Let us show you a simple analysis using a real scenario.

A. Age of Leasehold Property: 15 years (remaining lease of 80 years, after accounting for 4 years of construction time)

1. Property Purchase Price: $650,000

2. Buyer Stamp Duty: $14,100

3. Legal Fees: $2000

4. Monthly Maintenance Fee @ $250/month: $45,000

5. Maintenance and repair costs of property: $15,000 (rough estimate)

Capital Cost: $666,100

Operating Cost: $60,000

Total Cost (after 15 years): $724,100

B. Rental Income after 15 years @ $3000/month: $540,000

Earnings: $540,000 – $724,100 = -$184,100

At this stage, you may seem to be at a deficit.

Owner’s thinking: I have not break even yet. I have no mortgage loan, so why should I sell? Just hold lah… I don’t wanna sell at market rate, since the bank valuation is higher.

Now, let the numbers do the talking…

Assuming you have paid off the house, there is no mortgage interest incurred to this house. The current market price of the property is about $1M. But let’s say the bank offered a valuation of $1.05M. Would you sell ONLY IF the market price is at $1.05M or SELL NOW to cash out your profits?

If you were to sell your property at $1M, how much would you have earned?

Selling price – Total cost (after 15 years) – Agent’s fee (market rate of 2%)

= $1M – $$724,100 – $20,000

= $255,900

* So here you have already gotten back total cost + a whopping profit of $255,900.

Is that all? Think again ????

You have not added in the rental collected across 15 years, which is $540,000. So do you want to wait for a higher price, or let go at the current market value or maybe even slightly lesser? You make the decision, as you have already gained a total of $795,900.

Your total cash on hand now is at $1,445,900.

[Note: this is if you had paid off your house. Imagine, you still had mortgage, factoring the interest at hand, how long do you want to hold?]

Being Financially Prudent

While you may have no loan on the property and no impetus to sell, the property will have a shorter lease left as the years go by. This will ultimately affect your selling price. As the lease drops, the price of the property will follow. By then, it may be hard to sell the property.

But one can argue that I can rent out the property for life. Ok let’s see how the math work out!

Renting your property for 95 years @ $3000 per month, this will give you an income of $3.42M! Now we take the operating cost of maintaining the house to be @ $4000 per year (maintenance fee + repair works), that will be a total cost of $380,000.

What is the nett gain after 95 years?

Rental Income – Capital Cost – Operating Cost (after 95 years)

= $3.42M – $650,000 – $14,100 – $380,000

= $2,375,900.

Is this figure reasonable to you?

Going for the Good Investment

Now, if you don’t wait for 80 years (the remaining lease of the current property) to earn the $2.375M, you could use the initial cash proceeds of $1,445,900 to reinvest in new launches that are generating yield of 10-20% upon TOP [Disclaimer: this depends on the new launch’s location and type]. For example, you could buy a 3-bedroom (1012sqft) at Treasure (Tampines) new launch at $1200PSF, and you have an option for a fresh start of lease, a potential increase of $200PSF at TOP.

This increase in PSF would equate to flipping a good $200k in 3 to 5 years. If you keep flipping for 80 years, it can give you a profit of $3.2M, a good $1M more than holding the property for life. There are also fewer risks involved as the condo is newer and thus, easier to sell or rent. You are also maintaining more liquidity with your funds.

Leave a comment, or drop us a message at +65 9794 8823 / +65 9069 9129 if you want to know more.

Cindy + Geri

What is important to you, is important to us too.

“Do not let your wealth become stagnated. Do not just be contented with properties earning passive income through rent. We sell to take profit and multiply our wealth. There is an opportunity cost in holding on to properties that have exceeded their peak prices, just so one can earn rent.” – KF (Property Wealth System)

Note: The figures calculated in this article have not factored in inflation.