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🏠 Should We Switch or Buy a Second Condo?

This was our second home purchase. After discussing with my husband, we outlined two possible approaches:

1. Keep our current condo and purchase a second property.
2. Sell our existing condo first and then buy a replacement.

Keeping the first condo had several downsides:

• We would have to pay ABSD, which is a significant financial burden.
• Our buying budget would be limited by cash flow for the down payment and our loan eligibility, restricting our options for the new home - our live-in dream house for the next 20 years
• Owning two condos and managing two mortgage payments would increase financial risk, concentrating too much of our assets in real estate instead of maintaining a diversified investment portfolio. The first property was primarily bought for live-in, not for its investment potential, making it less ideal as a rental asset.

For these reasons, we ultimately decided to sell before buying and replace our current condo. We had purchased our first condo in 2017 when property prices were relatively low, and by selling at the peak in 2023, we secured a capital gain of over $300K. However, since we were buying another home at a high price point, this was not purely an investment return but rather an increase in cash flow flexibility. This additional liquidity allowed us to more comfortably select a home where we plan to live for the next 20 years.

❝ You should be aware that the real estate market is less efficient than the stock market. Hundreds of knowledgeable investors study the worth of every common stock. Only a handful of prospective buyers assess the worth of a particular property. Hence, individual pieces of property are not always appropriately priced. Finally, real estate returns seem to be higher than stock returns during periods when inflation is accelerating, but do less well during periods of disinflation. In sum, real estate has proved to be a good investment providing generous returns and excellent inflation-hedging characteristics. ❞

Real estate tends to appreciate more during high-inflation periods, but compared to broad stock and bond index funds, it carries higher risk as a single-asset investment. That said, I still believe that for most families, purchasing a home early is a wise financial decision, while investing in 2nd+ properties require a more cautious approach.

🏠 Budget Planning

Whiling talking to different real estate agents, one interesting observation I made was how some real estate agents calculate “affordability.” Some agents calculate the mortgage based on the family’s total income and persuade the buyers to increase the budget, which, of course, benefits them—the higher the home price, the higher their commission. However, it is crucial to evaluate affordability based on personal financial conditions and investment goals rather than simply borrowing the maximum allowable amount.

❝ Like many Americans, you may think of buying a home as an investment. But one lesson we learned from the 2008 financial crisis is that buying a home is only an investment if its value appreciates while you own it. From a net worth perspective, think of it this way: We often say you ‘own a home,’ but unless you paid in cash, what you really own is a mortgage. Looking at it from this perspective, you’ll see that buying a home can actually have a negative impact on your net worth—at least in the short term. The house isn’t truly yours; it belongs to the bank. You owe them money. ❞

Many people unconsciously stretch their budgets when hunting for a dream home, sometimes taking on excessive financial strain. To avoid this, we followed these principles when planning our home purchase:

• The loan amount should be within one person’s borrowing limit, ensuring financial flexibility.
• Our stock and bond investments were not to be liquidated, as these are earmarked for education and retirement and should not be included in the housing budget.
• Minimize CPF usage: Instead of using our entire OA for housing, I allocated part of my OA to T-bills and transferred some to SA. This ensured that these funds remained illiquid and unavailable for home purchases.

Ultimately, our cash payments came primarily from the gain from our first home sale, our “home upgrade fund” savings accumulated over the past few years, and a portion of CPF OA. By carefully managing our budget, we reduced financial stress and ensured that our home remained a reasonable proportion of our net worth.

🏠 Buying Strategy

To minimise costs and maintain financial flexibility, we structured our purchase as follows:

• Selling our first home first. Then our second purchase can be considered as our primary residence, we avoided ABSD.
• Purchasing under tenancy-in-common (99-1). This prevented cash flow constraints on a single owner. Because during the home search, I experienced a layoff, and although my husband’s industry was relatively stable, job security was never guaranteed. Given this uncertainty, we decided to co-purchase the property, ensuring that if one of us faced financial difficulties during the purchase, the other could still manage the mortgage.
• Finally mortgage under my husband’s name only. This structure allowed us to decouple ownership in the future if we ever wanted to purchase a second investment property. While we remain cautious about property investments, this setup keeps the option open if circumstances change.

After months of searching, we finally found our ideal home—one that offers good educational resources, a convenient neighbourhood, and a pleasant living environment with greenery around. Next, I’ll be sharing our renovation budgeting, ID comparison and selection, and money-saving tips during the renovation journey!