Using CPF to buy properties

[Santro]

Hi friends,
Was just doing a simple calculation on buying properties using CPF and seeing strange results.
Considering all the factors of being a landlord, it seems one may be almost flat or even negative on the property investment.
The factors I looked at:
1) Property Tax.
2) Maintenance Charges.
3) Agent Commission for renting out.
4) Income Tax spike - as rental income is considered taxable.
5) Maintenance of the unit ever 2-3 years (repainting, wear and tear of furnishings and appliances)
6) CPF Interest lost - This goes back to CPF when you sell the house but if you hadnt withdrawn it, it earns 2.5% PA.

There is some relief if you have taken loan and there are some tax rebates for agent fees, property maintenance etc. But on the whole, its still negative month-on-month unless the property appreciates at a steady rate.
Is something incorrect with the factors I am looking at.

[ikan bilis]

... umm.... try gear it high high at 80% loan, 20% cpf... 1.5% interest rate and you migh win....

[heehee]

Yes big mistake. You forgot property is leveraged. So ROI is very much higher than pure all cash ROI.

Hi friends,
Was just doing a simple calculation on buying properties using CPF and seeing strange results.
Considering all the factors of being a landlord, it seems one may be almost flat or even negative on the property investment.
The factors I looked at:
1) Property Tax.
2) Maintenance Charges.
3) Agent Commission for renting out.
4) Income Tax spike - as rental income is considered taxable.
5) Maintenance of the unit ever 2-3 years (repainting, wear and tear of furnishings and appliances)
6) CPF Interest lost - This goes back to CPF when you sell the house but if you hadnt withdrawn it, it earns 2.5% PA.

There is some relief if you have taken loan and there are some tax rebates for agent fees, property maintenance etc. But on the whole, its still negative month-on-month unless the property appreciates at a steady rate.
Is something incorrect with the factors I am looking at.

[carbuncle]

it could happen for a landed property with high maintenance costs and low yield

[chestnut]

Assuming 1 mil property.
Loan 800k
Rental 3.5k

Rental per year -42k

Interest say at 1.3% = 10.4k
Maintenance - 0.3x12 =3.6k
Agent fee (assume 2 year contract = 1month) so per year = 1.75k
Property tax = 3k
Fresh paint - 2k
White equipment - 2k
Total =22.75

You still make19.25k.

Your down payment is 230k. Say 3% for stamp duty.

Roi = 19.25/230 = 8.3%.

Of course if interest goes up, u need to do something... There are other variables u need to look at. Try not to use your cpf in current day situation when u can get 2.5%.

Input in when interest goes up etc... To paint diff situation and what you will do when those happens.

[Shoeboxsupporter]

Assuming 1 mil property.
Loan 800k
Rental 3.5k

Rental per year -42k

Interest say at 1.3% = 10.4k
Maintenance - 0.3x12 =3.6k
Agent fee (assume 2 year contract = 1month) so per year = 1.75k
Property tax = 3k
Fresh paint - 2k
White equipment - 2k
Total =22.75

You still make19.25k.

Your down payment is 230k. Say 3% for stamp duty.

Roi = 19.25/230 = 8.3%.

Of course if interest goes up, u need to do something... There are other variables u need to look at. Try not to use your cpf in current day situation when u can get 2.5%.

Input in when interest goes up etc... To paint diff situation and what you will do when those happens.

For those who have paid up properties, refinance and get money out and put inside CPF ordinary account..............


For those who have paid partial, top up your loan and put money into CPF ordinary account.............

[darrenyc]

Assuming 1 mil property.
Loan 800k
Rental 3.5k

Rental per year -42k

Interest say at 1.3% = 10.4k
Maintenance - 0.3x12 =3.6k
Agent fee (assume 2 year contract = 1month) so per year = 1.75k
Property tax = 3k
Fresh paint - 2k
White equipment - 2k
Total =22.75

You still make19.25k.

Your down payment is 230k. Say 3% for stamp duty.

Roi = 19.25/230 = 8.3%.

Of course if interest goes up, u need to do something... There are other variables u need to look at. Try not to use your cpf in current day situation when u can get 2.5%.

Input in when interest goes up etc... To paint diff situation and what you will do when those happens.

Bro ,How did you calc the interest to be only 10k a year.??

[chestnut]

Bro ,How did you calc the interest to be only 10k a year.??

Loan 800k, interest say 1.3% = 10.4k.

If you take interest at 1.5% = 12k.

I think u still can find 1.3% interest or lower.

But if you have loan, then you need to take 40% downpayment

[phantom_opera]

Assuming 550k property.
Loan 330k, 40% down-payment
Rental 2.5k

Rental per year -30k

Interest say at 3% = 10k
Maintenance - =2k
Agent fee per year = 2.5k
Property tax = 2.5k
Fresh paint - 1k
White equipment - 1k
Total expenses= 19k

You still make 11k.

Your down payment is 330k, stamp duty 12k so outlay is 342k

Roi = 11/342 which is about 3.2%


=> Above is an MM with 40% down-payment at 3% interest, you can see the ROI is now only 3%, not much better than CPF

So 40% LTV and 3% interest rate will be ultimate killer, GAME OVER

[chestnut]

Assuming 550k property.
Loan 330k, 40% down-payment
Rental 2.5k

Rental per year -30k

Interest say at 3% = 10k
Maintenance - =2k
Agent fee per year = 2.5k
Property tax = 2.5k
Fresh paint - 1k
White equipment - 1k
Total expenses= 19k

You still make 11k.

Your down payment is 330k, stamp duty 12k so outlay is 342k

Roi = 11/342 which is about 3.2%


=> Above is an MM with 40% downpayment and 3 interest, you can see the ROI is now only 3%, not much better than CPF

Bro, downis220k.

So Roi = 4.7%

[Allthepies]

A slow rising or a stable property market is the best outcome for long term holders

The government with it's numerous cooling measure has achieve this steady state.

[phantom_opera]

Bro, downis220k.

So Roi = 4.7%

Oh ya .... my calculation is for LTV = 60% lol

you are right, MM will survive 3% interest rate as long as you can rent out at 2.5k pm with LTV 40%

[ikan bilis]

heya... you people too smart liow... calculate until so complex... squeezing every cents... my calculator also hung up when i punch in the numbers....


me small fish got small brain only .... so me keep in simple... all cpf in hdb and rented out... hdb per year smelly smelly 3-4% appreciation average... plus another gross rental income of 5-6% cash into my pocket...



... but this happy party only for this few years hor....

[chestnut]

Oh ya .... my calculation is for LTV = 60% lol

you are right, MM will survive 3% interest rate as long as you can rent out at 2.5k pm with LTV 40%

If you pay full, you still get 3.7%.... Not bad. Didn't see the power of MM... Paradigm shift. In the past, expats mainly higher level and coming w family... Today, expats are single and younger... Those on local terms will most probably stay in hdb.

[darrenyc]

Loan 800k, interest say 1.3% = 10.4k.

If you take interest at 1.5% = 12k.

I think u still can find 1.3% interest or lower.

But if you have loan, then you need to take 40% downpayment

Oic. But this excludes capital repayment. Cash flow is -ve once that is included

[Santro]

I tried working out some numbers with HDB and in comparison with private property as this is usually where all Singaporeans start off with and use their CPF to settle the loan.
Trying to copy paste my spreadsheet here but looks like cant do it directly.

[yaozong7]

Oic. But this excludes capital repayment. Cash flow is -ve once that is included

Depends on your age. If you are mid thirties like me, using CPF to pay for investment property is like cashing out on your CPF early.

By the time you are ready to retire, CPF min sum could be 400k and withdrawal age 65. Better get it out now via rental annuity while u can....

Also since you cant touch the CPF anyway, you will be cash +ve, not -ve......

[Santro]

Sharing with you my calculations. These are not my holdings but was trying to see whether CPF can be leveraged better. The numbers are close to actual based on what I have seen all these years..

Purchase price of HDB- $350,000.00
Resale value of HDB- $700,000.00

Monthly rental- $3,000.00
Property Tax- $(87.50) - 10% since not own occupied
Conservancy Charges- $(58.00)
Agent Commission- $(125.00) 1 month for 2 years divide by 24 months
Income Tax- $(150.00) Approx hike due to additional rental income
HDB Maintenance- $(41.67) Approx $1k every 2 years for painting and other maintenance.
CPF Interest- $(625.00) - assuming $300k of the $350k was taken from CPF. At 2.5% interest.
Total Monthly expense- $(1,087.17)

Actual Gain $1,912.83



Outstanding loan of private Property $700,000.00 for 35 years
Approx loan monthly installment $2,300 based on SIBOR+0.9 rate.
Maintenance, agent fees etc extra.
$700k in HDB doesnt seem to offset the $700k loan for private property.

[ikan bilis]

umm... bro.... not a fair comparison...

- should take 700K hdb resale price and loan at 70-80%....
- anyway.... that's part of the reasons me very reluctant to change my hdb to condo (min 900-1mil for about same size at more ulu locations)... need to take up extra loan/leverage... very sianz with more loan$$...


good night, guys... going to zzZZZZ lioa...

[Santro]

In current market situation where property prices are making new highs. Upside is limited if CPF is used for investment/rental - be it HDB or PC. The investment profit would depend very much on capital appreciation (property prices continues to go further up - year on year) and your ability to continue renting out your unit consistently. If loan interest rates start going up - then that would be another story.

[Santro]

agree with you bro!! For investment/rental - not a good idea to have fully paid units and that too using CPF.
Thats what I concluded after all the number-crunching.
good nite

umm... bro.... not a fair comparison...

- should take 700K hdb resale price and loan at 70-80%....
- anyway.... that's part of the reasons me very reluctant to change my hdb to condo (min 900-1mil for about same size at more ulu locations)... need to take up extra loan/leverage... very sianz with more loan$$...


good night, guys... going to zzZZZZ lioa...

[ikan bilis]

bro...

if wanna put your betting $$ into condo hor,... then must bet big big on capital gain to huat tua tua liow... cannot want everything swee-swee got good rental to cover everything in case no/little capital gain....

do like those hk people: when rental is about same as monthly instalment (70%, 25yr, 2.5%), they still keep cheong in as long as able to come out that 30% downpayment, they boh-chap all others expenses like tax, mcst charges, agent fees, title depreciation and etc... just CHEONG arh !!... and wait/hope for price/rental to shoot up year after year !!...

else, there are other investments...
industrial properties: geared yield/roe was around 20% during 2003-2005, when condos had difficulties renting out....
reits: hospitality reits like AscendasHT/FirstReit pays 7+%, this is net and income tax exempted...
bonds: me not familiar, but think they are some less risky ones at 4-5%....

these days property prices had gone up too high, thus me sianz liow and thinking of putting any new savings $$ into reits... keep my fish life simple...

[gn108]

good post bro ...

bro...

if wanna put your betting $$ into condo hor,... then must bet big big on capital gain to huat tua tua liow... cannot want everything swee-swee got good rental to cover everything in case no/little capital gain....

do like those hk people: when rental is about same as monthly instalment (70%, 25yr, 2.5%), they still keep cheong in as long as able to come out that 30% downpayment, they boh-chap all others expenses like tax, mcst charges, agent fees, title depreciation and etc... just CHEONG arh !!... and wait/hope for price/rental to shoot up year after year !!...

else, there are other investments...
industrial properties: geared yield/roe was around 20% during 2003-2005, when condos had difficulties renting out....
reits: hospitality reits like AscendasHT/FirstReit pays 7+%, this is net and income tax exempted...
bonds: me not familiar, but think they are some less risky ones at 4-5%....

these days property prices had gone up too high, thus me sianz liow and thinking of putting any new savings $$ into reits... keep my fish life simple...

[phantom_opera]

bro...

if wanna put your betting $$ into condo hor,... then must bet big big on capital gain to huat tua tua liow... cannot want everything swee-swee got good rental to cover everything in case no/little capital gain....

do like those hk people: when rental is about same as monthly instalment (70%, 25yr, 2.5%), they still keep cheong in as long as able to come out that 30% downpayment, they boh-chap all others expenses like tax, mcst charges, agent fees, title depreciation and etc... just CHEONG arh !!... and wait/hope for price/rental to shoot up year after year !!...

else, there are other investments...
industrial properties: geared yield/roe was around 20% during 2003-2005, when condos had difficulties renting out....
reits: hospitality reits like AscendasHT/FirstReit pays 7+%, this is net and income tax exempted...
bonds: me not familiar, but think they are some less risky ones at 4-5%....

these days property prices had gone up too high, thus me sianz liow and thinking of putting any new savings $$ into reits... keep my fish life simple...

Be very careful with REITs .... the risk is very high ... I will rather go for Genting Perpetual bond 5.125% and callable 10y later with 6.125% option by Genting than REIT .... if you choose the wrong REIT... will become dead fish

[gn108]

Risk is interest rates in general, then the type of properties they hold (industrial/retail/office/hotels) and then management.

Of course pick wrongly will get stuck ...but isn't that the same for property? Timing, borrowing cost and location.

Be very careful with REITs .... the risk is very high ... I will rather go for Genting Perpetual bond 5.125% and callable 10y later with 6.125% option by Genting than REIT .... if you choose the wrong REIT... will become dead fish

[amk]

Similar feel as ikan bilis. For the example quoted in this thead, a simple vacant period will wipe out all yields. Or a major repair job like aircon. Or reflooring. The base is low. A 5k air con job can wipe out most of your calculations for a 3.5k rental yield. (as a comparism the same 5k job has much less impact on a 10k rental unit). Therefore small rental assets is never a sure bet on yield.

[Komo]

one question: for the 40% downpayment, how much max can use cpf?

[Santro]

Thanks for sharing bro. very sensible approach.

Similar feel as ikan bilis. For the example quoted in this thead, a simple vacant period will wipe out all yields. Or a major repair job like aircon. Or reflooring. The base is low. A 5k air con job can wipe out most of your calculations for a 3.5k rental yield. (as a comparism the same 5k job has much less impact on a 10k rental unit). Therefore small rental assets is never a sure bet on yield.

[Santro]

Need to satisfy CPFs minimum sum requirement. As long as you/and spouse has half the minimum sum, then can use remaining balance for your property. Check the CPF website for details. The minimum sum keeps changing every year.

one question: for the 40% downpayment, how much max can use cpf?

[teddybear]

Same feeling. I never buy any property that can only get less than $5k pm rental, simply not worth the effort and the headache later when tenant left.

Similar feel as ikan bilis. For the example quoted in this thead, a simple vacant period will wipe out all yields. Or a major repair job like aircon. Or reflooring. The base is low. A 5k air con job can wipe out most of your calculations for a 3.5k rental yield. (as a comparism the same 5k job has much less impact on a 10k rental unit). Therefore small rental assets is never a sure bet on yield.