Part 1 is here.
Part 2 is here.
Part 3 is here.
So, I bought the condo unit. Our family friends are happy for us, my parents are happier, and the bank was probably the happiest. And everyone lived happily ever after.
If I had to redo the process with the knowledge that I have now, I would do everything very differently. Everything happened in a pretty serendipitous manner, and while I did my sums, I didn’t consider a lot of things, the main thing being my goals and what I really want out of the investment. I let emotions and filial piety make most of the decisions.
Things I would do differently:
1) I should have spent more time crystallizing my goals before I even thought about investing seriously. At the point of the purchase, early retirement was just a glimmer in my mind. I had thought about it, but dismissed it as impossible. And as it turns out, it is possible, and real estate will play a critical role, but it would probably not have been this particular condo, but something much cheaper.
2) On hindsight, the condo purchase did not exactly fit into my early retirement goals. But as mentioned above, I wasn’t thinking about it seriously then, so I am just going to let it go for now.
Paula Pant of Afford Anything says it best here – the considerations for rental properties, versus properties for capital gains, or for personal living can be vastly different. If I had known then how I would feel about retiring early, I really should have made the rental returns the focus in my search for a property. I might have been lucky enough to find one that fits all three aspects, but that would have been a bonus.
As it was, my condo unit was positioned for capital gains, but not fantastic rental cash flow. I am only in a cash flow positive position because I had been incredibly lucky to secure my current tenant (thanks to my fantastic agent). I am not expecting to be so lucky every time.
3) I would have crunched more numbers. The only sums I did before purchase was my total cost and whether I could realistically cover it with market rental rates, and the impact of interest rate increases. Nothing on cap rates, returns on investment, cash flow margins, and all the stuff Paula mentions in her post. I did those after the fact, and the numbers, while not too bad, were far from fantastic.
4) There is nothing but ARMs available in Singapore. The only fixed rate deal I found was for a 5 year fixed only. People in the US should be grateful that 15 and 30 year fixed rate mortgages are still available to them. While I did check before the purchase the impact of interest rate increases on my monthly payment, it was hard to do any evaluation. Current interest rates are 1.1%. But what should I have used as the high point, 5%, 7%? Frankly, anything greater than 2% would probably have meant not buying or buying something much, much cheaper. But would that have been too conservative a decision? It is hard for me to evaluate even now.
Considering all the above, I was really lucky that things turned out so well (at least for now). I have an excess cash flow of $1,600 per month from the rental unit and it has also appreciated close to half a million. My dream is really to make out like Paula, but with Singapore property prices being what they are, I’ll just be grateful if my early retirement plans pan out.