Written on 3:38 AM by Yuen Lung
One of my friend just brought a brand new town house. The developer manage to deliver the property on time. Now is under the property inspection and acceptance phase. She is so lucky that there is already potential tenant approach her for rent. She is so excited as there is people (the tenant) help her to pay her housing loan installment every month. Which release her from cash out big portion of her monthly salary income for other usage instead of installment.
As this is the first time become landlord, she is exciting and bit nervous (I can feel it :P). As a friend of her I shared my landlord experience with her. Oh dear, suddenly I realised that I haven't document down the knowledge I have!
I think I better write it down somewhere:
- Tenancy Agreement is a must.
- Take photo of every valuable in the property and get tenant's initial on it.
- Indicate the renewal / move out notice period if the tenant decide to stay after the agreed period or move out before the contract matured.
- Give rewards (such as 20% discount on last month rental, TV set, etc) for tenants who pay rental punctually (or pay rental in advance)
- Note down the electricity and water meter reading and get tenant to acknowledge and initial it.
- Open a bank account which is easily accessible by tenant to bank in rental. The bank account number should be stated in the tenancy agreement.
- Indicate clearly when do you expect the rental to be banked in and the penalty if you do not receive the money by the agreed date.
- Tenant must fax you or pass you the bank-in slips, electricity and water bill receipt periodically (let's say 3 months).
- Note down the name, IC number, telephone number in the tenancy agreement. Any additional people who want to stay in the property must notify you before moving in.
- Protect the properties by insurance.
- Pay visit to your property regularly when it is just rented. You may cut down the frequency after few months, if your tenants could take care of your property and you have more confident with them.
- Understand the cost of maintaining the property. You estimation should cover not only the mortgage installment but also the taxes, repair cost and agent fees, etc.
There are lot more issue to take note to become an effective land lord and get your property help you pay off your mortgage. The more you know the more you enjoy to be a land lord. :)
Posted in
Debts,
Mortgage Loan,
Property Rent
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Written on 9:04 AM by Yuen Lung
Today I attended a talked in iProperty.com Expo. The topic was "Retail & Commercial Developments Trends in the Klang Valley".
The speaker shared about the trends and how it impact real estate investment (for commercial properties). Some points which I think worth note it down and share with peoples.
Trends in Retail Market
- Consumers will spend the same amount of money on necessities but they may cut down the number of shopping trips due to rising of petrol price.
- There is strong demand for services among consumer as compare to necessity goods
- Consumers prefer ONE stop shopping centre, bigger shopping centre so that they can get everything in one place and spend the whole day with family in the same place.
- To survive retailers may:
- Pass part of the rising cost to the consumers
- Cut operation cost such as electricity to save profit
- National chain retailers will continue expand for growth
Issues/tasks
Check out the following List before Investing in Commercial Properties
- Population size, profile and purchasing power of the area
- Existing competition
- Rental rates of the area
- Existing retail activities
- Current occupancy
- Developer's track record
- Developer's commitment to make it a success
- Project with similar concepts
Pay attention to the following
- Completion period (for new units)
- Value of dual frontage
- Value of wide frontage
- Immediate frontage
- Location of car park
- Service charges for maintenance
In my opinion the most important point that mentioned by the speaker are: "Retailers will always looks for crowd and low rental price will not impact retailers' decision much in commercial unit".
Posted in
Commercial Properties,
Investment
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Written on 7:24 AM by Yuen Lung
We (my wife and myself) invested with Walton International few years ago. I bought a small piece of land in Canada. Recently just cash out the investment. The returns (after tax) is about 100% after 3.5 years. We felt so happy about it and reinvested another unit so that I will receive a "surprise" few years later.
This investment changed my life a lot. Being financially and mind set. The experience is fantastic.
Challenges
We invested in mutual funds before Walton. The return was not impressed at all. Therefore we looked for alternatives to grow our saving. Walton is one of the investment tools we came across that time.
First of all we faced a lot of challenges in investment with Walton:
- Discourage from parents and friends. My parents kept telling me the risk of this investment and encourage me to withdraw as soon as possible to save guard my hard earned money. Most of my friends think the same.
- I bought this land by mortgage. I need to pay few hundreds every month and the amount is some how subject to exchange rate. During this period, Malaysia Ringgit was weak. Which in turn the amount I need to pay for installment is higher and higher.
- I need to use most of my saving to pay for the down payment.
Homework (Research and Study)
There is always a question/concern from the people who I share with them my investment. The question sounds like that: How dare you invested in a land that you don't even step on it yourself? Don't you think that it is too risky. I always answer with smile: Will your foot step makes any different to the land? What can you do to increase the land value or get return from the land?
We did our homework before commit to go with Walton. We studied the investment instrument, risk, potential returns, the protection, company profile, contingency plan if we cannot afford the mortgage due to some reasons, etc. We just haven't flied to Canada and step on the land we invested as air ticket is very expensive :) Summary of our research:
- Capital was protected in this investment. The company is willing to buy back the land with the purchase price. The worst case we just lost interest and some processing fees.
- The land title from Canada land indicated we are the owner of the land.
- There is global open market. Investors with Walton throughout the world are more than willing to buy the land before the project is matured. The reason being is the waiting period is much shorter to buy in open market than buy from new project.
- The risks are
- Land price not increased (which already addressed by Walton)
- Fluctuation of foreign exchange rate
- Ability to fulfil the commitment of few hundreds monthly installment
- Our holding power (already addressed with the availability of open market)
What we learned?
Knowledge is important. Instead of listen to people who has never done that before why not spend more time in doing research and learn it. It is important to learn how to make decision and be responsible for it. To do well in anything we need to learn and master it. Investment is nothing different from doing programming or making a piece of cake. Practice makes perfect.
Debts may not necessary bad. The mortgage we took is a good example of good debts. Without the mortgage we properly had not enough money to pay a big lump sum up front to buy the land. We understand the concept of OPM (other people's money).
Fruits
Well, the fruits are, we have more bullets for our real estate investment; we gained knowledge and confident; last but not least we are able to purchase another piece of land by CASH :).
Guess what response from my friends when I shared with them the returns of this investment? "You are just lucky!" said most of them. I will smile and thanks for that. At the same time I will tell myself "I am always lucky".
Posted in
Good Debts,
Investment,
Land Banking,
Mortgage Loan
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Written on 9:40 AM by Yuen Lung
This is definitely another bad news to people who are still serving housing loan with interest rate that is based on BLR.
For example if you are servicing a housing loan of RM300K, 30 years, interest rate at 6.75%. The monthly instalment should be RM1945.79 per month. If the interest rate increase by 1%. the monthly instalment will become RM2149.24 per month. Yes, it is increased by RM203.45 per month or RM73240 extra over 30years! Therefore, people who are taking housing loan that based on BLR will be in greater debt.
There are something that worth considering for people mentioned above.
1. Take fixed rate housing loan. This is to prevent monthly instalment for housing loan sky jet when BLR increased. However you need to re-look into the loan IF BLR happen to decrease.
2. Look into mortgage reduction service available. Get your loan in shape, take action (such as prepayment) and monitor it closely.
3. Consult financial planner.
4. Last but not lease, if you really cannot afford the monthly instalment, you might want to sell it (if you are not staying in the house) or down grade to smaller units. This is to avoid you fall into bigger financial problem.
Any other suggestion?
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Written on 7:05 AM by Yuen Lung
Apart from the oil price rising, the new tiered pricing structure introduced by Bank Negara Malaysia is another bad news for those who have difficulty paying their credit card bill in full promptly.
Bank Negara Malaysia announced a tiered pricing structure last year (26 June 2007). Under this structure, interest rate for those who settle their minimum payments promptly will be reduced from 18% to between 15% and 17% per annum. However, the interest-free period for those who do not pay up their bills in full will be removed. This tiered pricing structure will be implemented 1 July 2008.
The removal of interest-free period impact is quite significant. It means for those cardholders who opts to pay partial or minimum payment, finance charges (interest charges) on retail transactions will be imposed from the day transaction is posted to the card account. In addition a minimum of RM10 or 1% on the total outstanding balances will be charged instead of 1% of the minimum payment amount (before the new structure).
Therefore, those who does not settle their credit card balance in full by the due date will end up paying more than before.
Spend wisely, understand your cash flow well, settle your credit card bill promptly, else you will going into bigger debts after 1 July 2008.
Reference:
Bank Negara Malaysia introduces tiered pricing structure to promote good financial discipline among credit card users
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Written on 9:33 PM by Yuen Lung
The basic concept of this strategy is "Roll Down". It suggest to add the payment of a pay off debt to the next priority debt. Repeat this process continues until all debts are eliminated. This is to speed up elimination of all debts.
Steps:
1. List down all debts
Create a check list of all debts as followed:
| Debts Name/Description | Balance | Payment | Interest Rate | Outstanding Terms | Total Interest Incurred |
| | | | | | |
| | | | | | |
2. Prioritise debts
There are a few ways to prioritise debts:
i. Debts with smallest outstanding balance has higher priority. Few debts will be eliminated very fast and it provides the motivation to continue the debt reduction plan.
ii. Debts with highest interest incurred has higher priority. The debt with highest interest rate might not incurring most interest paid. The nature/method of calculation of the interest play an important role here. E.g. monthly/daily rest, compound or flat interest, fix or floating rate, etc. Especially for debt with compound interest, the sooner it is paid off the lesser interest incurred.
| Period | Debt A
(Priority=1) | Debt B
(Priority=2) | Debt C
(Priority=3) |
... |
| Month 1 | | | | |
| Month 2 | | | | |
:
: | | | | |
3. Pay off debts according to the priority
Pay minimum payment for loan that is not the top priority. Come out with additional amount to for the debt with priority rated 1. After the top priority debt is paid off, pay the debt with the following priority with the minimum amount required plus the entire amount that have been paying on debt priority 1. This process continue until the last debt is clear.
| Period | Debt A
(Priority=1) | Debt B
(Priority=2) | Debt C
(Priority=3) |
... |
| Month 1 | 100 | 200 | 300 | |
| Month 2 | 100 | 200 | 300 | |
| Month 3 | 100 | 200 | 300 | |
| Month 4 | cleared | 200 + 100 | 300 | |
| Month 5 | | 200 + 100 | 300 | |
| Month 6 | | cleared | 300 + 200 + 100 | |
| Month 7 | | | 300 + 200 + 100 | |
Success factors
The method above just provide a mechanism for us to clear debts. It will not work without commitment : Stop charging on unnecessary, be consistent and never late for payment.
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Written on 9:34 AM by Yuen Lung
Many of us felt into debts for our home or properties and we spend our life, work hard, trying to run out of it. I called it mortgage traps as we are trapped into it after we sign the sell and purchase and loan agreement. There are many reasons we falls into the mortgage traps.
Wrong believes? (What we were told are wrong?)
"Your home is your greatest asset. You will never lose to invest in your home."
"The price of properties will always grows. It is safe to invest in properties."
Sounds familiar? Well, these statement are not always true. Simple example, take out The Stars papers (Malaysia), go to classified, zoom into properties in Rawang and properties for auction. You will be amazed that how many properties are there for sales (or should I say the owner want to get rid of it fast) and auction.
Have you tried to slow down when driving and take a look at the apartments, houses and shops along the road site? Will you spend your free time, go hunt for properties and such. You will notice that not all area are developed according to plan. Price of properties in some areas are depreciate due to many reasons such as flood, crime, supply over demand, etc.
Lack of knowledge or information
There is an article title "Mortgage - friend or foe" (By Lim Siew May, Personal Money, April 2008) discussed about mortgage. The author talked about leverage and gave an example as followed:
If RM20,000 was paid as down payment for a RM200,000 house and the value of the house (RM200,000) grows by 10% to RM220,000, there will be capital gain of 100% (RM20,000 / RM20,000).
This sound fantastic for some investors. It is not difficult to discover realise how true is the example. Some points for my dearest reader to think about:
- Why the cost of purchase for this house was not mentioned? Lawyer fee, MRTA/insurance, Stamping fees, etc.
- How about the cost of sales? example, agent fee, advertisement fees, etc.
- Mortgage interest was not included.
- Maintenance cost of the house
This is a very good example of lack of knowledge or information. People always ignore these cost while invest in the house. Failed to calculate the break-even point may cause the investor fall into cash flow problem.
(P/S: Personally I am not sure why this example was coded in Personal Money magazine. It is misleading)
False or Partial information
Another fantastic example in the same article in Personal Money, April 2008. The example mentioned about taking 90% loan to purchase a properties allow the investor to spread their funds among various instruments to take advantage of opportunities.
Let's look into the cost of taking 90% loan. To simplify the analysis, we calculate based on a property that worth RM100,000. The loan amount is RM90,000, based on the current BLR 6.75%, 30 years loan, the total interest is more than RM120,000.
Therefore in order "take advantage of opportunities", the "various instruments" needs to deliver the same amount (>RM120,000). RM120,000 is the opportunity cost for taking the bank loan and invest in other instrument. If the instrument does not perform, the investor will be in greater debt.
Laziness
How many of us actually monitor our mortgage closely and make sure it tally with the amortization schedule? In some case, people does not have the amortization schedule from bank when they sign the loan agreement. To go further, how many of us know what is amortization schedule?
People always say that make extra payment will decrease the total interest and cut short the repayment period. How many of us go one step further to ask for the amortization schedule and check if the extra payment helps in cut short the payment period and reduce total interest? How bank handle the extra payment? Is the extra payment be used to reduce the balance of the principals? Is the extra payment be "park" in a suspended account?
Last but not lease, will you write letter and negotiate interest rate with bank if the BLR decrease? Do you know that by reducing the interest from 6.25 to 5.75 will help you save RM50,000 of interest and 4 years or repayment period? This can easily be done by just sending few official letters and phone call after you collect your negotiation bullets.
Conclusion
Lack of financial knowledge is the main reason of falling into mortgage trap. In my opinion the best way to avoid or get rid of mortgage trap is to gain more financial knowledge. Read more, study more and use your CMS (common sense) to analyse. Engage services from professional if you have less time to study and search for knowledge yourself. The amount you pay for the service will always help you save more money if you found the right financial planner or professional.
Posted in
Debts,
Mortgage Loan,
Personal money
|
Written on 2:23 AM by Yuen Lung
Did your primary school teachers ever asked you to write an essay talk about "Your ambitions"? Can you recall what have you written? I guess most of our answers could be ... that is kid's talk, can't remember, that is pure academic, not realistic, etc ...
Let's move the "time pointer" nearer to recent. Do you have some short term goals? Such as take a course, complete your degree, cut down your weight, become healthy, purchase a house, purchase a camera, etc. What is the progress of achieving it? Are you closer to it everyday or it is still far away from you? Are these goals really unachievable?
Some abnormal things happened to some of my friends or relatives. Some says want to work hard to increase income and yet everyday spend hours on watching drama; some says want to get their master/bachelor degree and yet cannot "force" themselves study but prefer clubbing and shopping; some says want to buy a house as soon as possible and yet paying car installment that take up most her monthly salary; some say want to save money for applying for tourist-working Visa to UK and yet spend most of her money in another unrelated course.
Ideas from an inspiration audio CD: We all do thing with two possible intents/forces: A. To gain pleasure. B. To avoid pain. These two forces (pleasure and pain) form the basis of everything we do or fail to do. It happens that force to avoid pain is much stronger than pleasure.
Example 1, We always say health is wealth. Undoubtedly, there is pleasures for us to live healthy. On the other hand, to stay healthy we need to exercise at least 3 times a week (each time more than 1 hour), be aware of our diet, etc. All these are pain.
Example 2, further study and life long learning is good for personal development and career advancement to certain extend. Before we enjoy the pleasure to become a degree, master or PHD holder, the pain comes first. Study hard, more homework, less clubbing, less happy hour, less money to spend as need to pay school fees, etc.
Therefore it is not easy to stay healthy and further study as all the pains come first before the pleasure. Furthermore the force to avoid pain is much stronger than pleasure. Many people will choose to avoid pain instead of gain the pleasure (Including myself). It is painless to give reasons/excuses for not achieving it. No time, no money, no life, etc ... Guess what, those are the reasons for failure and getting away from your life vision.
This happened to people who try to get out of debts too. Control expenses and increase income are both painful tasks to do as compared to spending future money. Therefore before we discuss about tips and tricks to get out of debt we need to overcome this "pain" in our unconcious mind.
NAC (Neuro-Associative Conditioning) is a science of success conditioning developed by Anthony Robbins. It leads people away from behaviors that create limitations or pain. It is believed that by changing the associations that people have between certain situations, people, ideas, emotions or contexts with pain and pleasure, will help people success.
THE NAC 6 STEPS OF CHANGE: (source: http://www.sportshealth4u.com/nac.html)
- Know What You Want.
- Know What is Preventing You From Getting What You Want.
- Interrupt that Pattern or Break the Old Behavior, Remove the Obstacles.
- Choose and Install the New Behavior or Pattern You Want.
- Condition Yourself for the New Behavior or Pattern.
- Do an Ecology Test for the New Behavior to See If You Have Successfully Installed and Conditioned It To Be Your New Automatic Response.
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