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Home loses $23,000 yearly to house antiques?

Wednesday, July 26, 2017

Inspired by several past conversations.

From a financial perspective, should a single buy a one bedroom HDB apartment for $100,000 or a three bedroom HDB apartment for $500,000? 


The former seems less demanding financially. However, in the latter, he could rent out two bedrooms and that could conservatively net him around $15,000 a year. 


The apartment could generate $450,000 in 30 years and, in his golden years, his apartment is almost free of charge.

If we are the sociable type and do not mind dealing with tenants, then, buying the bigger apartment which has the option of income generation makes sense. 


For any income investor, having such a temperament is fortunate.

If we are not the sociable type and if we value privacy highly, the one bedroom apartment is probably sufficient unless we are an antique collector and need more room to house our collection.


If we are not prepared to rent out two bedrooms, then, we are not only losing out on $15,000 a year in rental income but we are also paying 5x more for a home. 


Spread $400,000 over 50 years (assuming that is the length of our remaining life on earth) is $8,000 a year. 

OK, if we have a pretty pricey antique collection to house, maybe paying $23,000 a year is peanuts.


If we want our very own place to call home till the day we say farewell to this world, ask how much space do we need and could the price tag be smaller?

What is the topic of this blog?

Well, it is not about affordability.

Related posts:
1. Housing and CPF.
2. A big loan and CPF not enough.

3. Affordability and value for money.

6 comments:

Laurence said...

3-rm flats cost 500k nowadays??? It's becoming ridiculous. HDB flats are suppose to be cheap housing for the masses.
Besides privacy consideration, there are many other issues to renting out rooms. I had my fair share "tenants from hell" in the 1990s:
One never ever vacuum his room, brought a new woman to his room every other night. And kept me locked out of my own home for hours countless times, each time with the excuse that he accidentally latched the main door and was sleeping.
Another one, a student kept eating all my food in the kitchen and fridge, including the food that I wanted to have for dinner when I return home from work. which meant I had to go down to buy dinner.
My first flat was a new 5-rm, which I subsequently sort of regretted not getting the gigantic 2-in-1 executive flat instead. Still, after knocking down 2 rooms, my living room was big enough for me to train my shuttle run and 2.4km run on rainy days.

AK71 said...

Hi Laurence,

3 bedrooms. That would be a 4 room HDB flat. ;p

Unless we need the money (or the company of strangers), avoid being a landlord. :)

AK71 said...

Better to collect rent like this?

Man collects rent from his boss.

Collect from boss and not collect for boss. ;)

Bad AK! Bad AK! ;p

AK71 said...

See also:

Do you want to be a landlord?

foolish chameleon said...

AK,

what about the fact that the flat needs to be returned to the govt after 50 years?
how do we take that into the equation, if say we get the 3BR for 500k and rent out 2 BR?

AK71 said...

Hi fc,

The issue of lease decay is especially relevant for older HDB flats. If a single would like to buy a resale HDB flat which allows him to rent out 2 rooms, it would be more reassuring to buy a flat with a longer remaining lease in case he should be blessed with longevity. ;)

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