure after failure
• Struggles and challenges of conducting an en-bloc sales process

When developers have more GLS choices to replenish their land holdings, the prospect of en-bloc also diminishes.

“Good times won’t last forever.”

I thought it was interesting that I mentioned about how the “good times won’t last forever.”

I wrote that 43 weeks ago.

Personally, I feel that is coming true right now as we approach the last quarter of 2023.

The main reason?

Supply is finally entering the property market.

Here are the completed mega developments that will be hitting TOP soon in 2023 and 2024.

• Riverfront Residences (1472 units)
• Parc Esta (1399 units)
• Florence Residences (1410 units)
• Parc Clematis (1468 units)
• Treasure at Tampines (2203 units)
• Avenue South Residences (1074 units)
• Normanton Park (1862 units)

The total number of units from just this list here?

10,000+ units.

I selected only developments with more than 1000 units to show the scale of supply that will be entering the market soon.

There are still many other smaller scale developments that will also be completed.

All these newly-TOP units will serve either as a place to stay or will be available for rent.

With supply going up, demand will be going down.

And so will rental rates.

Conclusion

The main reason why I highlighted to view your investment property as a business with a P&L statement is simply because of this fact:

We are emotional creatures who needs to learn how to detach ourselves from how we treat our investment assets.

You would have seen it in some part of your life:

• When we regret not taking part in a “sale”…
• When we are too slow to sell off an underperforming stock…
• When we delay in letting go of an aging investment property…

These are examples of how emotions play a significant part in our decision-making process – whether we like it or not.

As an agent who is essentially an external 3rd-party, I have the ability to observe all these thoughts and emotions in action.

And I take advantage of it.

If I am the agent representing a seller, pressing emotional buttons on potential buyers is what I use to get them to pay more.

You would have seen that in the way I managed to sell a property at $1M above the valuation in this article.

And if I represent the buyer? I would do my best to shield my buyer from being swayed too emotionally and remind them of the hard facts and numbers.

Just like how I generated this P&L statement above.

There is a very big difference when buying a property for own stay or for investment purposes.

If you are keen to explore and find out what are your own choices in the Singapore property market, drop me a message via WhatsApp to arrange a discussion.