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How much savings do you have?

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  #581 (permalink)  
Old 02-12-2013, 05:29 PM
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Hi,

I am a multi-millionaire. If I may, let me share with you my life experience of becoming rich.

It is all about hard work and wisdom. I was and still am conservative when it comes to my finances. I have seen many lower class people who overleverage because they dream to strike it rich. When the tide turns, they are all naked and ended up staying in rented 2 room HDB flats for the destitute.

Looking at your case, I think you are borrowing way beyond your means. When the tide turns, you will definitely be standing naked. You may also lose your job and passive income. Your properties and stocks will all crash in value by 50% or more.
I am not sure about your generation. I am in my late 30s and I know many people became rich from property and stock, including myself. So far, I have never seen any one who ended up staying in rented 2 room flats except those who earned little and/or gambled their money away foolishly. Overleveraged is when u buy many properties and cannot even afford to take a 20% drop in prices. To assume a 50% drop is like telling people to save at least 50% cash of the property price before buying.

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  #582 (permalink)  
Old 02-12-2013, 06:43 PM
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I am not sure about your generation. I am in my late 30s and I know many people became rich from property and stock, including myself. So far, I have never seen any one who ended up staying in rented 2 room flats except those who earned little and/or gambled their money away foolishly. Overleveraged is when u buy many properties and cannot even afford to take a 20% drop in prices. To assume a 50% drop is like telling people to save at least 50% cash of the property price before buying.
My wife and I are in our 30s. We are in fact trying to save up 50% before buying our first condo (now staying in HDB). You seem to suggest that 50% is excessive. In your opinion, what's the usual % that other couples save?

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  #583 (permalink)  
Old 02-12-2013, 10:21 PM
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Me, 38. Wife, 36. We live in a $450k flat, with o/s mortgage of $150k. We are the process of saving more cash before we upgrade to a $1m condo. Our plan is to sell our flat and get net cash proceeds of $300k and pay down another $300k in cash so that our loan is only $400k. I think this is prudent as our combined income is not much, only about $120k pa. We don't dare to take up so much loan, we have seen relatives got into big trouble when they took so much loan and when they suddenly lost their jobs, they had to move from a condo back to a 3 room flat. They might as well did not upgrade in the first place. Big loss of face.

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  #584 (permalink)  
Old 02-12-2013, 10:44 PM
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That is unfortunate to have to downgrade like that. Depending on when they bought and sold their condo, they might have made a handsome profit in the process.

Don't look down on them, as they may yet pick themselves up and move into a better condo in the future. It has happened to people I know. People are resilient.

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Me, 38. Wife, 36. We live in a $450k flat, with o/s mortgage of $150k. We are the process of saving more cash before we upgrade to a $1m condo. Our plan is to sell our flat and get net cash proceeds of $300k and pay down another $300k in cash so that our loan is only $400k. I think this is prudent as our combined income is not much, only about $120k pa. We don't dare to take up so much loan, we have seen relatives got into big trouble when they took so much loan and when they suddenly lost their jobs, they had to move from a condo back to a 3 room flat. They might as well did not upgrade in the first place. Big loss of face.
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Old 03-12-2013, 05:35 AM
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That is unfortunate to have to downgrade like that. Depending on when they bought and sold their condo, they might have made a handsome profit in the process.

Don't look down on them, as they may yet pick themselves up and move into a better condo in the future. It has happened to people I know. People are resilient.
Unfortunately they had to sell at the worst time. They lost not only their high paying jobs but also lost their money in their condos. They didn't pick up and went to taxi driving. Now these old ex executives are just spending their twilight years driving taxis and living in their small HDB flats. I myself have learnt about this and planning to get a taxi license, just in case.
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Old 03-12-2013, 08:50 AM
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Sad, but life goes on..

My colleague picked up a condo during a "fire sale" at $580k for a 1570 sf condo 10 yrs ago. That condo now worth $1.6m. As he moved up the career ladder, he has bought another condo for investment. And he is not yet 40.

I think it is a zero sum game. One loses, another one wins.

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Unfortunately they had to sell at the worst time. They lost not only their high paying jobs but also lost their money in their condos. They didn't pick up and went to taxi driving. Now these old ex executives are just spending their twilight years driving taxis and living in their small HDB flats. I myself have learnt about this and planning to get a taxi license, just in case.
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Old 03-12-2013, 03:46 PM
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My wife and I are in our 30s. We are in fact trying to save up 50% before buying our first condo (now staying in HDB). You seem to suggest that 50% is excessive. In your opinion, what's the usual % that other couples save?
It depends. If we just talk about affordability (not going into whether it is a good time to buy now), I will advise that you should ensure that after paying the downpayment (20%) and some renovation, you should still have the following

1) At least 6-12 months of contingency funds set aside to pay for daily expenses in case both of you lose your source of income

2) > 2 years worth of monthly repayment set aside in liquid asset ($72K if monthly is $3K)which should gives you decent return of 1-4% depending on what is it.

3) Able to service the monthly loan and save every month even if interest rate were to increase from current 1% to 3%.

4) If you still have excess savings, then invest wisely. You should be able to get at least 3-4% return in safe assets.....do not use all your savings to pay down the loan. You should take advantage of the low interest rate now


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Old 03-12-2013, 04:37 PM
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Originally Posted by Unregistered View Post
It depends. If we just talk about affordability (not going into whether it is a good time to buy now), I will advise that you should ensure that after paying the downpayment (20%) and some renovation, you should still have the following

1) At least 6-12 months of contingency funds set aside to pay for daily expenses in case both of you lose your source of income

2) > 2 years worth of monthly repayment set aside in liquid asset ($72K if monthly is $3K)which should gives you decent return of 1-4% depending on what is it.

3) Able to service the monthly loan and save every month even if interest rate were to increase from current 1% to 3%.

4) If you still have excess savings, then invest wisely. You should be able to get at least 3-4% return in safe assets.....do not use all your savings to pay down the loan. You should take advantage of the low interest rate now
So based on 1) and 2) if expenses are 5k/mth and installment is also 5k/mth, we should have 180k + deposit amt. If we are eyeing a $1.5m condo, we need to save up $480k, which is about 30% of the condo price.
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  #589 (permalink)  
Old 03-12-2013, 11:01 PM
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Hi again,

So it seems is not that bad, your properties must have been purchased around 2009/2010 I guess.

The question should be if from a strategic investment perspective if you think its time to let go of your properties because market has peaked? Or does the area have benefit in the future you see it worthwhile holding on too?

I guess your properties are tenanted out which results in the 80K Passive income, 1.2 Million loan would be about 4.5K repayment assuming 30 years on 2%. Plus property tax and MCST lets say its 5.5K per month which is about 66K per annum that your rental covers which puts you in a decent position (even half the rental if need be and some top up if desperate)

If you want to hold, take a defensive play and lock in your loans for fixed interest rates and try to get the tenants to lock in as long as possible on contract. From there you can calculate how much holding power you have assuming no tenants. (personally I send greeting cards and gift certs to the tenants to encourage renewal when the time comes)

Of course if you think market has peaked then sell, no need for strategy here.

As for outlook

I find it funny how some forum users here predicting market crash immediately have a magical 50% number on it, I wish that would happen too then we can buy properties in bulk.

We have come a long way since 1997 and the market is awash with cash from all the QE printing. In 97 we didn't have hordes of cash rich PRC and Indians buying delux properties all along orchard road. Not to mention inflation, in 90's my friend family built a 15,0000 sq feet house for 1.5 Million. Today the same amount of money will likely just rebuilt a terrace house or corner terrace. No need to even compare salary differences and all the rich bankers in town which was lacking in 97.

So you decide your strategy and plan accordingly, you are in no immediate risk I can see and have about a 2 year holding power. And of course if markets did fall 50% imagine all the new HDB buyers who paid 600K - 700K for their flats would do to the government.

We can't plan for everything, we plan for what we logically anticipate.



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Assets at current value are worth about 2.4 mil. Assuming they depreciate by half to 1.2 mil, I still won't be in negative equity.

Of course it would wipe out my life savings. Hence the question

AJ
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  #590 (permalink)  
Old 04-12-2013, 11:10 AM
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So you decide your strategy and plan accordingly, you are in no immediate risk I can see and have about a 2 year holding power. And of course if markets did fall 50% imagine all the new HDB buyers who paid 600K - 700K for their flats would do to the government.

We can't plan for everything, we plan for what we logically anticipate.
dives,

Thanks very much for your analysis and advice - very insightful. (And your estimates on my numbers are pretty spot on.)

Guess you pointed out the crux of the matter - where do I think the market is headed? I can't tell, I suppose. (Unlike the many other prophets on this forum!). And I suppose you're saying that I'm sufficiently hedged, so even if it goes down , I should be OK.

Thanks again!

AJ
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