Imagine this: You are in your 40s, earning a consistent $11,000 a month, and you have recently reached your Minimum Occupation Period (MOP) in a lovely Clementi HDB apartment.
The big question is coming up: Would it make more sense to invest in two smaller properties for longer-term financial returns, or should you upgrade to a larger condo for your family’s comfort?
This is a common dilemma faced by Singaporean homeowners, and making the right decision is not always easy. A thorough examination of lifestyle requirements, market trends, and financial figures is necessary.
The Options
- Option 1: Sell your HDB and purchase two condos - one for living and the other for investment.
- Option 2: Get one bigger, more opulent condo for the family to live in by using all of your resources.
What We Discussed with the Couple
We discussed both options during a consultation with a couple who were in their early 40s. Their preferences were for properties in District 5 or District 21, specifically the developments Clavon, Parc Clematis, Clement Canopy, and Ki Residences.
In order to better diversify their investments, the couple considered whether it would be better to buy two smaller properties or one larger one that would better suit their family's long-term needs.
Why the “Sell 1, Buy 2” Strategy is Riskier Today
A common goal of homeowners is to maximize their returns by purchasing two properties, but current market trends indicate that this approach is not always practical. The real estate market has changed, so strategies that were effective five years ago might not be so effective now.
Here’s why:
- Higher Upfront Costs: Dividing your money by splitting it between two properties may result in smaller, less appealing apartments.
- Rental Uncertainty: The rental market is fiercely competitive, and managing several properties calls for strategic preparation.
- Loan Considerations: Even with higher combined incomes, taking out two loans might put you at greater risk if the properties do not appreciate as predicted.
I advise seeking a second opinion before deciding to follow this course of action. By speaking with experts who are knowledgeable about the industry, you might be able to avoid making an expensive error.
Financial Breakdown: Buy 1 Larger Condo vs. 2 Smaller Properties
For this couple, let us run some numbers to determine which course of action makes more financial sense. Their cash proceeds after CPF and loan repayment, assuming they sell their HDB for approximately $1,025,833, will be approximately $377,862.
What effect does this have on purchasing power?
- Combined Affordability: They could afford a property up to $2.3 million together, which would have allowed them to buy a large, three-bedroom condo in a desirable neighborhood.
- Buying Two Properties: When their resources are divided, the wife can afford a smaller unit, about $815,000, while the husband can afford a $1.5 million condo.
Owning two smaller properties, however, comes with more expenses overall because of upkeep, taxes, and possible vacancies. Purchasing a single, larger apartment could improve living conditions while controlling costs.
Upgrading to a single, larger property could be the safer and more sensible choice in the current market. You will benefit from potential property appreciation, have a larger home, and bear fewer financial burdens.
