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Do I need a bigger home and what to do if I do?

Friday, July 24, 2015

Housing is a topic that is close to our hearts. It would not be wrong to say that most people tend to be somewhat emotional when talking about our homes. After all, home is where the heart is.

So, being objective which means not being emotional about our homes when it comes to viewing it simply as an asset or liability is not easy for many people. 

Fortunately, for some reason, AK is quite emotionless when it comes to his home or so his friends have observed.

Here, we have an example of AK dishing out some objectivity on a reader's housing situation:

Hi AK,

Hope this email finds you well.

Thank you very much for taking your time responding to our queries in relation to giving us your honest opinion in matters of money management.

I have a "worry".

Currently, we bought a condo and owing about $400k+ with the bank and paying our monthly mortgage still at $2000/month. Its a one bedroom small condo and small enough that we feel we needed a bigger place given that we just had a baby a few months ago.

1) Sell condo now and wait for 2 years before we are "allowed" to go into Econdo and might take another 4-5 years before TOP. In practicality, i feel its not practical to wait that long because we will need a bed for our 5 year old grown up boy but pros are we could save up "more" before buying into a bigger econdo home for a 3 member family. So more time for us to save up for something more value for the money e.g econdo, hdb. We made the mistake of buying to condo initally.

2) sell this condo now and buy into another bigger place with our current savings of $250k, meaning take out our savings and buy a bigger place, something like a 2+1 bedroom private condo. pros we can take opportunity of the low condo price now and "hope" in few years it shall provide us some asset appreciation. Note: Selling our current 1 Bedroom condo will make a 50-60k loss because of the low demand in current market now. we would have made 25% loss on our initial downpayment.

3) take our savings and stay vested so we could have more passive income (my idea actually). If stay vested with REITS e.g saizen of $250k. we could have about 1-2k per month passive income. Cons is we wont have a bigger place (will need to stay with our parents) and there is risk of an economic downfall (my wife's worry) and i am not sure during the last subprime recession how much did Saizen drop to? Meaning if i used my savings for buying a property at least the pros is i could have something physical at hand during economic downturn. Am i making any sense?

4) lower our debt ratio and sell off when the market improves then rip the profit--> then buy in to a bigger place. ( by then may be the property market and outlook would have improved)

I know nobody can tell the future but i would sincerely hope if you can share your experience and expertise on the subject i have at hand currently.


Hi B,

All of us need a roof over our heads. How big or pricey a roof? That depends on each person's circumstances.

I like to approach situations such as yours by thinking about the needs:

In your case, the first question to ask is whether you really need more space or could you make do with what you have (i.e. your current one bedder condo)? If you could somehow make do with what you have, then, no issues. Think about possibly refinancing the housing loan if that could bring down the cost of servicing the loan.

If you absolutely cannot make do with what you have and really need more space now, then, sell your current place only if you are able to find a good value for money offer in a larger condo somewhere. Don't buy a larger condo unit just because you can afford it, always bearing in mind that our homes are consumption items and not investments. What about buying a resale HDB flat instead?

If you think you don't need more space now but will need more space in the future, then, selling your condo and moving in with your parents first while waiting for a couple of years before you could buy an Executive Condominium from a developer (or a BTO HDB flat if your combined salaries are not too high) will most probably give you the best value for money. In the meantime, you could invest some of the money in the stock market for some extra income.

In summary, what you decide to do at the end of the day should consider:

1. What you need.
2. When you need it.
3. What kind of housing is acceptable.

I hope my talking to myself is helpful to you. :)

Best wishes,

Related posts:
1. Affordability and value for money.
2. Buying an apartment: Considerations.
3. Buying a property as an owner-occupier?


Betta man said...

I think in whatever we do and may I quote from AK - "Peace of mind is priceless". I choose to buy a BTO flat with my wife because we want to be sure that even if one of us lose our job, we are still able to pay up the flat with our savings. We would not be able to have that peace of mind if we had bought a DBSS or EC.

Just sharing my two cents' worth.

E H said...

Keep the current condo and squeeze a bit?

apex property investment said...

Consider renting this 'small' condo. It should give you a good yield. You can then rent a bigger place while keeping the $250k intact. Look for opportunity to invest or fully pay up this condo. This condo will be your ATM machine in future to withdraw equity for any emergency. The downside, you have a less stable home but given the market condition, you should rent first.

Sillyinvestor said...

Usually parents have bigger place because old units are bigger.

Stay with them if there is no bad blood. Rent out the unit. Invest, wait for property prices to soften over the next 2 years.

Change bigger unit and buy resale. Fast.

Your kids are worth it.

Just what I would do if I am caught in the similar situation.

We are planning for a second one, my wife told me she feel like "betraying" her mother if we go back home now. She says squeeZe squeeze and take care of each other.

I say she is taking care of us more than we are taking care of her, more burden in terms of chore but I leave it to her to decide if emotional it is better?

She wanted to stay, I henpecked, squeeZe and rent out unit and increase In law allowance. WIn win. Only I lose since I lose freedom lol

Unknown said...

Be practical... Hdb also very good... Money in hand for war chest and investment is better than to be stuck with property... Unless one is rich and doesn't care...

blazingruby60 said...

this is what i would do if i am faced with the dilemma. I would `bite the bullet' and squeeze in the one bedroom and saved more money first until this private apartment glut blows over .. maybe 2-3 years down the road. By that time, I would have saved more money and at the same time, get more money when i sell present home. Personally, I will not be getting any private apartment or condo anymore but get a resale hdb flat. The lesson I learn is the roof over our head, its a consumer item makes no sense splurging on it when we can invest/save for kids education or our passive income for the future. Just thinking and talking to myself.. :)

yeh said...

Hi mike.
Need to squeeze like that just to get little more money meh? Really no point la.

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