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Ouch! Our $1.8 Million Condo Investment Blunder: Unpacking 5 Crucial Takeaways from Our Bad Experience

Posted by Jayson Ang on December 14, 2023

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TLDR

The blog post delves into the complexities of real estate investments using Bob’s experiences as examples. It highlights the importance of considering factors beyond location, such as rental yield vs. demand, maintenance costs, property size, and future prospects. Bob’s missteps with rental income, MRT station hype, high maintenance fees, and overlooking essential details serve as cautionary tales. The post also warns newbie investors about the risks associated with high-end properties. It concludes with advice on strategic real estate decisions and connecting sellers with suitable buyers.

Just about everyone has heard the age-old real estate mantra, “location, location, location.” But it’s not always as simple as that, right? Take this for instance – you could have a property in the perfect spot, but if the layout’s all wrong or the block’s not quite right, it might not fetch the best price when you sell. Just the other day, I was chatting with someone who’s kicking themselves for buying a two-bedroom condo in a place they thought was a sure bet. So, there’s quite a bit we can pick up from this, don’t you think?

Discover the Perfect Spot on Scenic Stevens Road

A while back, our friend Bob got himself a snazzy condo on the ever-reputable Stevens Road. It’s nestled in the upscale District 10, a stone’s throw from the posh Dalvey Road neighborhood. An added perk? It’s a quick three-minute drive to Orchard Road’s shopping paradise, and surrounded by top-notch schools. Here’s what Bob had to say:

“We snagged this place with plans to settle down, especially since it’s ideal for raising kids with good schools nearby. Plus, it’s got killer amenities like a pool and tennis court, and the MRT station isn’t far off. That means it’s a gem even for renters, easy to let out.”

True to his word, Bob’s condo has been rented out over the past few years. But things haven’t been all rosy. He shared that the rental prices haven’t been as great as he’d hoped. On top of that, maintaining the low-numbered units in the project is pricey. So, the net rental income, after taking care of these costs, hasn’t been impressive – even with such a prime location.

It just goes to show that a high-demand rental isn’t the same as a high rental yield. This situation isn’t unique to Bob; it’s something many owners of premium condos face.

Living near Orchard, or close to an MRT station in a quiet neighbourhood, is a dream for many. This makes it pretty easy to find someone who’d be more than happy to rent your property in such locations. In the property world, we call this ‘rentability’, and it’s usually quite high in these areas.

But here’s the twist. The income you generate from the rent, also known as the rental yield, might not be as high compared to a more modest condo or flat located elsewhere. Sounds weird, right? Let me explain why.

See, even though these modest properties might fetch lower rent, their lower cost more than compensates for it. So, in the end, they could actually give you a higher return on your investment. In fact, it’s quite common for resale flats to pull in higher yields than their swanky private counterparts.

Here’s a quick tip on how to calculate your rental yield: take your annual rental income and divide it by the total cost of your property. That’ll give you your rental yield. There you go, property lingo made simple.

“Forecast Fumbles: When Future Profits Mislead”

Bob goofed up again by getting too excited about possible future gains. You see, loads of folks get starry-eyed at the idea of a new MRT station popping up and think that’s a surefire ticket to making money. But here’s the catch – if you didn’t snag the property before the news broke, chances are the potential profit is already wrapped up in the price tag.

Bob explained his thought process like this: “The MRT was just starting construction and we thought, ‘Hey, once this baby’s up and running, property prices are bound to shoot up’. Plus, there were supposed to be two MRT lines – the Thomson East Coast and Downtown line – so it seemed like a double whammy.”

However, Bob admitted he dropped the ball on another point. He assumed that an MRT station in a swanky neighborhood would be a huge deal. Sure, it might make the place more attractive to renters, but if the majority of residents are families rolling in dough and owning cars, then an MRT station really isn’t all that.

Low Number of Units in Project

Bob’s got a real pickle on his hands with these current issues. See, the thing is, hefty maintenance fees are part and parcel of living in style. You want that high-end condo with fewer neighbours, you gotta be ready to foot the bill. Because fewer units means the costs aren’t spread around as much.

Fast forward to 2023, a regular complex with about 500 to 600+ units will set you back around $75 to $85 per month for each share value. So, for the big units, we’re talking about $375 to $425 every month.

But let’s not forget those swanky luxury condos. Their maintenance fees can skyrocket to a grand a month. Why? Well, they’re not only limited in number, but they’re also packed with top-notch facilities like personal elevators, scenic landscaping, concierge services, and more.

Sure, these perks might pull in the big spenders, but landlords have got to walk a tightrope here. They need to make sure their rental income doesn’t get gobbled up by these recurring expenses.

And there’s another hitch for Bob – selling his place might not be a cakewalk. These high-end complexes don’t see properties changing hands too often. Some might even go a couple of years without a single sale! That makes pricing a tricky business since there’s not enough past data to rely on.

Missing the Fine Print: A Closer Look at Those Essential Details

Bob admits that, looking back, they made a few blunders which now make them question their decision to buy the property.

He shares, “Honestly, when we bought the place, we didn’t really consider how it’d work as a family home. For instance, the kitchen is open plan, and there’s no proper outdoor space. It’s got two bedrooms, so it was fine when we had one kid, but it’s too cramped for a second child. Plus, there’s nowhere for a live-in helper to stay. So, it’s perfect if you’re a couple with one child, but any more than that and it’s just not practical.”

Indeed, many property developers seem to design one or two-bedroom units with single people or childless couples in mind. Bob would likely have faced the same issues with properties of this size in other developments.

Another oversight was failing to take into account the nearby properties. As Bob explains:

“The neighbourhood is full of older condos that could potentially be upgraded and sold off, creating competition when we want to sell our property. We’ve heard of real estate agents using our development as a benchmark to show why reselling isn’t a good idea, then steering buyers towards new properties instead.

Additionally, we didn’t think about the local area’s demographics. In areas close to good schools, people often plan to stay long-term and, because these areas are more sought-after, they generally have bigger budgets. So, a two-bedroom place like ours is likely to be less popular and appeal to a smaller group of potential buyers.”

Understanding who will be living in your property is crucial. For instance, a place close to great schools will be a top pick for families. But, squeeze a family into a tiny two-bedroom? Nope, they’d rather pass. So, the location advantage is lost due to the small size of the unit.

Now, what about potential buyers down the line? A pricey, bigger unit might be a tough sell, but not for the well-off folks hunting in District 10. They won’t mind the price tag – but give ’em a shoebox for a house and you’ll see them running for the hills.

Then there’s Bob. He shared a big challenge he faced: the sunk cost fallacy. It became clear over time that he hadn’t made a wise investment, but boy, was it tough to let go.

“It was so hard to accept the loss and move forward,” Bob confessed. “We kept thinking, ‘what if it booms later?’ But all the time we wasted hoping for a miracle could’ve been used to buy a property with real potential.”

Newbie Investors, Beware: The Tricky Terrain of Petite Luxury Properties!”

Getting into real estate can be a bit of a gamble, especially for newbies. You see, properties with high and constant costs are a bit of a challenge, posing a greater risk to fresh investors and landlords. In fact, if you look at the deals that didn’t pan out so well, you’ll find that most are tied to swanky, high-end properties.

Now, don’t get me wrong. I’m not saying these luxury properties are a no-go, just that they need a seasoned hand who knows the ropes. Let’s cut Bob some slack here. If his first venture was diving right into the deep end of luxury properties, it’s no surprise he stumbled a bit.

If you’re thinking about buying these types of properties, don’t assume that a prime location like Tanglin, Orchard, or Bukit Timah is your golden ticket. The success of your investment depends on more than just location. You’ve got to be choosy about the unit itself – its type, layout, and block matter too.

Need a hand sorting through all this? Don’t hesitate to give me a shout. Also, take a look at our comprehensive reviews that detail each unit type in the project. We cover both freshly launched and resale condos to help you make the best possible decision. Trust me, we’ve done our homework.

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.

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