Is That Property Within Your Budget? ALWAYS STRATEGISE Your PATH to Your Future Home
You’ve been admiring that landed property every time you stroll down the street by your home, fully aware that it won’t come cheap. Before diving into any decisions, it’s essential to PLAN your path to acquiring your future property.
ASK YOURSELF THESE QUESTIONS
- The first principle is "Live within your means."
- The second principle is "Live below your means."
- The third principle is "Leverage to purchase your property."
Three Key Money-Saving Tips
Let’s be honest: aside from a few self-made millionaires or those who inherit wealth, most property owners in Singapore acquire their properties through loans. This approach essentially involves using Other People's Money (OMP), a concept I’ll elaborate on later.
Homeowners typically leverage bank loans for several reasons:
- Risk Management: Sharing the investment risk with the bank rather than shouldering it alone.
- Minimal Initial Investment: Buyers often need only a fraction of the total cost, commonly referred to as leverage. For instance, on a property priced at $1 million, you may only need to provide 20%, which amounts to $200,000 in cash or CPF, instead of needing the full $1 million.
Low Interest Rate Environment
As you may know, Singapore's bank interest rates are linked to a basket of currencies managed by the Monetary Authority of Singapore (MAS). While the specific currencies in this basket remain undisclosed, it’s suspected that one of them is the USD. Consequently, our interest rates tend to closely follow those set by the US Federal Reserve.
The Monopoly Game Analogy
Today, I played the Monopoly board game with my kids. They preferred the card version, but I insisted on the traditional board game for its educational value. For those unfamiliar with Monopoly, the goal is to acquire properties within the same category. After purchasing a property strip, players can build houses and eventually convert them into hotels. The objective is to own as many properties as possible and collect rent when other players land on them—a clever way to teach kids about property investment.
Key Takeaways
It’s clear that one of the most effective strategies for property ownership is through leveraging bank loans. Therefore, we can conclude that the key to owning private property lies in securing financing from a bank.
