Case Study

Term Loan Equity Unlock for Short-Term Investment and Future Gift to Next Generation

Introduction:

Mr. and Mrs. Tan, both in their early 60s, had lived in their fully paid private condominium for over 25 years. Their property had appreciated substantially over time, becoming a significant part of their net worth. With their daughter just finishing university at age 22, they were not ready to assist her with immediate property ownership but wanted to put a plan in place to help her future property journey. Instead of selling or drawing on retirement savings, they explored using a term loan secured against their existing property to fund a controlled short-term property investment that could potentially generate capital gains, to be gifted to their daughter in a few years’ time.

Situation Overview:

Existing Property Details:

Freehold private condo (City Fringe)
Purchased 25 years ago at $950,000
Current market value: $3,500,000
No outstanding mortgage

Cash savings & other assets: Preserved for retirement; not to be used for this exercise

Dave's Approach:

The plan was structured to:

Unlock part of their property’s equity via a term loan secured against their fully paid property
Use proceeds to purchase a new launch investment unit with clear exit timeline (approximately 4 years)
Upon sale, gift net gains to daughter for her own property purchase when she is career-established
Preserve full ownership of core property and maintain retirement buffers

Execution Plan:

1. Term Loan Against Existing Property:

Bank approved term loan at 50% Loan-to-Value (LTV)
Loan quantum: $1,750,000
Loan tenure: 20 years (aligned to age and retirement considerations)
Monthly repayment at 3% interest: ~$9,700/month
Loan fully serviceable from Mr. Tan’s consultancy income and pension drawdown

2. Investment Property Purchase:

2-bedroom new launch (City Fringe)
Purchase Price: $1,900,000
Buyer Stamp Duty: $64,600
Legal & Misc: $5,000
Total Cost: $1,969,600
Fully funded via term loan proceeds

Projected Exit Scenario (Year 4):

Assumed capital appreciation: ~15% over 4 years (conservative estimate)
Projected resale price: ~$2,185,000
Selling costs (agent, legal, fees): ~$45,000
Net sale proceeds: ~$2,140,000
Loan redemption at point of sale: ~$1,530,000 (assuming partial term loan repayment across 4 years)
Net gains after full settlement: ~$610,000 reserves)

Post-Sale Plan:

Entire net proceeds of ~$610,000 gifted to daughter to form the core downpayment for her first property when she is ready to purchase at around age 26.

Holding Power Assessment:

Parents retain full ownership of core home throughout
Term loan fully serviceable within safe income buffers
Controlled short-term investment horizon reduces risk of long-term exposure

Final Plan & Outcome: Mr. and Mrs. Tan executed a carefully planned equity unlock via term loan, acquiring an investment unit with a clear intention to flip after 4 years. Upon eventual sale, the net proceeds will be gifted to their daughter as her first property fund. This structure allowed them to preserve lifestyle, avoid liquidating core assets, and provide meaningful future support at the right time.

Client Profile:

Age / Life Stage: Early 60s, Parents nearing full retirement

Family Situation: Daughter aged 22, just graduated and starting career

Property Type / Ownership: Fully-paid freehold private condominium

Main Concerns: Retain existing home, preserve lifestyle, position early wealth transfer without tapping retirement funds

Key Takeaways:

Equity unlocking can be structured with clear short-term objectives

Investment planning can serve as a delayed but controlled wealth transfer mechanism

Full home ownership preserved throughout while enabling intergenerational planning

Maintaining holding power remains foundational to safe wealth deployment