Biggest loan you make in yuor life before?

[yowetan]

Hi All, I fully aware of my financial limitation; hence I am just hypothectically fiddling with the idea of "flipping" and "riding" on the current property faze.

As much as many others have shared their secret in property investment, I agreed that my household income of 8k (max) seems too little, too helpless to invest into 1.2 to 1.5 million dollars property.

My immediate concern is to pay up my HDB 450k loan. Moving to my next query - is it wise to clear the principle amount as low as possible given the current low interest environment? or leveraging by paying more cash upfront and leveraging on bank sibor interest rate of 1.2%, keeping my principle amount intact?

Criticism, opinions and suggestions are welcome.

[howgozit]

Wow... $25k mthly single income at 30yrs old... you must be a high flyer

Very similar profile to me.
Existing loan: 2.3mil
Estimate properties value: 4mil
Monthly income: 25k
Rental income: 11k
Monthly cash installment: 6k
Monthly cpf installment: 2k
Currently stay in humble 5room HDB flat..
30yrs old.

[Adva181]

Wow... $25k mthly single income at 30yrs old... you must be a high flyer

I am not lah.
I study Neigbourhood school n local poly.
My parents earns 2k per month when I was young.
My 1st pay cheque only 1.5k
But I start saving n investing at a young age.
N start my own business 5 years ago with the little saving I had.
I know I can never be as successful as Peter Lim, Francis Yeoh etc,
But I am contented n happy as who I am.
Anyone everyone can buy their 1st pte pty. Just keep ur feet on the ground n work hard + invest smart. Cheers...

[focus]

Very similar profile to me.
Existing loan: 2.3mil
Estimate properties value: 4mil
Monthly income: 25k
Rental income: 11k
Monthly cash installment: 6k
Monthly cpf installment: 2k
Currently stay in humble 5room HDB flat..
30yrs old.

So for your case.. assuming you took 80% loan, you have put in around $550k to purchase a property, but the value now is $4mil which is a rpofit of 1.7mil. Cash on Cash return is around 300% !

tHAT'S the beauty of properties in the right cycle.. use only $500k can control $2.8mil(time of purchase) of properties and profit $1.7mil

But too bad at this juncture, new property buyers will not be getting the type of rental yield or return with the govt. clampdown.

[Arcachon]

Don't seem to add up... I am missing something here...

You are right.

Stay in France right now, given housing allowance for 660 euro, Cost of Living Allowance (COLA) of $4,000. Brought a 3 room HDB for in law for $65,000 in 1995 ($95,000-$30,000) now fully pay. Let me think what else I miss.

Temperature now is -6 degree C

[DC33_2008]

Is it a local bank? 8K for $2 mil loan is quite a stretch.

Nope... My friend who earns 8k, the bank allows him to loan up to 2mil. He is only 29.

[zzz1]

Hi All, I fully aware of my financial limitation; hence I am just hypothectically fiddling with the idea of "flipping" and "riding" on the current property faze.

As much as many others have shared their secret in property investment, I agreed that my household income of 8k (max) seems too little, too helpless to invest into 1.2 to 1.5 million dollars property.

My immediate concern is to pay up my HDB 450k loan. Moving to my next query - is it wise to clear the principle amount as low as possible given the current low interest environment? or leveraging by paying more cash upfront and leveraging on bank sibor interest rate of 1.2%, keeping my principle amount intact?

Criticism, opinions and suggestions are welcome.

properly u need to watch out for the next cycle of property down turn, mean while built up your financial muscle while waiting for the next down turn

[testtest]

Do you guys think I am financially overstretched?

Existing loan : 2 mil
Estimated properties' value : 3.6 mil
Combined gross income : 13k monthly
Rental income : 7 k monthly
Monthly instalment est : 6 k monthly
Cpf used to service instalment : 2 k
Cash used to service instalment : 4 k

Any friendly advice on whether I can hold for the long term? Many thanks first!

Not an advice but rather what I would do in your case. To take 2M loan, I would have at least 50% liquid asset. You never know when the perfect storm will strike with property bubble burst, high interest rate, dead rental mkt, unemployment etc.

Or I would cash out the 1.6M profit (not sure if you can or willing in your case) and earn 6-7k passive income based on 5% interest with zero loan.

Overall, I think you are in a very good position.

[Arcachon]

Hi All, I fully aware of my financial limitation; hence I am just hypothectically fiddling with the idea of "flipping" and "riding" on the current property faze.

As much as many others have shared their secret in property investment, I agreed that my household income of 8k (max) seems too little, too helpless to invest into 1.2 to 1.5 million dollars property.

My immediate concern is to pay up my HDB 450k loan. Moving to my next query - is it wise to clear the principle amount as low as possible given the current low interest environment? or leveraging by paying more cash upfront and leveraging on bank sibor interest rate of 1.2%, keeping my principle amount intact?

Criticism, opinions and suggestions are welcome.

I will chose to pay minimum for HDB. Can get both chery better still.

Wait for the next cycle, as what I have done in 1996.

[Adva181]

Is it a local bank? 8K for $2 mil loan is quite a stretch.

Yes local bank. That was in 2010. The key was his young age.
The monthly repayment is about 55% of his monthly pay over 40 years.

[yowetan]

I will chose to pay minimum for HDB. Can get both chery better still.

Wait for the next cycle, as what I have done in 1996.

The watertown in Punggol makes me wonder if the next cycle will even take place.

[DC33_2008]

Not sure if this total estimated property value includes his own home. You are in a much better position if it is not. Self employed people are usually worried about economic crisis. Not sure if your business is immune to recession. Otherwise, the situation can be worst in downturn where you need to inject capital into the business to start afloat.

Not an advice but rather what I would do in your case. To take 2M loan, I would have at least 50% liquid asset. You never know when the perfect storm will strike with property bubble burst, high interest rate, dead rental mkt, unemployment etc.

Or I would cash out the 1.6M profit (not sure if you can or willing in your case) and earn 6-7k passive income based on 5% interest with zero loan.

Overall, I think you are in a very good position.

[Arcachon]

The watertown in Punggol makes me wonder if the next cycle will even take place.

Where were u in 1996? Now is like in 1996.

[testtest]

Maybe one has a 50k/m salary n even if he use 60% of his salary for housing loan, he still has 20k/m left for necessity provided his income is secured.

Yeah, some people paying 9-10k income tax every month!!! More than what many pay for property loan. Those will likely play in the CCR league.

[yowetan]

Where were u in 1996? Now is like in 1996.

I think I was in Singapore Polytechnic Canteen 2 having Mac Donald then.

[DC33_2008]

In life, one must take calculated risk for more gain.

Yes local bank. That was in 2010. The key was his young age.
The monthly repayment is about 55% of his monthly pay over 40 years.

[Douk]

Sorry to intercept; Is it wise for me to take up 1.2 to 1.5 million loan with a household income of around 7-8kSGD with 30 years loan? I like to get one landed terrace unit.

Be prudent!

[testtest]

Very similar profile to me.
Existing loan: 2.3mil
Estimate properties value: 4mil
Monthly income: 25k
Rental income: 11k
Monthly cash installment: 6k
Monthly cpf installment: 2k
Currently stay in humble 5room HDB flat..
30yrs old.

Wow, wow, wow!!!

[stiook]

You haven't factored in property tax, maintenance fees as a recurring expense. Also if you have a car, your car loan may add another 1K monthly. If you have maids + kids, another 1K. Your cash flow will be tight on one income. Do not underestimate the little things that add up eg groceries, electricity, car petrol, meals outside (even fast food is not cheap these days).

Maid easily $600 if include govt levy.... kids school and enrichment easily $1k per kid... what about their tietiary education...and the risk that do we still have the same income when you are 50 years old?

[Douk]

Dont bother on paying up the hdb loan. Save cash and cpf, pounce on next opportunity..and adjust your appetite.

Hi All, I fully aware of my financial limitation; hence I am just hypothectically fiddling with the idea of "flipping" and "riding" on the current property faze.

As much as many others have shared their secret in property investment, I agreed that my household income of 8k (max) seems too little, too helpless to invest into 1.2 to 1.5 million dollars property.

My immediate concern is to pay up my HDB 450k loan. Moving to my next query - is it wise to clear the principle amount as low as possible given the current low interest environment? or leveraging by paying more cash upfront and leveraging on bank sibor interest rate of 1.2%, keeping my principle amount intact?

Criticism, opinions and suggestions are welcome.

[wind30]

Here is the 'bad' case scenario for discussion:
Property price drop 20%
Problem finding tenant (rental income drops 20-30% Rent at discount)
Spouse stops working
Interest rates rises

Existing loan : 2 mil
Estimated properties' value : 2.9 mil
Combined gross income : 7 k monthly
Rental income : 5 k monthly
Monthly instalment est : 9 k monthly
Cpf used to service instalment : 1 k (spouse stops work)
Cash used to service instalment : 8 k

Shortfall for at least the period without some tenants: 3 k

So things can still turn nasty.

It depends on how much the interest rates rise right? If the loan interest payments is higher than the rental, it becomes very bad for you I think.

What is the current rental yield now? Wonder when and how hight the interest rates will rise.

[Arcachon]

I think I was in Singapore Polytechnic Canteen 2 having Mac Donald then.

Then remember this chart. Buy low Sell high.

[CCR]

Can I ask why forummers like to paynupmthe loan as quickly as possible? Costs of funds so cheap... Stretchnall the way

[lifeline]

Hi All, I fully aware of my financial limitation; hence I am just hypothectically fiddling with the idea of "flipping" and "riding" on the current property faze.

As much as many others have shared their secret in property investment, I agreed that my household income of 8k (max) seems too little, too helpless to invest into 1.2 to 1.5 million dollars property.

My immediate concern is to pay up my HDB 450k loan. Moving to my next query - is it wise to clear the principle amount as low as possible given the current low interest environment? or leveraging by paying more cash upfront and leveraging on bank sibor interest rate of 1.2%, keeping my principle amount intact?

Criticism, opinions and suggestions are welcome.

you are prudent enough to not overstretch with your earlier mount sinai plan. it is good to leverage, though timing must be right. prepare yourself ready for that day, by saving, reducing unnecessary expenses (though not stinging on importants), reading the forums to gauge sentiments, etc.

the problem comes when you get spectator fatigue and throw in that towel. that's when the `gongtao' of the luxurious showroom and marketing hype make you sign your booking fee to avoid losing out... only to regret later and lose 1.25% on default.

the market direction is still not very clear. what is clear is that the upside gradient / slope is plateauing for now... is it coming down, consolidating, or shooting straight up (unlikely!)? who knows? in fact all these are outside our hands and are in the hands of the market / news makers (EU loans approve or not, wars, etc).

at this moment, the only way you can enter the market (carefully of course, selected developments) is to leverage on like-minded friends, who do not mind sharing with you for investments. must be good friends with excellent holding power who can pull you along, both in terms of finance as well as investment acumen. difficult to find though, cos both can hold each other back. i had tremendous push 3 years back from a guru friend who handheld me from conservative resistant investor (rejected several projects which had multiplied) to more knowledgeable now, able to decide on my own.

that's why many investors are lured in by those property sharing / leveraging seminars. i strongly advise against these, but that's another topic for discussion.

you already made good with your latest divestment and reinvestment in hdb. memorise the previous chart! take care.

[edwinleeap]

you are prudent enough to not overstretch with your earlier mount sinai plan. it is good to leverage, though timing must be right. prepare yourself ready for that day, by saving, reducing unnecessary expenses (though not stinging on importants), reading the forums to gauge sentiments, etc.

the problem comes when you get spectator fatigue and throw in that towel. that's when the `gongtao' of the luxurious showroom and marketing hype make you sign your booking fee to avoid losing out... only to regret later and lose 1.25% on default.

the market direction is still not very clear. what is clear is that the upside gradient / slope is plateauing for now... is it coming down, consolidating, or shooting straight up (unlikely!)? who knows? in fact all these are outside our hands and are in the hands of the market / news makers (EU loans approve or not, wars, etc).

at this moment, the only way you can enter the market (carefully of course, selected developments) is to leverage on like-minded friends, who do not mind sharing with you for investments. must be good friends with excellent holding power who can pull you along, both in terms of finance as well as investment acumen. difficult to find though, cos both can hold each other back. i had tremendous push 3 years back from a guru friend who handheld me from conservative resistant investor (rejected several projects which had multiplied) to more knowledgeable now, able to decide on my own.

that's why many investors are lured in by those property sharing / leveraging seminars. i strongly advise against these, but that's another topic for discussion.

you already made good with your latest divestment and reinvestment in hdb. memorise the previous chart! take care.

Yes timing is extremely important. Buying low really helps reduce the risk factors a lot!

The "buy" decision comes from the buyer. Do not be coerced by anyone but only by calculated reasoning.

[wind30]

Yes timing is extremely important. Buying low really helps reduce the risk factors a lot!

The "buy" decision comes from the buyer. Do not be coerced by anyone but only by calculated reasoning.

yes, but the decision to sell should be based on current market price right? Because this is what you will get if you sell now.

Example, if one buys a condo at 1million dollars, 800k loan.

Now it is 1.3million. Should one sell?

I never rent out a condo so I am quite blur at this. But the following is my SIMPLISTIC calculation.

If you can rent the condo out at 3.5k/month= 42k/per year.

10% property tax=4.2k.
condo maintenance fees=$250*12=3k
miscellaneous fees (agent/repair/etc)= 2k??

So you end up with 35k per year, which is around 2.8% yield.

Let's say your loan is at 1.5% interest rate. Should I apply 1.5% to 800k or 1.3million? I think we should apply it to 1.3 million because if you sell the house at 1.3million not 800k. You can make use of the extra 500k. Example, you can pay of the 800k loan + 500k (of your other property loan)

So your yield is only 2.8%-1.5%= 1.3%. If condo is 99years, I would assume it will depreciate normally by 1% per annum (all other things being equal). So you end up with only a 0.3% yield.

A 0.3% yield is rather small to take such a big risk especially if you don't see any upside in the property market from now on. And furthermore if the interest rates rise any higher than 1.5%, it will make it not economical to hold on to the property. People will realise this and start selling....

Is my "theory" correct?

[teddybear]

Your calculation is wrong because:
1) You don't own the $1.3m, since $800k is not your money. Hence your return should be based on your own capital which is only $500k.
2) Interest only count for the loan of $800k since easier to compare to alternative investments for your own capital of $500k.
3) Considering the above, your actual return on your $500k is much much higher than what you calculated, especially now the loan interest is about 1%, not 1.5%. That is the advantage of leverage, but also the disadvantage of leverage because your loss get magnified!
4) Is it any wonder so many citizens are still buying new launch and using whoever family names they can lay their hand on? They are carrying leverage to a "new art" level to overcome the 60% LTV for 2nd property (while 80% for 1st property), 4 years SSD, ABSD ...!
Imposing ABSD on foreigners to "cool" property market got use mah since it is actually Singapore citizens who are creating bubble in OCR?
Heard so many coffee shop talkers saying either they are plain ignorant or because of ???

yes, but the decision to sell should be based on current market price right? Because this is what you will get if you sell now.

Example, if one buys a condo at 1million dollars, 800k loan.

Now it is 1.3million. Should one sell?

I never rent out a condo so I am quite blur at this. But the following is my SIMPLISTIC calculation.

If you can rent the condo out at 3.5k/month= 42k/per year.

10% property tax=4.2k.
condo maintenance fees=$250*12=3k
miscellaneous fees (agent/repair/etc)= 2k??

So you end up with 35k per year, which is around 2.8% yield.

Let's say your loan is at 1.5% interest rate. Should I apply 1.5% to 800k or 1.3million? I think we should apply it to 1.3 million because if you sell the house at 1.3million not 800k. You can make use of the extra 500k. Example, you can pay of the 800k loan + 500k (of your other property loan)

So your yield is only 2.8%-1.5%= 1.3%. If condo is 99years, I would assume it will depreciate normally by 1% per annum (all other things being equal). So you end up with only a 0.3% yield.

A 0.3% yield is rather small to take such a big risk especially if you don't see any upside in the property market from now on. And furthermore if the interest rates rise any higher than 1.5%, it will make it not economical to hold on to the property. People will realise this and start selling....

Is my "theory" correct?

[wind30]

Your calculation is wrong because:
1) You don't own the $1.3m, since $800k is not your money. Hence your return should be based on your own capital which is only $500k.
2) Interest only count for the loan of $800k since easier to compare to alternative investments for your own capital of $500k.
3) Considering the above, your actual return on your $500k is much much higher than what you calculated, especially now the loan interest is about 1%, not 1.5%. That is the advantage of leverage, but also the disadvantage of leverage because your loss get magnified!
4) Is it any wonder so many citizens are still buying new launch and using whoever family names they can lay their hand on? They are carrying leverage to a "new art" level to overcome the 60% LTV for 2nd property (while 80% for 1st property), 4 years SSD, ABSD ...!

Your maths is wrong. My scenario's initial capital is 200k downpayment. And your way of calculating is basically looking at how much money your 200k is making for you.

It doesn't tell you when you should sell because it never takes into account the current market price. Even if your condo selling climb up to 2million, using your method, the numbers are still the same. As all you look is the interest rate on your loan and rental income.

I think you must put in the capital appreciation somewhere in your equations. If you can sell your condo at 1.3million and you don't, there is an opportunity cost involved. As I said, you can use the profits to offset other housing loans and thus make some money. Of course, you can do other things with the money but for SIMPLICITY I assumed you use it to offset other housing loans.

Simple logic. If your condo price goes up to 3million and rental remains flat, it is a no brainer to sell as you will free up huge amount of money which can be used to pay of other loans (ZERO risk investment).

If the interest rate is 1%, then it just change the Yield from 0.3% to 0.8%. And to get the 0.8% you are banking on 1% interest rates.... which is hardly reassuring.

[edwinleeap]

yes, but the decision to sell should be based on current market price right? Because this is what you will get if you sell now.

Example, if one buys a condo at 1million dollars, 800k loan.

Now it is 1.3million. Should one sell?

I never rent out a condo so I am quite blur at this. But the following is my SIMPLISTIC calculation.

If you can rent the condo out at 3.5k/month= 42k/per year.

10% property tax=4.2k.
condo maintenance fees=$250*12=3k
miscellaneous fees (agent/repair/etc)= 2k??

So you end up with 35k per year, which is around 2.8% yield.

Let's say your loan is at 1.5% interest rate. Should I apply 1.5% to 800k or 1.3million? I think we should apply it to 1.3 million because if you sell the house at 1.3million not 800k. You can make use of the extra 500k. Example, you can pay of the 800k loan + 500k (of your other property loan)

So your yield is only 2.8%-1.5%= 1.3%. If condo is 99years, I would assume it will depreciate normally by 1% per annum (all other things being equal). So you end up with only a 0.3% yield.

A 0.3% yield is rather small to take such a big risk especially if you don't see any upside in the property market from now on. And furthermore if the interest rates rise any higher than 1.5%, it will make it not economical to hold on to the property. People will realise this and start selling....

Is my "theory" correct?

Selling the house does free up the 500k that can generate income of a certain percentage. But things may not be so simple. Selling the house also free up the 800k that does not earn rental for you anymore. So how? Buy another property and pay the duties and fees? Buy new and wait for completion and lose rental income? Buy resale and lock up the 40% downpayment and probably get a lower rental yield?

Very cheeeem

[wind30]

Selling the house does free up the 500k that can generate income of a certain percentage. But things may not be so simple. Selling the house also free up the 800k that does not earn rental for you anymore. So how? Buy another property and pay the duties and fees? Buy new and wait for completion and lose rental income? Buy resale and lock up the 40% downpayment and probably get a lower rental yield?

Very cheeeem

For your case, I simplified by assuming you use the proceeds to pay of all your housing loans. 800k for the condo you are selling and 500k for other housing loans.

This is might not be the BEST way to use your money but it is ZERO risk. So if calculating using this method shows that it is worth it to sell, you should 100% sell because you can definitely make more money by selling.

With a 1% interest rate, continuing to rent out is still worth it. But when interest rate hits 1.8%, then it is even. Anything more than 1.8% one should sell.

The BIG question is of course when is interest rate rising... You don't want to be caught when it goes to 1.8% cuz that is when everyone will be selling....