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Saturday, 30 June 2018

Retirement Planning: Should you try Getting a "Passive Income" by Equity Loan


This post is triggered from a discussion of Equity Loan which Property Guru will Teach you to Own Another Property without using the Cash in Your Bank.

Is this too good to be True or there is more but not revealed?




What is Home- Equity Loan?

The article below will shed more light about what is Home-Equity Loan.


https://propertynet.sg/cashing-out-property-home-equity-loan/



Banks will still look at factors like borrower's age and income to give the loan.

The home equity loan itself will depend highly on the valuation of the fully paid ppty or (term loan for not fully paid ppty) aka lesser cash amount.

Usually, people take this loan to buy a smaller property that can be PAID UP FULLY with the LOAN TAKEN.

Even with all the above, the desire property must still be able to be rented out as an income generating asset.

When the TWO property are private property, the monthly management fee and the annual property tax is what the couple must factor in.

It could be rosy only if at least one property is in demand and could call for high rental yield because when management wanted to raise fee, you can't avoid giving in.

All in all, is still for people who have high stable income and not for people who are just started up especially when it comes to a TERM LOAN.

The reason why the rich get richer is because they take risk within their means. (Good to be rich)

The reason why the poor get poorer is because they wanna to use the same above method to become rich taking higher risk from average or unstable income.

The above Is not impossible for the general public but is really about risk management.

I will still advocate a (if possible BTO) HDB fully paid after 5 years Minimum Occupation Period (MOP) and then get a Private Property.

Yes. Total Debt Servicing Ratio (TDSR) to get the loan and Additional Buyer Stamp Duty (ABSD) are in play but the private property price could appreciate.

AND if it doesn't, your risk are still lowered from poor rental yield if ur HDB commands a good rental yield.

In terms of rental yield, due to lower expenses, HDB will command a better rate.
Of course if the private property is highly popular amount wealthy expat or company, the scenario will be different.

This blog is just my personal opinion.

Not arguing that the Home Equity Loan or Term Equity is wrong but Life is about risk management and there is a safer route most of the time even if it means we pay more initially. 




IF Equity Loan is your decision, is GOOD to know

TDSR is lifted only for home equity loans with a Loan-to-Value (LTV) ratio of 50%.

I am sure the reading is interesting but every loan you take will expose you to more risk.

Please do your math wisely and don't follow blindly.

Another Good Deed Done!

1 comment:

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