Have you ever come to this situation where you do not know if you should upgrade to a $1 million property or to own 2 properties worth only $900,000 in total?
Well, I would prefer the latter.
Case 1 ($1 million property): I pay $200,000 downpayment and take 80% loan at a rate of 2%. I will be paying interest of $16,000 in the first year. At the same time, I have to slog till my very last breath just to pay the installment of the property. You may argue that but the property price will appreciate in the future. Well, it's true and I may even make a profit of $200,000 if I sell the property in 5 years time. But I would have also paid $80,000 in interest to the bank, which means realised profit is only $100,000, minus the commisions and taxes.
Case 2 ($900,000 properties): I am staying in a $400,000 property taking a loan of $320,000 at rate of 3% and bought a second property of $500,000, taking a loan of $400,000, also at a rate of 3%. Total interest paid for the year is $21,600. My initial downpayment is only $180,000. But my second property fetches a rent of $24,000, minus taxes and maintenence. Hence, I actually earn $2,400 per year, less interest and at the same time, the value of both properties are also appreciating.
So now, which is better? Decide for yourself.
*Take note: Housing loan is paid using CPF, while the rent you collect is in cash. Invest the cash and grow at a faster rate.
Cheers! Merry Christmas and a Happy New Year.