With the inevitable rise of proptech, the rising trend of people DIY-ing their property transactions is set to continue.
Having dealt with many transactions during my career, I am fully aware that nothing is as straightforward as it seems.
Especially when it comes to having to manage an upgrade!
So, read on to know what are the 3 important considerations to make when upgrading your property.
1. Long Term Housing Plans
How long do you intend to stay in your upgraded home? Is it adequate for your mid to long term needs?
Sometimes a lack of foresight can be very costly when it turns out that the home you wanted, and bought, turns out to be unsuitable very quickly.
An actual case study in point is a family I know who upgraded from a 5-room HDB flat to a 3-bedroom condo, and spent a sum on renovations. Then, after staying for a few years, they realized that what they actually need is an additional bedroom, due to long term visits from relatives. This came abruptly from child care needs! So, they upgraded again from that 3-bedroom condo to one with 4-bedrooms. All this within a span of only 5 years!
So that’s 2 times expenditure on renovation, 2 times agent fees for the sale, as well as twice the stamp duties. Think of the money which could have been saved if he had got it right straight from the onset.
Also, do you intend to live in the house forever, or would you be looking to sell it some day? Are your retirement funds adequate or would you need to leverage on your home’s value for retirement adequacy?
Thus, make sure that you have done your homework and can be reasonably assured that your new home’s value is able to stand the test of time and at least retain its value or ideally returning a tidy profit for the time you may think of cashing out in the future.
It is NOT TRUE that all real estate appreciates forever, and the worst thing you want is a negative sale, which means the sales proceeds being insufficient to cover the outstanding bank loan as well as CPF used for the house.
2. Property Financial Planning
An upgraded home typically equates to a new mortgage taken up with a financial institution.
Interest rates in 2019 are the highest they have ever been since the 2008 global financial crisis.
The SIBOR (Singapore Interbank Offer Rate), which was widely used by banks since 2007 as the peg against which mortgage loan interest rates were priced, went to as low at 0.19% in 2011!
Today, along with the recovery in North America and the resulting interest rate hikes by the federal reserve, the SIBOR rate is now around 1.8%.
Along with the increase in SIBOR, mortgage interest rates offered by banks are now at about 2.6% for resale properties, and 2.2% for new build properties under construction.
To illustrate the difference in financing cost due to this higher interest rate:
800k loan at 1% interest, 30 year tenure ➡ $2,573 per month
800k loan at 2.5% interest, 30 year tenure ➡ $3,161 per month
That’s about a $600 difference!
For more expensive properties, the repayment liabilities are even more astronomical!
Do you have a reserve fund set aside for rainy days should the need arise?
The rising interest rates over the last 2 years have caught out both home owners and property investors cold.
With more than 1,000 units put up for auction in last year, the highest figure recorded since 2008, make sure you plan with prudence when preparing for that new property.
The safe amount of reserve funds you should set aside is 3 years’ worth of mortgage repayments.
In case you ask why 3? That’s because it’s the length of time before the seller stamp duty liability passes.
You don’t want to be THAT owner having to call for a fire sale of your place!
3. Managing The Timeline
Probably the most challenging part of the upgrade is managing the move timeline.
There are so many possible scenarios here depending on your individual situation.
If buying a private property under construction, unless you have the funds to pay the min 12% of Additional Buyer’s Stamp Duty upfront, renting might be a consideration for the period the property is being built.
Shifting of homes and staying in a rented home where payments are all from cash can be a stressful process for unprepared families, especially when younger school going children are involved. Studies may be impacted.
While for upgrades to resale properties, negotiations with would-be buyer when selling and would-be seller when buying must be managed to include sufficient buffer times where necessary for renovations and house moving.
For contra cases, or when bridging loans are required, do take extra care to make sure all the required facilities are in place.
Worse case scenario is having no roof over your head!
So there you go! 3 important considerations when planning your DIY home upgrade.
Now, on a side note, have you been seeing Facebook ads while scrolling on your news feed with the headline which goes something like, ‘How You Can Upgrade To A Private Property Without Touching Your Savings And Still Have A Reserve Fund?’
You’re perhaps curious but haven’t really thought much of it and at the same time too busy to arrange an appointment with the ad host?
Well, I want to help you get started with a blueprint which I personally created and used multiple times to help plan property upgrades for my clients effectively.
It’s a fully customizable file which can be implemented immediately with actual data and formulas. Even comes with instructions on how it works.
I’m giving it away for FREE.
If you’re a DIY home upgrader, It’s a good first step to get started!
All you have to do is visit the page HERE, enter your name and email address to receive the blueprint delivered directly to your mailbox.