A Case Study of How A Couple  Upgraded to A Freehold Property & Still has $250,000 in Cash


Case study 1

Eric & his wife Elaine own a condo in the the East very near the MRT but its already close to 20 years old. They feel that since it has appreciated almost by 80% and that the price will not appreciate much more in  the next 10 years. They would like to buy a second property but all their funds are stuck in their current property and they also feel that they would not want to pay the 7% ABSD

I sat down with them and explained that since their condo has already appreciated so  much, its time to cash out and re-invest that profit into 2 properties which have not moved up in price yet. These 2 condos must also have a push factor that will ensure that the prices will increase in the near future. Then they can enjoy the same capital appreciation which their current condo is giving them now.

Their current condo which they are living in now if rented out will give them close to $3000 in passive income.

Imagine if they have 2 such condos, they will pocket $6000 in passive income in their later years if they re-invest their profits now!

In fact if they were to sell the newly invested property in 10 years time, they may potentially make a profit of $1.33m. Please see calculation below

Through my 4 step system, I managed to shortlist them a few such properties so that they can ride the wave of price increase again.

These are the sums

Eric                                                                                        Elaine

Age : 38                                                                                Age: 37

Income:$9,600 pm                                                           Income: $6,000

Bought condo at $711,000 ($700psf)

Selling Price now: $1,407,600($1200psf)

Cash proceeds after selling condo: $718,000

CPF to be returned to both accounts is : $200,000

Wife: $120,000

Husband: $80,000

Cash in hand for each : $718,000 divided by 2 = $359,000

What to buy now?

Eric mentioned that his parents live in the West and he would love to move back to be closer to them. He also thinks that his kids will need to be near the tertiary institutions near Clementi once they grow older.

I spotted a condo along Upper Bukit Timah Rd that has high potential growth as the Downtown Line will be only minutes walk away from it. It is currently only selling at a reasonable price of $1200psf and when the MRT station is up in 2015, the whole area will be revived and I would not be surprised if prices move up to $1400 psf.

The condo in Upper Bukit Timah will be their residence and his wife Elaine will still be able to own a 1 or 2 bedder by buying a new launch or an existing property already giving them rental.

The calculations are as follows:

Eric:

Existing CPF : $130,000

After selling, he will have a total of $210,000 in his CPF account

Size : 1205 sf

Car Loan :$1,100

To fulfill the TDSR requirement, his maximum installment is $4,603.

Maximum loan he can take is based on 3.5% interest, 27 years loan is $4,603

=$964,000

Cost of New Condo: $1,330,000

Cash 5%: $66,500

CPF 15%: $$199,500

Stamp Duties: $34,500

Loan:$1,064,000

Loan Tenure: 27 year

Actual Installment at 1.5%=$3620.20

But due to his income, he can only pay an installment of $4603, he can only take a maximum loan of =$964,000

Cash needed to top up so  =$100,000

Left over cash : $259,000

This left over cash can pay for  6 years of installments at$3620 per month

Future Projection of Prices

 Optimistic Outcome : Prices increase by 50%

After 10 years, the Bukit Timah condo increases by 50%(5% every year average) to $1,995,000

Lets assume that the interest rate is 2% throughout the 10 year loan tenure.

If he were to sell at the end of 10 years, after paying interests for the loan,

he will be get back $1,995,000 less loan balance of $669,528. = Profit of $1,325,475

This is close to the purchase price of $1,330,000 which he pa

id 10 years ago.

I hope the above example shows you that we can no longer count on property prices to do a double digit growth every year. Instead I prefer to count on using time and leveraging on the bank to help me own this asset that I can live in and also nurture into big capital gains or as a form of passive income in future.

Expected outcome: Prices only grow 30%

Lets assume that interest rate is at an average of 3% throughout the 10 years loan tenure

If Eric sells at $1,729,000, he will take back $1,729,000 less $693,635=$1,035,365

Pessimistic outcome:If prices don’t increase at all

Lets assume that interest rate is at an average of 3% throughout the 10 years loan tenure

If Eric sells at $1,330,000, he will take back $1,330,000 less $693,635=$636,365

Less Downpayment of $366,000, he still gains $270,365

Elaine’s Case Study coming up next, don’t miss.

Call Lille Low at 9022-8919 to work out your case study for you!