Can you really buy 2 condos after selling your HDB flat?
It can be done but it’s not for everyone. You need to meet some salary requirements. However you will be surprised that most upgraders can do it but they don’t know how to do it.
I’m going to show you how I did it for a couple who sold their HDB flat in Punggol and bought 2 condos in the east for passive income.
Shafiq and Nisa contacted me to upgrade to a condo. Shafiq said during the first meeting
“My CPF won’t be enough when I’m 55 years old so I’m wondering if property can help my wife and me be independent even at our old age.”
“My own parents are currently staying with my sister and her family. I know it’s uncomfortable for them yet they have no choice. 25-30 years ago there was nobody to help them plan their retirement”
They know that the only way is earn a stable income from a good property. Finally they want to leave properties for their children and hopefully leave a legacy that reaches their grandchildren.
Why You Can’t Make Money From Your HDB Flat?
The reason to buy condo is because your HDB flat is intended by to be roof over your head ONLY. It is categorised as ‘public housing’ and meant to be affordable for the masses.
Private properties like condos, in my humble opinion are meant to be money making machines. Thousands of normal Singaporeans use condos for retirement income.
One of the best times to make a good amount of money through your HDB flat is when you sell your BTO flat after 5 years.
Private property owners who sell during the up cycle cash out hundreds of thousands of dollars of profits, sometimes double!
So if you currently own a BTO flat and have stayed there for at least 5 years the good news for you is that it is possible but with the expected price increases this year you could miss the boat if you delay any further.
In this guide I’m going to show you exactly how we planned for our clients in Punggol to invest in 2 condos one for stay and one for investment.
Shafiq & Nisa – Punggol 4 Room Flat HDB Owners
I met Shafiq and Nisa last year. They are both 35 years old.
Shafiq works for an advertising firm and he earns $7200. Nisa is a civil servant earning $5400. Their combined income is $12600.
They own a 4 Room Punggol HDB flat. Their outstanding HDB loan is $110,000. They don’t have any cash savings.
They saw my ad and wondered if they qualified.
They want to sell and buy 2 private properties and explore the option for a 3rd property somewhere down the road.
This is only possible through private properties.
Both of them wants to take advantage of the fact that they this is their only chance to sell their Punggol 4 room flat for a good profit and use it to better use.
My proposal for them was for them to buy 2 residential properties with high potential capital appreciation. A 3 bedder to live in and a 2 bedder for an investment.
HDB Selling Plan
- We sold the Punggol Flat for $500,000. Repaid HDB’s outstanding loan of $110,000. Repaid $100,000 to Shafiq’s account and returned $100,000 to his wife’s account.
As you can see the cash proceeds is $168,800 after paying agency fees.
We will use the cash proceeds and CPF for deposit for the next 2 condos they will be buying.
Downpayment For Next 2 Properties
After selling their HDB flat they have the following balances and bank loans approved for:
- Shafiq has a balance OA of $50,000 and his wife has a balance OA of $22,000
- Before selling we got an in principle approval from OCBC bank to see how much they are willing to loan out Shafiq and Nisah separately:
- Shafiq max loan granted: $962,000
- Nisah max loan granted: $721,000
Take note that the amounts above are maximum amounts but they don’t need to take the full amounts as both Shafiq & Nisa will be making downpayments.
After selling these are the funds they have on hand in Cash and CPF:
- Total CPF Husband: Refund: $100,000 + Current OA Account $50,000 = $150,000
- Total CPF Wife Refund: $100,000 + Current OA Account $22,000 = $122,000
Total Cash Proceeds = $168,000
Which condo to buy for stay?
This is the most important part of the process, which condo to buy?
There are thousands of condos, freehold, leasehold, 15 years old, 30 years old.
Based on experience and available data, my advise to them was to find a condo based on the following:
- Must be leasehold 99 years. – Freehold properties are generally smaller projects with low transaction volume. 99 years old properties have good transaction volumes which naturally whips us higher prices. In terms of location leasehold condos are 10X more convenient with higher potential of capital appreciation in the future.
- Must be more than 5 years old but below 12 years old. – Why 5 years old? I need to have a good feel of transactions and after 5 years worth of transactions we can see graphs and numbers. It will generally stabilise making it easy for us to make an informed decision.
- Future developments around the area based on the latest URA’s Master Plan 2014. If there is no potential development that can trigger a good price increase slated for the next 10 years then I would not want to buy into the area.
There are 4 other factors that I take into account before proposing which projects to buy into but we don’t have time to go into them further now.
Don’t buy based on your feelings but buy based on data and research.
Buying The First Condo To Stay
Anyway we shortlisted 2 projects in the east area that met the above requirements. Here are the numbers for their 1st condo, the one that they will be staying in.
Purchase Price: $1,050,000
Stamp Duty (Can be paid via CPF) : $26,100 – To be taken from husband’s account.
Downpayment CPF: $157,500 – To be taken from husband’s account
Downpayment Cash: $52,500
Monthly Instalment: $2,899 at a 30 year 1.5% Mortgage
Since his monthly max CPF contribution is $1050, Shafiq has to top-up $1849 in cash.
You must be wondering why are they not worried about topping up cash for this purchase? I will explain to you in greater detail later.
Buying The 2nd Property To Rent Out
The investment property, the one we will be looking to rent out for a passive income would need to be near a good rental pool of executives.
We identified Changi Business Park and proceeded on to shortlist 2 condos that are popular with expats.
I would like to add on why I don’t recommend clients to buy a freehold for investment. A tenant does not care if your property is freehold or leasehold.
In fact it may be problematic if yours is a leasehold due to the old condition of the building versus a 99 year old development with more financial power to maintain regular maintenance.
In the end they bought a 2 bedder unit in a nearby development as the investment property. The reason for a 2 bedder is to attract families instead of singles.
After renting out hundreds of private properties I can tell you that your selection of tenant is the most important part of making money from a property.
Purchase Price: $680,000
Stamp Duty: $15,000 – To be taken from husband’s account.
Downpayment CPF: $102,000 – To be taken from husband’s account
Downpayment Cash: $34,000
Monthly Instalment: $1,877 at a 30 year 1.5% Mortgage
Since her monthly max CPF contribution is $1050, Nisah has to top-up $827 in cash.
Balance Cash proceeds is $82300
Balance CPF Nisah is $5000
Shafiq used up all his CPF and had to pay $23,600 in cash for his Stamp Duty using his HDB cash proceeds. So at the end their cash proceeds was $63,700.
I’m sure by now you’ve noticed that they have to top up cash for both their home and their investment property.
Using “Other People’s Money”
We managed to secure a tenant with a family for $2500. When client’s ask me what if I don’t get a tenant my answer would be:
The only reason you cannot get a tenant is due to pricing and effort. If you price correctly and dress your property strategically you will find yourself a good tenant.
We use the tenant’s cash rental to offset the instalment payments that was to be made in cash.
In this case the $2500 received was paid towards Shafiq’s $1849 and the balance to Nisah’s $827.
They had to top-up an extra $176 in cash but considering that they will be sitting on hundreds of thousands of profits in the next 5 years they gladly consider it an investment.
If you can save $200 on your insurance endowment policy and only receive it 30 years later, why not save $176 and receive over $300,000 5 years later?
If you are still wondering if you could afford to pay $176 per month to earn a thousand times that amount in 5 years then maybe this is not for you.
Profits & Savings
So what are they looking at in the next 5 years?
Based on the Master Plan 2014 and the expected increase in our population it looks like a 6% increase in prices yearly was conservative but let’s do it much more conservative at a 4% increase in their prices every year they will be looking at:
Purchase Price: $1,050,000 – Increase in 5 years total = $1,277,485.55. That is a profit of $227,485.55.
Then what about the rental property?
Purchase Price: $680,000 – Increase in 5 years total = $827,323.97. That is a total profit of $147,323.97.
Do take note that I’m only being conservative and safe in my figures. In this coming year we are expecting prices to go up faster than in the last 5 years.
In the next 5 years their total capital appreciation for the 2 properties would be $374,808.
If you divide the potential profits by 5 years you will be getting $5354 every month without doing anything.
That is the power of real estate investment.
If prices go up to 5-7% then we don’t even need to sell their properties to buy a 3rd property. We could simply gear out of cash out the equity for the downpayment of the next one.
In fact based on Straits Times’s report private property prices are expected to increase by 10% this year alone. My calculations are actually less than half projected profits.
So you see this is how HDB owners sell their HDB flat to buy 2 private properties.
Can you imagine Shafiq and Nisah saving their hard earned money for their children’s education or even retirement?
In a short 5 years they are looking at $374,808 conservatively.
They can’t possibly save $5354 every month on their own so instead of saving they focus on making.
If you earn between $6k to $7k each then you should consider this plan.
You can make instead of save. You can start retiring below 45 years old with a 3rd property.
Give yourself the opportunity to create wealth not only for yourself but for your children and perhaps their children.
Take advantage of our country’s stable and profitable property market. Don’t lose out.