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  • Writer's pictureCaroline Tay

Things to consider when buying an investment property

Updated: May 12, 2020

For most people, buying an investment property in Singapore seems like a savvy financial decision. Why not? You can get a strong return on your investment through passive income, tax breaks, and even capital gains.

However, before you hastily take action, it is important to know that like any investment, your property investment is not a 100 percent guarantee. There is actually a lot of strategic planning involved when when selecting and purchasing your investment property.

What Is an Investment Property?

An investment property is a property purchased with the intention of earning a return on the investment through rental income or the resale of the property in future. Of course, if you can make a profit from both rental income and resale of the property, that would be the ideal scenario!

Investment properties are not primary residences and they generate income

The whole buying process can be slightly overwhelming as there is a lot to consider. There are many decisions to be made. Where should you buy? Should you finance your purchase or pay for it in cash?  

Whether you’re planning to buy a condominium unit in town, a commercial investment property, or some other type of real estate investment, you need to have a clear and strong understanding of what makes a good purchase.

A new launch condominium at D3 beside the MRT
A new launch condominium at D3 beside the MRT

This article takes a look at the major factors that you need to consider when buying an investment property.


When buying a property, we always hear people say " Location, Location, Location!" Location first then the property comes next! Remember, the “right” property in the wrong location isn’t likely to be the right property after all!

Location and price of property usually goes together. If a property is at a better location, in a nicer area, with more amenities, there is always going to be more demand whether you are renting or selling the property.

For example, what district is the property in? Is the property close to an MRT station and amenities? Are there any good schools nearby? These are all important factors that will determine whether the property is in a good location! 

An equivalent property located at a less desirable area won't have nearly an equivalent appeal and won’t have as much demand. You may have to pay a premium for the location but this will definitely give you and edge and more options in future!


When buying their first property, all buyers need to pay 1-3 percent stamp duty depending on the price of the property. Any properties exceeding 1 million , the amount exceeded will be subjected to 4 percent stamp duty accordingly.

Buyer stamp duty rates
Buyer stamp duty rates

Singapore citizens will pay a further 12 per cent of the property price, when buying the second property. This is known as the ABSD (additional buyers stamp duty). For the third and more properties, citizens pay a further 15 per cent of the property price.

Additional Buyer Stamp Duty rates
Additional Buyer Stamp Duty rates

For Singapore Permanent Residents, additional buyer stamp duty of their first property is 5 percent and on the second and subsequent properties, 15 percent.

In addition, it is important to know how to compute the tax rates on your property. What are the tax rates for non-owner-occupied residential propertiesAs compared to owner- occupied residential properties, non- owner occupied residential properties tend to have a higher tax rate.

Short term property investments such as buying the property while it’s still under construction and selling when it’s completed used to be quite popular among investors.

These days, due to the Sellers Stamp Duty (SSD) which was implemented in 2011, it is not viable to do so as any property sold within 1 year of purchase will incur hefty sellers stamp duty tax. In fact, SSD is payable up to the 3rd year after you have bought the property.

Sellers Stamp Duty rates
Sellers Stamp Duty rates

There is no ABSD and SSD for the purchase and sale of commercial properties in Singapore.

Some important things that you should be aware of include tax deductions you can claim on maintenance fees for tenanted units, utility bills, and the rate of interest on your property loan etc. in order to accurately compute the potential return from a property asset.


Do you have enough money to finance your investment property?

This is where you need to be aware of your Loan to Value (LTV) ratio if you are considering financing as an option. The LTV ratio is basically how much you can actually borrow from the bank, to finance your property.

An LTV ratio of 75 per cent, which is the usual maximum, means the bank will loan you up to 75 per cent of the property price or valuation (whichever is lower).

However, if you have an existing outstanding home loan, the LTV drops to 45 per cent for your second property. On top of that, you need to come out with 25 percent cash for the property.

Loan-To-Value Summary Chart
Loan-To-Value Summary Chart

Should you pay fully in cash?

That really depends on the individual's investing goals. Paying cash fully can help generate positive monthly cash flow in the example of rental income but will that give you the best return for your money? 

There are also a group of people that are extremely adverse to debt so if it is within their means, they would rather pay in full instead of financing the purchase.

You may wonder, if people are cash rich and are able to pay in full for their property purchases, why would they borrow money to finance the purchases rather than paying for them in full?

The reason is that when interest rates are low, you can actually borrow money at a lower interest rate while investing your money elsewhere and potentially making more money as a result. This will give you a greater return on your money than if you pay for the property in full.

This may come as a surprise but a lot of wealthy people actually do this to take advantage of the low interest rates. Many of them are shrewd businessmen are extremely good at investing and this is one way to grow their wealth.

Therefore, do your sums and consider your options carefully!


1). Passive income

Passive income is one of the most attractive reason why many people actually considers an investment property. After the initial investment outlay and upkeep costs, you can make money from your investment through the rental income while keeping your day job.

For people who are retired or looking to retire, this is particularly appealing especially if you buy the property without financing as that means you will enjoy a higher monthly cashflow for your expenses.

2). Capital Appreciation

In the long run, your investment property should appreciate in value as property prices generally trend upwards over time. Therefore, rental income is not your only means of gain from this property.

Of course, your entry and exit point of this investment is crucial but you should be able to make a profit when you decide to sell the property after holding it over  a significant period of time.

Private Residential Property Price Index over 25 years
Private Residential Property Price Index over 25 years

3). The interest you pay on an investment property loan is tax-deductible.

You can take advantage of rental property tax deductions. Although rental income is taxable, rental expenses, such as operating expenses, are considered tax-deductible. This can partially offset the tax you pay on the rental income.

4). Stability of Real Estate Market

Real estate is a physical asset. It is highly unlikely for the investment to be wiped out completely as in the case of some equity investments. Stocks and bonds also intangible unlike property.

Adding real estate to your investment portfolio is also a form of diversification and a hedge against inflation.


As with all things in investment, buying an investment property is not without its risks. And it’s crucial that you know what these risks are.

1). Property is illiquid

Property is illiquid, unlike stocks. Remember, if you need cash urgently, you can't sell real estate instantly. Cashing out your property takes time!

2) . Inability to rent out or vacancies in between tenants

Sometimes, it may take a while before the unit is rented out. There may also be periods where the property sits empty between the tenants. These vacancies period will no doubt lower your return as there is no tenant occupying the property during these periods.

Long-term vacancies is a big risk as it can diminish the overall value of the rental property as an income-generating investment.

3). Unreasonable or bad tenants

Although you do get passive income through rental, tenants can sometimes be difficult to deal with. In some cases, you may get a bad tenant and legal expenses could be incurred should you need to evict the tenant.

Your property could also be damaged and you could incur excess repair costs should a bad tenant cause damage to the property.

4). Inability to cover mortgage payment

Rental income may not cover the total mortgage payment but they might be even lower than what you anticipate! In some cases, you may end up spending more than what you ultimately make in terms of income generated!

In the case where you need to borrow a lot of money to buy the property, or incur substantial expenses, you may wind up with negative cash flow. In other words, you might lose money on the property.

5). Property decreases in value

There is a likelihood that your property may decrease in value. Like other investments, real estate is also susceptible to losses which can result from downturns in the real estate market.

For all investments, there is always risks. Not even the safest investment is a guarantee so taking calculated risks is part and parcel of it all. For real estate investments, holding power is important. You need to be aware of this and should there be a need, you have the finances to tie you over the period.


An investment property can be one of the most rewarding purchase that you ever make. Do your homework and work with an experienced real estate agent that can help you navigate the process and make the best decision possible.

plan and strategise before a property investment
plan and strategise before a property investment

Evaluate all of the factors above thoroughly to ensure that the investment you make is a wise one.

Before the property purchase, do evaluate the potential income, expenses as well as return on the property to determine the profitability potential. Likewise, consider the rewards and risks.

Consider engaging a reliable and experienced realtor to help you source for suitable tenants as a good tenant profile does help to reduce potential risks.

If you are thinking of purchasing an investment property and would like to find out more, please feel free to contact me for a non obligatory 90 min free consultation at 96658596

Having a keen interest and passion in real estate led Caroline to join the real estate industry. An investor herself since 2006, Caroline is constantly learning and upgrading herself through courses and seminars so that she is able to provide meaningful insights to her clients and to help them successfully manage and restructure their portfolios in the ever- changing market conditions.

Caroline strives to be honest, transparent and professional in all her real estate dealings with her clients. She understands that clients need to work with someone they trust, as they will be entrusting their valuable assets to that person. She is known to be trustworthy and reliable and will ensure that her clients’ interests are protected always.

With a strong commitment to client satisfaction and with the support of her teammates from Navis Living Group (Orange Tee and Tie) , she is confident that she will be able to share her experiences and knowledge to assist her clients in making the best decisions for their real estate needs so that they can achieve their desired real estate goals.

In her free time, Caroline enjoys all kinds of sports including running and playing golf. She also enjoys spending time and playing with her white miniature schnauzer, Evie!

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