Tips On Buying Property for Investment – 10 Important Factors to Consider


Assalamualaikum… Bismillahirrahmanirrahim… All praises be to Allah s.w.t, the Lord of the Universe. May the peace and blessings of Allah be upon Muhammad s.a.w. His last messenger.

Are you thinking of buying property for investment purpose? It would definitely be a good way to earn passive income by renting out your property and collecting rental. By renting out your property, you will be able to have greater financial freedom and it allows you to save for your retirement fund. With so many HDB BTO launches recently,  there are things that you should take into account when it comes to buying a property for investment purpose. Here are 10 important factors to consider when it comes to buying an investment purpose.

buying property for invesment purpose

  1. Mortgage repayments

Getting a home loan for buying property is unavoidable, unless you have 1 million cash with you. Either way, you still need to apply for a home loan. Most home loan will grant you a 80% loan where you will only need to pay for the remaining 20% down payment.

Once you get your home loan approved, you will then need to start thinking about repayment of mortgage loan. Regardless of the rental you receive, you will still need to watch your finances carefully to ensure you are able to pay for your mortgage loan.

Hence, we should avoid buying property when the rental market is down or when the country’s economy is not doing well.

  1. Property Agent Commissions

When you are thingking of buying property , getting a property agent to help you deal with the paperwork is so much an easier work, especially if you are working full time and have no extra time to spare on looking for tenants or advertising for your investment property. Most commission fees are calculated by a month’s worth of your rental every 2 years, or below 5% of your monthly rent.

The good thing about having a property agent is that the property agent knows how to find you tenants with their experience and expertise. Hence, it is totally worth to pay for the property agent commission fee to save you from the hassles.

  1. Maintenance Fees

Most condominium requires the owners to pay maintenance fee on a monthly basis. The maintenance amount can go up to approximately 10% of your rental income. The maintenance fees collected by the management will be used to maintain the condominium facilities, such as swimming pools, gardens, tennis court and also to ensure a clean, hygienic and safe environment.

Maintenance fees differ across different condominiums. Some maintenance fees are greatly dependent on the size of the condominium unit you choose – larger units will have higher maintenance fees.

  1. Wear and Tear

You will need to be prepared to fork out some money to fix any wear and tear in the house, if there is any. This cost will include the fixing of water heater, air conditioner, refrigerator and other maintenance work within the house. These costs should be taken into account as it can be very unpredictable as to when you need to fork out these amount to fix the wear and tear at your rental property. Some new tenants might request for a new paint, repairing of broken lights and pipes and replacement of old furniture before they move in. This will then add on to your expenses.

  1. Property Tax

There is a difference in property tax between properties that you rent out and property that you live in.

For properties that are for investment purpose, you will have to pay around 10.7% on the first $45,000 of your property’s annual value. There will have an increment in percentage for every $15,000 increase in your property’s annual value, up to $90,000. As for property tax for property that you live in, it is 4% as compared to 10.7% for properties that you rent out.

  1. Insurance

You should invest in insurance for your property although you are not living in the property. The most basic type of insurance that everyone should buy is the fire insurance. The fire insurance will cover the fixtures and fitting, and the building’s structure.

A home content insurance policy is also good to cover the furnishings of your property and the renovation works.

  1. Income tax

Many people overlook the fact that the rental income earned is included in the personal income tax. Hence, higher tax bracket and is definitely more costly.

For example, if your rental income from your investment property inflates your income by $40,000, you will then be automatically pushed to a higher income bracket.

  1. Monitoring Costs

It is important to constantly monitor the condition of your property. Spend some time to visit your investment property and fix any wear and tear if there is any. In addition, make sure there is no illegal activity going on at your property to avoid getting fined by the authorities.

You will need to spend some monitoring costs to make sure your property is always in good condition for the next tenant. A property that is not well maintained and is in a bad condition will greatly affect its value. Moreover, more money are spent to fix the poor condition of property.

  1. Weak Economy

Many people tend to overlook the current economy. The country’s economy is an important factor to consider when it comes to renting out your property. When the country’s economy falls, it is difficult to get your property rent out. Hence, you will be caught in financial stress as you will need to deal with mortgages and other miscellaneous fees that are due every month.

  1. Administrative Expenses

It is advisable to engage with an accountant to look after your investment matters as they will have the experience and expertise when it comes to dealing with investment matters. Furthermore, you might not have the time to juggle between property investment and your main job.

Engaging with accountants will incur an administrative expense, but is definitely worth the money and time, especially if you have more than just one investment property to manage.

In a nutshell, buying a property is not difficult as long as you take note of the 10 important factors mentioned above Do however bear in mind to only buy a property within your means. Stay realistic and stick to your budget to prevent getting into a huge debt in the future.  .

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