May the new beginning

I finally bought a small unit as investment property after an extensive search spanning a few years.

Plenty of resources on the web with good pointers on what to look out for in an investment property, how much can you afford (check our CPF’s website for mortgage affordability calculator, I find that to be a really good gauge) and all the works ref quantitative analysis one should watch out for.

My sharing will be on my journey, in particular the softer aspect of human judgement (ok, only one woman’s thought process if you want to be specific about it) without a property agent.

It’s about personal discipline and really buying what you want instead of what other people are looking at or trying to sell to you. Setting out my criteria and constantly reviewing the basis and questioning the validity definitely took its toll on my time and energy. Propertyguru was my best friend, even with the alerts I set to automate the search process, I checked it religiously. Almost daily.

I recall my original list of must-have included the following

  1. Freehold
  2. Near MRT
  3. Tenanted
  4. Low maintenance fees
  5. Below S$1m
  6. Unit that’s close to TOP/ Completed
  7. Good yield
  8. Potential for capital appreciation

During the search there were agents sharing how 99 years makes more sense than freehold, building under construction has higher potential for capital appreciation, singapore’s rental yield is low 3% etc. I didn’t like these feedback, even if they may be true (shrug I can’t verify it since the past market condition does not predict the future) but I am never a huge fan of compromising what I want without due research, so I spent even more time checking propertyguru and speaking to people. Essentially to rationalise it to myself.

99 years imposes a timeframe during which I must dispose of my investment. I think the construction phase usually takes 3-5 years and this gives me approximately 5-10 years to sell the property as typically buyers will try to pay lesser for something with lower number of years remaining. 10 years is not short but nah, it’s entirely personal. I don’t like giving up flexibility on time especially when I’m not savvy enough to time the market.

Capital appreciation for BUC: I almost subscribed to this and actually threw in a cheque for balloting. Mortgage during the construction period will be low and it is nice to think that there’s a lump sum upside. Pot of gold at the end of the rainbow, eh?

Then it boils down to my personal belief that a bird in the hand is worth two in the bushes. Hope is enticing, but I’m not greedy for the two birds in the bushes. In fact, I don’t like that thought that my downpayment is just going to sit there not fetching me a single cent during the period the building is under construction.

What really killed the BUC thought for me was when a friend shared that he has a unit that he could barely dispose of at cost after it TOP. Multiple factors, one could be the purchase price was too high, but I do think the flood of sellers trying to flip their unit will impose a cap on the selling price.

There’s always a sweet spot. Yield will be low if the capital outlay is large, so I was fastidious about figuring out the purchase price’s relationship with the rental rate. However, this criteria has white noise – I might end up living there if I can’t sell the unit in the future and I don’t want to live in a 30sqm space. Shoeboxes are good because they provide the highest yield, so I acknowledged that I’m not getting the highest yield as I want something slightly larger than 30sqm.

My strict definition of an investment will be that I don’t have to throw in a single cent after the downpayment, and that the investment will throw out positive cash-flow during my holding period. Ideally, it should be self funded i.e. rental income net off property tax, maintenance fee and mortgage payment should be positive. Not dissimilar to any other finance trained person, I ran my scenario analysis on the band of mortgage movement impacting my net cash-flow. Interest rate is probably as low as it can get but most units don’t give me positive monthly cashflow.

I also explored walk-up units. Most of these fit my criteria to a T and some do not even charge maintenance fee. The takeaway is that I’m very glad I took ethics course when I was younger. The yield might make a lot of sense and is surely tempting, but the manner in which some of these units throw up money will cause me to lose sleep at night. Story for another time.

On a slightly unrelated note, I noticed the budget for my fellow property hunters crept up in the period we were searching for house. Probably because they are looking to purchase the unit for own stay, whereas I’m buying for investment, the timing of bump up coincides with the point when their salary increase. It will be easy to follow suit and with a larger budget complete my mission of property hunting more quickly and move on with other aspects of life. Again, I held back because of rental yield and my purchase price is actually way lower than S$1m.

As pleased as I am with my purchase, it’s not a 100% happily ever after moment for me. 99.99%. The unit I’m acquiring requires me to throw in some moolah every month but I figured it’s a tradeoff given that my risk appetite is too low. I will treat this as a forced saving.

I should also write something about the hunt for my mortgage.

Love,
Lioness (at peace with her purchase)

(Featured image from google search)

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