1 Simple Step To Prevent Losing Money On Your Property That You Can do Right Now
Through my consultations with my clients, we always end up with this concluding statement.
"So, should I sell my house now?"
After going through the financials, most of them have an obvious answer: a resounding YES!
But yet, many people do not dare take the necessary step to move on.
Moving on does not always mean upgrading. Sometimes it can mean moving on to another HDB that is still growing in value or even downgrading to a property that is better suited for their needs.
What your home actually is
If you ruled out everything else, our home is just another form of investment. It will go up in value, it will go down in value, and it will remain stagnant.
If you own a property and look at it objectively, our current home is in either of these 3 situations.
It is still the best property to grow our money in
It is no longer the best property to grow our money, and there is a better option out there
The property is losing us money
For people in the first situation, congratulations! There is nothing much for you to do other than watching for better opportunities out there.
People in the second situation are usually still comfortable where they stay, and their property is still growing in value.
What they are losing out on is the opportunity cost. There is another option that can potentially grow more but requires more financial commitment. Their money will grow more than if they put it in their current house.
I would say that this group of people might not see the need to make a move but are missing out to maximise the growth.
The last group of people are the ones that need to take a closer examination of their situation.
Being unaware of the value of your property
Big Warning Light for Property Owners
This group of people either do not know that they are losing money or the loss is still not painful enough to spur them to take action. The lost is on paper value and will not be realised unless they sell the property. They choose to stick their heads in the sand and hope that the storm will pass.
They usually do not understand the financials and typically have no clue about how CPF accrued interest works.
Even after working out their financials with them, many are will still be reluctant to make a move!
Why would anyone knowingly put their money in somewhere that they clearly know are losing them money every month with no chance of recovering?
More than just a property
We refer to our house as our home. We don't see it as just a piece of property that puts a roof over our heads. But when the property is potentially losing you money every single month, it becomes less of a home and more of a drag to your financial freedom in the future.
Most of us cannot treat our house objectively as an investment.
Our house usually holds a lot more meaning than just being an investment.
Some of the reasons why they find it hard to make the apparent decision might be;
Emotional Attachment
For many Singaporeans, our first HDB holds a very significant meaning.
Personally, my HDB flat was where I built my family with my wife. We grew our family of 2 to 4 right in that flat. It is an integral part of our life, and even today, there is a part of me that misses my old house and the memories we created there.
However, this factor by itself will not impact us that much as we all understand that there will be a certain time where this factor will pale in comparison with the needs that grow over time. For example, needing a bigger space or a location nearer to a preferred school.
The reason why this is a big factor is that we tend to value our very first property more than it is actually worth in the market. If we are not rational about it, this could cause us to be in the market for a very long time.
Fear of change
Humans are naturally inclined to stay with the familiar and repel change. Constant is stable and safe, and change is risky.
We will usually stay a minimum of 5 years at our first HDB flat, the minimum occupation period if we bought a BTO or a resale flat with housing grants. It becomes difficult to embrace the change once we get so used to the environment.
I totally get it! My children's childcare centre is still the same one near my old house as we did not want to disrupt their learning environment.
Some might have their entire circle of friends or even relatives just staying nearby, and the thought of moving is unappealing.
Fear of Financial Burdens
This is situational. If a person is doing an upgrade, the financial burden is totally different from someone who is moving onto another HDB flat.
I chose to upgrade to a private condominium because I plan to provide a better environment for my family and also a property with a potentially better capital appreciation than a HDB. I understand the financials and have the preparation in place for it.
I regard my property as an investment, and if the time comes to make a move to another property when it makes more financial sense, I will make that move.
It might be different for someone who wants a simpler life and feels that a HDB is where they want to call their home for the rest of their lives. That's totally fine!
Just understand that with the property financial planning in place, you will be able to make this move something that is totally within your means.
All these 3 factors will impact how we value our house and make us miss the opportunity to move if we are not certain about the situation of our current property.
If you do not know whether you fall into the group where your property is already losing money, I urge you to do this 1 simple step right now that will potentially prevent you from losing money on your property.
Get clear On the financials on your property
This one simple step consists of the following actions to take which you can easily do on your own in less than 15 minutes.
Look around in the property portals to have an idea of how much your flat is worth
Find out what you still owe on the property, HDB or bank loan
Find out how much CPF and accrued interest you have accumulated for the property
Use the HDB Sales proceeds calculator to calculate your sales proceeds
Find out whether your flat is still appreciating in value
After doing this, you will be absolutely clear whether your property is still paying you money or losing you money.
If you are already in a negative sale scenario, I urge you to take action immediately to stop it from getting worst.
You might still have the chance to top up cash to your CPF account rather than losing the profits altogether.
We should all keep in mind that our CPF monies are our money! We can use them to buy our next property and ultimately to fund our retirement.
It might be painful to take the loss and move on, especially if it amounts to a hefty sum, but better cut your losses and move your money somewhere better.
Plan For Your Property Into The Future
Once your property enters into the negative sale scenario, there is little to no chance that it will turn positive. Whether it is a HDB flat or a private leasehold condominium, the depreciation will begin once the property reaches a certain age.
This two scenario will happen.
Your property continues to depreciate in value
Your CPF accrued interest continues to compound
These two scenarios combined will exacerbate the already bad situation very quickly.
It is a better choice to cut your losses now rather than letting it compound to a point where you can no longer reverse the situation.
Picture your family 5, 10 years into the future and ask yourself this.
Do you see yourself stuck in a property that loses you money for the past 5-10 years, or do you see yourself in a property that is still making you money?
After being clear of the financials of your property and seeing how it will potentially affect you in the near future, it is critical that you take the necessary actions to help yourself get out of a potentially sticky situation.
If you have not, or some other reasons are holding you back, consult a professional to see how you can work a way out.
Conclusion
I want to emphasise again that it is vital to be absolutely clear about your property's situation.
Work with a professional if you do not understand how to do any of the steps that I laid out above.
I have seen multiple clients reluctant to take the painful step to stomach the losses and move on, only to get so deeply entrenched that it is no longer an option to move on.
The losses are so huge that selling their property would mean that they cannot afford to buy another and have to drastically downsize.
Sometimes it is of no fault of their own.
They might have bought into the wrong property due to poor decisions or ill advice from the wrong people.
Our home is our biggest investment for most of us. Do yourself a favour and be clear of which situation you are in right now and take the necessary actions, however painful it might be for now.