If you read my ebook, you will have found out that I bought A Treasure Trove, 99-year leasehold condo in Punggol back in 2011.
2 months ago in July 2017, we made a decision to exit from this investment.
Here are the important numbers:
Purchase Price in 2011: $739,000
Selling Price in 2017: $850,000
The total gain was about $100K.
But why did you sell? I thought you were making returns of 3.73% on rental yield!
That’s a very good question. To be honest, I didn’t want to let go of the investment property. The main reason being it was:
- we have a tenant paying monthly rental which covered the monthly loan installments & maintenance fees
- small affordable monthly installments thanks to low interest rates (the interest rate was about 1.7%)
- nett positive cash flow into my bank account
In this case, we exited the investment property as we have hit our goal on the investment returns & profits.
A Treasure Trove was bought at $739,000 in 2011 and sold to another buyer at $850,000 in 2017.
How Much Was The Loan?
As this was a second property loan we took, the maximum loan amount given was only 60% of the purchase price.
In this case, the loan amount was $443,400. (The remaining 40% was paid by cash.)
The loan payments varied because we used a floating-rate interest loan that was based on the 3-month SIBOR. In the current era of low interest rates, this floating SIBOR was a huge advantage as it helped to save a lot of money on interest payments.
It was also a 35-year loan – which meant lower monthly installments. This is the advantage when you take a loan at a younger age and where your income is more stable.
So How Much Was The Monthly Installments?
In this case, there was a progressive loan repayment scheme. Small amounts were paid (a few hundred dollars per month) before the property hit TOP (Temporary Occupation Permit).
The more significant monthly installments began only after the property hit TOP – this was in 2015.
This also meant it gave me some time to scout for good tenants and market the property.
When I managed to secure a tenant to commit to a 2 year lease – the monthly rental was at $2300 per month.
The monthly installment varied between $1400 to $1500 per month. After deducting various expenses, there was a nett income of a few hundred dollars per month.
Basically, there was a nett gain – this was passive income.
In this case, the tenant paying the monthly rental took away ALL pressure on the monthly loan repayments!
When Is The Best Time To Sell?
Of course, being a human we sometimes make decisions emotionally – rather than logically.
To remain with the property would feel right… emotionally.
Why would I want to part with an investment that gave me positive cashflow every month?
But logically, after looking at the numbers – it was time to exit. The truth was – a right buyer at the right price came along and it was that factor that nudged the decision forward.
The only way to realize any gains is to sell the property. Sitting on paper profits feels good psychologically but if the market turns against you – property is a very ill-liquid investment – it becomes very hard to find buyers.
As an agent, I have seen cases of “fire-sales” where properties are sold at significant losses. It happens because of various “pressures” that is on the property owner.
In this case, we are glad we hit our profit goals and it was time to cash in on the gains.
The best time to sell is when you are making money. The only pressure you have is to realize those gains towards another investment.
Here are the detailed calculations:
Calculating the nett capital appreciation + monthly passive income, that would be
Total Gain of = $89K + $500 x 24 months = $101K
Total Gain was $100K over a period of 6 years
For this property investment, we entered in 2011. As this was a second loan, it meant that there was upfront payment of 40% cash.
As there was a tenant, we can safely ignore the pressure of monthly loan installments. So I will set that aside.
Let’s consider the 40% cash upfront payment of $295,600.
Considering a $100K gain, this was a total of 33.8% return.
This meant an average yearly return of 5.6% per year.
What does that this mean? It means this investment has achieved our target of 5% and also beaten the inflation rate.
Hindsight is always 20/20 – totally perfect vision. What this article is doing is showing you what happens when a property investment plan goes well and smoothly.
This was not to impress you but to press upon you that —- it can always go the opposite manner.
Poor calculations, wrong assumptions, relying on the wrong advice and having no exit plan will always result in a situation that is undesirable and harmful to any would-be property investor. Losses would be the result.
If you are planning to put your funds into good use for retirement planning or simply thinking of upgrading your property – I invite you to contact me for further discussion.