How to be smart before the event

Every now and then, I read about new ‘geniuses’ in the property market today. Apparently, their winning formula is simple: they locate a new property (usually condos), buy five units by paying the minimum down payment and borrowing the rest. And because the prices of the properties rose significantly in the last two years, they are certainly in the money, at least on paper. (Until they sell, all the profits are just paper profits.)

Now, I must admit that I am happy for them. The higher the number of wealthy people in this country, the better it is for everyone.

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A RM20,000 mattress

A friend of mine, Ong, recently bought a RM20,000 mattress.
Now I can see that some of you are shaking your head, which was exactly what I did when he told me about it. “What happened, man? I thought you were extremely savvy with your finances. But buying a RM20,000 mattress…” I told him. “Isn’t that a little bit too much? I mean, RM20,000 for a mattress.”

Ong smiled thinly and then raised his hands to begin his explanation. He broke out gently, “Okay, let’s look at sheer time – how much time we spend at a particular place. If you work at an office, you’d probably spend some five hours of that sitting down on your chair. You’d spend two hours (tops) in your car commuting to and back from work. Then you’d spend three hours in your sofa and various chairs in the house. Then you would spend eight hours sleeping on your bed. The remaining four hours would be for other things such as walking and running around your day. Of course, all these are just ballpark figures and done without any survey but you would get my drift.”
I nodded my head in agreement.

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IF PROPERTY ADVERTS TOLD THE TRUTH

The property advertisements that we see today are simply fabulous. They make the properties sounds like something right out of heaven!
But what if the advertisements told the truth? Of course, no advertisements would actually do that, but suppose, just suppose that one fine day the advertisements actually told the truth. And when that happens, I bet that it will include some of the following…

Your property is located in a golf course
Yes, we know that one of the reasons you bought the property because it is located in a golf course. Greens, fresh air, clear skies and yes, a hint of exclusiveness.
But of course, you do realize that a golf course equals a lot of land. That means that we are going to build even more properties in the future on all that land. Well, maybe not all, we’ll leave a few tracts so that we can still call it a golf course.

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TOO MUCH MATHS, NOT ENOUGH HISTORY

A new coaching client of mine was thinking of remortgaging her current house. She bought the house more than 10 years ago, the amount of her mortgage has dropped while the market value of the property has risen considerably. So now, she wants to take advantage of the situation by taking on a higher loan from another bank, paying off the original loan and yes, have the balance at her disposal. “I can use the extra money as capital for investments so I make more money,” she added gleefully.

“Where did you get the idea of remortgaging the house?” I asked her.

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BE CAREFUL OF DEBTS

Every now and then I would receive a question on mortgage refinancing.“Azizi, should I refinance my mortgage?” They would ask. “I took a mortgage 10 years ago when the interest rate was 6.75 percent. Now that the interest rate has gone down, I want to refinance the mortgage so that my monthly repayments would drop. This will help ease my cash flow. Furthermore, as the value of my house has gone up considerably, I can get a much higher mortgage, which means I will have some money for investments.

What do you think of the idea?” Though the details about the interest rate and the period may differ, the point of the questions remained the same – should they refinance the mortgage to take advantage of the low interest rate and also the rise in value of their property? In other words, should they take on a new larger debt? I told them that the answer is yes and no!Let me explain the ‘yes’ part first. Yes, they should refinance if the intention is to take advantage of the current low interest rate. By doing so, their monthly repayments would drop (assuming that the loan amount remains the same, of course).

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PROTECT YOURSELF FROM THE IMMINENT FINANCIAL COLLAPSE

There is one truth about money: if you live high on the hog on borrowed money, the day will come when your world will come crumbling down and the U.S. has been living high on the hog on borrowed money for too long. Things cannot carry on like this forever. I see no way out for them and actually, even Ben Bernanke (the Chairman of the Federal Reserve) agrees: “The large U.S. current account deficit cannot persist indefinitely because the ability of the United States to make debt service payments and the willingness of foreigners to hold U.S. assets in their portfolios are both limited.”

So now I’d like to share some thoughts about the matter, which may help you make a better decision about money and investments. After all, knowledge is good but there is nothing like money in the bank, or more appropriately in this case, gold in your hands. Being in Malaysia, we are far from where the action is taking place. So we cannot see it, cannot hear it and to some extent, cannot feel the heat from all the upheavals. It is therefore easy to be hoodwinked by the notion that we will be sheltered from any fall-outs from the excesses. Unfortunately, that will not be the case at all.

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Traps At Property Auctions

I wrote about the incredible opportunities at property auctions recently. To remind you about the possibilities here, I’ll share my own experience. A couple of years ago, I bought a double-storey link house in Subang Jaya at an auction for RM220,000, below the market price of RM300,000. I spent RM13,000 to do up the house and then sold it seven months later for RM280,000. Despite having to pay the RPGT that was still applicable then, I still made a decent profit. Just as important is the fact that I incurred zero risk during the whole episode. Decent profit, zero risk – it was a perfect investing story.

A couple of my friends did even better. One bought an apartment in KL worth RM200,000 for just RM98,000. A second friend bought a house worth RM360,000 for RM240,000. Both properties were purchased at auctions. And these are the ones that I have personal knowledge of. You can bet there are even more exciting and grander stories out there.
So there are great opportunities at property auctions. The main attraction is of course the low price of the properties. You can often get discounts of 20, 30 or even 50 percent from the market value of the property. What’s more, the supply is plentiful. You’ll run out of money before you run out of properties.

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Financing Your Properties

When talking about properties, one cannot avoid the subject of financing the purchase. Since few of us will have the money to pay cash to buy a property, this will mean taking a loan from banks or from institutions such as insurance companies, building societies and perhaps even the government. And because of the high price of properties, the amount of money borrowed run into tens and even hundreds of thousands. In fact, the housing loan (also known as a mortgage) is often the largest amount of debt most of us will take in our lifetime. Let me repeat that for effect: the mortgage is often the largest amount of debt most of us will take in our lifetime.

This being the case, you would think the average borrower would know a lot about mortgages. I mean, since it is their largest debt – taking up to one third of the monthly income for many many years – common sense would tell them they should know as much as they can about it. Yet incredibly, only a mere handful of borrowers know the workings of the typical mortgage.

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Buying Properties At A Discount

Let me ask you a question: Is it easy to make money?

I can see some people shaking their heads. “Man, if it were easy, then I would be reading this article while lazing by the beach in Bora-Bora. The reason I’m still here at the office at 9 pm is because it’s not easy to make money. And don’t tell me any differently!”

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How to make money from properties

“So Azizi, is property a good investment?” The question echoes around me on a weekly basis. “What do you think, ah?”
Since they have asked it that way, I would smile and nod approvingly. “Of course!”

But deep in my heart, I know that while the answer is correct, it is not complete. Of course properties make good investments. But then, the same thing can be said about stocks, unit trusts and a couple of other investments as well. Although they are all good investments, it does not mean anyone can make money from them. Buying the first house you see or the stock that takes your fancy is a sure recipe for disaster. It is a guaranteed formula for exchanging your hard-earned money for a long term headache.

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Properties Investment For The New Decade

The times have been good for property investors in the past couple of years. Prices in certain areas, particularly in selected areas of Kuala Lumpur and Petaling Jaya have risen significantly, some as high as 50 percent. And as a result of this rise, practically all property investors had made money. In fact, some people have seen their net worth jump up by 30 or 40 percent because of the price rise. For example, a young colleague who purchased their house two years ago saw the value of their house increase from RM950,000 to RM1.3 million today. Of course, the owner was all smiles when they told me the story.
I am happy for them. As an avid property investor, I have benefited from the rise myself, so I am certainly not complaining. At the same time, I must admit that I have some reservation about the whole scenario. The price rise has distorted reality to many investors, including my colleague. Because the price climbed up as soon as he bought the property, and remained at a high level even today, his view on property investment is seriously distorted. He thinks that:

1. Prices will go up as soon you buy a property.
2. The gains will be in double digits per annum.
3. This is normal.
4. Prices always go up.
5. It is easy to make money in properties.
6. He is a super genius when it comes to property investment!

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ISSUE #96 - August 2010

SELAMAT MENYAMBUT KEDATANGAN RAMADHAN

Kami di True Wealth mengucapkan selamat berpuasa kepada semua.
Semoga Ramadhan kali ini membawa seribu makna dalam hidup anda.

Why I Invest in Properties

There are a myriad of investment vehicles for the Malaysian public today. While the choices before were just shares, unit trusts and properties, the investment choices have exploded in recent years. For starters, there are over 500 different unit trust funds today. These include Islamic based Funds and Sector Specific funds. Even banking products have developed from the plain vanilla savings and current account. Maybank alone has 11 different types of consumer deposit products, which include Individual Foreign Currency Account. Also, futures, options and even online investments have arrived in Malaysia. In other words, the Malaysian public has a world of investment choices today.

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Protect Yourself From The Imminent Financial Collapse

There is one truth about money: if you live high on the hog on borrowed money, the day will come when your world will come crumbling down and the U.S. has been living high on the hog on borrowed money for too long. Things cannot carry on like this forever. I see no way out for them and actually, even Ben Bernanke (the Chairman of the Federal Reserve) agrees: “The large U.S. current account deficit cannot persist indefinitely because the ability of the United States to make debt service payments and the willingness of foreigners to hold U.S. assets in their portfolios are both limited.”

So now I’d like to share some thoughts about the matter, which may help you make a better decision about money and investments. After all, knowledge is good but there is nothing like money in the bank, or more appropriately in this case, gold in your hands.

Read the rest of this entry &raquo

AVOID THREE EXPENSIVE ERRORS IN PROPERTY INVESTMENT

Since it proved to be a HOT HOT thing, I’m answering more questions this month. As usual again, the questions are presented the way they came in, broken English, grammar errors and all. Enjoy!

QUESTION:
Dear Azizi,
I’m currently using the sample Tenancy Agreement from your book. My tenant and I signed the Tenancy Agreement. But I did not get it to be stamped. (Mine is a low cost flat and the tenant was reluctant to pay for the stamping cost.)
I wonder if it will be of any good in the court of law should I have any problem with my Tenant?
ANSWER:
Yes and no!
Firstly, an agreement does NOT have to be stamped to make it legal. In fact, stamping it does not make it more or less legal. An agreement that is signed by both parties are legal and binding.
Why do people stamp agreements then?
The answer is because only an agreement that has been stamped can be admitted to court. No stamping, no admission.
In your case, if you need to go to court later on, all you need to do is to have the agreement stamped at that time. Of course, you will be charged a higher fee for the late stamping.
The sad reality is that a tenant that cannot afford to pay the stamping fee will very likely be unable to afford the rent payment as well!

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AVOID THREE EXPENSIVE ERRORS IN PROPERTY INVESTMENT

Property investment has been a long and experienced wealth builder. Folks had built fortunes throughout the centuries by owning real estate. If it was true then, it is even more so today.

Yet at the same time, there are far too many people who fall into financial difficulties because they invested in real estate. I personally know of one of my own colleague who is up to his neck with debts because of property investment. When you sit down to think about it, isn’t it odd? The same investment that is making some folks rich is sending others to their doom! Although there are obviously many reasons leading to this situation, one glaring point is that the people who are making money know something that the others don’t. Now, while one do not have to have a PhD in properties to make money from it, it is also obvious that the more you know about it, the more money you will have.
Properties are also straight forward. The more properties you own, the wealthier you will be. As to why this is so, the reason is simple: a person who has financial difficulties will never come to the situation of owning five or more properties; he has enough problems even to own one! For a guy to own five or more properties, he has to know what he is doing and should be a master of his finances already. While there are always exceptions, that is the rule of thumb when it comes to properties.

Now, the three common errors folks make in property investment are (1) buying in the wrong location, (2) buying the wrong type of property, and (3) making decisions based on what happened in recent history. Unfortunately, all three errors are very costly, very expensive and also very demoralizing.

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