Read an interesting article on why it's better to take out a long mortgage on your house.
I'd like to give a local spin on that. As opposed to the red-hot property market in parts in USA, Singapore's market is just past bottom. Barring unforseen circumstances, we're looking at 5 to 10 years of rising home prices. This is how the rich get richer...
I'll use simplified arithmetic to get the point across. Let's say you have $100,000 cash. You buy a $500,000 apartment with 20% down, and take a 30-year loan at 5% on the remaining $400,000. Your annual payments will be roughly $33,300. Let's say also that you rent it out and get 2% (lousy, but par for Singapore) return. That's $8,000 per annum. So, net payment per year is about $25,000.
After 5 years, say your apartment is worth $750,000 and you sell it. You redeem your mortgage (calculated linearly for simplicity, higher in real life) for $333,000. You get back $417,000. Minus $125,000 in mortgage instalments = $292,000. Your profit in 5 years is $192,000, or 192% or 38.4% per annum (linear).
Your profit would be bigger if you'd bought a $1 million apartment. Now, even if you'd put your money in shares, you'd probably only get around 10% per annum.
The key, therefore, is to buy and sell at the right time. Rinse, and repeat.
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