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  • Writer's picturechloekks

Upgrade to Condo: ZERO Cash + Extra Funds!

My clients, who are HDB owners, they recently upgraded to a condo, still have 190k in cash even after spending 100k on renovations.

Sounds too good to be true? Let me share a real case: Mr. & Mrs. Fong recently sold their 4A flat in Tampines for around $750,000. After settling their outstanding loan and CPF usage, they had a remaining cash balance of $380,000.

They then used this money, along with CPF and a loan, to purchase a larger 1,539 sq ft condo in Tampines as well for $1.51 million. The upfront cash they needed was just the 5% deposit of $75,500. Even after factoring in renovation costs of $100,000 and other fees like agent commission and legalities, Mr. & Mrs. Fong still have around $190,000 cash on hand. This is a great example of how strategic planning and leveraging financial tools can make upgrading to a condo a reality.

Worries about high home loan installments? The good news is, there are safeguards in place to help you borrow responsibly.Since 2013, a rule called the Total Debt Servicing Ratio (TDSR) has been in effect. This limits your monthly debt repayments (including loans for cars, studies, and personal needs) to a maximum of 55% of your gross monthly income.

What does this mean for you? If a bank approves your loan, it signifies that both the bank and the government believe you can comfortably manage the repayments based on your income and existing debts.

High monthly installments can be a concern, but there are ways to manage them.

Let's revisit Mr. & Mrs. Fong's example. They took a loan of $1.1325 million (75% of $1.51 million), resulting in a monthly installment of around $4,700. While this seems high, their remaining cash of $190,000 acts as a buffer.

Here's how it helps:

  • Peace of mind: This cash reserve could cover installments for approximately 40 months (3 years and 4 months), giving you breathing room during unexpected financial situations.

  • Flexibility with CPF: Utilising your CPF Ordinary Account (OA) for installments can further ease the burden, allowing you to hold the condo for a longer term.

  • Interest rate outlook: Lower interest rates in the future could further decrease your monthly payments.

  • Long-term security: After 3 years, you'd avoid paying Seller's Stamp Duty if you decide to sell. Owning the condo for a longer period can potentially lead to property value appreciation.

Monthly Instalments just like insurance investment premium but better!

Purchasing a condo is also a good way to force yourself to save as well as investing just like buying an insurance investment plan.  You might be more comfortable holding more cash on hand every month, but likely you will also spend it more on car, travel, shopping. Most of this spending is not able to generate any income or let you retire earlier. Another good thing of investing in a condo better than an insurance investment is you can now enjoy a condo lifestyle while waiting a return in the future.  

Condo Ownership: Savings, Investment, and Lifestyle in One

Owning a condo can be a smart way to build wealth, similar to an insurance investment plan. Here's why it might be a better fit for some:

  • Forced Savings: Just like regular payments into an investment plan, condo monthly installments can become a form of forced savings. This can be especially helpful if you struggle to build a significant cash reserve.

  • Potential for Growth: Similar to an investment plan, condos have the potential for property value appreciation over time. This can lead to a significant return on your investment when you eventually sell.

  • Enjoyment While You Wait: Unlike an insurance plan where you typically wait years for a return, you get to enjoy the condo lifestyle right away. More condo facilities for you and your family, condo amenities, and a sense of ownership.

While holding cash has its benefits, it also often leads to increased spending on cars, travel, shopping, and many unnecessary items, none of which generate income or help you retire earlier. Condo ownership, on the other hand, can offer a combination of forced savings, potential asset appreciation, and immediate lifestyle benefits.

Thinking of upgrading to a condo? Don't sweat it, it might be easier than you think!

Everyone's situation is different (income, current digs, age, etc.) but condos aren't just for the super rich. Wanna see if it's a fit for you? Let's chat! I can give you a free home valuation and run some numbers based on your situation.

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