In 2012, I had the opportunity to meet up with this client. Back then, I was stationed at one of the sales gallery and was involved in the marketing of that specific project. She dropped by and wanted to do some research and understand more about that particular development. Her objective at the end of the day was to secure an asset so that she can collect passive income for the years to come.
Fear Is The Main Reason Why Most People Avoid Entering The Market
At that time, she was holding on to a fully paid HDB and have been considering to purchase private property for the longest time. She told me that she has missed out on a lot of opportunities over the years. And have witnessed many of her friends who have made their pots of gold in real estate. So why didn’t she enter the market? Well, like many of us, purchasing a property is a big decision in life. Due to the large quantum, real estate is not just a one-time purchase but something which you pay for many years to come. A wrong decision can mean a lifetime of regret.
Furthermore, she mentioned to me that she was working in an industry where her job was not particularly stable. Being single, she can only depend on herself and no one else. What happens if she gets retrenched? How will she be able to service the mortgage when that happens?
Make A Decision To Enter The Property Market Or Walk Away From It Forever
On the other hand, she also realised that she does not have much time. At the age of 50, your loan tenure is limited. To borrow money to buy something expensive, we would always need to have collateral with a financial institution. In most cases, the collateral we have are our monthly income and the number of expected years we can afford to work. As we increase in age with the same pay, our collateral decreases. This collateral will decrease until a stage where we are no longer “valuable” to the bank. When this happens, borrowing funds to purchase a property is no longer possible.
So, in 2013, this client of mine decided that she must make a decision. She can either purchase a property or walk away from it forever. If you analyse the market back in 2013, making a purchase was not an easy decision either. The URA property price index was at an all-time high. Some investors will shy away, and I have even met up with people who told me that purchasing a property at this time would be absolutely crazy.
Fulfilling Objectives And Having A Clear Goal Will Make Your Decision Making Process Much Simpler
When it comes to decision making like this, I always believe it is crucial to understand what your objectives are at the end of the day. For her, it was a way to plan for her retirement and get passive income for many years to come. So, the question you must ask yourself is this, are there any other alternatives that can fund my retirement? If yes, the other options may be a better decision. If not, then you must seriously consider the current option on hand.
This buyer ended up purchasing a 796sqft leasehold condo at $1mil back in 2013. Today, transacted units have gone up as much as $1.38mil. Furthermore, the rental was able to cover the monthly mortgage, and all she needed to do was to top up the maintenance fees per month. Another eight more years down the road, the condo would have been fully paid, and she would be able to collect rental income for the rest of her life. Of course, to do this, she did come up with an initial cash outlay of $500k.
Age, Income And The Collateral We Can Get
Although I always mention that timing is not the most important thing when it comes to property investing, starting early is crucial. Not only do you have better collateral with a financial institution, but you also have the option to buy and sell a few times to maximise your gains. To understand how much collateral to borrow say $750k, I have listed down the loan tenure, income requirements as well as your monthly instalments.
Income Required To Borrow Up To Age 65
The most important thing at the end of the day is to understand yourself. What are your objectives, and how can you achieve them? Because if my client were to listen to her friends, she would not have purchased that condo. Fast forward to today, it would be impossible for her to enter the property market simply because she does not have the collateral to do so. After all, the age of retirement in Singapore is 62 years.
Facts And Figures Are Essential In The Decision Making Process
What gave her the confidence to act was my sharing on the fundamentals of how prices go up with time. There are people who purchased properties back in 2013 and did make significant paper losses to date. Which is why I always say timing is not the most critical thing that affects prices. It is all about what you buy at the end of the day. For further assistance on how we can help you meet your objectives, why not speak with us today? Book a videocall appointment with us, and we will help you understand the market better. That way, you will be able to make a better decision to reach your financial objectives.
Article contributed by Jerry Wong.
Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos and has been in real estate for ten years. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home. Or making well-informed decisions that see their assets grow. Book a video call appointment and Jerry will share with you the following.
- How certain factors affect real estate prices. Why some condos can make a million dollars while others can lose that same million.
- Why timing is not the most important thing. Because some people can buy the same condo at the same time, but one end up making $100k to $200k while the other suffers losses of the same amount!
- Understanding your requirements and craft a solution for your real estate needs. Be it in the form of asset progression, tax planning, etc.
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