Taking a break in between work to discuss what is a common question today.
Whether to buy a property today or to wait further, consider this simple situation between 2 friends.
Tim buys a $1m property today. John feels that the market will correct further and waits out.
3 years later, the market has fallen by another 10%. John buys the property at $900K. Who has done better?
What happened for John:
Pros: John buys 3 years later at $900K.
ABSD could be revised.
Cons: Loan tenure shortened by 3 years. MMI has increased.
If market had rebounded during the 3 years, John misses out and loses more years waiting for the next correction. In the mean time, he gets older and loan tenure gets even shorter.
What happened for Tim:
Tim buys at $1m today.
Rental yield of 4.2% (Achievable in OCR/RCR projects or even CCR projects like The Sail).
3 years of rental income – $126K
Less est. interest: $26K
Market falls 10%. Valuation: $900K + Rent $100K.
Nett Equity: $1M.
Tim ends up in the same position as John but has the added advantages of:
– A potential capital gain if market rebounds within the 3 years.
– Lower MMI as a result of his longer tenure. Positive cashflow after paying mortgage, interests, maintenance fees etc.
– With the equity in his property, he has the option to gear up today to invest in more properties or markets.
Who then has made a better decision? Which would you choose?
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