Renting and owning a property

Many decades ago, when properties were inexpensive, it was advantageous to buy a property to live in, rather than to rent a property.

The situation has changed. Property prices are high. It may be possible to find a rental property that cost much less than the installment payment to buy a home. In this situation, renting a property may be a more attractive option.

One big advantage of renting a property is the flexibility. You can rent a property that is close to your place of work and reduce the travelling time and expenses. If you change your workplace, you have the flexibility to move to a new rented property.

Many people still like to invest in properties to earn a rental income. This is not as attractive as in past years. It is a hassle to rent out a property and to meet the requests of tenants on repairs, maintenance and other issues. The tenant may not take care of your property or may delay paying the rental.  You also have to pay commission to get a tenant.

After deducting the expenses, the net yield on a property is between 2% to 3% (and not counting the hassle that you had to go through). You hope that the yield can be enhanced when you sell the property for a capital gain. But this is not certain, as the value of the property will drop due to age and a shorter lease period. While the price of new property may increase, the high rate of  increase does not apply to old properties.

It does not make sense to own a property for renting out. It make better sense to be a tenant. This situation is likely to persist until property prices drop to a more sensible level.

Tan Kin Lian