It’s scary to me how lightly people take a property purchase.
The quantum price is easily at least a few hundred dollars for HDB flats to a million and more for private properties.
Down payment and taxes can already come up to a few hundred thousand dollars.
When I shared this with one of my clients recently, he looked at me wide eyed in shock and exclaimed: “With the amount it costs to down pay a private property, you can fully pay a HDB flat and be debt free!”
Yes, you can loan up to 75% of the valuation price.
Yes, you can utilise your CPF for most of the payments, protecting your cash flow.
Yes, it doesn’t ‘feel’ that expensive.
Does that mean it isn’t?
A 750k loan on a 1million property with a 30-year loan tenure and 2.5% interest rate, would accumulate a total of approx. $316,826 over the period.
It’s enough to fully pay another HDB flat!
For most of us, a home is the largest single purchase we would make in our lives.
It’s also a necessity, because we need a roof over our head.
Please pay more attention to it. Ok? ????
So, following my rant in Darwin about what’s important in Real Estate, I want to touch upon some key considerations to make when thinking about a property purchase.
1. Your purpose of buying – The first most important question to determine the purchase objective. Over time, I realised that it’s seldom as clear-cut as it may seem.
The own stay buyer would also be hoping for capital appreciation of his property while the investment buyer may also consider using the house for own stay in future.
Instead of it being an Investment vs Own stay thing with nothing in between, it’s more relevant to know which is more important to you.
Why does this matter?
Because when something is an investment, we place more importance on it.
It’s why we can think twice for equities, bonds, gold, even self-improvement courses… basically anything of investment value, while splurging easily on travel, cars, branded goods, simply because we feel good about it.
Some of the things to think about for investing are:
– What’s the projected return
– What’s the risk
– Future liquidity
2. What are your plans for the property? Besides for a shelter or investment are there other purposes of purchasing this property?
Some examples could be for children’s education, where the property is within 1km of a good school.
Or perhaps it’s to stay closer to other family members, or be within a closer commute to your work place.
Is there a time horizon to this need?
If it ain’t forever, have you thought about what’s next for your property after?
3. When you sell it in future, do you want to make money?
Often, people who prioritize own stay more cares less about the investment return of the property.
From actual experiences with sellers though, the thought may be true now.
But when the time comes when you start thinking about selling your property, is it really ok to sell at no gain, or even at a loss?
All the money you have put into your property over the period of stay, is it alright to just leave it as an afterthought for next time?
The challenge is to think about it right now.
4. Have you considered the alternatives? You don’t know what you don’t know.
Having unique experiences, you as a buyer are subconsciously biased.
For example, I had a client who was looking for property near the north-east area for the purpose of being 1km within a good school.
After I shared with him the possibility of another area which meets his needs and is at the same time and good investment for the future, it really opened his eyes.
Not that its definitely the best choice for them, but at least it presents to them a different point of view.
So the question here is have your eyes been open to other opportunities, or have you been fixated on your own point of view?
In summary, buying a property is often a mix of needs and financial gains.
Think of it as an investment, knowing your entry price, and exit opportunities.
What are your thoughts on this article? Let me know in the comments below, or leave a message.