Category: rEstate
##assets2designate as legacy @65
At 65, when I set aside ERS for cpf-life, I would confront an essential question:
Q: as I grow more fragile and risk-averse, which assets are best suitable as legacy for my children, knowing that they may need to liquidate or manage these assets?
Will the heirs be too young to manage some assets (either too liquid or too complicated)? When I pass on my kids would be mature enough.
— inflation .. Even though SGD inflation has been well managed, legacy planning needs more caution against long-term inflation. My kids may live in another country. Even SGD inflation may worsen in 50Y.
— commercial_annuity .. inflation sensitive 🙁
🙂 payout is reliable
🙂 surrender value grows
— cash is the easiest but inflation-sensitive
— stocks — relatively easy to manage
— gold: physical coins or bars
My kids need to know how to store them. Perhaps use a gold vault.
Long-term appreciation is more proven.
— gold: structured products backed by some companies
— HDB unit
I trust the Singapore system. However, make sure the remaining lease is adequate unless location is excellent.
If remaining lease is, say, 30Y when I pass on at age 96, I think my kids (in their 50’s) can still liquidate it or rent it out for decades.
— U.S. properties
The U.S. system is also fairly mature and efficient.
— SEA properties — hopefully my kids will be old enough to manage them through/despite the imperfect local “systems”.
consider buying up remaining 80% of the Bj home
I would need about USD 1M cash. Once I have that, I can transfer that cash to grandparents. They can live there without worry.
This would take place probably when one of them is gone.
If the transaction price is USD 300k below the market, it is like a 300k cash gift to me. Then we need to give aunt Gen 300k extra legacy. This can take place any time after the transaction is over or delayed till both grandparents are gone.
A huge part of my cash would be tied up generating no current income. They should really pay me rent as compensation. After they move out, I would collect rent from the market, but it is 1.5% NGRY only. NRY is probably 0.8%. This investment makes sense only because of potential for appreciation.
Since i’m buying from a seller (my parents), I want to wait till the price is low (in my favor) but the stress is much lower because the transaction is in-family.
Q: how fast can I save up USD 1M?
A: 10-15Y? Wife can hopefully chip in this time, given that HDB property is half hers without her paying a cent.
A: If we are in the U.S. when I’m ready to buy, I could downgrade my HDB to a remote 2-room flat to free up USD 200k cash.
A: if we are still in SG, then we would be even more comfortable financially.
Q: what if one of them is gone sooner?
A: I think the other should keep the property and wait for me to buy.
Eynesbury by Resimax
— Liquidity .. The remote Australian locations are far from prime locations, and slower [re #1173] to attract buyers esp. affluent foreign buyers.
==== Birmingham deal
“tiny unit at prime location” … is my ideal. This deal is closer.
— forex risk/opportunity
— rental yield
— income tax … Richard said .. often zero
— local rental agent fee .. 10% of actual rental income
— interest-only mtg
==== Perth deal
A common trap — assuming everything will work out as planned
— Better than Eynesbury…
- lower quantum … but still too high
- shorter time to get tenants .. but *some* assets elsewhere are currently tenanted and superior.
==== Eynesbury .. Ken Dodds (Resimax partner) presenting Eynesbury project
Resimax is the biggest private (i.e. unlisted) residential developer, but (LZ.Yu) hard to research on them.
Due to quantum, I can only consider the land asset. The promised appreciation potential (albeit safe) is not enough as a compensating factor for the negatives:
- 👎 For the land asset, liquidity is inferior to a house asset. See below
- 👎 Rental is zero without a house
- 👎 FX .. see below
- ^^^ None of these negatives are address by Patrick’s framework. Some of them are listed in the risk disclosure, but not covered in depth.
LZ.Yu: In many countries, foreigners often face higher taxes + restrictions when buying/selling.
— loc: LZ.Yu asked .. Why is Resimax selling to Singapore investors if the project is easy to sell to locals? I feel the location is obviously not prime, so locals are not keen at all. If a foreigner spends a few months there they would hear locals talk about different towns and understand “not prime”. Perhaps comparable to a new spot in Bayonne or Greenburgh.
Later I told LZ.Yu that overseas investors do often profit from unpopular locations.
Ken himself probably bought at a much lower price like below half.
— leverage .. Given the projected appreciation, many people take on debt but leverage is very likely to jeopardize my ezlife bubble. Leverage weakens my “rail” (or a pillar beneath). Leverage also creates a cross-currency LIR hazard that’s hard to contain.. See %%riskTolerance: which countries feel OK
Someone (Resimax? GEX) proposed that we take max leverage during land development and again max leverage during construction. This entire scheme is built on shaky foundation i.e. the optimistic assumption that asset appreciation stays on track. What if it dips?
Like PAP gov, I am prudent in my cashflow planning. Among all investors at BGC and Cambodia, I always make the most reliable payments. That’s largely based on ample cash position and zero leverage. I guess many fellow investors become burdened by leverage.
— how to sell land without construction. This is a tricky question.
* without analysis, we can have unfounded positive or negative perceptions.
* with some analysis, we can have unfounded positive or negative perceptions.
Ask Gex/resimax. Basically no open market.
Aaron Lee told me a story of his client buying land in U.K. There is appreciation on paper, but very hard to liquidate the lot without a house, so the guy was forced to top up when developer demands it.
some investors had no choice but sell back to developer before settlement (i.e. land title transfer).
IFF they are lucky to land on a paper profit, then they lose only the fees (like 50k). Developer would buy back at the original price and sell to someone else at a higher price.
IFF they are lucky to land on a paper profit above 50k, then they can avoid losses in AUD terms.
— How much value does GEX add? Their screening criteria is very different from mine and may not be relevant to me.
If there is a problem mid-way, then hopefully the GEX team can help.
— need to compare this against other opportunities
div stocks
SgCP
I don’t mind up to $10k just to capture the lucrative opportunity…. With MOETF, I enjoy flexibility with quantum.
— fx risk .. Even if I achieve a realized profit in AUD, the final cash out converted to SGD could come to a loss.
I can’t remove this hazard, this stressor and potential storm threatening my ezlife bubble. Xp at BGC?
I progressively bought PHP…
By my standard, I need to have AUD income or 300k AUD asset to support this real estate investment. Not practical.
— outgoing cashflow
in 7 days 6.4k FIRB fees [valid for 4Y]
by early Sep 10% of the 307k price
early 2024 30% of the price (the other 60% on vendor loan, backed by the land asset)
early 2024 46k fees
^^^^ total A$175k, with 60% loan
— rental income tax
can offfset with depreciation, mtg cost
— capital gain tax
can offset with depreciation costs
— country and locality
80% owner-occupied in the region (Victoria or Melbourne or Eynesbury)
1.7% vacancy rate in Melbourne
16% pa growth in home valuation in the “area” but which scope exactly?
^^ projected or historical
Australian population rising…
72% of Australians live in landed housing.. plenty of land.
31% of Australians are renters.
SnD(supply-n-demand): stocks,rEstate,,
SND stands for “supply-and-demand”. As a universal framework for investment analysis, it has limitations in some markets. In this blogpost I will focus on my asset classes.
— PE/HY-bond — I bought a few times. I think in this case supply is tightly controlled by the issuers and demand is dominated by credit risk and coupon rate.
Investor mind share is very low. No herd anything.
— commercial properties — Probably less retail influence than in residential market, and less herd sentiment.
- supply is mostly institutions including the builder. There may be retail sellers.
- demand is mixed. Most retail buyers prefer residential.
— residential properties — high Demand from retail investors.
I think retail investors often value comfort and luxury in additional to total return. These are rational considerations for consumption assets.
— penny stocks on SGX or U.S. — investor mind share is much lower than blue-chips. However, herd mentality can still affect some retail sellers.
- Supply side is the existing shareholders, probably much fewer than for well-known stocks esp. from the U.S.
- Demand is also lower
— well-known stocks — are the extreme case of sky-high SND. Both supply and demand sides have large institutional investors, but price is often driven by retail investors. Retail investors can be irrational and mis-informed, and can ignore the fundamental and mostly follow herd sentiment.
Therefore, to make money in these stocks, fundamental analysis may not help (may be relevant in the long-run) and sentiment/timing may be the dominant factor. I generally avoid these stocks.
— physical gold .. kinda similar to well-known stocks, but bid-ask spread is much worse because an institution is usually the other side of a retail buyer or seller. The institution would demand a bigger bid/ask spread.
Two retail traders directly interacting is only possible on the futures market.
gold^bccy^U.S.eq^rEstate: long-term strength #w1r4
For the purpose of legacy planning (including inflation hedge), this blogpost is 51% about gold, 30% about stocks.
- I see the strength in gold over a 200Y horizon. It has proven its strength over 2000Y. CB (Central banks) slowly build up and carefully transport gold reserve precisely because gold provides
time-honored, enduring, strength to the respective currencies. - I see the strength in properties over a 70Y horizon, but this strength is location-specific. Discussed below.
- I see the strength in U.S. stocks over a 30Y horizon, considering numerous regime changes.
— large holders of gold tend to be central banks. In comparison, here are the largest holders of other asset classes:
- gov bonds — similiarly held by governments, banks, insurers, corporations. gov bonds provide strength and stabilization.
- Commercial and large rental buildings — held usually by corporations and governments .
- individual residential properties — held by individuals + corporations.
- stocks — bought and sold by individual investors, buy-side institutions
Boom-n-bust … describes stock and residential property bubbles, not gold. However, gold can become overvalued.
— typical holding period
- stocks — months, up to 5Y for retail investors
- residential properties and long bonds — decades
- gold — generations. I believe most large holders of gold don’t sell often. Say price is now $2k/oz. If a CB decides to sell 1% of its holdings, it would probably impact the market right away. Therefore, I suspect the large movement is due to small investors.
— Since the invention of money, gold has held its strength, so what could derail gold’s strength?
Disruptive technologies threaten to destroy the special position of petrol, but is there a disruptive technology against gold? I don’t see any sign.
gold offers inflation hedge only over the long term. https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html “If you look at the very long term, gold should hold its value against inflation. But in any shorter period, it may or may not be a good hedge”
==== other inflation hedges
Actually, I don’t worry too much about SG inflation.
— bccy
How about bccy as a long-term inflation hedge? Any proven inflation hedge must be stable. Gold is much more stable than BTC.
https://www.channelnewsasia.com/commentary/crypto-ftx-sbf-bankrupt-crash-binance-3068201 says
The value proposition of crypto was supposed to be a hedge to the dollar or more conventional parts of the market.
Or that it would hold up in value if everything else fell. But an asset that offers that kind of hedge is rare; most assets are somewhat correlated, especially when the market drops. Rareness normally means an expensive asset that offers a lower return, possibly negative yield. You pay a big price for that kind of safety and it’s hard to find. The fact that crypto offered such high returns indicated it was never a good hedge.
— “real asset”.. Some investment salesmen (or economists?) use “real asset” to refer to precious metals + rEstate. They find something in common between those asset classes — anti-inflation, and not based on a paper document like stocks and bonds.
Actually, I think SP500 ETF is also anti-inflation, but for a different reason. The Achilles’ heel of stocks as long-term inflation hedge (bold claim) is the short history of stock market .. 50Y vs 2000Y for gold. Regime change is rather frequent.
* I feel the price chart before 1945 is largely irrelevant.
* Due to high inflation high interest,, the price chart before 1980 is also largely irrelevant.
— property market is extremely location specific.
Eg: Beijing/Shanghai growth has been exceptional and unreasonable.
If your location is not a tier 1 city or attractive to the property-loving Chinese investors, then long-term capital protection is questionable.
##NNIA=NET nonwork income from asset
— The NNIA concept .. Non-work incomes can come from gov, pension/annuities, adult children, inheritance, cut-loss sales,,, NNIA is about income from productive assets.
However, negative incomes (i.e. expenses) are more overlooked and deserve more attention than the positive income. Better list the expenses on top.
Jolt: Whether you like it or not, the reality is, the expenses are the rent you pay to hold the “cash-cows” generating the payout.
An income stream from an asset may require periodic “work” such as maintenance. I guess it could be a BBB or RRRR type… see ##pff complexities]old age . IFF the workload is too demanding, then it would not be nonwork income. Eg: managing a “hotel” of rental properties.
— Components of (usually monthly or quarterly) nonwork net income from asset:
- -ve mortgage + rEstate tax
- -ve HOA — $0 for some SFH or MFH
- -ve other haircuts on GNRY
- -ve holding cost of gold
- -ve trailer fees
- -ve income taxes on realized gains
- cash dividends
- cpf-life payout
- .. CPF interest is not cash payout. Instead, it’s similar to the theoretical accrual of reference value in AllianzIncomeProtector.
local-ccy CPIx-inflation erod`GRR^windfall
GRR abhors inflation, but windfall-property investors often welcome inflation as appreciation is often boosted by inflation.
This worst scenario can happen — inflation dilutes GRR, but somehow doesn’t give rise to property appreciation. How likely?
Accept risk@100%loss: le2sis #risk capital
I think the risks you had in mind are legal risks and credit risks.
I think you wanted to point out to me that perhaps the contract has clauses in favor of the developers and against the small investors, so I need to understand these risks before buying. I do want to understand these risks before buying. However, I consider it a small part of the overall risks. There are many uncertainties. I focus on the most important risks. I call them key risks.
Once I understand (to some extent) my key risks, I determine whether I can accept a 100% loss. That likelihood feels small every time. We all have a tendency to dismiss that likelihood.
Most of my friends (fellow small investors) basically avoid overseas properties completely because there are too many uncertainties, including legal risks. I think 90% of overseas property investors only invest in countries they lived in for 3 years. I have more risk appetite than them. In a way, I suffered small losses early on as training lessons. We all learn from those lessons.
With MIH, the #1 risk is loss of my 40% down-payment. I’m prepared to accept this risk.
Y am suspicious of(overseas)developers
At least 95% of the information (on a developer) presented to me is favorable, too favorable, unbalanced. The people preparing the information are paid to put the best foot forward. Why would they bother to raise a concern unless it is obvious like short history?
As investor, I have to seek the negative signs and question marks. I can’t “keep an open mind and be fair to the developer.”
I have to practice selective listening.
I can’t 一碗水端平. I must tilt it towards caution.
— Eg: Alan of Propnex said Propnex need to perform their due diligence on MIH because Pronex can’t afford to damage their reputation.
I basically told Alan that if things go bad, I suffer a lot more than Propnex does. This is not completely fair — perhaps Propnex suffers in unknown ways, but still they are only selling the product and they don’t pay for it.