Imagine yourself doing nothing but collecting money every day that has to be one of the biggest fantasies to many Singaporeans.
In the past, only the wealthiest in the world have this privilege and this has been the most well kept secrets of wealth for thousands of years.
What you might not realize is that you and me are lucky enough to live in the era where anyone has a chance to tap into this. The Investment strategies used to be exclusive for the rich, now are available to you too.
This secret has been tested countless times from ancient lords who own the lands to industrial capitalists who own the factories. The wealthiest spend all their time and energies to build Income Generating Assets (IGA) so they don’t need to work any more.
One of the easiest way to build IGAs is to own property which generates rental income. But the rich don’t just buy property like most of the people do, they do it in different ways. Let me explain…
If you think property investment is about flipping properties, buying low and selling high, that is a deadly mis-perception.
You see, the rich enjoy their lives and do what they love to do. Flipping property itself is just another rat race, and you will still never be able to retire. What you want is income without much working.
I was first enlightened by billionaire Phillip Ng’s stewardship concept. The assets owned by the wealthiest people are obvious, but not straight forward. They are a little different from what most people understand, and that little difference, my friends, makes all the differences in wealth.
Here is how the wealthiest choose their property investment… Optimally Leveraged and Discounted Properties. But before we dive into the details, let’s clarify some wrong perceptions.
How the rich play the property game
Most savvy property investors follow two rules, using optimal leverage and buying property at insanely discounted price. This may sounds simple but not easy to implement.
#1 Optimal Leverage
Leverage is really the principle which separates those who successfully attain wealth from those who don’t.
If you pay a 20% down payment – or $200,000 on a $1,000,000 asset, you essentially use a small percentage of your own money and the majority of the purchase is being provided by the bank. So even if your property has a rental yield of 3%, the rate of investment is roughly $30,000 over $200,000 investment, a 15% return!
This is essentially a Financial Leverage, which profits using other people’s money (a.k.a OPM). The rich are the master of leverage because it allows them to build more wealth than they could ever achieve by their own resources and personal limitations.
However, understanding leverage is just the beginning. Most people save years for the down payment and spend their life on paying the mortgage. That is the traditional financing.
What the real savvy property investors do is often “creative financing”. With their network and an army of professionals, they may never pay anything for the property transaction, a true application of OPM.
But I won’t discuss much about this as it is too complicated and has very limited application in Singapore nowadays due to the regulations. Let’s leave it to the secrets guarded by the rich.
#2 Insane Discount
If you are a VIP of some fashion brands or shopping outlets, occasionally you may be invited to a special event to enjoy some exclusive discount.
The rich also have this kind of events to buy at a huge discount comparing to the market. The only difference is that they buy properties.
. If you can buy a property much cheaper than the neighbors and rent out at the market rate, you will get a higher rental yield. But this is probably the only way for you to build GOOD income generating property asset.
You see, when the market were good, people just pay any price, and they earn 2–3% yield. The savvy investors will only move if there is an insanely good deal, and they move fast.
From Singapore’s historical rental yield chart, you can see in 2008 during financial crisis, the mass market rental yield can be as high as 5% because the properties were all sold at distressed prices!
On the other hand, mortgagee sales is another secret of the wealthy to accumulate property assets at a discount.
Some of the non-financial tactics are discussed extensively by PropertySoul in her book “No B.S. Guide to Property Investment ¨C Dirty Truths and Profitable Secrets to Building Wealth Through Properties”. It is a great book, you should grab a copy.
What is the right way to invest property?
I hope I have provided you with a broader perspective to this matter. Physical property is not just a simple buy and hold investment. To recap:
Owner stay property is a liability, not an asset
The rich play the property game with two rules, optimal leverage & insane discount
Buying at a huge discount is your best bet to build property portfolio for your retirement income
Let’s go back to Singapore’s property billionaires. You may realize the biggest beneficiaries of this whole property boom are never the property buyers, but the property developers and operators. .
According to Forbes, the richest man in Singapore late Ng Teng Fong owns Far East Organization and Sino Group, which developed more than 700 hotels, malls and condos in Singapore and Hong Kong.
Kwee Brothers control Pontiac Land, privately held property developer and hotel operator that owns Singapore’s Ritz-Carlton, the Regent, Conrad Centennial and the Capella.
The moral is that rich run property investment as a business. Although property investment rewards well, unless you want to be in the same trade, you don’t want to bet all your life savings into physical properties for your retirement as it just gives you another job to do.
In fact, you don’t even have to run a business to build your property empire. We are lucky enough to live in a era where Real Estate Investment Trust (REIT) is readily available to retail investors like us. REITs give us access run our own property empire without billions of dollars. If you have not heard about REITs, click here to read more.
Do you agree Singapore condominiums are not worth investing? We would like to hear from you.