Should I buy 2nd private property in Singapore?

JC Project Freedom Journey Towards Financial Freedom

What will your decision is to purchase a second private property in Singapore?

It depends on various factors such as your personal financial situation, investment goals, market conditions, and government policies. Owning multiple properties comes with additional responsibilities, such as property management and maintenance costs. All these take effort, time, and money.

What is the risk of owning 2nd private property?

Owning a second private property comes with several potential risks, including:

  1. Financial risk: Prices do not always go through the roof, it is cyclical. Real estate prices can fluctuate, and owning a second property can increase your financial burden if the market experiences a downturn. The pros of 2nd private property are you can probably time it better. The 1st unit is for your own stay, if you sell high, you will buy high as well. It is for utility. The timing to purchase the 2nd unit of private property is controlled by you. You decide when you want to enter.
  2. Maintenance costs: Owning multiple properties means incurring additional expenses for property maintenance, repairs, and upgrades. Property and physical equipment will deteriorate over time. You need to set aside funds to cater to unexpected costs.
  3. Vacancy risk: The property may be unoccupied for a prolonged period, leading to increased carrying costs and decreased rental income. At the moment of writing this, the rental market is hot in Singapore. I like to bring stories back then when there was no tenant and everyone is fighting to keep their tenants. There is negative cash flow for the rental unit but the owner has no choice. Rental income is based on demand and supply. If your HDB or private housing cannot be delivered in time to meet the demand, your rental income will naturally rise. If there’s more influx of people, there will be a rise in demand.
  4. Interest rate risk: Rising interest rates can increase the cost of borrowing, making it more difficult to manage the property and keep up with mortgage payments. At the time of writing this, believe we have reached peak inflation and disinflation will come soon. Singapore banks are revising their interest rates downwards.
  5. Economic risk: Changes in the economy, such as job losses or reductions in income, can impact the ability to manage and maintain the property. This is the biggest concern for me. There’s always the fear of losing your main income, how do you service your mortgage? Have you done your financial checks before you commit to the second property? Don’t just base it on your own guts. You need to know your level of affordability. What is the worst-case scenario? Can you tide through a while looking for a tenant coupled with a loss of income?

These risks should be carefully considered before making a decision to purchase a second private property. It’s important to consult with financial professionals and carefully evaluate your personal financial situation to determine if owning a second property is right for you.

How can 2nd private property help with investment goals?

Investment goals refer to the specific financial objectives that an individual or organization aims to achieve through an investment. With a second private property as a tool, investment goals may include:

  1. Income generation: Renting out the property can provide a steady stream of passive income. It can help to pay off your mortgage. You need to decide whether you need it to be cash flow positive or you can live with cash flow negative from the rental unit. If you only put in a down payment for your unit, you are making leverage rental yield which can be significant.
  2. Appreciation: The value of the property may increase over time, providing capital gains when the property is sold. While you are paying for your mortgage, you are building equity in your property. When you sell with appreciation, you can make leveraged gains, assuming you do not pay off your mortgage.
  3. Diversification: Adding a second property to an investment portfolio can help to diversify assets and reduce overall investment risk. If you are heavily invested in stocks and businesses, it is good to put funds into properties.
  4. Estate planning: A second property can be passed down to future generations as part of an estate plan. If you have 2 children, it will be good if you can keep 1 for each. If you have more, maybe consider tokenization of the properties. In Singapore, you cannot tokenize property yet. That day will come soon.

Conclusion

It is an investment strategy to own the 2nd private property in Singapore. It comes with its challenges and risk as well. It needs to be aligned with the age and profile of the investor as well. When I am in my 70s, I do not want to manage tenants and run around Singapore to collect the rental. I will prefer a hands-off investment approach.

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