What is “Your Primary Residence”?
The place where you seek respite and relief from work responsibilities, the place where you start and grow your family, the place where you seek comfort and relaxation…. is also the place where you probably put a lot of money in in terms of renovation, furniture and the property purchase price.
Your home is an emotional place. And in Singapore – that home will be one of the largest expenditure and commitment you will ever make.
Very often I get comments on my FB posts about their thoughts on property investment in Singapore.
As you can see there are various viewpoints on should we consider our primary residence as an investment or just as simply a place to stay.
For me, I am here to share my own perspectives. There is no right or wrong “perspective”. Just more angles for a more comprehensive list of pros and cons.
Let’s explore the 2 main viewpoints:
Viewpoint #1: My Primary Residence Is My Home and Not An Investment
If you are staying in a property you own, this means you are paying the monthly mortgage. Since money is leaving your pocket, it should be considered as an expense.
In Singapore, it is also very likely that we are paying for our monthly mortgage via our CPF monthly installments. This basically means we are using a portion of our retirement funds to pay for our monthly mortgage.
In one of my previous blog post, I shared about how elderly retirees can unlock their retirement funds by downgrading from a condo to a HDB flat.
I received the following comment below:
I agree completely with his viewpoint.
There are other ways to build up your retirement funds.
If you have the capability and the knowledge of investing in other asset classes, no one is stopping you from putting your investable funds there.
However, in order to really grow your retirement funds – you will need to get returns that can easily exceed the inflation rate. This means you need to be able to invest in asset classes that can provide you returns of at least 4% – 5% annually.
That can be a challenge. You will probably need to take a very active approach and set aside time outside of your working hours (like taking classes) to really learn the nuances of successful investing.
If you do make it, your retirement is secure and your home is simply a place to stay.
Viewpoint #2: My Primary Residence Is An Investment
From the other side of the coin, you can choose to view the place you stay as an investment.
Since I am already going to put a large sum to purchase the property, I should be able make some returns from it.
I should treat my primary residence, my physical home – as an investment. And if it is indeed an investment, it also means I shouldn’t be too emotional about it.
The subtle difference between paying rent versus paying a mortgage is that when you pay rent – that money is gone. It is truly an expense.
But paying a mortgage every month – what you are essentially doing is building up an equity or simply “parking your money” into a savings plan.
To get your money back, there are a few ways to go about it:
- Rent out the entire place to a tenant
- Rent just 1 room out to 1 tenant
- Sell your place
The common thread is the same – basically you can no longer stay there. Even if you stay there, there will some inconvenience involved as you have a tenant in place.
But is it possible – to still make money while you are staying there?
The answer is – yes it is POSSIBLE. The key is parking your money in a property that will appreciate in value while you stay there.
You need to purchase the right property that has the ability to appreciate at the very least – higher than the rate of annual inflation.
How much longer will it take before we turn 55 years old?
Another 10-20 years?
What will the Full Retirement Sum then? Will we have an adequate amount then within our CPF accounts?
The Retirement Sum is destined to increase because of inflation.
Time is the best friend we have on our side to build up our retirement account.
Personally to me, my home is where the heart is. The place we stay at is merely a physical place. If the love, concern and support exists between our family members, any place can become a home.
We must know when to let go and be clear-headed. It is pointless to tie yourself emotionally to a concrete physical place.
No mattter what, you need to have a clear plan for your future. Whether is it for retirement, for your family’s comfort or lifestyle or for simply restructuring your property portfolio – you will need clarity in the numbers needed.
If you have bought your HDB flat in 2012 or earlier, I invite you to contact me for a free assessment to discuss on your future goals and what options are open to you.