Our First Mistake

Property Investment Lesson

For new investors.

We bought our first property, a 5 room HDB premium flat in 1996. Like everyone else we were very happy to own our first home that we can be proud of. We spend about S$30,000 renovating the new flat and moved in soon. Back than everyone was talking about making money from property. We hope to sell the flat in 5 years and make some money from it. How did it turn out? 

Well, we could have done much better. How and why?

First mistake
The housing market was near its 1997 peak. We were young and had just entered the workforce not so long ago. We had some saving in cash but little thing else. When we were shopping for a home, my fiancé who is now my wife said this "why don't we get a smaller flat, then upgrade?" My response...... "we can surely manage, honey". Anyway, both of us are graduates and we were earning pretty decent back then. 

Why was it a mistake?   

Well, we spend much of our cash into our flat because we had little CPF. We borrowed about S$250,000 for that flat. Our flat was the premium type and costed higher back than. For about S$170,000 we could have gone for a 4 room HDB. If we have gone for the smaller flat we could have only borrowed about S$120,000 about half of what we have borrowed! What would be the effect? 

Tremendous! Remember about building wealth nest? Let's not talk about the complicated topic on capital appreciation for the 5 room vs. the 4 room flat. If we had started conservatively we would build our wealth nest faster! 
Example: If repayment of loan is 30 years at an interest rate of 4%.

1. For S$250,000 loan our monthly repayment will be around S$1,194.00.
2. For S$120,000 loan our monthly repayment will be around only S$573.

What would be the different you may ask? What would be the impact? We would have paid S$621 lesser every month if we had gone for the 4 bedroom unit, and could have saved about S$7500 every year. That would be about S$75,000 in 10 years time, assuming everything being equal. With this saving we could have paid for the downpayment for another property assuming we did plan or save additional money for property investment! 

So there are a few lessons here. 

1. Start small, plan and save the amount that you can save from buying a smaller unit. Use that saving to reinvest than the chances for you to grow your portfolio faster would be higher.
   
2. Look at the options carefully. Do you really need a bigger unit? Back than we did not. We only have 2 persons staying.
3. Keep it simple.