We make $294k per year: Should we sell our 5-room HDB flat to upgrade to a new launch or buy 2 properties instead?

Hi. I love how stacked homes does unbiased reviews and advice the general public which is simple to understand coupled with realistic statistics.

I would like to seek advice whether which makes more sense to us.

My wife and I are 35 and 38 respectively. Our income is $8,500 and $14,000 respectively. We have two children aged three and one. We have no helper and our parents stay over our house during weekdays to help take care of the children.

We live in a five-room HDB in the west that has MOP-ed few months ago. Our loan has been cleared and we have about combined $30k in CPF + about $200k in cash that can be set aside for the purchase. Some neighbour sold similar five-rooms in the estate priced between $750k to $790k.

We are looking at upgrading to condo to let our children enjoy the facilities. We now face a dilemma of whether to:

1. Upgrade to larger, newer condo ( >1,100 sq ft) in the west/central based on new launches. We can move to parents house temporarily until condo is ready.

2. Sell one buy two. In this case, we are looking at buying a resale (< 10 years, > 1,100 sq ft) in the west, and another unit anywhere to rent out.

Some primary considerations we have for own stay: (Priority in descending order)

1. Balcony/rooms not directly facing east/west to avoid direct sun into the house.
2. Within one kilometre to a school (which at least ranks in the middle)
3. Short walking distance to the school (<10 mins walk)
4. Nearby amenities (<10 min walk)
5. Size (minimally 1,100 sq ft if layout is optimal, e.g. landscape living room, short corridor to rooms)
6. Unblocked view to parks/sea or high floor

I have no outstanding loan and the CPF used + accrued interest is about $475k.

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Hello,

Thank you for reaching out to us, and for the kind words.

Your current situation is one that many other HDB upgraders can relate to. Having made a tidy sum from the BTO purchase, it's natural for homeowners to start considering their next steps, particularly when their living requirements evolve.

As with many other homeowners, both your choices can basically be simplified to do you prioritise liveability and quality of life more, or the potential for more profits with an investment property.

In this piece, we'll look at:

1. Your estimated affordability based on the information you've provided.
2. What are some options and the associated costs of buying a new launch in the west?
3. Whether or not it also makes sense to consider a resale condo
4. How the sell one buy two strategies would play out for you?
5. A possible alternative solution for you
6. Which strategy would be best based on the numbers?

Now before delving into the various options you're considering, let's begin by assessing your affordability:

Affordability

First, let's look at how much you can sell your HDB for. Here are the recent transactions over the past 3 months from your HDB development:

Source: HDB

In total, there have been eighteen five-room transactions with an average sale price of $740,921. We will round this up to $741,000 for calculation purposes.

Selling calculations

Description	Amount
Estimated sale price	$741,000
Outstanding loan	$0
CPF used and accrued interest to be returned into OA	$475,000
Cash proceeds	$266,000

Combined affordability

Description	Amount
Maximum loan based on ages of 35 and 38, fixed monthly combined income of $22,500 and interest rate of 4.6 per cent	$2,335,641 (28 years tenure)
CPF funds ($475,000 + $30,000)	$505,000
Cash ($266,000 + $200,000)	$466,000
Total loan + CPF + Cash	$3,306,641
BSD based on $3,306,641	$137,998
Estimated affordability	$3,168,643

Wife's affordability

Description	Amount
Maximum loan based on age of 35 and fixed monthly income of $8,500 with a 4.6 per cent interest	$911,938 (30 years tenure)
CPF funds (We are assuming the total CPF funds of $505k is split equally)	$252,500
Cash ($466k of cash split equally)	$233,000
Total loan + CPF + Cash	$1,397,438
BSD based on $1,397,438	$40,497
Estimated affordability	$1,356,941

Husband's affordability

Description	Amount
Maximum loan based on the age of 38 and fixed monthly income of $14,000 with a 4.6 per cent interest	$1,427,193 (27 years tenure)
CPF funds (We are assuming the total CPF funds of $505k is split equally)	$252,500
Cash ($466k of cash split equally)	$233,000
Total loan + CPF + Cash	$1,912,693
BSD based on $1,912,693	$65,234
Estimated affordability	$1,847,459

Now that we have a better understanding of your financial capacity, let’s look at the options you’re considering.

Options

Option one: Upgrade to a larger, new launch condo in the West/Central region

With a budget of $3.1 million, these are some new launches that match your requirements in terms of budget, size, location, and proximity to a decently ranked school and amenities.

Project	Tenure	Estimated TOP	District	Size (sq ft)	No. of bedrooms	Price
Blossoms by the Park	99 years	2027	05	1,227	Three	$2,843,000
The Botany at Dairy Farm	99 years	2027	23	1,206	Three	$2,362,000
The Reserve Residences	99 years	2028	21	1,119	Three	$2,944,829
Pinetree Hill	99 years	2027	21	1,163	Three	~$2.6 million

Please note that these developments have been selected solely based on their affordability and alignment with your requirements, but they may or may not be suitable for you.

In short, The Botany at Dairy Farm will probably be the weakest link here if proximity to a good primary school is important. The Reserve Residences will be the top choice here, as it's close to both Pei Hwa Primary and Methodist Girls Primary. Blossoms by the Park has Fairfield Primary, while Pinetree Hill can count the popular Henry Park Primary to be within the one-kilometre radius.

Bear in mind that buying a property strictly for school entry is a very risky proposition — so it's good to set some expectations. There is no guarantee that your child can enrol in your school of choice. But at least you can stand a chance if you are within a one-kilometre radius of a popular school.

You also mentioned enjoying the facilities for your kids as a primary reason for the upgrade. And for that reason, Blossoms by the Park may come up short here as compared to the other three projects.

The standard for condo facilities today is high, so picking between the three based on facilities is really going to be by slim margins — you'd be better off looking at the number of units (so less chance for crowds) to decide.

Going by that The Botany at Dairy Farm and Pinetree Hill will be strong candidates, given that they have fewer units for their respective land sizes.

That said, considering your preference for having a primary school nearby, we assume that you plan to stay in the unit at least until your children complete their primary education, which is estimated to be around 11 years, given that your youngest child is only a year old.

We have previously touched on the topic of how buying a new launch does not necessarily guarantee profits and you can read more on that here. With that being said, an alternative worth considering is the purchase of a resale project with a freehold or 999-year leasehold tenure.

Given your extended holding period, this option may be suitable since such developments typically demonstrate better value retention and long-term growth potential.

These are some freehold/999-year leasehold developments that match your requirements in terms of budget, size, location, and proximity to a decently-ranked school and amenities.

Project	Tenure	Completion year	District	Size (sq ft)	No. of bedrooms	Price
Country Grandeur	Freehold	1996	20	1,442	Three	$2,780,000
Blossomvale	999 year	1999	21	1,335	Three	$2,950,000
Southaven II	999 year	2000	21	1,410	Three	$2,600,000

As before, these developments have been selected solely based on their affordability and alignment with your requirements and we highly recommend a consultation for a more comprehensive analysis.

We will now examine the expenses associated with the purchase of both a new launch property and a resale property.

Let's say you were to purchase a unit at Blossoms by the Park for $2,843,000.

Description	Amount
Purchase price	$2,843,000
CPF funds	$505,000
Cash	$466,000
BSD	$111,750
Loan required after deducting CPF and cash	$1,983,750

Booking fee (5 per cent cash)	$142,150
Completion (15 per cent cash/CPF)	$426,450
Foundation stage (5 per cent cash/CPF)	$142,150
Total downpayment	$710,750

The following is the progressive payment plan. We are using an interest rate of 4.6 per cent and the longest duration for each stage. Do note that interest costs fluctuates and that the use of 4.6 per cent is simply a reflection of the high-interest environment today.

Stage	Per cent of purchase price	Disbursement amount	Monthly estimated payment	Monthly estimated interest	Monthly estimated principal	Duration	Total interest cost
Completion of foundation	0 per cent	$0	$0	$0	$0	Six to nine months (from launch)	$0
Completion of reinforced concrete	Nine per cent	$255,870	$1,356	$981	$375	Six to nine months	$8,829
Completion of brick wall	Five per cent	$142,150	$2,109	$1,526	$583	Three to six months	$9,156
Completion of ceiling/roofing	Five per cent	$142,150	$2,862	$2,071	$791	Three to six months	$12,426
Completion of electrical wiring/plumbing	Five per cent	$142,150	$3,615	$2,616	$1,000	Three to six months	$15,696
Completion of roads/car parks/drainage	Five per cent	$142,150	$4,368	$3,160	$1,208	Three to six months	$18,960
Issuance of TOP	25 per cent	$710,750	$8,134	$5,885	$2,249	Usually a year before CSC	$70,620
Certificate of Statutory Completion (CSC)	15 per cent	$426,450	$10,394	$7,520	$2,874	Monthly repayment until property is sold (78 months until 11 year mark)	$586,560

All amounts are rounded to the nearest dollar

Cost of purchasing a new launch and staying until your youngest child finishes primary school:

Description	Amount
BSD	$111,750
Interest expense	$722,247
Maintenance fee (Assuming $400/month)	$36,000
Property tax	$57,085
Total cost	$927,082

Maintenance fees and property tax are only payable after TOP

In total, the cost of purchasing a new launch property and holding it for 11 years is $927,082.

What about buying a resale property instead? Let's assume you purchase the Blossomvale unit at $2,950,000.

Description	Amount
Purchase price	$2,950,000
CPF funds	$505,000
Cash	$466,000
BSD	$117,100
Loan required after deducting CPF and cash	$2,096,100

Cost of purchasing a resale property and staying for 11 years:

Description	Amount
BSD	$117,100
Interest expense	$939,633
Maintenance fee (Assuming $500/month)	$66,000
Property tax	$98,890
Total cost	$1,221,623

You immediately see that buying a resale property incurs a higher cost, assuming all other things equal. Why?

That's because the loan is disbursed periodically and there are no maintenance fees or property taxes to be paid during the construction years.

Although it must be said, we didn't take into account the rental costs when buying a new launch given you mentioned you are able to stay with your parents.

There is an additional benefit to buying a resale here, as you are able to move in almost immediately. There's less stress and adjustment of having to move twice as compared to moving to your parents, and then to a new launch later on.

Of course, it's crazy to imagine paying over a million dollars in costs over 10 years. This is far-fetched as we did not account for property price growth.

So let's do a simple projection to determine the potential profits in both situations. It's important to note that these estimations are rudimentary and intended only as a rough guideline. Depending on market conditions, the actual outcomes may differ from the projections.

We'll also be keeping projections the same across both comparisons so that we can better compare strategies.

We'll gauge our annualised returns by looking at the Property Price Index (PPI) of private residential properties:

For our purpose, we'll only be looking at the past 10 years' worth of data — 2012 to 2022. This results in an annualised growth rate of 2.21 per cent.

Over an 11-year period, here's what the capital gains look like:

Time period	Capital gains
Starting point	$0
Year One	$62,830
Year Two	$127,049
Year Three	$192,687
Year Four	$259,776
Year Five	$328,347
Year Six	$398,434
Year Seven	$470,070
Year Eight	$543,289
Year Nine	$618,126
Year 10	$694,616
Year 11	$772,798

Taking the cost of $927,082 into consideration, you could potentially make a loss of $154,284. This is natural given the assumed high interest rate environment continues for 11 years. If interest rates were lower on average, you could turn a profit.

Now, let's do a similar projection for the scenario where you purchase a resale unit at Blossomvale. We will use the same annualised growth rate of 2.21 per cent.

Time period	Capital gains
Starting point	$ –
Year One	$65,195
Year Two	$131,831
Year Three	$199,939
Year Four	$269,553
Year Five	$340,705
Year Six	$413,430
Year Seven	$487,761
Year Eight	$563,736
Year Nine	$641,390
Year 10	$720,759
Year 11	$801,883

Taking the cost of $1,221,623 into consideration, you could potentially make a loss of $419,740.

By assuming a similar growth rate, it's evident that the potential financial loss associated with purchasing a new launch property is considerably less compared to buying a resale property.

The reduced expenses resulting from the deferred payment plan and the exclusion of maintenance and property tax payments during the construction period make a significant impact.

What this means is that in a high-interest rate environment, purchasing a new launch is financially less expensive as you wouldn't have to borrow everything right away — and the cost of ownership only increases once the development TOPs.

This would normally be offset by the fact that you'd have to rent a place to stay, but in your case, staying with your parents is an option.

The alternative is to purchase the resale property and rent it out right away for rental income. You'll then stay with your parents. While it sounds great, the cost of ownership plus the high-interest environment would more or less negate your rental income.

Let's not forget that property tax on non-owner occupied properties is much higher than owner-occupied ones. In this case, it may not make a lot of sense to buy a resale property just to rent it out and move in with your parents.

Nevertheless, it is crucial to recognise that the performance of individual projects differs, and the profitability of your investment ultimately relies on the particular property you choose to purchase.

Now let's consider your second option:

Option two: Sell the HDB and buy two properties

Buying two properties sounds great on the surface but it comes with one main sacrifice — your own stay-home may not be as big, or as centrally-located (depending on your criteria).

This means that you may not be able to find one that fulfils all your requirements.

These are some of the available units on the market that matches your requirements as much as possible. We will assume the higher affordability of $1.8 million for your own stay property.

Project	Tenure	Completion year	District	Size (sq ft)	No. of bedrooms	Price
Westwood Residences	99 years	2018	22	1,238	Four	$1,500,000
Wandervale	99 years	2019	23	1,130	Three	$1,430,000
Sol Acres	99 years	2019	23	1,163	Four	$1,650,000

Regarding the investment property, we will look at two-bedroom units as they generally possess stronger resale potential and will attract a larger pool of buyers compared to one-bedroom units. Here are a few relatively new developments priced below $1.3 million that currently offer favourable rental yields.

Project	Tenure	Completion year	District	Size (sq ft)	Unit type	Price	Avg rent (Mar – May)	Avg rental yield
Sol Acres	99 years	2019	23	732	2b2b	$1,050,000	$3,433	3.9 per cent
Twin VEW	99 years	2021	05	743	2b2b	$1,300,000	$4,675	4.3 per cent
Grandeur Park Residences	99 years	2021	16	581	2b1b	$1,210,000	$3,983	Four per cent

Similarly, we will look at the cost involved and also do a simple projection to determine the potential profits. We will be using the same annualised growth rate of 2.21 per cent as in option one as a fair comparison.

Let's say you were to purchase a unit at Wandervale for your own stay and another one at Twin VEW for investment and hold them for 11 years, here's how it could play out:

Purchase your own stay unit at Wandervale

In Q2 2023, there were 24 three-bedroom transactions made in Wandervale with an average price of $1,394,912. We will use this as the purchase price.

Description	Amount
Purchase price	$1,394,912
CPF funds	$252,500
Cash	$233,000
BSD	$40,396
Loan required after deducting CPF and cash	$949,808

Cost of purchasing a unit at Wandervale and staying for 11 years:

Description	Amount
BSD	$40,396
Interest expense (27 year tenure with a 4.6 per cent interest rate)	$422,151
Maintenance fee (Assuming $350/month)	$46,200
Property tax	$18,315
Total cost	$527,062

Time period	Capital gains
Starting point	$0
Year One	$30,828
Year Two	$62,336
Year Three	$94,542
Year Four	$127,459
Year Five	$161,103
Year Six	$195,491
Year Seven	$230,639
Year Eight	$266,563
Year Nine	$303,282
Year 10	$340,812
Year 11	$379,172

Taking the cost of $527,062 into consideration, the potential loss made after 11 years is $147,890.

Now let's look at the two-bedroom investment unit:

In Q2 2023, there were two two-bedroom transactions made in Twin VEW with an average sale price of $1,279,000. We will use this as the purchase price.

Description	Amount
Purchase price	$1,279,000
CPF funds	$252,500
Cash	$233,000
BSD	$35,760
Loan required after deducting CPF and cash	$829,260

Cost of purchasing a unit at Twin VEW and renting it out for 11 years:

Description	Amount
BSD	$35,760
Interest expense (30 year tenure with a 4.6 per cent interest rate)	$377,354
Maintenance fee (Assuming $300/month)	$39,600
Property tax	$106,788
Rental income (Assuming rent of $4,675/month and no vacancy period)	$617,100
Agency fees (Payable once every two years)	$25,245
Total profits	$32,353

Lots of the rental income gets eaten up by the interest expense and property tax!

Twin VEW Purchase	Property Price (2.21 per cent Growth)	Capital Gains
Purchased At	$1,279,000
Year One	$1,307,266	$28,266
Year Two	$1,336,156	$57,156
Year Three	$1,365,686	$86,686
Year Four	$1,395,867	$116,867
Year Five	$1,426,716	$147,716
Year Six	$1,458,246	$179,246
Year Seven	$1,490,474	$211,474
Year Eight	$1,523,413	$244,413
Year Nine	$1,557,080	$278,080
Year 10	$1,591,492	$312,492
Year 11	$1,626,664	$347,664

Adding the profits of $32,353, the potential profits made after 11 years is $347,664.

Total profits from both properties: $380,017

From a financial standpoint, it's obvious that selling your HDB to buy two properties results in a better financial outcome. Why? Because a part of your property budget is put into an income-producing asset — Twin VEW. If you had purchased just one property, the entire budget is spent on an own-stay home instead.

This is why selling your HDB to buy two properties could possibly yield a profit of $380,017 compared to option one which yields a loss of $154,284 and $419,740 for a new and resale property purchase respectively.

Aside from the dollars and cents, another notable benefit of purchasing two properties is the clear separation between your primary residence and your investment.

This means that if you decide to sell the investment property, your living situation remains unaffected. Furthermore, acquiring two properties helps diversify risk, and by renting out the investment property, the rental income acts as a buffer and helps to partially offset monthly expenses while you wait for property prices to appreciate.

As we've stressed before, the profitability of any investment ultimately hinges on the specific project you choose.

Since we are on the topic of buying one for own stay and another for investment, our minds naturally turn to such a product designed for this use case: Dual-key units.

Option three: Buy a dual-key unit

With a dual key unit, you have the advantage of residing in the property while simultaneously renting out a portion of it while still maintaining your privacy.

However, your preferences for the Western/Central region and proximity to a reputable school may limit the choices since this unit type is not available in every development.

Currently, there is one property that meets these criteria available on the market:

Project	Tenure	Completion year	District	Size (sq ft)	No. of bedrooms	Price
Whistler Grand	99 years	2022	05	1,270	Four (Three + Studio)	$2,399,999

One possible drawback of a dual key unit is that it caters to a specific audience: Buyers who desire to reside in the property while generating rental income and preserving their privacy, or families who want to live together while having individual spaces.

Consequently, when it comes to selling the property in the future, it may prove more challenging compared to a conventional three or four-bedroom unit.

Let's look at the costs involved in this scenario. We are assuming an interest rate of 4.6 per cent on the loan.

Description	Amount
Purchase price	$2,399,999
CPF funds	$505,000
Cash	$466,000
BSD	$89,599
Loan required after deducting CPF and cash	$1,518,598

Cost of purchasing a unit at Whistler Grand and renting out the studio for 11 years:

Description	Amount
BSD	$89,599
Interest expense	$680,752
Maintenance fee (Assuming $420/month)	$55,440
Property tax	$60,280
Rental income (Assuming $2,500/month and no vacancy period)	$330,000
Agency fee (Payable once every two years)	$13,500
Total cost	$569,571

Since we do not have access to data on studio rental transactions, we opted for a conservative rental estimate of $2,500 per month, considering the current asking prices ranging from $2,800 to $3,000

We will also do a simple projection for an 11-year holding period, employing the same average annualised growth rate of 2.21 per cent.

Time period	Capital gains
Starting point	$0
Year One	$53,040
Year Two	$107,252
Year Three	$162,662
Year Four	$219,297
Year Five	$277,184
Year Six	$336,349
Year Seven	$396,823
Year Eight	$458,632
Year Nine	$521,808
Year 10	$586,380
Year 11	$652,379

Taking into consideration the costs of $569,571, the potential profits after 11 years is $82,808.

To summarise…

Here's a look at your total profits at the end of 11 years based on the different options:

Option #One A — Buy a new launch and move in with your parents = Loss of $154,284

Option #One B — Buy a resale property and move in = Loss of $419,740

Option #Two — Sell your HDB, buy a dual-key unit = Profit of $82,808

Option #Three — Sell your HDB, and buy two private property = Profit of 347,664

Options two and three are more profitable given the the utilisation of your property to draw rental income. If we're going purely by this metric, options two and three would be our choice.

However, there are many fundamental reasons why just looking at just these numbers do not make sense.

When buying a new launch, you have an advantage of choice right at the start. Even though balloting is the norm now, it's still much easier to buy a new launch property with the number of units available.

Moreover, buying a resale property is really dependent on whether there's supply, to begin with — and we're still in a low-supply situation today.

While our study has shown that the average profits between new and resale purchases are quite similar, it is easier to identify value buys in new launches compared to sporadic resale units hitting the market.

This is because developers may misprice (lower or higher) their units, and it's just a lot easier to pick between different stacks based on their price differences to gun for a unit that'll likely appreciate more.

However, it is important to consider whether residing at your parent's place for a three-four year duration is a feasible solution, as your children are growing and may require more space. Renting a place during this period can incur significant costs.

Opting for a resale property may cost the most, but you do get to move in right away. This is a huge advantage from a lifestyle perspective as you wouldn't have to deal with privacy issues when staying with your family.

Opting to buy two properties allows you to keep your primary home and investment property separate, providing greater flexibility. If the investment property performs well and you decide to sell it, your living situation will remain unaffected. Renting out the unit also helps offset mortgage expenses and reduces costs.

The last option of purchasing a dual key unit offers a combination of benefits. However, selling the property in the future may pose challenges due to the smaller target audience for this unit type.

As an own-stay home, you may not like the idea of sharing the same front entrance as your tenant — particularly if you don't get along.

ALSO READ: We make $28k per month and own a 4-room HDB unit: Should we buy a new launch or just rent to be near Henry Park Primary?

This article was first published in Stackedhomes.