Originally Posted by whizzard

Hi Sahm,

Besides making your calculations on how much leverage you can afford, do build in some contingencies so that if any unforeseen events occur, you would have some buffer to counter them. I have some investment properties which are leveraged and the rentals are more than adequate to cover their mortgages but I made sure that I do not rely solely on my rentals to meet the mortgage payments because in a recession, rentals do come off and sometimes, it may take a while between tenancies. From my own experience, the Singapore property market is fairly efficient and rental vacancies are usually not too long but you'll never know for sure. Also from my personal experience in investing in overseas properties, the rental vacancies can be very long especially so when you can't afford to be on the ground to manage them even if you have agents managing the properties for you. That was the main reason why I decided to sell them off and take my capital gains, not really worth the trouble to eke out the extra returns.

Besides putting away some spare cash, perhaps you may want to consider getting a Mortgage Reducing Term Assurance ("MRTA") for your husband (if not already done so). I am not trying to imply anything other than in the investment community, sometimes we require the main driver of the business to get a key man insurance just in case anything happens to him/her, there's an insurance payout. In your case, the mortgage will be covered by MRTA in case anything happens.

In essence, what you are trying to do is to buy a second property on leverage. It's a pretty common aspiration amongst Singaporeans. Based on what you described about your family's income, even if you lose all the money from the mortgage in the markets, it would not kill you. Painful yes, fatal no!

Your family is still young and you can afford to take some risks. However, a lesson I learnt is to exercise restrain and patience i.e. even if I have loads of spare cash, if I don't see any compelling investments, I'd stay on the sidelines. I am not a fund manager who needs to beat the index so I can afford to stay out if I don't have any compelling views and only jump in when the proverbial moons are aligned. I have learnt, especially applicable to me personally, that having a loaded gun ready to fire is a dangerous thing unless one has strong discipline.