I have been doing regular planning for many of the people that I met on their property portfolio. In fact, over the last 3 years alone, I did more than 150 detailed property portfolio planning and financial analysis for them.
I discovered nowadays we are regularly fed with property market information compared to many years ago. We are generally now more knowledgeable and more updated about the property market. However, the challenge now for us is that, with so much information, how do we make sense of all of them?
Another key observation that I noticed is that everyone’s need is indeed unique and different. In fact, even after preparing more than 150 plans, there are no two same persons with the same exact needs. This led me to recognize that customizing the property plan to meet the exact needs is certainly an important skillset. It requires extensive experience as well as a well thought out planning process.
Here is what I have observed from all the planning done:
Advisory and No longer just sales
After many rounds of consultations, I realized this major shift in consumer mindset. More than ten years ago, consumers just needed a property agent to help them market and sell/ buy their property. However, with the proliferation of information sources, there are now a plenty of information available. Consumers today are well informed of the market movements and updates. They no longer need advice on simple property matters.
However, on the other hand, with the influx of so much information, consumers are sometimes confused about the actual market situation. Especially when conflicting news and different perspectives are presented to them from different sources. One report may say that the market will be expected to go up, while the other report says vice versa. So, which one do they trust?
Thus, they are looking for someone who can enlighten them and makes sense of all the confusing information. They are now looking for advisory services instead of just transactional services. No longer they need agents that do transactional work as they can even do it themselves. They sought out advisors who can effectively advise them and assist them to customize their personal property investment strategies based on their life’s situation.
Portfolio management
Increasingly, I met people who ask me about how to manage their property portfolio. Some of the common scenarios that I encountered:
- We own a recent (or about to) MOP HDB. What should we do?
- Should we upgrade to an Executive Condo or condo?
- With the current properties we have, should we rent, sell, or should they buy more.
- My property is ageing, should I continue to hold on?
- How can I restructure my property portfolio to realize the maximum returns from it?
- Our property that is losing money now, what should we do?
- Should I hold my EC or sell it when it has just fulfilled MOP?
- What should be my strategies (entry or exit) for the properties I own?
- I intend to pass on my property to the next generation, what should I do?
- Which property is the best investment for me right now?
All these questions do not have a direct answer. It requires detailed understanding of your financial situation, coupled with an in-depth planning process in order to formulate the correct and prudent strategies to address them. Most of the answers here lies in the accurate analysis of the opportunity cost of each decision.
Over commit
Unfortunately, there are some that I meet who had over committed in their property purchase. How do I know that they have over committed?
In our conversation, most of them expressed their stress over the monthly mortgage instalment. They will be extremely anxious when the interest rates go up, when their tenant did not pay the rental on time or when their unit cannot find a new tenant immediately after the current tenant has left.
Usually over commitment can happen in many way, here are I will share 2 of them:
- Loan
Over commit on the loan amount. Thus, the monthly mortgage instalments are very high compared to their earned income. After the property purchase, they may need to compromise on their lifestyle and cut back on their household consumptions. - Insufficient emergency funds
There are currently little or no “liquid” funds in their bank account to take care of emergency purposes. Like for example, losing their job or if the investment property could not find tenant.
Possible outcome of over commitment includes forced sale of the property at a low price or default on bank loan. The key thing to do here is to set aside enough emergency funds for contingency purposes. The actual amount will vary from person to person depending on his lifestyle and family.
Legacy planning comes into picture as the person ages
Some of the people that I met have the intention of bequeathing or giving what they have accumulated this lifetime to the next generation. They feel that after working so hard and saving so hard for so many years, they really want to give a head start to their next generation.
There are many major concerns and complexities in legacy planning. Just sharing three of the important ones here:
One, how can they pass on their wealth to the next generation efficiently without much reduction in the total value of their estate.
Two, how they can distribute the assets to the next generation correctly so that it will not results in disputes or disappointment in the family.
Three, how can they ensure the wealth can continue to help their future generation if the next generation does not know how to manage the finances well.
I discover that most people will find legacy planning not important now as still a “far away” thing. However, in life, anything can happen anytime, just like accidents may occur any time. Some may not even foresee or think that their next generation will have any asset distribution problems.
Here is an example of a question that you may try to answer: One property, 2 children (1 of the children is married) and your wife and one son staying there. How will you allocate the one property to all of them? What if one of the children is a spendthrift child?
Brought the wrong property, property is still losing money
Some people may claim that if you were to buy and hold on to a property long enough, you can surely make money. Generally, this can be true. However, there are cases that I met where the owners had hold on to the property for more than ten years and still lose money if they sell now.
Why?
CPF accrued interest and bank loan interest are some of the reasons that had caused the loss. Most of us may not be aware on how these interests can quietly erode away the cash proceeds from the sale of the property.
In addition, buying at the wrong timing or location can contribute to the loss too. For example, buying at the peak market price where there are no other transactions that can support the high price. Or, wrong location selection where property prices in that town, district or developments did not increase much for years.
I found that with good insights into the property market, understanding of the master plan together with proper financial analysis, you can easily avoid buying into the wrong property.
To be continued at Part 2