Advice
8 min read
Hi team,
I’ve always liked the way your team analyzes enquiries. Hope you’re able to provide some insights into our query below.
My wife and I are looking to invest our cash/cash equivalent on hand and are wondering what’s the most optimal option for our current situation.
Some information are as follows:
- Husband’s monthly income: $12.7K (excluding CPF contribution). 36 years old
- Wife’s monthly income: $14K (excluding CPF contribution). 35 years old
- Annual bonus: ~$50K
- Current house: Bidadari 4Rm BTO ($302K outstanding loan) Purchase Price $522K MOP 1Q25
- Cash equivalent: $510K
- Stocks: $690K
- CPF OA each: ~$50K
- Monthly expense including car loan/mortgage/insurance payment: ~$7K
We’re thinking of using only cash equivalent/CPF for the purchase of an additional property investment with below considerations, what do you think is the most optimal option for us, thanks in advance!
Wife prefers to keep our BTO if possible.
Hope to own a 2nd property for investment purpose.
Hope this property (including rental income and capital appreciation) will be in line with typical stock appreciation – acts as a diversification from just stock holding.
If holding of BTO together with private property purchase isn’t possible, own stay condo is preferably central with >1,200 sq ft and has minimum 3 rooms.
Hope to take <$500K loan each
More info:
For analysis purpose, definitely open to sell part of the stocks too in order to facilitate buying of 2 private properties. Although we do hope to keep the stocks if possible. Lastly, if keeping the BTO is not an option, by the time the BTO MOP, we’ll probably have another $200K or so for spending on the properties.
Thanks again!
Hi there,
Thanks for writing in.
Allow me to introduce myself, I’m Grady, and I’ve been in the real estate industry for over a decade. Throughout my career, I’ve had the privilege of assisting a diverse range of clients, from first-time buyers to those seeking to upgrade, downsize, or invest in property.
I recognise the common sentiment among homeowners to hold onto their current flats, especially if they are situated in prime locations. There’s often a reluctance to part with such properties, considering the unlikelihood of acquiring a similar unit at a comparable price, particularly if it was originally purchased as a Build-To-Order (BTO) flat.
It really depends on what your end goal is, but it typically doesn’t make sense to keep the flat and incur the hefty Additional Buyer’s Stamp Duty (ABSD). But before delving into that aspect, let’s first assess your affordability.
Affordability
Combined affordability without selling existing flat
The maximum loan based on a monthly combined income of $26,700 and ages of 36 and 37 (seeing as you can only buy next year) at 4.8% interest is up to $2,711,216, but because you still have an outstanding mortgage on your HDB, the Loan To Value (LTV) ratio for your second mortgage loan will be reduced to 45%. The cash down payment will also increase to 25%, while the remaining 30% can be paid with CPF or cash.
As such, this greatly lowers your affordability for the second property.
| Description | Amount | |
| Purchase price | $780,000 | $790,000 |
| BSD | $18,000 | $18,300 |
| ABSD | $156,000 | $158,000 |
| 25% cash | $195,000 | $197,500 |
| 30% CPF | $234,000 | $237,000 |
| 45% loan | $351,000 | $355,500 |
| Total cash and CPF required | $603,000 | $610,800 |
Based on your cash and CPF funds of $610,000 (without liquidating your stocks) your estimated affordability for the second property is between $780,000 – $790,000.
Selling the existing flat
As none of the HDB clusters in the Bidadari area have obtained their MOP, we will use an assumed potential selling price of $800,000 for calculation purposes.
| Description | Amount |
| Selling price | $800,000 |
| Outstanding loan | $302,000 |
| Sales proceeds (CPF + cash) | $498,000 |
Also just to highlight, since your unit’s MOP is not until next year, the loan amount will be lower by then so the sales proceeds will be higher.
Combined affordability after selling existing flat
| Description | Amount |
| Maximum loan based on a monthly combined income of $26.7K and ages of 36 and 37 at 4.8% interest | $2,711,216 (28-year tenure) |
| CPF + cash | $1,108,000 |
| Total loan + CPF + cash | $3,819,216 |
| BSD based on $3,819,216 | $168,752 |
| Estimated affordability | $3,650,464 |
Husband’s affordability
| Description | Amount |
| Maximum loan based on a monthly income of $12.7K and age of 37 at 4.8% interest | $1,289,605 (28-year tenure) |
| CPF + cash | $554,000 |
| Total loan + CPF + cash | $1,843,605 |
| BSD based on $1,843,605 | $61,780 |
| Estimated affordability | $1,781,825 |
* Assuming total CPF + cash of $1.108K is split equally
Wife’s affordability
| Description | Amount |
| Maximum loan based on a monthly income of $14K and age of 36 at 4.8% interest | $1,445,158 (29-year tenure) |
| CPF + cash | $554,000 |
| Total loan + CPF + cash | $1,999,158 |
| BSD based on $1,999,158 | $69,557 |
| Estimated affordability | $1,929,601 |
* Assuming total CPF + cash of $1.108K is split equally
Now that we have a better understanding of your financial standing, let’s run through the possible pathways.
Potential pathways
Scenario 1. Keep the existing flat and purchase a second property for investment
This is not a route I usually advise buyers to take because the Additional Buyer’s Stamp Duty (ABSD) is quite substantial, and you’re not optimising the leverage on the loan. A significant advantage of purchasing a BTO flat is the potential for a decent profit upon resale after reaching the Minimum Occupation Period (MOP), which could serve as a stepping stone towards acquiring a more valuable property. By retaining it, you’re essentially holding onto these potential profits instead of capitalising on them.
Nevertheless, let’s still go through the figures if you opt for this approach.
Let’s assume a purchase price of $780,000. With this budget, you will likely be looking at a 1-bedroom apartment.
| Description | Amount |
| Purchase price | $780,000 |
| BSD | $18,000 |
| ABSD | $156,000 |
| 45% loan | $351,000 |
| CPF + cash required | $603,000 |
Costs incurred
I will assume a 10-year holding period with a rental yield of 3% for the investment property.
| Description | Amount |
| Interest expense (Assuming 28-year tenure and 4% interest) | $124,917 |
| BSD | $18,000 |
| ABSD | $156,000 |
| Maintenance fees (Assuming $200/month) | $24,000 |
| Property tax | $28,080 |
| Rental income | $234,000 |
| Agency fees (Payable once every 2 years) | $10,530 |
| Total costs | $127,527 |
Now let’s also look at the cost of holding onto the HDB.
| Description | Amount |
| Interest expense (Based on an outstanding loan of $302K with 21-year tenure and 4% interest) | $99,910 |
| Town council service & conservancy fees (Assuming $80/month) | $9,600 |
| Property tax | $6,400 |
| Total costs | $115,910 |
Total costs if you were to keep the existing flat and purchase a second property for investment: $127,527 + $115,910 = $243,437
Let’s also consider the potential capital appreciation based on the average growth rate over the last decade.
| Year | HDB Resale Price Index | Non-landed Private Property Price Index |
| 2013-Q4 | 145.8 | 147.6 |
| 2014-Q4 | 137 | 142.5 |
| 2015-Q4 | 134.8 | 137.4 |
| 2016-Q4 | 134.6 | 133.8 |
| 2017-Q4 | 132.6 | 135.6 |
| 2018-Q4 | 131.4 | 146.8 |
| 2019-Q4 | 131.5 | 149.6 |
| 2020-Q4 | 138.1 | 153.3 |
| 2021-Q4 | 155.7 | 168.4 |
| 2022-Q4 | 171.9 | 182.1 |
| 2023-Q4 | 180.4 | 194.2 |
| Average | 2.30% | 2.90% |
| Property | Price now | Potential price in 10 years | Gains |
| HDB | $800,000 | $1,004,260 | $204,260 |
| Condo | $780,000 | $1,038,122 | $258,122 |
Total gains if you were to keep the existing flat and purchase a second property for investment: $462,382 (gains) – $243,437 (costs) = $218,945 (profit)
Scenario 2. Sell your existing flat and buy a 3-bedroom condo
With a combined affordability of almost $3.7M after selling your flat, you will have sufficient funds to purchase a 3-bedroom unit >1,200 sq ft in the Central Region.
For calculation purposes, let’s say you were to purchase a unit at $3.2M.
| Description | Amount |
| Purchase price | $3,200,000 |
| BSD | $131,600 |
| 75% loan | $2,400,000 |
| CPF + cash required | $931,600 |
Considering that you’ll have $1,108,000 of CPF funds and cash after selling your flat, subtracting the $931,600 required for the purchase of the 3-bedder leaves you with $176,400. This remainder can be allocated as a reserve fund, for renovations, or you can pay up more to reduce your loan.
If you choose to invest the entire amount buying a 3-bedder, your loan amount would decrease to $2,223,600. With a 28-year tenure and a 4% interest rate, the monthly mortgage repayment would be $11,012.
Given your combined monthly income of $26,700, minus $5,000 for expenses (I’ve adjusted for the previous mortgage estimated at $2K/month), the $11,012 mortgage repayment would consume 50% of your remaining monthly income. This percentage is relatively high compared to the average household mortgage repayment versus income (which is around 28% according to a 2022 survey done by UOB).
So since you’ve mentioned a desire to keep the loan under $1M ($500,000 for each of you), this would mean increasing the required CPF funds and cash to $2,331,600, which exceeds your total CPF funds and cash savings by $1,223,600.
By keeping the loan to $1M, this would be your revised affordability.
| Description | Amount |
| Loan | $1,000,000 |
| CPF + cash* | $1,108,000 |
| Total loan + CPF + cash | $2,108,000 |
| BSD based on $2,108,000 | $75,000 |
| Estimated affordability | $2,033,000 |
*Without liquidating your stocks
With a $2M budget, you can still get a 3-bedder unit in the Central Region but do note that your options will be limited and the majority of these units are either in boutique developments or are older 99-year leasehold projects.
Just to be thorough, I will look at the costs involved if you were to buy a $3.2M property and also a $2M property.
Costs incurred for a $3.2M property
| Description | Amount |
| Interest expense (Assuming a 28-year tenure and 4% interest) | $854,132 |
| BSD | $131,600 |
| Maintenance fees (Assuming $400/month) | $48,000 |
| Property tax | $109,400 |
| Total costs | $1,143,132 |
Assuming a 2.9% growth rate, in 10 years, the potential selling price is $4,258,962, which amounts to $1,058,962 of potential gains.
Total losses if you were to sell the existing flat and purchase a $3.2M 3-bedroom condo: $1,058,962 (gains) – $1,143,132 (costs) = -$84,170 (loss)
Costs incurred for a $2M property
| Description | Amount |
| Interest expense (Assuming a 28-year tenure and 4% interest) | $355,888 |
| BSD | $69,600 |
| Maintenance fees (Assuming $350/month) | $42,000 |
| Property tax | $36,800 |
| Total costs | $504,288 |
Assuming a 2.9% growth rate, in 10 years, the potential selling price is $2,661,851, which amounts to $661,851 of potential gains.
Total gains if you were to sell the existing flat and purchase a $2M 3-bedroom condo: $661,851 (gains) – $504,288 (costs) = $157,563
In this scenario, unless you opt to lease out the additional bedrooms, your profits will depend solely on the property’s appreciation, making the selection of the development even more important. Additionally, the returns are diminished as you lack rental income to balance out the expenses.
Scenario 3. Sell existing flat and buy 2 condos
Looking at your individual affordability after selling your flat, you can each buy a private property. With a considerable cash reserve, your budgets can be easily adjusted by reallocating the cash. However, acquiring a 3-bedroom unit in the Central Region, as discussed in the preceding scenario, may present limited options. Exploring properties in the Rest of Central Region (RCR) could offer more alternatives.
This approach aligns with your objective of owning 2 properties while also facilitating the segregation of your primary residence and investment property, thereby offering greater flexibility.
As your wife is eligible for a higher loan, let’s presume the own stay property is bought under her name at $2M.
| Description | Amount |
| Purchase price | $2,000,000 |
| BSD | $69,600 |
| Maximum loan | $1,445,158 |
| CPF + cash required | $624,442 |
Costs incurred
| Description | Amount |
| Interest expense (Assuming a 29-year tenure and 4% interest) | $517,935 |
| BSD | $69,600 |
| Maintenance fees (Assuming $350/month) | $42,000 |
| Property tax | $36,800 |
| Total costs | $666,335 |
As for the investment property, I will assume a purchase price of $1.5M with a 3% rental yield.
| Description | Amount |
| Purchase price | $1,500,000 |
| BSD | $44,600 |
| Remaining CPF + cash | $483,558 |
| Loan required | $1,061,042 |
Costs incurred
| Description | Amount |
| Interest expense (Assuming 28-year tenure and 4% interest) | $377,612 |
| BSD | $44,600 |
| Maintenance fees (Assuming $250/month) | $30,000 |
| Property tax | $66,000 |
| Rental income | $450,000 |
| Agency fees (Payable once every 2 years) | $20,250 |
| Total costs | $88,462 |
As before, assuming a growth rate of 2.9%, these are the potential gains for both properties in 10 years.
| Property | Price now | Potential price in 10 years | Gains |
| Own stay property | $2,000,000 | $2,661,851 | $661,851 |
| Investment property | $1,500,000 | $1,996,388 | $496,388 |
Total gains if you were to sell the existing flat and buy 2 condos: $1,158,239 (gains) – $754,797 (costs) = $403,442
In this scenario, the combined monthly mortgage repayment stands at $12,227 for both properties. After factoring in the rental income of $3,750 (based on a 3% rental yield), the monthly repayment reduces to $8,477. This constitutes 39% of your monthly income (after allocating $5,000 for other expenses), a notably lower percentage compared to Scenario 2.
What should you do?
Let’s do a quick summary of the 3 scenarios.
| Scenario 1. Keep the existing flat and purchase a second property for investment | Scenario 2. Sell the existing flat and buy a 3-bedroom condo | Scenario 3. Sell existing flat and buy 2 condos | |
| Costs incurred | $243,437 | For a $3.2M property: $1,143,132 For a $2M property: $504,288 |
$754,797 |
| Potential gains (after deducting costs) | $218,945 | For a $3.2M property: -$84,170 For a $2M property: $157,563 |
$403,442 |
| Number of properties owned | 2 | 1 | 2 |
If owning 2 properties is a priority, then only Scenarios 1 and 3 can meet that goal. However, given the hefty amount of ABSD payable in Scenario 1, it is not a route that I would recommend.
Considering that both of you are still young, earn a healthy income, and possess strong finances, it would be more advantageous to leverage your BTO flat and upgrade to a private property with better capital appreciation potential. If you prefer, you can always liquidate these assets and right-size to an HDB flat in the future.
Purchasing a 3-bedroom condo is feasible if owning just one property suits your needs. However, as seen in the table above, unless the selected project exhibits a higher appreciation rate, the potential gains are likely to be lower, given the absence of rental income to offset expenses. Furthermore, acquiring a $3.2M property would result in your monthly mortgage repayment consuming 50% of your monthly income, which isn’t as prudent.
Of the three scenarios, I would recommend the last option: selling your HDB and acquiring two properties. This strategy allows you to capitalise on the equity in your flat, segregate your primary residence from your investment property, and avoid the need to pay ABSD. Although securing a unit in the Central Region for your primary residence may not be feasible, you can certainly find suitable options in the city fringe within your budget. Moreover, this approach reduces risk by generating rental income, thereby lowering the percentage of your monthly mortgage payment relative to your income to 39%.
It is essential to note that if you opt for this route, it may not be feasible to keep the loan under $500K each, as doing so would significantly reduce your budget. If taking up two loans above $500K concurrently puts too much pressure on your finances, you could consider buying one property under one name first, but keeping the other name free to purchase another one down the road should the opportunity arise.
We hope that our analysis will help you in your decision-making. If you’d like to get in touch for a more in-depth consultation, you can do so here.
