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A guest blog by Ms. Y who recently turned 35 and got herself a resale HDB flat:
I'm just a regular white collar worker with not bad a job. Work hard and long hours and get decent pay. However, I do need to provide for my parents as they age. My biggest concern is that they do not have much insurance coverage (but might be different now with Medishield life!) Anyway, they both have some medical condition which doesn't allow them to get insurance coverage now. I'm also now eligible to buy a hdb flat!
I don't worry abt a 1 time operation need. 30k or 50k, it's not difficult to fork out of my savings or even if I have to borrow, it's not difficult. What I worry is about the long term chronic illness such as chemo for cancer and kidney dialysis that is very cash draining. Who knows? I may even have to take no pay leave to look after my parents. Or at least until I can arrange nursing home, domestic help, etc. I don't know how much all that will cost but if I have to fork out 2 to 3k per month, my finances would be drained surely.
So, my plan is to buy a cash generating asset. Need to generate 3k cash per month by renting my flat in the event of need (moving back to parents' place to take care of them as reason for renting out whole flat b4 meeting 5 years minumum occupation period can be approved by hdb).
Of course, my plan needs to be backed up by a good financial standing by complying with the TDSR and MSR. MSR is only applicable to hdb flats purchased. So, I'm using less than 30% of my monthly salary to service my loan calculated at an imputed interest rate of 3.5% by regulation. Tip: b4 buying property, get a mortgage broker to calculate all these. I did so even when I studied the regulations and calculated a couple of times.
Anyways, after getting an approval in principle from 2 banks (w help of mortgage broker), I went shopping for a flat. To yield 2 to 3k of cash flow, it has to be at least 4 room flat and at a good location. Then I checked hdb website for such rental yield and decide amongst them one of a cheaper place for such yield.
Also, I'm quite sick and tired of the >1 hr travel each way to and fro work. So, I'm getting a flat near to town area. It is expensive no doubt, but it is serving my purpose.
Oh yeah, another reason why I do this is because I know myself. I'm not such a stock whiz that I get great returns in the stock market. Not so good in fact. I do well by squirreling cash away. Out of sight, out of mind. So, I don't spend it. Haha....I have most of my savings tucked away like this. I can say that I can afford this flat quite comfortably. In fact, after I have bought it, another transaction was done with price higher than mine.....hit above the 1 year high. Seems property market is going up again.
My flat is less than 5 years old. So, I plan to stay in it as long as I can. I will downgrade when I am retired to realized gains for retirement (hopefully). Or I'll just leave it and rent it out to finance my stay in a nursing home when I need it.
I have some amt in OA tied up in investments and paid 15% downpayment, stamp duty and lawyers fees. Found that I still have a small excess in OA. I just transferred them to my SA. My mortgage loan is ending when I am 60. So, I plan to pump up my SA now with min sum cpf top up and any excesses in my OA will be trf to SA. Trying to get govt to pay for part of my flat when I am 55. 4% interest in SA vs the around 2% mortgage interest....decision making is a piece of cake. ;)
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| A nursing home in Singapore run by First REIT. |
Now I have half the current prevailing min sum amt in SA and hit the ceiling of my MA. The only issue I have is that as my SA hits min sum earlier, I may not be able to make further contribution for tax relief purposes.
So, this is the story of my flat. :)
Congratulations, Ms. Y!
TDSR:
Total Debt Servicing Ratio refers to how much of our monthly income do we use to pay our debts. MAS policy is that TDSR cannot exceed 60%.
MSR:
Mortgage Service Ratio refers to how much of our monthly income do we use to pay our debt secured by properties (i.e. mortgage). Applies to HDB flats and ECs only. MAS policy is that MSR cannot exceed 30%.
Related posts:
1. Buying an apartment: Considerations for first timers.
2. Build a bigger retirement fund with CPF-SA.
3. Don't see money, won't spend money.
4. National Day Rally: Retirement funding adequacy.
5. Millionaire or not, plan for retirement.
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14 comments:
A quick calculation of of cash generation asset (HDB 4 room).
Assume 4 room flat cost $600K,
downpayment $120K,
loan $480K @2.6% for 25 year
Mortgage payment (mth) is $2,177
Rental income $2.8K
Positive cash flow (gross) is ~$623
So it does not meet her needs of 2~3K passive income.
1) Ms Y,
"I know myself"
That's the best foundation stone for any goal settings and plans to anchor on ;)
I've poked a lot on superficial goal settings and planning not because I don't use such tools myself, but many are building their edifices without using any foundation stones!?
LOL!
2) Ms Y and AK,
It's your post and blog so I leave it to you both if you wish to "correct" the lack of imagination of your readers ;)
Investment in financial products are personal decisions. Not all products are suitable for everybody. Readers and investors have to take personal responsibility to rely on whatever information they come across. ;)
Hi apex,
I checked the SPAM folder and I didn't see any comment from you which might have been filtered. Do you want to try again?
Food for thought.... Doesn't it make sense for her parents to move in with her once she has her flat so that her parents can start collecting rental for their retirement or building up their emergency fund. In this way, it frees up her resources and allow her to focus on her own retirement.
Can I ask how Miss Y could buy a resale flat that is younger than 5 years old? I'm in more or less the same situation but I always thought that HDB flats cannot be sold until after 5 years.
5 years MOP is standard. However, there is a 7 year MOP for people under SERS. 7 years start from the point when the flat owner selected their choice unit at HDB.
I'll post again.
Firstly, Miss Y, CPF OA should be kept in OA for rainy days to cover Mortgage payment. The difference of 1.4% is not significant to transfer to the SA which cannot be accessed in times of crisis and as you mentioned for the no pay leave to take care of the parents. Secondly, keep the mortgage running til the interest from mortgage exceeds the interest returns from OA. Then you decide if its time to pay up.
I am in a similar situation as you, but I don't wait til 35 to buy my own HDB, I asked HDB for waiver. Everyone should try to ask. No harm asking right?I keep my loan going as long as possible so I have spare cash to take on more debts. (:
Just my thoughts as a debts accumulator.
LG, try to ask, there could be exceptions out there. Elections coming, try your luck and ask again.
AK, can I tap on your thoughts. My family is downsizing from our current home and ideally would like to buy a hdb flat under my elder sister's name as she is 35. However she does not have any income so is ineligible to apply for loan. Do you think it is wise if I act as a co-borrower (MAS rules no longer allows guarantor)? However this means that by the time it comes for me to buy my own flat with my spouse to be, I may be subject to ABSD and lower LTV for second property?
Hi qook,
I have a friend whose family downgraded from a 5 room flat to a resale 3 room flat and they became debt free. I suggested this idea and my friend took it seriously. With only 3 people in the flat, they didn't need a 5 room flat.
My friend's family didn't need to take a loan because the money from selling the 5 room flat was more than enough to pay for the resale 3 room flat. In your case, whether your current family home is a private property or a bigger flat, shouldn't it be similar?
If you have every intention of getting your own place in future, you shouldn't be party to this purchase for reasons you have considered. I have seen a case where the parents used their son and daughters' names to get a bank loan to buy an investment property when the children were still unmarried. The complications came when their children wanted to get their own homes after marriage. -.-"
Ms Y here. Guess I better make clarifications.
1. The strategy is abt cash flow. Not passive income. I'm buying an option. I could have bought any flat. Very cheaply. Half the price of what I paid. But I'm paying a premium for comfort, for convenience, for an option to deploy my flat as a cash generating asset. And note that it's cash generating. Not income generating.
Mortgage wise. No worries. Sufficient funds has been set aside in CPF OA in investments to pay for a couple of years of mortgage. Hence, the strategy to start pumping up the SA. I hope to amass $1 million in SA by the time I turn 55. :)
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