Many Singaporeans dream of having more than two properties, one as a home and the other as a form of investment property that can earn a rental income. Being a landlord entails huge costs such as property tax and the cost of upkeep. To help you optimize your financial position as a landlord, below we discuss some ways that can help reduce the cost of your property ownership.

Take Advantage of Tax Deductions

For landlords, using tax deductions can be a great way to reduce rental income taxes. Rental income tax can be around 10-15% of your monthly rent collection, which can add up to a significant amount over the course of a year. To reduce the actual amount of tax you end up paying, you can reduce the taxable income amount by deducting various expenditures against your rental income.

The items that can be deducted include any costs required to keep your property running and available for rental: interests on mortgage, depreciation & repairs, travel costs to sign contracts, insurance, and legal & professional fees. Doing so can help you save at least 15% to over 30% on your rental income taxes, and we think you should fully take advantage of this to maximise your income.

Let’s take a look at an example of how this works. You make S$2,500 of rental income every month, or S$30,000 a year. If you do not deduct the costs and fees related to the upkeep of the property when filing your income taxes, you will end up paying S$3,600 in property taxes.

However, if you do deduct a cost of S$10,000, this reduces your income before accounting for tax by S$10,000. Since only S$20,000 of rent is remaining and thus taxable, your tax declines to S$2,400, helping you save S$1,200 (or 33%) of tax expenses.

(in SGD) Deduct Expenses Do Not Deduct
Gross Rent 30,000 30,000
Total Deduction 10,000 0
Net Rental Income 20,000 30,000
Taxes Payable (12%) 2,400 3,600

Remember that tax is a very complicated subject and the tax law can contain a lot of caveats. For example, the allowable deemed expenses provision in the tax rule states that you can deduct up to 15% of your rental income without providing relevant supporting documents.

Also, there are different tax rules for people who own multiple properties, which you should beware of. To fully understand your options and obligations, we encourage our readers to learn more about this subject from governmental sources.

Get a Landlord’s Insurance

A landlord’s insurance safeguards your assets from unexpected disasters and mishaps. In Singapore, over 68% of fire incidents happen in residential premises, while natural disasters like floods can also cause serious casualties. In light of this, we think that a landlord’s insurance is a must-have investment, because of the high degree of protection you get for a relatively light financial commitment.

Some of the best landlord’s insurances typically cost about S$35-60, offering anywhere between S$144,000 and S$240,000 of building & renovation coverage, plus your legal liability to your tenant (e.g. if he sues you for defects in your home you weren’t aware of).

Even if you do already have the mandatory HDB Fire Insurance policy, you can still benefit from purchasing a separate landlord protection scheme. This is because your default fire insurance does not cover your fixtures & fittings and your legal liability as a property owner.

As a landlord, you are likely to need building & renovation coverage only (but not home contents coverage) because these are the actual assets that belong to you. Your tenants can get their own renters’ home contents insurance if they so desire. Overall, we think that a landlord’s insurance is a great investment because weather, natural calamities, and tenant behaviours all represent risk factors that can cause significant financial loss to you.

Know When (And When Not) to DIY

It is important to compare the costs and benefits of doing the upkeep yourself because both your time and money are scarce resources. While you can save money by doing some basic work (e.g. painting) on your own, hiring a professional might be a better choice for more complicated tasks.

For example, hiring an interior designer for a renovation project can be worth your money because the job requires high professional skills, and the cost of re-doing represents a high risk and financial loss. A recent renovation project can also help reduce your property’s vacancy, and therefore your financial loss.

Can I afford the expense? Will learning benefit my business?) before deciding to hire a contractor or do it yourself.

Take Pictures of Your Apartment Every Time Your Tenant Changes

Every time your tenants move in and out, make sure to record the status of your property by taking pictures of each area and sharing them with your tenants. Landlords in Singapore typically include a “non-performance” clause in the lease contract.

This means that if your tenant does not abide by any of the provisions in the contract (including defaulting on rent, damaging your property, etc.), you can seize his security deposit, which is usually one month’s rent. However, in order to rightfully claim your loss, you should document the status of your property, and be clear about your expectations for your tenant.

While some might think it creates awkward conversations, making everything crystal clear helps to avoid confusion when it comes time to repair. It is also a good way to encourage good tenant behaviour by holding irresponsible or messy tenants accountable to protect the look and feel of your property.

Understand the Impact of Interest Rate Volatility

Understanding some of the important interest rates in Singapore is critical to determining your financial position as a landlord. In a rising interest rate environment, property prices tend to peak out and start declining. This indicates an unfavourable condition for landlords because rent can decline along with lower property prices. On the other hand, declining interest rate means increasing property prices and possibly higher rental income, and a more favourable condition for renting out your home.

In either case, having a mortgage will likely further deepen your net position (favourable to more favourable, unfavourable to more unfavourable).For example, a rising interest rate environment means you’ll also have to pay more on your home mortgage on a monthly basis.

Combined with the likely decrease in your rental income, you are worse off as a landlord. On the other hand, when the interest rate is declining, you’ll not only make more rental income but also pay less on your mortgage, boosting your bottom line.

No matter what you do, following the market and the interest rates closely can help you determine an economically sound strategy for your property in a given market environment.

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