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Saturday, 23 July 2011

Home for Living and not for profit taking (5)

Read? Home for Living and not for profit taking (4)

Let re-visit the story of ex-neighbour who used to live one floor below.

After selling his 4 rm HDB flat and he bought another 4 rm HDB flat which is a few bus stops away from his previous flat.

So as case study, let us simplify some figure to make it easier to understand the Maths involved.

Cost of 1st flat = $55K
Sales of 1st flat = $300K
Paid back to CPF OA including back-date interests = $100K

So profit = $200K

Do you think that he made $200K multi-bagger profit on his 1st flat?

Let continue with the Maths.

His 2nd flat is just few bus stop away from his 1st flat and the 1st flat is just one bus stop away from MRT.

We can safely assume that the selling price of 2nd flat is definitely lower. Let assume $50K cheaper at $250K. He took a new 20 years loan of $150K with a bank after offsetting paid back to CPF of $100K.

Now he has $200K cash and $150K debt.

Did he actually make $200K multi-bagger profit on his 1st flat?



What is your answer?

A. He made $200K multi-bagger profit.
B. He didn't make any multi-bagger profit, his profit is just $50K i.e. $300K - $250K
C. He didn't make any multi-bagger profit. He made some profit. He swap $150K debt for $200K cash.

My answer is C. What is your?

3 comments:

  1. Yes, definitely not a multi-bagger if one has only one property and that is the only shelter.A property is only an asset if it puts cash into your pocket every month - Robert Kiyosaki.
    So unless one has better investment plan with the 200k cash, it may not be a good idea.
    Best advice is to build up war chest and wait patiently for the next downturn in property cycle.

    ReplyDelete
  2. my answer is A. but the situation for this is special. he has to put it back if not he got no place to live.

    ReplyDelete
  3. Here lies the great debt trap of Sillyporeans (plus many more out there in the world).

    Your own flat, however low or high in value, is somewhat a consumption-investment. Huh ? Yah lor.

    You bought a flat for your own use (family to stay etc etc). Therefore asset you have, but not generating any returns. Only plus point is that instead of paying rent, you are paying the bank/cpf/hdb loan. Blink of an eye 20 years later, the asset is yours.

    Got asset no cash.

    In this case study. the neighbor sold his house for a small gain. $50K as his replacement house also cost a lot more.

    Is it worth all the trouble ?

    Only time for gains is when this happens to be the 2nd unit for flipping/investment/cash cow.

    I agree with financialray "build up war chest and wait patiently for the next downturn in property cycle."

    Looking forward to that soon.

    SnOOpy168

    ReplyDelete

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