Thinking of moving out of the family home?

Dear AK,

As we know, Singapore citizens can buy a HDB if they are married. If they remain Single, they can get a flat at 35 years old.

Each citizen cannot own more than one HDB at any point in time

My father passed away some years ago, and I co-inherited the HDB with my mum. Hence, I am the half owner of my parent's HDB apartment.

I do not get along well with my mother, and I wish to move out as soon as possible. However, as I am already an owner of parent's HDB apartment, I will not be able to get my own HDB apartment even if I get married, or pass 35 years of age.

This means I have only the following options:
1) Rent forever (or until my mum passes on, and I inherit the entire flat)
2) Buy a private property, with no subsidies

The Dilemma:
I am able to afford both options with ease, but the dilemma I have is I'm not sure which option is the most prudent.

Asian culture tend to favor home ownership, so I feel compelled to select option 1), to buy a private property. However, this option would mean most of my net worth will be locked up in a property, and my CPF account will be exhausted.

If I chose option 2), and rented, then my net worth will be liquid. This allows more opportunities for investments or whatever other endeavors; after all, cash is king.

When my mother passes on, I will inherit the entire HDB from my her. Then I can terminate my tenancy and move back home.

If you were in my shoes, what would you have done? Please start talking to yourself so that I can eavesdrop hahaha.
I really appreciate your help.




Hi ,

I won't tell you what is best for you. I will just raise a few points.

1. You already have a property (i.e. HDB flat).

2. Do you want more of your wealth to be in property or would you rather have more cash to invest with when Mr. Market is feeling depressed?

3. A home is a consumption item and it does not generate income. If you are concerned with having more passive income, buying that private property would probably set you back. As long as you are staying in the property, it is not an investment.

4. If you must use your CPF money if you were to purchase a private property, remember the cost of borrowing money from yourself.

However,

5. If you able to find a good value for money private property in Singapore, buying could be a good choice.

Related posts:
1. Accrued interest.
2. Buy or rent?
3. Affordability or value for money?

Tea with Matthew Seah: Margin of safety.

Matthew shares with us a simple and important concept to invest more safely:

The intrinsic value of a company could be calculated base on our estimations of various aspects of the business, both tangible and intangible. Hence one would require to look at both qualitative and quantitative aspects of the business in order to give a more holistic valuation of a company.

Company valuation can be done using 2 broad types of valuation models:
- absolute valuation; and
- relative valuation.

Absolute valuation is a valuation method that give you an absolute value to compare against the current market price. Absolute valuation method is broadly termed as a discounted “cash flow” method. The different models calculates future cash flows -- dividend (Discounted Dividend Model), free cash flow (Discounted Free Cash Flow Model), operating cash flow (Discounted Operating Cash Flow Model), residual income (Discounted Residual Income Model), etc -- and discount these future values to present value.

Relative valuation is a valuation method that compares certain metrics -- price to earnings ratio (P/E), price to book ratio (P/B), price to sales ratio (PSR), total enterprise value to earnings before interest, tax, depreciation and amortisation (TEV/EBITDA), etc -- against the industry or market average.

Each of these valuation models, including those not mentioned, have their pros and cons. 

Do note that even with complete knowledge of the business, company valuation is still an estimation of what the value of the organisation as other external factors such as macro trends and policy changes in the future is difficult to predict.

So how to overcome this miscalculation?

Introducing Margin of Safety. 

The concept of margin of safety originated from Benjamin Graham and he wrote about it in the very last chapter of The Intelligent Investor (Chapter 20: “Margin of Safety” as the Central Concept of Investment).

Simply put, when market price is below your estimation of the intrinsic value, the difference is the margin of safety. The lower the market price of the stock, the more undervalued it is, and the greater the margin of safety. In essence, the risk of losing money is lower when buying an undervalued company with a large margin of safety.

“A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world.” 
- Seth Klarman

Margin of safety doesn't guarantee a successful investment, but it does provide room for error in an our judgment when calculating the value of a company.

Related post:
3 points to note in investing.