Opportunity Cost in Property Investment - part 3

Which one do you prefer: Spend today for luxury items and try to accumulate capital for investment later when you are ready OR do your best to invest today and try to live frugally for several years before you can reap the investment returns?

Why is it so important to invest as early as possible in your life? Investment is a life long learning process. The earlier you do any investment, the quicker you learn the pit falls, tricks and the best choice of investment for you. You may read as many books and article about bad investment, or quick rich scheme. But you don't really learn about bad investment until you get into the trapped at least once in your life! Older people with many experience may have impart their experience to you, but you definitely will be too stubborn to listen to their advice. Psychologically, people tend not to listen to other people advise especially when they are younger, inexperience, have high level of education, well paid job and laid back family background.

Do you realize that most people who were trapped in the Quick Rich Scheme are Malay people? The poorer they are, the most likely they are getting into the trap. I have encountered many people who are willing to take a personal loan in order to invest in a dubious investment especially in a MLM (Multi-Level-Marketing) scheme. Their scheme are almost the same. But, the only different is the face of the victims.

Most people who were trapped into a Quick Rich Scheme including the one hidden behind MLM scheme are the ones who are so eager to earn more income. The best way to earn an income is the one without the need to spend any capital. We work everyday. Beside our meals and transportation cost, we don't need to come out with anything to earn. In fact, even if we don't work, we still need to eat our meals. Thus, the only actual cost in our daily work is our transportation cost. Therefore, it is illogical if someone ask you to take a personal loan and invest in their business plan (including MLM). Yet, every year we can read and listen to many sad stories about people being duped in many Quick Rich Scheme.

In order to ensure your investment is secured, you should have the title of the investment. The title of the investment must be the one recognized by the government institutions especially property title, loan capital, business agreement and etc. Many people easily believe with promise of words. Thus trapped, easily believe the false claim made by the MLM agents such as their scheme has approval from the government, many prominent people already join the scheme, their product is proven to bring good health and so on. Yet, they never bother to find out on their own or ask experts in the related fields.

So, how can one start a property investment whereas property price keep increasing? The answer is easy: live frugally for a few years and use your brain instead of your emotion which always longing for luxury. Below is an example of a person with a comfortable starting salary or a just married couple with a comfortable combine income.

Whatever your family earn, you should assume your income is only half of it! Your target expenditure must not exceed 50% of the total income. This is especially easy nowadays because most newly wed couples are both working. As shown in Table 1, your family can quickly accumulate capital to buy a property after one year.

In reality, most newly weds cannot control their lust for luxury items such as each of them need a car, buy expensive car whereas a small car is suffice (no child yet). In the end, most newly weds financial at the end of the year is as shown by Family B. Most of this type of people assume whatever they earn it is their right to spend. True and false. It is their right. But they can never out run the inflation especially when they started to have a child.   With RM32,000 saving, Family A can easily buy a decent house for about RM250,000 to RM300,000 so that they don't need to pay any rent. Although in Johor Bahru, if Family A is willing to learn, they can buy a two storey terrace house! I already helped a person with only RM2,000 monthly salary to buy a house for RM430,000 (two storey cluster house)! If that person can do it, why not you who have better income?!

If Family A continue live frugally, they can make another property investment in the next two years as shown in Table 2. After buying the first house, Family A also decided to buy an ASB loan for RM50,000 with monthly payment about RM320 per month for 25 years. (see http://surexperience.blogspot.com/2014/02/opportunity-cost-in-property-investment.html)

Family A uses 50% of the ASB dividen for their annual vacation and emergency fund. So, after another two years, Family A will be able to accumulate enough capital to buy another house for about RM450,000 with monthly payment for about RM2,000 per month. Based on the monthly balance, it seems impossible for them to do so. But, if one is willing to learn, it can be done and have been done by many knowledgeable people.

By now, Family B still decided to enjoy their life without making any property investment. Although the saving between both families does not look much difference, in reality Family A worth more due to the first house they bought. After two years, their first house price is estimated to increase to RM230,000.

If Family A continue live frugally, they can make another property investment in the next two years as shown in Table 3. After buying the second house, Family A also decided to buy another an ASB loan for RM50,000 with monthly payment about RM320 per month for 25 years. (see http://surexperience.blogspot.com/2014/02/opportunity-cost-in-property-investment.html)

Family A continue to use only 50% of the ASB dividen for their annual vacation and emergency fund. So, after another two years, Family A will be able to accumulate enough capital to buy the third house for about RM600,000 with monthly payment for about RM3,000 per month. Based on the monthly balance, it seems impossible for them to do so. But, if one is willing to learn, it can be done and have been done by many knowledgeable people.

By now, only then Family B decided to buy a house. And to their surprise, all properties prices already skyrocket! Then, they blame the government for all their misery to buy a house. Although the saving between both families does not look much difference, in reality Family A worth more due to the first and second house they bought. After three years, their first house price is estimated to increase to RM270,000 and their second house worth about RM550,000.

And, if Family A is willing to learn further, their property investment can be multiplied faster or they can invest in a higher return property. By now, it does not matter how much children do they plan to have, which university their children can study and when they can formally retire. After third property investment, the investment growth is no longer linear. If they are smart, the property investment and worth have exponential growth! Thus they can out run the inflation and live happily ever after.

Property Investment as a Hobby

This is actually the continuation from Turn Your Hobby to an Income.

My current new and consistent hobby is property investment. Since I bought my first shop, my wife and I always looked for opportunity to visit new property launches. So, our exact property hobby was to window shopping for  new houses. We learned about the property's location, prices, quality and architecture. At the same time, we also learned about the brands. My latest property investment taught me that these activities should be intensified regardless whether I have any sufficient capital to invest or not. For an example, below are two different housing projects and two different house types.

This is a Semi-D house with estimated price for RM600,000 with only half balcony. It has only two rooms at the top floor and two rooms at the ground floor. The dimension is about 80' X 40'. Built up width is 22'.

This is a cluster house with launched price for RM430,000. It has full balcony, 3 rooms at the top floor and one room at the ground floor. The dimension is 70' X 35'. Built up width is 24'.

Which one is more practical to you? First why bother make a balcony if you cannot make full use of it? To add insult to the injury, the half roof which covers the balcony of the Semi-D is just a waste for the sake of better architecture? Is it practical? Imagine if you have two children. Each of them will fight or quarrel to use the other room on the top floor. And the price??

This is one of the benefit if you like to window shopping for properties. You can compare the architecture, size, arrangement, and many practical issues. You can even see the workmanship sample. The cluster houses were sold out last year around June 2013. The developer is going to launch new phase of cluster houses with almost the same design. But the price is estimated about RM580,000! Based on the quality and practicality, I believe these new cluster houses will sold out at faster pace compared to the semi-D houses. Those who want to invest in these cluster houses can contact me for pre-launch information.

I always treat a hobby like an investment. Sometimes you get the return quickly such as relief from work stress. Sometimes it is a long term return like planting a fruit tree. I like to grow vegetables. The harvest is quick and we can quickly consume them. However, if we calculate the return per cost, do they really worth it? If the return you are seeking is more than just money, then it is worth to plant vegetables. But living in a terrace house, land is scarce. So, I grew a manggo tree as soon as I moved into my current house in 2000. The tree didn't bear any fruit until in 2012 for a less than 20 manggos. Last year, the tree produced about 50 manggos. This year I anticipate the tree will produce more than a hundred manggos. In order to make the waiting worth it, I planted a rare manggo tree known as Kuini. Nowadays, Kuini is a rare tree where the fruits are hard to buy in any stall or place.

So, if you make an investment, it is easy to get a good return if it is for a long term investment. Yet, it is harder to get good return in the short term unless your investment have other objective than just money.

Preparation for planting is important. You have to nurture the tree so that it can grow healthy. Thus you can enjoy the bountiful harvest in the long term. So do preparation for property investment is also important. You have to nurture your skills and knowledge in property investment. Only then you can reap the investment return in the future.

To Succeed You Must Have a Big Dream

Based on the phrase I introduced in my previous blog, we can replace the idea with dreams. Everybody has a dream or sort of. But...

Small people afraid to have a big dream,
Medium people dreams what they expect they can achieve,
Big people dreams what seems impossible to achieve. 

For small people, they thought they have a big dream. But in reality, their dreams are too small. Some people have very little dream or no dream at all because they don't have the self confidence to succeed. They thought they have nothing to achieve in their dreams. They thought everyone who were successful were born or nurtured in a perfect condition. They thought those who were successful depend entirely on the special connection they have with higher ranking people. They thought... well, they fail to progress or to grow themselves not because what they don't have. Instead, their thinking process has many flaws which make it almost impossible for them to identify their strength and begin with what they have.

This kind of people should invest in themselves first before they can progress. They should read more books, attend more seminars and ask from successful people. Once they realize that money is not the most important thing in property investment, they can join the bandwagon.

Medium or Most people are too lazy to dream big. They are too comfortable with what they have. They never thought their dreams are actually small for the kind of people who have a good upbringing, good family to fall to, good education background and etc.. They have been spoon fed by their families all their lives. In many cases, they were too protected by their families. Some of them may have never face any hardship. Some of them may never have been physically punished. It is the safest and most comfortable life they taught they can easily achieve.  FFacing hardship, difficulties or failures in early life are what make us robust in the future. Most of them prefer to have small dreams because those are something easily achieved based on their current capability. They don't realize that their capability can be enhanced through time and experience. Without these awareness, they will never seek any way to improve themselves.

Many of them will gossip around when they saw successful people come to prominent. Yet, they don't realize that some of these successful people came from less unfortunate background (less education, less family financial background, less political connection etc.). But their determination shows what can be achieved when you have a big dream. By harnessing what they have, they managed to expand their wealth hundred times more than other people expectation. I have seen a few successful people who are my close friends.

People thought big people can afford to dream big because they have everything. Big people do not necessarily start from a big footing. Some of them are from poor family background, lesser educated or without any political connection or many disadvantages unknown to us. Although some of them start small, they like to dream something seem out of reach or impossible. By dreaming  big, the potential rewards are bigger with endless possibilities which automatically motivated them to pursue for the dreams.

Some people have the opportunity to learn the background of the successful people. But, very little people have the opportunity to watch themselves these people turning the table from disadvantages to advantages. The most difficult part in achieving something is learning the process to get the objective. The most difficult part to begin is to get out from your comfort zone. Once you really mastered the process, it can easily be duplicated in many areas, in achieving other objectives, and gradually increase the ability to learn. This is what long life learning is about.

To succeed in property investment, we need the right kind of thinking based on sound philosophy. We must dare to dream big. It is not enough to just have huge capital to be very successful in property investment. If you depend too much on your capital to begin or grow your property investment, you are just a normal property investor. You may even loose if you depend too much on your capital alone. You should dreams the impossible to achieve, to explore what many people ignore, to identify endless possibilities and much more. Like playing any sport at world level, your state of mind is what separate you from the rest.