The complete guide to “sell one buy two” property investment strategy

sell one buy two property investment strategy

Table of Contents

Introduction

Ever been to those gathering sessions with ex-colleagues, when there is always a “smart alec” talking about his recent experience of how he and his wife are now owning two condos ?

Well, he could most probably be using a “sell one buy two” strategy.

In this article, let’s explore all the necessary know-how to be known about this strategy and find out if you and your spouse can be the next “smart alec” to own two properties as well.

Rest assured, we will be taking an objective stance while evaluating this strategy highlighting both the upside and downside to this approach.

How does the “sell one buy two” strategy work ?

The overarching objective of a sell one buy two strategy is to help property owners own two properties. One property to be used as the primary residence for the family, while the other will be positioned as an investment property primed for rental income and capital gain.

This is achieved by the sale of the current property and purchasing two separate property using both you and your spouse’s names.

In doing that, the capital gain from the current property will be unlocked through the sale and will be used to fund the down payment for two new properties. ABSD on the second property is avoided as well, as it is purchased under one name.

Why are people adopting the “sell one buy two” strategy ?

#1 – To avoid the ever increasing ABSD rates

ABSD has always been a drag on property investor’s profit. This has since escalated after the government’s ABSD revision in April 2023.

To own a second property, a Singapore citizen will now have to fork out 20% upfront on the purchase price of property. This comes up to $200,000 on a 1 million dollars property.

Hence, avoiding ABSD is becoming a crucial step for investors to take in ensuring profitable returns. And “Sell one buy two” is one of the key methods that one can take to avoid ABSD legally.

#2 – Decoupling is no longer applicable to HDB property owners

Along the same thread of avoiding ABSD. There used to be two main ways a HDB property owner can adopt to avoid ABSD on their second property. One being, decoupling which require one owner to transfer his or her share in HDB to the other co-owner to free up one person’s name to purchase a second property, avoiding ABSD

Unfortunately, due to HDB tightening its regulation on HDB Share transfer policy, decoupling HDB is no longer available to HDB property owners, leaving “sell one buy two” as the main approach for acquiring two properties without ABSD.

#3 – BTO Owners enjoying healthy capital appreciation

Inline with the earlier point on HDB. Many BTO owners have enjoyed significant capital appreciation. This is driven by demand in the resale property market for their new BTO that has just attained its MOP status.

By unlocking these capital gains through the sale of their BTO units, owners are able to use these proceeds to fund the cash and CPF downpayment for two private condominiums. This makes the sell one buy two strategy within reach for most BTO owners.

#4 – Achieving a higher loan quantum for the second property

In line with MAS established LTV limits on second property. if you have got one outstanding property loan, you will not be able to undertake a full 75% loan on your second property. Instead you will only be able to take a 45% loan and for the remaining 55% payment that is not covered by loan, you will have to minimally fund 25% of it in cash.

This presents significant challenges for anyone looking to acquire their second property.

With the sell one buy two approach, when you and your spouse each purchase a property under one name, you will be able to take the full 75% loan and only require minimum 5% cash payment for each property.

The benefits of the “sell one buy two” strategy

Aside from the obvious benefits of avoiding ABSD and facilitating a greater loan quantum. Let’s explore the more subtle but pivotal benefits of this strategy, that comes with having a second property.

The opportunity to unlock capital appreciation from your existing property.

Let’s imagine, you and your spouse bought a BTO, at an initial purchase price of $450,000. After the 5 year minimum occupancy period, the BTO is now worth $700,000. You would be seating on a nice $250,000 capital gain.

Given you were to stay on the one homestay property route, you would be looking to upgrade to a bigger flat or private condo, piling that $250,000 back into a new purchase, together with a new expanded home mortgage.

The only way to “monetize” your gain with a single property strategy is to downgrade to a smaller property or a less central location. Try convincing your wife to do that.

The “sell one buy two” strategy allows one to start a duo property portfolio. Separating the homestay property from the investment property.

This provides you with the opportunity to flip the investment property for a capital gain and exit your accumulated capital by selling the investment property away, while still maintaining your homestay property and your quality of life.

The opportunity to enjoy the benefits that comes with a second investment property

One of the key features of the “sell one buy two” strategy is that you will have the option to purchase 2 properties, one for homestay and one for investment. The investment property brings with it its own suite of benefits.

No restriction in property selection

With an investment property, you are not restricted to selecting a location with proximity to your child’s school or parents home. You will have the option to tap on location with a promising URA urban transformation plan and decide on an interesting condo development of your choice.

In addition to that, you will be able to time your purchase and be free to sell your property anytime when the price is right without the constraints that comes with a homestay property.

Rental income

The investment property can also be rented out. Part of the rental income will be used to support your monthly mortgage payment and the excess of that will serve as passive income to improve your monthly cash flow position.

But on a cautionary note, the interest environment plays a significant role in influencing this.

When interest rates are high there are chances whereby your rental income is unable to cover your monthly mortgage payment, and you will have to top up the payment with your own funds.

The opportunity to consider purchasing a new launch property

With your homestay property settled, you would have guaranteed your family a place for dwelling. This opens up the option to go for a new launch property, a property sold directly by developer and has yet to be built.

Enjoy the benefits of progressive interest payment

Purchasing a new launch property brings about several benefits such as progressive interest payment, meaning you would only have to pay a fraction of the mortgage in accordance to the stage of completed development. This would lessen your financial burden for the first three years when the property is still under development.

To provide some perspective, for a 1.2 million dollar loan on a new launch property at a 4% interest rate, with a 30 year tenure. You would be paying between $800 to $2000 of mortgage payment for the first 2 years of development.. For a fully built resale property of the same value, you would be paying $5700 per month from day one.

Minimal renovation cost to be incurred for new launch

Other benefits associated with new launch property include minimal renovation cost required, tendency for higher capital appreciation . But this is a topic for another day, let’s stay on course.

The risk associated with the “sell one buy two” strategy

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar

Are you sold ? Not so soon. As with all things in life there is always a catch.
Let’s take an objective stance and take a look at the risk involved.

Heavier financial burden supporting two properties

The financial burden of jointly supporting one property is way lighter than that of supporting two properties.

To better articulate our point. Let’s consider the cost of supporting one property with a mortgage of $800,000, at a 4% interest rate, with a 30 year tenure.

You would be looking at a monthly mortgage payment of $3,820, adding on $300 of monthly condo maintenance fee. The total amount required monthly adds up to $4,120.

But remember this is supported by two person’s CPF, netting off $1200 x 2 worth of CPF from the amount above, You will only need to fork out $860 in cash each to support the property.

Leaving lots of leeway for other discretionary expenditure, meaning you won’t have to think twice before treating your family to a nice meal.

But this equation starts getting tricky when you get your second property.

Assuming you were to take on a $900,000 loan for the homestay property and your spouse took on a $700,000 loan for a smaller investment property. Both at a 4% interest rate.

All things equal. You will be looking at a monthly obligation of $4,600 (mortgage $4,300 + $300 condo maintenance).
Your spouse will be looking at a monthly obligation of $3,600 (mortgage $3,300 + $300)

Netting off $1,200 CPF each.
You would be looking at a monthly cash top of $$3,400.
And your spouse would be looking at a monthly cash top up of $2,400.

This leaves less room for error. Any negative changes in both you and your spouse employment income may jeopardise your ability to keep up with the monthly mortgage payment.

You got the point ? Hang in there, we will share ways to manage these risks in sections below.

Greater exposure to uncertainties in interest rate

First off, when you are purchasing private properties, you will be taking a private bank loan. Unlike HDB which has a fixed 2.6% interest rate, a private bank loan will have a fluctuating interest rate that can swing from a happy 1% to 5% in a couple of years, depending on economic situation.

You and your spouse will have to manage the possible increase in interest payment for both properties when interest rates swing towards the higher end of the spectrum.

But to be fair, this can be managed by sound mortgage planning, locking in fixed interest loans when interest rate is low and adopting floating interest rate loans when interest rate is falling.

Less flexibility in pursuing life goals

Yes, now let’s talk about what happens when you get a new boss that makes your job really miserable ? Well, with you being the sole supporter of one property’s financial burden. You will have less room to consider other options.

From a lifestyle perspective, it is important to note that supporting two properties is a long term 5 to 8 years commitment. And within this period, both you and your spouse will have to stay employed and maintain a dual income stream.

Just know that we are intentionally painting a bleak picture to push back on some of the overzealous promotion of these strategies. And there are definitely ways to manage this risk.

The topic on risk involved with the sell one buy two strategy overlaps with the broader discussion on the considerations that you would need to make when purchasing a second property. Do check out the article linked in line for a detailed discussion on second property purchase.

Managing risk involve in “sell one buy two strategy”

Now it is a good time to talk about how we can manage some of this risk that we mentioned earlier.

Setting up a contingency fund

To ease all the uncertainties that come with fluctuating interest rates, uncertainties in employment income and unforeseen life circumstances.

It will be worthwhile to set up a backup fund that can cover your employment income for at least six months.

So if your total monthly expenses including all other obligations like living expenses, car mortgage, child’s tuition fee adds up to $3,500. Adding on the financial obligation for maintaining property monthly of let’s say $4,600, using estimates from example above.

You would need a contingency fund of $97,200 ( $3,500 + $4.600 multiplied by 12 months). This should keep things going when either you or your spouse lose your source of income and allow you time to look for another job.

Keep debt to income ratio at 40%

Putting it simply, let’s ensure that we are prudent in taking on debt in relation to how much we earn. If you are taking a monthly pay cheque of $10,000, you should aim to manage your monthly debt payout to only $4,000.

This meant your recurring debt obligation like mortgage payment less cpf, car loan payment and mandatory debt obligation should not exceed $4,000 i.e 40% of your income.

It is worth noting that MAS stipulates a threshold of 55% for its Total Debt Servicing Ratio (TDSR). To play it safe, it will be prudent to keep it within a 40% range to provide a buffer for unforeseen reduction to income.

Be prepare to manage tenancy risk for second investment property

While renting out the second property for rental income may seem simple, you must be financially prepared to manage the unforeseen circumstances that comes with renting out the property. Depending on your property’s location and the rental demand at that point of time, there could be one or two months that is left untenanted as you go about looking for a tenant.

Aside from that, there would also be a need to cater for minor renovation and repair expense to upkeep the investment property

Cross check your property agent’s financial calculation

A well thought out financial plan is the foundation to your property investment plan. The “boring” excel sheet modelling work will determine whether you breeze through the next couple of years with a peace of mind or struggle to force sell your second property.

So whatever financial plan that is being proposed to you by your property agent, you can try to do two things.

One, always review the assumption of being used in the calculation, relate it to both your life’s current and future financial situation and see if it is right.

Next, always cross check this financial plan with your spouse to ensure that calculations are sound and sufficient buffers have been catered for.

Key criteria required to execute the “sell one buy two” strategy

Ready to jump into action ? Not yet.

Let’s work to ensure we tick all the boxes in the checklist of criteria required for our “sell one buy two” recipe to work.

Dual Income Household

The core of this strategy requires both you and your spouse to be able to each be eligible for a loan and have enough income to support each property individually.

So it is optimal that both you and your spouse remain working the entire duration of holding on to both properties. Of course, eventual plans can be made to exit the investment property for a profit to provide your spouse the option to leave her job.

But just know that, it is better to clarify these plans and expectations before proceeding to avoid any conflict down the road.

Both parties to be eligible for sufficient financing

Aside from having a dual income household, it is also important to ensure both you and your spouse income allows you to take sufficient loans to finance each property.

From a loan financing perspective, the key guideline to work with would be the MAS Loan to valuation (LTV) limit and the total debt servicing ratio (TDSR) threshold.

It stipulates that loan financing for each property should not exceed 75% and its monthly mortgage payment, together with your other monthly debt obligation, should not exceed 55% of your monthly income.

To put things into perspective.

To finance 1.2mil dollar homestay property with a $900,000 loan (75% of 1.2mil). You would need a minimal monthly income of at least $8,000, assuming you do not have any other car loan.

To finance 1 mil dollar investment property with a $750,000 loan (75% of 1.0mil). Your spouse would need a minimal monthly income of at least $6,500, assuming you do not have any other car loan.

* Assuming both couple to be aged 35 years, allowing for a 30 year loan tenure

This will ensure that both properties are properly funded by loans and does not require too much cash payment upfront that could turn out to be a stumbling block for this method to work.

Enough cash and cpf for downpayment

So the standard formula for private property financing is always 75/25, 75% loan, 25% cash or CPF (minimum 5% cash required)

We have discussed the 75% loan component above. Now let’s talk about the 25% cash/cpf downpayment component.

To get the purchase of each property going you will need capital (cash/cpf) on hand to fund the following.

  • Down payment for property – 25% of purchase price ( min 5% cash, 20% CPF)
  • Buyer Stamp Duty – 3% of purchase price (a estimate using general rule of thumb)
  • Legal fee – $2,000

This cost for each component for each property will be funded by

  • Cash and CPF proceeds from the sale of initial property
  • Additional Cash from savings for both couple
  • Additional CPF from remaining in OA account for both couple

At this point, the calculations could seem daunting to some of you, but this process can actually be simplified by having both an experienced property consultant to map these numbers out for you.

Ability to select the right investment property

Back to the whole objective why we are even doing this. The point is to purchase a separate investment property. It defeats the purpose if the wrong property is selected, not driving substantial capital gain or worse resulting in a loss.

This topic on how to select the right investment property deserves an article on its own. We will provide a high level overview of the criterias to look out for when selecting an investment property l.

Criteria

  • Proximity to reputable school
  • Proximity to international school
  • Proximity to MRT Station
  • Proximity to amenities
  • Future URA development plans for the area
  • Surrounding BTO supply, impacting future upgrader demand for your property
  • Surrounding competing property supply
  • No of unit in the development
  • Layout of unit

Getting this right will help you make this entire “sell one buy two” equation make sense, setting up a potential flywheel to keep flipping the investment property for profit, while keeping your homestay property for homestay.

A case study on sell one buy two

Now with all the important pointers covered, let’s work through a case study to experience how a couple execute the sell one buy two strategy to help them achieve a duo property portfolio.

Context

John and Sally both owned a BTO in Punggol, they purchased the property in 2018 at a price of $400,000. After 5 years, as their property approaches its MOP period, the BTO has appreciated to a value of $850,000.

Selling their BTO to realise profit

They decided to sell their BTO flat and realise their capital gain of $450,000.
Out of this $450,000, part of it will have to be refunded into the respective CPF OA account owned by John and Sally.

For the simplicity of this case study let’s assume that both John and Sally will each have to refund $100,000 back into their CPF OA account. And after netting off $20,000 for legal fee and agent commission.

John and Sally will have a cash proceed of $230,000

Purchasing two private condominium

With funds in bank and OA account, John and Sally are now ready to purchase their next properties.

John’s Property

John with a monthly income of $10,000 will purchase a bigger unit valued at $1.4 million.
He will finance it with a $1 million loan with a $350,000 down payment in cash and CPF, over a 30 year loan tenure.

He will have to support a monthly mortgage of $5000 per month with both CPF and cash.
Netting off a monthly $1200 in CPF, John will have to make a cash top up of $3800 monthly

In addition to that, John will have to pay a buyer stamp duty of $40,600 and a legal fee of $2,000 to complete the transaction

Sally’s Property

Sally with a monthly income of $8,000 will purchase a smaller unit valued at $1.1 million.
She will finance it with a $825,000 loan with a $275,000 down payment in cash and CPF, over a 30 year loan tenure.

She will have to support a monthly mortgage of $3938 per month with both CPF and cash.
Netting off a monthly $1200 in CPF, Sally will have to make a cash top up of $2738 monthly

In addition to that, Sally will have to pay a buyer stamp duty of $28,600 and a legal fee of $2,000 to complete the transaction

Total Cash and CPF requirement for downpayment and relevant transaction cost

John – $392,600
Sally – $305,600
Total – $698,200

Total Cash and CPF required on top of proceed from sale of BTO

Focusing on the $698,200 required for purchase two property, John and Sally will need to have an additional $248,200 in cash and cpf on top of the $450,000 proceed from sale to make the duo property portfolio a reality.

How to execute the “sell one buy two” strategy

I understand that on one hand the idea of being able to own two private condos sounds enticing but on the other hand all these financial considerations and planning work may seem daunting.

But that is exactly the point. The fact that not many will bother to do it and not many can afford to do it, serve as an edge for those who persevere to work through these processes to make it happen.

Pro tip

  • Instead of doing everything by yourself.
  • Think of yourself as a project manager.
  • Outsource the financial calculation and feasibility check to 1-2 property agents that have a specialisation in “sell one buy two”
  • Cross check the numbers with a mortgage consultant
  • Keep this panel of experts as your execution team
  • And get started

This rounds up the article. Wish you all the best in your “sell one buy two” journey.

No pain no gain !

More relevant reads with regards to purchasing a 2nd property in Singapore

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

Looking to purchase your second property?

Just fulfilled your MOP status for your executive or BTO or Looking to decouple from your current condomium? Or simple looking to purchase your 2nd investment property? Having assisted over 50 clients on their journey towards purchasing their second property, we have got the expertise to help you avoid unnecessary ABSD, optimise legal cost and clarify your doubts.

Drop us quick Whatsapp message for non obligator questions and answers.

Drop us a text on Whatsapp for non obligatory question and answer.

Get your questions answered by experienced consultants and legal partners

error: Oops - writing original content is fun, give it a shot !

Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.