So as I wrote my previous post.
And it slowly came to light that my HDB isn't really an asset. It doesn't grow in value. It's always depreciating due to the lease. If I want to extend the lease by moving to another area of Singapore, I will have to give up size and location.
Eventually as time passes, assuming I can live forever and keep trying to extend my lease by downgrading, I will end up in a super small place maybe just enough for a bed in the far ends of Singapore.
If it's a house for self stay, it's hard on convince myself that it's an asset that grows in value.
So this got me thinking.
In that case, what is value? What can I consider an asset?
And this really brought me down to a very simple line...
It's something bag creates value.
It needs to provide a service or product.
This is something close to what Warren Buffet said.
To him, gold is not an asset. Cos it provides no service, it doesn't do anything, except sit around acting pretty.
Just that over the years, people just use it as a medium of exchange.
But that's hardly an asset, cos eventually, you will finish spending the gold. You will need to use gold to buy food.
A freehold farm could be an asset.
If managed well, you can hire people to tend to the land and sell the products and with the revenue, you can use it to pay off taxes and salary and expenses, and this will last forever.
This is absolutely different from an HDB, where it cannot be used forever, and if you try to extend the lease, you have to give something else up.
Cash is pretty much used as a medium of exchange. But it in itself doesn't CREATE value.
Gold is used traditionally as a medium of exchange and store of value, but if you use it, you lose some of it.
So if I buy a 99 year leasehold property and rent it out, do I create value. I think I can consider it as creating value, cos I "bulk purchase" a 99 year lease, and rent it out in shorter term leases.
And this is considered a service to people. Cos it allows people to rent for short term.
It's a depreciating asset but it generates a cashflow.
Same as an oil field. As they keep pumping oil out, there will be less oil, but as they sell the oil, it provides a service and product and it generates a cashflow.
And if you look at your HDB in this way. Then you are "bulk buying" a long term lease. And instead of getting a cashflow on it, we are basically just spending the cashflow by staying in it.
But there's little choice besides doing this, the alternative is to rent out the HDB and rent a small room for yourself.
But we aren't here to suffer so that's just ridiculous.
So... What are we talking about today?
Well... Assets. What is value? How do we retain our value across time?
And not end up in the HDB trap.
So we need to look for good assets which will retain their value and keep creating value. And can continue growing.
Now do you understand why Warren Buffet loves Coca Cola? Or tobacco companies?
Cos they create continuous services for a cheap rate.
These companies create addictive products cheaply and sell to the rest of the world.
They are bad for consumers. But nonetheless, they ARE providing a service and a product.
So another way to get around the HDB lease issue is to buy long term assets and rent instead of leasing the 99 year HDB. Except that you can't get a loan on it.
So for example one could invest $500k at @5% and get $25k per annum and use that to rent a place forever.
I assume that the capital increased by inflation so the dividends get pushed up yearly as well.
This MIGHT actually be better than buying an HDB which will depreciate over time.
Probably the way to best capitalize on your HDB will be to, once again, create value. One can rent out 2 rooms of their HDB and generate a positive cashflow. In this way, after 20-50 years, the cashflow would be able to fund more investments into other value creating services.
This can also be seen like car COEs which is extremely similar. A car is not counted as an asset. Cos we are usually consuming the car. However, if we are able to somehow monetize the car, then it becomes an asset.
As I keep typing, this idea of assets and value get clearer.
And so comes the next idea...
Would it make better sense to put all investments into equity or other investments? And treat housing as a regular consumable, meaning to rent/lease, whilst freeing up funds to make long term investments.
Cos that's what it is. HDB is a bulk purchase of rent. And maybe, just maybe, putting money into financial assets might be a better plan for long term preservation of assets/value.
For example. Since I stay in Queenstown, I am consuming a 4 room HDB at a centralized location.
I could sell the "value" of the centralized location by renting out my HDB and renting another 4 room HDB in a less convenient place.
And in between, I should have monetized some of the value of the location of my place.
This train of thought is actually quite scary cos basically it means anything with an expiry date is not really an asset unless it is monetized. You really can't afford to "squander" the validity period. Cos it's limited for only a period of time.
And I think it might be useful for my future investment ideas, cos it really does make me think a bit more about what I deem an asset and what I want to do with my HDB in future.
<<PREVIOUS POST // NEXT POST>>
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And it slowly came to light that my HDB isn't really an asset. It doesn't grow in value. It's always depreciating due to the lease. If I want to extend the lease by moving to another area of Singapore, I will have to give up size and location.
Eventually as time passes, assuming I can live forever and keep trying to extend my lease by downgrading, I will end up in a super small place maybe just enough for a bed in the far ends of Singapore.
If it's a house for self stay, it's hard on convince myself that it's an asset that grows in value.
So this got me thinking.
In that case, what is value? What can I consider an asset?
And this really brought me down to a very simple line...
It's something bag creates value.
It needs to provide a service or product.
This is something close to what Warren Buffet said.
To him, gold is not an asset. Cos it provides no service, it doesn't do anything, except sit around acting pretty.
Just that over the years, people just use it as a medium of exchange.
But that's hardly an asset, cos eventually, you will finish spending the gold. You will need to use gold to buy food.
A freehold farm could be an asset.
If managed well, you can hire people to tend to the land and sell the products and with the revenue, you can use it to pay off taxes and salary and expenses, and this will last forever.
This is absolutely different from an HDB, where it cannot be used forever, and if you try to extend the lease, you have to give something else up.
Cash is pretty much used as a medium of exchange. But it in itself doesn't CREATE value.
Gold is used traditionally as a medium of exchange and store of value, but if you use it, you lose some of it.
So if I buy a 99 year leasehold property and rent it out, do I create value. I think I can consider it as creating value, cos I "bulk purchase" a 99 year lease, and rent it out in shorter term leases.
And this is considered a service to people. Cos it allows people to rent for short term.
It's a depreciating asset but it generates a cashflow.
Same as an oil field. As they keep pumping oil out, there will be less oil, but as they sell the oil, it provides a service and product and it generates a cashflow.
And if you look at your HDB in this way. Then you are "bulk buying" a long term lease. And instead of getting a cashflow on it, we are basically just spending the cashflow by staying in it.
But there's little choice besides doing this, the alternative is to rent out the HDB and rent a small room for yourself.
But we aren't here to suffer so that's just ridiculous.
So... What are we talking about today?
Well... Assets. What is value? How do we retain our value across time?
And not end up in the HDB trap.
So we need to look for good assets which will retain their value and keep creating value. And can continue growing.
Now do you understand why Warren Buffet loves Coca Cola? Or tobacco companies?
Cos they create continuous services for a cheap rate.
These companies create addictive products cheaply and sell to the rest of the world.
They are bad for consumers. But nonetheless, they ARE providing a service and a product.
So another way to get around the HDB lease issue is to buy long term assets and rent instead of leasing the 99 year HDB. Except that you can't get a loan on it.
So for example one could invest $500k at @5% and get $25k per annum and use that to rent a place forever.
I assume that the capital increased by inflation so the dividends get pushed up yearly as well.
This MIGHT actually be better than buying an HDB which will depreciate over time.
Probably the way to best capitalize on your HDB will be to, once again, create value. One can rent out 2 rooms of their HDB and generate a positive cashflow. In this way, after 20-50 years, the cashflow would be able to fund more investments into other value creating services.
This can also be seen like car COEs which is extremely similar. A car is not counted as an asset. Cos we are usually consuming the car. However, if we are able to somehow monetize the car, then it becomes an asset.
As I keep typing, this idea of assets and value get clearer.
And so comes the next idea...
Would it make better sense to put all investments into equity or other investments? And treat housing as a regular consumable, meaning to rent/lease, whilst freeing up funds to make long term investments.
Cos that's what it is. HDB is a bulk purchase of rent. And maybe, just maybe, putting money into financial assets might be a better plan for long term preservation of assets/value.
For example. Since I stay in Queenstown, I am consuming a 4 room HDB at a centralized location.
I could sell the "value" of the centralized location by renting out my HDB and renting another 4 room HDB in a less convenient place.
And in between, I should have monetized some of the value of the location of my place.
This train of thought is actually quite scary cos basically it means anything with an expiry date is not really an asset unless it is monetized. You really can't afford to "squander" the validity period. Cos it's limited for only a period of time.
And I think it might be useful for my future investment ideas, cos it really does make me think a bit more about what I deem an asset and what I want to do with my HDB in future.
<<PREVIOUS POST // NEXT POST>>
Did you like this post? If so, could you "blanjah" me 1/4 cup of my morning coffee pls.
You may also consider subscribing to receive the articles in your email, link in the column on the right.
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