By Eileen Tan and Ui Wei Teck (guest contributors)

Real Estate and Value Investing are two of the ways you can grow your wealth if you adopt the correct mindset and strategy while working for others or running your own business. With wealth, you can have peace of mind, greater freedom to pursue what you truly enjoy doing, and contribute to do your part for the less advantaged.

With sufficient wealth built while you are still working, you will have no fear when any change occurs as the unexpected change has been expected and prepared for. If you have not already started to invest seriously, now is the time to get educated. In this article we will share our journey to becoming financially free.

Long-term vs. Medium-term investments

There are investments which require a longer duration to bear fruit so start early to benefit from them. Time is the best capital you have when you start early. Let’s look at the long and medium term investments for Property as elaborated below:

• Long-Term (> 5 years): Go for Capital Upside Potential or En-Bloc Opportunities which require longer holding periods for maximum returns.
• Medium-Term (< 5 years): Go for Good Rental Yield so you can sell it at a reasonable market rate to benefit from Capital Upside.

In our case, we bought both a public housing flat and a private apartment during our late twenties and sold both properties when the prices had risen by 200% to 300%. We benefited from the bull market unknowingly during the 1990s. With no property investment knowledge then, we made our first mistake by thinking that property prices would continue to go up and moved into a landed house. It was like a dream come true to own a landed house and drive a luxury car during our early thirties.

Property investing is cyclical

We came to realize that Property investment is cyclical when our house price plunged over the next few years due to the Asian Financial Crisis, Dot.com bubble bursting and SARS. It was one disaster after another.

The economy only started to pick up when the Singapore Government announced development plans for the Integrated Resorts. This was big news that revived the interest to invest in Singapore again. It was this reversal of a property downtrend that prompted us to invest in a private property near an upcoming business hub and an MRT (Mass Rapid Transit) Interchange.

We had to wait until the next bull market cycle to sell our landed house which was bought near the prior peak. The fortunate thing is that our mistake didn’t cause a disaster as we spent 12 years staying in a beautiful house where we brought up two lovely children.

Learning to live simply

We had a “wakeup call” when we could sell our house for some profit and decided to start our retirement journey in our early forties. We also wanted our children to live as heartlanders and not to take things for granted. It was not easy to convince our daughter to move as she loved her neighbours and we struck a deal by moving to a two-storey public housing flat (a Mansionette) within the same neighbourhood, near an MRT station, neighbourhood parks and amenities. My son said we should have bought the flat 12 years ago!

By moving to a flat and with passive income from the fully paid-off condominium, we had achieved our dream of financial freedom!

Discovering a passion for property investing

However, we had so much passion for real estate and found that we had the capacity to invest more. We had also built up our Financial Literacy and understood that being Financially Free does not mean being Debt Free. We are conscious about not over-borrowing by keeping our Debt-Service Ratio and Debt-to-Asset Ratio at safe levels. We subsequently invested in uncompleted and resale condominiums in prime districts, and also co-invested in a commercial property.

Our high yielding resale and uncompleted properties are classified as our medium-term investments. These are the properties that will bring in a good rental yield and will be sold when the prices have risen reasonably. A gain of 100% to 200% Return on Investment is good enough as we have to leave some room for the next buyer to continue to gain from their investments.

Our aged property (more than 30 years old) in a strategic location is classified as our long-term investment. Such investment may not be yielding a high rental but there is upside potential due to its enbloc potential (i.e. the land is not fully utilized based on the plot ratio).

In investing, you have to be prepared to be wrong. Nobody can predict the future correctly all the time, so do not invest if you cannot afford to be wrong. Analyze the downside first, and only invest if you have the holding power to not sell the property at the wrong part of the market cycle.

By Eileen Tan and Ui Wei Teck, authors of Enjoying Mid-Life Without Crisis.