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Buying and profiting from Property - A Sound Investment Strategy

Recetly I bought a book "How to profit from Asian Properties" by Andrew Moffat.In it, there are many illustrations and data of how one can make money from property provided one is diligent in preparing himself in investing and most likely holding on to this major asset. The key point made in this book is the answer to the question : "Why invest in a property ? " There are several,however, one must understand the following principles / circumstances :

1. Your first property is something which is a necessity, so when you buy is more or less irrelevant, you will still need a roof over your head and your family too. If you bought low and sold high, you will still need to buy high to own your first
home so it doesn't make you profits unless you sell and downgrade to a smaller home
or rent.

2. A property is a solid asset built using bricks and mortar (cement), unlike stocks, bonds, insurance, unit trusts and the like.Though its cycles will swing up and down, its value will hardly ever be zero. The rest of the asset classes can technically failand their value fall to zero. See recent bust of Lehman brothers linked derivative funds like Minibonds and DBS High Notes for examples orwarrants
Not so for property.

3. A property is not as liquid (ie. can be bought and sold easily and can be cashed out) as the other assets,instruments or investments like stocks, insurance and unit trusts, as it takes time, months or even years to sell and buy (time is set aside for foundation and construction of the said property, plus a time line to get the Temporary Occupancy Permit of TOP).

4. An apartment or house, is a fixed commodity, and its value is subject to the valuation based on age of the apartment or house, the lease structure (freehold versus leasehold 99 years in Singapore, land area, price per square promixity to
amenities like shopping centres, wet markets,supermarkets, MRT train stations,good schools and most importantly accessibility to all of the above, in short, its about 'location,location location'.

5. Best of all, a property is yours to keep forever, once you have paid off the mortgage on it. It is a hedge (bet) against long term inflation which normally is about 2%, so spread over 20 years, the property value normally should have
appreciated by more than that. Additionally, if one is renting out the apartment, the rental income on the property should cover most if not all of the mortgage payments.

6. Key point is that as an investor, if you can afford to pay the 20% downpayment for the house or apartment, and get a tenant to rent it from you that is not the end of the story. In a down cycle, the country will be in recession, many foreign nationals and companies will pull out and these tenants will be the first to go. So if you are stuck with an empty house or apartment,with no tenant prepared to pay what you ask for, you have to take 1 of 2 possible causes of action :

a) lower your rental expectation and get a lower rental. This may be as much as 20% to 30% than your original asking price.

b) fork out the money for the mortgage for the duration (up to 1 year) until you find a tenant. This is very critical.

7. There is this 'trap' which many owners fall into. It is called 'negative equity'. Say you bought this nice new apartment for S$ 1 million and you put a S$200,000 dowpayment on it and it is valued at $1 million. So the bank lends you S$ 800,000.
You take a mortgage loan of S$800,000 spread over 20 years at 3% interest per year. So that works out at S$ 5,200 per month. You manage to find a tenant who is the GM of an American company based in your country's capital.He agrees to pay S$ 5,000 per month and all is good. This rental covers your mortgage and you need to pay only $200per month to cover up the shortfall.

Suppose, another Financial Crisis hits (God forbid), and the economy stalls, foreign investment pulls out, your tenant GM gets recalled back to the States, and he pulls out of the tenancy agreement leaving you with a mortgage to pay of
S$ 5,200 per month. You can't pay becuase you are stuck as your income exactly equals your expenditure and that includes paying for your first house plus your other household and children's expenses. Worse things may befall you in the downturn, you may lose your job and whatever you can squeeze to cover the 2 mortgages from the salary, now its totally gone.

Worse, you advertise for 3 to 6 months and no one comes forward with an offer. There are many desperate rentals out there because many tenants have gone home. So you owe the bank S$ 32,000 in back mortgage.

Even worse, the value of your house /apartment drops to now $750,000 because of the crisis. (What goes up does come down !!). Your bank manager friend is nowhere to be found and you get calls from the bank's receviers to

a) Pay S$ 32,000 in back mortgage (6 months) PLUS interest

b) Pay another S$ 50,000 as exposure - the house is valued at S$ 750,000 and you owe the bank S$ 800,000.

So you sell the house / apartment at you guess it, $750,000 and now you owe the bank S$ 82,000 !!!

You will be forced to make good the loan, and you either, take another job, work out a 2 - 3 year payment plan or even sell your abode, the house you are residing in.

So in the end, you are either made a bankrupt, or you have no roof over your head, or you are worse than if you had NOT started investing at all !!

This is the ONE 'trap' one must avoid at all costs.

So now for the good news, YOU MUST TIME YOUR PURCHASE RIGHT. BUY 'LOW' AND SELL 'HIGH'.

a) say an investor, invests $200,000 in a property worth S$ 1 Million (20% downpayment), if everything goes OK, in a stableand growing environment, he would be able to get a tenant to rent it at say S$5,000 for a yield of 6%.

The yield is calculated based on how much rental the property can fetch in 1 year as compared to how much it was purchased for, so S$60,000 divided by S$ 1 million is 6%.

b) Furthermore, if the investor is lucky, he will see his property appreciate to $1.5 million in 5 years or less and if his tenant stays with him, he can aim to either

- sell the property for a quick S$ 500,000 profit. This is more than 200% of the amount invested of S$200,000 in 5 years.

He can then take back his initial capital outlay of S$ 200,000 and with the S$ 500,000 profits use that later (wait for the next bust cycle) and buy 2 properties worth S$ 1 million and so it multplies from there on.

- aim to continue servicing the loan and maybe in 10 years, the property would be would $ 2 million. In essence, that would be 500% in 10 years. !!

Nothing in other asset classes matches these outstanding performances.

THINGS TO TAKE NOTE OF :

Property like stocks are dependent on the country's economic performance in Gross Domestic Product (GDP), unemployment. So in short, when thecountry's GDP is good, people get good paying jobs, bonuses, stock market is performing well and of course the property market will be rising at rates of anything from 2% to 10 or even 20% per year. So all propety prices will rise in tandem as every seller wants to make good profit quickly.

So in short, you can make profit in a short time,perhaps something like 20% * Depending on what is the level of the property price * This is what I would call a SUBJECTIVE OPINION. But in the long run, your property investment should yield easily 100% to 500% of the original purchase price. It totally depends on when you BUY and when you SELL.

But, in a poor economy, like the recent Worldwide Financial Crisis,yes the property prices may fall 10 - up to 30 or even 40% in 1 to 2 years but these sellers are normally desperate cases who are forced to sell to pay back business failures or other asset failues. Most property investors, if they are savvy, will have rental income from the property which should give them the buffer to 'hold' during these lean times and pay the outstanding mortgage.

So the bottom line for this is, in a poor economy, yes there will be more desperate sellers, but the actual sales transacted will be few, as compared to a booming market.

As an engineer, I view the property curve in terms of boom bust cycles but always rising up at a certain angle. Provided Asia can continue to sustain the momentum and growth path for say the next 20 - 30 years (some say 50 to 100), then we should all buy property (that is being able to sustain it during the good as well as the bad) at every 5 to 10 years of our lives.

It is the fastest way to wealth, but do your sums first.

The Foundations of Company Building

Kannan ; my Regional Sales Manager

One of the key tenets or principles of a company's growth and ultimately success is to attract and retain good and talented people. I have been fortunate to have some good and key appointment holders, one of which is Ilhangkannan Narinasamy or Kannan for short.Born and raised in Malacca, Malaysia Kannan has been with my company for coming to 5 years and is now handling Regional Sales for my business.

I aim to grow the team of responsible and experienced people,both Sales and Service, and ultimately Operations who will bring the company to new and greater heights in the very near future.

Thank you Kannan for the efforts. The best is yet to be.

Show appreciation when it is due

Thank you Candy, Welcome back Melody

As a manager, while it is important to measure performance by results, for example attainment of sales objectives and amount of service revenue generated, it is also most important to understand to give credit to the people who work for me and the company as well as covering for me and 'holding the fort' when I am away on business.

Candy Ooi has been with QRA as a temporary staff only for 3 months, but she has been very meticulous and calm in handling the workload of the Sales Coordinator much of which she does not fully understand. However, as a sales coordinator cum receptionist, she was always reliable and dependable even when I am not able to give a full answer to the customers or vendors.

I wish to express my appreciation to her as well as to Melody Meng,my current Sales Coordinator who was very instrumental in arranging her services at such short notice. Thanks to both of you.

American War History Museum - Ho Chih Minh 2009

Strikemaster Jet

In the heart of District 1 lies this old museum, which houses the relics of American warfare such as F5 and Strikemaster jets, Huey helicopters as well as the AMX 13 tanks, It serves as a constant reminder that the Communist Vietnam was victorious only about 35 years (1975 ?) ago when the North Vietnam forces occupied South Vietnam and united the entire country. Many films depicting the desperate final months and days of the 20 year war such as 'Platoon', 'Apocolpse Now', 'Hamburger Hill' as well as the much decorated film 'The Deer Hunter' by Martin Scorsese starring the then young and handsome Robert de Nero have been made and played out to impressionable youths (like me) in the late 70s and early 80s. They shaped my impression of the war. Going to Ho Chih Minh changed my preception of that forever.

Whatever images that was painted in those films were mainly seen through American and foreign eyes. The crappy Rambo movies which sold millions of tickets depicted Viet Cong as evil despicable people intent on torturing our poor but well endowed John Rambo and screwed up his mind. What a load of Bulls***!!


Image of death staring out the window

During my first trip to Ho Chih Minh last year, I had a mindset change, in the form of realising that the reality was that while America were the losers of the protracted war (they pulled out), the saddest fact was that Hollywood cashed in on the world's ignorance and short terms memory by producing films of utter nonsense depicting fictitious heros like Rambo (1-IV),and lots of other forgettable films where the heroic Americans helped their comrades out from the dirty village prisons.

What Herosim ! Never mind that the Americans dropped thousands of bombs filled with Napalm (Agent Orange) and killed or worse still maimed many thousands of women, children,families and led them to a bleak future as a handicapped disabled person. How vile and despicable can this so-called superpower be ??


AMX 13 Tank

Bear in mind, the Vietnamese were fighting for their independence, and right to govern, and Ho Chih Minh was the catalyst and lightning rod to galvanise the country, though how many Vietnamese were true Communist was a debatable question. Americans on the other hand, were fighting for 'llberty,freedom and he American way'. Again, another piece of Bulls*** foreign policy of American attempted dominance after French colonialists were booted out in the late 50s. Its so true that American interests in the form of businesses in Da Nang (a seaport) plus all the American companies in the S.E. Asian peninsula would be threatened with the spectre of Communism.

Looking at the world order today, and see that China (Communist) is now aiming to lead the world in economic progress. So is the democratic way of Governance the ideal way forward ?


F5 Jet

The biggest irony about this museum is where in the world would you find a country which has been victorious in defeating a huge and vicious enemy which had inflicted bilions of dollars of damage and millions of lives lost, dedicate a musuem to the weapons of mass destruction (at that time) ? It doesn't show anything about the horrors of war, the people who suffered tremendously, and the countless of lives and families torn apart by these weapons of destruction.

This is again, another petty attempt at earning some tourist money, but if I were a Vietnamese, I would be shocked to go and visit a musuem in Ho Chih Minh which showed me what killed my family and friends 30 odd years ago.

Its a cuel joke.

Andrew's Commute to School

I'm at the entrance of my school - total commute time 5 minutes

My son Andrew is in the fortunate position to be living barely 5 minutes from his Secondary School, Anglo-Chinese School at Barker Road. The benefits of commuting to school in such a short time are plentiful. Firstly, he can have at least 1 hour more
per day to sleep in ; so for a term of 10 weeks, that is a savings of 50 hours. Secondly, we as parents can save on the $70-120 per month from him taking the school bus every morning. That in itself translates to $1200 per year in savings based on $100
per month average school bus fare.


Oh I'm still tired !

Thirdly, because his commute time is so short, we can monitor his coming and going better and since my wife is not working, can plan his rest,play and study schedule much better. His attitude after a long day can be quite grumpy so its essential that he can have a short nap in the afternoon before resuming the rest of the day. Making sure that he eats balanced and wholesome meals after a long day is also quite critical for youths and teenagers.


After a hearty breakfast of scrambled eggs on bread, its time to put on his shoes

So parents, spare a thought for your child. While putting your children in a 'good' school may be your priority, the family environment to encourage and develop the right attitude for study and graduating out into the 'real' environment is most important. There are many fine neighbourhood schools who have improved lives of many children of lesser means. There must be literally tens of thousands of parents who drive or send their children to 'brand name' schools and wake up their children at the unearthly hour of 5.30 or 5.45 am just to drive them to school, a commute which takes about 1 hour or longer - one way. So every day, about 2 hours is spent on travelling or wasted time.

Is it worth you and your child's time ?
What about the work-life-play balance the extra 2 hours PER DAY could do for each child and yourself ?

Charity Groups - Are they Relevant Today ?

The Executive Board

I have been serving as the 2nd Vice President at a small charity for the last 6 months.There are a total of over 2,000 charities in Singapore and the short experience I have had has led me to question a) the relevance and b) the objective of not just this charity but for the bigger picture, the charity landscape in Singapore.

'Charity begins at Home' is a common proverb which is very apt, even in today's times. There are record levels of unemployment all over the world and countries are becoming very clever at reporting statistics which would cast them in bad light, so underemployment - a situation whereby there are a group of people, many over 40, without the proper skill sets,education, with health issues who have been unemployed for over 18 months and have given up looking for a job. They would NOT be classified as unemployed, so do not fall into the category of unemployed.So, categorically, there are many people who are 'semi-working' or providing useful time as semivolunteers, especially after they have lost the will to look for a full time job,in charities.

I have several questions which are similar to those first raised by my friend Roland Teo in his blog post.

a) Is there is a pressing need to serve the niche of for example, wayward youth, whereby our own Government has ably provided many programmes under the Minstry of Community Development,Youth and Sports such that a charity be set up solely to address this niche ? The answer is YES and NO. Depends on who you ask - basically.

b) Will charities solve the social problems of our society ? Again the answer is YES and NO. YES to a certain extent, they do help and NO they only provide the basic support structure which their meagre funds from wellwishers and donations from
corporates (eg. MNCs)can support. Charities can never replace the Government in terms of funding, infrastructure and organisational capabilities.

As Roland had aptly put it, if the Multi Natinal Company really wants to be charitable it should look after its interests of its staff and not fire or downsize the company whenever their profits are dwindling. What they are doing now is doing both, that is downsizing or rightsizing their business and also donating a sum of money through its Corporate Social Responsibility CSR programmes. This helps to improve its 'good corporate citizen' image and also show the public that they are a'caring' employer.

If MNCs were so 'caring' they would do their best not to retrench or downsize. That would itself be a charitable act for their loyal serving staff, rather than focus always on productivity.

So in the end, why are charities existing ?

They are for the greater part, self serving, and also providing the small niche services which the Government should be handling. Instead these organisations fill the small role which the Governnent should be taking more direct involvement in.