Why We Bought A $1.26M 3-Bedroom Condo Instead Of Two 1-Bedroom Investment Units: A Buyer’s Case Study

This case study is based on a recent consultation conducted by Jared (R064294H), a property agent and partner property consultant with Stacked. This write-up walks through the key decisions, trade-offs, and market considerations involved, with insights that buyers and sellers may find useful.

When this couple first approached the Stacked Consultancy team, they had just sold their five-room HDB executive flat in Bukit Batok. They were also due to welcome their second child in a couple of months time, and needed to take care of their first-born child who is still attending school.

Thus, they were very conscious of the short timeline to find a suitable replacement home. But before they got in touch with the Stacked Consultancy team, this couple first sought advice from the real estate agent who sold their flat.

His advice to them? Use the proceeds from their HDB flat sale and buy two one-bedroom units under separate names. One would be their home, while the other property would be leased in order to provide rental income.

This “sell one buy two” tactic was popularised after the hike in the Additional Buyer’s Stamp Duty in 2011, as a way for buyers to own a home while capitalising on an income-yielding investment property. Briefly, this is a straight-forward method of selling the first property, and then a couple would individually take on separate mortgages and the sales proceeds to finance the purchase of two units.

The goal is to leverage the expected rental income in order to offset the monthly installments, and eventually cash out by realising the capital gains of both properties in the future.

However, this increases the risk that when the rental market slips and leasing demand falls, it can force the hand of some buyers to sell both units at a loss. Another risk is the vacancy period between tenancies, which can stretch for an undetermined period of time, especially in areas where leasing demand is concentrated around specific unit types.

Thus, when Stacked partner agent and consultant Jared received the enquiry from this couple, he immediately set up a time to talk to them. “From the get-go, I could sense that something was not quite right. Although they had planned to meet with their agent to view potential units that evening, they granted me an hour before that to share their property plans and intentions,” Jared says.

When the numbers and logic don’t add up

At their initial meeting, the couple also shared with Jared that despite sounding like a feasible plan, they too felt some unease about the other agent’s recommendation.

Their concerns stem from an instinctual feeling that the size of the potential replacement homes they were about to view were insufficient to meet the needs of their growing family. They also had doubts about the overall feasibility of the proposed financing and investment plan.

Their family consisted of the couple and their young child, as well as a helper, with another child on the way. They had been living in a 1,206 sq ft, five-room flat in Bukit Batok for a number of years.

However, the previous agent had proposed that a 500 sq ft, one-bedroom condo unit would have been a reasonable replacement home. But it is nearly impossible to see how this arrangement would work out, given the lack of personal space and privacy for any of the occupants in that small unit type. The couple shared that their previous agent suggested that their helper could sleep on the floor beside the baby cot in their room to help take care of the newborn.

After hearing this, Jared was concerned that this couple could have been pressured into making a hasty decision, with the added stress of the impending deadline, without being armed with sufficient information and market knowledge.

The initial plan was to consider some of the units at The Hillford, a 281-unit development on Jalan Jurong Kechil in District 21. The 60-year leasehold property launched for sale in 2013 and was completed in 2016.

With just over 40 years on its lease, the negative impact of lease decay would have resulted in some financing issues for future buyers, who would need to fork out the difference out of their pocket in cash.

In terms of capital appreciation, we covered in this article that properties which saw the biggest gains tend to have a holding period of between eight to 10 years. While there are exceptions, such as some boutique developments, the prevailing trend has been that resale gains generally improve over a longer holding period.

In the case of this couple, if they expected to sell their property in about five years time, Jared shared with them that it would be unlikely to expect a sizeable increase in the capital appreciation over a relatively short time.

In terms of rentability, there were several factors that the couple hadn’t fully considered. Some of these include the property’s proximity to MRT station or buses, the property’s location in an area with a large pool of potential tenants, or proximity to schools or employment clusters like Jurong Lake District.

However, it was tough to see The Hillford ticking most of these criteria. Its saving grace is the fact that the project is about 750m away from Beauty World Plaza and MRT station.

On the other hand, demand for one- and two-bedder rental is usually the highest in prime areas such as Districts 1, 9, 10 and 11. While purchasing an affordable one-bedder may lead to higher rental yield, attracting a consistent stream of tenants boils down to its location. “From the rental perspective, demand for units of this type may not justify their investment,” says Jared.

Arming the buyers with knowledge to help them better understand their situation and needs

Eventually, Jared convinced the couple to go back to the drawing board. He prompted them to question if the initial plan of buying two single-bedroom units really made sense for their property needs, and if it was a financial risk they were willing to stomach.

Part of this scrutiny lies in the resale performance of The Hillford. According to caveats, rents for one-bedroom units typically range from $2,800 – $3,600 per month, and our analysis indicates that most landlords see an estimated rental yield of 6.46%.

While the rental yield may look enticing, let’s not forget the 60-year lease of the property as well as its unit mix of relatively compact units. This gives rise to the relatively low transaction prices and high rental yield.

To illustrate the depreciation rate builds up as the lease runs down, we reference this example using the theoretical price of $500,000 with a medium-term interest rate discount of 3.5%.

In 2020, the median price of a one-bedder would be around $475,000, with an average annual rental income of $22,200. The capital value would fall to $471,798 by the end of the following year.

Thus, if a buyer had bought the property then and held it for five years until the end of 2025, there’s a good chance that the capital value would have dropped to $457,830. If we include an estimated rental income, while deducting the payable fees and property taxes, the net income would be $7,764.

Once the long-term implications of their initial path were laid bare, the couple began to open up to the idea of purchasing one condo unit which they would be able to live in comfortably, and then sell it when the time is right later in their lives.

Given their preference for a neighbourhood in the West, and based on their budget of $1.2 million, Jared shortlisted three condos for their consideration: Windermere, Hillhaven, and Glendale Park.

They first examined Windermere, a 395-unit condo on Choa Chu Kang Street 64 in District 23. Completed in 1999 as an executive condo, the development was over 27 years old when the couple encountered it.

According to resale transactions at the development over the past decade, resale prices have largely moved in tandem with the private residential market over the same period, and the volume of resale deals has been steady.

Even after viewing the other two projects, the couple were most satisfied with Windermere for a number of reasons. At 1,453 sq ft, the three-bedroom unit that they found available for sale features a spacious living and dining area, with the flexibility to enlarge the living space.

They also like the development’s landscaped gardens and well-maintained greenery throughout the common areas, giving the overall environment a calming vibe. The development also offered a wide range of family-friendly facilities, such as two swimming pools, a tennis court, basketball court, BBQ pit and function rooms.

Windermere is also close to the Pang Sua Park Connector, which leads to Hillion Mall, Bukit Panjang Plaza and Junction 10. The property is also close to Yew Tee MRT station on the North-South Line.

Eventually, the couple made an offer of $1.26 million and were able to move into their new home before the birth of their second child.

Final thoughts

The lesson homeowners should take away from this case is not to be pressured or rushed to make decisions that you’ll later regret, Jared says. He also highlighted the importance of asking about possible extensions on the transaction timeline to buy you  more time to find a suitable replacement home.

“Consider your current needs and balance them by weighing the trade-offs you and your family can realistically make. Don’t make your decision before being truly honest with what you really need,” he says.

This couple were also influenced by videos on social media that promoted various property investments methods. Jared cautions this, saying: “A three-minute video to buy and sell a property for investment makes it seem easy, but the reality is often much more nuanced and complex. Take your time to ask questions and be very discerning about the information you come across”.