Top 3 Costly Mistakes to Avoid in Property Investment
- Elyse Foo
- Apr 4, 2024
- 6 min read
Updated: May 20, 2024
To be honest, when I bought my first house with my husband, we didn't think of property investment. Staying in a condominium was on our bucket list but even so we didn't link it to property investment at all. It was just like a dream to be able to stay in one.
Without doing any research or getting any advice from someone experienced like a property agent, we (my hubby and 1) decided that we could only afford an HDB BTO flat and also because EVERYONE around us is doing the same thing. Get married and apply for a BTO flat or vice versa.
We were even told by an uncle that we were stupid if we did not get a BTO. You get my point. Only now then we realized these are all NOT TRUE.
Mistake 1: Not keeping an open mind to explore all housing options
This was a super costly decision. We made a "loss" of $225,000 because we chose to buy a BTO first, instead of an Executive Condominium (EC). I will explain further.
But first, let's talk about why we need to keep an open mind. Some of our thoughts were driven by fear and doubts, especially on unfamiliar grounds, many a time forming biased views that will make us feel safe and secure, thinking we have it sorted out.
"Private properties are expensive, we cannot afford it now."
"The monthly installment will kill us. What if the bank interest goes up?"
"BTO is the way to go. Subsidized flat leh. It is worth it!"
Are all these thoughts true? Did we do the calculations to justify? Did we find out the past years' trends of bank interest rates? To be honest, we didn't.
We were just fixated on the mind that we could only afford a BTO then and that was the best way to go. I admit that it was scary to commit to such a big purchase for the first time and BTO just felt like the safest option.
Hence, we bought our BTO at $300,000 in 2013 and sold it at $555,000 in 2022. And because we bought an EC next, we had to pay a levy of $40,000. So, our profit was around $215,000, not including the CPF accrued interest we paid ourselves. This I will explain in the 2nd costly mistake we made in more detail.
If we had bought Prive (an EC in Punggol) instead, which was completed in 2013 too, a 3-bedroom unit cost about $690,000. If we also sold it in 2022 for $1,130,000, our profit could have been $440,000.
Loss: $440,000 (if we bought an EC) - $215,000 (bought BTO instead) = $225,000
Looking back at our income during that time, we could afford it. We could also afford the downpayment at that time. And we both held stable jobs, with stable annual increments. So why should we let our fears and social norms make that decision? This mistake hurts so badly for us. That's why I am being so transparent in sharing this online, hoping that more people, who are interested in property investment or financial freedom will see this.
And to add on, making this decision slowed us down in our property investment journey by 9 years. If we had bought an EC first in 2013, we would have been able to buy 2 properties now and rent out 1.
Now let's look at the next costly mistake we made.
Mistake 2: Not understanding the power of leveraging and thinking all loans are BAD
We were scared of loans. We don't like owing money, especially me. Because I had lived a life of paycheck to paycheck after signing too many installment plans. Monthly repayments scare me. However, that was in the past and I am a changed person now. I also learned about the power of leverage and loans can be helpful too!
When we bought our BTO flat, the first thing on our mind was the shortest time we could take to finish off paying for the house in FULL, because we want to pay as little interest as possible. So, we used up our CPF and put in additional cash payments as and when just to finish paying off the loan in less than 5 years.
On the surface, it looks great! We are debt-free! In reality, we were incurring CPF accrued interest which we would have to pay using the sales proceeds when we sold the house. We are essentially paying the CPF interest ourselves.
We were comparing HDB and bank loans too, thinking about which one to take it up. Mind you, bank interest was 1% and HDB interest was 2.6%.
"What if banks increase interest rates? Then we cannot afford the monthly repayment!"
"HDB loan safer, the rate is fixed!"
Again, driven by fear, we took up an HDB loan, which was the safer option, while bank interest remained much lower until 2022 and we sold our house in the same year.
If we had taken the bank loan and kept a portion of our CPF to continue to earn 2.5% interest in our CPF Ordinary Account, we could have incurred lower CPF accrued interest and in a way "earning" money!
Regarding loans, another mistake we made was not stretching the tenure (We took a 5-year tenure, paying $2050 a month) and thinking we must pay off the loan in full. This was what our parents did. We also thought that we would stay in our BTO flat forever. However, plans do change, situations change too. True enough, we sold it in 9 years because plans changed. After going through all these, I truly think that when buying a house, also plan it in a way you will need to sell it off one day.
If we had stretched the tenure to 20 years, we would pay less every month, freeing up the cash for other investments. And since we sold in in 8 years, we didn't incur the full interest (20 years' worth) that we thought we would!
Mistake 3: The importance of getting a good property agent
This was a costly mistake we almost incurred but, in the end, we didn't. And the reason was because of our trusty property agent, Stuart who sold our HDB and helped us buy our EC.
Before him, we had another property agent. Let's call him Mr A. Mr A was helping us with rental stuff, and we were quite happy with his service. When we wanted to upgrade our property, we sought Mr A's advice too. He was able to advise us based on his experience. However, we were still not ready and had lots of fear of taking that next step.
My husband had the mindset that the property market would crash, and he had a hard time accepting the price per sq foot (psf) amount at that time. Hence, he wanted to wait for the property prices to come down.
That was when I told him that we needed a second opinion. So, he reached out to Stuart, his friend who is also a property agent. And that's the turning point.
Were my husband's beliefs true? Stuart was able to answer all his questions with real evidence, presented in data analysis and trends. He showed us what was the actual situation and what could we learn from the past years' experiences. There would still be risks, but we considered it a calculated risk.
My husband and I were finally convinced that we should not wait anymore and went ahead to buy an EC. As predicted, so far there have been no recession or crashes, and property prices have already gone up. If not for our agent who was able to convince us with real data trends and helped us to choose a unit based on our needs, we would not be staying in our beautiful home and sitting on a $500,000 profit now.
Keep an open mind, make informed choices
It is alright to make mistakes and that is where we start to learn and improve. Now staying in an Executive Condominium, we are planning to buy another property in 5 years and rent it out for extra income. We might or might not sell our current house, depending on the situation. We have learned our lessons that when it's time, we have to be open to all options and seek advice from professionals and experienced ones. This quote is true, "Don't wait to buy real estate. Buy real estate and wait".
Nowadays I still hear people saying $2100 psf is too high and they cannot accept it. It reminds me of my husband's fear and the costly lessons we went through.
Keep an open mind, stay curious, do your research and talk to someone. Ask your family or close friends to recommend you a trusty property agent if they have one. If not (ad time), you can reach out to me too and I will be happy to provide consultation.
About the Author
Elyse joined the real estate journey in 2023. She was in the government sector for 10 over years, assisting low income and vulnerable families to lead a better life. As a Civil servant, she has been and still upholds the highest standards of integrity and honesty in her work. She acts with fairness, impartiality, and transparency, ensuring that her decisions and actions are guided by ethical principles.
She may be new to the industry but her own housing journey and research in property investment equipped her with the necessary experience to assist and consult any individuals in need.
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