In my previous blog post, I wrote about making a decision whether you should consider your primary property as a home OR as an investment?
Over the past weekend, I just met up with 3 different families that are facing the same problem.
It is not uncommon – happens usually when one bought a resale HDB. (Of course there are exceptional cases)
Negative cash sales after staying in their property for the past 6-7 years.
Why Does This Happen?
Negative sales happen when:
- The appreciation of the property is SMALLER than
- the interest rate on the loan and
- accrued interest rate on the CPF usage
Imagine you want to stay prudent and feel relaxed on your monthly installment.
So you make a decision to buy a old HDB that is cheaper.
After staying there for 5 years to 8 years – you noticed your friends has started to move and upgrade.
“Hmm, maybe it is time for a change of scenery?”
You begin to consider the possibility that maybe you can do something about “changing the scenery” and perhaps upgrading your lifestyle.
First, you begin checking how much your current property can fetch. You check the value of the most recent transactions of nearby units.
You then notice – Eh. The value remains very close at the price you buy. Some are slightly higher and some are slightly lower.
Then you start thinking: Ok. Since I’ve been staying at this place for quite awhile. Perhaps I am close to paying off my property loan.
Let’s login to HDB portal. (If you paid using HDB 2.6% loan. But if you used a bank loan, login to your bank account to check outstanding loan.)
You noticed that you are still left with an outstanding $100k loan.
Ok that looks about right.
You also decide to check how much accrued interest you have to return. So you log in to your CPF account.
And when you check again on the accrued interest – and you also noticed that you need to return back $400k to CPF if you proceed to sell off your HDB flat.
Immediately you run a mental calculation in your mind.
When you first bought your HDB flat, it was $420k.
Today it is worth $420k.
If I sell, the sales proceeds means I have to return CPF $400k.
I am left $20k. Then I have to pay the outstanding loan of $100k.
This means – I am at a negative $80k.
How on earth did that happen?
You lose out due to interest.
There is no choice but to accept this.
So we try to console ourselves.
You tell yourself – it’s okay. We stayed there for 6 years. So that’s about $80k spread out over 6 years.
Every year costs us $13k and every month costs about $1k.
Still not too bad right?
But then you begin looking at the BIGGER picture…..
It is in our human nature to COMPARE.
You have friends who bought property at the same time as you.
But they bought a BTO HDB flat. In their case, they bought a BTO at $250k and are able to sell at $450k today.
They made $200k. After offsetting the interest, they probably made around $100k to $150k.
Now your eyes probably widened. You start to look at the real difference.
Instead of making money, it becomes that you are losing money.
And if you think about it, the losses could have become as high as $200k.
$200k / 6 years= $33k a year which is equivalent to $2700 per month.
That is $2700 per month.
I still remember 1 of my client’s remarks to me – “Maybe I should have just rented! It would have been so much cheaper for the past 6 years.”
Hindsight Is Always 20/20 Vision
This means everything becomes clear ONLY when you LOOK BACK after all the mistakes have been made.
To me, your family’s own needs for the property is still the most important factor.
But is there something we can do to help meet your family’s needs AND yet get a chance to capitalize on property appreciation as well?
Sometimes it is not really that difficult especially if you have done the proper planning.
It becomes painful to realize that your property didn’t appreciate much in the past 5 to 15 years – especially when you look outwards. For everyone else, it seems they are benefiting more.
Inflation is that never-ending creeping up of prices for all goods and necessities.
The impact of inflation is relentless and marching upwards always – in a capitalistic world.
Forgive me for being motivational but there is an element of truth in Tony Robbin’s quote – ”
The only thing that’s keeping you from getting what you want is the story you keep telling yourself.
Being stuck with a property that has becomes stagnant can have a significant impact to our retirement plans. Imagine all your peers are upgrading from their current BTOs and growing well…. but you are still staying there.
You Don’t Know….What You Don’t Know
Some might feel okay with these “unrealized” losses since they have been staying there already.
There is nothing wrong about this. You wouldn’t know what you don’t know.
But as a property investor, to see such figures (when it could have been avoided easily) – I can feel the heartbreak.
I rather NOT see it happen to any family. There is nothing wrong – it is what it is.
For me – we just strive and see if we can try to do better. Why not?
If you have bought your property more than 5 years ago, I invite you to contact me for a free assessment to explore your future options.
We can sit down and discuss the potential opportunities and pitfalls that might be in store for you.