Enjoy Cash Flow and Capital Gain from Property

After pondering on what Robert Kiyosaki emphasized on investing for cash flow, I have been thinking what would be the best income generating asset to own. Besides property, I really have no idea what else. In this post, I shall make the justifications for property investment.

Cash flow in the form of rent

The cash flow from property comes in the form of rent. The advantage is that the rental charges collected can be used to offset your mortgage monthly installment. In fact, the rent should more than cover your mortgage payment in order to make profits. If you can keep your property tenancy till the end of your loan, you own the property for free! If you can do it for one property, you can replicate the success in more properties without you having to pay for mortgage. This is how the rich gets richer!

Hard assets are good in inflationary period

In high inflationary period, money will lose value very fast. Hence, people will flock for hard assets like commodities. People who hold on to properties benefit too because the value of their house will skyrocket. If the gurus’ prediction of the coming high inflationary period is correct, owning hard assets should at least protect your net worth as the value of your assets should rise in tandem with the rate of inflation. If you think that the US dollar collapsing is none of Singapore’s problem, you may want to think twice. Monetary of Singapore has just announced they will use measures to make sure SGD/USD will not go below 1.38. Hence, if USD devalues and SGD has to maintain that exchange rate, SGD will have to devalue as well.

Using business to own properties

Rich people manage their taxes well. One way is to own income generating assets with a business. Rents from properties are considered income. If you charge it under your personal income, your personal tax bracket will be higher. If you take it under your business income, the current corporate tax is at 15%. Moreover, a newly registered business will have her tax waived for the first 3 years.

Cheapest loan and largest leverage

Housing loans are the biggest personal loan you can take from a bank. Think about it, will a bank lend you $800,000 for you to invest in stocks? Secondly, housing loan charges the lowest interest at around 3-4% while credit card interest is 24%, unsecured loan has interest of 15%. Why not make use of the biggest leverage you can ever get at the cheapest cost? Like what Archimedes said, “give me a lever long enough and on a fulcrum to which to place it, and I shall move the world”.

Population growth

Singapore government have targets population to hit 6.5 million. Currently, we have approximately 5 million people. There is another 1.5 million to go. Hence, the demand for homes are likely to increase. Since Singaporeans are not giving births fast enough, the increment is likely to be contributed by foreigners. In fact, we need more foreigners who are coming here to work so as to support our aging population. Robert Kiyosaki did mentioned that he will only invest in properties where the workers are flocking to.

A word of caution - although I have sang praises of properties, you have to be competent and knowledegeable in property investment ot be successful. Learning how to choose the correct property, paying the right price, renovating the property to fetch higher rentals and managing tenants are required. Moreover, the statement, “you can never go wrong with property”, is wrong. If you bought at the peak, it make take years for your property to recover to the price you paid. Investing in property is like everything else, you need to be competent in the field. So pay your dues first by learning dilligently.