Tag: T_unforeseenCost

%%big-ticket outlays: 55-65

Posted on by tiger40490

This analysis applies to any amount I transfer to wife’s CPF-SA.

If between 55 and 65 I were to top up $100k to RA to earn 4% interest, that amount is locked in and can’t be spent on “anything”, but is there anything to need that $100k? If nothing, then who cares? After 65 I would start receiving CPF-life payout from that $100k.

— U.S. home purchase or property investment?

— college funding?

— Medical cost?

— cumulative repair costs in U.S., which tend to be much higher than SG

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

Posted on by tiger40490

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.

43R model #17% NGRY

Posted on by tiger40490

For my Bayonne plan, see 250k 1st buy#YH”hotel”

Guang’s 43 Rockledge house was bought for 512k, but total gross rental is 75k/M or 90k/Y ~ 17% GRY. Most of her 11 rooms collect $800 each. Mine has a slanted ceiling.

(I believe her other unit is 140 Church, bought for 325k in 2013. 10 small rooms, probably similar rental ~ 27% GRY)

Much higher GRY than Youwei’s.

I think such a house is often very old and cheap, so my mtg/tax burden is hopefully lower.

  • if GRY high, I can consider a family rental home in a good location, for 2k, and earn a lease spread.
  • if GRY high, old house and maintenance cost is tolerable. You can afford to have professional handyman to relieve your pains. Suppose annual repairs costs 10k, you still have 14% GRY.
    • Hopefully this becomes a passive income.
  • if GRY high, 2.5% tax tolerable
  • if GRY high, poor appreciation is tolerable. Guang paid 512k in 2012 but it has depreciated in 2019
    • rental income is more important to me than windfall

— to improve profitability

  • I would need to avoid a dilapidated house as I can’t afford the risks in renovation
  • 2FH is more valuable for this model, but a SFH is more affordable for my first buy (risk-averse .. when unfamiliar,prefer tiny investments,like$200k property)
  • find locations with rental demand
  • sign 6M leases
  • check renter background .. risk@tenant delinquency
  • install separate meters
  • get professional inspection to identify weak spots in advance and replace/reinforce them.
  • agree with tenants that small repairs are their responsibility, given the low rental I charge.
  • #1 valuable tip — The more rooms, the higher yield.
    • Some renters just need a bed and don’t mind partitions in a living room!
    • prefer small living room. It’s completely useless in a hotel model
    • small, clean, well-located rooms are very popular with renters. If there is only one big bed room on 3rd floor, you could probably get $1000, but she earns $2000+ with 3 rooms.
    • Compare the 2nd floor unit in 40 Wayne. I think total rent is $1k, but it’s big. If divided into 3 rooms it can fetch $2400 !
    • prefer 3-storey, often cost the same as 2-storey, but 2 rooms on 3rd storey can generate $1500/M
    • You can even divide the basement into rooms if there are bigger windows and stairless back entrance. It would feel like a ground floor.
    • attic and basement are very important to this model. They are often ignored (by other buyers) like storage space

U.S.property mgmt agent #Wallace

Posted on by tiger40490
  • — What you get
  • Duty – repairs. Better provide your own trusted handymen, or you may have to rely on the agent.
  • Duty – collect rent check
  • Duty – manage vacancy. There’s incentive in the form of commission payable by tenant
  • — What you pay: Mgmt Fees Typically 6-10% of rental receipt, according to Wallace Xu. You can hire an agent even if you live locally, but most local landlord apparently choose to be his own agent.
  • Must Sign mgmt contract

Melvin3 US^sg #repair,CORBRA

Posted on by tiger40490

— Letter to Melvin Artes —
This is a summary of my thoughts. Recently I figured out U.S. cost level significantly higher than Singapore, in several categories. In quiet reflection, I often feel U.S. lifestyle offers many fancy, modern features (even more than SG), plus some countryside charms.. (Do I even care?) but at the cost of —

  1. Much Higher pTax, for the same property value.. $800~1500
    • .. HOA (higher than in SG) is excluded from this list because about half my U.S. peers don’t incur HOA
    • .. mortgage monthly (higher than in SG) is excluded from this list because it is also present in Singapore, and the amount is harder to estimate than pTax.
  2. Much Higher medical costs including insurance premium .. $800-2500… See U.S.med bx price=$400/head 
  3. Higher transportation including cost due to private car.. $500-1500 for a modest car. In Singapore many people I know have a low need for private cars, so we make do without them.
    • Public transportation also higher than SG. I currently pay USD 180/M excluding citibike fees
  4. —– Beyond the big-three, here are some relatively minor items:
  5. Higher professional repairs [car, fridge, wood houses…] are much more costly than in SG. ( Stone houses have lower maintenance costs but… ) Repairs are so expensive (while tools so affordable) in the U.S. that many Americans learn DIY.
    • infrequent major repair costs were likely excluded when I asked my peers about their monthly burn rate. If you only incur such a cost once a few years, how do you include it in your monthly estimate?
  6. Elementary and secondary school costs are comparable to Singapore, since my kids are Singapore citizens.
  7. The other cost items are minor in my case
    • Supermarket price tags are comparable to Singapore
    • Utility costs are slightly higher

You introduced to me an interesting perspective — start from the top rather than bottom [1] and decide on an annual budget. Well, basically for roughly the same quality of life, my Singapore budget was about SGD 5k (USD 4k), whereas U.S. budget would be USD 8k excluding rent+mtg. In both cases I exclude mortgage payments and income tax but include pTax.

The $4k difference is largely due to the top 3 items above.

[1] Now in 2021, I have a growing suspicion about the top-down approach. It basically means “If my cohort (in the same income bracket) spend 80% of income then I will also spend that amount.” That is classic lifestyle creep and spending-by-peer-comparison. Following this top-down, I would spend on useless things like multiple luxury cars, luxury vacations. I suspect Deepak’s “seeking better life” leads to the same top-down approach.

I do have my American dream about opportunities, but with our combined income (low contribution from wife), the $3500 difference is non-trivial. My monthly savings will be halved because of this $3500 excess outlay. I had better ask myself “What’s more important — opportunities or monthly expenses?”

You mentioned the various government benefits that my taxes pay towards, but will I enjoy any of these benefits?

  • · In Singapore we pay much lower taxes but my kids can get decent education, not inferior to here
  • · Singapore medical services are not inferior to here.
  • · Safe, clean streets are possible in expensive school districts but we get them free in Singapore.
  • · Whatever a municipal government provides to residents here, using my pTax, I get in Singapore.

This is a complex question, so I need to put away the secondary factors and focus on the core issues important to my family. I have not done a thorough analysis, but my tentative conclusion is —

“For a given quality of life for my family (we don’t need cars or top schools) U.S. cost level is close to twice Singapore level, whereas our combined after-tax income level is roughly equal.”

We can have a separate chat about schools. My wife actually worries about guns so she doesn’t want any U.S. school, not even the top schools. I believe most U.S. schools are OK in terms of safety, so drugs and guns and bullies are present in every school but most schools are reasonably safe.

If I determine that 70% of U.S. schools have an unacceptable safety standard, then I may have to conclude this entire country is unsuitable for us. When I talk to the non-Asian friends the unanimous answer is a clear No. So I don’t worry about it.

— Q: Median household pretax income is 70k, so how do these typical families cope with those big items?
First, some statistical clarification. Households include many singular households. The median income among families with kids is different, possibly higher. Let’s assume 90k pretax. After tax would be 6k/M. My 2017 after-tax was around 6k/M.

  • pTax .. many of the average families can’t afford buying home. Their actual rental is typically lower than pTax + mortgage monthly. Typical rent in NY/NJ is $1k-2k.
  • pTax .. most locations outside NY/NJ have pTax lower than 1% and home value much lower than 500k. 1.2% of a $300k home means $300/Month pTax
  • car .. is presumably a necessity for many average families, so they incur the same cost as estimated. Many choose to lease a car.
  • medbx .. is discretionary spend. I assume some of the average families don’t buy or buy very cheap policies, and risk higher medical bills.

Unlike Asia, U.S.home=expense !!investment #Brian@RTS

Posted on by tiger40490

I need to unlearn the basic rules of property investment learned in Asia

  1. Except NYC, Queens (not long island), JC, and some parts of NJ, most other U.S. locations have no real (i,e. inflation adjusted) appreciation. Bayonne is one such location.
  2. due to the typical size, total cost of owning a home {tax … HOA … mtg interest … wood house repairs … lawn … heating…} is much higher in U.S. than in Asia, and often higher than renting.
  3. Bigger isn’t better. The bigger the house, the higher its running cost, but Americans are used to big houses.
  4. repair cost is much higher in US due to labor cost and wood structure. Many U.S. owners prefer DIY repair.
  5. In China and Singapore, you can leave a property vacant, but in U.S. pTax will force you to rent it or use it yourself.

Brian of RTS said owning a home is probably an expense rather than an asset. Brian’s view probably originated from the renter’s perspective. If there’s only small appreciation, then the additional outlay [1] of the home buyer compared to the renter basically contributes to the appreciation .. 羊毛出在羊身上. There’s no advantage to either option.

[1] including maintenance burden (none for the renter)

The renter has many advantages such as flexibility.

Brian countered every point I made about housing as an investment.

  • rental income — is the more predictable “return” in the U.S. context. Capital appreciation is erratic and may not happen in many U.S. states.
  • appreciation — in Asia and in NY region .. yes. The trend has been strong.
  • maintenance cost — is lower in Asia but in U.S., it eats into your rental income
  • pTax — much lower in many parts of Asia
  • population growth — In Asia and in NY region, there’s growth, but not so much in U.S.. I see this as a fundamental factor. BGC and Cambodia beats SG in this respect.

Brian concluded that many of these factors are location-specific.

##U.S.rental yield misc tips

Posted on by tiger40490

–Key features of U.S. rental yield :

  • See also rental property: SEA beats U.S.#Susan
  • 🙁 very high pTax, always increases rent.
  • 🙁 higher mortgage interest rate than Singapore. Usually increases rent
  • 🙂 More people (including affluent locals) are willing to rent, in western culture than in Singapore. In fact, if price is right, many who own a home also want to rent.
    • There are more people unable to buy in U.S. than in Singapore, either due to credit, home prices, or other reasons.
    • Jack He pointed out that tax + mtg interest + maintenance cost can be comparable to rent. See the real example in 389 Washington St #Newport
  • 🙁 high repair cost. Some of it borne by tenant, some by owner. Xia Rong typically spends $10k each year on his old house.
  • Gross rental yield much higher than Singapore, but Net rental yield is comparable to Singapore.
  • My friend Youwei said he can get USD 36k gross rental on a 400K+ 2-family home in Jersey city. After taxes and mortgage I hope he can earn half that.
  • My friend Wallace earns $3400/M on a 2FH in Jersey Heights.

— now the tips

    • #1 tip — pick a “hot” location. Can relieve bench-time. if the location is not popular enough, then request 2M notice period from tenants
    • #2 many rooms — See  43 Rockledge hotel model
    • Multifamily (MDU) in Bayonne are popular. If your family needs all the rooms, you still can “join” two units.
    • dispute pTax assessment
    • avoid condos having rental restrictions.
    • high rental demand, low maintenance, often a condo in a prime location such as BGC and Newport, … yet GRY is a fraction of the 43R model.

maintenance effort(hated): house^condo

Posted on by tiger40490

Junli said maintenance cost of a typical house (his area have very few condos) is much higher than an apartment in Singapore.

XR pointed out the difference between exterior vs interior maintenance. Condo fee covers exterior.

  • leaking?
  • flooding?
  • mold?
  • contamination?
  • maintain your own infrastructure for heating, wiring, pipes, antenna?
  • roof,
  • garage can take many hours of clean-up.
  • basement, attic, garage and yard need work and can become an eye sore, contamination and breeding ground for pests.
  • basement, attic, garage are “dark, cold” places I don’t want to go into esp. cold nights.
  • yard is the biggest effort. About 3 hours/week according to Jack He. Junli said it can take many days of maintenance. If you ignore it, it will get worse and worse.
  • I said I would just put concrete over the yard. Junli said sooner or later the foundation will give problems. I guess an old house are more likely to have foundation issues.

contingency reserve requirement: US iwt SG

Posted on by tiger40490

See also

— Living in the U.S. requires significantly higher contingency reserve as the government offers very limited support. Also wood houses and driving create more emergencies. See

39%Americans have enough savings4 $1k emergency endorses a Mr Tim with USD 25k emergency fund.