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Investment Property : Do you need a positive cash flow from rental to make money?

Updated: Jan 27, 2022

Investors are hopping into property for investments.

Many are lured into the thinking that they could get positive cash flow from rental. With agents harping on 3% + yields for property, many tend to get swayed especailly if fix deposit are paying less than 1 %. Most times, investors are also led to believe that they will recieve positive cash flow from the rented property.

The questions one should ask before embark on property investments

- Are you really making positive cash flow for your investment property?

- Are you getting 3% yield as promised? ( We did our maths and the results WILL surprise you)

Assuming the following example.

Property Purchased: 1 Million

Loan payment: $2500

Rental Income: $3000 ( 3.6% yield off property price)

Positive cash flow: $500?

While the above scenario suggests a positive cash flow, these are the 'hidden' costs you have to consider

1) Legal Fees

These are fees that are above the purchase price of the property. You would have to add them to the property price to evaluate your returns.

2) Stamp Duty

This includes buyers stamp duty, additional buyers stamp duty, and sellers stamp duty ( if you choose to sell off the property earlier)

3) Agent Fee (Rental / Sale)

For rental through an agent, you would have to pay an agent commission. The usual practice is to pay 1-month rental for every 2 years contract and 1/2 month rental for every year's contract. Additionally, when you sell your house in the future, you would also need to foot the agent fee.

4) Renovation / Furnishing Cost

Most new properties come unfurnished. Usually, you would have to furnish it before you rent.

5) MCST / Maintenance Fee

If you are living in a condo, you would have to take into account the maintenance fee. This will include maintenance funds and sinking funds. Sinking funds may increase as the condo ages.

6) Property Tax

This will be the property tax payable for the particular property.

7) Rental income tax

Rental income will be tax. The overall tax rate will also be dependant on your tax bracket.

8) CPF accrued interest

If you are using CPF to service the loan, you would have to consider CPF accrued interest. You have to top up the accrued interest when you sell your property.

9) Bank interest

Bank interest would have already been factored into the loan. However, do note that bank interest would usually be adjusted every 2-3 years. In a rising interest environment, you might also end up servicing a higher loan payment.


Smaller loan

The variables can change. For most, rental properties are usually the 2nd or 3rd property. If one has a loan on the first property, then the loan quantum for the second property reduces to 45%. In this case, your monthly loan payment tends to be much lesser than rental income, thus the potential for positive cash flow.

Full cash payment

If you have sufficient funds, you might even consider a full cash payment for your investment property. That way, any return on rental is a positive cash flow.However, you would lose opportunity cost such as investment returns or accured interest if CPF is used.


Despite the possibility that cash flows are zero or even negative, it is not the only factor determining if a property is profitable. The other factor to note is capital appreciation of the property. Should the price increase in the future, you will net a positive yield.

In some cases, selling at the breakeven price or even a lower price may positively yield. This is because your original cash flow from rental covers both INTEREST and PRINCIPAL of your housing loan.

Thus, even with 'negative' cash flow, you could still make money from property investment. The caveat is that you HAVE to get rental income for properties that do not appreciate in value. Returns from investment properties are from rental income and capital appreciation. You need at least one of them to be in the green before you have a chance to be profitable.

Are you really getting 3% yield

The use of a 3% yield in the intital can be misleading. With the additional costs, you might think that you have been shortchange. HOWEVER, if you calculate yield base on the ACTUAL cash you use (discounting CPF accrued interest), it could be a lot higher.


Property Price: SGD 1 Million

Net cash use : $250,000

Loan : $750,000 (base on 75%, 1st property loan)

Rent for 2 years and sell thereafter

Assuming rental is $3500 and there is net zero cash flow after deducting loan and the additional costs (as stated in this article) , as long as the property price remains the same when you sell the property, your actual return will be your loan reduction. Assuming loan reduction (net of interest) is $2000 per month, your annual reduction is $24,000.

Thus, return based on initial investment

$24,000 / $250,000 = 9.6%

Your return on investment could be as high as 9.6% p.a instead of 3% despite having ZERO cash flow.


Seaside Residences 2017 transactions

Take Seaside Residences that was launched in 2017. It was recently TOP in 2021 and despite no rental yield, prices have risen. a one Bedroom (592 sqft) was purchased for $1.113m in 2017. A Similar unit was sold for $1.26m at TOP.

Seaside Residences 2021 transactions

Assuming the buyers took a 75% loan and comes up with 25% cash, his returns will be as follow

25% cash : $282500

Additional Costs

Stamp Duty : $29,120

Lawyer Fee : $3000

Bank Interest: $20,000 ( Est base on 50% loan at 1.5% interest)

Agent Fee : $25,200 (2% of selling price)

Net Additional Cost : $77,320

Profit : $ $147,000 - $77,320 = $ 69,680

% return : $69,680 / $282,500 = 24.6% or 6.1%

The return does NOT take into account of rental. Should the investor choose to rent for 2 years and sell at the same price thereafter, the % return could be much higher.

Given the above scenerio, it probably explain why investors continue to flock into new launches to invest. For some investors, they may even do it despite the need for additional buyer stamp duty (ABSD). The main reason would be the belief on the upside potential on PRICE of the development. In any case, the property would give a positive return even if price remains the same if the unit is rented out.

Find the TRUE Return on Investment ( ROI)

Rental is just a part of the return on Investment Property. There are developments that are already in the money by the time it is TOP. The bottom line is rental is NOT the only thing an investor should look at if one intends to invest in property.

If you still have doubts and would like an evaluation of your current or future investment returns, do make an appointment with us here. We would be glad to have a personal complimentary session to clear your doubts.

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