Property Journey Update: TAT Sold

Hello Lepak people! In today’s post, I will be updating my property journey. I know it’s a long time coming (last property journey update was in August 2022) and this update has been requested a number of times by you so let’s do this and start our next MELEPAK session.

Treasure At Tampines (SOLD)

I’m jumping right in to share our big news and cut through any suspense: Yes, we’ve finally sold our Treasure At Tampines! The Option to Purchase (OTP) was signed in December 2023, and the completion is scheduled for the end of February 2024. Yay! Alhamdulillah. Before diving into the numbers (which I know most of you are eagerly awaiting), let me recount our journey in selling the property.

The Selling Journey

Our journey was delayed due to Covid, and we only collected our keys for the Treasure At Tampines (TAT) in October 2023. Our agent accompanied us during the key collection. Right from the start, we viewed TAT purely as an investment, never intending to live there. This mindset allowed us to remain calm throughout the process, prompting our agent to comment,

You two are like seasoned property investors collecting keys. Not excited, huh?

Our Agent, 2023

I’ll admit, excitement wasn’t my primary emotion — more curiosity about the process, which I found quite interesting. Perhaps I was subconsciously tempering my excitement, knowing we wouldn’t be residing there. Once we inspected our unit, we swiftly handed the keys and all related responsibilities over to our agent, instructing him to commence the sale.

Our visit to the unit lasted a mere 15 minutes before we moved to the clubhouse to strategize the sale. In retrospect, I’m puzzled why we didn’t capture any photos or videos of the unit — I don’t even have images to share in this blog post.

In the clubhouse, we explored strategies to maximize profit. Our agent proposed renovations to set our unit apart from others on the market, estimating a $20,000 investment over a couple of months. However, eager to expedite the sale and proceed to our next venture, we opted to sell the unit as is.

Setting the Selling Price

In my previous update, I mentioned being content with a $250,000 profit from the TAT sale. But, upon reviewing the subsale transactions at the time, we realized a higher profit was attainable. We ultimately set our asking price slightly above the most recent subsale transaction for a similar unit, aiming for a substantial $360,000 profit.

While hopeful about achieving this price, a month of listing without solid offers led us to adjust our expectations. We knew a higher price was possible, but our urgency to sell required us to consider all offers. Fortunately, a potential buyer expressed interest but requested early access for renovations. Given our lack of attachment to the unit and its facilities, we agreed to this condition, provided they met our asking price. This agreement culminated in the signing of the OTP. Alhamdulillah.

Next Steps in Our Property Journey

The overarching plan remains as previously shared: we aim to purchase two properties. However, there’s been a shift in the numbers, primarily due to two factors:

1. The Total Debt Servicing Ratio (TDSR) limit decreased from 60% to 55%
2. The rise in interest rates and more stringent bank stress tests

Kay and I initially worried that these changes might impede our ability to secure loans for both properties. Despite having sufficient funds for the 25% down payments, our loan eligibility was constrained by these new conditions (Both of us earns $7k per month). After re-evaluating our finances and considering our cash on hand, we’ve devised a feasible budget that involves pledging funds. For those unfamiliar, pledging funds means depositing a sum with a bank to qualify for a larger loan. You can learn more about this concept from Homeseller’s post.

Our Financial Numbers After TAT

Once the TAT sale is completed in end February, these are the numbers we are looking at:

Pak’s CPF

Kay’s CPF

Our Cash

So based on this numbers, we have a rough budget for our next 2 property which is $1.3 million and $950k. Let’s now look at the number for each of our budget.

Our Budget for a Home Property: $1.3 Million

We’re targeting a 3-bedroom resale condo in the West, priced around $1.3 million. Our ideal unit should have:

• Three bedrooms
• An enclosed kitchen
• Preferably a size of at least 900 square feet

The property will be purchased under Kay’s name. Here’s a breakdown of the numbers for a $1.3 million property:

In total, this requires $125,000 in cash and $240,000 from Kay’s CPF Ordinary Account. The loan amount will be $975,000. Based on the Property Lim Brothers’ pledge/unpledged calculator, we would need to pledge $70,000 or unpledge $230,000.

Loan Repayment Details

For a loan amount of $975,000, our monthly mortgage is estimated as follows:

Hence, purchasing a $1.3 million property under Kay’s name would entail a monthly cash outlay of $2,950 plus $300 for maintenance, totaling $3,250.

Our Budget for an Investment Property: $950,000

We’re targeting an investment property, which I will purchase under my name. Originally, our budget was set at $1,200,000, but current circumstances have necessitated a reduction to $950,000, though we could stretch it to $1 million if needed.

Our criteria for this investment property are flexible in terms of location, focusing more on the financial viability of the unit. However, we do have some basic requirements:

• A minimum of a 2-bedroom and 2-bathroom layout.
• The unit should be no more than 15 years old.
• Minimal renovation requirements.

Breakdown for a $950,000 Property:

The total cash requirement for this purchase is $47,500, with no need for fund pledging.

Loan Repayment Details

For a property priced at $950,000, with a loan amount of $712,000, our estimated monthly mortgage details are as follows:

Therefore, purchasing a $950,000 property under my name would result in a monthly cash payment of $1,950 plus $300 for maintenance, totaling $2,250.

Rental Income Estimation

According to the URA rental database, the median rent for a 2-bedroom unit in the OCR region as of December 2023 is $3,700. However, considering the current market slowdown and the characteristics of our unit, I’m estimating a 4.5% rental yield, equating to a monthly rental income of $3,500.

When calculating the net rental income, we need to account for the following costs:

• Agent Fee: 0.5 month
• Property Tax: 1 month
• Vacancy Provision: 1 month

Thus, we can safely project an income of 9.5 months at $3,500 per month. When divided across 12 months, this amounts to:

$3,500 x 9.5 / 12 = $2,800 per month

After deducting the monthly cash outlay for this property, we’re left with an additional cash flow of $550. This will be used to offset the monthly cash outlay for our first property.

Final Numbers for Both Properties

1st Property (Home)

2nd Property (Investment)

Final Monthly Cash Outlay: $3,250 – $550 = $2,700

Reflecting on Our Plan

So, the big question: should we commit to buying two properties, with a potential monthly cash outlay of $2,700? To answer this, we need to revisit our core motivation — why are we even considering two properties?

Unveiling the ‘Why’ Behind Our Decision

The seed for this idea was planted in 2018, just after our resale HDB met its Minimum Occupation Period (MOP). Financially, we were in a comfortable spot with our old HDB; its mortgage was fully covered by our CPF OA. However, this comfort was shadowed by the financial reality: a potential negative sale and depreciating value as the lease dwindled (our HDB was already over 30 years old at the time).

To secure our financial future, I brought up the concept of owning two properties to Kay. To my surprise, she was receptive. This sparked my deep dive into the world of property investment — I was so intrigued that I even enrolled in a Real Estate Salesperson (RES) course to expand my knowledge.

Our rationale for embracing the ‘buy two’ strategy hinges on several key factors:

• The appeal of having tenants contribute to our mortgage payments.
• The desire to push our financial boundaries for a brighter future.
• Recognizing the benefits of forced savings through mortgage commitments.
• Aiming for a stronger financial position through savvy property investments.

However, diving into purchasing two properties isn’t a decision we’re taking lightly. We’re committed to moving forward only if we come across truly worthwhile units. It’s clear to us that the current economic climate is filled with uncertainties, but we believe this step is right for us. A key part of our confidence stems from having a solid cash reserve on hand even after acquiring these properties. This financial cushion is crucial, especially considering any unforeseen events that might arise over the next five years. Rest assured, this has been a major factor in our decision-making process.

What’s Your Opinion?

Yet, no matter how much time I’ve spent researching, attending courses, and absorbing knowledge, I’m aware there are nuances and insights I might have missed. This is where I turn to you, my readers. After delving into this MELEPAK session, I’m eager to hear your perspectives and advice — particularly from those in the property industry or who have experience with the decoupling strategy. Feel free to share your thoughts in the comments below or reach out via social media.

Thank you for joining me in this MELEPAK session. I hope it’s been as enjoyable and thought-provoking for you as it has been for me. Stay tuned for my upcoming property updates. By then, I anticipate having purchased at least one property for our own residence. I’m excited to share this journey with you!