Dr Michael Leong is mostly known as the founder of ShareInvestor. He is also a successful stock investor and in his first book, “You First $1,000,000 Making It In Stocks”, he shares his investing philosophy and methods.
A Fundamental Analyst and Value Investor
Primarily, he uses fundamental analysis for stock investment, while at times, he uses “tikam strategy” to play speculative stocks. He opined that fundamental investing is more risky than short term trading, as long as the latter has an exit system to cut losses below 10%. However, he believed fundamental investing is where most money is made as the returns can be several times the capital outlay. At times, the lure of short term trading does seem irresistable, and he says, “I set aside money for fundamental investing and also some money for speculating. The money for speculating keeps my adrenaline flowing, but I know that I am not going to be financially independent just by speculating. Having speculative money also prevents me from itching to interfere with my longer-term fundamental counters.”
Most of the homework is done prior to buying a stock. He spends a lot of time researching and only holds 5 good fundamental stocks. When he buys a stock, he sets a price objective where he will exit to prevent himself from getting greedy and get caught in euphoria. If the fundamentals changed, he would exit too, even with a loss. On the other hand, if the fundamentals remain sound and if the market corrects, he may even average down the stock.
What to look out for in a stock?
A company has to efficiently deploy excess capital - Buying a business that is outside the core competency of the company is undesirable. Buying back shares is better but it is not sustainable, as the demand is supported by the company itself. The best is when the company can invest in it’s own business and grow future profits. If the company cannot find a better use for the excess capital, he prefers the company to distribute them to shareholders. This is on the premise that shareholders know best how to allocate the money.
Look for companies with higher profit margin and not higher revenue - A $10 million company having a profit of $1 million yields a 10% margin. A $100 million company earning $2 million of profits yield only 2% margin. Hence, in difficult times, the company with the bigger margin can withstand a drop in profits better than one with a smaller margin.
Look for “free” business – Buy stocks that have more net cash in their bank than their market capitalisation. “This means that for every dollar that I invest in these stocks, the company must have at least a dollar in the bank and ideally, the company does not have any borrowings. This also means that the business of the company comes to me as the investor for free. My next assessment is whether this ‘free’ business is sound and is not bleeding too much cash. To do that, I look at the company’s cashflow statement. I am fine if the company declares large losses, so long as these losses are non-cash related. The key is to find ‘free’ businesses that will survive the downturn, so that when the economy turns around, these businesses can regain their former enviable positions during good times.” “Firstly, I much prefer companies that keep their cash in a Singapore bank, as I have more trust in the banking system here. Secondly, cash to me comprises real cash and fixed deposits only. I don’t believe in cash equivalents as this can mean many things, including bonds.”
Low liquidity is good news – A trader should look for shares with good volume, so that he can liquidate when needed. On the contrary, an investor should look for undiscovered gems, and not attractive to many buyers. They are likely to be undervalued as the demand is not high. As he said, “If I am right in my judgement and the stock does well, other investors will climb in later and will create the liquidity to allow me to liquidate my positions.”
Seek capital appreciation, not dividends – “I do not put too much value on dividends when I look at a company, unless of course, the company has a monopoly or has such a strong brand name that they can increase their pricing without affecting the demand.” “It is capital appreciation that is much more important to me than dividends when I invest in shares.”
Margin of Safety – The concept of Margin of Safety is initiated by Benjamin Graham. Most people who practised it use discounted cashflow projections, and forecast 10 years in advance. However, Dr Michael reckoned that given the dynamic nature of businesses, it is even difficult to forecast cashflow of a business for a following year. He uses Net Tangible Assets (NTA) as a measurement yardstick. He defines NTA = cash + Singapore properties, and prefers stocks in a company whose market capitalisation is less than NTA. In this way, the existing business is as good as free to the investor. This is the margin of safety that he looks out for. He will also visit the properties.
What to do when market cycles change?
Spot megatrend to buy low and sell high – “A megatrend is a trend of the general market that could last for years. One example is the bullish megatrend that started in early 2003 and ended in late 2007. In between these periods, there were a number of mini-trends, which can go up or dowwn daily, weekly or even monthly. Fundamental investors are mainly interested in the megatrends.” Investors must be able to spot megatrends; buying during a dip or correction, and selling when market becomes euphoric or hit exit price. An investor has to be patient and hold onto the winners during the bull run.
Keep some cash for opportunities – “In the event that I cannot find any company with good fundamentals, I will be just as happy sitting on cash and waiting for the next downturn. The market opportunities will always be there if you have money.” “When the market is bearish, I keep on accumulating for my fundamental stocks. As always, I know that my timing is never good. Hence, I have a habit of collecting stocks slowly and I always make sure that I set aside enough funds to keep collecting over a long period of time. As such, I am seldom fully vested in terms of fundamental stocks.”
Use warrants for hedging – Dr Michael uses warrants to hedge against his shares, when he anticipates a market correction. However, it may become a crash and as an insurance he will buy deep out-of-the money warrants, which in this case, he will only gain when the market collapses. Otherwise, the warrants will expire worthless. In fact, he hopes for the latter.
Specifically for IPO stocks
“With IPO stocks, the major shareholders are usually under moratorium for 6 months to a year, meaning that they will not be able to sell their shares during these post-IPO periods. As a result, the free float during these periods will be limited to the number of IPO shares offered for sale. In many cases, this will amount to just 20% of the total number of shares. As supply is limited during these 6 months to a year, the post-IPO stock price can rise sharply if demand is high. But when the moratorium is over, there will be a lot more potential supply of shares, as the major shareholders can then sell theirs. This is the reason why most IPO shares perform well only in the first few weeks of trading, only to fall back to their IPO prices within 6 months of their launch.”
Word of advice
“Investing successfully requires a combination of experience and foresight. It is very tough to get all these experiences when you are young. I always encourage those who want to be successful in the market to excel in what they are currently doing first, as every occupation teaches you something in the university of life. Thereafter, they should try their hand at running businesses. Only after that should they consider investing as a career, as I don’t think you could learn life’s experiences by clicking your mouse and clacking on your keyboard.”
“Wealth will come when you have the experience. Experience only comes when you work on the job. Reading does not, and will not, imbue you with experience. However, there will always be the young who think they are special and know it all. They will be the first causalties in any stock market correction or crash.”
“If you seek financial freedom, you have to put to risk a large chunk of your capital. To reduce the risk on this capital, you have to do your homework and believe in yourself and your selection of stocks.”
You may also like:
- Warren Buffett – "Never count on making a good sale…"
- 3 questions to ask yourself before investing in stocks
- Common Stocks and Uncommon Profits by Philip Fisher
- Categorize Your Stocks
- 3 Important Financial Statements for Investors
- Why buy stocks for the long run?
- Warren Buffett is buying American stocks now
- The Complete Turtletrader by Michael Covel
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{ 106 comments… read them below or add one }
Hi all,
I think you can learn from Dr Michael Leong about what to look out for when investing into Stocks.
However, just like to point out 2 misconceptions he hold and which he “spread” through this book:
1. No such thing as Win/Win. I think very sad, I might not want to have business dealings with people who think Win/Lose.
2. No such thing as Good Debt. Certainly untrue, his writing on this topic only shows how little he knows about Debt.
Cheers!
Dennis Ng
Hi all,
I think you can learn from Dr Michael Leong about what to look out for when investing into Stocks.
However, just like to point out 2 misconceptions he hold and which he “spread” through this book:
1. No such thing as Win/Win. I think very sad, I might not want to have business dealings with people who think Win/Lose.
2. No such thing as Good Debt. Certainly untrue, his writing on this topic only shows how little he knows about Debt.
Cheers!
Dennis Ng
i “second” that. nothing comes without effort.
there are many ways to hedge your risk, you have to find it yourself.
agree or not, the stock market is the most volatile market in the financial world. it can make or break your millions.
i “second” that. nothing comes without effort.
there are many ways to hedge your risk, you have to find it yourself.
agree or not, the stock market is the most volatile market in the financial world. it can make or break your millions.
i also second that “No such thing as Good Debt”
debt as in leverage its a double edge sword. even the good trader can get kill by his own sword.
i also second that “No such thing as Good Debt”
debt as in leverage its a double edge sword. even the good trader can get kill by his own sword.
for a moment i don’t understand “No such thing as Win/Win”
after pondering, i also second that.
yes no such thing as win/win. and worst, if you make 2 thousand and i made 1, i lost.
for a moment i don’t understand “No such thing as Win/Win”
after pondering, i also second that.
yes no such thing as win/win. and worst, if you make 2 thousand and i made 1, i lost.
if you want to read a true traders mind go to
http://www.fat88trader.com/. he is a full time trader with blog (very rear)
if you want to read a true traders mind go to
http://www.fat88trader.com/. he is a full time trader with blog (very rear)
if you cannot find situations which are Win/Win, I would say that it is because of your Thoughts and Beliefs. I’m just sad for people who can only think Win/Lose, that’s all.
Housing Loans and Business Loans are 2 types of Good Debt. My definition of good debt is any debt where it is HIGHLY possible for you to get Returns more than the interests paid.
By this definition, all debts on consumption are Bad Debt.
Of course debt is a double-edged sword, it can help you and it can also hurt you if wrongly used. So the KEY is to Learn how to Manage and Use Debt Wisely, Borrow Good Debt, Avoid Bad Debt etc.
No such thing as Good Debt? Just ask people like Wee Cho Yaw and he would laugh his head off.
Cheers!
Dennis Ng
if you cannot find situations which are Win/Win, I would say that it is because of your Thoughts and Beliefs. I’m just sad for people who can only think Win/Lose, that’s all.
Housing Loans and Business Loans are 2 types of Good Debt. My definition of good debt is any debt where it is HIGHLY possible for you to get Returns more than the interests paid.
By this definition, all debts on consumption are Bad Debt.
Of course debt is a double-edged sword, it can help you and it can also hurt you if wrongly used. So the KEY is to Learn how to Manage and Use Debt Wisely, Borrow Good Debt, Avoid Bad Debt etc.
No such thing as Good Debt? Just ask people like Wee Cho Yaw and he would laugh his head off.
Cheers!
Dennis Ng
Is a Knife dangerous? Can a Knife be Good? Or knife can only be used to do bad things, like murder and killing?
That’s why we keep knife away from Children, becos they don’t know how to Use knife wisely, they might hurt themselves.
But most of the times, we don’t have to keep knife away from adults. Becos most adults know how to use a Knife safely and wisely, such as using it to cut fruits.
In the hands of a surgeon, a knife can even be used to save lives.
People who say knife can only be used to do bad things, well, I just feel sad for them. That’s all.
Cheers!
Dennis Ng
Is a Knife dangerous? Can a Knife be Good? Or knife can only be used to do bad things, like murder and killing?
That’s why we keep knife away from Children, becos they don’t know how to Use knife wisely, they might hurt themselves.
But most of the times, we don’t have to keep knife away from adults. Becos most adults know how to use a Knife safely and wisely, such as using it to cut fruits.
In the hands of a surgeon, a knife can even be used to save lives.
People who say knife can only be used to do bad things, well, I just feel sad for them. That’s all.
Cheers!
Dennis Ng
Good debts or Bad debts?
One way to look at it.
When you look up at your parents? What did you see at their faces?
1. Happy faces of Bank of Papa or Bank of Mama
or
2. Unhappy faces worrying about next month expenses and rising inflation rate
When you look down at your dependents? What did you see at their faces?
1. Happy faces with their hands holding damn heavy Piggy Banks
or
2. Unsatisfied faces with their hands open wide for more money.
If your answers to both questions are 1, then probably it may be Good Debt.
If your answer to both questions are 2, pray harder that it is not Bad Debt. Believe it or not. If you happened in this category, you will sleep well in little debts for next few recessions to come.
You may want to read more:
http://createwealth8888.blogspot.com/2009/01/understanding-debt-risk-and-leverage.html
Good debts or Bad debts?
One way to look at it.
When you look up at your parents? What did you see at their faces?
1. Happy faces of Bank of Papa or Bank of Mama
or
2. Unhappy faces worrying about next month expenses and rising inflation rate
When you look down at your dependents? What did you see at their faces?
1. Happy faces with their hands holding damn heavy Piggy Banks
or
2. Unsatisfied faces with their hands open wide for more money.
If your answers to both questions are 1, then probably it may be Good Debt.
If your answer to both questions are 2, pray harder that it is not Bad Debt. Believe it or not. If you happened in this category, you will sleep well in little debts for next few recessions to come.
You may want to read more:
http://createwealth8888.blogspot.com/2009/01/understanding-debt-risk-and-leverage.html
Good debts or bad debts?
A second way to look at it.
People will die and can die suddenly without early warning but debts will not die just because of that peson with debts has died. No, the debts will be passed on to the living persons related to that dead person. Can the living persons comfortably take over and manage those debts left over by the dead person? If the answer is a definitely No, then probably is bad debts in disguise.
May be good debts or bad debts should be evalulated on case by case at family level considering for the living ones.
Good debts or bad debts?
A second way to look at it.
People will die and can die suddenly without early warning but debts will not die just because of that peson with debts has died. No, the debts will be passed on to the living persons related to that dead person. Can the living persons comfortably take over and manage those debts left over by the dead person? If the answer is a definitely No, then probably is bad debts in disguise.
May be good debts or bad debts should be evalulated on case by case at family level considering for the living ones.
That is why Lorna Tan wrote about Mortgage insurance in today’s Sunday Times!
It is about reducing risk.
That is why Lorna Tan wrote about Mortgage insurance in today’s Sunday Times!
It is about reducing risk.
what? what insurance?
didn’t we learned about the latest financial crises?
oh, its only happen in the US, we are different in s’pore.
what? what insurance?
didn’t we learned about the latest financial crises?
oh, its only happen in the US, we are different in s’pore.
Mortgage insurance to cover debt repayment in the event that the owner dies, so that the family does not need to repay the loan. it is not about insuring against mortgage defaults.
Not sure what you meant.
Mortgage insurance to cover debt repayment in the event that the owner dies, so that the family does not need to repay the loan. it is not about insuring against mortgage defaults.
Not sure what you meant.
Hi Alvin,
these are some of the common misconceptions. I’m NOT debt free, but I’m Financially Free. Which is better, to be Debt Free or Financially FREE?
If a person is debt-free but has little Cash/Assets left to the family, the family would have trouble continue living without the income of the Bread Winner. But if a person is financially free, ie. no matter whether he lives or die, his family will have NO problem continuing their lifestyle. Hope people NOW finally get the difference between the 2 (Debt Free vs Financially Free).
Many BIG companies are NOT debt-free. Why? Becos some of the Rich people and Rich companies KNOW and Use Good Debt Wisely.
Risks of NON-repayment of Debt can be mitigated, eg. through standing by funds. eg. I have set enough funds to pay for at least 2 years of my Housing Loan instalment for my investment property, which means even if my investment property is NOT rented out for 2 years, I have no problem paying the Housing Loan instalment on the Investment Property.
And yes, one can easily buy Mortgage Insurance to guard against pre-mature death, one risk that Coconut mentioned. So what other risks are there for taking up a Good Debt, please list them all out and I will help you to mitigate them.
Many people have little knowledge about Debt and Debt Management, this is my observation.
Cheers!
Dennis Ng
Hi Alvin,
these are some of the common misconceptions. I’m NOT debt free, but I’m Financially Free. Which is better, to be Debt Free or Financially FREE?
If a person is debt-free but has little Cash/Assets left to the family, the family would have trouble continue living without the income of the Bread Winner. But if a person is financially free, ie. no matter whether he lives or die, his family will have NO problem continuing their lifestyle. Hope people NOW finally get the difference between the 2 (Debt Free vs Financially Free).
Many BIG companies are NOT debt-free. Why? Becos some of the Rich people and Rich companies KNOW and Use Good Debt Wisely.
Risks of NON-repayment of Debt can be mitigated, eg. through standing by funds. eg. I have set enough funds to pay for at least 2 years of my Housing Loan instalment for my investment property, which means even if my investment property is NOT rented out for 2 years, I have no problem paying the Housing Loan instalment on the Investment Property.
And yes, one can easily buy Mortgage Insurance to guard against pre-mature death, one risk that Coconut mentioned. So what other risks are there for taking up a Good Debt, please list them all out and I will help you to mitigate them.
Many people have little knowledge about Debt and Debt Management, this is my observation.
Cheers!
Dennis Ng
what? you take up loans and if you die, your family have to pay for you?
so to give an excuse for what you did, you bought an insurance to “protect” them?
i think i’m the one who has lost my way (or my mind)
what? you take up loans and if you die, your family have to pay for you?
so to give an excuse for what you did, you bought an insurance to “protect” them?
i think i’m the one who has lost my way (or my mind)
Hi Coconut,
you still don’t get it. Not sure how to explain to you? Hi Alvin, maybe you can do better to get the message to Coconut.
Note: Please re-read what I posted before you comment further and embarrass yourself further.
Cheers!
Dennis Ng
Hi Coconut,
you still don’t get it. Not sure how to explain to you? Hi Alvin, maybe you can do better to get the message to Coconut.
Note: Please re-read what I posted before you comment further and embarrass yourself further.
Cheers!
Dennis Ng
Hi Coconut,
please read 18 Jul 2010 Sunday Times article on page 27 which explains what is Mortgage Insurance. I was interviewed for my comments in this article as well. Happy Reading. If you still have any doubts or questions after reading the article, please feel free to post here and I try my best to explain to you in a way you can understand.
Cheers!
Dennis Ng
Hi Coconut,
please read 18 Jul 2010 Sunday Times article on page 27 which explains what is Mortgage Insurance. I was interviewed for my comments in this article as well. Happy Reading. If you still have any doubts or questions after reading the article, please feel free to post here and I try my best to explain to you in a way you can understand.
Cheers!
Dennis Ng
Will the cost of mortgage insurance weight too heavily for senior citizens looking at protecting the investment for their investment-unsavvy dependents?
Will the cost of mortgage insurance weight too heavily for senior citizens looking at protecting the investment for their investment-unsavvy dependents?
I think many of us do not realise we have mortgage insurance.
If we use CPF to buy HDB flats, we have to purchase Home Protection Scheme, which is a mortgage insurance.
I think many of us do not realise we have mortgage insurance.
If we use CPF to buy HDB flats, we have to purchase Home Protection Scheme, which is a mortgage insurance.
Senior citizens? Why so old then think of buying property? One should be thinkng of buying property in 30s or 40s…
Senior citizens? Why so old then think of buying property? One should be thinkng of buying property in 30s or 40s…
alvin. the key point is “many of us”. you think many of us are doing the right thing?
becos many of us are doing the wrong thing, the govt had to step in to protect us.
why do you need to own a house you can’t affort? becos many of us are doing it? can’t you rent a house?
i’m not saying you should not do it. loan or debt or leverage can make or break your finances, you better know what you are doing.
i have enough of this topic.
alvin. the key point is “many of us”. you think many of us are doing the right thing?
becos many of us are doing the wrong thing, the govt had to step in to protect us.
why do you need to own a house you can’t affort? becos many of us are doing it? can’t you rent a house?
i’m not saying you should not do it. loan or debt or leverage can make or break your finances, you better know what you are doing.
i have enough of this topic.
Hi coconut,
I think you’re weird. When did Alvin say he buys a property he cannot afford?
When did I ever ask anyone to OVER-Borrow?
My personal Debt to Asset ratio is less than 8% for my own Home. My total debt to Asset ratio is 30%, including Housing Loan on my investment property. I have set aside enough money to pay for 2 years of My Housing Loans (both investment property and home) that even if I receive ZERO rental income from my investment property, I have NO problem paying my Housing Loan.
Can you enlighten me what can go wrong for me financially by taking these 2 Loans?
It is OBVIOUS that you have some Misconceptions about Debt (such as, there is no such thing as Good Debt) and it will benefit you if you can remove such misconceptions.
Cheers!
Dennis Ng
Hi coconut,
I think you’re weird. When did Alvin say he buys a property he cannot afford?
When did I ever ask anyone to OVER-Borrow?
My personal Debt to Asset ratio is less than 8% for my own Home. My total debt to Asset ratio is 30%, including Housing Loan on my investment property. I have set aside enough money to pay for 2 years of My Housing Loans (both investment property and home) that even if I receive ZERO rental income from my investment property, I have NO problem paying my Housing Loan.
Can you enlighten me what can go wrong for me financially by taking these 2 Loans?
It is OBVIOUS that you have some Misconceptions about Debt (such as, there is no such thing as Good Debt) and it will benefit you if you can remove such misconceptions.
Cheers!
Dennis Ng
The government cannot be beside you 24 hours to protect you from making Wrong Financial decisions. The Solution is NOT regulations or protection from government, the Solution is Financial Education.
Why do so many Singaporeans cannot afford to retire by age 60? How come I can “financially retire” (be Financially Free) by age 39? The reason is becos I have the Financial Knowledge to Master My Own Finances.
When you master your finances, you master your destiny.
Cheers!
Dennis Ng
The government cannot be beside you 24 hours to protect you from making Wrong Financial decisions. The Solution is NOT regulations or protection from government, the Solution is Financial Education.
Why do so many Singaporeans cannot afford to retire by age 60? How come I can “financially retire” (be Financially Free) by age 39? The reason is becos I have the Financial Knowledge to Master My Own Finances.
When you master your finances, you master your destiny.
Cheers!
Dennis Ng
Very true on “When you master your finances, you master your destiny”.
I started too late to seriously acquire more Financial Knowledge in early 40s so now I have to struggle. Bo pian.
Very true on “When you master your finances, you master your destiny”.
I started too late to seriously acquire more Financial Knowledge in early 40s so now I have to struggle. Bo pian.
well i apologise to anyone one who feel offended.
the purpose is to share knowledge and experience, not finger pointing. don’t take the words too hard.
if its works for us, it is good for us.
take care.
well i apologise to anyone one who feel offended.
the purpose is to share knowledge and experience, not finger pointing. don’t take the words too hard.
if its works for us, it is good for us.
take care.
just one advise: pls be more open minded to things and not too skeptical. It will help to reach financial freedom much faster. Sometimes you realise it is that easy if you gain the knowledge=)
cheers
just one advise: pls be more open minded to things and not too skeptical. It will help to reach financial freedom much faster. Sometimes you realise it is that easy if you gain the knowledge=)
cheers
The average person Borrows Bad Debts.
The Rich Borrow Good Debts.
The average person will ask is there any risks?
The Rich would ask what are the risks and how can we mitigate the risks. If the risks can be mitigated and the Risk/Reward is in their favour, they go ahead. That’s why the Rich get Richer, while the Poor get Poorer.
Cheers!
Dennis Ng
The average person Borrows Bad Debts.
The Rich Borrow Good Debts.
The average person will ask is there any risks?
The Rich would ask what are the risks and how can we mitigate the risks. If the risks can be mitigated and the Risk/Reward is in their favour, they go ahead. That’s why the Rich get Richer, while the Poor get Poorer.
Cheers!
Dennis Ng
If you buy an apartment at $1,000 psf and the market falls and it is then worth only $500 psf, no amount of mortgage insurance will protect you or your dependents. Your house is under water and you will owe the bank more than your house is worth. Mortgage insurance does not protect you against a fall in the value of your property. The bank also has the right to ask you to top up for the difference and can repossess your house if you are unable to do so.
It shocks me to hear someone say that they can be financially free when they have debts to service.
If you buy an apartment at $1,000 psf and the market falls and it is then worth only $500 psf, no amount of mortgage insurance will protect you or your dependents. Your house is under water and you will owe the bank more than your house is worth. Mortgage insurance does not protect you against a fall in the value of your property. The bank also has the right to ask you to top up for the difference and can repossess your house if you are unable to do so.
It shocks me to hear someone say that they can be financially free when they have debts to service.
I fully agreed with what Samuel said. In my opinion, I rather be debt free and live within my means. Being so-called “financially free” I feel is a technical term which means different things to different people. When one still have debts to service, how to call oneself financially free. Assuming you bought a house by borrowing from a bank, you don’t consider that as your house until you have fully paid up the loan. Many people unconsciously thought the property belong to them. Anytime, your financial situation change for the worse or the economy goes into a recession, or the property market takes a dive like what Samuel said and you cannot service your loan, it goes to the bank.
I fully agreed with what Samuel said. In my opinion, I rather be debt free and live within my means. Being so-called “financially free” I feel is a technical term which means different things to different people. When one still have debts to service, how to call oneself financially free. Assuming you bought a house by borrowing from a bank, you don’t consider that as your house until you have fully paid up the loan. Many people unconsciously thought the property belong to them. Anytime, your financial situation change for the worse or the economy goes into a recession, or the property market takes a dive like what Samuel said and you cannot service your loan, it goes to the bank.
Hi Samuel,
my personal situation is this: Total Assets S$3 million, (half of which S$1.5 million) is in Investible Assets (spread over different investments with S$300,000 in Cash) and S$1.5 million in 2 properties, one for home stay and one for investment.
The Cash I have now is sufficient to pay for 7 years of Both of my Housing Loan instalments assuming ZERO Rental Income.
Total Loans is S$900,000. Net Worth S$2.1 million. Even if property price fall by 30%, I’ll still be financially ok.
My Debt-service ratio is 13%.
Do you think I’ll be in financial trouble even if Property Market crashed?
I’m Financially FREE.
Cheers!
Dennis Ng
Hi Samuel,
my personal situation is this: Total Assets S$3 million, (half of which S$1.5 million) is in Investible Assets (spread over different investments with S$300,000 in Cash) and S$1.5 million in 2 properties, one for home stay and one for investment.
The Cash I have now is sufficient to pay for 7 years of Both of my Housing Loan instalments assuming ZERO Rental Income.
Total Loans is S$900,000. Net Worth S$2.1 million. Even if property price fall by 30%, I’ll still be financially ok.
My Debt-service ratio is 13%.
Do you think I’ll be in financial trouble even if Property Market crashed?
I’m Financially FREE.
Cheers!
Dennis Ng
In 1996, my financial situation is as follows:
Cash S$5,000. Property (Home) S$400,000 Housing Loan S$300,000. Stock Portfolio S$100,000.
So my total assets back then was S$505,000 and Networth was S$205,000. Investible assets was S$105,000.
I’m a very Average Singaporean who learned how to Master My Finances and grew my wealth to my current status mainly through making my money work through investing into Stocks and Property.
In year 2008, when most people lost half of their wealth in the Financial Crisis, I managed to keep my wealth intact as I sold off most of my stocks and (sold my investment property) and held 70% in Cash and reached my first million dollars. Now, I have about S$1.5 million (refer to earlier posting).
I’m sharing all these NOT to boast but to show it is Possible to become financially free without paying off one’s Housing Loans. Many of my sifus (Real Multi-millionaires in Singapore) did it and so did I.
And now I’m passing on what I learned through various sifus through my book, seminars and even talks I conduct on Radio. Listen to News Radio 93.8 FM on 26 Jul 2010 at 7.20 am for my next sharing on Radio.
Cheers!
Dennis Ng
In 1996, my financial situation is as follows:
Cash S$5,000. Property (Home) S$400,000 Housing Loan S$300,000. Stock Portfolio S$100,000.
So my total assets back then was S$505,000 and Networth was S$205,000. Investible assets was S$105,000.
I’m a very Average Singaporean who learned how to Master My Finances and grew my wealth to my current status mainly through making my money work through investing into Stocks and Property.
In year 2008, when most people lost half of their wealth in the Financial Crisis, I managed to keep my wealth intact as I sold off most of my stocks and (sold my investment property) and held 70% in Cash and reached my first million dollars. Now, I have about S$1.5 million (refer to earlier posting).
I’m sharing all these NOT to boast but to show it is Possible to become financially free without paying off one’s Housing Loans. Many of my sifus (Real Multi-millionaires in Singapore) did it and so did I.
And now I’m passing on what I learned through various sifus through my book, seminars and even talks I conduct on Radio. Listen to News Radio 93.8 FM on 26 Jul 2010 at 7.20 am for my next sharing on Radio.
Cheers!
Dennis Ng
Dennis, I am confused. U say that you have loans of $900K and your total assets is $3 mil. If home loan is classified as a good loan, as a percentage of your total assets, you don’t seem to have much good loans.
Many of us have assets of less than $400K and our home loans is in the region of $300K. If we use such ratios, your good loans should be in the region of $2.5 mil. Why is it that your good loan is a much smaller % of your total assets? Is it because you value your mortgage business at around $1 mil and this forms part of your total assets?
Dennis, I am confused. U say that you have loans of $900K and your total assets is $3 mil. If home loan is classified as a good loan, as a percentage of your total assets, you don’t seem to have much good loans.
Many of us have assets of less than $400K and our home loans is in the region of $300K. If we use such ratios, your good loans should be in the region of $2.5 mil. Why is it that your good loan is a much smaller % of your total assets? Is it because you value your mortgage business at around $1 mil and this forms part of your total assets?
Hi Samuel,
I don’t understand what you’re saying My Total Debts (all good Debts is S$900,000. My netwroth is S$2.1 m and my total assets is S$3 m.
I bought my house 14 years ago for about S$300,000. At that time, my Housing Loan was about S$300,000. Current outstanding has been reduced to S$120,000.
You have to make yourself understood before we can have a meaningful discussion. May I know what is your total assets, total debts and networth position? I’ve shown you both my 1996′s financial position and current financial position. Show me yours so that I can learn from you.
Cheers!
Dennis Ng
Hi Samuel,
I don’t understand what you’re saying My Total Debts (all good Debts is S$900,000. My netwroth is S$2.1 m and my total assets is S$3 m.
I bought my house 14 years ago for about S$300,000. At that time, my Housing Loan was about S$300,000. Current outstanding has been reduced to S$120,000.
You have to make yourself understood before we can have a meaningful discussion. May I know what is your total assets, total debts and networth position? I’ve shown you both my 1996′s financial position and current financial position. Show me yours so that I can learn from you.
Cheers!
Dennis Ng
My other investments excluding my House is worth about S$1.5 million. My Home is currently worth about S$600,000, even if I want to get equity loan on it, I can’t, as it is a HDB flat and HDB rule disallow it. Current Home Loan outstanding is S$120,000.
Earlier in another posting, you said that I cannot be Financially Free since I have debt, do you still hold this view? I hope you realise it is a misconception that you have.
I only include my investments, I did NOT put any value on my Mortgage Consultancy business nor other business, and by the way, I own 2 other businesses, in addition to my Mortgage Consultancy business.
Cheers!
Dennis Ng
My other investments excluding my House is worth about S$1.5 million. My Home is currently worth about S$600,000, even if I want to get equity loan on it, I can’t, as it is a HDB flat and HDB rule disallow it. Current Home Loan outstanding is S$120,000.
Earlier in another posting, you said that I cannot be Financially Free since I have debt, do you still hold this view? I hope you realise it is a misconception that you have.
I only include my investments, I did NOT put any value on my Mortgage Consultancy business nor other business, and by the way, I own 2 other businesses, in addition to my Mortgage Consultancy business.
Cheers!
Dennis Ng
My apologies, noticed a mistake in my Earlier Posting:
bought my house 14 years ago for about S$400,000. At that time, my Housing Loan was about S$300,000. Current outstanding has been reduced to S$120,000. Current Market Value of this house (home) is S$600,000.
My apologies, noticed a mistake in my Earlier Posting:
bought my house 14 years ago for about S$400,000. At that time, my Housing Loan was about S$300,000. Current outstanding has been reduced to S$120,000. Current Market Value of this house (home) is S$600,000.
6 years ago I was a fresh grad with nothing but debts and $500 in my account…now I have a condo but only 99 years condo worth $850000 but owe the bank $690000… I have cash about $150000, quasi bond instructment of $80000, and unit trust of $20000 and some WL plans bought 10 years ago which have not broke even yet….I was very inspired by Dennis and vowed to have $1million in investment assets by 40 which is in 8 years time…however I disagree on some points such as not having a car and delayed gratification as I think that there is no point in have the money if you do not spend it and reward yourself….however no matter how I calculate I don’t think that I can hit 1 million in that investment assets by 40….how how how….i feel so sad cannot achieve financial freedom by 40….I estimate having $500000 by 40 not including my property which I intend to stay in should be achievable…but how to hit 1 million…..without sacrificing my lifestyle….i can only save about 1500 to 2000 per month….but no money and no time to attend your seminar….
6 years ago I was a fresh grad with nothing but debts and $500 in my account…now I have a condo but only 99 years condo worth $850000 but owe the bank $690000… I have cash about $150000, quasi bond instructment of $80000, and unit trust of $20000 and some WL plans bought 10 years ago which have not broke even yet….I was very inspired by Dennis and vowed to have $1million in investment assets by 40 which is in 8 years time…however I disagree on some points such as not having a car and delayed gratification as I think that there is no point in have the money if you do not spend it and reward yourself….however no matter how I calculate I don’t think that I can hit 1 million in that investment assets by 40….how how how….i feel so sad cannot achieve financial freedom by 40….I estimate having $500000 by 40 not including my property which I intend to stay in should be achievable…but how to hit 1 million…..without sacrificing my lifestyle….i can only save about 1500 to 2000 per month….but no money and no time to attend your seminar….
Yes there is actually such a thing as Good Debt as Dennis mentioned.
Problem is you have to be prepared for a lot of risks, some unforeseen.
For instance, if no rental income for 2 years as Dennis has well prepared himself for.
If still can afford a 2nd property with no rental income for 1-2 years, work out the rate of returns to see if its worth.
A residential property gives about 2-3% returns while a commercial property can give you 6-7% returns. Again, be careful, tenant has to be stable.
Yes there is actually such a thing as Good Debt as Dennis mentioned.
Problem is you have to be prepared for a lot of risks, some unforeseen.
For instance, if no rental income for 2 years as Dennis has well prepared himself for.
If still can afford a 2nd property with no rental income for 1-2 years, work out the rate of returns to see if its worth.
A residential property gives about 2-3% returns while a commercial property can give you 6-7% returns. Again, be careful, tenant has to be stable.
I would recommend the book “Rich Dad Poor Dad” by Robert Kiyosaki if anyone still wonders if good debt exists.
Of course risks exist but a good property investment should be one that does well not only in good economic times, but preferably also able to withstand bad economic hardship over a few years.
Good news is rental will increase with PM Lee saying we will need 100 000 more foreigners. MM Lee also feels that our economy for the next few years will be prosperous. Nevertheless, be prepared with cash reserves to sustain your properties in case of unforeseen circumstances.
I would recommend the book “Rich Dad Poor Dad” by Robert Kiyosaki if anyone still wonders if good debt exists.
Of course risks exist but a good property investment should be one that does well not only in good economic times, but preferably also able to withstand bad economic hardship over a few years.
Good news is rental will increase with PM Lee saying we will need 100 000 more foreigners. MM Lee also feels that our economy for the next few years will be prosperous. Nevertheless, be prepared with cash reserves to sustain your properties in case of unforeseen circumstances.
Read the Debt Free Millionaire as I agree with his views:
BECOMING DEBT-FREE MILLIONAIRE
Unfortunately, in our culture, debt has become an all too common way of life. Anthony remembers a while ago being interviewed by a journalist who asked him about if there is such a thing as good/bad debt. He just laughed and said there is no such thing as good debt. “It’s never a good thing to commit future, non-guaranteed, yet to be earned dollars for past purchases,” says Anthony. However, there is something he refers to as necessary debt such as when you can’t pay cash for a house or car. Necessary debt – for the most part – can be avoided. The problem is that most people choose not to avoid it because they’d rather have what they want now. “Debt is the difference between generating wealth and accumulating wealth. The more you continue to commit to future income for past purchases and pay interest on those purchases, you will be consuming your wealth before you’ve had the chance to earn it, let alone accumulate any of it,” remarks Manganiello.
http://www.cbn.com/700club/guests/bios/Anthony_Manganiello_022210.aspx
Read the Debt Free Millionaire as I agree with his views:
BECOMING DEBT-FREE MILLIONAIRE
Unfortunately, in our culture, debt has become an all too common way of life. Anthony remembers a while ago being interviewed by a journalist who asked him about if there is such a thing as good/bad debt. He just laughed and said there is no such thing as good debt. “It’s never a good thing to commit future, non-guaranteed, yet to be earned dollars for past purchases,” says Anthony. However, there is something he refers to as necessary debt such as when you can’t pay cash for a house or car. Necessary debt – for the most part – can be avoided. The problem is that most people choose not to avoid it because they’d rather have what they want now. “Debt is the difference between generating wealth and accumulating wealth. The more you continue to commit to future income for past purchases and pay interest on those purchases, you will be consuming your wealth before you’ve had the chance to earn it, let alone accumulate any of it,” remarks Manganiello.
http://www.cbn.com/700club/guests/bios/Anthony_Manganiello_022210.aspx
Good article by Steve but many rich people do use leverage to enhance their wealth…and this may be the only way for an average person to achieve a high level of wealth….but it’s a double edged sword….property is one of the best ways of leverage as the costs of leverage is probably the lowest and you get something tangible…as warren buffet says…an property is probably one of the best investments ever as long as you can pay the monthly installment….the use of leverage in cfds and forex can magnify both your losses and profits….and must be used wisely….in the long run unless you have strict money mgt usually i see people kena margin calls and losing the pants off!
Good article by Steve but many rich people do use leverage to enhance their wealth…and this may be the only way for an average person to achieve a high level of wealth….but it’s a double edged sword….property is one of the best ways of leverage as the costs of leverage is probably the lowest and you get something tangible…as warren buffet says…an property is probably one of the best investments ever as long as you can pay the monthly installment….the use of leverage in cfds and forex can magnify both your losses and profits….and must be used wisely….in the long run unless you have strict money mgt usually i see people kena margin calls and losing the pants off!
What Manganiello refers to is bad debt eg car loans where your car is a liability and can be avoided because it does not generate income. A property can also be a liability if no rental income is forthcoming, hence a bad debt as well. So be wise in your property choice. A property with rental income is not future income eg your credit card which is bad debt. A property with rental income is your ticket to becoming financially independent. Those who have this passive income can even retire early….check up the recommendation by Chris Firth on early retirement
What Manganiello refers to is bad debt eg car loans where your car is a liability and can be avoided because it does not generate income. A property can also be a liability if no rental income is forthcoming, hence a bad debt as well. So be wise in your property choice. A property with rental income is not future income eg your credit card which is bad debt. A property with rental income is your ticket to becoming financially independent. Those who have this passive income can even retire early….check up the recommendation by Chris Firth on early retirement
Hi Steve
it is possible to be financially free but not debt-free. Please read and re-read my postings here if you still have any doubt on this.
Cheers!
Dennis ng
Hi Steve
it is possible to be financially free but not debt-free. Please read and re-read my postings here if you still have any doubt on this.
Cheers!
Dennis ng
Hi Chemmie,
I don’t really enjoy driving, especially in Singapore in the recent years, when there are so many more cars and many drivers now have very poor driving etiquette.
I live and work around the City. I’m “chauffeured” by taxi 90% of the times, it is a “lifestyle” I have chosen and I personally do not really see much sacrifice on my part. Not having to worry about traffic conditions, deciding the route, but able to do 1001 things while I’m in a taxi can be quite a joy as well.
At the end of the day, it is a person’s choice. If one’s income is not high, and if the cost of owning/using a car per month works out to be more than 20% of one’s income, one needs to really assess one’s Priorities.
For example, I earn over S$20,000 a month but spend about S$700 to S$800 on transport only, or about 4% of my income.
Cheers!
Dennis Ng
Hi Chemmie,
I don’t really enjoy driving, especially in Singapore in the recent years, when there are so many more cars and many drivers now have very poor driving etiquette.
I live and work around the City. I’m “chauffeured” by taxi 90% of the times, it is a “lifestyle” I have chosen and I personally do not really see much sacrifice on my part. Not having to worry about traffic conditions, deciding the route, but able to do 1001 things while I’m in a taxi can be quite a joy as well.
At the end of the day, it is a person’s choice. If one’s income is not high, and if the cost of owning/using a car per month works out to be more than 20% of one’s income, one needs to really assess one’s Priorities.
For example, I earn over S$20,000 a month but spend about S$700 to S$800 on transport only, or about 4% of my income.
Cheers!
Dennis Ng
Raymond, u read Manganiello wrongly. Read again. He says that there is no such thing as good debt. The key word is any debt that is non guaranteed is a bad debt. When u buy a property, you are not guaranteed that it will go up in value. U r taking a bet.
Raymond, u read Manganiello wrongly. Read again. He says that there is no such thing as good debt. The key word is any debt that is non guaranteed is a bad debt. When u buy a property, you are not guaranteed that it will go up in value. U r taking a bet.
Hi Steve
Tell the bank you are taking a bet on a property and they will gladly lend you the money after checking on your financial statement.
Tell them you are taking a bet on stocks and see whether they lend you the money. Maybe if u are Michael Leong for most of us probably will not know how to invest in stocks like Michael.
Although the bet is on property, its still impt to know minimise all those risks we have mentioned to ensure a good outcome. Of course if u buy a property without doing your homework, then chances are the housing loan will be a bad debt.
Think that is why now so many talks on property. I will go for the free talk but don’t sign for the course which often will cost you thousands. Read Robert Kiyosaki’s Rich Dad Poor Dad. You can do it on your own.
Hi Steve
Tell the bank you are taking a bet on a property and they will gladly lend you the money after checking on your financial statement.
Tell them you are taking a bet on stocks and see whether they lend you the money. Maybe if u are Michael Leong for most of us probably will not know how to invest in stocks like Michael.
Although the bet is on property, its still impt to know minimise all those risks we have mentioned to ensure a good outcome. Of course if u buy a property without doing your homework, then chances are the housing loan will be a bad debt.
Think that is why now so many talks on property. I will go for the free talk but don’t sign for the course which often will cost you thousands. Read Robert Kiyosaki’s Rich Dad Poor Dad. You can do it on your own.
Raymond, u can open a margin account with a broker and he too can give you a loan to buy stocks. U put in $10K, he gives you a loan of a further $30K. Interest rate is not far from housing loan at 3% per annum. eg http://www.limtan.com.sg/
Raymond, u can open a margin account with a broker and he too can give you a loan to buy stocks. U put in $10K, he gives you a loan of a further $30K. Interest rate is not far from housing loan at 3% per annum. eg http://www.limtan.com.sg/
Well anyway despite some differences in opionion, I still admire Dennis’s achievements….I went to popular bookshop but can’t find your book…I went to a few branches…but that was months ago…any stock now?
Well anyway despite some differences in opionion, I still admire Dennis’s achievements….I went to popular bookshop but can’t find your book…I went to a few branches…but that was months ago…any stock now?
BTW I have not been buying shares but I have been doing a fair bit of RSP into various unit trusts at 0.75 to 1.75% sales charge….my aim to hit 1 million by 40 which means I have another 8 years to go….my insurance and other investments will probably give me about 300k at 40….I need 700k to make up the difference….I only earn 7k a month…I invest about 2k a mth into various funds….take an average return of 8%….with a starting capital of $22000….it will only give me $309k…..as such I decided to aim for 800k at 40 instead….but still short of 200k…anyone have any good ideas how to achieve my aim? to hit my target I need a return of 18% per year….22k rsp 2k at 18% for 8 years….also I plan to get married one year later and definitely will have to spend about 30 to 50k on renovations and others things…..when i think of kids I think I will be even further away from my target….hahaha….any gurus share your views?
BTW I have not been buying shares but I have been doing a fair bit of RSP into various unit trusts at 0.75 to 1.75% sales charge….my aim to hit 1 million by 40 which means I have another 8 years to go….my insurance and other investments will probably give me about 300k at 40….I need 700k to make up the difference….I only earn 7k a month…I invest about 2k a mth into various funds….take an average return of 8%….with a starting capital of $22000….it will only give me $309k…..as such I decided to aim for 800k at 40 instead….but still short of 200k…anyone have any good ideas how to achieve my aim? to hit my target I need a return of 18% per year….22k rsp 2k at 18% for 8 years….also I plan to get married one year later and definitely will have to spend about 30 to 50k on renovations and others things…..when i think of kids I think I will be even further away from my target….hahaha….any gurus share your views?
chemmie, I think your questions can be easily answered when you attend the free Path to Financial Freedom Workshop conducted by Dennis.
Register here: http://www.bigfatpurse.com/path-to-financial-freedom-workshop-free/
You can get his book at the workshop too! If not, you can buy it online at http://www.asiaseminarworkshop.com/105-4-1-9.html
chemmie, I think your questions can be easily answered when you attend the free Path to Financial Freedom Workshop conducted by Dennis.
Register here: http://www.bigfatpurse.com/path-to-financial-freedom-workshop-free/
You can get his book at the workshop too! If not, you can buy it online at http://www.asiaseminarworkshop.com/105-4-1-9.html
Thanks Alvin…probably will get the book…..anyway you 27 and already have a wealth of knowledge…sure you would do well by the time you reach my age…32
Thanks Alvin…probably will get the book…..anyway you 27 and already have a wealth of knowledge…sure you would do well by the time you reach my age…32
Hi Chemmie
You seem to be doing well with your investments, if your returns are on track.
You may want to build up a safe nest of cash. IF interest rates were to rise later, you may have cash to pay off some of your housing loans. Wait for the next property low tide, which may come a few years later. You can even take a term loan from your condo if you have already paid up by then. Some of the investors took term loans from their condos to invest when the tide was low.
Hi Chemmie
You seem to be doing well with your investments, if your returns are on track.
You may want to build up a safe nest of cash. IF interest rates were to rise later, you may have cash to pay off some of your housing loans. Wait for the next property low tide, which may come a few years later. You can even take a term loan from your condo if you have already paid up by then. Some of the investors took term loans from their condos to invest when the tide was low.
Read the book by Dennis….hmm….concepts are good but content wise abit lacking…sorry….
Hi Raymond,
Well I have been fairly conservative with my investments over the past five years hence I made some money 10-15% type….if I had been more aggressive could have easily made 40 to 50%….oh well….trying to be content with my lot…that’s life…yes keeping 50 to 100K as e fund as well as opportunity fund to see if got any opportunities or in case market turns south…this is what Dennis’s book advocates….need some strikers right….been focusing too much on defence and mid field ….. the issue now is that I really don’t know what to invest in now…with interest rates at all time lows don’t think it’s good to invest in bonds and market money….equities there is some risk of a double dip…or most likely a prolong recovery…..singapore property already bought a one million property and do not wish to over stretch myself anymore….unfortunately I intend to shift in one year later and spend 30K on reno to get married…
Read the book by Dennis….hmm….concepts are good but content wise abit lacking…sorry….
Hi Raymond,
Well I have been fairly conservative with my investments over the past five years hence I made some money 10-15% type….if I had been more aggressive could have easily made 40 to 50%….oh well….trying to be content with my lot…that’s life…yes keeping 50 to 100K as e fund as well as opportunity fund to see if got any opportunities or in case market turns south…this is what Dennis’s book advocates….need some strikers right….been focusing too much on defence and mid field ….. the issue now is that I really don’t know what to invest in now…with interest rates at all time lows don’t think it’s good to invest in bonds and market money….equities there is some risk of a double dip…or most likely a prolong recovery…..singapore property already bought a one million property and do not wish to over stretch myself anymore….unfortunately I intend to shift in one year later and spend 30K on reno to get married…
good article.
The key to investing in homes
by Colin Tan 05:55 AM Aug 27, 2010Most of us have heard it all before from the experts. Investing in homes is one of the safest and surest forms of investment. If you cannot re-sell the property for a good profit within a couple of years, you can always hold it for the long term because it will always appreciate.
But if everyone follows this advice, will it still work? Surely it is a recipe for disaster. If everyone is going to earn it the easy way, who will do all the hard work?
Given today’s price levels, the vast majority of Singaporeans who own their homes are sitting on large paper profits. Many are paper millionaires; for them to become real millionaires, they would have no roofs over their heads.
Nevertheless, it is hard to argue against such a track record. In fact, the earlier the property was purchased, the greater the capital appreciation.
Most of us have bought our homes to live in, rather than as a get-rich-quick investments. When you buy for owner occupation, you have a guaranteed tenant – yourself. Instead of rentals, you are paying monthly mortgage payments.
It is a vastly different scenario when you are buying for investment. You do not have a guaranteed occupier. If you are not able to sell your property before its completion, you will have to look for tenants.
You will need to look at the yields and compare that with other forms of investments. You will need to assess the overall housing demand-and-supply situation. You will need to know how the economy is doing – now and in the future.
This means that you will need to do your homework and not go by herd instinct. The herd never gets it right all the time – hence economic and property cycles.
When an owner-occupier times his purchase right, he has one fewer big worry in life.
When an investor gets it right, he gets a windfall and lives the good life, but it never stops there, does it? The euphoria of earning big in a short few months or over one to two years what he could not earn in 10 or 15 years is intoxicating, to say the least. The profits will be re-invested in, what else, but property.
We read of success stories of people starting with a single property and having a string of them within a decade or two. How do they do it? We see many advertisements these days offering courses that will teach us how to make it big by investing in property. It is not a big secret: It is called leveraging – using other people’s money to work for you.
When the value of your home rises significantly, as they always do during an up-cycle, you can secure a loan from banks by pledging your home as collateral. This is because your property’s market value is much more than your outstanding loan.
You can use this loan to re-invest in property. In Singapore, buying a property under construction allows the investor to maximise his leverage. Since only a 20-per-cent down payment is required upon purchase, the investor can, in theory, play with an asset which is worth five times his initial capital.
Some people can own a number of properties in a short time because they are fully invested and fully leveraged. Profits are almost immediately re-invested. Like a person who buys his furniture on hire purchase, it looks like he is the owner, but the furniture is not yet fully his, even though no one else knows that.
This brings me to my last point. When an owner-occupier mis-times his purchase, he spends his whole working life paying for it. When a fully-leveraged investor gets it wrong, like in the real estate board game Monopoly, he becomes a bankrupt and retires from the game.
The writer is head of research and consultancy at Chesterton Suntec International.
good article.
The key to investing in homes
by Colin Tan 05:55 AM Aug 27, 2010Most of us have heard it all before from the experts. Investing in homes is one of the safest and surest forms of investment. If you cannot re-sell the property for a good profit within a couple of years, you can always hold it for the long term because it will always appreciate.
But if everyone follows this advice, will it still work? Surely it is a recipe for disaster. If everyone is going to earn it the easy way, who will do all the hard work?
Given today’s price levels, the vast majority of Singaporeans who own their homes are sitting on large paper profits. Many are paper millionaires; for them to become real millionaires, they would have no roofs over their heads.
Nevertheless, it is hard to argue against such a track record. In fact, the earlier the property was purchased, the greater the capital appreciation.
Most of us have bought our homes to live in, rather than as a get-rich-quick investments. When you buy for owner occupation, you have a guaranteed tenant – yourself. Instead of rentals, you are paying monthly mortgage payments.
It is a vastly different scenario when you are buying for investment. You do not have a guaranteed occupier. If you are not able to sell your property before its completion, you will have to look for tenants.
You will need to look at the yields and compare that with other forms of investments. You will need to assess the overall housing demand-and-supply situation. You will need to know how the economy is doing – now and in the future.
This means that you will need to do your homework and not go by herd instinct. The herd never gets it right all the time – hence economic and property cycles.
When an owner-occupier times his purchase right, he has one fewer big worry in life.
When an investor gets it right, he gets a windfall and lives the good life, but it never stops there, does it? The euphoria of earning big in a short few months or over one to two years what he could not earn in 10 or 15 years is intoxicating, to say the least. The profits will be re-invested in, what else, but property.
We read of success stories of people starting with a single property and having a string of them within a decade or two. How do they do it? We see many advertisements these days offering courses that will teach us how to make it big by investing in property. It is not a big secret: It is called leveraging – using other people’s money to work for you.
When the value of your home rises significantly, as they always do during an up-cycle, you can secure a loan from banks by pledging your home as collateral. This is because your property’s market value is much more than your outstanding loan.
You can use this loan to re-invest in property. In Singapore, buying a property under construction allows the investor to maximise his leverage. Since only a 20-per-cent down payment is required upon purchase, the investor can, in theory, play with an asset which is worth five times his initial capital.
Some people can own a number of properties in a short time because they are fully invested and fully leveraged. Profits are almost immediately re-invested. Like a person who buys his furniture on hire purchase, it looks like he is the owner, but the furniture is not yet fully his, even though no one else knows that.
This brings me to my last point. When an owner-occupier mis-times his purchase, he spends his whole working life paying for it. When a fully-leveraged investor gets it wrong, like in the real estate board game Monopoly, he becomes a bankrupt and retires from the game.
The writer is head of research and consultancy at Chesterton Suntec International.
This part is my favourite:
“Wealth will come when you have the experience. Experience only comes when you work on the job. Reading does not, and will not, imbue you with experience. However, there will always be the young who think they are special and know it all. They will be the first causalties in any stock market correction or crash.”
This part is my favourite:
“Wealth will come when you have the experience. Experience only comes when you work on the job. Reading does not, and will not, imbue you with experience. However, there will always be the young who think they are special and know it all. They will be the first causalties in any stock market correction or crash.”