Case study: Sell or rent out the current property

[kiasuest]

I guess this is the same issue many pple would consider when they are buying a new property. Assuming the following figures, would u choose to sell the existing flat or rent it out?


Existing property: HDB EA
Area: 1350 sf
Approx selling px: 600k
Approx rent/mth: 2.2k

New property px: 1.5M
Loan: 80%

Consider if one sells the current flat, the proceeds (abt 420k cpf + 180k cash) can help to lighten the loan for the new property. The cash can also be invested in high-yield blue chips.

Appreciate your contributions or highlight other impt things that one should consider. Thanks.

[ysyap]

My recommendation is biased. Don't sell hdb. Rent it out and if you need the cash later, then can still sell at a price no less than the current market. I find it hard to believe that your EA can sell $600k but only rent for $2.2k/mth. I suspect you have underestimated your rental yield. Use that rent to help pay your $1.5m condo. Take 80% loan of $1.2mil (if your bank allows and assuming you have $300k cash) and that would be at least $4k/mth mortgage instalment. Along with your cpf and rental yield, you probably only need to top up cash of about $600/mth. Still ok for that upgrade!

[DC33_2008]

Are you buying resale or new condo? Do not sell your HDB. Difficult to own a HDB once it is sold. Should leverage on the bank's money for the time being but be prepared with cash for reverse in interest rate. Are you quite sure that you can make a lot from high-yield blue chips? Rental from HDB is at least more predictable if your HDB flat.

[ysyap]

To add on to my earlier post...

Should you throw all $600k into your new property, you still need to loan $900k (without considering stamp duty and lawyer fee, etc). That loan would easily set you back $3k/mth in mortgage instalment. Cpf takes care of $1.1k, you'll have to forlk out close to $2k cash.

Consider, keeping hdb requires you to fork out $600 cash vs. selling hdb and then forking out $1900 cash. Which suits your current lifestyle?

[Allthepies]

if u have a big heart and good in investing, sell hdb, dumb the 600k into high yield stocks of 8 to 10%, give u 4 to 6k per mth. use this amtt to pay for ur condo installment.some more is tax free, no need to pay 10% property tax and no taxes on rental

[kiasuest]

For rental, i only aga aga when i browse propertyguru and assume a conservative rent.

For sale px of Hdb, i'm more certain since can check HDB website for similar size/floor of surrounding blocks.

To add on, the new property is a resale.

My recommendation is biased. Don't sell hdb. Rent it out and if you need the cash later, then can still sell at a price no less than the current market. I find it hard to believe that your EA can sell $600k but only rent for $2.2k/mth. I suspect you have underestimated your rental yield. Use that rent to help pay your $1.5m condo. Take 80% loan of $1.2mil (if your bank allows and assuming you have $300k cash) and that would be at least $4k/mth mortgage instalment. Along with your cpf and rental yield, you probably only need to top up cash of about $600/mth. Still ok for that upgrade!

[ysyap]

To add on to my earlier post...

Should you throw all $600k into your new property, you still need to loan $900k (without considering stamp duty and lawyer fee, etc). That loan would easily set you back $3k/mth in mortgage instalment. Cpf takes care of $1.1k, you'll have to forlk out close to $2k cash.

Consider, keeping hdb requires you to fork out $600 cash vs. selling hdb and then forking out $1900 cash. Which suits your current lifestyle?

Slight calculation error! If you already have 20% downpayment cash without selling your hdb, then you should have about $900k downpayment for you $1.5mil new property = $600k loan. That works out to be about $1800/mth so after deducting cpf, you will fork out about $700/mth. About the same if you rent out hdb. LOL! All else being equal, coughing out a same amount of cash every month to service your mortgage loan, one allows you to have 2 properties while the other only give you one property.

Assumptions made:

1. You have finished paying for your EA.
2. You have cash for renovation and your stamp duty fee and lawyer fee.
3. You are still contributing to cpf that can pay $1100 to your mortgage loan.
4. You are take bank loans of 30 years (those amounts I've quoted are estimates based on 30 year tenure).

[curio]

Very detailed calculation & analysis with all assumptions stated... Cool！

[Laguna]

2 cts of thoughts

1. once u sell ur HDB, it will be very difficult to buy back. HDB flats still short of supply. If ur is in good location...keep. HDB no longer building EA for years..so very limited in supply...so keep..

2. dun presume defensive stocks are safe all the time. Also, hardly any leverage on stocks

3. buy a private property and rent out, interest on loan is tax deductible

If ur young, stay poor and build your wealth

So, my view...dun sell HDB...buy a second property as investment but the LTV will be 60%

[devilplate]

I guess this is the same issue many pple would consider when they are buying a new property. Assuming the following figures, would u choose to sell the existing flat or rent it out?


Existing property: HDB EA
Area: 1350 sf
Approx selling px: 600k
Approx rent/mth: 2.2k

New property px: 1.5M
Loan: 80%

Consider if one sells the current flat, the proceeds (abt 420k cpf + 180k cash) can help to lighten the loan for the new property. The cash can also be invested in high-yield blue chips.

Appreciate your contributions or highlight other impt things that one should consider. Thanks.

Where is ur hdb? Near any mrt? Nid to noe potential rental yield inorder for me to comment wor

I find tat one shd sell above 600k hdb flat and shdnt keep for rental bcoz the yield wasnt fantastic.....those holding on below 500k flat and near mrt die die keep as cashcow

[Santro]

interesting response...the 600k you mention here is buy price or current sale price.

Where is ur hdb? Near any mrt? Nid to noe potential rental yield inorder for me to comment wor

I find tat one shd sell above 600k hdb flat and shdnt keep for rental bcoz the yield wasnt fantastic.....those holding on below 500k flat and near mrt die die keep as cashcow

[devilplate]

interesting response...the 600k you mention here is buy price or current sale price.

Current selling px....initial purchase px is not impt

[DaytonaSS]

Current selling px....initial purchase px is not impt

So if someone owns a HDB say can sell ard 800k, assuming can make ard 400k profit, or he could rent out for ard 3k / mth , make sense to sell or rent out?

[devilplate]

So if someone owns a HDB say can sell ard 800k, assuming can make ard 400k profit, or he could rent out for ard 3k / mth , make sense to sell or rent out?

I will sell! lets b rational...its a HDB!!!! V limited upside oredi

3k for 800k hdb is pathetic....

3rm flat cost ard 300k at commonwealth and rental at least 2k.....

[ysyap]

I will sell! lets b rational...its a HDB!!!! V limited upside oredi

3k for 800k hdb is pathetic....

3rm flat cost ard 300k at commonwealth and rental at least 2k.....

3k for 800k is indeed pathetic but isn't that what you get for private condos also? 800k PC can best fetch you a 2 bedder with rental of not more than $3.2k in an OCR. For a $4k rental return, your unit must be in good positions and min 3 bedders. There're probably no such units available in market today which merits good location and size at that sort of price.

Btw, only a handful of hdb flats command a price tag of $800k. Also, from my preliminary study, a $650k flat can potentially fetch $2.8k rental already.

HDB does have its advantages so my recommendation is sell only when absolutely necessary. Some advantages include

1. Prices are less volatile.
2. Big units for a low premium. Can house more people. When your PC can fetch good returns, sell them and still can have comfortably big unit to house entire family at low cost while waiting for the next tide to come.

[Laguna]

all the advisors here add on to his confusion

[amk]

I will sell! lets b rational...its a HDB!!!! V limited upside oredi

3k for 800k hdb is pathetic....

I agreed ! 800k r u kidding not to take profit ?
Do not even assume for a minute high HDB price is given. HDB price can crash down too, if the gov is determine to "listen to the ppl". Are you too young to remember HDB ghost town and the time when gov had to give free renovation to get ppl to buy in jurong west just next to boon lay MRT ?

In this pty business u must know when to take profit! HDB is the least desirable asset for long term appreciation. The value is depreciating. It is also entirely subjected to gov policy risks.

Many many ppl really believe HDB is the best asset to keep for long term .. Pls dun.

[DC33_2008]

I know of a flat in the west which can smell cabury everyday was sold with a COV of $45k. It was sold within a day with more than 3 offers. They were so happy such a ulu place is also so hot.

I agreed ! 800k r u kidding not to take profit ?
Do not even assume for a minute high HDB price is given. HDB price can crash down too, if the gov is determine to "listen to the ppl". Are you too young to remember HDB ghost town and the time when gov had to give free renovation to get ppl to buy in jurong west just next to boon lay MRT ?

In this pty business u must know when to take profit! HDB is the least desirable asset for long term appreciation. The value is depreciating. It is also entirely subjected to gov policy risks.

Many many ppl really believe HDB is the best asset to keep for long term .. Pls dun.

[Santro]

3k rent for a 800k hdb is about 4.5 % returns. 800k for hdb means the location is prime or there is some other strong factor that pushed the price this high. Considering hdb, your cost price would have been quite low and also possible that your house is fully paid up. Sustainability due to unavailability of tenent during market downturn is very high as you only have to pay for conservancy charges instead of PC maintenance which is much higher. Loan repayment, if any would be from CPF.
Unless there is another alternative that assures you a higher return with minimal risk, I would hold on to the hdb.
Taking profits makes sense if you have other options that can give you a ROI higher than the hdb rental.
My take is, hold on to hdb .

[amk]

...that is, if u assume ur 800k value for a HDB will stay
When gov has a policy change, ur 800k can drop to 500k in 2 months! Ur loss will be 300k if we do mark to market!
This already happened before. In the early nineties ppl need to wait for 5 yrs for a new flat. Prime HDB EM in Bishan was calling 800k. HDB under pressure to deliver HDBs, so it built massively with oversuply in 3 yrs. Ghost town formed in jurong west. HDB resale px start to crumble down. The same Bishan 800k EM valuaiton became less than 500k! MBT kana questioned by opposition. S he started BTO program to make sure such. Ting will never happen in his tenure. Now KBW is doing a policy u turn. He is building massively ahead of demand. U really think this 800k HDB price will stay ? Only, I mean ONLY, the real crown jewels of HDB can sustain a high valuation. Like the PH of Duxton. Or the EM right at the door step of Bishan mrt/mall. Is yours really one of them ?

[hyenergix]

HDB prices will almost never fall again. The key policy is now immigrants to counter low birthrate. Jurong west is where booming tuas n jurong island companies draw their workers. It is a hot area now.

[Arcachon]

...that is, if u assume ur 800k value for a HDB will stay
When gov has a policy change, ur 800k can drop to 500k in 2 months! Ur loss will be 300k if we do mark to market!
This already happened before. In the early nineties ppl need to wait for 5 yrs for a new flat. Prime HDB EM in Bishan was calling 800k. HDB under pressure to deliver HDBs, so it built massively with oversuply in 3 yrs. Ghost town formed in jurong west. HDB resale px start to crumble down. The same Bishan 800k EM valuaiton became less than 500k! MBT kana questioned by opposition. S he started BTO program to make sure such. Ting will never happen in his tenure. Now KBW is doing a policy u turn. He is building massively ahead of demand. U really think this 800k HDB price will stay ? Only, I mean ONLY, the real crown jewels of HDB can sustain a high valuation. Like the PH of Duxton. Or the EM right at the door step of Bishan mrt/mall. Is yours really one of them ?

This is what HDB is building.



Assuming HDB do go back to create history again then there is the 30K PR they have to factor in.

[kiasuest]

my hdb is at sengkang. Not exactly near Mrt and 'near' is subjective. Using online maps, is abt 200m away from Mrt. A slow walk takes abt 8mins.

My other considerations is the number of new hdb units coming up and
I guess more supply will mean renting it out would be difficult?

My hdb is also near, but not facing, the upcoming hospital planned.
Will people shun the area when the hospital is up?

Btw, anyone has experience on renting to share?
Like comission, managing tenants or any other issues?

Where is ur hdb? Near any mrt? Nid to noe potential rental inorder for me to comment wor

I find tat one shd sell above 600k hdb flat and shdnt keep for rental bcoz the yield wasnt fantastic.....those holding on below 500k flat and near mrt die die keep as cashcow

[Santro]

This is good info. Thanks amk. I wasnt aware of this situation. Did condo and landed also drop during that time.
The way i see it, HDB wont drop that drastically considering the inflation and high asking price of newly built hdb units. Also, I look at 300k profit as paper gain. If you have holding power and looking at long term, the risk is minimal. If this 300k drop happened to a condo, then the high monthly maintenance and bank loan repayment would have much more negative impact.

...that is, if u assume ur 800k value for a HDB will stay
When gov has a policy change, ur 800k can drop to 500k in 2 months! Ur loss will be 300k if we do mark to market!
This already happened before. In the early nineties ppl need to wait for 5 yrs for a new flat. Prime HDB EM in Bishan was calling 800k. HDB under pressure to deliver HDBs, so it built massively with oversuply in 3 yrs. Ghost town formed in jurong west. HDB resale px start to crumble down. The same Bishan 800k EM valuaiton became less than 500k! MBT kana questioned by opposition. S he started BTO program to make sure such. Ting will never happen in his tenure. Now KBW is doing a policy u turn. He is building massively ahead of demand. U really think this 800k HDB price will stay ? Only, I mean ONLY, the real crown jewels of HDB can sustain a high valuation. Like the PH of Duxton. Or the EM right at the door step of Bishan mrt/mall. Is yours really one of them ?

[Allthepies]

one more thing to take note when u thinking of renting out ur hdb. ur tenant can mess up ur house esp tenant who goes for hdb. : )

[Santro]

ah..based on the info you provided...I would let go the hdb. I feel the resale prices for HDB at Sengkang/Punggol side is pushed up by PRs and higher chance of going down during bad times. No offences to anyone and not biased on location, this is my personal view.
Quite a few of my PR friends bought houses there and the reasoning I got was houses are newer and prices are much lower compared to other parts of Singapore.
Renting out HDB is pretty straight forward if you have fulfilled all the HDB MOP requirements. You need to obtain HDB approval to rent out the place. This is done online and no hassles. Your property agent will help you on the process.

my hdb is at sengkang. Not exactly near Mrt and 'near' is subjective. Using online maps, is abt 200m away from Mrt. A slow walk takes abt 8mins.

My other considerations is the number of new hdb units coming up and
I guess more supply will mean renting it out would be difficult?

My hdb is also near, but not facing, the upcoming hospital planned.
Will people shun the area when the hospital is up?

Btw, anyone has experience on renting to share?
Like comission, managing tenants or any other issues?

[Allthepies]

Btw, anyone has experience on renting to share?
Like comission, managing tenants or any other issues?

Half month as commission for 1 year lease and 1mth for 2yrs. As I said earlier, the rental income is still taxable and of course the 10% property taxes.

[devilplate]

Not much rental demand for punggol flats....

Can sell hdb and hold the money to go in ccr condos later rite?

In 05-07, ccr condo doubled in value whereas hdb px stays almost stagnant

If u believe ppty cycle and micro level segment ppty cycle....no better time to sell overpriced hdb liao if u can command high cov....

But if ur hdb only worth 300-400k, jus continue to milk passive income lor

[Laguna]

my hdb is at sengkang.

then this is a clear cut case to me, the upside will be slower and rather limited. I drove there last week, and was shock to see the number of flats there and the potential land supply.

SELL and use the money for better investment

[blackfire]

Let me give my 2 cents worth on this topic. From a financial viewpoint ask yourself the question on what are you going to do with the sales proceed. It seems that most likely you would use to pay off the exisiting loan on your private property, and so the question is whether the interest saved from the sales proceed (S$600k) is more than your rental income. If so, wiser to sell. But in this current low interest environment this is quite unlikely.

And on rental income, you have to take into account of agent commission, property and income tax and depreciation/maintainence cost. Depreciation for HDB is high, which is often neglected. Although the yield for HDB rental is high but the absolute dollar is relatively small covering a bigger area. In other words, a simple repainting of the unit or repair of aircon can easily cost you few weeks or more of your rental income

Next ask yourself the question would you stay in this HDB flat when you retired or the possibility of downgrading back to this flat. Do you have any sentimental value of this flat or you can't wait to leave due to whatever reasons like noise, poor ventilation, neighbours, carparks, forseeable major repair cost ,etc,etc. If no, better to sell.

Bear in mind that your flat now could be in a good condition due to your upkeep and quality of your renovation, and if so, you could ask for a higher COV now. After a few years of tenancy, your flat most likely would not maintain the level of COV. But of course, if the overall resale market is still strong, it could more than offset the COV.