A Tale of 2 Investors (Which One Are You?)

Updated: Sep 6, 2020

Which type of property investor are you?
Which type of property investor are you?

Taking a break in between work to discuss what is a common question today.

Whether to buy a property today or to wait further, consider this simple situation between 2 friends.

Tim buys a $1m property today.

John feels that the market will correct further and waits out.

3 years later, the market has fallen by another 10%. John buys the property at $900K.

Who has done better?

real estate investing dilemma and risk management

What happened for John:

Pros: John buys 3 years later at $900K.

ABSD could be revised.

Cons: Loan tenure shortened by 3 years. MMI has increased.

If market had rebounded during the 3 years, John misses out and loses more years waiting for the next correction.

In the mean time, he gets older and loan tenure gets even shorter.

What happened for Tim:

Tim buys at $1m today.

Rental yield of 4.2% (Achievable in OCR/RCR projects or even CCR projects like The Sail).

3 years of rental income – $126K

Less est. interest: $26K

Market falls 10%. Valuation: $900K + Rent $100K.

Nett Equity: $1M.

Tim ends up in the same position as John but has the added advantages of:

– A potential capital gain if market rebounds within the 3 years.

– Lower MMI as a result of his longer tenure. Positive cashflow after paying mortgage, interests, maintenance fees etc.

– With the equity in his property, he has the option to gear up today to invest in more properties or markets.

Who then has made a wiser decision?

Which path would you have chose?