Wednesday, May 25, 2011

Can we really invest in properties with little or no money?

I was reading an article on the website telling people that they can invest in properties with little or no money. 3 suggestions were given in this article.

1. Buy REITs funds.
2. Take a loan for your downpayment.
3. Co-own the properties.

Suggestion 1: Buy REITs funds
There are many REITs shares that can be bought from the stock market. However, we do not just buy any REITs shares. I would recommend Fraser Centrepoint Malls and CapitaMall and CapitaMallAsia. These are the ones handling the shopping malls in Singapore and overseas. These are the ones that can bring in stable income. This option is suitable for those who have not saved enough for the downpayment to buy a property.

Suggestion 2: Take a loan for your downpayment
This is a definite NO-NO. If you cannot afford the downpayment, then save for it, or invest in REITs as in suggestion 1. Are we going to pay forever or be the slave of the properties? No, investment in properties should give us our passion income and not to work harder to meet the monthly repayment. Please think twice if you want to take up this suggestions.

Suggestion 3: Co-own a property
This suggestion is the worst. If you want to put your relationships with relatives and friends at risk, then co-own a property. Never have monetary connections with friends and relatives, or the relationship will definitely turn sour. If any company approaches you to be their investor as they are very good with property investment, think twice. Just in case, it's a scam. I would not want others to deal with my savings, I think you wouldn't want it too.

Property investment is really simple and straight forward. If you do not have the downpayment, just invest in REITs first. Until you have raised enough money for the downpayment, then start looking for one property, buy it and rent it out.

Make investment in property a happy one.


Sunday, May 22, 2011

The very first step to investment

Last week, I was teaching JC1 students on Arithmetic Progression (AP) and Geometric Progression (GP). Many questions on compound interest actually led to the sum of GP. This raises students questions on how much interest were we actually earning in our savings account.

I told the students that the money in our savings account are actually depreciating instead. How much of that savings is enough to pay for the future 'rainy' day? In fact, our money in the savings account are depreciating at a rate of more than 3% per annum, compounded for as long as you leave your money in that account. This is due to inflation calculated at 4% per annum.

However, to start investing, you will need a sum of money. It does not matter if you are still studying or starting in your first career or you have been working for quite some time. The habit of saving cannot be avoided. Instead of considering how you are going to spend your savings, why don't you think of how you can GROW that savings?

The habit of saving must be cultivated from young. It takes a long time for a teenager to save $5,000. But when you think of it as your first investment capital, which you can grow the $5,000 to $500,000 in the long run, it may well be worth the effort.

Why $5,000? There is no minimum sum to start investing but you have to pay a minimum commission of $25 for buying the shares of any company in the stock market. Here is an example.
If Jane buys 5,000 shares of Company X at $0.16 each, the purchase will cost her about $830, including the commission of $25. In fact, she is buying the shares at $0.166 per share.
If she buys 30,000 shares of the same company at $0.16 each, the purchase will cost her about $4,830, including commission. But she is actually buying the shares at $0.161 per share instead. That is a saving of $0.005 a share which is equivalent to 32 shares at $0.16.

The brokerage rate (commission) is 0.275% of your total purchase amount. The minimum commission of $25 is equivalent to buying shares totaling $9,000. By buying shares worth $9,000, you are actually maximising the commission paid to your broker. Any purchase above $9,000 will be calculated according to the rate of 0.275%.

Do your calculations and invest wisely.


Wednesday, May 18, 2011

The next phase of property investing

Property investment is not just buying a second property to lease out, to earn a passive income. Property investment applies to the property that you buy to stay in as well.

In July 2010, I bought a landed property, in original condition. In February 2011, a unit along the same road, also in original condition, was sold at 15% above the price I paid for. The renovation for my house is completing end of this month, and my wife and I intended to sell it away at about 25% above our purchase price. Of course, the selling of the house will only be done after July 2011, so that I need not pay the seller's stamp duty.

After that, where are my family going to stay? After doing some calculations with our CPF monies and enquiring the loan quantum for each of us with various banks, we will buy two properties under two separate names. In this way, not only can we overcome the hurdle of only 60% loan quantum, we can have a property that can bring us passive income. We can actually take a loan of 80% of the purchase price for both properties.

That is why it is always good to update your loan quantum with the banks and keep a lookout for property sales every now and then. There are still some very good properties out there that are selling cheap and can give us a relatively good rental yield. We have actually a couple of target properties that we will buy after selling the current landed property.

I have come across an advertisement last week. A 3 bedroom unit in Adam Park Condo (freehold) is selling for $1.5million. It is freehold and within 1 km of very good schools like Raffles Girls Primary School and Nanyang Primary School. When 2015 comes, the nearest MRT station is just about 600 metres away. Comparing to other properties that are selling at skyrocketing prices, this is considered a good catch. There are some others in the Straits Times Classified, go look for them yourselves.

For those who are wondering, my family is currently staying in a rented apartment.

Happy searching and investing.