We make $280k per year and are in our 40s. Can we afford to decouple and buy a second property? - AsiaOne

I enjoy reading your posts on property development as they provide neutral points of view based on factual information.

I noticed you have also helped to answer some of your readers’ questions on their property investments. I find those posts more helpful as it’s tailored for specific groups of readers.

I have some queries about buying a 2nd property and I’d like to share with you my goals, financial standing, and appreciate your advice on how to better manage the process. Also appreciate your advice for cautions or pitfalls.

Me and my spouse are currently owning & staying in our only property. We plan to buy a 2nd property (hopefully larger size) for our own stay and rent out our existing property.

Our existing property is located at West Cost, a new 3-bedroom condominium (Twin VEW) at 1,100 sqft and valued at $2 mil. We have 2 kids and my parents are staying with us. We find the property too small for our family. We also find the noise from the nearby AYE highway is disturbing. The property has an outstanding loan of $500K. The property is owned by my spouse (99per cent) and me (1per cent). We plan to do decoupling for my spouse to buy over my share.

We hope to move to another condominium, hopefully a 4-bedroom for our own stay. We plan to buy under my name. We have a max budget of $1.4 mil. The budget of $1.4 mil is after consideration of not wanting to take a large loan quantum as me and my spouse plan to retire at early 50s.

We have some requirements for the next home.

– larger size, hopefully > 1,200 sqft

– no or minimum traffic noise

– preferred no balcony, and low AC or RC ledge

– preferred a quiet surrounding in the West side (West Coast / Clementi / Bukit Batok)

We have seen some advertisements on older condominiums. Examples are The Madeira, Evergreen Park, Hillview Regency, etc. I find these condos fit my requirements as the overall quantum is still within my budget. May I seek your opinion if there are any cautions to buy older leasehold condo such as those mentioned? Also appreciate you can let me know if any other similar condos that can fit my requirements.

Lastly, about me and my spouse’s financial standing. We are 43 years old. I have a monthly income of $9k and an annual income of $150k. My spouse has a monthly income of $8k and an annual income of $130k. We have both used up our CPF OA ($200k each) for our existing property. We have $200k cash savings. We do not have other debts except the housing loan. If we are to buy our 2nd property for our own stay, and rent out existing property for income, is it doable based on our financial standing?

Thank you.

Hi there,

Thanks for your support so far, and happy to hear that our content has helped.

In recent years, decoupling has emerged as a favoured option for couples looking to capitalise on their property investments. However, as we’ve detailed out below, it’s not as straightforward as just buying over the share. You do need to take careful consideration of various factors such as your financial resources, property market conditions, and long-term investment goals.

So in this piece, we will run through:
– Is decoupling a feasible option for you?
– What are your individual affordabilities and what options do you have?
– Important factors to ponder over
– Things to take note of when purchasing older developments

Let’s begin by looking at the decoupling breakdown.

Decouple Twin VEW

Based on a valuation of $2M and an outstanding loan of $500K.

	Seller (1per cent)	Buyer (99per cent)
Valuation based on shares	$20,000	$1,980,000
Outstanding loan	$5,000	$495,000
CPF used	$200,000	$200,000
BSD		$200
Legal fees		$6,000
Option fee (5 per cent)	$1,000 (received)	$1,000 (paid)
Exercise fee (20 per cent)	$4,000 (received)	$4,000 (paid)
New loan		$510,000
Cash proceeds	-$185,000	–
Cash top up		$11,200

When decoupling, the seller (in this case, you) must return the CPF funds utilised for the property’s purchase along with the accrued interest. Therefore, although you are only selling a 1per cent share worth $20,000, you still have to refund the $200,000 of CPF funds used.

This implies that you will need to use up all your cash savings. Without cash savings, you won’t be able to afford the down payment of at least 5per cent required to purchase another property. Hence, if you want to purchase two properties, the only feasible alternative is to sell Twin VEW.

Sell Twin VEW

Description	Amount
Sale price	$2,000,000
Outstanding loan	$500,000
CPF used plus accrued interest	$400,000
Cash proceeds	$1,100,000

Affordability and options

Selling Twin VEW will unlock a substantial amount of cash which can be put towards the purchase of your next property. Depending on how you split up the cash proceeds and savings, your affordability will differ.

Do note that in the following calculations, we’ve allocated $200K as emergency funds which are equivalent to nearly one year’s worth of your combined monthly income at $17K. As you intend to purchase two properties, we’ve opted to set aside a larger amount instead of the typical recommendation of saving six months’ worth of income. This is a precautionary measure in case of any extended vacancy periods for your investment property.

And so after setting this aside, you’d have a remaining $1.1 million in cash to purchase your properties.

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Since Twin VEW has an outstanding loan of $500K, we’ll assume that’s the amount of loan you’re willing to take on for the investment property which will be under your wife’s name.

For the investment property, it may make more sense to opt for a 2-bedder if the budget permits possible as it potentially has a higher value retention rate and a larger buyer pool.

Properties with two bedrooms are attractive to not only singles and couples but also small families. In the high rental market that we find ourselves in today, two-bedroom units are preferred to reduce the cost of rent per tenant as compared to renting a one-bedroom unit.

If you find it hard to rent out the entire unit, you can also rent out individual rooms which could fetch you a higher return.

Also, we’d be taking a look at newer developments, as you can possibly reduce expenses on renovations, and potentially appeal to tenants who are willing to pay a premium for modern amenities and well-maintained property.

In the current market, a newer 2 bedder will cost minimally $900K. We will use this as a guide price in our calculation. Given that your wife has $200K of CPF funds, she will have to top up another $200K in cash if she takes up a $500K loan. This will leave you with $900K to put towards your own stay property.

Wife’s affordability for investment property

Description	Amount
Purchase price	$900,000
CPF funds	$200,000
Cash	$200,000
Loan amount	$500,000
Monthly repayment at 4per cent interest for a 22-year tenure	$2,851
BSD based on $900,000	$21,600

Do note that if you’re buying a resale property, you’re required to pay the BSD within 14 days of exercising the option. 14 days isn’t sufficient time to draw down from your CPF account. So even if you do have enough CPF funds to pay for the BSD, you will have to pay for it in cash first and subsequently apply for reimbursement from CPF.

These are some newer 2-bedders that are available on the market and fall within your affordability:

Project	District	Tenure	Completion year	Type	Size	Price
High Park Residences	28	99 years	2019	2b1b	581 sq ft	$900,000
Sol Acres	23	99 years	2019	2b1b	614 sq ft	$868,000
Kingsford Waterbay	19	99 years	2018	2b2b	678 sq ft	>$880,000

Please note that the selection of these developments is based solely on their age and compatibility with your budget. There should definitely be more analysis done on each individual unit and the price point that you will be committing any funds.

Now let’s look at your husband’s affordability for the own stay property.

Husband’s affordability for own stay property

Description	Amount
Maximum loan based on a fixed monthly income of $9K and age 43 at 4per cent interest	$868,145
Monthly repayment at 4per cent interest for a 22-year tenure	$4,950
CPF funds	$200,000
Cash	$900,000
Total loan + CPF + Cash	$1,968,145
BSD based on $1,968,145	$68,007
Estimated affordability	$1,900,138

Note: 4 per cent is used here as it’s MAS’s medium-term rate to determine the TDSR.

These are some 4-bedders that are available on the market that matches your requirements and fall under $1.9 million:

Project	District	Tenure	Completion year	Size	Price
Wandervale	23	99 years	2019	1,249 sq ft	$1,788,000
Westwood Residences	22	99 years	2018	1,238 sq ft	$1,480,000
Lake Life	22	99 years	2017	1,453 sq ft	$1,728,000
The Rainforest	23	99 years	2015	1,238 sq ft	>$1,750,000
Tree House	23	99 years	2014	1,248 sq ft	>$1,750,000

To achieve a budget of $1.9 million, it’ll be necessary for you to take up the maximum loan. However, as you have indicated your intention to retire in your early 50s and would therefore prefer to take a lower loan, here’s a breakdown of the costs if we were to adhere to your initial budget of $1.4 million.

Description	Amount
Purchase price	$1,400,000
CPF funds	$200,000
Cash	$900,000
Loan amount	$300,000
Monthly repayment at 4per cent interest for a 22-year tenure	$1,711
BSD based on $1,400,000	$40,600

At the moment, this is the only project with 4-bedders that matches your requirements and falls under $1.4 million:

Project	District	Tenure	Completion year	Size	Price
Regent Grove	23	99 years	2000	1356sqft	$1,300,000
Regent Grove	23	99 years	2000	1259sqft	>$1,200,000

Regent Grove meets your size, budget and layout criteria of not having a balcony. However, it is next to an MRT track which doesn’t fulfil your peace and quiet criteria.

Outside of what’s listed now, here are some condos that have transacted that could work for you if you could negotiate to your max price (albeit some have balconies):

Project Name	Transacted Price ($)	Area (SQFT)	Unit Price ($ PSF)	Sale Date	Comments
LAKE LIFE	$1,420,000	1,249	$1,137	13-Jan-23	Has balcony
THE WARREN	$1,430,000	1,475	$970	16-Jan-23	Has balcony
REGENT GROVE	$1,155,000	1,259	$917	31-Jan-23	No balcony
PALM GARDENS	$1,438,000	1,432	$1,004	20-Feb-23	No balcony
YEWTEE RESIDENCES	$1,440,000	1,453	$991	1-Feb-23	Has planters and bay windows

Based on transactions from January 2023 – March 2023

Palm Gardens, another development that could meet your budget and has no balcony, is also situated next to the MRT track. However, it really depends on how far your stack is from there. Some stacks also face the low-rise landed homes, while others face HDBs.

From the above, it’s evident that a $1.9M budget would allow you to consider purchasing newer developments. However, this comes with a significant drawback as the monthly mortgage repayments would be considerably higher and could adversely affect your quality of life (more stress).

Alternatively, purchasing an older property under $1.4M would enable you to still enjoy a spacious home without incurring as heavy a financial burden. If this property is indeed your forever home, then the age of the development may not be as critical.

However, in the event you decide to downsize to a smaller unit after your children have moved out, buying an older property now may pose challenges when selling in the future.

Another thing to consider is whether purchasing a second property is a worthwhile investment, especially since property investments typically involve leveraging. In your case, you’ll be contributing nearly half of the purchase price upfront in CPF and cash. Perhaps, it may be worth exploring other investment options such as bonds or equities.

We will do up a simple projection to compare the two options. Since it seems likely you’ll hold onto this investment property for the long term, we will use a 30-year period.

Buying a $900K property

Year	Avg PSF of leasehold condos (resale)	YoY
2014	$1,029
2015	$1,033	0.39 per cent
2016	$1,130	9.39 per cent
2017	$1,115	-1.33 per cent
2018	$1,153	3.41 per cent
2019	$1,178	2.17 per cent
2020	$1,174	-0.34 per cent
2021	$1,207	2.81 per cent
2022	$1,337	10.77 per cent
Annualised	–	3.33 per cent

The projection below is based on the annualised growth rate of 3.33 per cent. We are assuming a $500K loan with a 22-year tenure at 4 per cent interest. Total costs include interest expenses, BSD, maintenance fees which we have set at $300/month, property tax and agency fees payable once every two years. We also assumed a rental yield of 3 per cent with no vacancy period.

Time period	Total costs	Total gains	Profit
Starting point	$24,030	$0	-$24,030
Year 1	$50,607	$56,970	$6,363
Year 2	$79,023	$114,938	$35,915
Year 3	$104,397	$173,937	$69,541
Year 4	$131,561	$234,002	$102,441
Year 5	$155,631	$295,168	$139,537
Year 6	$181,438	$357,472	$176,033
Year 7	$204,096	$420,951	$216,855
Year 8	$228,434	$485,645	$257,210
Year 9	$249,563	$551,594	$302,031
Year 10	$272,310	$618,840	$346,530
Year 11	$291,782	$687,426	$395,645
Year 12	$312,805	$757,398	$444,593
Year 13	$330,483	$828,800	$498,317
Year 14	$349,638	$901,680	$552,042
Year 15	$365,373	$976,089	$610,716
Year 16	$382,506	$1,052,076	$669,570
Year 17	$396,136	$1,129,695	$733,559
Year 18	$411,079	$1,208,999	$797,920
Year 19	$422,429	$1,290,045	$867,616
Year 20	$434,999	$1,372,890	$937,892
Year 21	$443,879	$1,457,596	$1,013,717
Year 22	$453,879	$1,544,222	$1,090,344
Year 23	$460,719	$1,632,835	$1,172,116
Year 24	$469,989	$1,723,499	$1,253,510
Year 25	$476,829	$1,816,283	$1,339,454
Year 26	$486,099	$1,911,258	$1,425,159
Year 27	$492,939	$2,008,496	$1,515,557
Year 28	$502,209	$2,108,073	$1,605,864
Year 29	$509,049	$2,210,067	$1,701,018
Year 30	$518,319	$2,314,559	$1,796,240

In 30 years, the potential profits from the investment property will amount to $1,796,240.

Now let’s say your wife was to leave the $200K in her CPF account and invest the remaining $200K for the same 30-year period. We will assume a 5per cent annual return on the investments.

CPF funds

Wife’s age	No. of years	Interest rate	Interest compounded
43 – 55	12	2.5 per cent	$68,978
55 – 73	18	4 per cent	$275,922

Investment

No. of years	Annual return	Profits
30	5 per cent	$623,227

In 30 years, the potential profits from leaving the funds in your wife’s CPF account and putting the remaining cash into other investments will amount to $968,127.

It’s important to acknowledge that these projections are rudimentary and subject to fluctuations in market conditions. Nevertheless, it’s our assumptions show that purchasing an investment property can yield significantly higher returns over the long term. It makes sense since you’ll be getting a 3 per cent yield on $900K versus a 5 per cent return on $200K, and another 2.5 per cent/4 per cent return on the other $200K in your CPF. There’s also a good chance of property market gains in this period.

Moreover, since the unit will be fully paid off in 22 years, any rental income earned beyond that point is pure profit. Owning an investment property now could provide a source of income in your retirement years. If you choose to downsize in the future, you could even consider moving into the investment property and cashing out from your primary residence for additional funds to support your retirement further.

On buying older developments

For those seeking a more affordable yet well-sized home, buying an older property can be an attractive option. However, before making a purchase, there are several factors to consider, such as:

Maintenance costs: This is a significant factor when purchasing an older development. As properties age, they may require more frequent maintenance and repairs, which can result in higher MCST fees. Additionally, older properties may have outdated systems such as plumbing, electrical wiring, and air-conditioning, which may need to be replaced or upgraded and can be costly.

Reduced lease: For leasehold properties, the remaining lease does play a significant role in the property’s resale value and future financing options. It’s therefore essential to consider this because it determines how long you can enjoy the property and also its potential resale value should you decide to sell in the future.

Outdated design: Older properties may have design features that are no longer desirable or functional for modern lifestyles. As a result, renovation work may be required to update these features, which again, can be costly.

We recently wrote a piece with a comprehensive checklist when buying older condos which could be useful for you!

Ultimately, your next move depends on two questions

How much do you want to hold onto Twin VEW?
How much do you value your priorities – a lower loan, a minimum size etc?

For the first question, if letting go of Twin VEW was something you’ve never considered and aren’t willing to proceed with, then the entire discussion falls apart. As mentioned, you cannot decouple Twin VEW as this would mean very little cash to move on to purchasing a 2nd property.

From our outside perspective, given your situation, it would make sense to let go of Twin VEW given your immediate needs. It’s quite clear that space (and better privacy) is your biggest priority, and for Twin VEW to be holding up more funds would mean you have limited options for your own stay property.

That said, the decision to hold onto Twin VEW could also be based on your parent’s age and the likelihood that this move wouldn’t be long-term. So if the plan is to move back to Twin VEW once they pass on, then perhaps you could look towards a longer rental (rent out Twin VEW and rent a bigger property elsewhere) so that you don’t have to make such a big commitment at this age.

Question 2 is relevant here because after selling Twin VEW, you’ll need to allocate your cash correctly for your next 2 purchases.

After all that is written above, the choices are simple:

Allocate more cash towards the investment property, buy a cheaper own-stay property
Allocate more cash towards the own stay property, buy a cheaper investment property
Buy an own stay property that meets your needs now, and invest the remaining in another asset

Choice 1: Your quality of life is a very important consideration here, especially if you are looking to retire early. Moving out again and at a later stage could be a huge hassle, and often an underrated consideration. Moreover, the loan you can take up is reduced as you age, so your options become increasingly limited. That being said, there aren’t a lot of options at this price point, though those that are available to you do meet your criteria.

Choice 2: Buying a newer own-stay property could make sense if you’re willing to sacrifice some of the priorities listed above for a better chance of value retention in the future.

Choice 3: Naturally, if you have spare cash it doesn’t necessarily always mean property investment is your best approach. If you have the capability, investing in stocks etc could mean better yields for you. That said, let’s not forget that owning a 2nd property provides you with a fallback property in case you intend to downgrade next time, or just wish to collect a consistent stream of rental income to supplement your early retirement.

We hope that our thoughts penned here have provided clarity in your decision-making moving forward.

This article was first published in Stackedhomes.

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