[Free Quiz] Determine The Most Suitable Type Of Property For You
If you get this right, you stand to make a good chunk of profit to upgrade.
But make a mistake, and you can risk getting your savings wiped out!
[Full Disclosure: I’m a licensed real estate salesperson with PropNex. Updating and maintaining this blog helps me condense and express my thoughts about the real estate scene in Singapore. I hope you enjoy the read! Feel free to ask me any question here, or drop me a DM on Facebook.]
Being in the real estate industry for more than 12 years now, I can guarantee you most properties fall under 3 categories.
Yes, just 3 categories.
No matter how many properties you have seen or been introduced to, there are only 3 categories that really matter.
Simply based on which category your soon-to-buy or current property falls under, you will be able to…
💡 Determine the probability of you making a profit from your property
💡 Whether you can use it as a stepping stone to upgrade to your dream home
💡 Or whether you are actually losing money every single month
And if you’re the sort of person who:
✔️You don’t want to lose money buying the wrong property
✔️Think about and plan for the worst-case scenarios
✔️Care about giving yourself or your family a better life by buying the right property and/or making money through real estate
Then this article is for you.
When you finish reading this article, you will find out which property category you fall under…
What type of property is best suited for you at your current stage…
And which property is best suited for your future goals.
But before we get to the 3 categories, we need to first know your Expected Holding Horizon.
Your Expected Holding Horizon is how long you intend to stay in your current property or the next property you are planning to buy.
You can find out your Expected Holding Horizon with this simple exercise.
It will only take you < 15 minutes, but it will provide you with a lot of clarity on what it is that you truly want from your property.
(Best to do it together with your spouse or whoever you are buying/own a property with)
Alright, are you ready? Let’s BEGIN!
How Badly Do I Want To Buy This Property? (If you haven’t already bought)
Or How Much Do You Like Your Current Property? (If you own an existing property)
Is it because it’s near your child’s school or your office? [Convenience]
Are you betting on this property’s future profit potential? [Economic Upside]
Are you buying this property as an upgrade to tick a box off your bucket list? [Personal Desire]
As you jot down all the reasons why you want to buy a particular property (or why you bought your current property), it will become increasingly clear what you truly want and if this property is suitable for you.
Give yourself a score between 1 to 5.
👉 1 being totally unsatisfied
“I Only Want to Buy /Stay In This Property Because I got No Choice.”
“I Wish I Can Move To A Better Location”
“Staying In This Property Longer Will Make Me Unhappy”
👉 And 5 being totally satisfied
“I really want this property. This is THE one.”
How long do I plan to stay in this property?
Do you have a reason to stay in (or buy) this property?
How long will this reason be valid? Is it a temporary one? Has the reason already “expired”?
Some people bought a particular property because they wanted to stay close to their workplace.
But maybe they changed their jobs/companies. Or they are now working from home. So they no longer have a key reason to stay in their current property.
Their reason has “expired.”
Or maybe you are looking to buy a particular property because it’s close to your children’s primary school.
Primary school is 6 years, so there is a high chance you will stay in this property for at least 6 years.
But what happens after your children have graduated. Will you want to move away?
If yes, this is a temporary reason.
There is no right or wrong answer for how long to stay in a property.
This is entirely based on your needs and which phase of life you are in.
👉Give yourself a 1 if you intend to stay in your current/new house for < 6 years.
👉 3 if you intend to stay for 10–15 years.
👉 5 if you intend to stay for > 20 years.
What does my eventual home look like?
An eventual home is like your dream home. A home where you know you can live forever.
Prime location. Great neighbors. Accessible amenities. Property with enough space for all you and your family need.
It’s a home where you can go. “This is all I ever wanted for a home.”
It’s a home that fulfills all your needs AND wants.
From a range of 1 to 5, how much does this property you are looking at (or home you are staying in) reflect your eventual home?
👉 If this is super close to your eventual home, give yourself a score of 5.
👉 If this is not anything like your eventual home, give yourself a score of 1.
Once you answer these 3 questions, add up your 3 scores and divide them by 3.
(If you’re doing it with your partner, then add all 6 scores together and divide by 6)
If you get a score of 1–2, your Expected Holding Horizon will most likely be under 10 years.
You are unsatisfied with your current property (or the property you’re looking at), and there is a very high chance of you moving out.
If you get a score of 3, your Expected Holding Horizon will most likely be 5–20 years.
You are currently satisfied, but there’s still a lot of space for improvement. You are open to more and better options.
If your score is 4–5, your Expected Holding Horizon will most likely be more than 15 years.
This is where your current property or the property you’re looking at is highly likely to be your eventual home.
At this stage, investment upside doesn’t matter to you as much as living in the property because it fulfills most of your needs, wants, and lifestyle requirements. Even if someone offers you an above-market valuation, you still may not want to sell.
Now that you have a rough idea of your Expected Holding Horizon, we can get to the 3 property categories.
Property Type 1: The Sprinters
These are properties that generally appreciate in the first 0 to 10 years. But right after the initial bull run, their prices start to trend sideways. This means the price of the property becomes stagnant.
You may think, “So what if my property price goes stagnant. As long as I profited a little or didn’t lose my initial investment, that’s good enough.”
But a price-stagnant property will cost you more than you think.
Not only is there an opportunity cost loss (you could be earning money), there are also many hidden financial costs.
I talked more about this in one of my previous articles, “The story of ego, a condo and $400,000 lost over 11 years”.
A few examples of sprinters include your BTOs and Executive Condominiums (ECs).
Just look at the historical price movement of a few of these Sprinter-properties. You should be able to see a clear pattern emerge.
The Minton Condo. Notice how the price starts to stagnate after the initial years
High Park Residences
You can see that the appreciation of these types of properties always happens in the early years. But once the property passes a certain age, you don’t see a significant price increase anymore.
Here is another example using the HDB as an analogy.
Assuming you purchased a 4-room HDB at Punggol in the range of 300k++.
After fulfilling 5–10 years of Minimum Occupation Period (MOP), the property can probably sell for about 500 to 600k.
The first owner is not only able to cover the cost of ownership but is also able to make a profit. (So the second owner is actually contributing to the profits of the first owner)
But this is not the end.
Now, what do you think is the probability of the second owner being able to sell the unit for more than 600k in Punggol, and with an even shorter leasehold now?
This is where it starts to get interesting.
If you are the second owner, and you cannot sell the unit you bought for more than what you paid for (in this case, 600k), you are actually losing money.
You are losing money every single month you are a property owner and paying for the mortgage. This is no different from paying rent.
If you scored 1–2 for the Expected Holding Horizon exercise, it’s highly likely a Sprinter property would be more suitable for you and your goals.
Property Type 2: The Marathoners
Marathon properties are like blue-chip stocks.
Stable. They hold well in value. Their prices don’t fluctuate too much.
There’s a low risk of a huge price drop. But there is also little potential for the property value to appreciate by a lot.
So don’t expect to make a killing out of Marathon-type properties. It rarely happens, just like you don’t expect blue-chip stocks to grow by 100% in value.
Bayshore Park with 3% Dip in the Past 9 years.Anyone who had bought a unit over the past 9 years
could not cover the cost of ownership. But there was no significant dip or growth.
The Sail @ Marina Bay. Notice how the price starts to stagnate and dip after the initial years Anybody who had bought a unit over the past 9 years could not cover the cost of ownership.
Now you may wonder why people would buy Marathon-type properties when Sprinter-type properties have much more upside potential.
You’d be surprised, but lots of people actually desire a Marathon-type property. This is because:
Most buyers want to be able to move into their new homes right after they buy them. They don’t want to have to wait for a few years for their property to be built.
Others may already have family or family planning plans in place, and they don’t want to push it back.
This is one of the reasons why there will always be an intrinsic demand for ready-built properties.
Most people just hate waiting, or they can’t wait. They need a property right away.
Sprinter properties may have more potential profit upside, but there are more marathon properties to choose from.
Marathon properties tend to be in more mature estates. There are also more options that can suit your specific desire.
It’s easier to look for a unit that can fulfill all your requirements.
To avoid Additional Buyer Stamp Duty, you will have to sell your current property.
It’s not always the case where you can find your next suitable property before you sell your current property.
So some people end up having to rent a place to stay temporarily. It could be months. It could be years.
But it’s a hassle to find a new place to stay twice and move house twice. There’s also the additional rental cost.
And that is why there will also be room for Sprinter-owners to profit from people who don’t mind going for Marathon properties.
Marathon properties are not necessarily bad investments.
It’s just that they have passed the stage of hype, and buyers are unwilling to continue paying higher and higher for a property that is getting older.
This is why Marathon properties are more expensive and less profitable.
So make sure you calculate the cost of owning a Marathon property.
There is a very high chance you will have less cash in the bank and your CPF funds when you buy a Marathon type property.
One of the ways I make it clear for my clients their cost of ownership is by comparing the cost of owning their desired Marathon property against renting a similar property on a scale.
There are many cases where people are paying more to own a Marathon property than if they rented a similar property. They are actually losing money by buying a property in this case.
Yes, surprise! Not all properties are a safe bet. Not all properties can help you earn profits or beat inflation.
All this becomes more obvious once the cost of ownership is calculated and compared on a scale together with other data points like historical price trends and past transactions in the neighborhood.
Make sure you do your own due diligence or get someone to help you with it. This could be a 5–6 figures mistake.
What kind of buyers is suitable for Marathon properties?
Now, it’s perfectly okay to lose some money to own a particular property.
Maybe you really love this particular property.
This may even be your desired eventual home.
No problem, then.
But if you have bigger plans to upgrade in the future or aren’t sure if this house is your eventual home…
Then renting or choosing other properties may be a better option.
Because most marathon properties have a high cost of ownership.
You are very likely to lose money, and it will affect your cash flow and limit your options for your next property moving forward.
The strategy here is to time your entry and exit based on your Expected Holding Horizon so that you do not lose money.
Example: If you only intend to stay in a property for 5 to 10 years and it has to be a Marathon-type property, you are better off renting.
Otherwise, purchase a Sprinter-type property for the temporary 5–10 years stay.
This way, the cost of owning a Marathon property won’t eat into your savings, and you can even save (by renting) or make some money (buying Sprinter property).
Knowing how to time your way in (buying) and out (selling) is one of the most important things to get right when buying a property.
Property Type 3: Trophy Property
These are properties that are prominent and branded—the luxurious penthouses and in ultra-prime locations.
They may look really good on the outside. But financially, if you look at historical data, you will realize that they don’t tend to perform very well.
Scotts Square. 6% Dip Since Launch
Ritz Carlton Residence. 15% Dip Since Launch
Trophy properties rarely see much appreciation throughout their lifespan. Few of them get resold at a good profit.
So why do developers still build Trophy properties? Why do people buy Trophy properties?
It’s quite simple, actually.
People who buy trophy properties have a lot of money.
They don’t mind that it’s expensive to purchase and costly to maintain a trophy property.
Monthly maintenance costs for trophy properties can even be higher than a typical monthly mortgage for most people.
The majority of trophy properties are owned by people who get their wealth from other sources like their businesses or high-paying jobs. Not through real estate appreciation.
So they don’t see their Trophy properties as an investment or way to upgrade.
It’s more to suit their status, lifestyle, and wealth by showing that they can afford to buy and hold on to properties even if they don’t perform well.
They don’t mind the high cost of ownership or selling the property at a loss if they have to.
So here are the 3 property categories that makeup almost all the properties you see in the market today.
Sprinters. Marathoners. Trophy properties.
When buying your next property, make sure you know which property category your new property falls under.
They may not be as obvious as you think.
When buying a property, lots of the real work comes down to calculating the real value of the property (not just what the newspaper says), predicting future demand, and determining the real cost of owning one.
Property is one of the biggest ticket items you will buy. If you want to know which property is best suited for you right now and see how you can come up with a roadmap to upgrade to your eventual home…