I was talking to my brother this morning regarding property investment. I realised that both of us are two different types of investors. I remembered reading Benjamin Graham's "The Intelligent Investor". In it, he mentioned the two types of investors, the defensive investor and the enterprising investor.
I am an Enterprising investor while he is a Defensive investor. How did I find out?
My brother bought his current 3-bedroom with PES unit at less than $700,000 five years ago. At current market price, he can sell it for $1.2 million. There is a development, going to TOP soon near his area. A seller was asking $1.2 million for a mid-high floor 4-bedroom unit. Therefore, I suggested that he sells his current one to upgrade to the 4-bedroom unit and at the same time cash out the profit. His only reply was, "Live within your means. I would have to take up more loan if I were to buy now." He was contented with his current lifestyle. He will only start investing when he has saved enough for a second property. This is an example of a defensive investor.
What will you do if you were him? To sell and change to the 4-bedroom unit or to stay put in the current one and save enough to buy a second property?
Here's another example of a defensive investor. A ex-colleague of mine bought a new condo to move in and will be renting out her HDB flat. Her family has been staying in the HDB flat for more than 15 years. She bought the condo after she made sure that she has enough to service this current home as she has already fully paid her HDB flat.
As for me, I am an enterprising investor. I have downgraded twice, first from an EC to HDB 4 room resale flat, bought an investment condo and rented it out during the financial crisis, sold it off a year later, after the recession is over. I bought a terrace house with the intention to stay, but the profit made is too tempting to hold on to it. So this is the second time. I downgraded from a terrace to a condo. In the process, I have cashed out a handsome amount of profit and of course my outstanding loan is a few times higher than my brother's. His current outstanding loan may be at around $200,000 while mine is about $1 million.
So what kind of an investor are you? Have a word or two in the comments please.
Cheers.
Wednesday, June 15, 2011
Sunday, June 12, 2011
Is asset enhancement really useful?
Asset enhancement happens when the value of your asset increases in value. However, it is not considered an enhancement unless you cash out the value of your property.
Here's an example. An old couple bought a 4 room HDB flat (98 sqm) in town area for $27,000 in 1980, when they were 40 years old. They have been staying there till now. The value of the flat is now at about $420,000. The value of the property has increased over 31 years. The couple is now in their 70s.
If they continue to stay in the flat, they will not enjoy the cash that is locked in the property.
If they are to sell it at $420,000, there a a few points to take note.
1. They are already in their 70s, no bank will want to approve their loan application.
2. Their combined CPF account will have only about $30,000. This is because they have spent every single cent in the CPF ordinary account on this flat, they were from a low income family.
3. They cannot buy a brand new flat from HDB within 30 months.
4. They have to pay levy to HDB if they downgrade to a smaller flat, which must be bought from the resale market (more expensive).
Hence, if they are to sell their HDB flat now, a same 4 room resale flat costs about the same price, and without ample CPF monies in the ordinary account, they still have to come up with cash to buy the house, as no bank will want to give them a loan, due to their ages. Therefore, in the end, they are left with little or no moeny at all.
Where is the asset enhancement in this case?
Here's an example. An old couple bought a 4 room HDB flat (98 sqm) in town area for $27,000 in 1980, when they were 40 years old. They have been staying there till now. The value of the flat is now at about $420,000. The value of the property has increased over 31 years. The couple is now in their 70s.
If they continue to stay in the flat, they will not enjoy the cash that is locked in the property.
If they are to sell it at $420,000, there a a few points to take note.
1. They are already in their 70s, no bank will want to approve their loan application.
2. Their combined CPF account will have only about $30,000. This is because they have spent every single cent in the CPF ordinary account on this flat, they were from a low income family.
3. They cannot buy a brand new flat from HDB within 30 months.
4. They have to pay levy to HDB if they downgrade to a smaller flat, which must be bought from the resale market (more expensive).
Hence, if they are to sell their HDB flat now, a same 4 room resale flat costs about the same price, and without ample CPF monies in the ordinary account, they still have to come up with cash to buy the house, as no bank will want to give them a loan, due to their ages. Therefore, in the end, they are left with little or no moeny at all.
Where is the asset enhancement in this case?
Monday, June 6, 2011
How much should a new 4-room HDB flat be selling at now?
If you have read my book, I have mentioned that the selling price of a new 4-room HDB flat was sold at $27,000 thirty years ago. If we were to use the inflation rate of 5% per annum for the past 30 years, a new 4-room HDB should be priced at around $116,700.
Recently, when I was having a casual conversation with a taxi driver regarding the overpriced new HDB flats. He shared that a main contractor (his passenger) confirmed that the cost of building a HDB unit is close to $100,000. Adding in the administrative costs to sell the flat, I feel that my calculation of the above selling price is reasonable.
HDB should relook at their mission. Their mission is to provide affordable housing for young and old Singaporeans. Why is a 4-room HDB flat selling close to $250,000? That is double the price it should be selling at. How many young couples can really afford this kind of price?
A suggestion is to stop building new flats in the mature estate. If the couple wants to stay close to their parents, either buy from the resale market (pay a higher price) or their parents sell their current place and the two families buy two new flats (at a lower price) in the new estates like seng kang or punggol. The parents need not wait for 30 months to buy the new flats. This is just a suggestion. It is still up to HDB to change their policies.
Feel free to comment on this post.
Cheers.
Recently, when I was having a casual conversation with a taxi driver regarding the overpriced new HDB flats. He shared that a main contractor (his passenger) confirmed that the cost of building a HDB unit is close to $100,000. Adding in the administrative costs to sell the flat, I feel that my calculation of the above selling price is reasonable.
HDB should relook at their mission. Their mission is to provide affordable housing for young and old Singaporeans. Why is a 4-room HDB flat selling close to $250,000? That is double the price it should be selling at. How many young couples can really afford this kind of price?
A suggestion is to stop building new flats in the mature estate. If the couple wants to stay close to their parents, either buy from the resale market (pay a higher price) or their parents sell their current place and the two families buy two new flats (at a lower price) in the new estates like seng kang or punggol. The parents need not wait for 30 months to buy the new flats. This is just a suggestion. It is still up to HDB to change their policies.
Feel free to comment on this post.
Cheers.
Sunday, June 5, 2011
How much is reasonable for a property now?
Everyone has been talking about sky rocket prices in properties. How do we know what is a reasonable price for a property?
I have came up with a way to calculate it. We will still use my favourite formula to do it.
Future Value = Present Value x (1 + Rate of Inflation/100)^n.
We'll take it that inflation rate is at 4.5% for the past 10 years.
A mid-floor 3 Bedroom unit in Lilydale was sold by developers at $430,000 in 2001.
Using the formula above,
Value in 2011 = 430,000 x (1 + /100)^10
= 430,000 x (1.045)^10
= $667,777
This number is used as a guide for me when I do purchase a property. A mid-floor 3 bedroom unit in Yishun is about $668,000 to me. Currently units in lilydale are selling at around $720,000 to $770,000. This is considered over valued for me. Therefore any nearby development especially the ones in Sembawang, are way above the value. Each 3 bedroom unit was sold at asking price of $1 million! That's really daylight roberry.
The value above can only be an estimate to the condominiums of the same area. We cannot use the above value to compare with properties in the central and central core region. We have to use the price of a condo, 10-years ago, in the area to calculate our personal valuation.
Happy investing.
Cheers.
I have came up with a way to calculate it. We will still use my favourite formula to do it.
Future Value = Present Value x (1 + Rate of Inflation/100)^n.
We'll take it that inflation rate is at 4.5% for the past 10 years.
A mid-floor 3 Bedroom unit in Lilydale was sold by developers at $430,000 in 2001.
Using the formula above,
Value in 2011 = 430,000 x (1 + /100)^10
= 430,000 x (1.045)^10
= $667,777
This number is used as a guide for me when I do purchase a property. A mid-floor 3 bedroom unit in Yishun is about $668,000 to me. Currently units in lilydale are selling at around $720,000 to $770,000. This is considered over valued for me. Therefore any nearby development especially the ones in Sembawang, are way above the value. Each 3 bedroom unit was sold at asking price of $1 million! That's really daylight roberry.
The value above can only be an estimate to the condominiums of the same area. We cannot use the above value to compare with properties in the central and central core region. We have to use the price of a condo, 10-years ago, in the area to calculate our personal valuation.
Happy investing.
Cheers.
Wednesday, May 25, 2011
Can we really invest in properties with little or no money?
I was reading an article on the website telling people that they can invest in properties with little or no money. 3 suggestions were given in this article.
1. Buy REITs funds.
2. Take a loan for your downpayment.
3. Co-own the properties.
Suggestion 1: Buy REITs funds
There are many REITs shares that can be bought from the stock market. However, we do not just buy any REITs shares. I would recommend Fraser Centrepoint Malls and CapitaMall and CapitaMallAsia. These are the ones handling the shopping malls in Singapore and overseas. These are the ones that can bring in stable income. This option is suitable for those who have not saved enough for the downpayment to buy a property.
Suggestion 2: Take a loan for your downpayment
This is a definite NO-NO. If you cannot afford the downpayment, then save for it, or invest in REITs as in suggestion 1. Are we going to pay forever or be the slave of the properties? No, investment in properties should give us our passion income and not to work harder to meet the monthly repayment. Please think twice if you want to take up this suggestions.
Suggestion 3: Co-own a property
This suggestion is the worst. If you want to put your relationships with relatives and friends at risk, then co-own a property. Never have monetary connections with friends and relatives, or the relationship will definitely turn sour. If any company approaches you to be their investor as they are very good with property investment, think twice. Just in case, it's a scam. I would not want others to deal with my savings, I think you wouldn't want it too.
Property investment is really simple and straight forward. If you do not have the downpayment, just invest in REITs first. Until you have raised enough money for the downpayment, then start looking for one property, buy it and rent it out.
Make investment in property a happy one.
Cheers.
1. Buy REITs funds.
2. Take a loan for your downpayment.
3. Co-own the properties.
Suggestion 1: Buy REITs funds
There are many REITs shares that can be bought from the stock market. However, we do not just buy any REITs shares. I would recommend Fraser Centrepoint Malls and CapitaMall and CapitaMallAsia. These are the ones handling the shopping malls in Singapore and overseas. These are the ones that can bring in stable income. This option is suitable for those who have not saved enough for the downpayment to buy a property.
Suggestion 2: Take a loan for your downpayment
This is a definite NO-NO. If you cannot afford the downpayment, then save for it, or invest in REITs as in suggestion 1. Are we going to pay forever or be the slave of the properties? No, investment in properties should give us our passion income and not to work harder to meet the monthly repayment. Please think twice if you want to take up this suggestions.
Suggestion 3: Co-own a property
This suggestion is the worst. If you want to put your relationships with relatives and friends at risk, then co-own a property. Never have monetary connections with friends and relatives, or the relationship will definitely turn sour. If any company approaches you to be their investor as they are very good with property investment, think twice. Just in case, it's a scam. I would not want others to deal with my savings, I think you wouldn't want it too.
Property investment is really simple and straight forward. If you do not have the downpayment, just invest in REITs first. Until you have raised enough money for the downpayment, then start looking for one property, buy it and rent it out.
Make investment in property a happy one.
Cheers.
Sunday, May 22, 2011
The very first step to investment
Last week, I was teaching JC1 students on Arithmetic Progression (AP) and Geometric Progression (GP). Many questions on compound interest actually led to the sum of GP. This raises students questions on how much interest were we actually earning in our savings account.
I told the students that the money in our savings account are actually depreciating instead. How much of that savings is enough to pay for the future 'rainy' day? In fact, our money in the savings account are depreciating at a rate of more than 3% per annum, compounded for as long as you leave your money in that account. This is due to inflation calculated at 4% per annum.
However, to start investing, you will need a sum of money. It does not matter if you are still studying or starting in your first career or you have been working for quite some time. The habit of saving cannot be avoided. Instead of considering how you are going to spend your savings, why don't you think of how you can GROW that savings?
The habit of saving must be cultivated from young. It takes a long time for a teenager to save $5,000. But when you think of it as your first investment capital, which you can grow the $5,000 to $500,000 in the long run, it may well be worth the effort.
Why $5,000? There is no minimum sum to start investing but you have to pay a minimum commission of $25 for buying the shares of any company in the stock market. Here is an example.
If Jane buys 5,000 shares of Company X at $0.16 each, the purchase will cost her about $830, including the commission of $25. In fact, she is buying the shares at $0.166 per share.
If she buys 30,000 shares of the same company at $0.16 each, the purchase will cost her about $4,830, including commission. But she is actually buying the shares at $0.161 per share instead. That is a saving of $0.005 a share which is equivalent to 32 shares at $0.16.
The brokerage rate (commission) is 0.275% of your total purchase amount. The minimum commission of $25 is equivalent to buying shares totaling $9,000. By buying shares worth $9,000, you are actually maximising the commission paid to your broker. Any purchase above $9,000 will be calculated according to the rate of 0.275%.
Do your calculations and invest wisely.
Cheers.
I told the students that the money in our savings account are actually depreciating instead. How much of that savings is enough to pay for the future 'rainy' day? In fact, our money in the savings account are depreciating at a rate of more than 3% per annum, compounded for as long as you leave your money in that account. This is due to inflation calculated at 4% per annum.
However, to start investing, you will need a sum of money. It does not matter if you are still studying or starting in your first career or you have been working for quite some time. The habit of saving cannot be avoided. Instead of considering how you are going to spend your savings, why don't you think of how you can GROW that savings?
The habit of saving must be cultivated from young. It takes a long time for a teenager to save $5,000. But when you think of it as your first investment capital, which you can grow the $5,000 to $500,000 in the long run, it may well be worth the effort.
Why $5,000? There is no minimum sum to start investing but you have to pay a minimum commission of $25 for buying the shares of any company in the stock market. Here is an example.
If Jane buys 5,000 shares of Company X at $0.16 each, the purchase will cost her about $830, including the commission of $25. In fact, she is buying the shares at $0.166 per share.
If she buys 30,000 shares of the same company at $0.16 each, the purchase will cost her about $4,830, including commission. But she is actually buying the shares at $0.161 per share instead. That is a saving of $0.005 a share which is equivalent to 32 shares at $0.16.
The brokerage rate (commission) is 0.275% of your total purchase amount. The minimum commission of $25 is equivalent to buying shares totaling $9,000. By buying shares worth $9,000, you are actually maximising the commission paid to your broker. Any purchase above $9,000 will be calculated according to the rate of 0.275%.
Do your calculations and invest wisely.
Cheers.
Wednesday, May 18, 2011
The next phase of property investing
Property investment is not just buying a second property to lease out, to earn a passive income. Property investment applies to the property that you buy to stay in as well.
In July 2010, I bought a landed property, in original condition. In February 2011, a unit along the same road, also in original condition, was sold at 15% above the price I paid for. The renovation for my house is completing end of this month, and my wife and I intended to sell it away at about 25% above our purchase price. Of course, the selling of the house will only be done after July 2011, so that I need not pay the seller's stamp duty.
After that, where are my family going to stay? After doing some calculations with our CPF monies and enquiring the loan quantum for each of us with various banks, we will buy two properties under two separate names. In this way, not only can we overcome the hurdle of only 60% loan quantum, we can have a property that can bring us passive income. We can actually take a loan of 80% of the purchase price for both properties.
That is why it is always good to update your loan quantum with the banks and keep a lookout for property sales every now and then. There are still some very good properties out there that are selling cheap and can give us a relatively good rental yield. We have actually a couple of target properties that we will buy after selling the current landed property.
I have come across an advertisement last week. A 3 bedroom unit in Adam Park Condo (freehold) is selling for $1.5million. It is freehold and within 1 km of very good schools like Raffles Girls Primary School and Nanyang Primary School. When 2015 comes, the nearest MRT station is just about 600 metres away. Comparing to other properties that are selling at skyrocketing prices, this is considered a good catch. There are some others in the Straits Times Classified, go look for them yourselves.
For those who are wondering, my family is currently staying in a rented apartment.
Happy searching and investing.
Cheers.
In July 2010, I bought a landed property, in original condition. In February 2011, a unit along the same road, also in original condition, was sold at 15% above the price I paid for. The renovation for my house is completing end of this month, and my wife and I intended to sell it away at about 25% above our purchase price. Of course, the selling of the house will only be done after July 2011, so that I need not pay the seller's stamp duty.
After that, where are my family going to stay? After doing some calculations with our CPF monies and enquiring the loan quantum for each of us with various banks, we will buy two properties under two separate names. In this way, not only can we overcome the hurdle of only 60% loan quantum, we can have a property that can bring us passive income. We can actually take a loan of 80% of the purchase price for both properties.
That is why it is always good to update your loan quantum with the banks and keep a lookout for property sales every now and then. There are still some very good properties out there that are selling cheap and can give us a relatively good rental yield. We have actually a couple of target properties that we will buy after selling the current landed property.
I have come across an advertisement last week. A 3 bedroom unit in Adam Park Condo (freehold) is selling for $1.5million. It is freehold and within 1 km of very good schools like Raffles Girls Primary School and Nanyang Primary School. When 2015 comes, the nearest MRT station is just about 600 metres away. Comparing to other properties that are selling at skyrocketing prices, this is considered a good catch. There are some others in the Straits Times Classified, go look for them yourselves.
For those who are wondering, my family is currently staying in a rented apartment.
Happy searching and investing.
Cheers.
Thursday, April 28, 2011
Low Interest Rates May Be Masking Singapore Debt Bubble: Economist - CNBC
Low Interest Rates May Be Masking Singapore Debt Bubble: Economist - CNBC
This is a link from CNBC.
Property investors, the best time to buy properties is end 2012.
Please read to understand what dangers are hiding behind the low interest rates.
Cheers.
Friday, April 15, 2011
6% Class A Preference Shares by Hyflux
Apply for it!
This is a 7 year preference shares offered by Hyflux. After the maturity in 2018, if Hyflux do not intend to redeem, they will offer 8% per annum dividend to holders of the shares.
The above application will close on 20 April 2011, 12 noon.
For the in defensive investors, this is a good chance to own preference shares that gives 6% per annum dividend. Very rare that a company can offer such a high rate.
For the application, you will need at least $10,000.
With $10,000 invested, you will receive $300 every six months for 7 years. That's a total of $4,200 dividend, a total return of 42% for seven years. What's more, the opening price of this preference shares in the SGX is definitely going to be higher than the application price.
Highly encouraged to apply for it. However, if these shares are over subscribed, then there will be balloting. Hence you may or may not get it after paying $2 administrative charge when applying through the ATMs.
Cheers.
Disclaimer: All types of investment carry risks. Readers are advised to invest at their own discretion.
This is a 7 year preference shares offered by Hyflux. After the maturity in 2018, if Hyflux do not intend to redeem, they will offer 8% per annum dividend to holders of the shares.
The above application will close on 20 April 2011, 12 noon.
For the in defensive investors, this is a good chance to own preference shares that gives 6% per annum dividend. Very rare that a company can offer such a high rate.
For the application, you will need at least $10,000.
With $10,000 invested, you will receive $300 every six months for 7 years. That's a total of $4,200 dividend, a total return of 42% for seven years. What's more, the opening price of this preference shares in the SGX is definitely going to be higher than the application price.
Highly encouraged to apply for it. However, if these shares are over subscribed, then there will be balloting. Hence you may or may not get it after paying $2 administrative charge when applying through the ATMs.
Cheers.
Disclaimer: All types of investment carry risks. Readers are advised to invest at their own discretion.
Tuesday, April 5, 2011
Properties: To buy or not to buy?
Buy! Why?
The new cooling measures by the government are as follows:
1. Seller-Stamp Duty increased to 4 years.
My view - This measure should not be a factor to consider. Because we buy properties to lease out, we will still buy an investment property that can give us good yield. As long as we have the power to hold the property for 4 years, I don't think this factor should pull us back.
2. If you have an outstanding housing loan, you can only take another loan that is only 60% of the purchase price.
My view - This measure is the one that hurts the medium income people the most. For the rich, they have the money anyway, a 20% downpayment or a 40% downpayment is not a concern for them at all. There is going to be a widening of the gap between the rich and poor.
My suggestion - If you have the 40% cash/CPF to do the downpayment, go ahead and buy an investment property and rent it out for the next 4 years. However, do not just buy any property. Buy a property that can give you the best rental yield. Look for a relatively old resale property instead of new ones. Look for one that needs a fair bit of renovation, so that you can bargain down the price. Do a reasonably good renovation to make it look brand new, and guess what, you will have a higher chance to get it leased out than those within the same estate.
If you do not have the 40%, then grow your savings through buying undervalued companies from the stock market. Look out for my second book on how to grow your savings in the stock market, in June/July 2011.
The government has been introducing cooling measures from time to time. One thing that I do not understand is, " Why do our government release more land for sale, allowing them to bid at a high price, and at the same time increase their development charges? Won't all this make the developer increase the selling price of their units and we, the consumers, have to pay that kind of price?"
Please ponder.
Cheers.
The new cooling measures by the government are as follows:
1. Seller-Stamp Duty increased to 4 years.
My view - This measure should not be a factor to consider. Because we buy properties to lease out, we will still buy an investment property that can give us good yield. As long as we have the power to hold the property for 4 years, I don't think this factor should pull us back.
2. If you have an outstanding housing loan, you can only take another loan that is only 60% of the purchase price.
My view - This measure is the one that hurts the medium income people the most. For the rich, they have the money anyway, a 20% downpayment or a 40% downpayment is not a concern for them at all. There is going to be a widening of the gap between the rich and poor.
My suggestion - If you have the 40% cash/CPF to do the downpayment, go ahead and buy an investment property and rent it out for the next 4 years. However, do not just buy any property. Buy a property that can give you the best rental yield. Look for a relatively old resale property instead of new ones. Look for one that needs a fair bit of renovation, so that you can bargain down the price. Do a reasonably good renovation to make it look brand new, and guess what, you will have a higher chance to get it leased out than those within the same estate.
If you do not have the 40%, then grow your savings through buying undervalued companies from the stock market. Look out for my second book on how to grow your savings in the stock market, in June/July 2011.
The government has been introducing cooling measures from time to time. One thing that I do not understand is, " Why do our government release more land for sale, allowing them to bid at a high price, and at the same time increase their development charges? Won't all this make the developer increase the selling price of their units and we, the consumers, have to pay that kind of price?"
Please ponder.
Cheers.
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