Should you buy a second home as an investment?? (Part 2 – Revenue)

Everything so expensive

Now after knowing all the Cost/Other factors in Part 1, let’s move on to the only way to get a Second Home.

Utilising CPF – If only you never wipe out your CPF after your 1st house

  • You can only utilise it if your CPF(OA/SA/CPIS-SA) have more than Half of the prevailing CPF minimum Sum currently at $80,500 [$161,00/2].
  • If your CPF surpass the $80,500 mark ( You can only use the excess – the amount above $80,500)
    • How much can you use?
      • Valuation LimitPurchase Price or The Value of the property (Which ever is lower)
      • Withdrawal Limit (Maximum amount use on private property) – 120% of Valuation Limit
    • Which can you use?
      • You are first entitled to use the valuation limit which is 100%
      • In order to use the Withdrawal Limit your CPF have to set aside the Basic Retirement Sum (BRS) in your Special account (SA) of  $80,500 – if you’re below the age of 55
      • If you’re aged above 55, You have to meet the BRS in your Retirement Account (RA).

So should you get a second home as an investment??

Slide1.jpg

Housing price are taken from PropertyGuru.com

Some points to note if you’re lazy to follow the chart:

  • Basically you need ALOT of Excess Cash/  CPF to purchase
    • And if you do, is it even wise for you to invest???
      • You might be better off investing that money into Reits ( 7 times better)

In an investment nut shell, I have left capital gain out for a reason due to the inability to predict housing prices and how much a REIT can grow in terms of price. I would only suggest you to buy a second home, if you have a  strong understanding of the vicinity’s market competition (Value) as it has to be stronger than your purchase price and also only if it (Price paid) beats your other opportunity cost ( I.E Reits/Index Investment)

P.s Click here if you have not read part 1, do let me know if there are missing information 🙂

” Ultimately, its knowing your options well and of course, choosing the best”

“+1 Knowledge point”

 

 

Advertisements

2 thoughts on “Should you buy a second home as an investment?? (Part 2 – Revenue)

  1. The mortgage payment of 30- year loan at 1.5% interest p.a. widens the gap between the REIT and Returns from rent. The interest for the principal of $840k must be excluded in the computation as it is a separate matter. The result after separation will be different.

    REIT prices, historically have low appreciation against property over 30 years. The owner of real property has full control over it. Though it has very little maintainance burden as compare to possessing a real property, properties give much joy to the owners to grasp as solid real things than just having pieces of paper of ownership.

    REITs like any shares run a big risk of deep pocket major share-holders repossessing the REITs via ‘Privatisation’. Recent events saw many stocks being unscrupulously privatised after years of being fatten on public monies.The value price that major shareholders paid the minorities is based on market price plus a small premium. It is indeed exploitative. Market price, as all value investors know is determined at a single point of time usually fraught with uncertainty and emotion. It is not based on P/B or book value.

    Liked by 1 person

    • Hey Fred!

      Thanks for the fresh perspective on this article and I couldn’t agree more that REIT have lower appreciation against property over a span of 30 years.

      Hmm, I guess overall there is no absolute answer of which would be the best form of investment but more of a preference of an individual as a whole(Risk/Control/Ability).

      My ultimate point of view is that everything has risk, we are living in a world (with fiat currencies) and everything is dependable on demand & supply (backed by emotions).

      I guess we are just finding ways to put odds back into our favours…

      Cheers and Thanks again 🙂

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s