Thursday, September 19, 2019

Is Your Home Ownership An Asset, Liability Or Investment?

Buying a home probably ranks as one of the most important milestone in our lives.

After all, it is a huge investment that we have to pay upfront and will have to service for the most part of our working lives.

Hence, it is common for people to think of their home as an investment and humans typically well...do not like to lose out on their investments. No one does.

When the value of their homes drop, their hearts sank together with the times.

This is probably the reason why we see so many older Singaporeans complaining on the lease expiry of their 99 years leasehold HDBs, which may become worthless once the lease expires. After all, they've been servicing it all their lives, and now you are telling them that it is worthless at the end of the lease!



To homeowners, they have a constant worry that they might outlive the leasehold HDB home they "own" and will have no roof over the head. More importantly, they worry about seeing their home as a liability and value of their HDB expires to zero.

This is all playing in the mindset.

The idea that homeowners see their primary residence as an asset or investment comes from the fact that historically the value of their properties rise over time. Think about our elder peers or generations before us that have bought their homes for less than a third of what we are paying today.

Even if not, it is likely that in a limited land supply like Singapore, there is a high likelihood that developers will come in and "buy" out your property before the lease runs out, which is something pretty common these days.

There's also this idea of lease buyback which can be taken into consideration.

This is the reason why property purchase is so popular and you can see the reason why an additional curb of the cooling measures have been put in place.





But here's throwing back the question to you homeowners.

Do you see your home as an asset which depreciates over time, a liability or an investment?

The First Argument: A House must be classified as an Asset. We must follow the Accounting rule!

The accounting rule is pretty rigid and has been around for the longest of time.

When a company purchases a property, they would have to record it as an asset. This asset would then have to be amortized over a period of their useful lives as depreciation.

If the intention is to purchase it for investment and eventually lease out to tenants, it would have to be classified as an investment property distinctively.

It's difficult to argue with the International Standards beyond the stature of this practice.

But Wait! Homeowners don't usually generate Cashflows from the primary residence they stay in!

The idea that when you buy something as an investment, you usually expect to receive some sort of cashflow on that asset, which is something similar in the nature of stocks or fixed deposits.

If the market value of that asset or investment is determined by market forces who decides on what price should that be at any point in time, then it is no different from me picking up a stone on the street and having it valued at $1m myself, assuming I am the only interested party to play this game.

This is why there's always a lot of debates on whether gold or cryptocurrency is classified as an investment or speculation. They do not provide cashflow and their market value depends on how people perceive their usefulness over a period of time.

Homeowners face the same issue.

They live in the space they buy in and it does not generate cashflow returns for them.

You might make a case for cashflow if you have spare rooms to rent out and you derived rental income from it, but what about homeowners who fully utilize the space to themselves.

The Repair, Renovation and Improvement Is a Carrying Cost To You.

You probably have to budget for wear and tear that happens during your stay throughout the years.

If you are lucky, you would only have to spend on minor routine repairs and maintenance, while major repairs such as floor tiling, air con compressors are not uncommon either.

On top of that, you will also need to pay property tax for owner occupied and home insurance, all of which will add up by the time you finished living in the house.

Home Is More Than Just Money! It Is Where The Family Resides And Collect Memories!

The one most probably compelling reason to believe why home ownership is not an investment is because its primary purpose is providing shelter and roof over the top for the family.

Since it is likely that you and your family will need a shelter to live by, you have little control over situation where you needed to sell. Even so, it is likely that you will end up purchasing another in return for a one on one exchange.

The inability to sell the home, even in the most unlikely scenario of a property boom will mean that you are likely to simply sit on the appreciation gain, until one day when you decide to sell it off to another people and realize the gain.

HELOC To Your Rescue!

There is a however one way out if you want to treat your home as an investment.

Home Equity Loan of Credit (HELOC) facility will value the equity portion of your home and entitle you to how much you can borrow depending on your equity. The facility loan is taken under the care of putting the property as collaterals that you put in.

This method works tremendously in the past where people buys house during a property boom period where the value (thus equity) continues to go up and they are able to secure a HELOC to fund another property purchase and the steps repeat itself.

This happens until the cooling measures were introduced, in particular to the additional stamp duty for the second property onwards and the limit to how much they can borrow, that this practice has since slowed down a lot.

I'll talk and explore a bit more on this in my next article series.

Asset or Liability or Investment?

You really have to evaluate on how you define a house vs home and whether you are comfortable moving your family everytime you see an opportunity to do so.

It is definitely not a risk free environment where property purchase is promising good returns based on past historical data.

If you buy your house at a premium, it is still going to bite whether or not you treat it as an asset or liability.

Thanks for reading.


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Tuesday, September 17, 2019

Why You Should Apply For Approved In Principle (AIP) Before Buying Your Ideal Private Property?

Buying your first property can be confusing and time consuming because of the regulation changes that you need to keep up to and remain relevant to these changes.

But whatever the changes are, they are ultimately down to how much the banks are willing to loan based on the regulations of the Tdsr and your own personal commitments.

This is why it is important that you should get an Approved In-Principle (AIP) before committing to purchase a property, no matter how attractive or undervalued the property is.



What Is Approved In-Principle (AIP)?

An Approved In-Principle is basically an official agreement with the bank after they check based on your income and credit history.

The AIP approval is usually short, between 2 to 3 days, assuming you don't have specifics that they need to further investigate.

Their validity is usually 30 days from the approval date, so you can use that as an official that the bank will lend you money and you can proceed to put your Option To Purchase (OTP) on the property that you are buying.

Why Do You Need An Approved In-Principle (AIP)?

An AIP gives you notice how much banks are willing to borrow money to you. From the banks' perspective, it is important they they do their due diligence to ensure you have the financial capability to pay the loan back for the entire duration of your loan.

Without having an AIP in place, it can be difficult to engage in negotiations with the seller because you will not know for sure what's your loan ceiling and thereby unable to make an intelligent choice during the negotiation process.

If that is not all, you might also lose your option to purchase (otp) money should there be complications with the bank and you are unable to get the loans from any banks.

Most agents are also wary of the situation if you do not have an AIP because that would mean the transactions can lapse anytime during the negotiation process and you ended up with time wasting for all parties.

What's The Steps To Get An AIP? 

First, you can check on the rates that are being offered by the various loan providers based on the current market situation.

These rates do change rather quickly so you may want to get yourself updated with the latest available rates.

There are a couple of sites which allows you to compare across the different bank rates but do take note some of the small terms and conditions that are not so evident at first glance.

A good mortgage advisory or independent advisor will be able to explain to you each of the pros and cons and will be patient until you get the right deal before committing a loan.

Once you've set on which loan provider you want to take up the loan with, you will need to fill up their application form together with all the required financial information for them to check on your credit history and availability of how much loan you can get.

These includes your past 3 months payslip, last 12 months Cpf statements, Hdb financial info and latest Notice of Assessment.

What Is Considered During The AIP Review

Not all profiles of income derived are treated as equal.

For example, the TDSR limit recognizes full-time employment income as 100% but variable income as only 70%. This means that if you received $50k per year on your rental, they will only recognized 70% of the $50k in their review. 

The same goes for self-employed owner who derived their income and are only being recognized 70%.

Dividend income is not treated as income under the TDSR limit.

The TDSR bank restrictions also favour younger age profile as they are allowed to borrow up to a maximum of 35 years before you turn 65 years old.

How Long Do You Need To Wait? 

The assessment will usually take at most 2 to 3 days to assess if the information to complete.

If they need more information from you, they will contact to get more supporting documents.

With the AIP in place, you will be in a better position to know how much loans you are able to secure and play the negotiation to your advantage from thereon.

So there you go! Don't take the risk of having committed to your purchase without first knowing if you are able to obtain a loan.

You don't want to lose out on your 1% OTP for sure!

P.S: This is a series of educational post relating to property purchasing which hopefully could help some people out there buying property for the first time.

Stay tuned for more!


Saturday, September 14, 2019

Sep 19 - Portfolio & Networth Update

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Starhub (Short)
120,000
1.35
 162,000.00
15.0%
2.
HK Land
  10,000
US$5.75
   79,350.00
15.0%
3.
Far East Hospitality Trust
    3,000
0.69
     2,070.00
  0.4%
4.
Ho Bee Land
       300
2.29
        670.00
  0.1%
5.
Warchest
  
 370,000.00
84.5%
Total



 614,090.00
100%






Less:
CFD Leverage @ 2.8%


(112,000.00)

Total



 502,090.00
100%

I'll do a quick update on my positions for the month of September since there isn't much going on and I'm also focusing my time with some other stuff most of the time (I'll reveal when the time is right).

The only changes made to the previous month update was the short position which I took for Starhub back in late August which you can read the thesis here if you have not yet done so.

The share price is still lingering around the same as when I placed my position two weeks ago so there isn't much movement to track yet.

Other than that, I haven't really found a compelling case to make more purchases so I'll continue to keep my warchest until I find one that does so.

STI and the rest of the markets have been going up since the last 2 weeks or so it appears that the worst is behind us. Who knows, we might just get a surprise from our most unlikely hero who appears to be very quiet in recent times.


Networth has gone up a bit this month, though it's unlikely to make a big impact in terms of growing wealth at this point.

I'll continue to exercise caution and prudent investing and will only take action and do so when I find something which offers a lot of value on the market.

With work starting to get busier, I guess there will be lots of focus to get my hands dirty and is a good tool to exercise patience.

Meanwhile, till next month's update again.

Thanks for reading.

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Saturday, September 7, 2019

How My Work In Start-Up Firm Is Different From My Other Corporate Roles

As some of you might know, I had to reverse my sabbatical plan and return back to work due to some circumstances back home.

I've completed the first full week of my new role in the startup firm so I thought I put down some thoughts on how is it different from my other corporate roles in the past.

Location & Working Environment

The office is in the co-working space in one of the malls in the Central area so it is something very refreshing to me.

In the past when I was working for my corporate roles, my desk is a squarish cubicle cells so to have something different is a nice scenery change.

The co-working space is shared amongst the many start-up firms they have there so the environment is very vibrant and lively and there's this sense of positive attitude that spreads across everyone.

Most of the meeting rooms are really nice and there are often events (and food) that you can grab or attend while you're there.






They also have a lot of resting area, a nice pantry and a ping pong, football and golf area to do some light exercise, not to mention the countless hunks and syt babes walking past your desk everyday.

No complaints about that.

Casual Dressing Style

For 13 years, I've been dressing up in a corporate style of long shirt and black pants.

In my big 4 days, I even had to wear a tie in the office even when not meeting clients which I thought was rather silly.

At some points, I was rather exhausted with all the corporate dressing requirements because I just felt it took up a lot of my energy to consume.

The dressing style here is casual, which means technically everyday t shirt and jeans will be good to go.

I find my energy level is higher when I am comfortable wearing what I like to start the day with.

Colleagues and Boss

The colleagues are a bunch of pretty fun people but a pity some of them are about to leave the organization soon.

I think they might be looking to hire some operations lead and/or key account sales as replacement. If you are interested to apply, you can always ping me to check.

It appears that some, if not most of them cannot get along well with the CEO and while on my first week I have not experienced something in a bad way, I'd be keeping my toes up on that.

The CEO is 27 years young, and is someone who comes from Mckinsey background so you know the style is fast, aggressive and direct to the point. I think that's what most people who's been working in start-up cannot relate to. For me, I've experienced a lot of such bosses in the corporate role so maybe my tolerance level could be higher.

I think the key here is to manage expectations. 

On my first week, I asked him exactly the kind of information he wants me to update him on a weekly basis so I think I've set the tone and expectations right amongst us to work with.

I am 34 years old this year, which means I am by far the oldest in the company.

The average age of the workforce is only about 28 years old so that speaks volume how lao I am today.

Role & Work

I'm heading the Finance side, but being a start up you literally have to do a lot of things on your own.

This is different from my other roles in the past where I have people under me who I can delegate the work to.

I do have an account assistant which is sitting in the Jakarta office so it will be long distance relationship and some things are difficult to delegate due to the proximity.

There's a lot of outsourcing to third party such as tax accounts and payroll so the roles involve a lot of liaising with third party.

One of the main key roles is to manage the management accounts and then have it present to the parent group and key investors every quarter to let them know where we are on the expansion.

This will be critical because the firm depends on key investors' funding to survive.

Unlike my other roles in the past where there are multiple layers of hierarchy, decisions on this one are made short and sweet because the hierarchy is lean.

Final Thoughts

My overall impression on the first week is rather good.

It could be because of the different working environment, roles or dressing attire which makes it refreshing to me. Having many good looking boys and girls around you doesn't hurt the eyes and minds either.

Being a value investor for so long on the personal front, I have also been overly cautious to invest in such companies whenever the accounts don't look good BUT I think it might not be always the case.

Entering into this different world of domain changes my perspectives of looking into companies differently on this and I think this might the biggest takeaway at the moment.

I get the feeling that for graduates who start working in a start-up firm, it will be very difficult for them to move to a traditional corporate role because I doubt a lot could adapt to the grinding of the expectations. It seems like it is easier to adapt moving from a corporate cubicle to a free working space where you can move around.

Being in a start-up firm however, means your job is likely to be less stable than working for MNCs so that is also something to take into account. 

Does anyone has any experience to share on your account the difference between working for start-up vs corporate firms?

Thanks for reading.

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Friday, September 6, 2019

Whatcard Is Here To Make Our Lives Easier And Better

Most people think of savings in the traditional way where you keep the leftover of what you have in your bank accounts after spending.

But what if I tell you that you could actually save even when you're spending.

Back in the 1950s, Diners club founder Frank Mcnamara first introduced a novel method of paying for purchases to merchants and you only have to pay back a couple of weeks later. He called it "deferred payments", which literally in today's world known as credit cards.

The idea of credit cards is no longer a stranger to us.

At first, the attraction comes from the idea that consumers can get to enjoy something first but pay the actual costs later when the amount is due.

Sooner or later, the market becomes more saturated with competitions once everyone is offering the same perks so there are no differentiations.

Today, there are increasing new number of product launch that entice people to sign up for their credit cards. These includes rewards in the form of cashback, points, miles so that consumers can "save" whenever they are spending on merchants.

Now, I am personally a fan of miles rewards myself because of my passion to travel.

Heck, I even created a traveling blog a few years ago to journal my past travels and findings which I find it pretty interesting to share with.

As a milers myself, I found the three best cards suitable for my current spending patterns are the CitiPremier Miles, DBS Altitudes and Amex Krisflyer.

If you'd like to apply for the cards, you can click on the link I've provided below to enjoy more benefits when signing up. Do take note of the terms and conditions which might change before applying.




Now, the problem with having 2 or more cards in my wallet is that whenever I purchase something in a shop or shopping for groceries or dining in a restaurant is that I do not know which cards I should use in order to maximize my rewards.

I do not have the luxury of time nor the patience to check which cards are able to give me more miles in which particular settings so I usually go for cards that are right in front of the stacks (yeah I know my cards are stacked up in my wallet one after another) and this doesn't usually gives me the best option.

For instance, Amex Krisflyer card is currently running a promotion where you can get up to 3.3 Krisflyer miles on per dollar spent for SP Utilities.

I'm not the type that usually track on these kind of activities because it is so time consuming to track on each and every promotions there are out there with merchants and credit cards.


What Is WhatCard?

Just when I thought there's no way I could hack and maximize my rewards, here comes WhatCard to save all of us lazy folks.

WhatCard is essentially a search engine to help do a quick search on a merchant to get the best rewards out from the credit cards that you have.

All you need to do is key in the merchant's name on top of their search bar and the site will immediately tell you which cards you should use to optimize your rewards.

For instance, if you search Singapore Airlines as the merchant, the site will tell you that UOB Lady's card and DBS Woman's World will yield the best rewards in terms of miles.

In my case, I do not have both of these cards so I will have to choose between the three cards that I currently have.

Amongst the three cards I have, it seems that Amex Krisflyer yields the best reward so I will proceed to use them instead of my other two cards.



The website is currently in the infant stage but I can already see them growing with the number of merchants and users that are registered in their site.

I have also personally chatted on the phone with one of the co-founders to understand their motivations behind creating the website and I think it is impressive that these people are helping to create a solution for a problem of what I used to have in the past.

The website also has a community chat forum where you can engage with think-alike card holders and to share your ideas on how you think they can improve the site and make it better.

If you are into all this, I'd recommend that you try to go to their website and have a feel of how it might work for you.

Thanks for reading.

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