I must admit that I felt a pang of regret/fear when I read Kyith’s (Investment Moats) post – Negative Cash on Cash Return Bites Single 45 Year Old with 6 Investment Properties. Although I am not in the same situation as the lady mentioned in The New Paper, Kyith’s analysis could just have easily been applied to my wife and I.
It’s a great read and important reminder for people not to get complacent and overstretch themselves on property investment even if you are a high income earner. In fact, I have applied Kyith’s analysis to our situation below.
We capitalised on our above average and more stable earnings power to purchase a 2-bedroom condominium in the East in 2011. Since it is for home ownership/investment, the apartment is definitely cash on cash negative for now since we receive no rental income. It would still be the case even if it is leased out in the current rental market in Singapore.
If we offload the apartment now, there might only be a small profit after taking into account the closing costs and interest paid on housing loan so far. Given we only own one property and built up some holding power from being employed with some level of job stability in the past few years, the real test will come during the next recession.
We relied on the low interest rates to keep our mortgage payments affordable. It also helped that the lack of business building and appropriate financial assets for investment meant there was an underlying price support for the property market.
If you consider Kyith’s factors in our situation above, you would be right to think we were one mistake away from being royally screwed. Was it just good luck and fortune that spared us that fate so far? Yes and No.
We were used to paying 30% of our salaries as rent when working overseas and we just made sure that we earned enough to ensure only 30% of our salaries was used for the mortgage. We already knew we were making a mistake of not purchasing a more affordable apartment because we could not qualify for those other options. We just didn’t realise how bad it was going to be.
The key thing is not to get stuck in your mistakes. We took advantage of job openings in Singapore and moved ourselves back in roles that have above average pay, are more stable and sustainable long-term. This required us to actively study the employment market in Singapore and see where the opportunities are. As well as taking calculated risks in changing roles.
Essentially, we pushed hard to increase our salaries to the point where the mortgage payment started to drop below 30% and hurts less. That’s how we move past our mistakes and we have had a lot of practice with this from living and working overseas.
Too often, couples are afraid to make mistakes whether financially or in life. Depending on the environment you live and work in, people can be cruel and judgmental when it comes to mistakes. Hence, couples take the safest approach, keep watching & learning from what other people are doing so as to make as little mistakes as possible.
This has never been the approach for my wife and I. We have a tendency to leap first after giving it some thought but not too much, work out the problems and pick up life lessons along the way. It can be a more painful approach when things are not going well and we find ourselves in difficult situations with few people to depend on.
All I can say is have a more positive attitude to the mistakes you have made. Always make sure you are learning from yourself and other people about tackling these mistakes. More importantly, don’t let anyone get you down & out and count on yourself to bounce back.