We have $1.5m in cash and make $680k per year: Should we max our budget to buy a 4-bedder condo or a smaller one?
PHOTO: Stackedhomes
PUBLISHED ONFebruary 05, 2024 5:15 AM
Hello Ryan at Stacked,
I absolutely love your advice column. Truly enlightening on how to navigate the property ownership journey. Would greatly appreciate your practical and thorough wisdom on our investment/life situation.
We live in our 3BR condo, valued at 2.15M, under my spouse’s name.
My spouse wants to upgrade to a 4BR condo for lifestyle reasons, growing children. This second home will be under my name.
Husband and wife have differing views on how to invest in a 4BR and what price range to buy and would love your advice so we can agree and execute as we are sitting on a pile of cash with no interest. Some details about our situation:
Male:
- 43 years old
- CPF OA = $260K
- Annual income $380k
- Keen to upgrade to a spacious 4BR condo of 3M in Interlace.
Female:
- 40 years old
- CPF OA = $290K
- Annual income $300K
- Low appetite for taking a large, second mortgage in 40s. Keen to retain flexibility to retire by 55 yo and work at will with no sword dangling over neck whether for kids college debt or a large mortgage.
Total available cash: $1.5M+
Additional Information:
- Family of four = husband + wife + two kids
- Considering retaining our current 3BR condo (1300 sqft) valued at 2.15M, with outstanding loan of 700k.
- New 4BR condo must have a large community in a East / Central-ish (up to Bunoa Vista is okay as well) location. Prefer not going too far out North / West. Need 1400sqft ++
The options being debated are —
- Max our budget and buy a 2.9M 4BR for own stay with good capital appreciation + Retain current 3BR condo for retirement / rental income.
- Low-Budget 4BR at 2.4M for own stay + Retain our current 3BR condo for rental income / retirement income.
- Renovate current 3BR and continue staying here + Buy a 2BR condo for retirement / high rental yield.
- Sell our current 3BR + split the budget between 1x4BR (own-stay) and 1x2BR (rental-income). In this option four, how shall we split budgets between 4BR and 2BR?
Objective
- Maximise potential capital appreciation for the 4BR in five to 10 years
- Rental income in retirement
We have other equity / MF investments. However, would like them to fund kids’ college education.
Would deeply appreciate your advice, either in print as a case study or otherwise.
Thanks so much!
Hi there,
We’re happy to hear that our advice pieces have been helpful to you!
Given your available cash and income, we can understand the difficulty in agreeing on the next steps as you do have a lot more options available to you.
This is made harder as you have your own stay/lifestyle element to this as well rather than a pure investment — and it’s hard to balance it out if both husband and wife aren’t on the same page in terms of focus.
So while we can detail what may be suitable from an investment standpoint, what we can’t properly advise on is your risk tolerance as well as retirement plans.
Nevertheless, if you are just looking for some overall guidance, let’s begin by reviewing your figures before delving into a more detailed discussion of your options.
Affordability
Wife’s affordability
| Description | Amount |
| Maximum loan based on age of 40 with a monthly income of $25,000 at 4.6 per cent interest | $2,448,694 (25-year tenure) |
| CPF | $290,000 |
| Cash | $1,500,000 |
| Total loan + CPF + cash | $4,238,694 |
| BSD based on $4,238,694 | $193,921 |
| Estimated affordability | $4,044,773 |
Although your estimated affordability exceeds the set budget, we will adhere to the price range mentioned as you expressed a preference not to take up a substantial loan.
Husband’s affordability if he were to sell the existing property
| Description | Amount |
| Selling price | $2,150,000 |
| Outstanding loan | $700,000 |
| Sales proceeds (CPF + cash) | $1,450,000 |
| Description | Amount |
| Maximum loan based on age of 43 with a monthly income of $31,600 at 4.6 per cent interest | $2,882,684 (22-year tenure) |
| CPF + cash | $1,710,000 |
| Total loan + CPF + cash | $4,592,684 |
| BSD based on $4,592,684 | $215,161 |
| Estimated affordability | $4,377,523 |
Considering your income, both of your individual budgets are quite substantial, making all four options under consideration viable.
With the goals of capital appreciation and rental income, let’s look at the related costs and potential gains for the different pathways.
Potential pathways
Option 1: Buy a $2.9M four-bedder and keep the current three-bedder for rental
Since we do not have the details of your existing property, we won’t be commenting on its performance or whether it’s preferable to retain or sell it.
However, considering it will become your investment property, you retain the flexibility to sell it at any time.
Given that you may occupy the four-bedder for up to 10 years, you may want to consider newer or freehold developments.
A brief search on the online portals with your specified requirements and a $2.9M budget reveals several available four-bedders. Here are some units currently listed on the market:
| Project | Tenure | TOP | District | Unit type | Size (sqft) | Asking price |
| The Poiz Residences | 99 years | 2018 | 13 | 4b | 1,528 | $3,150,000 |
| Eight Riversuites | 99 years | 2016 | 12 | 4b | 1,432 | $2,950,000 |
| City Square Residences | Freehold | 2009 | 08 | 4b | 1,518 | $3,080,000 |
Do note that these developments are selected based on their alignment with your criteria and budget, but their suitability may vary. There definitely needs to be more homework and research done to see if they are really suitable.
Assuming a 10-year holding period, let’s take a look at the costs incurred if you were to purchase a $2.9M property.
| Description | Amount |
| Purchase price | $2,900,000 |
| BSD | $114,600 |
| CPF + cash | $1,790,000 |
| Loan required | $1,224,600 |
Costs incurred
| Description | Amount |
| Interest expense (Assuming four per cent interest and 25-year tenure) | $424,934 |
| BSD | $114,600 |
| Property tax | $86,000 |
| Maintenance fee (Assuming $500/month) | $60,000 |
| Total costs | $685,534 |
Now let’s look at the potential gains. For calculation purposes, we will assume a rental yield of three per cent for your existing property.
Rental income
| Description | Amount |
| Interest expense on an outstanding loan of $700,000 (Assuming a four per cent interest and 22-year tenure remaining) | $234,822 |
| Rental income (Assuming $5,375/month) | $645,000 |
| Property tax | $124,200 |
| Maintenance fee (Assuming $350/month) | $42,000 |
| Agency fee (Payable once every two years) | $29,025 |
| Total gains | $214,953 |
We’ll also do a simple projection with the assumption that both the properties appreciate at the same rate as the average growth rate of non-landed private properties over the last 10 years at 2.89 per cent.
Potential gains for the four-bedder
| Time period | Property price | Potential gains |
| Starting point | $2,900,000 | $0 |
| Year One | $2,983,810 | $83,810 |
| Year Two | $3,070,042 | $170,042 |
| Year Three | $3,158,766 | $258,766 |
| Year Four | $3,250,055 | $350,055 |
| Year Five | $3,343,981 | $443,981 |
| Year Six | $3,440,622 | $540,622 |
| Year Seven | $3,540,056 | $640,056 |
| Year Eight | $3,642,364 | $742,364 |
| Year Nine | $3,747,628 | $847,628 |
| Year 10 | $3,855,935 | $955,935 |
Potential gains for the three-bedder
| Time period | Property price | Potential gains |
| Starting point | $2,150,000 | $0 |
| Year One | $2,212,135 | $62,135 |
| Year Two | $2,276,066 | $126,066 |
| Year Three | $2,341,844 | $191,844 |
| Year Four | $2,409,523 | $259,523 |
| Year Five | $2,479,159 | $329,159 |
| Year Six | $2,550,806 | $400,806 |
| Year Seven | $2,624,524 | $474,524 |
| Year Eight | $2,700,373 | $550,373 |
| Year Nine | $2,778,414 | $628,414 |
| Year 10 | $2,858,710 | $708,710 |
Total gains: $214,953 + $955,935 + $708,710 – $685,534 = $1,194,064
It’s crucial to emphasise here that the actual appreciation rates may vary depending on the individual projects, and the potential gains mentioned are not guaranteed.
On the contrary, the incurred costs and rental income are more predictable, but they can also fluctuate depending on factors such as interest rates, maintenance fees, and rental amounts.
Option 2: Buy a $2.4M four-bedder and keep the current three-bedder for rental
With a lower budget, your options will certainly be more limited in terms of age and tenure. These are some available units on the market that meet your requirements:
| Project | Tenure | TOP | District | Unit type | Size (sqft) | Asking price |
| Bartley Ridge | 99 years | 2016 | 13 | 4b | 1,464 | $2,500,000 |
| Water Place | 99 years | 2004 | 15 | 3+S | 1,464 | $2,295,000 |
| The Gardens at Bishan | 99 years | 2004 | 20 | 4b | 1,572 | $2,600,000 |
Similarly, let’s look at the costs involved considering a 10-year timeframe if you were to buy a $2.4M property.
| Description | Amount |
| Purchase price | $2,400,000 |
| BSD | $89,600 |
| CPF + cash | $1,790,000 |
| Loan required | $699,600 |
Costs incurred
| Description | Amount |
| Interest expense (Assuming four per cent interest and 25-year tenure) | $242,760 |
| BSD | $89,600 |
| Property tax | $54,800 |
| Maintenance fee (Assuming $500/month) | $60,000 |
| Total costs | $447,160 |
As before, we will do a simple projection with the assumption that the property appreciates at the same rate as the average growth rate of non-landed private properties over the last 10 years at 2.89 per cent.
| Time period | Property price | Potential gains |
| Starting point | $2,400,000 | $0 |
| Year One | $2,469,360 | $69,360 |
| Year Two | $2,540,725 | $140,725 |
| Year Three | $2,614,151 | $214,151 |
| Year Four | $2,689,700 | $289,700 |
| Year Five | $2,767,433 | $367,433 |
| Year Six | $2,847,412 | $447,412 |
| Year Seven | $2,929,702 | $529,702 |
| Year Eight | $3,014,370 | $614,370 |
| Year Nine | $3,101,485 | $701,485 |
| Year 10 | $3,191,118 | $791,118 |
Total gains: $214,953 (rental income from the three-bedder) + $708,710 (potential gains from the three-bedder) + $791,118 – $447,160 = $1,267,622
Option 3: Renovate existing property and buy a two-bedder for investment
This option might be feasible if your current residence continues to meet your living requirements. However, if you intend to retain the property for an extended period, it is worth looking at the potential future price trends of the development.
Given your ample budget, a wide range of two-bedroom properties will be available to you.
With the considerable funds in your CPF and cash reserves, you might not need to consider taking out a loan, aligning with your preference to avoid large debt, especially in the context of today’s high interest rates.
| Description | Amount |
| CPF + cash | $1,790,000 |
| BSD based on $1,790,000 | $59,100 |
| Estimated affordability | $1,730,900 |
These are some newer developments that are currently on the market and fall within your affordability:
| Project | Tenure | TOP | District | Unit type | Size (sqft) | Asking price |
| Jadescape | 99 years | 2023 | 20 | 2b2b | 764 | $1,750,000 |
| Stirling Residences | 99 years | 2022 | 03 | 2b2b | 678 | $1,790,000 |
| Queens Peak | 99 years | 2020 | 03 | 2b2b | 775 | $1,650,000 |
For calculation purposes, we will assume a purchase price of $1.7M and a rental yield of three per cent, over a 10-year time frame.
Rental income
| Description | Amount |
| BSD | $59,100 |
| Rental income (Assuming $4,250/month) | $510,000 |
| Property tax | $82,800 |
| Maintenance fee (Assuming $250/month) | $30,000 |
| Agency fee (Payable once every two years) | $22,950 |
| Total gains | $315,150 |
Potential gains based on a 2.89 per cent growth rate
| Time period | Property price | Potential gains |
| Starting point | $1,700,000 | $0 |
| Year One | $1,749,130 | $49,130 |
| Year Two | $1,799,680 | $99,680 |
| Year Three | $1,851,691 | $151,691 |
| Year Four | $1,905,204 | $205,204 |
| Year Five | $1,960,265 | $260,265 |
| Year Six | $2,016,917 | $316,917 |
| Year Seven | $2,075,205 | $375,205 |
| Year Eight | $2,135,179 | $435,179 |
| Year Nine | $2,196,886 | $496,886 |
| Year 10 | $2,260,376 | $560,376 |
Now let’s take a look at the costs incurred for holding your existing property and renovating it.
Obviously renovation costs and budget can be a very subjective thing, but let’s just assume a cost of $100,000. If you do not have an alternative accommodation to move into during the renovation period, you will have to rent a place.
For calculation purposes, we will presume a three-month rental since this is the minimum lease period for a private property.
However, it is important to note that the majority of landlords will prefer a longer lease term so it might be challenging to find one that will accept a three-month lease.
To start, we will take the rental figure of $6,037 as this was average rent for a three-bedder in the RCR for the whole of 2023.
Costs incurred
| Description | Amount |
| Reno cost | $100,000 |
| Interest expense on an outstanding loan of $700,000 (Assuming a four per cent interest and 22-year tenure remaining) | $234,822 |
| Property tax | $43,100 |
| Maintenance fee (Assuming $350/month) | $42,000 |
| Rental cost | $18,111 |
| Total costs | $438,033 |
Total gains: $708,710 (potential gains from the three-bedder) + $315,150 + $560,376 – $438,033 = $1,146,203
Option 4: Sell current property and purchase a four-bedder for own stay and a two-bedder for investment
Given that you have adequate funds to acquire the four-bedroom property without selling your current residence, the decision to sell now hinges significantly on the performance of your existing property.
If its prices were stagnant or declining before the pandemic but have now surged, it might be an opportune moment to divest.
However, if there is still growth potential, holding onto it for now and renting it out until a promising investment property emerges could be an option.
In the event you decide to sell, there isn’t a fixed formula for dividing the funds; it largely depends on your willingness to allocate resources to each property.
You mentioned your spouse’s interest in a four-bedroom unit at The Interlace. For a true four-bedroom layout, there was only one unit transacted last year at $4,538,000.
If you’re aiming for something around the $3 million price range, it would likely be a three-bedroom unit with a family room that is spacious enough to function as a small bedroom.
For calculation purposes, let’s assume that your spouse purchases a three-bedder + family room at The Interlace for $3M and you purchase the two-bedder at $1.7M without taking up a loan.
| Description | Amount |
| Purchase price | $3,000,000 |
| BSD | $119,600 |
| CPF + cash | $1,710,000 |
| Loan required | $1,409,600 |
Costs incurred
| Description | Amount |
| Interest expense (Assuming four per cent interest and 23 year tenure) | $478,791 |
| BSD | $119,600 |
| Property tax | $93,800 |
| Maintenance fee (Assuming $580/month) | $69,600 |
| Total costs | $761,791 |
Potential gains based on a 2.89 per cent growth rate
| Time period | Property price | Potential gains |
| Starting point | $3,000,000 | $0 |
| Year One | $3,086,700 | $86,700 |
| Year Two | $3,175,906 | $175,906 |
| Year Three | $3,267,689 | $267,689 |
| Year Four | $3,362,126 | $362,126 |
| Year Five | $3,459,291 | $459,291 |
| Year Six | $3,559,264 | $559,264 |
| Year Seven | $3,662,127 | $662,127 |
| Year Eight | $3,767,963 | $767,963 |
| Year Nine | $3,876,857 | $876,857 |
| Year 10 | $3,988,898 | $988,898 |
Total gains: $315,150 (rental income from the two-bedder) + $560,376 (potential gains from the two-bedder) + $988,898 – $761,791 = $1,102,632
So what should you do?
Let’s do a summary of the costs incurred and potential gains for the various options.
| Potential pathways | Costs incurred | Rental income | Potential gains | P/L excluding potential gains |
| Option 1: Buy a $2.9M four-bedder and keep the current three-bedder for rental | $1,115,581 | $645,000 | $1,664,645 | -$470,581 |
| Option 2: Buy a $2.4M four-bedder and keep the current three-bedder for rental | $877,207 | $645,000 | $1,499,828 | -$232,207 |
| Option 3: Renovate existing property and buy a two-bedder for investment | $632,883 | $510,000 | $1,269,086 | -$122,883 |
| Option 4: Sell current property and purchase a four-bedder for own stay and a two-bedder for investment | $956,641 | $510,000 | $1,549,274 | -$446,641 |
Considering that potential gains vary based on individual projects and are not guaranteed, let’s shift our focus to the more certain aspects of costs incurred and rental income.
Given the current high-interest rates, all four options may result in a loss due to the involvement of either one or two mortgage loans.
Option one is projected to incur the highest loss, mainly due to the substantial loan required for the $2.9M four-bedroom property. Option two, with a more budget-friendly four-bedroom property, significantly reduces interest expenses and overall losses.
The budget you wish to set for the purchase is subjective, but since you will be staying in the property, it’s hard to say if this is appropriate as you should meet your living needs.
A higher priced unit does not necessarily guarantee better appreciation potential since that is dependent on various factors besides price, but it will most definitely incur higher costs.
This is why with option one, it’s crucial that the right development is picked. Assuming the same loan interest rate, the more expensive four-bedroom would cost more due to the higher loan required.
Here’s an example if we compare the average growth of the four-bedders in Eight Riversuites and Bartley Ridge:
| Year | Eight Riversuites $PSF | Growth | Bartley Ridge $PSF | Growth |
| 2017 | 1583 | – | 1407 | – |
| 2018 | 1519 | -4.04 per cent | 1464 | 4.05 per cent |
| 2019 | 1401 | -7.77 per cent | 1435 | -1.98 per cent |
| 2020 | 1481 | 5.71 per cent | 1411 | -1.67 per cent |
| 2021 | 1476 | -0.34 per cent | 1470 | 4.18 per cent |
| 2022 | 1568 | 6.23 per cent | 1583 | 7.69 per cent |
| 2023 | 1722 | 9.82 per cent | 1742 | 10.04 per cent |
| Average | 1.60 per cent | 3.72 per cent |
As you can see, over this six-year period, Eight Riversuites averaged half the growth rate that Bartley Ridge faced. So while costs are certain, finding the right project for capital appreciation can be difficult — but important should you choose option one.
Obviously option three will incur the lowest losses, assuming no loan is taken for the investment property.
However, this means forgoing the upgrade to a larger unit, so your current property must still fulfil your living requirements. The decision to hold the existing property long-term would depend on its performance.
Option four of selling the current property to purchase two properties, incurs the second-highest losses.
Despite assuming no loan for the investment property, the higher interest expenses for the four-bedder and the BSD payment on two properties contribute to the overall losses.
If your current property has growth potential, there might not be an immediate need to sell, especially since you do not require the funds to finance the purchase of the four-bedder.
Depending on the potential of your existing property to maintain its value and meet your family’s needs, Option three appears as the most prudent choice among the four.
However, if the current market favours selling your property, Option four becomes sensible, allowing you to cash out, purchase a larger unit, and invest in another property with promising rental yield or appreciation potential.
If you pay for the investment property in full, you will only be servicing one mortgage loan instead of two which you will be with Options one and two.
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This article was first published in Stackedhomes.