Should I Sell One Property and Buy Two?

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“SELL one property, buy two” is a popular sales pitch amongst numerous property agents in the recent years. These sales advertisements typically entice home owners to sell their existing homes be it HDB or private property, and to buy two properties under two different names – one for own stay and another for investment. Such advertisements are quite prevalent on social media platforms like Facebook and YouTube, to name a few. Increasingly, these ads appear as pop ups or in your feeds while browsing a website or your social media pages.

Typical advertisement headline read – “Upgrade to condominium without any cash top up or own two properties with $0.” These advertisements are mainly targeted at HDB owners which make up 80% of Singapore’s resident population of which 90% own their homes. Home ownership and the ability to own more than one property is something which many Singaporeans aspire. The Government had projected our population to reach 6.5 to 6.9 million[1] by 2030 (resident population between 4.2 to 4.3million – inclusive of Singapore citizen and permanent residents). The ideal situation is to own an additional property that you can rent and earn passive rental income as well.

Is such lifestyle achievable? What actually goes on behind this method of “Sell 1 and Buy 2?” This method basically requires you to sell your current property (assuming there is healthy capital appreciation), and to leverage on your cash proceeds from the sale to pay for the minimum down payment of the two condominiums. Having said that, this lifestyle is definitely plausible and possible. But of course, to be considered only after you have deliberated on various aspects of your life; as property investment is a huge ticket item that requires mid to long term planning.

To illustrate an example; let’s assume both husband and wife are 35 years old. Both are employed and salaried workers – husband earns $10,000 and wife earns $8,000 per month. They plan to sell their current property and buy a resale 3 bedrooms condominium under husband’s name for own stay while wife intends to buy a new 2 bedrooms, new launch property for investment. Their budget for the said properties is $1.2million and $1 million respectively.

Illustration for the example above.

Based on the scenario above, the husband’s monthly instalment for the resale 3 bedrooms condominium will come up to about $3600 per month assuming the interest rate is at 2.5%. He will utilise his monthly CPF OA contribution fully and will top up cash for the shortfall. He needs to factor in the monthly maintenance fee as an outgoing expense. Assuming the monthly maintenance fee for the 3 bedrooms resale condo is $350, he has to fork out about $2570 ($3600 -$1380 + $350) in cash for their “own-stay” property.

What happens when wife’s new launch property TOPs? The wife has two options

1. to sell the property once the holding period of 3 years is up to avoid paying SSD or

2. to hold the property and rent it out for passive income for a number of years.

Assuming there is an economic downturn when the property TOPs or when it hits its statutory completion – what options will the wife have then? If the initial plan is to hold it for a short period of time, probably till the holding period of 3 years, then she has to be prepared if her property takes a longer time to be transacted due to stiff competition. You may not be the only one who has similar thinking. Also, is she prepared to suffer some loss or accepts marginal profit.

However, if the wife is able to hold the property from mid to long term, she can use this investment property as a rental vehicle and earn rental income which will help to pay part of the mortgage for their “own-stay” property.

Assuming after the project TOPs, the wife’s monthly instalment is about $3000 per month.

1. What will be her cost for holding this unit without renting it out?

   If she had fully used her monthly CPF OA contribution, she will need to top up about $1920 cash ($3000 – $1380 + $300 maintenance fee).

2. What will be her cost if she rents out this property assuming she rents her unit at $2500 per month?

   If she fully utilises her monthly CPF OA contribution and factor in the maintenance fee, instead of having to use cash for the shortfall, the wife will earn a net income of $580. This spare cash can then be utilised as savings, or used to cover the cash shortfall in the property for “own stay”.

From the example, this method is manageable for this family if the situation (income, family size etc) stays status quo throughout the next few years. This is an ideal scenario but in reality, it is not. There are many other factors to be considered – personal expenses (car loan, renovation loan, education loan, credit rating, insurance), savings, family needs (parents medical, children education expenses), risk appetite and savings as buffer for unfortunate situation like job loss. At the end of the day, being prudent is important in order not to over leverage on your disposable income.

So, if this method is something that you are comfortable and will like to embark on, you will need to think about the potential cost for a landlord – cost from furnishing the property, repair works as appliances and things may be spoiled after every tenancy. Is this all to buying an investment property? Unfortunately, it is not. You will need to ensure that you have tick off some check boxes. Importantly, this purchase cannot be an emotional purchase such as to get premium facing stack. Instead, the numbers have to make sense for an easy and quick exit, if the situation allows. Also, you will need to invest in a property that is easily tenantable where there is distinct tenants pool and vacancy period is kept short. One of the possibilities is to purchase property near commercial clusters as tenants prefer to stay close to their work place to minimise travelling time. Read more about buying a property for rental investment in our previous blog post.

If you are planning to start your property investment journey and would like to know the numbers, feel free to reach out to PropertyLimBrothers team for a chat. We will be glad to assist you in your property portfolio plans.

Cheers,
Wirdayu Safie