In continuation for the previous article “what en-bloc owners must know about the property market”, this is the final part of the en-bloc mini-series – “Prudent Strategies for Asset Growth”
In this final part, I will share 3 common strategies that en-bloc owners will likely be considering and provide my views in a series of 3 articles.
In the previous article REC weekly #0120, case study 3A, a scenario of buying multiple Singapore Properties was discussed. In this article, I will be discussing about the more prudent strategy based on where we are in the property cycle.
Case Study 3B – Buy a Right Sized Home and invest the rest in liquid assets
Over the last few days, i met a few clients who are waiting to receive their en-bloc proceeds. All of the them had the same question – how to maximise my en-bloc proceeds for BOTH income and wealth preservation.
In my opinion, this strategy is perhaps the most ideal. As we are somewhere towards the end of the property cycle (as of Nov 2018), coupled with global trade tensions and uncertain economy, it is not the right time to make ANY property investments in Singapore. In such an environment, it makes sense to keep your portfolio liquid.
Buying a home is a personal affair, if one needs a larger space, it may make sense to buy a large HDB unit. If a smaller space is preferred, one can buy a smaller condo or HDB as a replacement home. The savvy choice is keep housing costs low and invest in income generating assets that are liquid.
Assuming an en-bloc owner who does not have any other existing properties, buying a spacious 5RM HDB flat would cost around $600k. This would mean $1.4mil left to invest in other assets. To be savvy, it will be wise to keep 20% OR $400k as cash on hand and invest the remaining $1mil. By investing in good quality equities or managed funds, one can get 4-5% returns per annum with relatively low risks, and this is also higher returns than the average gross rental yield of +/- 3%.
By doing this, you would now have
- Spacious home $600k
- $400k of liquid cash
- $1mil of financial assets generating about $50k income /year (not including any CPF you may have set aside in your CPF retirement account)
The key for this strategy is to engage a good remiser or wealth manager to assist you in this process. You may not need to immediately invest into financial assets (Disclaimer: I am not a licensed financial advisor). The advantage of this strategy is that you are liquid and can deploy your money anytime. The figures above will vary depending on what type of home you buy.
If you like to know how you can plan and execute your investment into financial assets, stay tuned for a guest post by one of my buddy, a Wealth Hacker who has been assisting many of my clients with diversifying their investment portfolio. He has also been profitable during the 2007 global financial crisis.