(1-NRY/NGRY) := haircut #JC~50%

Posted on by tiger40490 rendered_on [ Thu, 6 Mar 2025 ] 19:04 UTC

http://www.yourinvestmentpropertymag.com.au/mistakes/the-truth-about-rental-yields-148067.aspx has pointers on GRY, NRY (net RY), mortgage, vacancy cost etc but not NGRY. For me,

  • I will use purchase price + purchase transaction cost, not current value (I don’t know it) as the basis for GRY and NRY
  • mortgage cost is not in my NRY as rate is floating and the outstanding amount is unknown.
  • For NRY, I will estimate vacancy, pTaxes, maintenance, commission, non-payment. To compare with overseas rent income, I would need to consider income tax
    • Repair cost can be minimized if I’m in the city to manage it myself. In contrast, if I’m overseas and I promise to reimburse them they are likely to go for the more expensive repair option.
    • I had one tenant demanding a one-month rental waiver.

Advertised rental yield is usually NGRY (notional GRY, defined in another blogpost).

The “GRY – NRY” haircut amount varies greatly. I feel U.S. has inferior haircut. Below is a concrete example in Jersey City, where haircut can be half without considering income tax or mortgage.

In contrast,  my Peak Retail guaranteed 5.5% NRY after-tax ≅≅≅ pretax 12->13-16% NGRY. It becomes 14% once we factor in intangible costs like legwork + distraction to work + mental stress dealing with tenant issues.

Bridge/Peak has no capital gain tax, very low pTax, 14% income tax on rental, already paid by lessee.

— Overall, for residental rental yield haircut, U.S. haircut is higher than SEA due to

  • higher professional fees
  • wood and older : more repairs
  • taxes — restate + income

— 1st case study: CYW’s 400k 2FH in Jersey City

https://docs.google.com/spreadsheets/d/18fABeXl3vMKuakPV3mcM8MRpzbvh5yar6KIRmmc5J3A/edit#gid=1744686908 shows 3 scenarios including Bayonne and 43R (43 Rockledge), but let’s focus on a 400k 2FH in Jersey City

  • nominal income = $3400 * 12M i.e. 10.2% NGRY
  • vacancy 10% — can be reduced by finding long-term tenants at a discount.
  • 10k pTax 2.5% of 400k
  • handyman repairs 6% of  gross rental. See rental property wear-n-tear #index
  • major repairs 2k, assuming an old house
  • assuming $0 local management fee
  • assuming $0 mtg
  • assuming $0 litigation cost
  • —-result—-
  • $22272 assessable rental income, to be taxed just as salary.
  • pretax NRY = 5.57%

— 2nd case study — Dilip said if his white plains house generates GRY = X then 1/3 of X is mortgage payment and another 1/3 is pTax, so the haircut is about 60-70%,

  • assuming no vacancy
  • assuming no repairs
  • assuming no local management fee
  • assuming no litigation

— 3rd eg: See the real example in 389 Washington St #Newport

— BGC case study: BGC rental yield: local^foreign tenants shows SGD 6k/Y realistic rental income vs SGD 12k promised.

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