Home Ownership Dilemma – Keep or Sell?

Home Ownership Dilemma – Keep or Sell?

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Fabulous news – the condominium unit we purchased a few years ago pre-FIRE thinking is now complete! We just received the keys a month ago. Yippeeeeeee! We’re over the moon! Or are we really? We’ve kind of stuck our head in the sand in this regard for a while now, truly unsure what we are going to do. Where our mind was at when we made the purchase and where our mind is currently are opposite ends of a spectrum and we keep zipping to and fro between the two with the current decision-making required!

Our Mind has Traveled a Bit!

2013

Our thinking was like the vast majority of the working adults, we made the decision to purchase a condo unit. Our mantra was not unheard of – work hard, earn money, buy a condo and take a loan out on it, continue working and pay if off in 25 – 30 years. Y’know, the Great Yuppie Lifestyle! We made the purchase in a location that is lovely and further out of the city, often referred to as ‘resort living’ by all the real estate agents which I find hilarious! Sure there’s a park and beach that is a 10 minute cycle away, but it isn’t quite resort living in the sense that you are living on the edge of the beach in an airy hut!

2014 / 2015 / 2016

We decided I would stop work and care for CocoJr #1. End 2015 saw the formation of FIRE within our minds and lifestyle. Between 2015 and 2016, these thoughts further developed and I went through over a year of having a condo unit I owned in Malaysia being vacant before eventually being sold. Mr.C and I went through a thought evolution that perhaps we could be ‘renters for life’, clearly influenced by some prominent FIRE influencers. We didn’t reach such an ultimatum however it played quite largely in our minds.

2017

We knew we were leading up to 2017, when our unit would be ready. We had a clear SELL decision formed, to some extent backed by financials and to some extent based on generalist principles we had. Now our unit is ready and we have the keys to the place. There’s the emotional play and the draw to live in our own place, finally. We’ve only once lived in our own place, back in Malaysia when I had purchased the condo early on in my working life. I loved that place! When we moved to Singapore, we had moved from rental unit to rental unit. We thought this place we purchased would be our permanent dwelling.

Let’s look at some of the aspects we considered:

Financial Aspect

If we keep the place, we get to access our CPF funds (SG’s mandatory social security savings scheme) to pay for the monthly installments to the bank, funds which we would not have been able to access otherwise. If we rent the place, the rental income is for us to then invest / do as we see fit. We have tenants contributing towards our equity build-up by way of paying rental to us – the rental goes towards our bank installments. (What could go wrong? Periods of no rental, terrible tenants, damage to the property). If we stay there, we still have better cash flow as we needn’t pay a monthly rental. We have to pay the monthly service charges but that’s about it. No issue of periods of no rental, no issue with tenants not taking care of the unit.

If we go the sell route, we get a big bag of cash to invest as we see fit and reach FIRE sooner! What could possibly be wrong with this idea? Well, analysts are bullish that the property market is picking up, so a 10% increase by end 2018. If we sell now, we’re potentially exiting at a otherwise very opportunistic moment? Sure, I can take the predictions with a pinch of salt, nay – a huge pinch of salt. But even a 3%-5% increase is welcome whilst providing our family shelter in  between. We seriously doubt that in 2 years, the prices could be lower than what it is now. Should it remain the same, we’re at a no loss position. If it increased, yippeeee!

Children’s Schooling

This ranks very high on my list of what is important. I can make my decision solely based on this! I won’t though, for I advocate being balanced, hah!

Quite simply, if we stay where we are currently staying (which will happen with the option of renting out our new place or selling our new place), then CocoJr #1 continues where he is right now and everyone remains happy with no disruption and re-adjustment period. It’s not just that though, we won’t know for sure if the next childcare will be as amazing as the current place.

If we choose to move into our new place (it is bright and shiny!), then we are going to have to get CocoJr #1 enrolled in a school closer to the new place. Here in Singapore, pre-schools have a long, long waiting list! We need to be prepared to have the little firecracker at home with me for a period of time! Then again, I am sure I can occupy the child. Teach him, take him down to use the facilities and engage with other children. Besides the whole point of FIRE for us is to have the child with us during their fun and formative years, right?

Distance to Work

One of the primary reasons we moved to our current place to begin with was to be closer to work therefore enabling Mr.C & I to spend lesser time on commute, more time with family. We’ve loved it so far – Mr.C and I are back before 7pm and it allows us to make a home-cooked meal for dinner and play with CocoJr #1.

Moving to our bright and shiny new place will see a 1 hour and 15 mins commute 1 way to our work place. I will be stopping work though so I’ll be home anyway with the kids but there will be less Daddy-time! Mr.C is game, hopefully he’ll be able to use that time to take a nap or do some reading.

Long Term Intent

Here’s where a host of uncertainties crops up. Safe to say that we don’t have plan that is cast in stone! We are very much winging it. We started off FIRE thinking we’ll be travelling all the time, moving from one location to another. Then Mr.C started some practical conversations (as he is!) and consider the possibility of us returning to Singapore and having the kids enroll in a proper school. Ms.K’s thoughts – What would we do??! I thought it was an adventure cut short too early.

Now that we have our unit ready, we start thinking some sobering thoughts that this protects us when we do want to return in the future in the event that rental prices have gone up to a point we can’t afford it based on our projected 4%. To that effect, even with our current projected 4% it may be difficult to be able to rent in Singapore and live comfortably. Live elsewhere in cheaper locations, yes our current 4% goal works well.

Do we want to return to Singapore in say 5 years? We don’t know for sure. It is a possibility. Would it then be more prudent to exercise some sound risk management by keeping the place till we have more clarity in our thoughts and the future is a wee bit clearer?

Quality of Life

This was something that Mr.C brought up and it sank in after a few days. His point was that if I were to resign to care for CocoJr #2, that would mean I would be at home a lot and our new place is definitely a nicer environment vs. this 40 year old HDB block. This came at a timely moment as our neighbours started drying their, ummm, inner wear along the corridor so it tends to be flapping around in the wind as we walk past (gross!!). They tend to leave it there for days as well, geez. Call it the final straw that broke the camel’s back 🙂

Initially I brushed it off, what’s quality of life vs Mr.C being back home earlier from work and CocoJr #1 being happy in his current school? Then it sank in as I continued to go over to the new place whilst we were setting the place up for rental. Gosh, it’s nice to not have random piping running along the hall. Oh look at all that greenery! The journey to FIRE is important and to be in an amazing place with no real financial detriment for the next few years till we hit FIRE seemed like it was a moment of genius for Mr.C.

So we have gone full circle. We bought with the intention to stay, then we were convinced we would sell. A short few days after we decided we’ll keep the place and rent it out to sell it at a later date as the property market continues picking up. As it stands now and the wheels are in motion, we’re slated to move in to the new place in exactly a month! 

Your turn! What are your thoughts on home ownership? How would you rate quality of life against the race to reach FIRE asap?

Author: Ms.K

Ms.K is everything that Mr.C is, without the natural interest in investing and company financials! The activity planner for the family, the driver of random ideas and soon to be ‘retiring’ in to full time motherhood – Ms.K has no idea what she’s in for but remains super excited!

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4 Replies to “Home Ownership Dilemma – Keep or Sell?”

  1. At some point, i feel people need a home base. Perhaps its me who feels that you always need some stability to do good work. Perhaps you need to think through if you sell the place, what are you forgoing. You might not be forgoing a lot of things because you could always rent a condo near a better school environment to see if that is what you want. Would you be open to buying second hand condo? (some are not willing to live in anything second hand)

    selling means you get back your down payment which you can generate cash flows.

    if you keep the property, i feel the rental is not part of the equation. property from the financial perspective is capital appreciation speculation. if we are talking about yields, the property yields a negative cash on cash return or even the net rental yield is 2.3% odds. We can find more product places to park our money.

    Just some thoughts.

    1. Hi Kyith,

      Thanks for dropping by! I’ve always been a reader of your blog and found your posts to be very informative, so I appreciate the exchange of thoughts!! 😀

      I feel that although I would like to travel the world, Singapore definitely ticks the boxes of a place I would make my home. Maybe we’ll find another place that’s equally good? Who knows, but until we find that alternative…our main thought of keeping the apartment is that we still retain a stake in the property market here so that we don’t get priced out if rent increases above our inflation expectations by the time we wish to return. As of now, we’ve replaced that inflationary risk with interest rate risk but that could be more manageable as the loan installments wouldn’t increase too much per 1% increase in rate.

      Because this isn’t an investment property, our options are (i) keep, rent out condo & rent for own stay, (ii) keep and own stay, or (iii) sell, invest proceeds & rent for own stay. So we’re not really comparing returns of real estate vs other asset classes, but actually our cost of accommodation. Our analysis of the actual “P&L” of our options indicates that our net accommodation cost is almost the same for all 3 options. From a cash flow perspective, the net cash flow is highest from “keep” options (i) and (ii), but that is because we get to use our CPF to service the loan installments. (For non-SG readers: CPF is the statutory pension fund)

      Perhaps we will have a follow up post to give some illustrative numbers so we can get everyone’s feedback. 😀

      Finances aside, with the plan for Ms K to stay home and care of the kids, the qualitative factors start to be more important since more hours are going to be spent at home. Our own condo definitely wins in that respect.

      Regards
      Mr. C

      1. Hi Mr C, i was surprised you say keep and own stay is the highest. I see property in Singapore as speculation that you have to sell somewhere, in order to lock in the returns. The rental yield is not going to make it a positive cash on cash return. Think not having to make use of the CPF is a big thing.

        Would there be an option of selling somewhere down the line and translating to a resale HDB?

        1. Hi Kyith! I meant keep and own stay gives us the best cash flow situation, not best potential “returns” (speculative as you said) or lowest net cost. This is assuming that I don’t sell at a loss somewhere down the road and realise a cash loss. 😀 I know we’re using CPF which would give stable and safe returns, so I’m making sure the additional cash flow generated doesn’t get spent and is saved/invested instead.

          As you pointed out too, the rental yield is low hence renting out doesn’t give fabulous returns (2%-3%?) although there’s still a positive carry (if we did rent out) from the low interest rates (1-2%). How long that lasts, who knows? 🙂

          We’re open to all options and have definitely considered getting a HDB down the line if our situation meets the HDB requirements. It’s the most affordable form of housing in SG and most of them are quite good actually.

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