Recently my wife and I have been exploring the possibilities of buying a private as an investment to increase our passive income. Well it turns out one will need to have strong holding power and huge initial capital to do that.
Holding power is very important as one might not be able to find a suitable tenant for a period of time. And to make thing worst one may just lost his or her job during that time. So one must have enough money as back up.
Initial capital is also very important so as it determines how much one will pay for the month instalment. The lesser the loan quantum, the less one will pay for the monthly installment.
Let me give a scenario of buying a new two bedders condo unit for investment at $750,000, with $200,000 as down payment. By using 2% interest rate for the housing loan with a loan term of 25 years, one will need to pay about $2330 per month .
Let's assume that the maintenance fee is $350 per month, utility bill is $200 per month, property tax is about $100 per month (or $1200 annually), and miscellaneous internal repair (aircon serving, changing tap and light bulb) is about $50 per month. All these will add up to around $700.
So in order to rent out this condo for passive income, one must find a tenant that is willing to pay more than $3030. Anything lower will become a liability to the owner. For someone who wants to get 5% rental yield on the initial down payment of $200,000 , he or she must rent out around $3900 to achieve that. The question is whether is it easy to find such tenant to pay that amount?
