Target networth

[What2do4life]

Hi, i will like some advice from experts here.

I am 40yrs w/ wife and 2 kids, earning 170k per annum. Net worth currently is abt SGD 3.2M in total. Breakdown as follows:

- Sg investment ppty SGD 1.4M, rental income of 3K per month, fully paid
- Oversea investment ppty SGD 1.2M, fully paid
- Sg Primary residence SGD 1.3M but with loan of 900K
- Cash in bank SGD 70K
- CPF SGD 180K
- Term insurance covered for self and spouse, including medical.

How can i continue to grow my net worth? I feel that my options are limited save for slogging till 62 (if i am lucky).

 

[malthead]

Hi, i will like some advice from experts here.

I am 40yrs w/ wife and 2 kids, earning 170k per annum. Net worth currently is abt SGD 3.2M in total. Breakdown as follows:

- Sg investment ppty SGD 1.4M, rental income of 3K per month, fully paid
- Oversea investment ppty SGD 1.2M, fully paid
- Sg Primary residence SGD 1.3M but with loan of 900K
- Cash in bank SGD 70K
- CPF SGD 180K
- Term insurance covered for self and spouse, including medical.

How can i continue to grow my net worth? I feel that my options are limited save for slogging till 62 (if i am lucky).

You should borrow against your investment property and pay off your residence mortgage as your interest payment for your investment property can be offset against your rental income for income tax

Is your overseas property giving any yield or return?

 

[What2do4life]

My overseas ppty is not giving any rental yield at the moment.

Can you elaborate more on the borrowing against my investment ppty to have income tax impact?

As of now, my rental income is used to offset the mortgate instalments for the residence ppty.

 

[BBCWatcher]

First of all, congratulations on being a multi-millionaire at age 40.

To a first order approximation, you’ve poured practically your entire savings into three individual pieces of real estate, and you’re now looking around wondering why you aren’t wealthier. Well, you took a giant gamble, actually, by pushing all your chips into real estate — and in three specific spots on the globe, two in Singapore. In Singapore the government takes the view that real estate is for living, working, playing, etc. It’s not for speculation, and to the extent it’s for investment those investment gains will be strictly capped, by government policy. So the government uses all sorts of policy levers to make sure that you don’t profit “too much” from real estate, including stamp duties, property tax, and income tax. Real estate investing is the most heavily taxed passive income activity in Singapore, by far, and just this past July the government raised ABSD again.

....So you see where I’m going with this? You might want to diversify at least a bit, and pick one or a couple other horses to ride alongside your real estate holdings.

Malthead has an interesting idea. Since mortgage interest is an allowable deduction, it could help you save some income tax on your rental income. But I disagree with his/her idea to accelerate repayment on your primary residence’s mortgage. That’s a separate decision, and at current low interest rates — while they are low — I don’t think that’s a smart idea. Not when even Singapore Savings Bonds (SSBs) and Ordinary Account yields are outrunning bank interest rates (SSBs from year 2 onward). When the government is guaranteeing a yield that’s higher than your mortgage rate, it’s really not smart to repay that mortgage any faster than you need to. You just put those extra dollars in some higher yielding savings, and as long as the yield is higher, you pocket that profit. This assumes that you actually do prudently and responsibly save those spare dollars.

Anyway, those are the broad outlines here. Maybe, yes, it’d make sense to juggle the mortgage to save some tax, and most probably you’re way, way too heavily concentrated in real estate (and in Singapore) and need to be in a more diversified investment posture at least for the next 20+ years.

 

[What2do4life]

Thanks BBC for the sound advice.

I am still comtemplating how to invest the SGD 70k in cash right now. Knowing full well that some of which needs to be kept as contingency for rainy days.

As it is, it looks like paying off the principle amount is not recommended. However what if interest rates were to raise in the short to medium term? Will this be a considering factor??

 

[limster]

Hi, i will like some advice from experts here.

I am 40yrs w/ wife and 2 kids, earning 170k per annum. Net worth currently is abt SGD 3.2M in total. Breakdown as follows:

- Sg investment ppty SGD 1.4M, rental income of 3K per month, fully paid
- Oversea investment ppty SGD 1.2M, fully paid
- Sg Primary residence SGD 1.3M but with loan of 900K
- Cash in bank SGD 70K
- CPF SGD 180K
- Term insurance covered for self and spouse, including medical.

How can i continue to grow my net worth? I feel that my options are limited save for slogging till 62 (if i am lucky).

You are the expert and people should learn from you. 2 investment properties valued at 2.6m plus your own residence at age 40 and 170k pa income

If you are a successful property investor then you should carry on and do what you have been doing...

 

[BBCWatcher]

As it is, it looks like paying off the principle amount is not recommended.

Right.

However what if interest rates were to raise in the short to medium term? Will this be a considering factor??

Sure. IF AND WHEN a mortgage gets too expensive relative to prudent alternatives, accelerate repayment. In the meantime, get that much wealthier while you can so that'll be that much easier to pay off the mortgage if and when that event occurs.

If you're ultra conservative you could park most of the $70K in SSBs, which is a terrific emergency reserve fund combined with your CPF OA (for mortgage servicing). Then use spare cashflow (total income less normal monthly spending) to dollar cost average into something reasonable and prudent that isn't real estate, or a couple somethings. Why not real estate? Because real estate already represents >92% of your wealth if my math is right. You're also heavily Singapore weighted at present, so you might want to pick something global. (And as you pay down your $900K mortgage you'll get more Singapore concentrated, other things being equal.)

....OK, now for a bit of "bad" news. The U.S. stock market is roaring, setting new records. If you were trying to time global stock markets -- not recommended, but if you were -- this isn't the ideal moment in time to pick. So I wouldn't do anything aggressive, such as dump all $70K of your bank account in stocks. Instead, I'd take the next 15+ years and push some monthly savings into IWDA (or VWRD), keep it up, and leave it at that. Having $70K on hand in SSBs seems reasonable to me. If there's a market correction -- something I think is likely at some point -- great, your dollar cost averaging should pick up cheaper stocks quite nicely. You really should be hoping for a falling global stock market, because you don't own any stocks right now.

You can also look for tax reduction opportunities. In addition to Malthead's idea (which might make sense, especially if interest rates drift higher), you could take a look at CPF and SRS top-ups once you feel a little more comfortable about defending your $900K of mortgage. Don't forget the CDA matching funds if you and your child(ren) qualify for those. Maxing out the government's free matching CDA money is well worth doing.

 

[williamgohsg]

Right.


Sure. IF AND WHEN a mortgage gets too expensive relative to prudent alternatives, accelerate repayment. In the meantime, get that much wealthier while you can so that'll be that much easier to pay off the mortgage if and when that event occurs.

If you're ultra conservative you could park most of the $70K in SSBs, which is a terrific emergency reserve fund combined with your CPF OA (for mortgage servicing). Then use spare cashflow (total income less normal monthly spending) to dollar cost average into something reasonable and prudent that isn't real estate, or a couple somethings. Why not real estate? Because real estate already represents >92% of your wealth if my math is right. You're also heavily Singapore weighted at present, so you might want to pick something global. (And as you pay down your $900K mortgage you'll get more Singapore concentrated, other things being equal.)

....OK, now for a bit of "bad" news. The U.S. stock market is roaring, setting new records. If you were trying to time global stock markets -- not recommended, but if you were -- this isn't the ideal moment in time to pick. So I wouldn't do anything aggressive, such as dump all $70K of your bank account in stocks. Instead, I'd take the next 15+ years and push some monthly savings into IWDA (or VWRD), keep it up, and leave it at that. Having $70K on hand in SSBs seems reasonable to me. If there's a market correction -- something I think is likely at some point -- great, your dollar cost averaging should pick up cheaper stocks quite nicely. You really should be hoping for a falling global stock market, because you don't own any stocks right now.

You can also look for tax reduction opportunities. In addition to Malthead's idea (which might make sense, especially if interest rates drift higher), you could take a look at CPF and SRS top-ups once you feel a little more comfortable about defending your $900K of mortgage. Don't forget the CDA matching funds if you and your child(ren) qualify for those. Maxing out the government's free matching CDA money is well worth doing.

Very great point here, thank you for sharing. I am always curious to hear on someone's else thoughts about net worth and all, more on a personal level and not like a celebrity status.

 

[What2do4life]

Can i ask as a noob how to subscribe to SSB? And to monitor the interest rates being offered?

 

[a4973]

Can i ask as a noob how to subscribe to SSB? And to monitor the interest rates being offered?

http://www.sgs.gov.sg/savingsbonds/Your-SSB/This-months-bond.aspx

 

[What2do4life]

Solid link! Thanks!

 

[What2do4life]

Will my spouse be able to purchase a ppty on loan if she does not earned income? I am willing to put an asset as collateral?

Is there any work around other other than paying fully in cash / cpf??

 

[BBCWatcher]

Will my spouse be able to purchase a ppty on loan if she does not earned income?

That’s mostly up to the mortgage lender. I suppose a large fixed deposit could work as collateral, but I’m not sure why you’d do that since it doesn’t seem to make financial sense.

An acceptable co-signer could work.

What’s the goal here?

 

[limster]

Will my spouse be able to purchase a ppty on loan if she does not earned income? I am willing to put an asset as collateral?

Is there any work around other other than paying fully in cash / cpf??

I recall there was a former user who is no longer active who owns a lot of properties, some in his name, some in his wife's name though he is repaying the loan for all of them and claiming that he will be bankrupt soon. So yes it can be done.

 

[What2do4life]

If i were to co-sign with spouse, i will be subjected to ABSD.

The idea is to avoid ABSD with her first purchase but she is not working. Will the bank give her a loan?

 

[Toni90]

If i were to co-sign with spouse, i will be subjected to ABSD.

The idea is to avoid ABSD with her first purchase but she is not working. Will the bank give her a loan ?

No. Can not. Need income to pay back the loan.

 

[What2do4life]

Even with collateral or guarantee from me?

 

[existential_reality]

If you put down a fairly large down payment (maybe like 50%) and buy a property with a tenant and the agreement exceeds 6 months the bank maybe can base the loan approval accounting for the rental proceeds. But its a maybe?

Will my spouse be able to purchase a ppty on loan if she does not earned income? I am willing to put an asset as collateral?

Is there any work around other other than paying fully in cash / cpf??

 

[focus1974]

Thanks BBC for the sound advice.

I am still comtemplating how to invest the SGD 70k in cash right now. Knowing full well that some of which needs to be kept as contingency for rainy days.

As it is, it looks like paying off the principle amount is not recommended. However what if interest rates were to raise in the short to medium term? Will this be a considering factor??

Just keep the 70k cash ...for rainy days.

It won't do much to your networth unless you intend to go into Crypto!

 

[revhappy]

I just finished my month-end networth snapshot compilation. Thought of sharing here how I maintain it. I maintain this report in INR. Below is the report in SGD, with the appropriate exchange rate applied.

(All figures in '000 SGD)