Finance Smiths

Personal finance apprentices-in-training

Do we want to be landlords

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We took leave and celebrated our son’s birthday over the last few days with both of our families separately. He got toys and ang baos as his birthday gifts and we also took him for a family photoshoot. We even managed to squeeze some time out to drop by our friend’s place for dinner and poker night. But we are wiped out and just resting at home now to recover. Went out for lunch and groceries shopping just now in the afternoon. May even go to my parents-in-law’s place for dinner tonight. Not sure why our schedules got so much more packed once we had a kid but that’s the way it is.

As we were finalising the terms of the tenancy agreement with the real estate agent, we were impressed with how he handled the negotiations on the rental property between us and the landlords. Even though he represented the landlords, I felt he treated us fairly and was open & honest with his communications to us. Hence, we are considering engaging him to either sell or rent out our current property. We had an initial discussion on the various approaches we can take but it comes down to this crucial decision point. Do we want to be landlords?

If we do, we can decouple so that one of us holds the smaller property to lease out for rental income. While the other buys the bigger property for the family to stay in. If we don’t, we can sell the smaller property and jointly buy an even bigger property for the family to stay in. Since my wife earns more than me, which name to hold the bigger property in matters because it affects the size of the loan that can be taken. It’s a difficult decision. At this point, I’m leaning towards for us to be landlords and getting the rental income on the smaller property. But my wife is leaning towards not to be landlords and just selling the smaller property.

There are so many pros and cons to this that it can be tough to do a proper cost benefit analysis of both options. I guess it comes down to what matters to us. While I would prefer to have the rental income, I understand that being a landlord comes with its own set of challenges and frustrations. Especially when you get stuck with a bad tenant on a 2 year lease agreement. It takes a lot to kick them out and they could have done a lot of damage to the property by then. Or worse, be late on their rent and even not pay it. It could work if you get a good tenant but that would involve a higher level of scrutiny during the profile screening process.

My wife is not keen on dealing with the inconveniences. I can understand her point of view. When you are working hard and earning more, the last thing you want is to deal with such problems just to receive some rental income on the side. Which can’t even cover the monthly mortgage payments on the property. All that hassle with so little reward. With the current rate of minimal property price growth, we are also not getting much capital gain from holding onto the property. We are going to think about this more before we decide on anything. It’s a big decision after all.

Cash drain from preschool and rental deposits

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The US elections results are coming in and I can’t wait to see who’s the winner. I haven’t done much with our investments except to buy in on the dips when they happen. This helped to maintain our cash position at 30% and investments value at 35%. The investment portfolio is rather evenly split between 50% local stocks & ETFs and 50% overseas stocks & ETFs. Asset allocation is balanced with funds on standby to buy in on volatility in the markets. Unless there’s another big market fall, I probably won’t invest too much cash that will cause a significant reduction in its proportion of our portfolio.

After all, we foresee our expenses going up in the next few years and we will need the cash for spending. We are enrolling our son into a preschool (childcare) next year when he turns 1.5 year old and we just paid the enrolment deposit. His start date is in 6 months’ time and we are going with the 5 half days (mornings) in a week to get him used to it. We are also in the process of leasing a bigger apartment in the same area as the preschool and will be paying the rental deposit. Our move in date should be in 3 months’ time. These deposits do add up and is no small sum of money i.e. a cash drain.

At the end of the 2 years lease, if we like living in that area and it works for us, we plan to buy a bigger apartment there. This is going to cost us even more and we need to build up our cash for it. Which means we have to save up more and not invest as much. We don’t mind renting in the meantime because it buys us time and information value. We will gain more insight into the sustainability of our jobs and the direction our lives are headed as a family. We are also looking to increase our portfolio allocation to overseas stocks & ETFs the more our jobs and lives are anchored in Singapore. But we will keep investing in local stocks & ETFs since the market has one of the worst underperformance. Just to reduce the risk of too much concentration and reliance of our livelihood on Singapore.

Planning for the future

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I finally finished my virtual training course, which involved several half days of logging on in the morning over the past few weeks. I’m done with training for the year and will start to discuss my training plan for next year with my manager in the next few months. While I enjoy learning new information and skills, it was a challenge finding the time and focus to do the training. I had to balance it often with my work, household chores and childcare duties. Just going to take a break from training for now.

Work has started picking up for me recently as we are in the last quarter and there’s a push to get things done by end of the year. I am in the process of going through my performance review with my manager. The feedback is that I have done a good job given how the year went with Covid-19 and work from home arrangement. It was a tough adjustment at the beginning (especially during circuit breaker) but got better after that. Regardless of my performance, it seems like there is likely to be minimal or no salary increase and bonus when the remuneration outcome is announced next year. Looking at how badly the Singapore economy is doing, I’m fortunate enough to keep my job so I’m already going in with very low expectations.

It’s a nervous wait for my wife as discussions among her senior managers will take place from next week onwards on placing the staff into roles they have applied for. And there will be staff that don’t get any roles that should be offered redundancy payouts. Not a good position to be in as the major restructuring drags on at her bank. There’s still plenty of work to be done at her job so it serves as a distraction while waiting for the outcome. When there’s so much uncertainty, it can be difficult to make plans for the future but we have to try. Just got to make estimates and assumptions about how things can turn out. Then adjust accordingly.

We are in the process of enrolling our kid for childcare in 6 months’ time. He’s turning 1 year old and growing up so quickly. Considered a little boy now rather than a baby. Didn’t realise we had to do this so early until we found out enrolment spaces at the popular preschools for next year’s intake are already being taken up. We went for a tour at one that is near to the area we would like to live in eventually. The premises are nice and we walked to the teacher and principal. Curriculum is play-based and seems more fun for the kids. We will probably go ahead to enrol our boy there.

In the meantime, we have also been searching for bigger apartments to rent in the same area as the preschool too. We have delayed our property purchase decision until we can get more clarity on a few things. Whether my wife would still have a job at the end of the major restructuring at her bank. How long it takes to sell our current smaller apartment. Whether our boy likes the preschool and us living in that area. Whether we want to have another kid. Until we get more certainty on these matters, we can’t commit yet to putting money down to buy a bigger property. So many considerations to think about and we just need more time before we decide.