How many properties can you own with 2 million dollars

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That is a very interesting question asked by one of the searcher who stumbled on to this early retirement blog. The answer depends on what leverage do you want and which area you want your properties to be. If you want to play it safe and pay 100% by cash, then you can buy about 1 property in the prime area and maybe 2 in suburban areas.

A more detailed property investing strategy

The above was just for investors who want to play it safe. What if you don’t? What if you don’t mind leveraging to increase the spending power of your 2 million dollars, then we will need a more detailed strategy on how to invest in Singapore property.

Assuming you are a Singaporean, the table below shows the current rules regarding the housing loans as well as the number of properties you can buy for prime and non prime :

Housing loans Prime Area Suburban

Property 1
(80% market value)

400k 200k

Property 2
(60% market value)

800k 400k

Property 3
(60% market value)

800k 400k

Property 4
(60% market value)

400k

Property 5
(60% market value)

400k

Total

2 million 1.8 million

How many properties can you buy

If you target prime area, the maximum number of units is 3 while for suburban, you can buy up to 5 units. That represents the extreme end of both cases. You can of course mix and match and the number will fall between 3 to 5.

Rental income from multiple properties

The table belows shows the rental income after deducting the mortgage payment for each property. The mortgage assume a 1% interest rate and 30 year loan period. The rental assumes 5k per month for prime area and 3k per month for suburban.

Housing loans Prime Area Suburban

Property 1
(80% market value)

-140 +420

Property 2
(60% market value)

+1,140 +1070

Property 3
(60% market value)

+1,140 +1070

Property 4
(60% market value)

+1070

Property 5
(60% market value)

+1070

Total

+2,140
+4,700

Based on rental yield alone, buying suburban properties seems to be the logical choice. However, there are 2 issues here that you can factor in:

  • The price appreciation potential of prime vs suburban
  • The fill rate of rentals for suburban properties

Price appreciation of prime vs suburban properties

Price appreciation refers to the rate which property prices will rise relative to the purchase price. Based on the SRPI (Singapore Residential Price Index), the prices of properties in both central and non central areas seem to move in tandem until the 2011-2012 period when the latter seems to be enjoying a higher percentage returns.

This trend is not difficult to understand. Properties in prime area tend to be valued at fair prices. In contrast, there might be more undervalued properties in suburban areas, especially those that lies at the fringe of the city. In the recent property boom, increase in the pool of investors drove more efficiency in market pricing for properties in the suburban areas, leading to great price appreciation.

The question is whether this trend will continue in the next 5 years.  In other words, do you expect a condo property that has seen increases of its price from 500-700k to more than 1 million to increase further to more than 1.5 million in the next 5 years? If the answer is no, then prime area properties might be a better investment as they tend to increase in value over time due to scarcity of the land in these areas.

Fill rate for rentals in suburban areas

Rentals in HDB has been fairly active. I have overseas friends who had trouble renting a convenient place in the suburban area. The problem is whether the same demand exist for private property.

Most of the renters in the suburban area are looking for value. They are not expats whose rental is being paid for by companies. This creates a downward pressure on rental prices for private property. Nobody will pay for 4k for a condo when they can rent at less than 3k in a HDB located near the condo.

Hence, for investor who wants to play the multiple property game, make sure you investigate the rental market in the suburban areas.

Summary

If you have 2 million dollars in cash and are looking for property investments, you do have a wider choice in terms of how many properties to buy and where to buy from. Make sure you do due diligence on price appreciation and rental income potential.

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