Cutting Through The Maze: How To Calculate Property Yields (Part 2)

Please read Part 1 of this article for better clarity.

Return on investment (ROI)

For the purpose of comparing with other types of investments such as bonds and shares, the investor can factor in some or all the other costs mentioned in Part 1. It is up to the measurer how detailed he wants the calculation to be but ensure that the comparision is on the same basis. The ROI reflects his personal circumstances and would not be applicable to another investor who may have a different loan and tax structure.

Here, the net annual rental is divided by the initial capital outlay and not the cost or market value of the property. 

ROI = Net rental income / Capital outlay

What’s in the calculation for strata properties?

For strata developments, the property management company works out the yearly expenditure to maintain the facilities and services of the common areas. Owners then pay the maintenance service charge proportionate to the number of share units held by their parcels — and the sinking fund contribution which is usually pegged at 10% of the service charge.

In addition, they need to pay the assessment rates, parcel rent, fire insurance premium, and landlords’ portion of repairs and upkeep of their own parcels. 

Liabilities of tenants

In the tenancy agreement of my apartment in a strata development, the tenant needs to observe the following regarding maintenance and expenditure:

1. Water, electricity and gas charges on the Premises including sewerage charges and all other utilities supplied to the Premises.

•  All charges for telephone and internet (if any).

• Replace and substitute the electric/fluorescent bulbs.

• Maintenance of the interior of the Premises including fixtures and fittings in good condition except for normal wear and tear.

• Costs of minor repairs and damages resulting from normal use not exceeding RM 200 

• Servicing of all air conditioning units within the Premises as and when required. Replacement and repairs are at the landlord’s expense unless they are due to misuse or lack of servicing by the tenant.

• Reinstate all additions and decorations to their original condition or to a condition agreed to by both parties.

• Not to cause the fire insurance policy to be void or the premiums to be increased and if that happens due to the tenant’s breach, to repay the landlord the increased premiums and reasonable expenses.

• At the end of the tenancy, to have the apartment cleaned, curtains washed and air conditioners serviced.

These may seem like a lot of responsibilities on the tenant but in practice, we give and take. 

Read my next write up as we crunch some figures to get net yields.

Read my Starproperty article on definition of market value and what determines it.