Property or dividend stocks

Hi Seedly community! I like to seek your collective wisdom and bounce off ideas.

We have own a condo which current market price - outstanding mortgage = approx. SGD1-1.1m. Its currently rented out for about $6k ($72k/year).

An alternative we thought of was to sell the condo and use the proceeds to buy blue chip dividend stocks e.g. SG banks (with current 6%ish yield) which would equate to say about $66k per year (which is almost equal to the condo p.a. rental).

Taking such an approach will reduce the hassle of finding / managing tenants and dividends are not taxable, unlike rental income. So nett nett, might be similar.

What are some of the consideration we should look at when taking such an approach?

Div will fall / rise, which is the same as rental as well
share price will fall / rise, as will the condo unit price (more likely to fall cos of lease decay of 99LH)

Are there other blind spots which I am missing out when considering this alternative? Thanks in advance!

Discussion (21)

What are your thoughts?

Learn how to style your text

Irwan Zhang

13 Nov 2024

If you could get that rental amount, that's very good. Keep the property. Not easy to get that 6.5%.

Save

LFC INVEST

14 Oct 2024

I might be off here, but it is not so simple. Here is my back-of-the-envelope analysis.

In my view you should calculate your net returns on the property based on IRR and net cash flow

The rental is 6k, but you can deduct around 10-15% ( S$ 600-750) of Income tax, and around 500 is maintenance and property tax. which makes the net yield only (6k-1100) ~4.8k a month before mortgage. Assuming a small moratgea of 500-600 K for 25 years at rate of 2.8% is around 2.5K a month. which makes the net cash flow ( 6000-600+500-2500) =2400 SGD = 29K

This is conservative, and your actual cash flow is even lower, including hard maintenance, tenant changes agent fees, etc.

If you sell the condo and get 1.1Million and invest in 6% div stock= 66K net cash, which is about more than double

If you ask me ..i would like you to buy stable 10-tier bonds with a 4-5% yield ( you can get it if you have 1.1M in your bank account; look for perps of the SG banks). to lock in 50 K + of annual income for ten years. if you're savvy, you can also get leverage to juice up the return to 8-9%. Of course, this depends on your age and risk tolerance, etc, what others have pointed out.

I fail to see how you justify your property as an investment option Unless you have to much cash or just want to diversify.

( Note: I am not an agent or ambassador of influencers. I have no account or business. I have the same dilemma as you, and this is my analysis. i am just looking for further analysis )

Save