facebookWith my income and savings, is it advisable to invest in a Condo? - Seedly

Anonymous

06 Feb 2020

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Property

With my income and savings, is it advisable to invest in a Condo?

Monthly income of S$8k, savings around $200k, and no other liabilities (I'm single). Thinking of investing in a one BR condo to rent out at Bugis area, which costs around $1.2m.

Wondering if this is a good investment, or should I just invest in the stock market instead? Since reits are giving around 4-5% / year and are relatively stable, and I can sell anytime for liquid cash.

Discussion (5)

What are your thoughts?

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I would advise against it (from own experience). I would recommend buying reits balanced w some stocks for a portfolio instead.

With the example you quoted,
A) you would have to borrow at least 1 million. At 1.75% sibor, annual interest expense is at least 17.5k, thats more than two mths of your salary.

B) the demand for one bedders is a bit iffy. Your only target audience is a super rich single or young couple w no kids. Most single pple who want to rent end up taking one room each in a 3-5 bedroom, which nets lower rental per person. So demand isnt great.

C) also when reselling, because target audience is limited, expect a long time to sell. It might not even. At least 2 bedroom has more demand.

D) you have to pay property taxes, certain fees and insurance. If you have no tenant, this is a drain on cashflow.

E) you have to go find tenant. Buy reits and the manager manages tenants for you.

F) selling reits or stocks on the exchange is really more liquid.

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No one will know if it is a good investment until it is realised. There will only be pros and cons, risk vs reward.

For property, u are really getting a big leverage, as your exposure is to $1.2million with only $200k+ cash. (Assuming your rentals can cover your mortgage, tax etc.) But leverage works both ways, if the property market tanks, your paper loss could be big as well. So u have to work your numbers to make sure u can sustain the mortgage paper if things don't turn out well. Along with other issues u have to deal with property like tenants, property repair, etc.

Financial markets are much easier, as u mentioned, u can easily sell for cash. Disposing a property will take significant longer time, especially if market is not favourable. But u do not enjoy the much bigger leverage u can get by buying a property. So the trade offs are there for u to decide.

Everyone will have their own view of the market, eg. I buy physical silver. So it depends what u believe in and what u are comfortable with. Most markets are fairly efficient, u will be trading some pros and cons in one or another.

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