Rental Property Investment: A 2025 Cash Flow Reality Check

By the end of 2025, although residential property prices have retreated from their peaks, mortgage interest rates remain relatively high (HIBOR-based mortgage cap around 3.75%–4.0%, depending on the bank). In this environment, buying property for rental income is no longer about "buying and waiting for tenants to pay your mortgage," but rather a practical test of cash flow sustainability.

The following 6 Q&As, covering entry qualifications, cash flow calculations, and defensive mindsets, will help you conduct a self-assessment.

🛑 Part 1 | Qualification: Do I Have an Entry Ticket?

Q1｜I want to buy a property for rental income, what is the maximum loan-to-value ratio I can get?

Can I use the 'Lam Cheng Plan / Bo Shu Plan' to borrow 90%?

A: No.

High loan-to-value mortgage insurance (commonly known as the Lam Cheng Plan / Bo Shu Plan) only applies to self-occupancy purposes. If the property is declared for rental use (investment purposes), banks generally only approve a maximum of 70% mortgage.

👉 Practical example (6 million property):

• Self-occupancy: Can borrow 90%, down payment 600,000
• Rental: Only borrow 70%, down payment 1.8 million

Q2｜I already own a self-occupied property and want to buy another one for rental income. Will the mortgage application be more difficult?

A: Generally, it will be stricter.

Although the Hong Kong Monetary Authority has suspended stress tests, the 50% cap on the Debt Servicing Ratio (DSR) still exists.

When you apply for a mortgage on a second property:

• The bank will calculate the total mortgage payments for both properties
• For "investment purposes," some banks may adopt more conservative internal assumptions

👉 The key point isn't whether the bank is willing to lend, but whether you can still afford the payments if something goes wrong after borrowing to the maximum.

🧮 Part 2 | Calculation Chapter: Will I Profit or Lose?

Q3｜The agent says this property has a 3.5% rental yield, better than a fixed deposit (about 3%). Is it worth buying?

A: On the surface it wins, but based solely on cash flow, it's usually a loss.

3.5% is a superficial yield, and beginners most easily overlook holding costs.

Simple estimate:

• Management fee: About 8–12% of rent (depending on the estate; new buildings are usually higher)
• Property tax: Actually about 12% of rent (after deducting the 20% repair allowance)

Net yield: After all deductions, it typically only leaves about 2.3%–2.5%.

• Cost of capital (actual mortgage interest rate): About 3.8% or so

📌 Conclusion: Using an interest cost of about 3.8% to obtain a rental yield of about 2.5%, looking solely at cash flow, this is a "negative cash flow" investment, meaning you have to top up money every month.

Q4｜How much "Property Tax" do I need to pay for rental income?

A：The government provides a repair allowance.

The tax calculation method is:

(Annual rent − Rates paid by the owner) × 80% × 15%

🛡️ Part 3 | Mindset: How to Buy Without Becoming a Burden?

Q5｜After calculating the numbers, I need to "subsidize monthly," but I'm optimistic about the appreciation potential in that area. Is it still worth buying?

A：It depends on your "defensive capability," not your confidence.

This type of investment is essentially:

• Betting on appreciation
• Rather than earning cash flow

Please honestly ask yourself two questions:

• "If I lose my job, or the unit is vacant for 3 months, can I still afford the mortgage?"
• "Do I have 6–12 months of mortgage payment cash reserves?"

💡 General advice (not investment advice): Only consider it if you can easily afford a monthly cash flow subsidy of $3,000–$5,000 (treat it as saving), and have sufficient defensive funds. Otherwise, this asset might become a source of life stress before it appreciates.

Q6｜Which is better: buying a "tenanted property" or a "vacant possession property"?

A: For beginners, buying a "vacant possession property" carries lower risk.

Valuation pitfalls: For tenanted properties, banks may not be able to inspect the interior (unable to confirm if there are unauthorized renovations), which can lead to potentially conservative valuations. This might result in not being able to borrow the full 70%, requiring you to come up with additional funds at the last minute.

Control: While vacant possession properties involve short-term vacancy costs, you can:

• Conduct property inspections
• Renovate to add value
• Choose your own tenants
• Set market-rate rents