Buying real estate properties is always a great idea since it’s an investment. The value appreciates over time and you have full control on the property. Determining whether to live in the place you buy or lease it is up to you! However, if you want to fully utilise your investment in real estate properties, then leasing it to get monthly profit is a great way to increase your income stream.
We curated a list of everything you need to know to take advantage of investing in real estate for rental returns. Continue reading below to make the right financial moves:
1. Know about rental yield
Rental yield or “rental return” is the yearly profit you get from your property once you lease it. To get an accurate number, you have to deduct the current property value and all property costs like mortgage, HOA, and more from the annual income you earned from leasing.
There are two different rental returns you need to know: gross and net rental yield. Gross rental yield is the basic profit you get once you’ve deducted the property value. The formula looks like this:
GRY = (Annual rental income / Property value) x 100
On the other hand, net rental yield is the profit you get when you’ve subtracted property value and costs to the annual rental income. To compute it, the formula is:
NRY = [(Annual rental income – property costs) / Property value] x 100
2. Determine the real estate market for rental yields
Knowing the real estate market in Cambodia and other countries where you plan to buy properties is the first step to ensuring you utilise it as an investment. This is necessary since the market is different per country and its current state is also dependent on their economy.
In Southeast Asia, one of the countries with the highest rental yields is Cambodia. It stands at 5.33% average, where the annual return can be higher depending on the city you want to buy in.
To get the profit you want, make sure to invest in real estate properties in a country where you will benefit best.
3. Compare rental yield per city
Before choosing a property to invest in, you have to choose the city where you can yield the best profit among others. Average rental yields can depend on how attractive the city is to real estate property investors, tourists, locals, and more. If there are a high volume of people who visit a city, increasing the necessity for properties to rent and cost of living swells, rental yield can also increase alongside it.
In Cambodia, cities like Phnom Penh and Siem Reap have higher average rental returns since they’re popular tourist destinations. Average gross rental yields in Phnom Penh is around 6% to 7.5%, according to IPS Cambodia Branch Manager Malay Nop. On the other hand, gross rental yield within Siem Reap is 6.51%.
4. Find properties
There are different real estate properties that you can lease and all of them have varying rental yields. This means you have to consider which one will benefit you most when you lease it, thereby turning it into a passive income stream.
Here are the top four properties in Cambodia that are popular among renters, especially within the city:
According to a report released by realestate.com.kh in 2020, buying condominiums in city centres like Phnom Penh can range from $47,000 to $600,000. Cost depends if you want to invest in a studio, 1-bedroom, 2-bedroom, or a 3-bedroom condo. The apartment size can also be from 29 square metres up to 509 square metres.
Generally, average monthly rental returns of condominiums in attractive cities like Phnom Penh have yields of $1,000 to $4,000. High-end villas in city centres also offer the same rental yield per month.
On the other hand, if you’re looking to invest in a house, it can yield an average of $350 to $550 income per month, depending on the location.
Service apartments in Cambodia, from 1 bedroom to 3 bedroom, can yield an average profit of $800 to $1,700 outside the city. If it’s within the city centre, the yield can be $1,200 up to $2,500.
5. Determine the target tenant
There are two tenant types in Cambodia: locals and foreigners. These two types have different properties they prefer to rent and financial capabilities.
If you want locals as a tenant, then properties in Boreys like shop houses are great because they focus more on permanency and convenience. While rental returns might be lower, you can expect that lease terms are longer with local tenants. This means you’re getting rental returns for a longer run.
On another note, foreign renters often prefer condominiums or villas within city centres. Since demand and supply for both of these properties continue to increase over the years, security in getting tenants and high rental returns is assured.