Should I Buy or Rent?

7-10-inspiring-ideas-colourful-living-rooms-blue-living-roomIf you are asking this question, I’m assuming that you are either a Singaporean who doesn’t possess any residential property right now, or a potential new resident in Singapore. Buying a house or renting a house both has its pros and cons. Both involves cash and both involves calculation of the finances. For renting, the calculations are mostly dealing with monthly rent for over a number of years. Money spent on rent is for pure consumption. There will never be any return of investment no matter how long you rent the house. As a renter, your main concern will be to get the best deal out of your rental money. Things to consider: space, transportation, amenities. Renters do not care whether the house is a 99-yr leasehold apartment or a freehold terrace house.

Buying a house (ie. HDB flats, apartment/condominiums, landed houses), on the other hand, is a form of long-term investment. We are talking about 5 years, 10 years or maybe 20 years period. If you buy the right property, you may even enjoy a handsome return of investment as we have seen from people who bought Executive Condominiums direct from developers and selling it in the open market 10 years later.

When we talk about buying a property, we are not saying paying 100% cash. Downpayment usually requires a minimum of 20% of the property amount. For example, a $800,000 2-bedroom condominium in Yishun (eg. Orchid Park Condo) of 958sqft. Taking a loan of 80% equating to $640,000 for a tenure of 25 years at 2.5% interest rate, the monthly installment is $2500.

Imagine that you have a tenant renting your property. The same 2-bedroom condo you have may fetch a rental of $2500. What you are doing now is to use your rental income to service your loan. After 30 years of servicing your loan, the property is fully paid. By then, can you imagine what kind of transacted prices in terms of per square feet (psf) will it be for your 2-bedroom? Assuming you sold it for $1.1mil, you would have enjoyed a profit of $300,000. You can easily calculate your return of investment yield. This is what we called investment using Other People’s Money (OPM), in other words, LEVERAGING.

If you wish to check out the options of buying or renting a house, do feel free to contact Irene Tan at 9846 9648 for a non-obligation discussion.