One of the main reasons why people work is to secure a retirement. I must have driven my insurance consultant to her early death when all I need is $500 a month for expenses to survive. Yes. Based on the 4% withdrawal rate and fire test it against 30 years of data, we need to have only 25 x yearly expenses to retire. That would be $125000 invested in a ETF that gives you consistent returns of > 4% nett of inflation and you can retire without working.
How sure then are we that $500/month is enough? So we build layers and layers of insurance, over capacity, buffers... til... we have no more time left to enjoy ourselves. How much is enough really? The best we can get til we retire? We have just traded time for $$$. Now try to buy back time!
For young graduates, should you understand money and time, you would not want to spend time to get money. You would spend money to buy time. Time is always a more expensive commodity of all.
Say, should you be able to use a road map that guarantees you time for life, would you buy it? for what price?
Sunday 31 August 2014
Friday 29 August 2014
OTP Price vs Valued Price
For new comers to Australia property, it would be a very daunting task trying to establish the valuation of the properties. No one knows exactly. You buy at the Off the plan price of $X, but the valuation in 2 years time may fall short... what do you do then?
Thursday 28 August 2014
Cost of Uncertainty
Investors are often concerned about fixed rate vs floating rate when they taken a loan. A fixed rate is invariably higher compared to a floating rate, however, you can be sure that the amount you pay for mortgage remains the same each and every month.
If you live with certainty, several things can happen :
a. You can fully deploy all available resources and plan to the very last penny - which translate to better performance of your available cash.
b. You can sleep better and have less anxiety.
c. Peace and tranquility.
Choose uncertainty if you want excitement in life. I pay a little more for certainty anytime and setup a road map to grow my portfolio.
Did anyone say Stocks??!
If you live with certainty, several things can happen :
a. You can fully deploy all available resources and plan to the very last penny - which translate to better performance of your available cash.
b. You can sleep better and have less anxiety.
c. Peace and tranquility.
Choose uncertainty if you want excitement in life. I pay a little more for certainty anytime and setup a road map to grow my portfolio.
Did anyone say Stocks??!
Wednesday 27 August 2014
Rumah Baik Baik!
Rumah Baik Baik means beautiful homes! This phrase was coined by one of my fellow colleagues and it stayed with me throughout the years.
Rumah Baik Baik will make people emotional and buy things that would make them lose their financial independence. Beautiful things like beautiful woman makes you lose your head. You simply lost all reasoning ability.
Best houses I've seen so far :
1. The Haven Residence
http://thehavenresorts.com
The Haven in Ipoh which came to me in 2011. Set amidst beautiful limestone cliffs... Did I make a mistake not buying it?
2. Valley Lake in Keilor East, Victoria
Next, Valley Lake estate in Keilor East. By looking at the picture below, does it whet your appetite?
http://www.mab.com.au/residential/canopi-valley-lake
To reiterate, both are beautiful projects but do look at fundamentals and see if it makes sense to invest. Buying is no problem, both are beautiful and nice area to stay in. Investment? Remember, investment does not have emotional content. It is simply a maths issue, make the numbers count!
Rumah Baik Baik will make people emotional and buy things that would make them lose their financial independence. Beautiful things like beautiful woman makes you lose your head. You simply lost all reasoning ability.
Best houses I've seen so far :
1. The Haven Residence
http://thehavenresorts.com
The Haven in Ipoh which came to me in 2011. Set amidst beautiful limestone cliffs... Did I make a mistake not buying it?
2. Valley Lake in Keilor East, Victoria
Next, Valley Lake estate in Keilor East. By looking at the picture below, does it whet your appetite?
http://www.mab.com.au/residential/canopi-valley-lake
To reiterate, both are beautiful projects but do look at fundamentals and see if it makes sense to invest. Buying is no problem, both are beautiful and nice area to stay in. Investment? Remember, investment does not have emotional content. It is simply a maths issue, make the numbers count!
Cash flow vs Capital Growth
I've just attended an Australian Masterclass event with an agency. "Capital growth is the way to riches, yield gives you holding power"
I've always been a follower of yield and not depend on the upside growth. Today, within 4.5 years of investment. I've grown from 40k cash to now owning 7 properties. Although my earnings are around 400k within these period, I stress to say that without consistent income coming in from my rental, I would have stopped at 2 or less and get stuck.
Today, I'm aiming for 2 million in property portfolio and equity of 900k, simply by being able to buy and being able to hold. That is each property must help to own other property by providing cash-flow to reduce expenses.
Lets take for example, a person earning $5000 a month with $2000 expenditure.
He manages to save up $3000 a month for a period of time and accumulated $120,000. He buys a off-the-plan property. He will get stuck while waiting for its completion. No income. So he starts to save for the next pot of money. Consider if he have to pay a slight outflow each month to hold his property... say $300, he would have $2700 left. It takes time to growth his equity and all these years say 5 years would have passed and he is stuck and cannot grow his portfolio.
Put it another way, he bought a rental property that gives him $300 a month straight. His income would have increased by $300. If he could raise more equity to buy more units and use the rental income to cover interests and outgoings, he would earn say $50 extra a month. Keep rolling over 5 years, he would be financially free and obtained equity. Slow capital growth is not important as his nett rental income could already enable him to be financially free and allow himself a greater risk to take!
Think about capital vs yield. I say Yield!
I've always been a follower of yield and not depend on the upside growth. Today, within 4.5 years of investment. I've grown from 40k cash to now owning 7 properties. Although my earnings are around 400k within these period, I stress to say that without consistent income coming in from my rental, I would have stopped at 2 or less and get stuck.
Today, I'm aiming for 2 million in property portfolio and equity of 900k, simply by being able to buy and being able to hold. That is each property must help to own other property by providing cash-flow to reduce expenses.
Lets take for example, a person earning $5000 a month with $2000 expenditure.
He manages to save up $3000 a month for a period of time and accumulated $120,000. He buys a off-the-plan property. He will get stuck while waiting for its completion. No income. So he starts to save for the next pot of money. Consider if he have to pay a slight outflow each month to hold his property... say $300, he would have $2700 left. It takes time to growth his equity and all these years say 5 years would have passed and he is stuck and cannot grow his portfolio.
Put it another way, he bought a rental property that gives him $300 a month straight. His income would have increased by $300. If he could raise more equity to buy more units and use the rental income to cover interests and outgoings, he would earn say $50 extra a month. Keep rolling over 5 years, he would be financially free and obtained equity. Slow capital growth is not important as his nett rental income could already enable him to be financially free and allow himself a greater risk to take!
Think about capital vs yield. I say Yield!
Sell your pants to get a property
This is very exciting! I've just booked an expression of interest for a unit that's misplaced by 100k or more as compared to a similar property just next door.
How did this happen? I was at a seminar just hanging around, learning new stuffs and networking. Met a fellow investor who bought the 1st phase of the project at $590k, a 3 bedder townhouse fronting the lake. As usual I was just checking out the girls when I overheard my agents commenting on the same project with some suspicion of mispricing. As I've researched that property earlier and found the project to be exciting but pricey. The project is Canopi in Keilor East - an up and coming area. When I heard the possible mispricing, I went to my agent and said, send in my EOI immediately. Take it off market for 2 weeks and we can see how.
The seminar is on investing and I was wondering how come these agents with such advanced knowledge of pricing change was not able to translate into a "Below Market Price" purchase? I mean all they had to do is take it off market and they definitely can find a good deal for their clients and a client for life for that matter.
Here I was excited about selling my pants to get this possibly AUD$100k below market value property. Just excited...
Be good to yourself... call up agents every now and then and get to know them better and tell them you are very rich and waiting to get into the market!
How did this happen? I was at a seminar just hanging around, learning new stuffs and networking. Met a fellow investor who bought the 1st phase of the project at $590k, a 3 bedder townhouse fronting the lake. As usual I was just checking out the girls when I overheard my agents commenting on the same project with some suspicion of mispricing. As I've researched that property earlier and found the project to be exciting but pricey. The project is Canopi in Keilor East - an up and coming area. When I heard the possible mispricing, I went to my agent and said, send in my EOI immediately. Take it off market for 2 weeks and we can see how.
The seminar is on investing and I was wondering how come these agents with such advanced knowledge of pricing change was not able to translate into a "Below Market Price" purchase? I mean all they had to do is take it off market and they definitely can find a good deal for their clients and a client for life for that matter.
Here I was excited about selling my pants to get this possibly AUD$100k below market value property. Just excited...
Be good to yourself... call up agents every now and then and get to know them better and tell them you are very rich and waiting to get into the market!
Friday 15 August 2014
About Ponzi Scam
I first fell victim to a Gigantic ponzi scam called the stock market, then the unit trusts. Some of the exotic ponzis I've invested are 12 daily pro. I have never ever touch MLM or any product that based on your ability to resell the product for higher price or to pull in more members.
12 daily pro is so powerful a scam. You place your money, 12k usd in the system and in 12 days, you receive 12 percent for doing absolutely nothing and thats ultra high return for doing absolutely nothing! Its introduced by a very dear friend, who must had made some upline money intriducing me to the system. Now with the money locked in, you are at the mercy of the ponzi for the 12 days. You cannot withdraw the money. Needless to say, the system collapsed eventually and gone are the few thousands.
Now, what else gives you 12% returns? Dolphin Capital? IPIN Global secured investment strategy? Geneva Gold?
What is so special about this 12% that people are willing to let go their money to put into something that they absolutely have no control over? Ever since the 12 daily pro scam, I've stayed away from anything that promises 12%.
I've received my very first advice on property investment - only invest where you can get a mortgage. It made perfect sense. I was not savvy enough to ask why nor do I understand it initially. Over the years, I've gone against the advice and bought some property without bank mortgage and what I dumb dumb I've been feeling ever since I parted with my money. Thats money lost forever... depending on the whims and fancy of the ponzi operator. I did say the stock market is a ponzi as it is a "willing buyer, willing seller" market. Would banks lend you money to buy stocks? Think about it.
Why do I say you need a mortgage... The bank is a cautious creature who have to protect its own interest. The banks are lending against the value of the asset and not lending to you as a term loan. The property must have sufficient value when a bank lends you the money. Without the bank backing the mortgage, it would be a "willing buyer willing seller" system. You may not get the price you want next time you are selling. Bank mortgage helps you create a stop loss.
In an unregulated market where financial services is not so advance, take care when investing. If you think the law is going to protect you, think again. How are you going to raise the money to fight the case, in their court, taking several years to recover some tens of thousands. Also, think about who is going into the deal with you. If your fellow investors are the aunties and uncles who had just withdrew their CPF money, better stay out and advice them to stay out too.
I've met numerous aunties who have invested as a "try try"!!!! what? try try? Lost money take it as lessons learnt.
With that attitude, Ponzis are here to stay.
12 daily pro is so powerful a scam. You place your money, 12k usd in the system and in 12 days, you receive 12 percent for doing absolutely nothing and thats ultra high return for doing absolutely nothing! Its introduced by a very dear friend, who must had made some upline money intriducing me to the system. Now with the money locked in, you are at the mercy of the ponzi for the 12 days. You cannot withdraw the money. Needless to say, the system collapsed eventually and gone are the few thousands.
Now, what else gives you 12% returns? Dolphin Capital? IPIN Global secured investment strategy? Geneva Gold?
What is so special about this 12% that people are willing to let go their money to put into something that they absolutely have no control over? Ever since the 12 daily pro scam, I've stayed away from anything that promises 12%.
I've received my very first advice on property investment - only invest where you can get a mortgage. It made perfect sense. I was not savvy enough to ask why nor do I understand it initially. Over the years, I've gone against the advice and bought some property without bank mortgage and what I dumb dumb I've been feeling ever since I parted with my money. Thats money lost forever... depending on the whims and fancy of the ponzi operator. I did say the stock market is a ponzi as it is a "willing buyer, willing seller" market. Would banks lend you money to buy stocks? Think about it.
Why do I say you need a mortgage... The bank is a cautious creature who have to protect its own interest. The banks are lending against the value of the asset and not lending to you as a term loan. The property must have sufficient value when a bank lends you the money. Without the bank backing the mortgage, it would be a "willing buyer willing seller" system. You may not get the price you want next time you are selling. Bank mortgage helps you create a stop loss.
In an unregulated market where financial services is not so advance, take care when investing. If you think the law is going to protect you, think again. How are you going to raise the money to fight the case, in their court, taking several years to recover some tens of thousands. Also, think about who is going into the deal with you. If your fellow investors are the aunties and uncles who had just withdrew their CPF money, better stay out and advice them to stay out too.
I've met numerous aunties who have invested as a "try try"!!!! what? try try? Lost money take it as lessons learnt.
With that attitude, Ponzis are here to stay.
Sunday 3 August 2014
Super Boring is good?
George Soros: Good investing is boring
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
I'm super bored nowadays having my funds already locked up and awaiting for the returns. Is that good investment?
The lack of excitement is certainly not a reason to indulge in exciting returns. Slow and steady is the way to go. Find something to engage yourself whilst you set the plans for your money to work hard.
Argh!!!!
Problem with Exotic Investment Schemes
There are many investment schemes all being offered to investors promising returns of XX % and for a limited time only... XX + X % just to make you feel special. Please go through the business model to understand how the scheme can make you money and what is the structure they offer you.
The recent problem with, Geneva Gold, ECO house just highlights the issue with having no control and having the property investment being thousands of kilometres away. Yes, it may be protected by law but how do you go about enforcing it? In the Brazilian Court? How do you stack up to fight a case against the locals?
Notwithstanding the basic rules of investment of buying low (below market value), sound fundamentals of the product and cash-flow and a exit strategy or two. These investments throw in a few curve balls too!
For exotic investments, you have to think and understand more :
a. Investment structure
How are your investment structured? Is it a company guarantee? Who is guaranteeing it? Do you have title and law protection? Even if you have all these, how do you enforce it? I heard in the UK, you have to have a deposit placed with the court to commence court proceedings.
If you do not know or do not have the means to pursue the case, please be nice to yourself and not pursue the investment.
There are vendor loans property that do not give you title of the property til the vendor loan is cleared. Are you strong enough to take them on if things go sour?
b. Market
Do you have a market if you want to sell it? Certain products practically have no market and hence you are stuck with a hot potato. You, in good faith would not be able to pass these hot potatoes out to other people.
c. Control
The most important considerations would be Control. How much control do you have when the situation changes?
Always follow Warren Buffett's rule no. 1 = Never lose money.
The recent problem with, Geneva Gold, ECO house just highlights the issue with having no control and having the property investment being thousands of kilometres away. Yes, it may be protected by law but how do you go about enforcing it? In the Brazilian Court? How do you stack up to fight a case against the locals?
Notwithstanding the basic rules of investment of buying low (below market value), sound fundamentals of the product and cash-flow and a exit strategy or two. These investments throw in a few curve balls too!
For exotic investments, you have to think and understand more :
a. Investment structure
How are your investment structured? Is it a company guarantee? Who is guaranteeing it? Do you have title and law protection? Even if you have all these, how do you enforce it? I heard in the UK, you have to have a deposit placed with the court to commence court proceedings.
If you do not know or do not have the means to pursue the case, please be nice to yourself and not pursue the investment.
There are vendor loans property that do not give you title of the property til the vendor loan is cleared. Are you strong enough to take them on if things go sour?
b. Market
Do you have a market if you want to sell it? Certain products practically have no market and hence you are stuck with a hot potato. You, in good faith would not be able to pass these hot potatoes out to other people.
c. Control
The most important considerations would be Control. How much control do you have when the situation changes?
Always follow Warren Buffett's rule no. 1 = Never lose money.
Saturday 2 August 2014
Treating each investment property like a business
Each property must be treated like a "company" with its own profit and loss statement.
How do we analyse a company?
3. Full Control (ability to influence and make changes)
As in all business we own, when we put in our money, we do not want other people to manage the cash flow right? How do you know they can do the job better? even if you hire a professional manager as a CEO, you would expect to not give him full power and to seek board of directors approval for some changes, for example give himself pay rise. Control is a key factor for successful investment. No control = no investment. No control = gambling.
1. There is profit and expenses statement. (Profit and loss statement)
This is the measurement of income from rent vs expenses incurred. What happens is people are obsessed with yield. Yields are just part of the equation, you have to take into account costs associated with the ownership which includes maintenance, interests, taxes and other nitty gritty expenses.
2. Intrinsic Potential (Price to book)
This measures the potential for capital gains. What happens for a serious investor is he would only buy below market value which is a comparison against other similar properties and that would already made him some money when he buys. How else can we unlock the property's values? Say in a company we have a competitive advantage - think patent and good will. In this case, you can say a possibility to convert the place with an extra room to increase yield?
A potential to subdivide? A potential rebuild? Structural plans to show that the area's up for regeneration? Yes, upgrading of the immediate environment will increase the intrinsic values.
3. Full Control (ability to influence and make changes)
As in all business we own, when we put in our money, we do not want other people to manage the cash flow right? How do you know they can do the job better? even if you hire a professional manager as a CEO, you would expect to not give him full power and to seek board of directors approval for some changes, for example give himself pay rise. Control is a key factor for successful investment. No control = no investment. No control = gambling.
We have to treat each investment property like a company and when it can make you money on a consistent basis, that is a good "investment".
Understanding Structural plans - Carnegie
The Victorian Govt have introduced a new planning policy to rezone residential and growth zones. This is like plot ratio in Singapore. Plot ratio indicates how much you can maximise the available floor area. The Zoning policy implemented by the Victoria Govt dictates the height and the off-set of the building relative to the zones.
There are basically 3 zones - Growth zones, Residential zones and no growth zones. Several cities have restricted their growth through the implementations of the zonings. One of which is Glen Eira which had implemented no growth zones for ~ 78% of its suburbs. Which is by law, there can be no more growth.
With rising population, due to immigration and population natural growth, and limited supply, due to restriction in building height, high desirable suburb such as Carnegie would likely experience capital appreciation. Lets look at what the plans entails.
The green zone are restricted to no more than 8 m height. (2 storeys)
The blue zone are restricted to 10.5 m height. (3 storeys)
The light blue zone is restricted to 10.5m height. (3 storeys)
The brown zones - growth zones - 15.5m height. (4 storeys)
There are basically 3 zones - Growth zones, Residential zones and no growth zones. Several cities have restricted their growth through the implementations of the zonings. One of which is Glen Eira which had implemented no growth zones for ~ 78% of its suburbs. Which is by law, there can be no more growth.
With rising population, due to immigration and population natural growth, and limited supply, due to restriction in building height, high desirable suburb such as Carnegie would likely experience capital appreciation. Lets look at what the plans entails.
The green zone are restricted to no more than 8 m height. (2 storeys)
The blue zone are restricted to 10.5 m height. (3 storeys)
The light blue zone is restricted to 10.5m height. (3 storeys)
The brown zones - growth zones - 15.5m height. (4 storeys)
If you are buying for investment, you would look for brown zones for single storey dwellings for rebuild potential or the blue zones.
2 Morton Avenue - FRD has a 5 storey building which would be the highest in the area when built as the restrictions would be 4 storeys for all the other buildings in the brown zone. Further, the Victorian Government's transport master plan has approved and funded the Koornang Road level crossing and there would be a new train station (currently being called for proposals July 2014).
Forex play with property loans
Stocks vs forex, which is more risky?
Many would have said Forex is more risky, thats because Forex is a high leveraged game played by high net worth people. As we understand currency, currency is a commodity driven by demand and supply - indicators of economic drives demand and supply and the float of the nations' currency is far too wide to be manipulated by any individuals. In view of the large float of currency out in the market... try shorting the currency?
In stocks, we often hear of manipulations by some fund house or bankers to short or drive up demand. Often there is a finite stock volume and it would be possible to drive up and down demand for this finite number of stocks.
Have you seen $$ becoming zero overnight? Or have you seen Stocks delist overnight or being suspended?
The answer is clear.
In property, there is a way to play forex at 1:1 level and that allows you to mitigate the margin call risks associated with high leverage investment like forex. You simply use a "collateral" to offset against any losses.
Lets put this in example.
For a $400k property say in AUD vs SGD. Historically prices fluctuates about 30% every 5 years or so.
Start point at year 1 - you have put in 80,000 and 320,000. at 1.18SGD to 1AUD. When AUD fell to parity, you convert the loan to SGD loan... hence instant 30% gains in forex = 30% reduction in mortgage liability. When AUD rise to 1.3 : 1 SGD, you can convert to AUD loan again. Such conversation over time allows you to earn the forex exchange rate without ever lifting a finger.
Money printing anyone?
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