View Full Version : Advice Required - Downgrading Choices
I would like to ask for advice and strong, valid reasons and / or arguments as I am having some disagreement with my parents on the issue of selling their house and what to do with the money should they carry out with the sales. I do understand that it is their money and ultimately, they do have the final say.
My parents are both retired (both are in their late 60s) and would like to downgrade from their fully paid FH inter-terrace in District 20.
One reason given is they feel more secure with some form of passive income even though their 2 children (my brother and myself) assured them it was not necessary. Just for information they are also on government pension scheme (lump sum) and still enjoy the pension scheme's medical benefits.
IF the main reason is for passive income and NOT capital gains (they are very risk adverse at this stage of their lives and also mentioned they do not care much for capital gains as lifespan is unpredictable), which of the below will be a better option and why?
Alternative #1 (Parent's Preference)
Fully paid resale 3 BR 120 sqm or larger HDB in District #3 (Commonwealth, Queenstown, Alexander area) for own stay within first 5 years of purchase to fulfil HDB's MOP. Will rent out after this 5 years period.
Fully paid resale 2 BR FH condo of 110 sqm in District #3 (Commonwealth, Queenstown, Alexander area) for rental during the first 5 years. Will move in and rent out the resale HDB after meeting HDB's MOP of 5 years.
Unlikely to have any significant spare cash from sale proceeds if this alternative is chosen.
Alternative #2 (My Suggestion)
Fully paid resale 3 BR 120 sqm or larger HDB in District #17 (Pasir Ris, Loyang area) for own stay within first 5 years of purchase to fulfil HDB's MOP. Will rent out after this 5 years period.
Fully paid resale 3 BR FH condo of 120-135 sqm in District #17 (Changi, Loyang area) for rental during the first 5 years. Will move in and rent out the resale HDB after meeting HDB's MOP of 5 years.
Fully paid new 1 BR Shoebox unit in District 12, 13, 14, 19 or 20 for rent.
Some left over cash of about 100-200k from sale proceeds for other investments or for holding in banks.
Alternative #3 (My Brother's Suggestion)
Fully paid resale 3 BR 120 sqm or larger HDB in District #3 (Commonwealth, Queenstown, Alexander area) for own stay.
Invest a portion of sale proceeds into stocks / shares (e.g. SPH shares) for the purpose of passive income. Putting aside the rest in bank in anticipation of future opportunities in the property market.
My brother feels #3 is the best option as he has accumulated wealth with stocks and shares over the years.
My wife and myself prefer #2 as my in-laws have a landed and a FH condo in District #17. It will make it easier to spend time with both set of parents and both set of parents can take turns and help in taking care of their granddaughter. Personal (selfish) reasons aside, this alternative should maximize rental cash flow for my parents after deducting property tax, maintenance fee, utilities, etc. Worse case scenario, if there is market downturn, all the properties will be fully paid for and there is only property tax, maintenance fees and utilities costs incurred. In such worst case scenarios, they can reduce rentals to a break-even minimum that covers property tax, maintenance and utilities, hence there will be almost zero risk. E.g. Short-term breakeven rental of about $600 for shoe-box unit + $1.4k breakeven rental for 3BR HDB / private condo of 120 - 135 sqm. There should be absolutely no problem getting tenants for the condo unit in District #17 as my in-laws have been renting out a unit of similar size to tenants working in the various airlines / aerospace engineering industry / Changi Business District for the past 14 years at $3k to $3.8k per month.
My parents are quite stubborn on insisting on #1. My brother is staying in a 5 Room HDB unit in Stratmore area and I have close cousins / relatives staying in Queenstown, Botanic Garden and Holland Road / 6th Avenue area. My parents feel that, with their advanced age, it will be good and convenient for everyone to be staying nearby to 'look out for' and 'hang around with' each other. Further reasons they do would not consider other choices:
#2: District #17 is 'too inaccessible' and 'too far'.
#3: They not trust shares as they have been burned during Lehman Brothers incident.
#3: They still want at least one FH property as they do not wish others to perceive that they have 'downgraded' from FH landed to LH HDB (Even though some people may call it vanity or pride, I fully understand where my parents are coming from and fully support their decision).
For additional background information, both my brother and myself are born in the 1970s and both our families are self-sufficient financially. Our household incomes have exceeded HDB's existing income ceiling for new BTO applications. It is therefore not an option for my brother to sell his fully paid HDB to my parents 'at a token sum' and apply for another new 5 Room BTO from the new developments in the same area (to enjoy the subsidized price). Between us, we should be able to increase our current monthly contributions to our parents from the current $1.4k a month to $2.4k should the need arise (that is the reason I mentioned earlier that both of us have tried to convince our parents that they should not sell or downgrade from their existing home).
What do the experienced brothers here feel? Is my opinion that #2 is the best option for my parents really true? I have shown them a spread sheet of my analysis and compared the monthly cash inflow and outflow for #1 vs. #2 but my parents are not convinced. If #2 is really the best option, what other methods should I use to convince my parents that it is the best?
Thanks in advance!
same person sell terrace... buy resale hdb... after mop already then can buy private...
option 1 and 2 cannot execute, unless buy under different person.
same person sell terrace... buy resale hdb... after mop already then can buy private...
option 1 and 2 cannot execute, unless buy under different person.
I understand what you are saying.
My parents have discussed using my brother and / or my name(s).
My brother's HDB's MOP has been fulfilled about 2 years ago so there should be no restrictions barring the sudden (unlikely) introduction of policies on concurrent ownership of HDB and private housing.
I have just bought a small unit several months back, but as it is a private development, there should be no restrictions to prevent my parents from using my name on additional private properties.
There will be no loans involved as any proposed purchase will be fully paid for during purchase. ABSD will be paid by our parents should they decide on using our names.
ironmanpower
25-07-13, 14:05
end of the day, it's your old man's money. :OldFart:
if you own a private property, you cannot buy a HDB resale immediately after selling your private property.
can buy lah.
http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/BuyResaleFlatPublicScheme?OpenDocument
Amber Woods
25-07-13, 14:34
Option 1 is fairly safe and comfortable for your elders and the reasons are obvious.
Option 2 is "risky" in the sense that you are buying 3 properties at the same time at market peak even though they will be fully paid for in cash.
Option 3 sounds good since there is good opportunity to buy later with prices expected to soften. If prices remain stable, can always buy and still as comfortable as in Option 1. Option 3 gives you more room and time to make decisions.
very hard to comment. it's not only a rational decision but involves relationships and family dynamics too
Amber Woods
25-07-13, 15:34
Option 1 is fairly safe and comfortable for your elders and the reasons are obvious.
Option 2 is "risky" in the sense that you are buying 3 properties at the same time at market peak even though they will be fully paid for in cash.
Option 3 sounds good since there is good opportunity to buy later with prices expected to soften. If prices remain stable, can always buy and still as comfortable as in Option 1. Option 3 gives you more room and time to make decisions.
Option 3 also provides you the possibility of buying 2 investment properties in D17 if prices soften. With option 3, you have room and time to decide other permutations.
option 1.
advice the elders, leave them to decide, support their decision.
Amber Woods
25-07-13, 15:46
option 1.
advice the elders, leave them to decide, support their decision.
Agree! Go with option 1 since it makes financial sense as well.
If the elders can be "educated", option 3 could turns out to be a better deal. Elders can still live in D3 and may be able to buy another D3 investment property later and still have some cash to spare.
#2 may give u more attractive returns than #1, but money is not everything, esp for the old folks. They may prefer to retire in a D3 env...
Its obvious they do not want #2 to live in a unfamiliar environment at their old age.
i assume you have only 1 other sibling, so parent have 2 children.
option 2 would be best with slight modification.
buy 2 2BR.
after they died, 1 goes to you, the other goes to your brother.
their HDB sell off and proceed split among you & ur brother.
like that, no family quarrel, eg how come he get 3br and u get 1br?
unless u get 1br + HDB.
see no quarrel over division of wealth.
Hahaha...ultimately, seems like it will inevitably leads to this situation...I would say, let your parents decide. Their money and in the end, they would have least worry about two sons quarreling over their assets...with their pensions and medical coverage, money to them is least impt. What's most impt is how u and your bro behave....:D show them that u care for them and not the money....that would make them very happy.:2cents:
i assume you have only 1 other sibling, so parent have 2 children.
option 2 would be best with slight modification.
buy 2 2BR.
after they died, 1 goes to you, the other goes to your brother.
their HDB sell off and proceed split among you & ur brother.
like that, no family quarrel, eg how come he get 3br and u get 1br?
unless u get 1br + HDB.
see no quarrel over division of wealth.
very hard to comment. it's not only a rational decision but involves relationships and family dynamics too
Yeah. I can sense that they are mentally tuned out even as I am trying to put my point across and it gets rather fustrating. Usually it will end with my dad saying "It's my decision and I'm not asking for your comments"...
Option 3 also provides you the possibility of buying 2 investment properties in D17 if prices soften. With option 3, you have room and time to decide other permutations.
Hmm... I have not thought of #3 in that light (buying room and time to make decisions)... You've made a very good point. Thanks for the advice.
:)
Option 1. The other two don't make sense.
option 1.
advice the elders, leave them to decide, support their decision.
I sincerely agree with what you are saying...
But sometimes it is easier said than done as all parties tend to get emotionally charged during discussions...
#2 may give u more attractive returns than #1, but money is not everything, esp for the old folks. They may prefer to retire in a D3 env...
Its obvious they do not want #2 to live in a unfamiliar environment at their old age.
Good points about the environment bros.
I have argued time and again that if all they want is a place to retire and stay and they need another property for passive income, it makes more financial sense to buy D17 as compared to D3. Option #2 will obviously give them more passive income than #1.
However my folks were pretty insistent on this same point that you guys made. I guess I was too emotionally involved and I could not see their point until it is mentioned by netural / uninvolved parties.
Thanks guys.
i assume you have only 1 other sibling, so parent have 2 children.
option 2 would be best with slight modification.
buy 2 2BR.
after they died, 1 goes to you, the other goes to your brother.
their HDB sell off and proceed split among you & ur brother.
like that, no family quarrel, eg how come he get 3br and u get 1br?
unless u get 1br + HDB.
see no quarrel over division of wealth.
Hahaha...ultimately, seems like it will inevitably leads to this situation...I would say, let your parents decide. Their money and in the end, they would have least worry about two sons quarreling over their assets...with their pensions and medical coverage, money to them is least impt. What's most impt is how u and your bro behave....:D show them that u care for them and not the money....that would make them very happy.:2cents:
Actually, I do not wish to think so far on this aspect.
I understand what you are getting at but it will not happen the way you described.
Since we were young till this day, the number of times we have quarrelled or fought can be counted on the fingers of 1 hand. Can you believe that? :)
We are close and throughout the years he has always been the better and more filial son. I seriously would have no objections with him getting preferential treatment. :)
You may want to find a compromise between 1 and 2.
Say condo in familiar area for own stay, for investment ones can be anywhere else as I doubt they have the energy nor inclination to self manage those without engaging agents. So can have another two condo giving good cashflow income, it also makes good sensibility not to keep all your eggs in same district.
Since your parents are not so concerned about investing and growing their money, option 2 and 3 are no longer attractive. As working adults, we are always thinking of how to maximize our resources and so make decisions based on that. I tried in vain to convince my dad to do something. I explained to him my point which doesn't appeal to him. He also explained to me his reasons for not doing it but it also didn't click with me.
To our older folks, relationship and emotional dependence is more important than that little bit more of passive income. Your objective therefore should not be to grow their money but to help to sleep well at night! :cheers3:
Anyway thanks for all the replies and advice.
By taking a step back and listening to neutral parties, I realised:
Emotional decisions are involved and its hard to say if anyone is right or wrong.
Money (in the form of passive income) may not be the top priority.
Elderly may place higher priorities on living their golden years in a familar, condusive environment with close proximity to close / loved ones.
Will try to be supportive with whatever decision they will be making though my brother and myself are still carrying the hope that they do not sell their home for the past 20+ years.
I did tell them to work out a sustainable monthly expenses so my brother and myself can discuss and work towards that figure. Futhermore, they do have some pension to fall back on in the worst case scenario.
But they are always worried about running out of pension, concerned over having passive income and insisting on not depending on us, etc. My sibling and myself seriously think they worry too much.
:cheers4:
totally agree.....
Since your parents are not so concerned about investing and growing their money, option 2 and 3 are no longer attractive. As working adults, we are always thinking of how to maximize our resources and so make decisions based on that. I tried in vain to convince my dad to do something. I explained to him my point which doesn't appeal to him. He also explained to me his reasons for not doing it but it also didn't click with me.
To our older folks, relationship and emotional dependence is more important than that little bit more of passive income. Your objective therefore should not be to grow their money but to help to sleep well at night! :cheers3:
Since your parents are not so concerned about investing and growing their money, option 2 and 3 are no longer attractive. As working adults, we are always thinking of how to maximize our resources and so make decisions based on that. I tried in vain to convince my dad to do something. I explained to him my point which doesn't appeal to him. He also explained to me his reasons for not doing it but it also didn't click with me.
To our older folks, relationship and emotional dependence is more important than that little bit more of passive income. Your objective therefore should not be to grow their money but to help to sleep well at night! :cheers3:
Yes, you hit the nail right on the head.
Especially my dad. Whatever I say makes no sense to him and whatever he says makes no sense to me. So its hard to understand each other.
Knowing my folks, they will be complaining years after they make their decision. E.g. I should have bought that landed property in Kay Siang instead of the one in Thomson 20+ years back... I should have brought the shop house in AMK when it was around $1m several years back, etc.
So I'm trying my best to help them make a decision that they will not regret (or harp on) years after making that decision.
Option 4, renovate and partition your current house into triple key units and rent out 2 of them and stay in 1. :scared-5:
Actually I'm very surprised your parents believe renting out HDB is a permanent long term solution for passive income. Being old age, you think they really have the time and energy to manage tenants ?? And why does everyone assume healthy rental market is a given ?? Not to mention assuming HDB rental market is a given ? KBW tomorrow can declare "max no. yrs a HDB can be rented out" and your retirement income is terminated.
Your parents still status conscious. So moving out of queenstown is out of the question. And moving down from a landed to HDB is a downgrade they dun want other ppl to talk about (hence want to move to condo after MOP).
Option 3 is far simpler. Downsize to a condo, excess cash on a low risk medium yield stocks on bonds. It's even liquid. 25k a year tax free, at 5% you only need 500k. Local banks perp bond is 5% , safe enough for you ?
The key point you need to convince them is not about the gain or money, but rather, the risk of property, and rental business. Pty is not liquid. What happen if for whatever reason you need a big lumpsum for unexpected events ? Especially do not assume rental business is always robust. Political climate is changing in SG, the sign is every where, whether you like it or not.
your dad has spoken : "It's my decision and I'm not asking for your comments"...
as working younger people, we weigh opportunity cost and loss. remember your parents also did that... last time. now's their turn to decide on what they want without having to "see others' faces", least of all their own children's.
like it or not, in advising them, there are secondary gains. they earn more, or lose less - children will get more in inheritance or spend less to rescue in times of need. these may not be your intent, though it may come across as such with insistent advices and complicated spreadsheets.
the unspoken understanding is that your parents do not want to depend on both of you, or be a liability. they certainly want to be around friends and relatives rather than take on the additional responsibility of looking after grandchildren. and also probably not too keen to stay near the in-laws either. the other concern is also preparing for the independent livelihood of the surviving spouse without losing any financial freedom and dignity. imagine them having to listen to your prescriptions now... what about in the future?
i am not trying to be critical, just putting myself in the other shoes. by all means advise with other alternatives. though leave them with the freedom of choice. rather than ask them how much they need, both of you can tell them how much more you can provide... though i suspect the whole exercise is to be financially independent and still leave a legacy.
good luck!
lifeline
You don't get to choose how you're going to die, or when. You can only decide how you're going to live.
-- Joan Baez
Before you contradict an old man, my fair friend, you should endeavour to understand him.
-- George Santayana
Are your parents really happy to move out of their landed house probably staying there for such a long time.
I would like to ask for advice and strong, valid reasons and / or arguments as I am having some disagreement with my parents on the issue of selling their house and what to do with the money should they carry out with the sales. I do understand that it is their money and ultimately, they do have the final say.
My parents are both retired (both are in their late 60s) and would like to downgrade from their fully paid FH inter-terrace in District 20.
One reason given is they feel more secure with some form of passive income even though their 2 children (my brother and myself) assured them it was not necessary. Just for information they are also on government pension scheme (lump sum) and still enjoy the pension scheme's medical benefits.
IF the main reason is for passive income and NOT capital gains (they are very risk adverse at this stage of their lives and also mentioned they do not care much for capital gains as lifespan is unpredictable), which of the below will be a better option and why?
Alternative #1 (Parent's Preference)
Fully paid resale 3 BR 120 sqm or larger HDB in District #3 (Commonwealth, Queenstown, Alexander area) for own stay within first 5 years of purchase to fulfil HDB's MOP. Will rent out after this 5 years period.
Fully paid resale 2 BR FH condo of 110 sqm in District #3 (Commonwealth, Queenstown, Alexander area) for rental during the first 5 years. Will move in and rent out the resale HDB after meeting HDB's MOP of 5 years.
Unlikely to have any significant spare cash from sale proceeds if this alternative is chosen.
Alternative #2 (My Suggestion)
Fully paid resale 3 BR 120 sqm or larger HDB in District #17 (Pasir Ris, Loyang area) for own stay within first 5 years of purchase to fulfil HDB's MOP. Will rent out after this 5 years period.
Fully paid resale 3 BR FH condo of 120-135 sqm in District #17 (Changi, Loyang area) for rental during the first 5 years. Will move in and rent out the resale HDB after meeting HDB's MOP of 5 years.
Fully paid new 1 BR Shoebox unit in District 12, 13, 14, 19 or 20 for rent.
Some left over cash of about 100-200k from sale proceeds for other investments or for holding in banks.
Alternative #3 (My Brother's Suggestion)
Fully paid resale 3 BR 120 sqm or larger HDB in District #3 (Commonwealth, Queenstown, Alexander area) for own stay.
Invest a portion of sale proceeds into stocks / shares (e.g. SPH shares) for the purpose of passive income. Putting aside the rest in bank in anticipation of future opportunities in the property market.
My brother feels #3 is the best option as he has accumulated wealth with stocks and shares over the years.
My wife and myself prefer #2 as my in-laws have a landed and a FH condo in District #17. It will make it easier to spend time with both set of parents and both set of parents can take turns and help in taking care of their granddaughter. Personal (selfish) reasons aside, this alternative should maximize rental cash flow for my parents after deducting property tax, maintenance fee, utilities, etc. Worse case scenario, if there is market downturn, all the properties will be fully paid for and there is only property tax, maintenance fees and utilities costs incurred. In such worst case scenarios, they can reduce rentals to a break-even minimum that covers property tax, maintenance and utilities, hence there will be almost zero risk. E.g. Short-term breakeven rental of about $600 for shoe-box unit + $1.4k breakeven rental for 3BR HDB / private condo of 120 - 135 sqm. There should be absolutely no problem getting tenants for the condo unit in District #17 as my in-laws have been renting out a unit of similar size to tenants working in the various airlines / aerospace engineering industry / Changi Business District for the past 14 years at $3k to $3.8k per month.
My parents are quite stubborn on insisting on #1. My brother is staying in a 5 Room HDB unit in Stratmore area and I have close cousins / relatives staying in Queenstown, Botanic Garden and Holland Road / 6th Avenue area. My parents feel that, with their advanced age, it will be good and convenient for everyone to be staying nearby to 'look out for' and 'hang around with' each other. Further reasons they do would not consider other choices:
#2: District #17 is 'too inaccessible' and 'too far'.
#3: They not trust shares as they have been burned during Lehman Brothers incident.
#3: They still want at least one FH property as they do not wish others to perceive that they have 'downgraded' from FH landed to LH HDB (Even though some people may call it vanity or pride, I fully understand where my parents are coming from and fully support their decision).
For additional background information, both my brother and myself are born in the 1970s and both our families are self-sufficient financially. Our household incomes have exceeded HDB's existing income ceiling for new BTO applications. It is therefore not an option for my brother to sell his fully paid HDB to my parents 'at a token sum' and apply for another new 5 Room BTO from the new developments in the same area (to enjoy the subsidized price). Between us, we should be able to increase our current monthly contributions to our parents from the current $1.4k a month to $2.4k should the need arise (that is the reason I mentioned earlier that both of us have tried to convince our parents that they should not sell or downgrade from their existing home).
What do the experienced brothers here feel? Is my opinion that #2 is the best option for my parents really true? I have shown them a spread sheet of my analysis and compared the monthly cash inflow and outflow for #1 vs. #2 but my parents are not convinced. If #2 is really the best option, what other methods should I use to convince my parents that it is the best?
Thanks in advance!
Actually, I do not wish to think so far on this aspect.
I understand what you are getting at but it will not happen the way you described.
Since we were young till this day, the number of times we have quarrelled or fought can be counted on the fingers of 1 hand. Can you believe that? :)
We are close and throughout the years he has always been the better and more filial son. I seriously would have no objections with him getting preferential treatment. :)
actually, it is not siblings who quarrel for long. once they have spouses and children, that's when conflict usually starts.
let's face it, who priotise their sibling's kids over their own kid?
or more specific, which mother prioritise their sibling's kids over their own kids? perhap Ringo can help conduct a poll.
always beware of pillow ghost.:eek:
and when your children grow up, they will ask you, how come ahkong give more to ahcek? my cousins can go here go there.
you better think what you are going to tell them.
anyway, they already have passive income, the way i see it, they dont need to sell off the inter-terrace. your parents are really thinking about the division of wealth already, hence multiple properties.
Autumnwinds
26-07-13, 17:36
Going by option 2, 3 names will have to be provided to escape SD.
Option 1 will be simple as your parents just offload their FH landed, and buy into 2 properties(HDB and 1 condo). Option 2 would tend to be more 'risky' as the more you manage the more troublesome it becomes. Your parents should be pretty old right, they may not partake moving into unfamiliar territory.
Other things to note, do your parents drive? Near mrt?:cheers1:
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