Hi Stackedhomes,

I've been a silent reader of your articles for the last 4-5 years. Your articles were unbiased and provided great insights and analysis of home purchases.

BACKGROUND. 

My wife and I will be 42 & 43 respectively this year. We have 3 primary school going children and a helper. Our annual income adds up to about $330k. We are currently staying in HDB EA in Jurong area, with remaining loan of $270k. We plan to sell our house (hopefully to sell at $800k) to fund the next purchase. We would like to seek your advice on the following options:

1. Buy a resale leasehold 3 bedder condo (not more than 20 yrs old) + keep the cash profit and wait for better investment opportunities 

2. Buy a resale leasehold 3 bedder condo (not more than 20 yrs old) + 1/2 bedder for investment (to sell in next 3-5 yrs). 

3. Buy a 4/5 bedder dual key condo and rent out the studio side for the next 3-5 yrs.

4. Jointly buy a freehold 3/4 bedder in district 14/15.

Which option would be most recommended based? Or would there be an option 5?

I have forgotten to include our Available cash outlay is $100k and CPF OA is $210k. 

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Hi there,

Thank you for reaching out. We appreciate the support, and I’m particularly happy to hear that the articles have been beneficial for you.

Let me introduce myself; I'm Aaron, one of the partner consultants with Stacked, and over the past few years, I've had the privilege of assisting numerous HDB owners like yourself in upgrading to private properties. 

Given the demand for bigger HDB Executive Apartments like the one that you currently have, it’s only natural to be curious if this is the right time to let go to upgrade to a private property. 

Before delving into the options, let's first assess your affordability.

Affordability

These are some of the Executive Apartments transacted in Jurong West from January this year till date:

Date	Block	Street	Level	Size (sqm)	Lease start year	Price
Mar 2024	671A	Jurong West St 65	10 to 12	125	2002	$700,000
Mar 2024	669B	Jurong West St 64	10 to 12	130	2000	$683,000
Mar 2024	626	Jurong West St 65	01 to 03	130	2001	$640,000
Mar 2024	628	Jurong West St 65	10 to 12	130	2001	$716,888
Mar 2024	607	Jurong West St 65	10 to 12	133	2001	$698,000
Mar 2024	688	Jurong West Ctrl 1	10 to 12	139	1998	$800,000
Mar 2024	334	Kang Ching Rd	10 to 12	139	1997	$828,000
Feb 2024	274C	Jurong West St 25	07 to 09	126	2002	$620,000
Feb 2024	665A	Jurong West St 64	13 to 15	130	2000	$769,000
Feb 2024	669C	Jurong West St 64	01 to 03	130	2000	$635,000
Feb 2024	630	Jurong West St 65	10 to 12	130	2001	$685,000
Feb 2024	666A	Jurong West St 65	13 to 15	130	2000	$748,000
Feb 2024	666B	Jurong West St 65	04 to 06	130	2000	$750,000
Feb 2024	686A	Jurong West Ctrl 1	04 to 06	132	2000	$778,000
Feb 2024	656A	Jurong West St 61	10 to 12	132	2002	$705,000
Feb 2024	910	Jurong West St 91	10 to 12	141	1988	$670,000
Jan 2024	671C	Jurong West St 65	07 to 09	125	2002	$668,000
Jan 2024	666B	Jurong West St 65	04 to 06	130	2000	$695,000
Jan 2024	605	Jurong West St 62	13 to 15	133	2001	$730,000

Without your address, I cannot determine whether a sale price of $800,000 is feasible. However, given that two units were sold at this price point, it may be achievable if your property is located in similar clusters. But to be more prudent, I will utilise the average transacted price of $711,520 for calculation purposes. Let's round this to $712,000 for ease of calculation.

Selling

Description	Amount
Selling price	$712,000
Outstanding loan	$270,000
Sales proceeds (CPF + cash)	$442,000

Buying

Combined affordability

Description	Amount
Maximum loan based on combined annual income of $330K at the ages 42 and 43 with a 4.8% interest*	$2,463,190 (22-year tenure)
CPF + cash	$752,000
Maximum purchase price assuming 25% down payment of $752,000*	$3,008,000
BSD based on $3,215,190	$120,080
Estimated affordability	$2,887,920

*Assuming your incomes are evenly split

**Although your maximum loan quantum is at $2,463,190, due to the CPF + cash you have for the 25% down payment, your loan quantum is reduced

Individual affordability 

Wife

Description	Amount
Maximum loan based on a monthly fixed income of $13,750 at the age of 42 with a 4.8% interest	$1,262,421 (23-year tenure)
CPF + cash	$376,000
Maximum purchase price assuming a 25% down payment of $752,000	$1,504,000
BSD based on $1,504,000	$44,800
Estimated affordability	$1,459,200

Husband

Description	Amount
Maximum loan based on a monthly fixed income of $13,750 at the age of 43 with a 4.8% interest	$1,231,595 (22-year tenure)
CPF + cash	$376,000
Maximum purchase price assuming a 25% down payment of $752,000	$1,504,000
BSD based on $1,504,000	$44,800
Estimated affordability	$1,459,200

In the above calculations, both your individual affordability are the same because I assumed that your incomes as well as the CPF + cash funds are equally split. Given that you have a rather considerable amount of CPF + cash funds, your budgets can be altered by adjusting the cash portions.

Now let’s run through the options you’re considering.

Option 1. Buy a resale leasehold 3 bedder condo and wait for other investment opportunities 

I am presuming here that the 3-bedroom unit will be acquired under a single name. Given the current high prices and interest rates, if there's no urgency to acquire a second property, you could spare the time to wait while allocating your additional funds to other investment opportunities.

Let’s assume that your wife purchases the 3-bedder since she is eligible for a higher loan. I will also put an additional $200,000 towards the purchase to increase her affordability and open up more options. 

Wife’s revised affordability

Description	Amount
Maximum loan based on a monthly fixed income of $13,750 at the age of 42 with a 4.8% interest	$1,262,421 (23-year tenure)
CPF + cash	$576,000
Total loan + CPF + cash	$1,838,421
BSD based on $1,838,421	$61,521
Estimated affordability	$1,776,900

With a budget nearing $1.8M, you'll find a variety of options for 3-bedroom properties under 20 years old, depending on your desired location. When choosing a property, it's crucial to consider your intended holding period. Since this wasn't specified, I will just assume a 10-year horizon for calculation purposes. Let's explore the potential expenses if your wife acquires a unit priced at $1.7M.

Description	Amount
Purchase price	$1,700,000
BSD	$54,600
CPF + cash	$576,000
Loan required	$1,178,600

Description	Amount
BSD	$54,600
Interest expense (Assuming 4% interest with a 23-year tenure)	$400,328
Property tax	$25,800
Maintenance fees (Assuming $350/month)	$42,000
Total costs	$522,728

Let's also examine the potential profits. I will assume that the property appreciates at the same average growth rate as all non-landed private properties over the last decade, which is 2.9% annually.

Time period	Price	Gains
Starting point	$1,700,000	$0
Year 1	$1,749,300	$49,300
Year 2	$1,800,030	$100,030
Year 3	$1,852,231	$152,231
Year 4	$1,905,945	$205,945
Year 5	$1,961,218	$261,218
Year 6	$2,018,093	$318,093
Year 7	$2,076,618	$376,618
Year 8	$2,136,840	$436,840
Year 9	$2,198,808	$498,808
Year 10	$2,262,573	$562,573

I will also assume that the remaining $176,000 (of CPF + cash) is in your husband’s CPF and accumulates a 2.5% interest annually.

Time period	CPF funds	Interest earned
Starting point	$176,000	$0
Year 1	$180,400	$4,400
Year 2	$184,910	$8,910
Year 3	$189,533	$13,533
Year 4	$194,271	$18,271
Year 5	$199,128	$23,128
Year 6	$204,106	$28,106
Year 7	$209,209	$33,209
Year 8	$214,439	$38,439
Year 9	$219,800	$43,800
Year 10	$225,295	$49,295

Without having your specific figures, it’s hard to give accurate advice. But if the remaining funds consist of cash, there's potential for higher returns as you could invest it in other avenues.

Total gains if you were to take this pathway: $562,573 + $49,295 - $522,728 = $89,140

Option 2. Buy a resale leasehold 3 bedder condo and another 1 or 2 bedder for investment

Pros	Cons
Rental income	Higher upfront cost
Diversification of property portfolio	Financing and managing two properties

This option may be better suited for those who are looking for an additional income stream and are comfortable with tenant management. 

Seeing as you will need the CPF + cash for the purchase of the investment property, in this scenario, I will allocate just $100,000 more towards the purchase of the own stay property under your wife’s name. 

Wife’s revised affordability

Description	Amount
Maximum loan based on a monthly fixed income of $13,750 at the age of 42 with a 4.8% interest	$1,262,421
CPF + cash	$476,000
Total loan + CPF + cash	$1,738,421
BSD based on $1,738,421	$56,521
Estimated affordability	$1,681,900

Let’s take a look at the costs involved should your wife purchase a unit at $1.6M.

Description	Amount
Purchase price	$1,600,000
BSD	$49,600
CPF + cash	$476,000
Loan required	$1,173,600

Description	Amount
BSD	$49,600
Interest expense (Assuming 4% interest with a 23-year tenure)	$398,630
Property tax	$22,800
Maintenance fees (Assuming $350/month)	$42,000
Total costs	$513,030

Husband’s revised affordability 

Description	Amount
Maximum loan based on a monthly fixed income of $13,750 at the age of 43 with a 4.8% interest	$1,231,595
CPF + cash	$276,000
Maximum purchase price assuming a 25% down payment of $752,000	$1,104,000
BSD based on $1,104,000	$28,760
Estimated affordability	$1,075,240

Let’s assume a purchase price of $1M and a rental yield of 3% for the investment property.

Description	Amount
Purchase price	$1,000,000
BSD	$24,600
CPF + cash	$276,000
Loan required	$748,600

Description	Amount
BSD	$24,600
Interest expense (Assuming 4% interest with a 22-year tenure)	$251,125
Property tax	$36,000
Maintenance fees (Assuming $250/month)	$30,000
Rental income	$300,000
Agency fee (Payable once every 2 years)	$13,500
Total costs	$55,225

For calculation purposes, I will presume that both properties grow at the same rate of 2.9%.

Time period	Total property value	Gains
Starting point	$2,600,000	$0
Year 1	$2,675,400	$75,400
Year 2	$2,752,987	$152,987
Year 3	$2,832,823	$232,823
Year 4	$2,914,975	$314,975
Year 5	$2,999,509	$399,509
Year 6	$3,086,495	$486,495
Year 7	$3,176,003	$576,003
Year 8	$3,268,108	$668,108
Year 9	$3,362,883	$762,883
Year 10	$3,460,406	$860,406

Total gains if you were to take this pathway: $860,406 - $513,030 - $55,225 = $292,151

Option 3. Jointly purchase a 4 or 5 bedroom dual key unit and rent out the studio

Pros	Cons
Live-in investment - owner-occupied property tax is lower than a non-owner occupied unit	Higher purchase price
Rental income	Dual key units may be harder to dispose of in the future

This option could be more suitable for families seeking additional space and also desiring a source of supplemental income.

We have previously done a piece discussing the profitability of dual key units which you can read here. 

Our analysis indicates that, generally, dual key units tend to experience a lower appreciation rate compared to regular units within the same development. However, it's important to note that there are fewer transactions involving dual key units, which may skew the results. Additionally, dual key units may have been more popular with investors, so most owners would have generated income through rental yields, reducing the pressure to sell at a significant appreciation.

With a combined affordability of $2.8M, you have a decent range of options for 4-bedroom dual key units. Let's consider a scenario where you purchase a unit for $2.5M and rent out the studio for $2,500 per month.

Description	Amount
Purchase price	$2,500,000
BSD	$94,600
CPF + cash	$752,000
Loan required	$1,842,600

Description	Amount
BSD	$94,600
Interest expense (Assuming 4% interest)	$618,118
Property tax	$60,800
Maintenance fees (Assuming $500/month)	$60,000
Rental income	$300,000
Agency fee (Payable once every 2 years)	$13,500
Total costs	$547,018

As before, assuming a 2.9% growth rate annually:

Time period	Total property value	Gains
Starting point	$2,500,000	$0
Year 1	$2,572,500	$72,500
Year 2	$2,647,103	$147,103
Year 3	$2,723,868	$223,868
Year 4	$2,802,861	$302,861
Year 5	$2,884,144	$384,144
Year 6	$2,967,784	$467,784
Year 7	$3,053,850	$553,850
Year 8	$3,142,411	$642,411
Year 9	$3,233,541	$733,541
Year 10	$3,327,314	$827,314

Total gains if you were to take this pathway: $827,314 - $547,018 = $280,296

Option 4. Jointly purchase a freehold 3 or 4 bedder in District 14/15

Pros	Cons
Potential for long-term appreciation with a freehold property	Higher cost

This option may be better suited for those prioritising property value retention and long-term investment.

In another article we did, we found that both leasehold and freehold properties exhibited increasing returns in the initial years. However, as expected, over an extended holding period, freehold properties demonstrated more resilience in terms of price appreciation compared to their leasehold counterparts.

The suitability of this option hinges on your intended holding period. For a shorter hold, considering a leasehold property may make more sense due to lower overall costs and potentially better growth rates compared to freehold properties. However, if you're looking at a longer holding period, this could be a viable choice.

With a budget of $2.8M, you have numerous options in Districts 14 and 15. However, it's worth noting that many of these projects are boutique developments. In addition, the lower transaction volumes associated with freehold properties might require some waiting time.

Let’s look at the costs involved should you purchase a freehold unit at $2.8M.

Description	Amount
Purchase price	$2,800,000
BSD	$109,600
CPF + cash	$752,000
Loan required	$2,157,600

Description	Amount
BSD	$109,600
Interest expense (Assuming 4% interest)	$723,787
Property tax	$78,800
Maintenance fees (Assuming $350/month)	$42,000
Total costs	$954,187

Assuming that the property grows at the same rate of 2.9% annually:

Time period	Total property value	Gains
Starting point	$2,800,000	$0
Year 1	$2,881,200	$81,200
Year 2	$2,964,755	$164,755
Year 3	$3,050,733	$250,733
Year 4	$3,139,204	$339,204
Year 5	$3,230,241	$430,241
Year 6	$3,323,918	$523,918
Year 7	$3,420,311	$620,311
Year 8	$3,519,500	$719,500
Year 9	$3,621,566	$821,566
Year 10	$3,726,591	$926,591

Total losses if you were to take this pathway: $926,591 - $954,187 = -$27,596

What should you do?

Let’s take a quick look again at the potential costs and gains for each of the options:

Options	Potential costs	Potential gains (after deducting costs)	Number of properties held
1. Buy a resale leasehold 3 bedder condo and wait for other investment opportunities	$522,728	$89,140	1
2. Buy a resale leasehold 3 bedder condo and another 1 or 2 bedder for investment	$568,255	$292,151	2
3. Jointly purchase a 4 or 5-bedroom dual-key unit and rent out the studio	$547,018	$280,296	1
4. Jointly purchase a freehold 3 or 4 bedder in District 14/15	$954,187	-$27,596	1

Before concluding, I’d like to point out that the cash and CPF outlay for scenario 1 is lower than those in 2-4. This means that you would have to factor in investing the cash/CPF that you would’ve used in scenarios 2-4 to make it a fairer comparison.

This difference amounts to $176,000 ($752,000 less $576,000). As such, I’ll assume a 4% investment year-on-year return. This is typically lower than the 7% one could expect from equities, however, the scenario considers saving up for an investment property later, so I would assume a lower return from a less risky investment such as bonds. In this case, the extra gain from investment is as follows:

Period	Balance
1	$176,000
2	$183,040
3	$190,362
4	$197,976
5	$205,895
6	$214,131
7	$222,696
8	$231,604
9	$240,868
10	$250,503
Gains	$74,503

The extra $74,503 gained over 10 years results in an overall gain of $163,643 which is still lower than the gains in scenarios 2 and 3.

Now since the potential gains are unpredictable and rely heavily on the specific development(s) you choose, let's focus on examining the potential costs involved.

Except for Option 4, the costs associated with the other four options are fairly comparable. The decision will ultimately hinge on your purchase objectives and intended holding period.

While Option 3 does generate rental income, historical data indicating slower appreciation for dual key units and potential challenges in selling the unit down the line make it a less ideal choice.

If your plan is to hold the property for an extended period, say 20 to 30 years, Option 4 would be suitable, as prices of freehold properties typically hold up better over time. However as mentioned, it may not be the best choice for the short-term, given its higher entry price, resulting in substantially higher costs, with no guarantee of better appreciation compared to a leasehold property.

Option 1 offers the most flexibility and liquidity, which could be crucial for a family with three school-going children and a helper.

However, if your focus leans more towards property investment and generating rental income, only Option 2 allows for the ownership of two properties concurrently.

This is advantageous as it keeps your residence and investment property separate and offers potential capital appreciation for both.

The rental income earned also helps offset expenses. If you prefer staying in the West, consider exploring newer resale Executive Condominium (EC) units, as they are more affordable and there has been a steady stream of new ECs launched in the west, potentially supporting price stability.