By Mr. Propwise
This post is part of a series where I share reader stories about their experiences (both good and bad) buying, selling and investing in property. I hope to share the lessons that can be drawn from their stories, and will intersperse my comments throughout on points I think are noteworthy. If you have a story to share (whether yours or of someone you know), please email it to me at [email protected].
This week’s story is from KH, who shares how he managed to end up living in a landed property despite knowing little about investing and earning just an average salary.
Enter KH:
I bought my first property, an HDB flat in Taman Jurong in 1994. In 2003, I was looking for a cheap landed property even though I could only afford a condo. When I saw a bank sale, I went to take a look.
Mr. Propwise (PW): When times are bad, bank sales can often be a good source of deals. These deals are a result of the previous owner being unable to pay the monthly mortgage to the bank, often due to unexpected unemployment or if the mortgage payments balloon as interest rates rise. In the period of very low interest rates that we’re currently in, many people assume that this is the natural state of things, only to be caught off-guard when rates normalize. If mortgage rates rise to a more “normal” level of 4%, many people’s mortgages can go up by around 50%. If this coincides with an unexpected loss of employment during a downturn, you can be sure the number of bank sales will go up. Banks are primarily concerned with getting back their principle, so they are often willing to sell the property at a price that is 20 to 40 percent below what the owner paid for it.
The house being sold was so run-down: there was no door, and the glass sliding doors and all the windows were smashed to pieces.
PW: Properties in poor condition often offer the best deals as most people cannot be bothered to invest the time and money needed to repair it.
But what caught me was the house number. Combined with the Lorong number, the house number was exactly my car plate number! I was sure this house was for me.
PW: What can I say? Sometimes fate does play a part J
The bank sale was an urgent one as they were not able to sell it for some time due to the bad condition of the house. So when I asked for the discount I was surprised they offered the huge amount. I haggled over the price and the bank gave me a $100,000 discount! The entire process took me less than a week.
PW: Always negotiate – you never know how much lower the price can go. Especially in the case of a bank sale, where the person making the decision to sell is a bank employee and not the owner, they don’t really care what the price is as long as they can recoup the outstanding loan amount.
I bought the house but decided to continue living in my flat. I rented the house out for 9 years.
PW: Here we can see how KH delayed gratification by renting out the house instead of “upgrading” his lifestyle and living in it. By choosing to live in his flat he managed to collect 9 years of rental (likely in the hundreds of thousands of dollars), building up his savings to make his next purchase. This is how wealth snowballs.
I sold it for a profit of $850,000 at end 2011 and used the proceeds to buy an inter-terrace in early 2012.
PW: After making huge capital gains on his first landed property KH finally sells it to realize those gains and then “rolls” it into his second landed property.
My HDB flat is rented out for $2800 which I use to help pay my house installment. The flat is valued at $700 thousand and my landed house is valued at $2.8 million (based on the sale of older houses around my area).
PW: 20 years from the purchase of his first HDB flat, KH now lives in a landed property of his dreams and is sitting on very large property gains, as well as receiving a steady stream of rental income from his HDB flat. Because he has two properties, he can choose to cash in one if he needs the money for medical emergencies, investment etc. I’d say that he is very well prepared for a comfortable and stress-free retirement. Congratulations KH!
That’s our reader story for this week. Please do share any interesting stories you have about buying, selling and investing in property (both good and bad experiences are welcome) so we can all learn from them – just email them to me at [email protected].
By Mr. Propwise, founder of www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. Click here to get your free Property Beginner’s and Buyer’s Guide.
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