Asked on 29 Dec 2019
I have a 30years old HDB that I am renting out. In the last few years, the price of the property has been falling quite quickly. This property is meant to collect rental for retirement and I am wondering if thee are more efficient ways of generating passive income. The sale would be a definite lost from the initial purchase price.
What are the factors that I should consider?
Firstly, is the HDB paid off?
Secondly, calculate your rental yield, which you can refer to this website: https://www.99.co/blog/singapore/calculate-rental-yield-singapore-property/
Thirdly, do you have access to any other instruments that can provide better and more stable returns that your rental yield?
It depends on your needs. If you are looking to create a guaranteed source of passive income, then property may not be the best option with the situation that you are encountering right now.
At this point, the best way to deal with the situation is to perform a detailed calculation. Some of the factors for consideration include:
When do you intend to sell the house? E.g. 10 years' time
Probability of getting a tenant
With the timeline set, find out the total yield (from valuation of property and rental income) and whether it fulfils your expectation.
If it fits into your expectation, keep it or consider similar alternatives with better liquidity.
If it doesn't fit into your expectation, consider alternatives that are capable of mimicking the yield, e.g. a life annuity.
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Renting out your property for passive income would likely to works only if you are looking at long term. Rental yield also plays a part in considering if this passive income will works for your case. Buy Reits and equity may be of higher risk than renting out property although their returns may be higher.
If the Present Value (PV) of all future rental payments (up to the last month of the lease) is more than the current market value, then keep the property and collect rent.
Need to consider whether your portfolio yield can generate the same if not more returns than your HDB flat