After reading Uncle8888's post, I thought I would just do a quick post on how one would fare buying a HDB 4-room resale flat that costs $360,000 as a single (assuming single at 35yo and flat is with 70 years lease left i.e TOP 1991).
The table below is a super simple illustration of the rental yield plus saving cumulative over a period of 70 years, assuming the rental of a room is $600 per month.
Disclaimer: I did not factor in inflation of rental over the years nor utilities / income tax or possibility of years when there's no tenant renting.
Disclaimer: I did not factor in inflation of rental over the years nor utilities / income tax or possibility of years when there's no tenant renting.
| Year | Renting cost | Collection of rental (2 rm rented out) | Rental yield + saving |
| 1 | 7200 | 14400 | 21600 |
| 2 | 14400 | 28800 | 43200 |
| 3 | 21600 | 43200 | 64800 |
| 4 | 28800 | 57600 | 86400 |
| 5 | 36000 | 72000 | 108000 |
| 6 | 43200 | 86400 | 129600 |
| 7 | 50400 | 100800 | 151200 |
| 8 | 57600 | 115200 | 172800 |
| 9 | 64800 | 129600 | 194400 |
| 10 | 72000 | 144000 | 216000 |
| 11 | 79200 | 158400 | 237600 |
| 12 | 86400 | 172800 | 259200 |
| 13 | 93600 | 187200 | 280800 |
| 14 | 100800 | 201600 | 302400 |
| 15 | 108000 | 216000 | 324000 |
| 16 | 115200 | 230400 | 345600 |
| 17 | 122400 | 244800 | 367200 |
| 18 | 129600 | 259200 | 388800 |
| 19 | 136800 | 273600 | 410400 |
| 20 | 144000 | 288000 | 432000 |
| 21 | 151200 | 302400 | 453600 |
| 22 | 158400 | 316800 | 475200 |
| 23 | 165600 | 331200 | 496800 |
| 24 | 172800 | 345600 | 518400 |
| 25 | 180000 | 360000 | 540000 |
| 26 | 187200 | 374400 | 561600 |
| 27 | 194400 | 388800 | 583200 |
| 28 | 201600 | 403200 | 604800 |
| 29 | 208800 | 417600 | 626400 |
| 30 | 216000 | 432000 | 648000 |
| 31 | 223200 | 446400 | 669600 |
| 32 | 230400 | 460800 | 691200 |
| 33 | 237600 | 475200 | 712800 |
| 34 | 244800 | 489600 | 734400 |
| 35 | 252000 | 504000 | 756000 |
| 36 | 259200 | 518400 | 777600 |
| 37 | 266400 | 532800 | 799200 |
| 38 | 273600 | 547200 | 820800 |
| 39 | 280800 | 561600 | 842400 |
| 40 | 288000 | 576000 | 864000 |
| 41 | 295200 | 590400 | 885600 |
| 42 | 302400 | 604800 | 907200 |
| 43 | 309600 | 619200 | 928800 |
| 44 | 316800 | 633600 | 950400 |
| 45 | 324000 | 648000 | 972000 |
| 46 | 331200 | 662400 | 993600 |
| 47 | 338400 | 676800 | 1015200 |
| 48 | 345600 | 691200 | 1036800 |
| 49 | 352800 | 705600 | 1058400 |
| 50 | 360000 | 720000 | 1080000 |
| 51 | 367200 | 734400 | 1101600 |
| 52 | 374400 | 748800 | 1123200 |
| 53 | 381600 | 763200 | 1144800 |
| 54 | 388800 | 777600 | 1166400 |
| 55 | 396000 | 792000 | 1188000 |
| 56 | 403200 | 806400 | 1209600 |
| 57 | 410400 | 820800 | 1231200 |
| 58 | 417600 | 835200 | 1252800 |
| 59 | 424800 | 849600 | 1274400 |
| 60 | 432000 | 864000 | 1296000 |
| 61 | 439200 | 878400 | 1317600 |
| 62 | 446400 | 892800 | 1339200 |
| 63 | 453600 | 907200 | 1360800 |
| 64 | 460800 | 921600 | 1382400 |
| 65 | 468000 | 936000 | 1404000 |
| 66 | 475200 | 950400 | 1425600 |
| 67 | 482400 | 964800 | 1447200 |
| 68 | 489600 | 979200 | 1468800 |
| 69 | 496800 | 993600 | 1490400 |
| 70 | 504000 | 1008000 | 1512000 |
The rental yield is approximately 4% if both spare rooms can be rented out and the owner stays in.
Assuming that one takes the maximum loan tenure from HDB at 2.6% PA, how much accrued interest would one have to pay for the flat hypothetically?
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| Reference: https://www.cpf.gov.sg/eSvc/Web/Schemes/TotalInterest/TotalInterestCalculate |
Looking at the table above, it would be approximately $130,000.
The actual cost of the 4-room flat would be 360,000 + 130,000 = $490,000. This is without taking into consideration any accrued interest from the use of CPF.
As such, the break-even point would be in year 23. Although one would have reached age 55 in year 20.
If one decided to sell the flat anytime before reaching 55 years old, the accrued interest from CPF usage would need to be refunded back to the CPF account together with any grant (also with accrued interest) and the flat resale amount to make up the minimum retirement sum. Balance from the sales proceed would be the pocketed earning.
I won't go into details of how to calculate the accrued interest for CPF savings used (aka I don't like chomping too much numbers). You can find the details here and here.
Basically, it's the sum used-to-date plus 2.5% PA (we have to do the calculation for yearly and add them up). If one decided to stay in the purchased flat till one kicks the bucket, then there's no need for accrued interest repayment.
Basically, it's the sum used-to-date plus 2.5% PA (we have to do the calculation for yearly and add them up). If one decided to stay in the purchased flat till one kicks the bucket, then there's no need for accrued interest repayment.
Assuming that the rental income plus saving can yield a 4% cashflow per annum, say from investing, it can be compounded to approximately $844,184 after 23 years. [correction] Or $669,573 if compounded at 2% PA.
In a nutshell, one would probably not earn much upfront cash from flipping an old flat (technically speaking flat purchase is "house leasing" from gov). If we stay in it or bunk in at parents' after the purchase then collecting rentals can help to enhance our cashflow as illustrated above.
However, if one has spare cash that are rotting in the bank, it might be a better choice to pay off as much of the loan as possible so that there would be less snowballing of interests. As such, the breakeven years can be shortened.
For more information on flat purchase, you can check out my Budgeting Tools.
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Disclaimer: Contents of this blog are personal opinions and NOT financial advice to buy or sell any mentioned securities, commodities or assets.