Fact or fiction Sell 1 Buy 2 Strategy can it still work?

When you first hear of this “selling one and buying two properties” strategy, which is usually pitched to property upgraders, many a times the first thought that comes to mind might be “Is this safe?”. Let’s face it, by buying two properties, on the surface, it is literally servicing two loans for two properties. For most Singaporeans, even managing a single mortgage loan for their homes is already enough of a burden - taking a huge chunk of the take-home pay month after month. How could one dare to imagine the possibility of servicing two mortgage loan installments? Wouldn’t that be too speculative and highly-precarious?

The question remains – Why is this strategy still a growing trend among aspiring investors?

While you might be wondering, if this investment strategy still works in 2022, let us take a look to see how this strategy works. Before we continue, I would like to caution everyone reading this. It might be tempting to do-it-yourself but we have helped many clients get out of bad investment plans in the past - failed attempts to the “sell one buy two” strategy. So do be careful not to try it yourself unless you have adequate real estate investment experience or the help of someone experienced/trained in this area of expertise.

Before taking a dive into the strategy, we must first establish some basis of understanding for past HDB and private housing trends. 

Based on a common concept passed down from the “baby-boomer” parents – buying a HDB flat as a matrimonial home and living there forever is the norm. A reader of this article like you would probably know that this is no longer what the younger and more educated Singaporeans have in their lifeplan. However, do not be surprised that there are still many Singaporeans subconsciously doing what their parents have done.

Now let’s take a look at the property overview of a typical baby-boomer, hardworking Singaporean age 65 - owns a flat in Ang Mo Kio and has lived there for over 29 years and another 1 more year to fully pay off the mortgage. You can see that this Singaporean has a potential profit of half a million dollars to pocket if he sells the flat! Perfect, right? Nah…! It’s far from being perfect!

At the age of 65, you may be able to enjoy a handsome profit of half a million in your bank if you choose to sell your ONLY property. However, what’s the plan after that? You would not be able to get another mortgage loan from the bank for another purchase. Therefore, there will only be 2 other options for you - Buy another flat with all that hard-earned profit or downgrade to a smaller flat if you want to enjoy life a little or pay off some debts. Is that the kind of retirement you want?

Figure 1: Prices of HDB 3-Room & 4-Room at Ang Mo Kio

Perhaps you already have in mind the kind of retirement you would strive for or even set an earlier retirement.

Working very hard and living prudently may work for some in the past but that past is already in the rear view mirror. Working hard can no longer make you rich.

While everyone else is working hard to help Singapore grow, table 3 shows that those who know how to play the investment game have their investment goals realised in just 3 years - making a staggering profit of $200,000 with their Clement Canopy purchase. Unreal? This is as real as it gets!

Heard of the phrase “ You work hard for money so that you can make those monies work harder for you in the future? ” But what this phrase does not tell you is how to have a SECURED way of making your hard-earned money work for you. Why do people call it “hard-earned” money? The table below shows the average income of Singaporeans grows at a snail pace of 2.4% per annum. Isn’t this hard or what?

Figure 2: Income Growth (2002-2019)

Figure 3: Transactions of Clement Canopy

Here’s another case study - a purchase of a 2-Bedroom plus study unit at Belmond Green and the entry price was $1,618 psf. After 5 years, a decent profit of $350,000 was achieved. Referring to historical data, it appears to many property owners that the uptrend is almost like a guarantee. So should one sell or hold longer for more profits? What do you think you should do?

Figure 4: Historical Price Trend of Belmond Green vs Overall Average

One last case study in Figure 5 below, if you held onto a property for the last 20 years which you bought at $750,000 and today it hits $1.4 million. As an example, let’s say you at 55 now, would you consider selling it or upgrading it? If you wanted to downgrade the property and purchase a resale flat off the market, today a resale flat would probably cost you $600,000, throw in renovation & miscellaneous fees would likely drive that figure to $700,000. Is the remaining $700,000 enough to allow you to enjoy a comfortable and fulfilling retirement while still supporting your family? Bear in mind the ever-rising cost of living as Singapore grows along with the world.