The swap

[Secretariat]

The group of us who get together to tcss is from a diverse but humble backgrounds. None has rich grandfather, inheritance and so on. But at times, a tcss topic generated interesting action and result, like the freakish stories that I shared.

There is this couple amongst us, very conservative type, who always bochap us when we talked about property. The property they had, to them a home they die die wont sell...cash?...just put in FDs lor...that kind of couple if you can imagine.

One day, we decided to 'dig' at them, detail of the property they owned, financing of it, their savings etc. A sort of case study of financial planning, if you like. And what came up, we called it "The Swap" which they acted on with success. They are happy with what they did with it.

To illustrate the gist of the swap, I used a fictitious couple & numbers as following:

A & B, early 40s married, mid-level managers, bought a condo in 2008, 1000 sqf at $1.0 mil. Paid 20% using CPF & cash, use CPF to fund the condo loan primarily, cash savings in bank accounts of $200,000.

Love the condo, kids attending a school within walking distance, is a short drive away from their offices. Die die will not sell.

Similar units in the project have been changing hands at $1.5 mil recently.

The swap.

- Sold the condo unit at $1.5 mil (net proceeds about $700,000; $200,000 went back to CPF, $500,000 cash for simple illustration),

- Wife bought another unit at the same condo project at $1.5 mil, 20% using cash from sale proceeds, finances this condo loan using cash,

- Husband bought a newly TOPed unit in other project at $1.5 mil, 20% using CPF and cash, finances this condo loan using rental collection. So, this is their investment property.

Cash position they have, after the swap, is still about $200,000.

This is a simple illustration of what the actual couple of our group went through. Of course, there were other detail like loan financing la, bridging la, stamp duty la, the timing of the transactions la...etc not included in this story.

[yowetan]

They are already in 40s, and growing children needs money.

The swap will becoming suicidal.

Having said that, I like the idea because my wife is 30 year old, and myself is 35.

[chestnut]

They are already in 40s, and growing children needs money.

The swap will becoming suicidal.

Having said that, I like the idea because my wife is 30 year old, and myself is 35.

Why did u say the swap is suicidal?

[carbuncle]

This can also be performed by a single person before the 70/60% LTV CM's. Banks can take 70% of the rental (if purchase with tenancy, and tenancy must have ran for 3-6 months if I remember correctly) as additional income. So 'sell one buy two' was very doable.

Today, as your case study shown, this act only can be performed by a couple. (now this sentence sounds a bit strange for some reason...)

[azeoprop]

Yah loh, for singles now is sell 1 buy nothing...

[carbuncle]

Yah loh, for singles now is sell 1 buy nothing...

No la... still can...

Sell bachelor pad buy iPad.

[radha08]

Why did u say the swap is suicidal?

i also ask...

[auroraborealis]

Cannot lah... Over-geared le; hubby shld buy ideally $800k unit elsewhere to rent out @ at least 4% yield

When sell property n take higher LTV loan, need to make sure to keep some more cash to bring down LTV (prepay) when interest rate goes higher in order to moderate servicing burden

The group of us who get together to tcss is from a diverse but humble backgrounds. None has rich grandfather, inheritance and so on. But at times, a tcss topic generated interesting action and result, like the freakish stories that I shared.

There is this couple amongst us, very conservative type, who always bochap us when we talked about property. The property they had, to them a home they die die wont sell...cash?...just put in FDs lor...that kind of couple if you can imagine.

One day, we decided to 'dig' at them, detail of the property they owned, financing of it, their savings etc. A sort of case study of financial planning, if you like. And what came up, we called it "The Swap" which they acted on with success. They are happy with what they did with it.

To illustrate the gist of the swap, I used a fictitious couple & numbers as following:

A & B, early 40s married, mid-level managers, bought a condo in 2008, 1000 sqf at $1.0 mil. Paid 20% using CPF & cash, use CPF to fund the condo loan primarily, cash savings in bank accounts of $200,000.

Love the condo, kids attending a school within walking distance, is a short drive away from their offices. Die die will not sell.

Similar units in the project have been changing hands at $1.5 mil recently.

The swap.

- Sold the condo unit at $1.5 mil (net proceeds about $700,000; $200,000 went back to CPF, $500,000 cash for simple illustration),

- Wife bought another unit at the same condo project at $1.5 mil, 20% using cash from sale proceeds, finances this condo loan using cash,

- Husband bought a newly TOPed unit in other project at $1.5 mil, 20% using CPF and cash, finances this condo loan using rental collection. So, this is their investment property.

Cash position they have, after the swap, is still about $200,000.

This is a simple illustration of what the actual couple of our group went through. Of course, there were other detail like loan financing la, bridging la, stamp duty la, the timing of the transactions la...etc not included in this story.

[lifeline]

this is a very financially savvy and daring couple ! definitely not the conservative type you thought to be.

question is when they made that swap. anyway they seemed to have made the swap successfully. good for them!


carbuncle, hahaha, your 1-liners are so funny !!! esp when you reflect on it.

[Pynchmail]

Could have just taken an equity loan on the house and together with the deposit invest in another property without the extra stamp duty, bridging loan, moving house etc.

[cnud]

Could have just taken an equity loan on the house and together with the deposit invest in another property without the extra stamp duty, bridging loan, moving house etc.

Cannot. Both their names in the old property. If refinance, the new bank lawyers can remove one of the names but I think stamp duty applies.

[Secretariat]

Could have just taken an equity loan on the house and together with the deposit invest in another property without the extra stamp duty, bridging loan, moving house etc.

Ah, this question...

As I mentioned before, look at the downside risk first (very important) before making an investment.

To the bank, the 20% paid is its cushion. It means that the property can afford about 20% fall in value before a potential top-up call. Also, notice that we suggested the wife to use cash for funding the loan installments, allowing her CPF to accumulate for a raining day, or lump-sum payment in future when needed (example, interest rate shot up).

I don't know about equity loan, but I suspect that the call can come sooner in this case.

[carbuncle]

this is a very financially savvy and daring couple ! definitely not the conservative type you thought to be.

question is when they made that swap. anyway they seemed to have made the swap successfully. good for them!


carbuncle, hahaha, your 1-liners are so funny !!! esp when you reflect on it.

Glad you like it haha. Will write more one-liners.

[Secretariat]

this is a very financially savvy and daring couple ! definitely not the conservative type you thought to be.

question is when they made that swap. anyway they seemed to have made the swap successfully. good for them!


carbuncle, hahaha, your 1-liners are so funny !!! esp when you reflect on it.

Of course now becoming savvy type...hahaha.

But seriously, some people are conservative in just the time they spent thinking about a solution, just lazy, and not because they don't like more money.

[lifeline]

Of course now becoming savvy type...hahaha.

But seriously, some people are conservative in just the time they spent thinking about a solution, just lazy, and not because they don't like more money.

you mean they went into this swap with encouragement and handholding by the group of you ?! this approach is very important and useful ! cos my gurus also handheld me all the way, enabling me to change from clueless conservative to more knowledgeable now.

still equity loan is the other way of handling their swap. let's see...
revalue at 1.5mil - equity loan 60% = 900k less the 200k return to cpf = 700k cash back. only thing is stuck with 1 name each already used. and the other is - not supposed to use equity loan for another property. this way, will save on 1 stamp duty as well as renovation if any. any other cons to this method - let's discuss...

[Secretariat]

you mean they went into this swap with encouragement and handholding by the group of you ?! this approach is very important and useful ! cos my gurus also handheld me all the way, enabling me to change from clueless conservative to more knowledgeable now.

still equity loan is the other way of handling their swap. let's see...
revalue at 1.5mil - equity loan 60% = 900k less the 200k return to cpf = 700k cash back. only thing is stuck with 1 name each already used. and the other is - not supposed to use equity loan for another property. this way, will save on 1 stamp duty as well as renovation if any. any other cons to this method - let's discuss...

We didn't (and don't) handhold at all. Absolutely no encouragement given; it was their choice.

We just laid down the possibility, just like the illustration outlined, and it was up to them to take it further with their banker. Of course, the occasional phone calls ..."eh, this and that, how ah?" still have la.

Equity loan works this way?

[newbie11]

still equity loan is the other way of handling their swap. let's see...
revalue at 1.5mil - equity loan 60% = 900k less the 200k return to cpf = 700k cash back. only thing is stuck with 1 name each already used. and the other is - not supposed to use equity loan for another property. this way, will save on 1 stamp duty as well as renovation if any. any other cons to this method - let's discuss...

700k less outstanding loan = ??
Probably left nothing for term loan

[lifeline]

700k less outstanding loan = ??
Probably left nothing for term loan

i see. forgot to minus the outstanding loan. thanks.
so seems like the original way is the only way to swap and leverage then.

[Santro]

Wouldnt it have been a better idea to just transfer current house ownership to one of the couple and then take equity loan, instead of selling current house, paying agent sale commission, buying another house in same location. Again incur stamp duty etc and also reno/moving-in expenses to the new place.

We didn't (and don't) handhold at all. Absolutely no encouragement given; it was their choice.

We just laid down the possibility, just like the illustration outlined, and it was up to them to take it further with their banker. Of course, the occasional phone calls ..."eh, this and that, how ah?" still have la.

Equity loan works this way?