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!