To illustrate this, let’s look at the same two scenarios:
Scenario #1
Income needed in 2020 | 3BR (Own Stay) | 1BR (Investment) |
Purchase Price (2020) | $1,500,000 | $650,000 |
Loan Amount (75%) | $1,125,000 | $487,500 |
Mortgage (Based on 3.5% floor rate, 30 year tenure) | $5,052 | $2,189 |
Min income needed (Based on 60% TDSR) | $8,420 | $3,648 |
Here, you see that with a 3.5% floor rate and a 60% TDSR back in 2020, you’ll need $8,420 per month and $3,648 per month to do this strategy.
Scenario #2
Income needed in 2023 | 3BR (Own Stay) | 1BR (Investment) |
Purchase Price (2023) | $1,905,000 | $825,500 |
Loan Amount (75%) | $1,428,750 | $619,125 |
Mortgage (Based on 4% floor rate, 30-year tenure) | $6,821 | $2,956 |
Min income needed (Based on 55% TDSR) | $12,402 | $5,374 |
Difference | 47.3% | 47.3% |
With the increased rate from 3.5% to 4% and a reduction in TDSR from 60% to 55%, the same couple now needs to earn at least $12,402 and $5,374 based on the increased prices and increased cooling measures.
This resulted in an increase in income required of 47.3% which is much higher than the nominal increase in median wages between 2020 to 2023.
But rental prices went up during this time, prompting some to ask whether or not the investment portion of the sell 1 buy 2 still makes sense.
Here’s the difference if you had secured a 3-year rental contract and loan agreement in 2020 versus 2023.
Info | 2020 | 2023 |
Purchase Price (1BR Investment) | $650,000 | $825,500 |
Loan Amount | $487,500 | $619,125 |
Monthly Rent (Source: SRI) | $2,387 | $3,621 |
Annual Rent (Lock in 3 Years) | $85,932 | $130,356 |
Less Agent Fees (1 Month) | $2,387 | $3,621 |
Less Interest Expense (Lock in 3 Years at 1.3% vs 3.5%) | $18,247 | $36,928 |
Cashflow | $65,298 | $89,807 |
If we’re purely looking at the rental property, the increase in rent does outweigh the increase in interest rates. Thus, the investment portion still makes sense, provided you can still afford the property.