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45 years old, to get a bigger HDB flat or to invest?

Saturday, July 12, 2014

During InvestX Congress last month, I said that sometimes, readers who are older would write to me and ask why I always blog about starting young. What about people in their 40s or 50s?

Well, I received one such email recently from J and she asked me:

First, I hope u can give some suggestion or  put yourself in the position
of those who realise the importance of the passive income at their later
age, say 40s. Eg, If I m 45 with small cash and a how could i
turn my life instead of nothing. (b4 45.....dont have any depth
financial plan, but with a good job which provide ....still can
survive+small saving income, moderate incurance & etc)

Would you mind to do a comparison on invest in a bigger HDB or use the
money to invest in a condo or maybe factory unit with a cash of $300k? I
hope to know your view/opinion is because currently I own an 3rm HDB,  but
a little crowded as my children already grow. So, my initial plan is to
change a bigger HDB, then invest a condo/warehouse with the balance of the
cash. But, there is a rule that if i own the HDB after 2010 (if I m not
wrong), i must sell my HDB if i invest in a condo. This also mean that I
lost a way to make some passive income by collecting rental.

My reply to J:

Hi J,

If I were 45, I would have to work doubly hard compared to someone in his 20s or 30s to achieve the same result by age 65, all else remaining equal.

However, if that was impossible, for various reasons, then, I would have to moderate my expectations and have a lower passive income compared to younger people, again, all else remaining equal.

In the end, it is really what kind of lifestyle we have and expect to have at retirement. If we have a simple lifestyle and with all our children grown up and supporting themselves, logically, we won't need as much money. No more big ticket items except for possible hospitalisation which should be taken care of by a good H&S policy.

If I were still holding a good job at age 45 and had sufficient savings to last a few years even if I were jobless, I would continue to save as much as possible and be prepared to invest when the opportunities present themselves. It is only a matter of time.

As for your HDB flat, it is for living, not investing. If you need more space because your children are bigger now, you should get a bigger flat. If you want more space when you don't really need it, then, that is different. I believe that there is a 5 years M.O.P. once you move into a bigger flat. I could be wrong because I am not well versed in matters to do with HDB flats.

Generally, I do not think investing in residential or industrial properties in Singapore now is a good idea. A huge surge in supply in the next few years will put a dampener on rentals and prices. However, there could always be offers which are good value for money. It is just harder to find them. I would take a look when there is blood on the streets. All investments are good at the right price, after all.

Remember, I am not offering any advice. Just sharing my thoughts.

If you have any ideas which you would like to share, please do so in the comments section. Appreciate a meaningful discussion, as always. I don't know everything there is to know, I am sure.

Related posts:
1. To retire by age 45, start with a plan.


pf said...

3 rm is really quite small with children.

The thing abt passive income with property is that it is not really passive. Hv to find good tenant that is not too troublesome. Additionally, need to pay tax for rental income. If I can imagine life of this lady, it shld be quite bz....working in a job that pays well, taking care of children. to tend to tenant requests to fix plumbing, etc?

Also, additional rental income may push her over to next tax bracket.

Anyway, after buying bigger hdb flat, renovations, may only hv 100k left. Assuming not want to hv debt at this age.

Might as well just keep for good opportunity in the stock mkt.

AK71 said...

Hi pf,

Thanks for weighing in on the matter.

I am inclined to think that buying a bigger flat is what she should do too. :)

amoose said...

Hi Ak,

It is heartening how you take the effort to respond to your readers' queries. :)

Not sure if the lady who asked the question will read this, but you can still buy a private property while owning a HDB, as long as you have fulfilled the Minimum Occupation Period (MOP), and are a Singaporean citizen. Recent rulings disallowed PRs from holding on to a HDB and buying private property.

EY said...

Hi AK,

I agree that it is best not to see the home which we live in as an investment. Thought I would just chip in a bit here.

There are 2 issues - family needs and financial planning

1) Family needs - space
Keep the focus on the cost. How much do we have to pay for that extra space and ask ourselves if there are alternatives? I'm more inclined to consider renovation to create more space. $30k should be sufficient for space reorganisation. There are some innovative solutions that combine the study table with the bed for instance. Solutions to maximise storage will make room for more living space.

Kids will grow up and leave the nest. Everyone is thinking of upgrading now and selling later for a nice profit and downgrading to 3 room during their twilight years. Bearing in mind that families are getting smaller. I would think that demand for bigger flats will contract. Might be worthwhile to be a bit of contrarian here than to bet on the wrong side and miss other good investment opportunities.

2) Financial planning - ROI and capital preservation
At this point, property investment in Singapore would give rather paltry returns. Property tax is 10%, rental income is subject to personal income tax, maintenance fees is about $220 per month, and mortgage interest is quite a sizable amount too. Shoebox segment is getting crowded. Buying at prime locations will cost $850K to $1mil+ with rental of $2.8K to 3.6K. RCR shoeboxes cost $650K to $800K with rental of $2K to $2.7K. Renters of this segment are price sensitive. A $200 difference is rental would mean an additional month of rent.

With $300k, I won't bet it on property now especially if I have little knowledge and exposure to this segment. Assuming that I'm new to stock investing as well, I would just keep all my money in FD.

Meanwhile I'll invest my time rather than money in the stock market. Come up with a plan on what to buy and at what price. Do some projection of risk and return on different scenarios and pick one that suit my risk profile.

Then when the market tanks, start the shopping frenzy and wait for harvest time. :)

AK71 said...

Hi amoose,

I am happy to share what little I know, always careful to say that I am not giving any advice and that my way is not the only way there is.

Thanks for sharing more information here for J's benefit. :)

AK71 said...

Hi Endrene,

Thanks for weighing in on the matter. Can always trust you for some level headed suggestions. ;)

OK, I know the suggestions are for J but:

1) Yeah! I am happy I sold my bigger apartments to get shoebox apartments 2 years ago! They are likely to see stronger demand in future (and URA has clamped down on their construction)! Thanks for giving me more confidence!

2) I agree that now is not the time to be buying properties in Singapore unless we can find undervalued ones. There will be blood on the streets and we don't want it to be ours. -.-"

pf said...

AK71, its great that you downgrade in size.

Don't think reorganization can do it for 3rm hdb for a family with kids....really too small.

I also think that in current times, if we buy property, we must buy a decent size and downgrade later.

Or else to add on more mortgage later on in life is quite tiring.

AK71 said...

Hi pf,

When I was selling my home 3 years ago, I thought to myself it would be so nice if I could sell half of it and retain half. Then, I would still have my own pad. Unfortunately, that was impossible, of course. :(

So, although I was not really looking for a new home 2 years ago, when I came upon what I thought were undervalued studio apartments, I bought more than one. I could have bought a bigger apartment but I wanted the option of being able to sell 1/2 my home and keeping the other 1/2. ;p

pf said...

Ok. That's first time I heard of such a reason. But whatever rocks your boat. ; D

AK71 said...

Hi pf,

Wahahaha... I will get seasick easily. Please don't rock too hard. ;p

Well, there is also a more practical consideration of getting rental income without having to share space. Getting two studio apartments, renting one out, instead of renting out the spare bedroom in a bigger apartment does this for me. It is costlier but I get more privacy. Oh, I also get two parking lots instead of one. ;p

OK, I know. I am weird. -.-"

SnOOpy168 said...

(reposted from AK's FB page)

makes sense to upgrade to the biggest hdb that is needed. when & if the kids grew up and moved out, the spare rooms can be rented out for income.

But watch the fine prints, if using cpf for repayment. @55 , he may have to cough out cash (partially) to repay the loan. does he have this kind of cash available ?

Added: What is wrong with 3 room flat ? My bro & I grew up in 1, with our parents and grandma was an additional with her final years with us. Those were the pre-ipad & maria days lah.

SnOOpy168 said...

The common misunderstand that downgrading their bigger flat to a smaller = cash in the pocket. Oh yeah ? You take a hdb/commercial bank loan and use your cpf to pay the monthly.

Effectively, you are paying the interest on the loan and having to make up (i.e. repay) the interest on cpf that would otherwise be earn, had the $ been sitting inside OA. Double interest, which can sit at 4 - 5% p.a. compounded to 30 years, make a guess how much of the capital appreciation from the sale of flat has gone back into CPF ?

Also, sell high and buy just as high. when my parents bought that 3 room HDB, it was a princely sum of $6000 (dad's pay was about $125/mth). , how it is $400k+. If mom sells it, her next place is gonna cost $xxx,xxx. Unless still is lucky to get another HDB direct, the elderly folks short lease type. At a reduce $ & generously reduced space.

AK71 said...

Hi SnOOpy168,

Yup. Sometimes, downsizing makes sense. Sometimes, it doesn't.

However, I would say that downsizing would almost all the time make financial sense. It could mean money in the pocket if our home is fully paid or it could mean a lighter debt burden or zero debt burden. I have personally witnessed all three scenarios. :)

Of course, downsizing would not make financial sense if we gave up a 700sq ft 3 room HDB flat in District 3, for example to buy a 500sq ft condo in the same district. ;p

Vincent said...

Correct me if I am wrong.

When you are 45, you have only about 10 more years to go to reach 55. The year whereby all your CPF will be transferred into the Retirement Account (RA). It means that unless you have already paid up your housing loan by then, you will need to cough up those monthly installment via cash.

At age 55, who can guarantee that you still have a well paying job that allows you to continue servicing the home loan? Assuming that you have emptied (or near emptied) the CPF ordinary account in the first ten years, that means you will not meet the minimum sum. That also imply that you may have problem meeting your retirement needs further down the road. Unless you sell your house and downgrade. That will again depend on the housing market then.

Regardless of how the property market may fluctuate in the near future, I am a bit wary of piling up a long term housing loan when you are within the range of 55 yrs old. But that is just me, others may have different view.

Ray said...

Nice AK.
I'm assuming you reply to all your emails like you did for this 45 y.o. Very patient of you and with no rewards at all. OK, maybe they will be nice enough to click on some of the ads on this blog, but still....
How do you find time to reply all these emails, blog and then look at investment. You are really great with time management!

On the part where you keep saying blood on the streets, don't you find the property cooling measures sufficient to curb a bubble forming? Or are you banking on something more global?

AK71 said...

Hi Vincent,

You have highlighted something very important in a very concise fashion. Yes, this is an important consideration for any middle age Singaporean who is thinking of upgrading his home. :)

AK71 said...

Hi Ray,

I have been asked this question before many times. My answer, "I have no life.". LOL! ;p

Well, more accurately, I do not have much of a social life. So, I spend my evenings and weekends blogging and when you see a blog post published during the day, chances are that it was written the night before or a few nights ago. :)

Blogging is one of the few hobbies I have now. So, it is not so bad but it is getting more time consuming over time. Once it begins to feel like a job, I guess that is when I might stop blogging.

I am in transition to semi-retirement and I am beginning to work part time. So, I have more time to do things I like without having to worry too much about pay which includes blogging. Time management becomes less of an issue.

As for prices of properties, I believe that nothing goes up forever. And history has shown that it was really catastrophic events in the world that really sent asset prices plunging.

Could such events happen in the near future? I don't know but I am willing to bet that something catastrophic will happen again in future.

Capricon said...

it still requires a strong passion and self discipline to continue blogging regularly, answering queries etc.

But just couldn't focus to read the investment books which some time need to correlate to what i am doing or trying to understand each sentence deeper on what the author trying to tell which is tiring. Usually end up on watching lying on my bed watching TV again. :(

i do allocate some time to run through corporate announcements daily, read AK blogs. :)


AK71 said...

Hi Capricon,

I am naturally quite a lazy person. I try to do the bare minimum. -.-"

I admire people who are willing to spend days and even weeks to research a stock thoroughly before making a $5,000 investment, for example. These are truly good examples for us to follow. :)

For me, if I am sure about a certain investment and if it is at a good price, I go in big, sit back and try not to move too much. (Yikes, that is how I am getting fatter.)

I enjoy watching anime on my iPad mini in bed too. (Yikes! I am so fat now!) -.-"

pf said...

For some ppl, thinking and researching is more than half the fun. Reading and understanding investing is more interesting than making money for me.

I plan my money when I am bored. :)

AK71 said...

Hi pf,

You are one of those people I admire then. Good example to follow! :D

Please remember that I am always on the lookout for guest bloggers amongst my readers. So, whenever you are prepared to share, please let me know. ;)

pf said...

Huhhhh. ...don't want lah. I don't mind to chip in the comments since u r blogging abt topics that I am currently thinking abt.

I dunno how to write abt a topic on my own. Hahaha...

AK71 said...

Hi pf,

Haha... Well, actually, if we were to piece together a few of your more substantial comments, we could probably come up with a very decent guest blog. ;)

No worries. Whenever you are ready and feel like doing it lah. ;p

Jean Yap said...

Dear All,

I am Jean.....the 45-year-old old woman. :)

First, I must thank AK for posting my questions openly so that I can receive comments from all the friends here.

I appreciate all the comments which also highlighted to me those areas that I never consider/think, chances for me to pay CASH for the future instalments is high. Chances to get a CHEAPER flat is high......n NOTHING WRONG to hold cash...etc.



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