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"E-book" by AK

Second "e-book".

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ASSI's Guest bloggers

Worried about upgrading your home?

Sunday, April 30, 2017


Reader:
I remembered you mentioned that our home is consumable. Not a asset.


AK:
Our home, if fully paid, is an asset. It is just not an income generating asset. ;)


Reader:
I'm contemplating job change after many years in same company so upgrading also a bit worried.


AK:
It would be very nice to do something you love.


Reader:
Just like you now.. be farmer at home and watch Anime😄


AK:
Alamak!

How a 30-something couple got rich and retired by not joining home ownership 'cult'. (See related post at the end of this blog.)


If we upgrade our home, we should not downgrade our mental health. 

If we have good reason to worry about upgrading our home, don't upgrade.

Most of us are not super rich but even for the super rich, peace of mind is priceless.



Is there any guarantee that we will make a capital gain when we sell our home in future? 


Can we treat money paid for our home as money in a Fixed Deposit which is, in case you don't know, almost risk free?

There are usually many perspectives on any one issue. 

Who is right? Who is wrong? 

I don't know. Maybe, you know.

Salesmen would want to sell. They have to. It is their job. 

Our job as consumers is to separate facts from opinions and then decide if we should buy.

Related posts:
1. Wife wants to sell HDB flat to buy condo.
"Our home is a consumption item. It would not be wise to overstretch our finances to stay in a more expensive home and I know a few people who overstretched."

2. Financial independence over home ownership.
"...would you rather have $1 million in income producing assets (e.g. income stocks) or a $1 million home (which doesn't generate income but instead would incur expenses)?"

6 comments:

Spur said...

IMO I treat my own stay-in property as a consumption item, even though it has already been paid up for over 10 years liao. Why?? No such thing as free or zero rental --- what you've done is merely pre-paid many decades of rental upfront.

And that's not counting all the property taxes, conservancy fees, repair/maintenance fees, home insurance you need to shell out & standby.

With limited resources (e.g. time, money, etc) you just need to evaluate roughly what's the best approach to house your body, family etc in relative safety & comfort & hopefully also makes good financial sense.

In SG, with the G being so obsessed with getting citizens to buy HDB and manipulating the HDB market, it is a no-brainer to buy HDB at least as a 1st home. In many overseas cities, it makes more sense to rent.

And yeah, it takes effort to manage investment property. I have a small condo that I rent out, and frankly I hate having to deal with the hassle of tenants demands, lease renewals, maintenance/ re-painting etc etc. Should have sold it during the peak in 2013, but my wife likes playing landlord & I let her run it.

AK71 said...

Hi Spur,

I share your sentiments. :)

Unless our home generates positive cashflow for us, it is not an investment despite what many think and what property agents say. Oops.

Properties can be investment assets but unless we are big players in the game and we have people running the show, we must be prepared to do some work especially if we get tenants from hell.

Cory said...

Our home theoretically is renting home to ourselves. Is an investment depending on the "rent" we would have paid and the loan cost. And the present home value. Even if we have fully paid, there is still opportunity cost, nevertheless a cost which we consume which we will anyway since we have to stay somewhere. Some say we can stay with parent and no cost. Well, the cost is burden on parent home opportunity cost. Well, they never rent out, but that's their financial cost. .... Nevermind...talking to myself ... :-)

AK71 said...

From FB:

Daryl Lee:
Properties ownership works differently in different countries. What works in Singapore might not work in elsewhere. We have limited land and there's nowhere else to go to. Unlike some countries where you can always clear land to make space for new land for new housing projects/town, let town with less economy potential fade into oblivion, we don't have that luxury in Singapore. Supply is limited. If demand falls sharply, that means Singapore economy is in a dire status, no matter what Singapore investment you have, it'll all be affected. Like you, talking to myself niah. 😬

No matter if it's fully paid or not, you'll always need a place to stay. Either you pay someone else for a place, or you pay yourself.

"We were saving for a down payment just like everybody else, but then the goalpost kept moving and just kept getting further and further away. When we had 500 grand and we look back at that house that was listed for 500 grand now is 900 grand"

Hmm.. doesn't this tell them something regarding importance of property ownership ?
Did their investment managed to make an 80% return in the time the property went from 500 grand to 900 grand ?

4% Return on 500 Grand, it'll take 20 years to make the 400 Grand.
Am I missing something here ? 🤔

---------------------

AK:
Of course, we need a place to stay. In certain instances, it does make more sense to rent a home. In Singapore, however, if we qualify for a BTO HDB flat, it provides the best value for money. It is a no brainer. If we want to stay in a condo, a brand new EC gives us some margin of safety.

Buying anything thinking that its price will go up makes it a speculation. Buying anything because it is able to generate income for us makes it an investment.

Nothing wrong with speculation but, like I always say, we should keep our speculative positions relatively small. With properties in Singapore being very big ticket items, it is even more important to stay level headed.

Of course, I hope that Singapore stays prosperous and that everyone sees their homes appreciate in price forever and ever.

SkinnyOldMan said...

I would like to share a personal experience.

My wife and I have relatively high paying jobs - and we work like dogs for it. But unlike our friends who make about the same amount and stay in condos and semi-d, we are the only couple staying in HDB 5-room.

We find it very comfortable already. Altho I often have to answer younger colleagues (I work in a very big organisation, very hierachical) why I still stay in HDB.

But one outcome of such a choice is that my housing consumption is very low, compared to my friends who consume the terrace or semi-d.

AND that allows me to invest! Albeit haphazardly. Even then, that helped me to create a passive income that is way bigger than that of my friends who consumed a lot of their salaries via terraces and semi-d.

Imagine if I have been more financially-literate and had read AK's blog earlier. My passive income would have been stronger.

So, some points I want to make : don't consume so much via housing choice regardless whether it is invstment or consumption, live below your means, be financially-literate, don't bother to keep up with Jones' and be comfortable to ignore people who wonder why you so kiam-siap and stay in HDB, and while you do an honest day's job by paying full attention to your organisation's business do make it a point to mind your own business and your own financial literacy and passive income portfolio building.

AK71 said...

Hi SOM,

Thank you for taking the time to share your experience and thoughts. I am going to copy and publish this comment as a blog. It is too good to hide in the comments section which few people read. :)

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