Tenancy Lease Ending And Other Property Related Ruminations

My current condo tenancy lease is coming to an end in April, so I asked my agent to inquire about a re-contract. Just last week, my tenant agreed to continue the lease for another year, but has negotiated down the rental by over a thousand bucks. With the reduction in rent, and increased property taxes, and slowly increasing interest rates, I will just about break even this year after doing a little maintenance work.

I have agreed and we will be signing the new lease end of April. I can’t complain about the rent reduction though. I have had it good for the last two years, charging 25% over market rate. However, the rental market is now a lot quieter and plenty of other units in the development are on offer. According to my agent, there are about 40 other listings still pending for this development, and some have been on the market to rent for almost two months without any nibbles. My tenant has been really quite easy to deal with, so I just want to keep him. In fact, I intend to bend over backwards to accommodate his every request. J

I have also been thinking about what to do about the property investment once this newest lease is up. I will probably want to go for another one year lease if possible and then look to sell in 2016. Previously I have discussed about acquiring a HDB flat, but now I am hesitant again, due to

1) the new cap on rental to foreigners, and

2) the creation of the BTO scheme for singles reducing demand for local HDB rental, and lastly,

3) the restrictions on minimum occupancy period, and waiting time of 2-1/2 years between disposing of a private property and buying a HDB.

Also, the idea of two properties is fast fading away in my mind because of all extra costs involved – additional 7% buyer stamp duty, higher downpayment, the low LTV (loan-to-valuation limit) for financing a mortgage (though the last two are not really problems if I am able swing a cash purchase).

I could keep the current condo, but it’s not ideal as a rental property because it’s really too big, not that well located, quite old and not that well built (starting to need $$ for continual maintenance).

I was cracking my head, then Mr. C suggested – sell the current place, and get a dual key apartment. Prior to my current condo, I was looking at one such place in the east of Singapore. The layout was split into a studio (complete with kitchen area and bathroom) of about 400 sq ft, and a two bedroom of about 900 sq ft, with separate entries, but sharing a common foyer area. The studio will be mine to live in, while the 2 bedder can be rented. It would effectively be one property purchase but would act like two separate properties. I would have to install extra meters to keep track of the utilities usage, but it could work. And the idea of not having to travel across the island to carry out any landlord duties has its attractions.

At the time I was looking, the dual key place and my current condo (both freehold) had similar prices. So it probably would not lower my mortgage any, but it would be a much better layout in terms of flexibility.

I am still talking to Mr. C about alternatives, and would probably start shopping around later part of the year to see what’s available and have an idea of the price levels. I do feel like I keep going around in circles on the whole property and rental income issues, so I apologise if readers feel dizzy from all the ruminating I keep doing.

Meeting with the Financial Planner – Some Conclusions

I have a lot to update. So there will probably be a few posts from here out, if I can get off my lazy ass to write.

I had a meeting with the financial planner again last week to go through the completed financial plan to meet my goal of retirement in ten years’ time.

The main conclusions of the meeting were:

-          Retirement at 45 is possible, but it would be very, very tough.

-          I will have very little margin for error if I really retire fully based on this plan at the end of ten years, hence the planner does              not advice that. However, taking up a lower paying job is definitely possible after 45.

The main thrust of the plan is to retire the bulk of my 1-million-plus mortgage on my condo in ten years instead of the original forty years tenure. The plan calls for additional mortgage payments of close to half a million on top of my normal mortgage payments in the next ten years. At the end of those ten years, I will have some existing savings endowments mature, which will take care of the balance. Once the mortgage is fully paid off, I will have access to the full rental income for my living expenses and hence can retire if I want.

The case remains even if I change properties midway, provided that the value of the properties remain the same. It also means I can say goodbye to any plans of moving out of my parents’ house for the next ten years.

I will also have pretty much nothing else in other savings and investments at the end of ten years since I will be throwing every cent available at the mortgage during the ten years. This is the reason why the advisor advised me to continue working and investing for at least five to ten years after 45 to build up my non-real estate investment portfolio. However, I can achieve this with a much lower paying (and less stressful) job.

I won’t go into the numbers in detail but it essentially means that I have to find about $50K to invest every year on top of my various existing savings vehicle. Bonuses and share options will contribute most of that. I’ll have to find the rest of it somewhere, somehow.

I had some reservations that I’ll be extremely undiversified at the end of ten years, with everything in the property, but unfortunately my pie is not large enough to try and distribute otherwise if I insist on so ambitious a plan. It will be somewhat scary for a year or two until I build up my reserves after paying off the large mortgage.

There is some buffer built into the plan though, since the planner used very conservative mortgage interest rates and investment returns to do the calculations.

The $50K a year will be invested in a short term portfolio of a mix of equity and bond funds as well as money market deposits. The portfolio will be liquidated every three years to pay off the mortgage.

The issue with investing the money myself is that I failed the CKA (Customer Knowledge Assessment) so I cannot invest in most ETFs on the stock exchange. I think the whole demarcation is a little stupid (I can buy individual stocks but not most index funds?), but it is what it is. So I’ll have to do my investment through others, and pay for the privilege as well.

I also found out that a number of good financial products that are available to laymen in other countries have limited accessibility in Singapore. Some of them of only available to high net worth individuals (e.g. min $250K investment) or are only available through certain companies. In such cases, it does help to have the advice of fee-based financial planners who are not commission based.

We didn’t spend any time on cash flow and expenditure management, because he said he didn’t have any advice for me on that front. He couldn’t find anything to cut further. J I take that as a back-handed compliment. We also discussed tax planning and estate planning etc, and I had a lot of different thoughts on the property front. I will share some more in my upcoming posts.

My final bill for the whole process? Just over $5K ($250 per hour for 20hrs of work). I think my net worth and my ambitious goals made it borderline worth it to pay for the service, but I am not sure I will recommend it for anyone with less than a net worth of $750K, especially if there are no special circumstances to consider (estate planning, tax planning etc) and if the individual has a modicum of financial know-how.

I am pretty much fired up from the meeting and looking forward to the challenge. Even if I should fail to meet the ten year mortgage pay off challenge, I’ll definitely  be no worse off than if I had never tried -reaching for the moon and landing among the stars and all that. I just hope I can keep this optimistic frame of mind going forward.

Updates Feb 2014

Happy Chinese New Year to all.

This is the year of the horse, which happens to be my Chinese zodiac sign as well. You would think that you would have good luck in your own year, but that is not the case in Chinese geomancy. This is going to be a challenging year for me. Unfortunately I am still struggling mentally, and have just gone on medication to help with anxiety and insomnia.

Financially, it is going to be a tough year as well, with increased costs due to the therapy that I have to do, and looking at reduced income this year due to performance issues at work.

I have also gone ahead with the financial planner. The early retirement plan is tougher than I had expected. Basically, the planner does not feel that I will be able to achieve retirement at 45 in the way I wanted, or at least, not in a majorly risk-free way.

The reason for that is that most of my assets are locked in real estate and retirement funds. I have quite little in current liquidity by comparison. This is going to make investing a little more difficult in the coming couple of years. Basically I am woefully undiversified.

There are challenges in the insurance front as well. I just learnt that I have been mis-sold my hospitalization shield plan. So effectively, I am not covered on the medical front. For small claims, the insurance company might just not check, but I will be in trouble for larger claims. However, I have decided not to do anything just yet, as changes may be coming to medishield and maybe private insurance plans next year, so I’ll have some chance of coverage.

The silver lining is that I have substantial enough valid whole life insurance with critical illness coverage.

I have been trying to come to terms with all that, and modifying my various expectations for my retirement. Despite my preference for rental income forming a solid majority of my retirement income, I am rethinking my plan. With all the new limitations that has been put in place by the government on the rental of HDB flats, and the high cost of going with private property all the way, I may just have to find my passive income another way.

I also have to come to terms recently with some bad financial decisions that I made previously that have come home to roost. Whatever I may be able to save this year will probably go to pay for these decisions, and if my net worth does not decrease this year, I will be surprised.

I am definitely down now, but surprising do not feel beaten yet. Perhaps it is all the meds at work, :) or the good rest I just had during the CNY holidays. Let’s hope that I don’t have more bad news after my next meeting with the financial planner.

“The Talk” with Dad

I’m happy!

I actually had the start of “The Talk” with my father today, and for some reason, he was pretty receptive to my plans today. After an initial protest, he started to listen to me more seriously, and seemed to realise that I have a plan. And he appears to be coming around to my way of thinking.

Oh boy, I’m so glad.

It started by him asking about my work, and I decided to come clean about my feelings and how I am seriously considering a job change. And that led to a discussion of my finances. And I finally got to tell him what I planned, and where I am at the moment. And the best thing is that he shared his thoughts on their retirement needs, and that was a great help to me.

Cue sweet music and flowers.

He told me that he figured that once they retire for good, we need about $2,000 to maintain our household of four, not including their personal spending money. If I were to stay home with them instead of living by myself, my everything-in lavish lifestyle living costs would be around $950 per month, so all our costs should be coverable entirely by me (Rental + Some Dividends). But that won’t be the case, since my sister will be contributing her share too, so it’s not going to be a too spartan existence. I would probably still be doing some kind of paid work too for a while.

As for their own personal spending monies, I gathered they would either be spending down from their savings, or there is some intention for some light work after official retirement.

I believe that my parents know I am not hurting for money, but I think they didn’t really expect that I would be so well situated at this point. Heck, it took me a while to get used to the fact myself. I think my father was kind of relieved to find that my early retirement mumble was not just hot air.

We only skimmed the surface of things, but now that both parents appear to be receptive to the idea of my early retirement, I can feed them more details as and when. From here out, it is only maths. I can do maths. That is such a load of my mind.

With this breakthrough, I am not so sure if I will move out of the family home eventually. Now that my parents appear to have accepted the idea that I might end up retired early alongside them, I could hurt their feelings if I insist on moving out by myself, and I want to try and avoid that. As it is, living at home doesn’t seem like such a penance now, but I’ll wait and see. Still have plenty of time to make decisions.

In other news, I am updating my resume, but am a bit wishy washy about sending it out. I have a few public service agencies in mind whose work interests me, but I am really hesitant about making changes. That’s an ISTJ for you – I hate changes, even if they end up being better for me.

So, yeah, things are looking up. I haven’t got all the answers yet, and it’s still going to be a few years of waiting, but suddenly the dim glimmer at the end of the tunnel seem a lot brighter.

Support A Business Through Unnecessary Luxury Spending?

Conscious spending is one of the cornerstones to wealth, and I’ve been trying to practice it ever since I got the gospel that is financial independence. I’ve been reasonably good at cutting things out that I don’t care for, but lately I’ve been running into a problem.

I had a facial contract with a boutique spa for a couple of years due to some long running skin problems. Having monthly facials had improved a little but never really solved my skin problems. However, since getting onto a certain hormonal medication for other problems, my skin issues have more or less disappeared. Hence I have been ruthlessly cutting down on the frequency of my spa visits, and decided to completely stop once I used up my contracted visits.

I finished up all my visits a couple of months ago, and have not renewed. Yay for me?

The thing is, my last visit coincided with the laying off of my facial therapist, as the spa is being taken over by a new owner. This therapist has serviced me for as long as I have had the contract with the spa, and have been doing a fantastic job all this time, frequently going above and beyond what she needed to do, just so I could have a pleasant and useful visit.

Since being laid off, she has decided to open her own facial lounge with an ex-colleague of hers, and has called on me to support her in her endeavour. She has been calling quite frequently, as I understand that she has trouble getting enough customers at the start of her business. I have a soft spot for entrepreneurs like her, because I’m a child of entrepreneurs who used to be in similar straits. I am where I am today partly due to various kind people who supported my parents with their custom when the family business needed them, and I feel that I should pay it forward.

But also, I’m kind of conflicted.

Supporting mom-and-pop shops when you have to get something you need anyway is one thing. But what happens when you have decided that an item or service no longer adds value to your life, but another person, especially one you care about, needs to offer it to earn a living? Furthermore, the cost is something I can afford to spend, just that the service no longer fits with my needs and values.

Some people in real life have advised that I consider the cost of supporting my therapist’s new business as charitable contributions, but for my part, I find that extremely insulting to the person offering the service. I just can’t see it that way, and I don’t believe any entrepreneur wants to be seen that way.

I have finally decided to see the therapist just before Chinese New Year and get a facial done. New year, new face. I haven’t decided if I will sign up for a bigger long term facial package with her yet.

What will you do in such a situation? How far will you go in supporting a business that is superfluous to your preferred lifestyle?

Getting Expert Help

I have made an appointment to see a fee-based financial planner, and if nothing goes wrong, I will probably fork out a couple of thousand for him to do a comprehensive financial plan for me. I am also evaluating whether I will be handling over part of my assets for him to manage, specifically the equities portfolio, at a not-cheap fee, of course.

I actually had this idea a number of years back but didn’t execute because of the cost of engaging said planner, and more importantly…hubris.

Everyone around me, in both real life and virtual, was and still is advocating managing one’s own money. And here I was, university educated, with an engineering degree, no less. I’m not stupid; I can do maths. No reason that if everybody else could manage their own portfolios and various planning, why I couldn’t do the same.

It felt like if I succumbed to hiring out to a financial planner that I would be admitting that I am just too plain stupid to handle it all. That was really hard to swallow, so I didn’t.

And so I did the best I could. And I’ve got the basics covered, and my net worth is going in the correct direction at least. I’ve got a goal, and I think that I should be able to hit the target at the right time.

But with time passing, and the need for more fine tuning increases, I’m starting to feel a bit lost, and unsure and overwhelmed. And the more I educate myself, the more I’m realising past mistakes made, and the more I’m wondering if I really know what I’m doing (probably not) and I’m now constantly second guessing my next decision.

Gosh I’m tired of it all. I still like to read about personal finance management…but I’m starting to miss my romance novels. I realise that my interest and abilities only go so far, and I’m throwing in the towel. And my net worth has increased to a point where it is not ridiculous to spend that kind of money. It’s time to bring in the experts, even though I feel like a such a fraud…

No, I am not going to sit on the beach with cocktail while somebody else is doing things with my money. I will still be fully involved, but now, there is will be hand-holding and another brain to help put the pieces together. And if that makes me stupid, then I’m resigned. As long as I get to retire at 45.

And I’m writing this because I think there might be people out there who are also thinking they need to do it all by themselves. And if you are happy with that and can do it, kudos. But if you can’t and need help, it’s okay too. So we’re stupid, but at least let’s not be stupid and poor. Get some good help.

Networth November 2013

I had a slip and fall recently, which resulted in a visit to the nearest hospital A&E. Four stitches, a tetanus shot, and a hundred bucks later, I have learnt my most valuable lesson ever – reading while I am walking is not a good idea.

Also, the best way to appreciate various parts of your body is to take them out of commission for a while. I have always taken my left hand for granted, until now when I have problem using it. It has only occurred to me just how many actions require both hands. Sigh.

Luckily, the stars don’t seem to be as out of alignment in my financial life, because I am happy to report that I am worth about $792,000 at this very moment. That’s approximate increase of $7,500 over last month’s numbers and the immediate impact of getting regular paychecks again.

If I end December with just a modest increase of $3K, I would have clocked a total increase of $150K networth for this year, not including any paper capital gains from the condo. And really, my investment gains outside of the condo is really quite abysmal. That $150K increase came mainly from just plain savings – CPF, cash savings, whole-life insurance premium payments and mortgage principle paydown. It just goes to show how powerful a high savings rate can be when you first start out.

For a year where I worked only ¾ of the time, this is pretty phenomenal, and just a tad…scary. I didn’t have a single month this year where my networth didn’t increase, even when I was not working and getting paid. It feels almost too good to be true, and I am wondering if I somehow made a pact with the devil in my dreams or something, because how can I be so lucky? And while I can analyse the numbers and get some logical explanation, at times, I still feel like I didn’t do anything to deserve all this. I keep expecting something bad to happen every time I turn the corner.

Sigh…the life of a born worrier. I wonder if I will end up worrying myself into a self-fulfilling prophecy.

In other news, another neighbour at the condo development with an identical unit to mine sold his unit at $1.85 million, which is quite a bit lower than I expected. Since I don’t live there, I am not privy to the grapevine, and thus have no idea whether he sold so low because he was in urgent need of money or the market is lower than I expected. Anyway, I am adjusting my expectations of my condo valuation a little due to this sale.

I have also completed next year’s budgeting exercise. The biggest uncertainty so far is the condo lease renewal next May. I do have the advantage of a high initial rent, so I do have room for a substantial discount to keep my tenant, but the development is rather old and I haven’t really spent money in updating the unit, so I am keeping my fingers crossed that my tenant will want to continue his stay.

And so, that’s about it for now. More to come soon.