I just sold 1 of my investment properties. Literally just.
In this post, I’d just share my personal thoughts and experience when it comes to property, specifically, the SG property sector. I have had quite a bit of experience in overseas properties as well, but I won’t talk about that just yet. Most of what I write would, I think, be applicable to the typical Singaporean university graduate.
It might not be useful or applicable if you don’t fall in this category. It might even sound outright silly if you are born uber rich. But these are all my personal thoughts and my experiences when I first started out, so tailor it to your own situation if you will. I don’t profess to be some property expert, and anyway, personally, I think all those who do, are mostly charlatans.
FOR YOUR 1ST PROPERTY, BUY DIRECTLY FROM HDB AND DO SO AS EARLY AS YOU CAN
I thought this 1 is obvious… yet it’s surprising how many young folks actually don’t do this.
HDB has a built-in rebate and when you buy directly from HDB (not resale!), it’s almost a certainty that you’d be able to sell at a pretty sizable profit after the 5yr MOP. I don’t think anybody disagrees with that. It’s factual.
There are also all the various rebates you can apply for, I don’t even know what they are anymore. But stuff like proximity to parents rebates, low income rebates etc, whatever. Go do it.
If you are fresh out of university or poly, keen on getting on the property ladder, this definitely should be your 1st port of call.
But there are many common reasons people give for not doing so:
“Buying a BTO will mean a long waiting time of several years and I cannot wait!”
“When it’s my turn to choose, the only available flats are lousy units! Low floor! Poor ventilation! Noisy! No view! Near the road! Just above the rubbish bin! Just beside the multi-storey carpark!“
“Don’t have the location I want!”
TTI’s response: Don’t be a prima donna la! If you are born poor or mediocre, don’t ask for the stars. This is life. Unless you are marrying Kim Lim (you lucky bastard!), otherwise, work with what you are given and choose the best path forward.
Can’t wait for a BTO? Well, what’s the meaning of can’t wait? Just bunk in with either side of the parents, what’s the issue with that? Live all your life with parents, suddenly with a significant other, cannot stay in the same place meh?
Or go buy a sale of balance flat from HDB. Poor location or lousy unit or whatever, it doesn’t matter. You make the best out of the situation.
Your 1 singular focus should be on deriving the maximum gains out of your 1st property. Not whether it makes you happy, makes your life more comfortable, whether you wake up to a trillion dollar view that tickles your innards the sec you open your eyes. All that will come… just not now.
Personally, I bought a sale of balance flat from HDB more than a decade ago. During that time, you were given a number, and mine was a shitty number near the end of the queue. Everyday, I’d log in to HDB and there’s a real time indicator that shows you how many of the flats are still available before it reaches your number. It looked promising at the start, although the location itself was already pretty sucky to begin with. But at least there were higher floors, a wider variety, different facing etc units still available.
But alas! By the time it reached my turn, OMG, I was dejected. Really.
I was left with stuff that nobody wanted! And I mean that literally! Cos the few days before me, all the folks in the queue before me, chose to give up and not take up any units cos the number of available units didn’t change at all. That’s how bad it was.
So there I was. It was a lousy location in a not-so-popular neighborhood, and even then I was left with pretty much only 2 unwanted units:
- Unit is right beside the multi-storey carpark. And I mean directly beside. Any one in the car park can peer into your living room. Lots of human traffic going past your unit everyday. Great if you are buying a bubble tea stall, not so great for a residential unit.
- Unit is right beside the main road, so close that anyone on the upper deck of a double decker bus would be able to peep into your living room. Obviously noisy. Unit is also directly above the rubbish collection point where all the rubbish thrown down the chute lands up in.
Oh, and did I mention both units are on the 3rd floor?
So yes, not ideal. Everything sucky you can think of is there. I could of course, choose to forfeit and just return to queueing again, and/or go buy a resale unit. Mind you, my finances as a young dr meant that I could already very comfortably afford 1 in the resale market if I wanted to.
In the end, I opted for option 2.
The cost of the 5 room unit was $252,000 and I managed to re-sell it more than a decade later for $430,000. And that excludes many many years of rent. More on that later.
Looking at the numbers, that’s an approximately 71% capital gain over >10yrs, which doesn’t sound anywhere near bitcoin-like, fancy returns, but do remember that with all things property related, there’s always some huge leverage built in from the property loans, so the actual returns would be something like x5, if you base it on your actual paid up capital. (assuming you paid up 20% as down payment).
So in this instance, assuming I paid 20% (I can’t remember what downpayment I plonked down), actual gain on committed capital would be something like 350% over 10yrs ++.
RENOVATION COSTS SHOULD BE A MINISCULE PORTION OF YOUR BUDGET
This should also be a no brainer. I think lots of new ginahs now think they are some rare commodity after graduating, and start behaving like they’ve “made it”.
Hello, breaking news for you, NUS alone churns out 31,000 graduates every single year, and that’s not even including the masses of very hungry foreign graduates that’d inundate our shores every year. You ARE very much a commodity. Your 1st property isn’t for living the high life. Neither is it for showing off. It’s just a mere start. You start as a puny, nobody character. You haven’t made it. You’ve only made it to the START.
Got play role playing games before? When you start out, do you buy the most powerful sword in the game for your character? Noooo….. you gotta go prowling around, kill many many creeps and gain both experience and gold, save up the gold, level up a lot, before being able to go buy your premium weaponry right? That involves losing a lot of blood and mana, you gotta go through some pain, try to rest and heal up, drink your healing potions and all that, and continue the good fight to accumulate gold right? In the meantime, what do you do? You make do with the lousy normal armor that random creeps give you when you kill them, right?
Ditto in real life.
The problem that young kids have nowadays is that there’s too much social media around. God forbade that your 1st property looks like shit, cos what will you be putting up on Instagram?! You’d be a laughing stock!
Thank god TTI doesn’t have social media. No Facebook, No Instagram, No simi Insta stories, No Snapchat or whatever.
I do have Facebook shares though. OK, and I do have InvestingNote. LOL.
Now, what happens if your spouse doesn’t agree with you? Afterall, it takes 2 hands to clap. What happens if your spouse insists on going into the resale market to splash out on a 30th storey HDB unit in a prime area with a $50k COV, and spend $80k to renovate it to his/her dream Mediterranean styled, not-so-humble abode, so that you guys can put it up on Instagram and be the envy of your fellow peers?
Then you follow the 3 step rule.
Step 1: Explain, very calmly, to your spouse, in great detail, the very solid rationale of why your singular focus should be on maximizing the ROI on your property. Nothing else matters.
Step 2: If your spouse disagrees further, explain AGAIN, and this time, end with “TTI says so one!” (Include link to this post if necessary)
Step 3: If your spouse continues to disagree vehemently, drop him/her pronto, and instead, look for 1 new one amongst the 4,500 TTI followers. You can’t go very wrong with that. At least ideals would be similar.
For my 1st property, yes that miserable, pathetic 3rd floor HDB unit, I spent a grand total of… <drumroll please!>
$18k on the renovations!
That INCLUDES all furnishings, AND even the freaking air conditioning!
YES YES YES.
You can’t beat that. OK, that was more than a decade ago, so at that time, $18k went a bit further than now. But still… it’s pretty impressive eh?
I even did the painting of the whole unit myself! Just to save on the $1k painting fee.
I’d have included photographic evidence of that here, I took several photos then. But they are mostly of me bare-bodied, albeit I was a lot a lot younger then, with a bod to die for, I reckon it’s too sexy to be put up here. Might be too NSFW for many young ladies to accept if they see this in their mail box.
I think it took me something like 3 entire Sundays, cos I had to stop painting before 6pm cos it gets dark and there were no lights installed then. (You paint first, then install the lights) Looking back, it was actually kinda fun tbh. Plus u get 1 helluva workout.
Well, the end result is what you’d expect a $18k renovation budget to look like.
Simple. Bare. Plain. Unassuming. Boring.
But I didn’t care. And still don’t. I didn’t have a house warming then. (and even now, with a much more fancy abode, I still don’t have house warmings.)
Like I said above… “SINGULAR FOCUS”. Repeat that mantra a million times if it helps you to focus.
In conclusion, renovation costs is an expense. This is not like in the West where you can literally re-jig your entire property, and go to the bank with a higher valuation, get a higher loan and try to recycle your capital into other properties. Just doesn’t work in SG.
CHOOSE THE LARGEST UNIT YOU CAN, WITHIN YOUR BUDGET
In general, public housing prices, especially if you are buying from HDB directly, are still very much affordable to most folks (who bother to work). Buying the largest unit that you can reasonably afford to, makes the most sense because any returns that you’d get eventually, would be a function of the unit price. If property prices have risen say, 10% since you bought, buying a 2 room unit that costs $180k gives you a $18k capital gain, whereas a 5 room unit that costs $300k would give you a $30k capital gain.
Again, obviously, personal budgeting and finances come into play, so plan accordingly. But IMO, 2 uni graduates working would be able to afford any 5 room unit if they buy directly from HDB.
WHEN INTEREST RATES ARE LOW, TAKE THE MAXIMUM LOAN
Interest rates have been low for a loooong while, all thanks to the Americanos. This is a policy that I am highly critical of, but hey, I don’t make the rules around here. So I’ve to learn to just position for it to derive the maximum benefits.
When rates are low, you just know that prices of hard assets will be well supported. Plus the whole idea of property is to utilize the immense leverage inherent in it. Actual capital gains can never be some crazy number: you don’t have a property that appreciates 100% within a year. If it is this volatile, I think many governments around the world would collapse and society will be in anarchy already.
Taking the maximum loan just merely means that you are maximizing the leveraged component inherent in your property.
Again, as mentioned above, if you are paying only a 20% downpayment, and if you get a say 50% capital gains upon divestment, the REAL gain on your capital that you paid up is x5 of that aka 250%. (Ok ok, I know it’s not exactly like that, since you pay down your loan over the years, and since there are other factors like maintenance costs and rental and MCST if it’s private etc, but this is just a rough estimate)
UPGRADE TO PRIVATE, WHILST RENTING OUT YOUR HDB
Now, after the 5yr MOP, with 2 graduates working for 5 yrs, you’d usually see some career progression and with it, some stability and increase in your remuneration. Plan to buy a private property as long as your combined finances can comfortably afford it.
This is a somewhat controversial point, and some folks will probably disagree with me. Thing is, the real massive gains in property are always made in the private property segment. Say what you will, but how much of a capital appreciation can you make in HDBs? It is still meant to be a safety net and the bare minimum accommodation level so the government cannot let prices go berserk no matter what.
And there’s the renting out of HDB part. Renting out your HDB gives the HIGHEST yield. By far.
After the 5yr MOP, I rented out my HDB unit for several years, at rents ranging from $2.4k per month to as high as $2.9k per month. Based on the initial price of the HDB, that works out to be a yield of 11.4% to 13.8% per annum!
You just can’t beat the yield on that. Plus there’s almost minimal cost as you don’t have to pay MCST etc.
The only downside currently is that to buy your condo whilst keeping your HDB, it’d be considered a 2nd property now, and there’d be ABSD on that condo purchase, which is a real bummer. During my time, this ABSD thing didn’t exist yet, so it was incredibly profitable to hold onto and rent out the HDB. (Still had to pay income taxes on it though!)
Also, another consideration is the age of your HDB. IMO, and very much logically, HDB, being a 99yr leasehold asset, cannot appreciate indefinitely. There’s no data as to what is the average age of HDBs before the prices start to taper, reverse course and begin depreciating, but if you had bought a new unit direct from HDB, it’d be several decades before this becomes your problem. You’d have a good decade or 2 to happily collect rent, before offloading at a very nice price, and making this depreciation problem someone else’s.
Now, to be clear, there’s nothing wrong if you’re contented with staying in your HDB for pretty much your entire life. Let me repeat: I think there’s absolutely nothing wrong with that. It does mean that you can’t be building a property portfolio though, because well, if markets are booming, you can’t just sell out when you want to cos you still need a place to stay.
And this post is exactly about that.
DON’T JUST FOCUS ON THE PRICE: GO FOR QUALITY AT A REASONABLE PRICE
For my 1st condo unit, I made the slight mistake of placing too much emphasis on the price.
Price is definitely important: you don’t want to over pay. But when it comes to property, it’s not the most crucial aspect.
I went for the typical Graham cigar butt strategy: the seller was a foreign student who just finished her studies, and was waiting to conclude the sale of the property before flying back to the UK. The property wasn’t hers, it was her mum’s. She was a young lady dying to leave SG asap, and that helped a lot during negotiations. She was practically on my side, bugging her mum to just accept the offer and get it sold, just so that she can go back to UK for her summer holidays.
Going for a great deal price-wise helps to protect my downside… but without any competitive advantages, the unit would be hard to sell eventually. Others will also focus on the price, if there’s no distinct selling point. And when it comes to properties, it’s a very emotional thing. When you’ve the right product, with a certain unique selling point, it’s much easier to sell cos you just know there’d be a segment of people out there that this appeals to.
Without revealing too much specifics, I’ve owned that property for 7 years, with the last 2 years being rented out.
Total capital gains: 18.4% for 7 years, which works out to be a gain of about 92% over the committed capital. Rental yield, taking into account the MCST paid, was about 3.9% per annum for 2 years.
I’ve also written previously that I just bought another condo: https://thumbtackinvestor.wordpress.com/2020/09/06/thumbtack-fund-report-1-tough-times-dont-last-but-tough-funds-do/. That was a mere 22 mths ago, back in Jan 2020:
“I’d add a little footnote here regarding property. As mentioned in earlier posts, I’ve also bought another property just earlier this year, in Jan. Again, the timing COULDN’T HAVE BEEN WORSE. Like serious, wth is wrong with lady luck?! She needs to be a tad more fair. Just throw something my way once in a while can?”
Buying property back in Jan 2020 just before covid struck seemed like a stroke of uber bad luck then, but it turned out to be exactly the opposite! Ah, the unpredictability of life.
This unit was purchased with a clear competitive advantage. Location’s fantastic, with a view that stretches as far as the eye can see. And the land in front of me are all developed with errr a certain type of low-rise property, and they can’t be redeveloped easily, so this means that the magnificent view is here to stay. No surprises anytime soon.
The specific type of unit is also relatively rare within the development, which means there’s little competition if I decide to sell.
A recent sale of a similar unit tells me that the unrealized gain for this unit is now already 16.7% and I’ve only bought it for less than 2 years!
This gain beats the previous unit’s gains and that tells me that it’s better not to focus solely on prices when buying property. It is something whereby emotion plays a huge role afterall.
Buy quality, at a reasonable price.
WORK WITH A SINGLE AGENT, AND NEGOTIATE FOR BETTER RATES IN RETURN FOR REPEAT BUSINESS.
Property agents won’t like me for saying this, but it makes sense to work with a SINGLE agent over a long period of time. If you are going to build a property portfolio over time, there’s a lot of business to be gained, and agents would die to have a client like you.
Every rental, purchase and sale requires an agent and there’s little downside for them. Well, in theory, you don’t need an agent to represent you when you purchase a property, but I always still get my agent to do so. Cos said agent would get co-broking fees, which would make him happy, and it adds to your value proposition.
In return for all this repeat business, he’d be much more willing to negotiate a reduced agent fee. I don’t think I’ve ever paid market rates for my agent fees, it’s always a lot lower.
Also, if you are building a property portfolio, in all likelihood, your peers and social circle would be doing the exact same thing. So if I were a property agent, of course I’d be more than happy to accept a lower fee in exchange for not just repeat business, but referrals and access to a group of clients whom I know will almost certainly require my services on a fairly regular basis.
Alright, that’s all I have for this pretty rare property related post. I don’t usually talk about property much because… well, what’s there to talk about. Things move at a snail’s pace when it comes to property. You just buy a good asset, do it up reasonably well, and collect yield and hold till the cows come home. It’s hard to go wrong if you do that.