Our first major investment that paid off big time. Our home.

As the FIRE community and methodology grips the world all over, and millenials are getting priced out of the property market, the debate over renter vs owner keeps raging on. A lot of people are now preferring to rent as opposed to buying a home. This makes a lot of sense as the world in general is getting more mobile, and a home may sometimes prove inhibiting when it comes to work opportunities arising in other markets. Today however, I will talk about my first accidental investment that paid off. Our HDB.

For those not in Singapore, a HDB block (Housing Development Board) is where the bulk (the 80% number is bandied about a lot) of Singaporeans live. These are government subsidised (though still unaffordable) public housing projects, and are “sold” in 99 year lease blocks. Notice I have sold in quotes, because while we are positioned as buying a HDB unit, we’re technically only leasing it for 99 years, and at the end of 99 years, the State can claim the land back as its own, without paying you a penny. 

Anyway, the year was 2007, my then girlfriend and I were having wedding talks (Yes, weddings are another thing in Singapore that needs meticulous planning, and yes, proposing with a “shall we co-own this unbelievably huge mortgage?” is a thing here), and there was this new development in the east that was about to launch. A couple of friends were really interested, so we tagged along. 

We went to the showroom, saw it, liked it, felt we were going to be together anyway, so we put our names down for consideration. Long story short, our friends didn’t get chosen (ballot system), we did. The new home cost $370,000, but the space was decent, we loved the location, and so we got it.  

The Home

2009, we got married and moved into our spanking new home. It was lovely, and at the time, we were a classic DINK (Dual Income No Kids). From a money perspective, we didn’t have a lot, but we were doing OK. Sure, we had a massive mortgage to pay for (I think it was roughly $290,000 over 30 years), but between the 2 of us, and CPF (a retirement fund that could be used to pay down mortgages),we didn’t have to fork money out monthly outside of the initial upfront payment, so we were comfortable. 

Fast forward to late 2015/early 2016. Before this point, both my wife and I were never savvy investors. Spreadsheets put us to sleep, and retirement was something we rarely discussed. But we had a kid in 2014 (yay!) and was planning on adding another to the family, so suddenly, personal finances became a super important topic, and something we needed to really start thinking about and acting upon. 

The Plan

It was also at this time that I met up with a friend from work, and he mentioned about leveraging up with the help of my asset, which was my home. Now, over the course of the years that followed, the housing prices steadily climbed, and at this time, the value of my home had grown a fair bit. As you can see below, this is another unit of the same cluster asking for $780,000 as of Dec 2018, though this unit is slightly larger than ours was. 

My friend, let’s call him Ryan, said “hey bro, why don’t you sell your HDB unit, and use the money to buy two apartments? You can stay in one, and rent the other out so that it pays for itself over time.” That was a really new concept to me, and I was actually sitting on a home that could yield me two homes!

We did the math, it checked out, and I spoke to the wife about this crazy idea. After a bit of back and forth, we agreed that this was a sound plan, and this was how we stumbled into real estate investing. 

We got to know this amazing property agent couple, who managed to help us sell the HDB at a great price (we transacted for $700,000), and are now proud owners of 2 apartments, one of which is rented out. It should pay for itself over the next 28 years, and at the end of it, we should be holding on to a million dollar asset.

Is Property Investment a sound strategy?

With property bubbles bursting or threatening to burst in cities the world over, is it still a sound strategy? I think in countries where there are rural and urban areas, and generally large land areas, property may not be a super stable investment vehicle. 

But in land starved Singapore, and an aggressive plan to increase the population numbers to 8 or even 10 million, and assuming Singapore to be economically competitive over the next few decades, the property floor value should be pretty stable. I’ll have to say that we also got extremely lucky from a timing perspective to ride on that crazy appreciation. 

Another reason that prompted me to action on the plan, was that the nature of HDB is meant to be affordable housing for the majority of Singaporeans. This means there is an implicit ceiling and threshold that this type of property can appreciate toward. And at the time of deciding to sell, I figured there wasn’t going to be much more upside to the value of the home over the long term. 

What about you? What was your first big break in your net worth accumulation? Share in the comments and let us know.