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Buy a condominium unit or stocks for investment?

Saturday, June 13, 2015

A conversation with a reader:

Hi Ak71,


I would like to get some advice weather I should get a private apartment and do long term investment at the same time.

As for the apartment I would like to rent it out and sell it. I am still very green in these area. Hope we can have a small talk help me understand and look at the bigger picture.

Some information total cost of the unit 4xx k, getting 80% loan from bank.  

Regards,
L





My reply:

Hi L,

Welcome to my blog. :)

I won't say too much. I will just ask you to consider the following:

1. You want to go to my blog's right side bar and look for the box labelled "Investing in real estate".

2. If you are interested in long term investment for passive income, you might want to go to my blog's right side bar and look for the box labelled "Passive Income: A Journey."

3. Of course, make sure you have your personal finances in order first before proceeding to try your hand at investments. This is very important. Anyway, you might want to look for the box labelled "My Methods and Philosophy."

If you read up on the links in the boxes suggested, you will get an idea what I might say to you in your case. ;)

Best wishes,
AK


I have published more than 2,000 blog posts and counting. Do a search and you might find the stuff you have in mind. Please read disclaimer found at the bottom of this blog too.

Related posts:
1. To rent or to buy? Rule of 15.
2. To retire by age 45, start with a plan.
3. How to have peace of mind as an investor?
4. When to buy a private residential property?
5. Ask two questions when buying an investment property.

11 comments:

apex property investment said...

Since you are not savvy in either, buy a Condominium. Period. (:

AK71 said...

Hi Apex,

That is somewhat simplistic. Without knowing more about the prospective buyer and also what he is looking to buy, I wouldn't say that. After all, there are so many examples of people who bought properties only to sell at a loss for various reasons.

I would instead say if the reader is not savvy in either, it is best to avoid for now. Find out more before doing anything. I will remind him that money not made is not the same as money lost and to remember that nobody cares more about our money than we do. Don't ask barbers if we need a haircut. ;)

TG said...

ABSD add 10% plus 3% interest and other cost and another 2% sales cost. Off the bat you are out by 15%. So you need the property to go up by 15% to break even not to talk about making money. The property agents are the ones talking it up.

Hosaybo said...

The thing about property is that buying at the right timing gives u good returns through leverage. Leveraging can be a double edge sword cos if the appreciation of the property did not materialise above a certain value, one will realise that the profit will be "eaten" by the various cost. Rental income is only a small part of the equation as one got to consider the stamp duty, property tax, income tax, maintenance fees etc take away that, the returns are pathetic at the moment. Looking at the upside, doesn't look too good at the moment too taking into consideration the pending interest rate rise. Of course, own stay is another ball game as one is "consuming". Then the question to ask will be whether a HDB will be good enough rather than a condo.

AK71 said...

Hi TG,

When someone tries to sell something to us, promising good returns, it always makes sense to question who is bearing the risk. If we, the potential buyer, are bearing all the risks, then, any promise of good returns has very little or, indeed, no weight. ;p

Unless we do our own homework and are confident that we have found an undervalued property, it is best not to touch real estate in Singapore now. This is my view and there is no guarantee that prices won't go higher after this period of reduced activity, of course. Why?

The speculative fever could continue to reach higher temperatures in future. What are those amongst us who insist on buying that 2nd or 3rd private residential property to do? Understand that it is now less of an investment. As long as we know we are speculating and have the resources to do so, then, it is not so bad. ;p

I wrote a piece not too long ago:
Buy that second property and pay the ABSD?"

AK71 said...

Hi Hosaybo,

Yes, it is very more important now for anyone who is thinking of buying a private property in Singapore to realise what he is getting himself into and what are the things that could go wrong in the not too distant future.

I would say that only BTO HDB flats or newly launched ECs provide a margin of safety for owner occupiers now, the former more than the latter. I remember a time when private condominium prices fell to the price levels of the ECs then which led to the government shelving the EC program for a few years. Could things become so bad again?

Of course, human beings have short memories but some of us are too young, perhaps:
Disastrous investments in the property market.

Elvin Liang said...

Before buying a property, weigh the pros and cons of having alternatives.

What is the most value for money / most affordable alternative?

In this case, Real Estate Stocks / REITs VS Real Estate

What are the costs involved? My own view, I would say that real estate stocks are:

1) less leveraged (comes with less gearing risk),
2) commissions and taxes are lesser,
3) more liquid (easier to buy and sell because of a secondary market),
4) more transparent, because of regulatory governance,
5) Just as volatile in prices (because a financial crisis affects every asset class)
5) you own a part of the company
6) you are entitled to dividends (if any), good for income, similar to rental income
7) you are not taxed on your stocks for personal gain, nor do you have to pay taxes for your dividend during retirement.

The risks with property is that you have to pay interest on your loan.. taking a loan can be good or bad. But an important consideration is your cashflow. If you have to pay X amount of interest on your loan (which can also go up or down), you'll need to make sure you have income set aside for it.

When you're talking about buying at a good price / reasonable price, this comes with market experience and timing. Most importantly, a property unlike a stock, you can't average down or up.. so in this case.. it's not really good for managing risk.

You may want to read up and do more homework before deciding, especially on the financing aspect.

pf said...

How "passive" is "passive"?
Besides the stamp duty and taxes for an investment ppty, ppl don't calculate costs of paying agent to find tenant and deal w tenancy issues. Even if no agent, got to spend time to take care of tenant needs e.g. fix broken things, restore ppty to rentable conditions if necessary, etc. ....

E H said...

If you believe the Business Times, here's a rare condo gem in Toa Payoh.

My take: http://callingthetop.blogspot.sg/2015/06/close-fight-for-rare-gem-condo-site-in.html

apex property investment said...

Hi AK,

that situation thingy would be the subjective element that the investor would need to evaluate through. I'm saying if he got no problems holding both stocks and properties; properties would be a my choice. That being said, as a conservative first timer, I would use 30% of war chest as a guide to get into any investment for the initial stage, build up your knowledge and appetite as income grows. As I learn more, I realise I don't know much more. If I don't commit money, I will never learn.

AK71 said...

Hi Apex,

You sounded like you were dishing out advice in your first comment and the tone sounded pretty dogmatic. Your second comment's tone is softer. :)

The reader is considering stocks and properties, wondering which one he should go for. All of us have our own experience. I feel that it is OK to share our own experience and views but going as far as to say he should definitely choose one over the other is somewhat risky.

Anyway, you have clarified that properties would be "your" choice. So, it should be pretty clear to the reader now that you were not suggesting that he follows the instruction in your first comment. ;)

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