The Day Your Monthly Income Crosses $6,000

the-day-your-income-crosses-6k

Congratulation!

You are now ‘officially’ above Singapore median income level.

From today onwards, you should be financially savvy enough and does not require any subsidy or assistance from the government.

Financial Independence

Still remember those days, where a $100 pay increment will give you an additional $37 increase in CPF contribution amount (20% from yourself and 17% from your employer). However, from today onwards, your total CPF contribution will be capped at $2220 (37% X $6000).

From today onwards, with the ordinary wage ceiling, any salary increment you get is what it is, there will not be an additional 37% into your CPF.

By now you should be wise enough to manage your own finances without mandatory savings plan (a.k.a CPF) for the portion above $6,000.

You are on your own, do spend wisely.

Forget about HDB BTO

As we all know the income ceiling for HDB BTO is $12,000 and assuming your spouse is working as well with similar experience, your combined income should be very close or over the ceiling already.

Fret not, it is not that bad. You still have executive condominium which has an income ceiling of $14,000. Hurry up, before you miss the chance again.

On the other hand, if you are a single planning to apply BTO under the Singles schemes, you are too late.

You have been disqualified due to your income being more than $6,000. You are now left with HDB resale flats in the open market.

Forget about HDB loan

If you are a single buying a resale HDB, you are no longer eligible for HDB loan. You have no other choice but to get a bank loan instead.

In short, get your flat early before your income crosses $6,000!

Retirement Planning Is Not Just About Saving That Sum

good retirement planning is simply

Not matter how much money you set aside, whether it is in your CPF or other savings, it can be depleted in just a matter of time. However, an income would not. The untold secret about retirement planning is actually about retirement income, not the fund itself.

Retirement lifestyle and retirement fund

You must have heard a lot about setting a realistic lifestyle that is comfortable yet not overly straining on your retirement fund.

So what is your realistic lifestyle?

And have you calculated how fast will your retirement fund last you till?

If you have not, don’t be too surprised if it didn’t last you as long as you expected. It can actually deplete quite fast.

See the following scribble I draw together with a client on how fast can retirement fund deplete after one leave their full-time job.

 

retirement income.JPG
Retirement fund over time 

 

Retirement income

This is the key to successful and happy retirement, a good sustainable passive income for retirement.

It could be one or two of the following :

  • Dividend payout from stocks, bonds, insurance etc
  • Profit sharings from stakes of companies, partnership or startups
  • Returns from crowdfunding, high-interest deposits
  • Rental income from properties
  • and the list goes on

All the above has certain risk components in it, you have to decide which is the most suitable for your risk appetite and to start building it now.

Whether or not you are in 20s, 30s or 40s, start today to think about what is your retirement income and plan a way to achieve it.

It is never too late when you start today =)

 

 

Turning your CPF into an ATM machine

how to turn cpf into atm

The answer is simple.

Via rental.

When you are using CPF to pay for the mortgage of your investment property that is rented out, you will receive cash from rent. In this way, the CPF withdrew has just been converted into cash by renting your property out.

Only use this method when you know how and have a plan for this extra income.

If you do not have plans to earn at least 3% per annum from this extra cash, I would recommend you to leave them in your CPF account for a 2.5% interest.

 

 

How Much Should a Property Really Cost You?

how much should a property really cost you

There are generally three approaches to calculate the right price for any property; using historical data, using today’s data, and using future data. Most people use the first two approaches as they are more straightforward and easily understood, but in this post, I will focus more on the third approach – using future data.

Common approach – using historical and today’s data

Using historical transaction data – starting from launch price to the recent transacted prices, one will be able to calculate the average yearly capital appreciation and use that to estimate the reasonable price tag for a particular property at this point in time.

Using today’s data is only possible recently with the help of SRX’s live platform which provides real-time transaction information. However, this real-time information is not available for individual buyers or sellers who are not represented by an agent which put them in a less favourable spot when comes to getting the best deal.

By referencing to historical and present data, the common approach has a goal of validating if the current asking price is the right entry price to buy – entry strategy. In the next section, I will introduce an approach that is closer to an exit strategy.

Less used but powerful approach – using future data

 

This approach is not new to the financial world, but very under-utilized in the arena of real estate.

It is the discounted cash flow approach.

It looks at bringing the projected future income into today’s monetary equivalent so as to get a meaningful indication if the cost to purchase is worthy or not.

Step 1: List down all yearly income and expenses

  • Multiply recurring monthly income and expenses by twelve to get the yearly amount
  • Include all cost of buying and selling such as legal fee, agent’s fee and etc.
  • Set aside some expenses for some minor repair work

DCF 1

Step 2: Discount net cash flow for each year to present value

  • For each year, sum up all the income and minus all expenses to get the net cash flow for the year
  • Calculate the present value for each year by using the formula in the diagram below

DCF 2

Step 3: Sum up all discounted present value

  • Add up all discounted present value
  • You will get the net present value of this property
  • This is how much it should cost you to buy today

DCF 3

Should cost method is always wrong

Just like any estimate or projection, this should cost method will always be wrong. It can never be entirely correct.

Due to the assumption made on interest rate either constant for the entire time period or varies as per your subjective interpretation of the future and the inflation effects on future income and expenses, these uncertainty makes it only an estimate.

So why use this method?

Because we all have an interpretation of the future whenever we buy any investment product (consciously or subconsciously), and this method will allow you to quantify them into numbers.

Should cost method will allow you to quantify interpretation of the future into numbers.

Hence, by using these numbers will bring objectivity in when you are comparing a few properties based on the same assumptions.

This is how you should shortlist and find the right property to invest.

Are you already using this method?

 

3 Habits of Highly Successful Property Investors Everyone Must Know

3 Habits of Highly Successful Property Investors

After meeting a handful of successful real estate investors, I see similar traits in all of them and I have picked out three to share with you such that you and I can learn from them.

1.Ever expanding network

They have a good network of investors, bankers and real estate agents.
They hang out frequently with other like-minded investors and make friends with estate agents and bankers etc.
Being in such network, there is active sharing of exclusive first-hand information leading to collaboration focusing on mutual growth in wealth, for example; undervalued property from distressed sellers whom they know .
Furthermore, such strong bond comes with many fun-filled gathering sessions and celebration of their successes together.

larger network equal larger networth.jpg

2. Very well read and critically insightful

They read and talk about real estate and other financial products every day.
They watch the market and knows which districts are showing a buy signal.
They understand how to critically view the property price index (PPI) and look at specific district (and estate) to hunt for opportunities.

They are watching other financial products for a good portfolio mix. Although a few of my clients are cashing out their already profitable property investment to channel the proceeds to other investment products, real estate is undoubtedly still viewed as a safe haven with high potential growth in current times of global uncertainty.

 

3. High financial awareness

They always know how much In-Principle Approval (IPA) they can command at their finger tip.
They do projections and make plans for future cash flow needs so as to fully utilise their cash to work for them because being under-leveraged is actually a kind of liability.
They may not know the technical calculation of time value of money, mortgage and debt ratios but they understand the difference between good debt (leverage) and bad debts (liability).

 

Well, these are just three simple habits that anyone can practise and become the next successful real estate investor.

Let me know your views!