Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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Reader:
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...
AK: 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?
A friend told me he is seriously considering selling his fully paid 5 room HDB flat in RCR to buy 2 shoebox apartments so that he could stay in one and rent out the other for cash flow. Hopefully, property prices would go up and he could benefit from capital gain by selling one.
I told him that he would be moving from being debt free to being indebted. There is no guarantee that the monthly rental could cover the mortgage payments (plus the much higher monthly maintenance and property tax of a condo).
He says he just wants to make money but how sure is he that he would make money this way? I see a strong speculative flavour in his hope that property prices would go up. I told him if he thinks property prices would double in 10 years like it did in the recent past, that is speculation.
1. I told him that if he wants money in the pocket, just rent out 2 bedrooms in his current flat. Free cash flow guaranteed. Easy. To that, he said that it is very hard to rent out the spare rooms now. Oh, and he thinks renting out a shoebox apartment is going to be easier? Duh.
2. I also told him that if he didn't want to share his home with strangers, he could think about downsizing his current flat to a 3 room flat and he would have more money in the pocket. Since his current flat is his first, he could get a BTO 3 room flat. It is much cheaper than buying resale. Or maybe a BTO 2 room flat? Price tag? $90,000 maybe. So cheap hor? Purchasing a 2-Room BTO flat
A BTO 2 room flat? Serious? Alamak, he was thinking about buying a shoebox apartment to stay in. How big do you think a shoebox apartment is?
Of course, he might have to wait a few years but he would be able to pocket a few hundred thousand dollars in price difference. Also, he would be getting a fresh 99 years lease.
3. Then, there is also the option of looking into HDB's sale of balance flats which would reduce the waiting time. With the price difference of his old and new flats, he could invest for income and it could even be in the form of a shoebox apartment that he is thinking about once he has served his MOP. There is no need to always take on more risk in life to have a better life.
I like to have my cake and eat it too but I don't like to choke on my cake. Oh, in case you are wondering, he got the idea to sell his 5 room flat to buy 2 shoebox apartments from someone. Guess what that someone does for a living?
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