tzlee.com/blog

Author: Justin Lee

  • Planning your property purchase

    Many people do not know that planning for a property purchase can take up to a year or more. Without proper planning, many people are stuck after making the wrong move.

    Here are some common mistakes: –

    Buying a property before knowing your budget.

    The biggest hurdle when purchasing a property is usually the loan. Not many people I know have a million bucks floating around. Most people fail to get this right because they assume they are able to obtain a loan.

    Using the current LTV of 80% and TDSR of 60%, the income required to buy a $1m apartment ($800K loan over 30 years) is around $6K assuming no other commitments. If you have some credit cards and a car loan, this figure could easily balloon to $8K.

    So what happens if you bought a new property and paid the 1% option-to-purchase (OTP) fee ($10K for a $1m property) and is unable to obtain a loan? The answer is simple: you’ll forfeit the 1% and the seller can now throw a party.

    Buying a new property before selling the current one.

    This is very common. What happens if you can’t sell your current property in time? You will be made to pay the additional 20% downpayment (your LTV is reduced to 60% from the original 80% you were expecting).

    For those hoping to apply for an ABSD remission, sorry. It’s gone.

    So why does a property purchase planning take up to a year?

    That’s because if you are unable to obtain a loan (especially self-employed), it will take up to a year to get your year-end tax filings corrected. A typical loan approval-in-principal process can take up to one month. Then you’ll start selling your current property before buying a new one to avoid any of the pitfalls I mentioned above.

    Happy house hunting.

     

  • How to buy a cheap(er) car: Will COE fall in 2015?

    We have an old car in the family expiring next year, and I’m sure everybody out there is wondering the same — will COE fall?

    My personal opinion is that it may fall a wee bit (Category A at around $50K) but may not fall further than that.

    Vehicle population growth rate has been reduced steadily from 3% to 1.5% to 1% and now 0.5%. I believe it may be further reduced next year, and it may possibly be capped at close to 0% growth because that’s really the limits of our infrastructure and limited land space.

    So if you are in such a situation, what’s the best way to get a cheaper car if you really need one?

    It’s actually very simple, but there’s one catch: you’ll need to pay fully in cash (no leverage).

    The trick is to buy a car with 1 year or less left on the clock, and renew when you think it’s right.

    Take for example a relatively new Jan 2013 Toyota Altis selling at close to $100K. The depreciation is about $12.5K/yr.

    If you bought an old Aug 2005 Toyota Altis at around $17K and renewed the COE (assuming current price at $66K), you will pay $17K + $66K = $83K for around 128 months of usage. This works out to a depreciation of only $7.8K/yr.

    No doubt older cars will also come with rising road tax (capped at 150%) and rising maintenance costs, and possibly even poorer fuel economy, but with the savings of almost $5K/yr you could spend that on an engine overhaul and still have spare change for a small holiday.

    If you feel that such a hefty sum of money can be better used to invest, then there’s only one way to leverage: long time owners of private properties can consider a mortgage term loan (using property as collateral) to partially finance COE renewal.

    Even if interest rates rise to 3%+ it may still be cheaper than a conventional vehicle loan because a mortgage loan is a reducing interest loan while a vehicle loan is a fixed interest loan.

    Business owners with overdraft facilities can consider too, if the vehicle is to be used for business purposes.

    I do not encourage taking a loan on the full value of COE. Although any unused amount of COE is fully redeemable, interests can get quite hefty, especially when OD interests are around 5-6%.

  • Buying is easy

    But letting go is not.

    I spent several weekends in August tidying up old PCs and other computer hardware, hopeful that it would benefit some people.

    One laptop went to a needy family. That was easy, because it’s a small laptop (a Netbook, to be exact.)

    There were two other needy families who wanted computers, but never came. The pile of old computers remained uncollected in my parent’s office for over two months.

    The dateline I gave was 31st October, so mid November we loaded all of them to the back of the car and drove them to the Salvation Army only to be rejected because “Windows XP is too old.”

    These are perfectly working computers that I cleaned up, re-installed the OS, packed neatly and labelled the hardware specifications.

    I felt a little discouraged, so I tried advertising them again on Facebook. This time, 3 more pieces of hardware reserved, pending collection.

    I still have 2 computers and a bunch of old monitors, keyboards and network switches.

    Drove to Funan Center and dropped monitors, keyboards and network equipment off at the information counter where they provide e-waste recycling.

    Old hardware at Funan lift lobby
    Above: Old hardware at the lift lobby at Funan Center

    I drove the last 2 computers to office where I intend to keep them for a bit more, or perhaps place notices on the lift doors to see if anybody wants them.

    Just as I was unloading the computers from my car, a foreign worker who cleans the trash at the office building saw me placing the computers on a trolley. His eyes lit up as he approched me.

    “This. Throw?” he asked, pointing at the computers.

    “Ya. If you want, take them — all working,” I said.

    “Working?”

    “Ya.”

    He pushed the trolley to the back of the refuse area where I saw some old furnitures and a HUGE server (something like a massive IBM blade chassis). He unloaded my computers, then returned my trolley.

    I hope he’ll find good use for them.

    I’m still puzzled why Salvation Army would reject these perfectly working computers. I know they try to sell them for money as it is logistically not worthwhile to transport them to third world countries, but they could have given them out for free at the thrift store too. Maybe they have insufficient manpower; I feel for them because I get upset every time I see the pile of junk people leave behind at the outdoor donation bins.

    Salvation Army is not a recycling facility.

    Nevertheless, a good lesson learnt here is that things are easy to buy, and never easy to let go. I’m trying to be a minimalist because I value my personal space more than anything else. Space is expensive and precious, especially on this tiny island.

    Think before you buy.

    P.S. People asked why I never offered to deliver the computers to the needy families since I drive. I don’t believe in giving to laziness. I worked my ass as a student carrying computers and computer parts on the bus to and fro my home and Sim Lim Square as a kid, and I don’t believe they can’t drop by and pick up a CPU on a bus. I will give for free, but at the very least they will have to come get it.

  • Investment portfolio review

    Earlier this year I wrote about the lessons I’ve learnt and how I’ll be reshuffling my investment portfolio; the year has come to an end so it is time for my annual review.

    I’ve reduced the losses on my CPF investment. I was at -32% at the beginning of this year, and is now at -27%. This was achieved by switching out of high risk funds and then maintaining a 50/50 split between low risk Singapore-based bonds and equity funds. When the balance between them spreads ~3-5%, I use a partial fund switch to re-balance, maintaining as close to the the 50/50 split as possible.

    I’ve also significantly reduced the losses on my cash based ILF with Prudential. I applied the same technique as my CPF investments above, and will be surrendering the investment later this month as it has broken even.

    I have also had nett positive gains on my entire SGX portfolio, and will be looking to sell some positions since I anticipate another plunge early next year as oil prices fall and interest rates rise.

    I will also be reviewing my other insurance policies (for protection, not investment) this month and will write separately on this subject.

    I feel extremely comfortable now that I have established various mechanisms to track my income, expenses and assets. When I am asked specific questions about my financial health, I am usually able to provide detailed and accurate answers — this is the key to good financial management and knowledge.

    I share with my spouse, family members and close friends what I have learnt and feel happy that I am able to help others better manage their finances.

    The most important lesson learnt this year is that any form of investment requires active management.

    With that, I look forward to 2015 where I will be venturing into another major financial phase — real estate investment.

  • One year of financial progress; Tracking your net worth

    One year of financial progress; Tracking your net worth

    I’ve made effort to track my expenses over the last few years. This meant keeping a record every time I took money or a credit card out of my wallet. It is a tedious process, and gets sloppy at times.

    At the beginning of this year I set out to track my finances a little differently; I started tracking my total net worth month-to-month. Tracking net worth is much easier than tracking expenses because you only need to do it once a month. The difference, however, is that tracking net worth does not give you visibility into where exactly money is spent, e.g. food, entertainment, transport, etc.

    This is how I do it: At every start of the month, after I get my salary but before I pay my credit card bills, I keep a record of the following in an excel sheet: –

    1. Net present value of resident property less outstanding loan
    2. Net present value of investment property less outstanding loan
    3. Net present value of other assets (e.g. cars) less outstanding loan
    4. Net present value of other liquid investments, e.g. stocks, bonds, endowment, etc.
    5. Net present value of any high value personal items, e.g. jewelry
    6. Outstanding credit card debts, or other unsecured credit facilities (if any)
    7. Total cash in bank
    8. Total balance in CPF account

    * For illiquid assets, e.g. cars and jewelry, apply a fair discount of between 10-30% to its NPV.

    Then, I would create three different totals: –

    • Total of 1-8 (everything)
    • Total of 1-7 (everything except CPF)
    • Total of 2-7 (everything except CPF and resident property)

    The reason for breaking up three totals is because I do not consider CPF and residence as liquid. This will give me a good idea if I am cash rich or (illiquid) asset rich.

    Over a one year period, a graph like this is promising.

    Net Worth 2014

    There’s two things to note: –

    • The general trend of the graphs. If they trend upwards, I am making good progress, i.e. earning more than I spend. If they trend downwards, I am in trouble.
    • The gap between the yellow and blue lines. If this gap widens a lot, and especially if the blue line trends upwards while the yellow line starts to trend downwards, it means I may be spending too much on a potentially illiquid asset (residence) and should do something about it.

    Remember an article in The Straits Times about Singaporeans being asset rich and cash poor? I think the missing point here is that the problem only arises if the asset is illiquid. If the asset is liquid, it wouldn’t be a problem, e.g. a retiree could sell an investment property to fund his retirement.

    For those who have investments and assets, it is a good idea to start tracking your net worth to see if your asset is indeed an asset or liability. If done correctly, you should see vehicles losing value while your properties gaining value month-on-month.

    But if you have not even started tracking your expenses, you should start doing so before tracking your net worth, because detailed expense tracking will help you see where money is going so you can trim unnecessary areas of high expenditure, e.g. shopping.

    With that, I wish all my readers a happy, healthy and prosperous 2015!

  • Buying Mobile Phones in Singapore

    There’s been a piece of news recently where a Vietnamese tourist who made only $200/month had to kneel down to beg on his knees to get a refund of his money for an iPhone 6.

    I think a lot of people still do not understand the ins-and-outs of this trade. Being a victim of similar scams at mobile phone stores in the old days, I subsequently started a business of my own to prove that it is possible to make an honest living.

    There are few very common tricks that people fall into. The simple ones are these: –

    • Adding taxes to list price after the deal is made. Such sellers usually add an additional 7% GST to the listed price, but sometimes the seller is not a GST-registered business.
    • Missing parts, such as charger and earpiece, requiring a top up. This is the scam I fell for.
    • Not getting the device you wanted, i.e. a fake, or a used item instead of a new one.

    The more complex scams is seen in the news above, where a hidden contractual clause would require you to purchase additional items. There’s also another type of scam known as the swap-bait, where you would purchase a device, then test it and realise it is faulty, but have no choice but to pay extra for an upgrade because the faulty item was the “last piece”.

    How to avoid being scammed?

    Be sure to ask for nett pricing, i.e. tax inclusive price. Be sure to ask if all the items are included in the box, such as charger and earpiece. Also be sure to check the lifetime call timer on the item to ensure that it is 100% brand new (if you are buying a new device). Test the device before making payment. Finally, read any agreement carefully before you sign.

    Sometimes the products may not be sealed, and that is OK because it is common for mobile phone stores to buy from a consumer who has re-contracted with a telco (this is called “buy-back”), then resell it. These devices are still considered “brand new in box” (BNIB), but may have a lapsed warranty of several days. This is how these stores are able to offer good prices well below the recommended retail price (RRP).

    The Vietnamese tourist was unfortunate. These are definitely not normal business practices in Singapore. There are many stores around that make an honest living, and I suggest that people do their own research and go to stores that publish open pricing and have a large social following. The top two such independent stores in Singapore are WhyMobile and Mobile Square.