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Financial security in Singapore plain and simple.

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This condo investment has been a drag.

Thursday, June 8, 2017

Is cash flow sufficient to service debt?

Hello AK, I read many of your interesting articles on your blog on financial matters. 

I would greatly appreciate some advice to manage my finances. 

I turned 55 and am still working. 

I live in a 3 room HDB flat fully paid for. 

I purchased a 2-bedder private condo in the east for investment purpose and renting it out since mid 2015. 

The rental is covering my mortgage loan but the other expenses such as property tax, home/fire insurance and maintenance/sinking fund amount to $7000 (a year). 

I am thinking of letting go this property...

If you are concerned with investing for income to fund your retirement, it seems that this condo is more a drain than a pump. 

If the home loan is going to be paid up soon, then, less to worry about. 

If the home loan has another 10 years (or more) to go, at 55 years old, I might be worried.

Know your motivations and you will know if something is the right tool for you.

Related post:
Buy a condo or stocks?


Spur said...

Hmmm, at 55 I wouldn't want to rack up huge debts/liabilities. Hair already turn white ... scarly all also drop off... :O

Even if can get 1% mortgage, I would still make sure got enough funds to fully pay up if necessary.

I think many still tend to over-estimate potential (rental & capital gains) and under-estimate costs/efforts. Not a pretty combo when we're still in the middle of new condo over-supply surge all the way into 2019.

AK71 said...

Hi Spur,

Those who bought condos in NE Singapore in recent years are the worst hit.

Buy shoebox apartment in NE Singapore?

I did so much worrying in my 20 years as a working adult, especially the early years. In my retirement, I try to keep things simple and as worry free as possible.

Of course, I cannot assume that this is what everybody wants in retirement. ;p

Wong said...

Hi Spur,
obviously there is no free lunch. If you can find a property with the rent covering all the costs, you as a private person will be the last person to get your hand on it.

Such properties you hope for are available in the post crash areas like USA in 2008/9 but then everyone is worrying about the job and finding tenants that will pay rent.

If the price of properties increases rapidly as you hope, our next generation will be the ones that will bear the load. In fact, the millennials are already carrying the problem.

Good luck!

AK71 said...

I know a couple of people who are experiencing financial difficulty now because their investment property's rental income is unable to cover the monthly mortgage payments and property related expenses.

These are usually people who were late to the party. Late? Yes, they are usually those who joined the party when everyone was madly rushing in to plonk down their money on any asset for fear of losing out.

In some cases, if they were to sell their properties now and many are already trying to, they might not even recover their initial investment after considering all the costs involved. Don't believe me? Look at the asking prices of those boutique developments in D14 in Singapore.

Ben said...

Hi AK,

I think that people tend to forget the initial purpose of buying the property. The initial purpose is to have a roof over his/herself. This is the first or second tier of Maslow Law of Need. This is applicable when the wants eventually become the needs in the prespectives of many people. An example is the car. In the past, the car is considered as a want to most people. However, the car is now classified as a need for most people in particular for those people with young kids.

Life can be so simple. I think that people makes it complicated and most of the needs become wants. This is coupled by the "FOMO" factor. The "Fear Of Missing Out" mentality has made most people feel that if he/she does not have such property or car or others, he/she will be considered as inferior or the odd one out of the mass crowd. Mass crowd tend to eliminate the odd one from the society.

The basis way to avoid such circumstance is to live a simple life and adopt the non-nochalent attitude to FOMO.

My two cents worth of opinion.


AK71 said...

Hi Ben,

Properties can be good investments for income and I have blogged about this many times.

Unfortunately, most people buy when there is market euphoria and end up paying prices too high, making bad investments.

Being very big ticket items especially in a country like Singapore, wrong investments in properties are very likely to be financially crippling for most people.

K said...

Hi AK,

I have an investment property and the outstanding loan is $800k @ 1.7% interest. If I have $300k earning 1.4% interest in a Fixed Deposit, I would believe it makes sense for me to reduce the outstanding loan to $500k. According to a friend, he says that even though the FD interest is less, it still makes more financial sense for me not to pay down the loan. This is due to the leverage on the property, tax deduction on loan interest, etc. Is this possible from a mathematic POV? (I understand it may make sense for me to have some cash for a rainy day)

AK71 said...

Hi K,

It is always important to have money near us but how much should this be?

It depends on what we want the near money for.

If it is simply to have enough for a rainy day (i.e. an emergency fund), then, realistically, how much do you need?

If it is an opportunity fund (i.e. a war chest) to take advantage of any stock market depression, for example, then, ask how you could get a higher than 1.7% ROI a year?

Think it through and go with an answer that you are comfortable with.

Everyone is different. :)

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