The remaining mortgage on the HDB flat is now $238,000. Market value based on a similar size flat sold at the opposite block is estimated at $600,000. Bought the flat for slightly over $300,000. Currently monthly mortgage loan is $1096. Right now, I have been thinking about the following few options. Family's gross monthly income is around $5600 (really average!).
Option 1 - Sell the HDB and Buy a Private Property
This will mean selling the HDB flat, giving it up and buying a new private property. It is going to be difficult as I will have to buy a private property that is less than $1mil I guess. If I can only take 35% loan based on family's gross monthly salary, that means the maximum monthly mortgage loan that we afford is around $1900+. As we are still paying for the car we bought, it probably means that we can only afford a mortgage loan of around $1,400. I don't think the banks will be willing to land us to much. I figure that means we can only borrow around $350k (pls correct me if I am wrong). Selling the HDB and buying a private property also means that this does not count as my 2nd property and I am not obligated to set aside the 50% minimum sum in both my wife's and my CPF account. We can probably use the gains from selling the HDB to pay for the private property.
End of the day: I am probably saddled with more debt but have effectively upgraded to a more expensive property. There will be less money to spend as I have to pay more each month for mortgage.
Option 2 - Keep HDB flat, Buy a Private Property to rent out.
This is option 2 which I have been thinking about and which I am leaning towards. But it seems almost impossible to do this. This is because of the following reasons:
1. No money in CPF-OA to pay for it. Will have to use all cash to pay for the downpayment. Even if all assets (stocks + bank accounts) are liquidated, I figure that we only have slightly over $220k. Not too sure how much the bank will actually lend us for the 2nd property but I guess it is around 60-70%.
2. Will also have to rely on cash to pay for the monthly mortgage. That is impossible considering that existing HDB loan is already $1096. It means I can only get around $800 per month more in mortgage loan. Will also have to repay off the car loan so that I can borrow the $800 per month more in mortgage loan for the 2nd property. That leaves very little options for me as I won't be able to find such a cheap property that only costs $800 per month!
Option 3 - Keep HDB and Buy REITs.
REITs are easily liquidated. I also collect dividends. This seems to be a very feasible option with little downside.
Option 4 - Sell HDB and Buy 2 Pte Property
Lately, I came across this strategy which advised to sell 1 property and buy 2 properties. In this manner, you can rent out 1 and stay in the other. Not too sure whether this strategy will work at all cos it will probably mean that I have to buy 2 really small pte property.
Wise folks out there. Any advice on all the options???
Option 5 - Just stay put and clear off that loan! Haha.
ReplyDeleteOh and you can target good blue chips with solid business models and good free cash flow along the way if you have spare funds. I won't recommend REITs.
I agree, never sell off your own property to buy another. Bad idea unless u make money out of it. Stay put in HDB longer, pay off your debt till <150k and remortgage to borrow money to purchase a private. Lastly move into private apartment, rent out the HDB to cover payments.
ReplyDelete$5600 gross household income?
ReplyDeleteI think you better stay put in your HDB or upgrade to a DBSS.
Further, what is your objective ?
Option 1 is out since a house you stay in is not an investment. If you want to invest, then it is not a house you can stay in.
If I am very certain my next private property can "double" like your HDB in 5 years time, and I am certain I won't lose my job, then it's a higly profitable leverage "trade" by selling my HDB to upgrade to a private condo. 1 million condo doubles in 5 years, I can sell out and downgrade to a resale HDB. I would have at least 1 million in cash! That's IF things went as planned - no double dip or personal crisis (what if love ones need urgent money for emergency?).
ReplyDeleteAnother way to look at it is cash flow. Will it aid my financial freedom plans if I am saddled by MORE monthly cashflow OUT commitments every month to do the trade above?
I am accumulating my cashflows IN for option 2. This way, I am well capitalised to absorb any loses. My risk management is can risk an arm or leg; but cannot risk my sanity or health.
Patiently waiting for the next property down cycle.
Don't need to be so kan cheong to invest. Be patient.
ReplyDeleteHi,
ReplyDeleteWhat is debt?
"Debt is the commitment of future, non-guaranteed, yet-to-be-earned income for past or present purchases.":- Anthony Manganiello
Your 1st house mortgage is a necessary debt.
Is your next debt necessary?
Please remember there is no such thing as a "Good Debt" if you run into cash flow problem.
I try all my life very hard not to spend my "future wealth" by not getting into debt.
So today i can at least see i have some of my "future wealth" to enjoy now.
Out of curiousity, let's take a scenario, in which property prices in Singapore decline by 25%. Would any of your advice to FF change, ceteris paribus?
ReplyDeleteOn a separate note, i'm not advocating buying that second property, but i'm of the opinion that some leverage is good. Debt is not necessarily a bad thing, if used properly.
Take the classic example of someone who just got a huge pay rise and can afford to pay off more of his housing loan.
Should he do that, with rates at a low, or should he put his money to work, and earn a return greater than that of the interest which he has to pay?
Read? Investing in property may be less profitable than buying shares
ReplyDeleteHi,
ReplyDeleteFor me unless I am running a business I don't want any debt.There is really no such thing as a "Good Debt". Unless you have ready assets stand-by to cover your debt why take the risk of going bankrupt. Another words, unless your personal's assets exceed your liabilities, you cannot afford to go into debt as a private identity. If you are a Company PTE. LTD, then by all means, borrow as much as the bank or who ever want to lend you. Ha! Ha!
Read? Business Leverages And Personal Leverages.
ReplyDeleteHi,,
ReplyDeleteNice post i really like your. Before investing your money awareness is most important key to long term success, if further down the line you want to keep options open, clarify your requirements early on, and take care to understand the licensing terms applicable to any work you might incorporate.
I wont recommend buying REITS. No doubt you get your dividends as promised every year.
ReplyDeleteBut don't forget, REITS have a tendency to issue rights diluting stock holders share; this is a taboo in investing in a business.
Investing in a business for dividends, you actually hope the company does share buybacks, increasing your holdings. Indirectly raising your dividend level.
But well, since you buy AIMS reit le, it aint all that bad. At least there's always the 10% returns to look forward too. Cheers.
Thanks. I know that REITs have a tendency to issue rights but that is because most REITs in Singapore are on an acquisition mode to expand.
ReplyDeleteI like the distribution yield that comes with REITs and compared to a physical property, it is much easier to liquidate.