The official blog of CF Lieu, independent financial adviser in Malaysia. This is the official resource blog of financial adviser - CF Lieu on the topics of personal financial planning, investment and retirement planning. Follow this blog to get resources from a financial adviser.
Most of the time for trading in Forex will have to be spent on the market analysis. All of the traders need it for some good performance in the business. We are not going to be alright
with some improper management. There is some good thinking required for the management of the traders. Then with the right kind of risk to reward ratio, the stop-loss will be set. It is the right market analysis which will
set those two things for the right kind of trading performance. All of the management of the trades will have to be done for some proper performance. In the right kind of performance with currency pair trading, you need to
worry about the losses. You will have to worry more about the management to avoid the losses. There may not be hope most of the time. The safety precautions you take will keep your losses to a minimum. That requires some good
work for the right kind of trading performance.
Use some proper tools for work
To get some good performance out of the trades, all we need is some proper thinking. There will also be some need for the most proper learning. We are talking about the traders getting
some good ideas about the right kind of tools. Things like the trend lines, support and resistance levels will be good for all kind of technical analysis. Then the traders also need to worry about the right kind of work with Fibonacci retracement and pivot
point analysis for the stop-loss and take-profit. It is simple for all of us to deal with. Taking time to learn will get us from the novice level to a pro level of trading. Most of the executions will also get some good control.
So, it is good for both the income as well as some proper improvements. This way, the business can be getting to the elite level from time to time.
Trade with the market trend
Making consistent profit in the Forex market is a very challenging task. You might know a lot about the Aussie Forex Australia but this doesn’t mean you will be able to trade with the market trend. At the initial stage, start trading
the market with the high-end demo account. Focus on your trading skills and try to create a simple but elegant trading strategy. Identify your trading mistakes and try to learn the perfect way of trading without risking any
real money. Think smart and execute the trades with proper logic.
Take good ideas from blogs
Besides the right learning from the actual business, the traders will also have to learn from the others. We are not talking about some random bloggers who can scam you and lure into
something improper. Then there are some other communities which are trying to get you into their territory to trade with them. It is not o right for most of the traders. If you want to be a good performer with the most freedom,
there will have to be some proper thinking of the learning process. Just get the right kind of idea to improve yourself from point A to point B and we will all be okay. The business will also be correct for all of the traders.
It is good to think about some proper improvements. Without thinking correctly, the traders can get into some traps which can ruin their careers.
Making good plans will help
All of the working processes will have to get some proper management from the traders. We are talking about making plans and following them all of the time. Just get a simple idea, with
right orders the trades will start. Then the stop-loss and take-profit will also be set. Meanwhile, the trades will have to put some care into the best possible analysis.
A lot of novice traders do not get the right kind of ideas about the business. We are talking about the currency trading business of Forex, so you can tell. The most proper management of the trades will have to get some of the most proper management. It is not that hard for the traders to maintain a good composure in the system. The most proper thinking of the trades will have to be good. There is no way for the traders to random executions of the trades and get some good income. Proper control will have to be there in the system of currency trading. There will have to be the most proper management of the trading performance. We are talking about getting a good trading mindset firstly. Thinking about the possible loss in the system, there can be good management. The traders will be able to get the most out of the right kind of trading management. It is good for the most proper control over the business. So, think about it and make up your trading edge with all of the necessary elements for trading.
Concept of making money
It is not right for the currency traders to think about some good income. We get that it is the largest market in the world with the largest daily transaction. The traders will have to know about the reality and the possibilities in the system of currency trading. The most disturbing thing will be the markets of the trading system. There will not be good volatilities in the process. The traders will have to think in the best ways for some good performance. There is no way for the traders to work in Forex without getting the right kind of safety to the trades. We are talking about good management of the position sizing. For that, all of the traders will have to think about the stop-loss and take-profit setup. Like those, there are far more other things. Just make up your trading mind for the most proper management of the performance.
Stay in touch with the professionals
Unless you use the Saxo trading account, chances are very high you will face tons of technical issues in the volatile market. For this very reason, the experienced traders in the Hong Kong community always suggest new investors’ trade with a well-regulated broker. Instead of depositing a big sum of money, invest a small amount of money to see how things work. Focus on your demo trading performance and if necessary go for a paid educational course. Being an active trader at Saxo, you can easily access the learn center, Saxo Academy and enhance your knowledge. Finding a great broker like Saxo is very important for the success of your trading career.
Get inside of the most proper control
From good thinking of the trading performance, we traders will be good with some good income. But the concept of the right kind of performance is totally wrong for most of the traders. There is no way for the traders to work in the way of the best possible management. It is necessary for the traders to work with good care and management in the business. From time to time, we can increase the income from the business. But the interest in the business will have to be on the control of the trades.
Work with a good trading method
Besides some proper thinking of the trading performance, there will also be some structural concept needed. We are talking about a good trading method for the right business. It is necessary
for all of the traders to think about the long term process in the business. Well, we all have to choose one for the business and make a proper trading routine following it. Then the right kind of business
management will be possible for all of the traders.
It’s hard to find an entity that is more disliked by the public than the banks. From excessive fees to indifferent customer service to outrageous CEO compensation, everyone has a reason
to hate them.
In spite of this, the majority continue to do business with these institutions. Why? For all their faults, fear of the unknown keeps most from seeking out alternatives. Better the devil
you know than the devil you don’t know.
However, we live in an age of abundant information. Not only are there non-bank financial institutions out there, but it also has never been easier to learn about them. In today’s
blog, we’ll lay out why banks are so despised and why it is best to seek out alternatives.
Banks have an established history of bad behaviour and illegal conduct
Unless you work for one, it’s unlikely you have anything good to say about your bank. Despite a multitude of brands (especially in the USA), they all seem to be universally awful.
Why is this? Without them, where would you park your money? When you need a home or car loan, where else are you going to turn? They have all of us over a barrel, and they know it. They
can treat customers however they like, all while pushing ahead with initiatives like hidden fees. What are we going to do – store our life savings in our mattresses?
Everywhere you look, someone has a story about how their bank screwed them over. Consider the case of Paul Guillaume, a journalist assigned to cover the war in Afghanistan. Shortly after arriving, he discovered that Wells Fargo
had cancelled his card.
With his lifeline to the outside world cut off, he struggled to eat. To make matters worse, management at his hotel threatened jail if he didn’t pay his bills.
Pleading gave way to anger, as Wells Fargo refused to ship him a new card. At one point, his banker told him that they ‘didn’t like his attitude’. It cost his family $6,000
to pay his debts, cover his living costs, and book his flight home. Paul Guillaume is no longer a Wells Fargo customer.
John H’s example demonstrates how sociopathic banks can be. After his business failed, it took him two months to burn through his savings and credit. A user of checks, he thought he
was still solvent – until he checked his balance.
He discovered his bank had intentionally processed his checks out of order. They did the large ones first, then many smaller ones to maximize overdraft fees. As a result, John H was over
$1,000 in the red. Attempts to lower these fees fell on deaf ears.
The malfeasance of banks goes beyond unethical behaviour. In recent years, they have broken numerous laws, and have suffered little more than a slap on the wrist. We can trace much of it
back to the Global Financial Crisis of 2009.
The ensuing investigations took place over the 2010s – by the end of 2014, banks had paid over £166 billion in fines. That sounds like a lot until you remember the world’s top 10 financial institutions have assets totalling $26.1 trillion.
Let’s talk about a couple of examples. From 2008 to 2013, five banks – JP Morgan, UBS, Citibank, HSBC, and the Royal Bank of Scotland – rigged interbank rates. They did
this by coordinating their actions via a private internet chat room.
This way, they were able to maximize returns to the detriment of their clients. Eventually, financial regulators uncovered the scam – in November 2014, the Financial Conduct Authority
in the UK levied fines worth £2.6 billion.
The collapse of the US housing market was one of the major triggers of the Great Recession. This house of cards collapsed when the interest rates of millions of subprime mortgage holders
soared. This situation was a feature of so-called ‘toxic mortgages’, sold by banks like JP Morgan Chase.
In 2013, The US Department of Justice was about to proceed to trial against JP Morgan. Before that could happen, though, a meeting between CEO Jamie Dimon and then-Attorney General Eric
Holder took place. Both parties reached a settlement – JP Morgan was fined $13 billion for misleading the public about its subprime mortgage products.
This penalty eclipsed the one levied on BP for the Deepwater Horizon incident. However, the backroom meeting between Holder and Dimon was seen by many as an example of big money corruption.
Had the case proceeded to trial, several top executives could have received prison sentences.
In fact, only one Wall Street executive went to prison – Kareem Serageldin of Credit Suisse. He lied about the value of mortgage securities – once the truth came out, it worsened
the market’s collapse.
His sentence? 30 months in jail, or 2 1/2 years. Scores of bankers did worse things than him, and yet, they are still free today.
Why should I seek out non-bank alternatives?
By now, we can agree on one thing: banks are deeply unethical entities. However, many of us feel trapped – it’s dangerous to store your life savings under your bed, and who else
will lend you $200,000 to buy a house?
If we were having this conversation 30 years ago, your pessimism would be justifiable. These days, though, there are alternatives to banks in just about every subset of the financial services
These days, we can easily find non-bank finance companies, investment firms, and money transfer providers online. However, some are slow to trust these entities, as they fear scams. This
concern is ebbing with every passing year, as reviews and oversight by regulators provide proof of trustworthiness.
Once potential clients jump the ‘fear hurdle’, they discover these companies offer incredible deals. There are online-only banks that offer interest on checking accounts, online
investment firms that charge no management fees, and money transfer providers that exchange money at the interbank rate.
They can do this because they lack the overhead of legacy financial institutions. With fewer employees to pay and less real estate to maintain, they can cut their clients sweeter deals.
Finally, they offer vastly superior customer service. For generations, banks had no reason to care about their customers – where else were they going to put their money? Then, all
of a sudden, scores of fintech startups emerged. For years, discontent had been building against the banks – treating clients like humans were enough for them to attract customers.
Which fintech companies can I trust with my money?
We’ve established there are viable alternatives to the banks – but which companies can you trust? Many have been around for close to a decade – as such, they have researchable
Need a loan to buy equipment for your new cafe, but banks keep saying no? Non-bank finance companies like Lendio offer new businesses loans ranging between $500 and $5,000,000. With a Trust Score of 9.2/10 on Trustpilot, they are an excellent option for startups in need of financing.
Want to save for the future, don’t want to enrich some mutual fund manager that knows little about markets? Opt for a service like Wealthsimple. Instead of taking as much as 2% off the top, they charge as low as 0.4%. Additionally, they offer automatic re-balancing, dividend re-investing, and portfolios personalized to your wants and needs.
Need to move $10,000 to the Philippines to fund a down payment on the beach house of your dreams? Don’t get soaked by your bank – use a money transfer provider like Transferwise
instead. Around since 2010, they have reduced the costs of wires to a fraction of what they used to be. Rather than charge a margin of 3% or more, you get to change your money at the interbank rate. Together with low fees,
you can save thousands of dollars by favouring money transfer providers over the banks.
How much money can I save switching to a non-bank alternative?
Ironically, the majority of problems people have with banks boils down to money. The financial institutions we’ve grown up with have gotten fat by charging us outrageous fees.
Non-bank alternatives have taken an enormous bite out of their market share by offering dramatically lower costs. But, how much can you really save by ditching your bank? Let’s highlight
a few examples.
There is no banking service more fundamental than checking and savings accounts. They help us squirrel away money for a rainy day, and so we can pay our bills. However, institutions like
Bank of America now take advantage of this need by charging a fee for checking accounts.
They charge up to $12/month if you have a balance less than $1,500, amounting to as much as $144/year. Contrast that with Ally, an online-only bank. Not only do their checking account charge
no maintenance fees, but they also grant 0.6% interest. Assuming a balance of $1,000, this policy means you’ll be ahead by approximately $6 at the end of the year.
What about mutual funds? As mentioned before, high fees can slow the growth of your money over time. But by how much? A study conducted by Nerdwallet.com highlights how bad it can get – if you put $10,000 into a mutual fund that skims 1% of assets off the top each year, you can lose up to
$592,000 after 40 years.
This study contrasted 1% mutual funds against the rates charged by newcomers like Wealthsimple. By investing funds with a maintenance fee of 0.5%, Nerdwallet estimates you’ll be able
to retire three years sooner.
Money transfer providers offer huge savings, better customer service
However, the most consistent returns can be realized by those who ditch banks for a money transfer provider. Let’s say you’re a Briton who has accepted a job in Toronto, Canada.
You decide to send £20,000 from your savings to an account you opened in your new home via Barclays.
If you do a priority send from a branch, it will cost you £40 in fees, plus the £6 receiving fee. However, the exchange rate is where they really get you. At the writing of this
article, Barclays charged a GBP/CAD rate of 1.6609. The interbank rate was 1.7740 – a sickening margin of over 6%.
Let’s compare that to what you’d get with a money transfer provider. World First is a firm that opened for business in London in 2004 – if you decided to transfer your
funds with them, here’s what would happen.
First of all, they would be no fee – this has been a feature of theirs since the beginning. Second, you’d get a rate of 1.7710 – only 0.003 off the interbank rate. Bottom
line: sending £20,000 with World First would yield you 35,425 CAD. If you stuck with Barclays, you’d just get 33,141 CAD – more than 2,000 CAD less!
Not sure which money transfer provider to go with? MTC reviewed 42 Fintech FX firms over the past 5 years – click on the link, and you’ll find one that meets your needs.
Make 2019 the year you stand up to the banks
The banks have gotten away with robbery for far too long. Make this the year you take control of your money back from the establishment. With scores of companies offering unbeatable deals,
you’re sure to come out the other end in better financial shape.
Loan compression or multiple loan submissions, is a common property investing strategy preached by almost all property investment gurus.
The intended outcome?
You end up owning (albeit with massive leverage) multiple real estate properties, on paper (since they are still charged to the bank).
You accomplish this at one go, often exceeding your financial affordability to service the loan.
If this does not make sense to you yet, then stay on and read this article to the end.
And just so you know, you are reading the most ‘no-holds barred’, neutral guide on the planet on loan compression (multiple submissions) in Malaysia.
The best part?
I am going to reveal the excruciatingly detailed loan compression process so you don’t need to spend thousands or even tens of thousands of your money just to learn this from the property gurus’ seminars (which comes with up-sells after up-sells!)
We personally DO NOT condone or encourage it. (read until the end below and you’ll understand why). In fact, we strongly suggest the regulator impose more stringent measures to curb this.
That being said, I don’t want to judge you, if this is your cup of tea. But, please, protect yourself by using this guide.
After all, it’s human nature right? We don’t want to be the last one to know and the one being left out, correct? And the fact is is happening everyday and everywhere, ‘under the table’.
By the end of this guide, you will also know there are actually safer (and equally good) options to invest in real estate property, so read until the end.
What exactly is Loan Compression (Multiple Submissions) & How it Works
With this guide, you don’t need to wonder anymore how seemingly common people manage buy a number of real estate properties in one shot or in rapid succession…
…in spite of decreasing margin of financing* in Malaysia for mortgage loans or…
*Note: since 2011, the central bank had imposed a ruling the 70% MoF (Margin of Financing) or LTV (Loan to Value) for 3rd property purchase onwards, as a measure to control ballooning household debts and hike in real estate property prices
Now, imagine you’ve identified the real estate property you wish to purchase, and then you approach 5 different banks to apply for mortgage loan.
The fact is – that’s the usual practice even if you genuinely want to buy 1 real estate property. You shop around for the best deal or offer from banks.
This practice also acts as a safety net in case a bank reject your loan application. By having more than one approved mortgage loan offer on hand, you still have backup plans in case your #1 choice gets rejected.
You, just like most everyone else, will go for the bank which can gives you the best (lowest) interest rate mortgage loan offer.
There’s nothing wrong with that, in fact, that’s what a prudent property purchaser or investor will do – you compare the mortgage loan letter of offers, with interest rate percentage being the major factor in your decision.
The First Hurdle to Execute Loan Compression: Debt Service Ratio
Now, I am assuming your Debt Service Ratio (DSR) – which is your …
As you notice, a Low Debt Service Ratio is favourable.
But hey, if you have low income, high financial commitments or both, then you need to sort this out first before even trying to do Loan Compression.
Now, more often than not, property investment guru will teach you to cook up fake salary payment slip.
How? Don’t be silly if you think you can just ‘make it up’ instantly, you still need time to ‘accumulate’ 3 to 6 months salary slip by persuading a friend or family member to ‘hire’ you into their company.
And things need to be done properly – like there must be proof of EPF and SOCSO contribution.
And if you are not really doing any ‘real work’, even though your friend or family relative are willing to help you, you probably need to provide them a lump sum money to do this for you.
And sorry while you can pay by credit card to join the property investment workshops or classes, this is something you need to cough up hard cold cash upfront.
Anyway, this is the stage when the loophole opens up
Instead of signing ONE mortgage loan letter of offer and ignoring/rejecting all others, you sign all approved mortgage loan offer letters to accept EVERYTHING
Using a practical example, you apply for 8 banks, but only 5 banks approve your mortgage loans. Either that, or assume only 5 banks are able to give you the margin of financing or the interest rate you want. So now, you proceed to ‘book’ and ‘purchase’ 5 units instead of 1 unit (versus what normal people do).
Your main accomplice will be the property salesperson who knows what you are doing and willing to help (why not, right?).
Because only then will you be able to amend or ‘restructure’ the booking forms according to the number of mortgage loans approved by banks.
Why you want to do Loan Compression (Multiple Submissions)
When you think you want to achieve so-called financial freedom as soon as possible, and you go all out to purchase, say, 5 or even 10 (!!) real estate properties at the same time knowing that your income is only eligible for 1 unit.
Traditional Way to buy say 5 property – an Illustration of the Slow & Steady way
Age 40 start @ Year 1
Net Salary Income
Car Loan Monthly Repayment
Existing Debt Service Ratio
Amount of Initial Mortgage Loan you can take
Amount of Max Additional Mortgage Loan you can take
Amount of Max Additional Mortgage Loan Repayment
New (Max) Debt Service Ratio
Max Mortgage Loan Tenure
This is usually done on newly constructed real estate property in the market where the property developer offer cash rebates for your purchase.
For example, you get RM 50,000 rebate for a RM 500,000 property.
Monthly mortgage repayment circa RM 2,500 with a 30 years loan, 4.6 percent interest rate. Around RM 30,000 annually, yes?
So it can theoretically sustain you 1.5 years if your purchased real estate property is untenanted, before you start bleeding cash flow.
Or put it another way – you have around 1.5 years to let go or ‘flip’ your real estate property for quick profit, but don’t forget about real property gain tax (RPGT) eating into your profit.
On top of that… we have NOT factored in other required expenses renovation costs, which can cost a few tens of thousands to get your real estate property ready to be tenanted.
How about legal fees?
Now, if you purchase from property developer who promises “free legal fees” would mean that the developer will only pay for the legal fees on the S&P (sale and purchase) agreement and legal/stamp duty (MoC* fees)
It may not cover loan agreement legal fees, and most likely won’t cover disbursements such as stamp duties (MoT fees**), searches fees, registration fees, printing charges, purchase of documents costs, mortgage insurance etc
All these added up together could also mean a substantial amount of incidental property purchase expenses, amplified by the number of real estate property you buy.
*MoC is the memorandum of charge ie a document executed to effect the charge of your property in favour of your financier.
**MoT is the memorandum of transfer ie an instrument to effect the transfer of the title of the property to you as the owner.
The second hurdle to execute Loan Compression: Repayment history in your CCRIS record
Your CCRIS records has to be sparkling clean to begin with.
Even though your Debt Service ratio passes the bank’s guideline, a botched repayment history caused by late payments of your existing loans (like credit card balance, personal loans, PTPTN laon and even existing car or mortgage loans) can spoil your plan to execute Loan Compression.
So the first (and might be tricky) step to being qualified to purchase a property is usually to have uneventful CCRIS records.
Now, property investment ‘gurus’ will teach you to borrow money from friends and relatives to settle your outstanding loans.
But understand this – your CCRIS record or credit worthiness history does NOT go from black to white overnight just because you settle your outstanding loans to improve your Debt Service Ratio.
Suddenly you realize there’s so much extra work, not to mention, money involved! Are you ready for this?
Why you DO NOT want to do Loan Compression (Multiple Submissions)
If the lender (banks or financial institutions) detects you’ve accepted more than one mortgage loans, the bank credit/compliance/risk department will once again investigate by drawing a fresh, recent copy of your CCRIS records.
At any point of time, this is the likely scenario that could happen to you, before banks start releasing/disburse the loan to the property developer (which you bought your real estate property from),
If you only have declared income of say, 8,000 a month and then bank sees there are 5 mortgage loans being recently approved AND accepted for a total of RM 3 mil, what do you think bank action will be?
Recall your mortgage loan acceptance offer (and might put your name into Special Attention Record). Now you are really ‘Special’, and this ‘tag’ will stay with you – which means, whatever credit facility you apply from any banks in the future might also see this. Although whether this cause banks judge your negatively is very subjective but it is better NOT to have this tag than to have it. You may or may not be able to get back your booking deposits/down-payment paid – either from the property developer or the seller (likely you’ll be at their mercy)
Request you to furnish a show-cause letter or something of that sort (could be a verbal query, interview etc). Either way, this can only end one way. Your Margin of Financing or Loan to Value (LTV) will definitely be parred down to 70% if they deem the real estate property you are purchasing from the mortgage loan is your third property, in compliance with central bank regulations. No choice, now you need to dig into your coffers to cough up the 20% difference (90% – 70%)
This is the trap that most people fall into – follow blindly when seeing other people do Loan Compression without understand the downside risks.
In case you lose money from your investment in 2018, whether it is stocks or unit trusts, know that it is not your fault.
In fact, your disappointment just by looking at your investment portfolio can be a source of ‘joy’ for some other investors. Why? If you only lose 6% then some people who lost 20% would wish to be in your shoes.
However, some sneaky financial people may want to make you think you are missing some investing tactics or strategies. I’m here to tell you they’re wrong. Suffice to say they may have their own reasons for wanting to make you feel you’re stupid, but it’s NOT true.
Anywhere you invest in 2018, chances are – you’ll lose money because almost every markets around the world are in red (with rare exceptions like Ray Dalio’s Pure Alpha hedge fund)
See table below (source: Bloomberg, percentage return computed from year end close vs the year before)
Obligatory disclaimer from CF Lieu: This write up is for informational purposes only and does not constitute a recommendation and advice to buy or sell. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. We expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in the website, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting therefrom.
That being said – my credibility in advising and managing investment portfolio comes from the fact that in addition to managing multi-millions equity investment portfolio for clients as an independent financial adviser, I’m also sought after by corporate financial organizations (like fund houses, financial associations and reputable banks)for my investment expertise, to conduct workshops & seminars for their internal staff, whom consists of: CEOs, CFOs, Accountants, Investment Analysts, Bankers, Financial Advisers.
How I went from generating hundreds of percent return per day to being content with EPF dividend rate – this is my story (compressed version)
Back in, well, actually, since 2008, before any of the many stocks investment gurus or trainers you know even exists today, I’ve been personally using complex financial instruments like call/put options in US stock market, where making hundreds of percent return in one night is the norm (without battling an eye).
This is not to brag but to let you know I’ve been there, done that.
Also to enlighten you that whatever short-term-high-returns-sure-win investing strategies that you are probably using would not be repeatable in the long run.
If there are such easy, simple-to-execute-always-winning strategies which are sustainable and highly certain for long term, you can bet pension funds with billions of money would have use it already and generate that kind of astronomical returns.
Which is also why I’ve retire from over-complicating or over-thinking about things like fancy investment strategies, how to time the market, which best sectors to invest in now, etc.
A fool makes a mistake and never learns.
A smart man makes a mistake, learns from it, and never makes that mistake again.
But a wise man finds a smart man and learns from him how to avoid the mistake altogether.
Here’s the Brutal Truth which you’ve come to Realize…
If you make 100% in Year 1 and lose 101% in Year 2, on average you still lose. You’ve just wasted time and energy – going back to square.
This really, happens more often than you think.
It’s called – Regression to Mean
Regression to Mean - governing law in investment & also in casino - YouTube
So you may wonder, what works then?
This is really no secret but here’s our portfolio management approach (or strategy, whatever you wanna call it) that had been yielding our clients a positive cash flow throughout the entire 2018.
Note that we I didn’t say return.
I say – Cash Flow.
Just to set the record straight, investment returns, especially unrealized ones, means nothing if there’s no cash flow.
Cash flow makes the world goes round, NOT return on investment.
It’s like this:
Imagine Scenario #1
You have 1 mil of invested asset which throws out 70k/year of cash flow. As long as you don’t sell away this 1 mil invested amount, at the worst, the price of this 1 mil would bounce up or down (say between 1.1 mil to 900k) but it would still give you 70k at minimum.
The more likely scenario though, is that every year – this 70k passive cash flow will inch up.
Say from 70k to 72k (3%+ growth) in Year 2, then from 72k to 74k (another 3%+ growth) in Year 3….etc. You get the drill.
Your initial 1 mil capital stays largely intact because in those 3 years, the consistent cash flow generated from invested capital is sufficient to sustain your daily expenses without actually needing to touch the initial capital.
Imagine Scenario #2
Compare to this scenario where you have 1 mil, but in you need to withdraw 70k every year for your daily expenses. So in Year 1, after depleting 70k, you are left with 930k.
Then, this 930k is being invested but due to market downturn, you lose 10% by 31 Dec.
So from 930k in Jan, it is now down to 837k in Dec.
In Year 2, say you need to withdraw another 70k, which reduces your capital further to 767k. Say you suffer another 5% loss, now it is down to 729k
By Year 3, you need to withdraw yet another 70k, whatever is left (659k) gets invested. Your investment recovers when the market is up 10% – so you now your portfolio is back up 725k. Sounds and looks OK on its own but that’s a huge difference compared to scenario 2.
By now you are curious – Does Scenario 1 really exists? Or just building castles in the sky?
Of course it does, and the cash flow it generates is largely unaffected by the market.
And the vehicle achieve that is Real Estate Investment Trust (REITs)
REITs are usually known as the alternative to brick & mortar real estate property investment.
But ever since we experienced the most devastating market drop since 2008 (see table above), people have been asking how to prevent Scenario 2 from happening to them.
While there's no restriction to who that will benefit from this, from my experience, these group of people normally find it most useful:
Caged Real Estate Property Investors: Hit a Saturation Point (this webinar will show you how to break out from it)
Cash Flow Focused Retirees: Hunting around for Highest FD rate (this webinar will show you the next best option)
Struggling Investors: No time/energy to do research, Low or Negative ROI (this webinar will resolve these issues)
Aware Students: You want to start but you know nothing about property or any other investment (this webinar will get you started in no time)
Veteran Real Estate Property Investors: Lack of time & Stressed out Managing Tenants (this webinar will show you how to reduce stress & time)
In case you're wondering if REIT investment capital guaranteed or protected?
Nope - as for any investment, the valuation of the invested capital does fluctuate. After all, it is a sector in any stock market around the world. When the Stock market goes down, it could go down as well and vice versa.
But here's a perspective - throughout history, a 'down' stock market will eventually recovers and soar higher. In fact, every stock market in the world always recovers after it bottoms, it's not a matter of 'What If's but a matter of when.
The 'when' is NOT an problem when you have strong (long) holding power.
Often, you don't lose money in investing because you're wrong.
You lose money because you are defeated & penalized by the market for short holding power, versus what the market expects you to hold.
Furthermore, you don't get better results with more investment knowledge. If that's the case, all economic professors will be the world's most successful investor.
Instead, focus on investment vehicles which deliver the most consistency with decent growth, with least uncertainties or downside risks. Know how to separate wheat from chaff, the useful info from noise.
This upcoming webinar could reveal the glaringly obvious thought process to achieve the above
This is NOT for existing REITMethod members
But if you are someone who are highly skeptical of this, then that's OK too.
I'm absolutely not trying to change your mind or beliefs.
But truly I feel sad for you because that's probably preventing you from achieving more in life or in investing.
Just like this this guy who trolled us on FB and left us a nasty comment.
My team and I don't reply to these comments. It's not our job to convince these group of people or convert into 'believers'. Because if our answer exceeds his expectations, he'll probably say we're lying. And if our answer is below his expectation, he'll continue doing it his way anyway. Either way, he'll be living inside his own cocoon, and the fact is, only people who help themselves can be helped by others.
(hint: don't be like him)
Last point I want to share is - most people try to improve through addition (and increased complexity!), when you've really mastered something, you'll learn that improvement comes from subtraction.
MORE with LESS.
True, if you don't come from investing background, then investing is not really a walk in the park. The analogy is you still need to go thru proper lessons to drive a car.
That takes a month or two before you can navigate safely and confidently in public roads.
But you don't need to go thru years of rigorous learning how to drive a Formula 1 race car (aka the complicated trading strategies using fancy financial instruments) when all you want to do is to drive from KL to Singapore.
Ready to start your driving lessons? Register for an upcoming online web class.
This is the most practical, highly actionable guide to buying or investing in commercial real estate property in Malaysia.
The best part?
We are going to reveal how the really wealthy property investors buy & invest in real estate properties using a concept I call the LPAV Quadrants
In short, regardless you have RM 500 or RM 500,000 to invest into your first commercial property, you’ll love this guide.
Let’s get started.
So here's how you can buy and invest in commercial properties with as little as RM 100.
....but for real though,
...this is really a way that you can buy and invest in commercial real estate properties in Malaysia with pretty much whatever money you have saved up right now,
...without doing much of the work yourself.
There is no renovating the commercial properties to make it rent-able
There is no trying to find tenants for your commercial properties and
There is no dealing with 2:00 a.m. phone calls of a broken toilet that you have to fix.
You pretty much just can invest your money and earn money passively starting now.
And this is called a REIT which stands for real estate investment trusts.
Sounds too good to be true?
It is, but you need to read until the end....
But how does REIT compare with just straight-up buying or investing in commercial properties and is it even worth owning a REIT to begin with...
So let's find out, I'm going to be discussing the pros and cons of buying or investing in REITs - equivalent of commercial properties...
...as well as the positives and the negatives of straight-up just buying commercial properties and then that way...
...you can pretty much decide on your own which one is really the better choice.
REITs are your proxy for commercial properties investment.
REITs are really a fund structure which acts as a holding company for a portfolio of commercial real estate properties.
Now usually REITs have a specialization in the sense that some focus on warehouses, others focus on office buildings, retail malls or even school/college buildings.
Each REIT usually has a different specialization but by investing your money into this company you're thereby entitled to part of their profits in the form of regular dividends.
This means that you could potentially own a small share of maybe a 50, 100 or even 200 million ringgit commercial real estate property portfolio for really as little as RM 50 or RM 100.
Lots of corporations such as Paramount Corp Bhd nowadays started to adopt asset-light strategy, whereby it will dispose their assets into a REIT entity (Alpha REIT). This way, they monetize their real estate assets through this sale-leaseback transaction, enabling it to unlock capital resources from being tied up in long-term assets.
The other benefits are providing growth capital and allowing the company to focus on its core activities to ultimately better reward shareholders
REIT has pretty much zero barrier for entry to buy & invest in commercial properties.
Pretty much anyone with RM 50 to RM 100 can buy or invest in REIT.
This is unlike investing in commercial properties directly where you have to come up with anywhere from about 15% to sometimes 20% or 25% down-payment.
...and you have to qualify from a loan from the bank in order to buy it.
With REITs, you can pretty much just invest whatever money you have now and that's as easy as it is.
It's also really extremely easy to invest and buy into a REIT - you pretty much go on any stock trading website or app...
...click the little 'Buy' button and you're done.
That's it! You don't need:
Hunting for months, looking for real estate properties.
Accumulating that cash flow for 20% downpayment...
Dealing with renovations or
Dealing with banks or appraisals or inspections
All you do is literally just click the little 'Buy' button with whatever money you want to invest.
The REIT Manager has basically already done all the work for you so all you have to do is invest your money, sit back and say that you own like one ten thousandth of the mega strip-mall downtown.
No tenancy management when you buy & invest into a REIT
When you're a landlord, you have to make sure tenants pay their rent on time.
You have to make sure all the expenses are paid and the property is well-maintained.
With owning a REIT, you don't have to do anything because it's already taken care of for you.
It's also unbelievably easy to sell a REIT; you also don't have to pay a 2% or 3% commission to a real estate agent.
You don't need to deal with showings or inspections or negotiations or anything like that.
It's just as easy it is when you buy it - all you have to do is instead of clicking ‘buy’, you just click the button that says ‘sell’.
With REITs, you're really well diversified invested in commercial properties
It's not like you only own one property with one tenant with one roof and all that sort of stuff.
We've all heard it - the risks associated with real estate property investments.
With the REITs you can potentially own hundreds or even thousands or tens of thousands of pieces of real estate and just own a fraction of all of them.
With this your risk is pretty well spread out so if something happens to one building that's totally fine because chances are, you have a few other buildings that make up for that.
And with all of this you can get a pretty easy consistent five to sometimes six to eight percent return annually depending on the type of REIT and the type of commercial properties they're invested in.
So from the surface this might seem like a really good deal.
It might seem like blue skies and smooth sailing ahead but there is another side to REITs that we should discuss when you are no longer a newbie investors.
You have no control over the exact commercial properties invested in a REIT
Now the main downside with buying and investing in REITs is the amount of control you have.
Plain and simple, buying or investing in REIT takes away the control you have over conventional commercial real estate properties.
In other words, this is unlike owning physical real estate where you can basically customize your renovations if that fancy you.
And you can't pick the tenant that pays the highest price.
Or you can't pick where you buy commercial real estate that you feel is undervalued or has potential for excellent price appreciation.
When it comes to a REIT you don't have any control over this whatsoever.
...and generally this means that you tend to get a slightly lower return because you don't yield direct control over the investment.
Now, as they said, one man’s meat is another man’s poison ~ some people will certainly see this as a positive
...and that they don't want any responsibilities, or any control; they just want to buy exposure into commercial properties or invest their money and be done with it...
But usually if you know what you're doing you're able to get a much higher return than if you leave it to somebody else to do it for you.
You don't get to use leverage as you can in commercial property investing.
Now you also can't build equity in a REIT like you can in real estate properties.
Because you don't get to use leverage as you can in commercial real estate property investing.
Comparatively, when it comes to commercial property investing, or even any form of brick and mortar real estate, you're putting a small amount of money down and getting a long term loan on that.
...and every single month you're paying down the loan, thereby increasing the equity in your property.
Then after maybe fifteen to thirty years you own the property outright after the loan is settled.
...and there you go, you've just leveraged your money and built equity over a long period of time
With the REIT instead all you're doing is just putting in your money and whatever money you put in is pretty much what it's worth
So with that out of the way let's talk about actually physically owning real estate and we'll first start with some of the downsides about commercial real estate properties.
Commercial properties investing comes with high barrier to entry
It comes in the form of needing a substantial downpayment for the average Joe, and a loan, plus the income to actually support those loan payments.
You can't just go out and buy a RM 500,000 property if you don't have the downpayment of 20% or RM 100,000.
....or if you don’t make sufficient monthly income to support those payments.
This usually disqualifies most people from buying or investing in real estate especially if they're in an expensive area like KL City Center or Penang where the typical downpayment could be anywhere from fifty thousand to over two hundred thousand Ringgit.
Just to buy and saving this amount of money is probably the biggest downside I see.
Because not only does it take a lot of time to save that money but it also takes a lot of discipline.
It also requires a high income to have enough money left over to save.
Not to mention a sterling credit history needed for a bank to actually approve you on that loan and this is probably the biggest obstacle that we see when anyone want to buy or invest in commercial property.
Real estate property investing comes with time commitment
A friend related that it took him six months to find his first real estate property that was worth buying.
It took him another 30 days to actually close on that property, do all his inspections, get his loan and appraisal and everything else that goes along with that.
And then it took him another two months of renovating it for it to be ready.
That's a total of nine months from start to finish.
Then you also have the time aspects of actually managing a rental property.
Now this is generally something where you put a lot of time in upfront.
And then after that, it's really not too much work - he would estimate it probably spend about an hour a month managing his rental properties which really isn't too bad
But in the very beginning he did spend a ton of time getting it to the point where most part is pretty automated now.
This doesn't happen at all with a REIT
A caveat here is that you don’t have to contend with renovation when it comes to commercial real estate properties investments because tenants will usually do this themselves at their own expenses!
Real estate property assets lack immediate liquidity
You can't just go out and sell a property and get the money the next day.
Typically the very best case scenario is about two weeks, realistically it's more like thirty to sixty days to actually sell something and get your money.
And that’s not including the time it’s being listed beforebeing sold.
The ‘listing period’ can get excruciatingly long - the higher the asking price of the real estate property, the longer the ‘listing period’.
Furthermore, selling a piece of real estate property is not as simple as clicking the ‘sell’ button because
you have to get professional photos done
you have to to put it on the market
you have to show it to your prospective buyers
you have to negotiate the offers
It's quite a process to actually sell physical real estate properties now compared to this to a REIT where you just click the little sell button and you're done.
How the really wealthy property investors buy & invest in real estate properties
Wealthy property investors don’t play the property investing game like the rest.
They move away from residential real estate property properties to commercial real estate properties.
Because it cuts down a lot of the tenancy related issues that comes with residential property investment.
One good example is, it makes no sense to go into a rental price way with a competing landlord. But you can’t avoid this if you are playing in the residential property space.
After all, residential propertial tenants move in and out all the time, and they are always hunting for the ‘best deal’. They won’t hesistate to pack their things and move out if the opposite unit offers them lower rental rate.
That or it is just the norm that they move out due to changing jobs or moving to another cities.
The 4 Quadrants of Commercial Real Estate Property Investment
If a commercial property fulfils ‘both of the above’, it basically fits the criteria of being located in a prime catchment area that is able to capture both residential and mobile customers.
Although, the quality of customers are equally important as the volume of customers (or footfall).
This boils down to the demographics of the population staying and working within a 10 kim radius.
And that refers things like average income level, age and gender.
(Example, you’d want to buy a commerical property in Mont Kiara, not Setapak.)
The income level of the residents determines the kind of business that would be profitable (a Michelin star restaurant in Sg Buloh or Mont Kiara? The answer’s obvious)
A commercial hub located in the vicinity of multinational corporations which employ thousands of staff means you have no shortage of lunch crowds and patrons after office hours.
The below is a good example (Sekitar 26 Enterprise in the middle)
Ceteris paribus, it is also better if the commercial property you are considering is located at a development area which has a theme.
How would a commercial hub without any eateries, foodcourt or restaurants fare in the long term?
Common sense right?
The right tenant mix complements each other.
A restaurant located in more ‘atas’ neighbourhoold like Bangsar enable it to price its menu higher. I don’t need to explain what happens when your tenants are doing well if you are the landlord, right?
The right tenancy mix does not mean ‘anything goes’ though, just imagine how out-of-place it would be if you find a pub or car workshop in the middle of any premium outlet villages.
On a broader scope, The Petaling District in Selangor remains the largest and the most active commercial property market.
In addition to matured townships, there are several developments in the pipeline which is designed to attract a generation who is vibrant, trendy and treasures the conveniences of modern-living.
Upcoming commercial property projects by established developers with award-winning developments do carry some weight as they have years of credibility, track record and reputation building successful projects.
Which is why it is borderline dangerous to dabble in subsale commercial property market.
Sekitar26 Enterprise by Paramount Property is just one of the few developments located within the Petaling District.
In fact, Paramount Property headquarters is shifting..
We advocate investing for the long term, but we’re still human, so we understand the temptation to try to anticipate market movements and invest accordingly.
Even though countless phrases warn against attempting to time the market, our emotions can still get the best of us during extreme market downturns and upturns.
The recent uncertainty has given us the opportunity to have great conversations with a number of our clients about the difficulties of market timing.
Disciplined investing is very easy when things are calm and the markets are peaceful.
Unfortunately, discipline is only truly tested during moments of extreme volatility.
That’s the true testing ground of the disciplined investor.
Over the long term, market returns need to be captured efficiently and consistently.
Trying to guess when they occur is an impossibility that leads to the underperformance.
How difficult is it to time the market? Let’s look.
Take a timeline from 1970 to 2008 for US stock market.
The best single day of the period was October 13, 2008. The best one-month return, which came in October 1974, happened immediately after the worst one-year period.
Strong positive returns are especially unpredictable. 10 of the top 25 days occurred between September 2008 and December 2008, during which time the S&P 500 dropped 28.9%
The worst market day since 1970 occurred on October 19, 1987—just two days before the best day of the period. An investor who avoided the worst day would have earned a 10.10% annualized return, but missing the best day would have reduced the return to 9.18%.
If daily market returns are random, market timing is a coin flip.
Investors who attempt to predict market drops are just as likely to miss out on strong return periods.
This is also a double-edged sword because an investor has to be right twice –
…getting out of the market at the right time to miss the negative returns,
…and getting back in to catch the positives.
The harsh reality of market efficiency, however, has not stopped speculators and other traders from attempting to read the future.
On paper, market timing offers a seductive prospect:
Who wouldn’t want to capture only the best-performing days and avoid the worst?
Obviously, if you miss the worst days your return will go up,
…the chances of purposefully missing the bad days are as close to zero.
Attempting to time the market is like trying to walk across a highway with your eyes blindfolded and headphones on:
You have no idea when it’s safe to move.
You might take a few successful steps, but that doesn’t mean you should keep doing it.
Ultimately, combining the good and bad days nets a positive return.
Our job as investors is to efficiently capture them.
As you can see, the task of cherry-picking days to be in or out of the market is daunting.
The purpose of investing is to structure a portfolio to accomplish your objectives.
It becomes anxiety-provoking to focus on the everyday market noise.
As Woody Allen said, “90% of success is just showing up.”
In the market it pays to be present.
There were just over 11,250 trading days during the 45-year period from 1970 to 2015.
Although missing the best day would have reduced only .0001% of the investment time horizon, it would have reduced the investment return by 3%. Here’s a perspective
The best five days accounted for .0004% of the investment horizon, yet 10% of the investment return.
The best 15 days accounted for .001% of the investment horizon, yet 23% of the investment return.
The best 25 days accounted for .002% of the investment horizon, yet 33% of the investment return.
One other thing to consider is that good and bad days often cluster together.
After a large drop, you often see a good day that wipes out those losses.
In 2015, the Dow Jones Industrial Average’s worst day was August 24, when it was down 588 points.
Its best day was just two days later – on August 26, the index was up 619 points.
If you were trying to avoid the worst day of the year, you would have probably missed the best day, too. Even worse, imagine if you had sold on the 25th – you would have locked in your losses and missed out on all of the gains.
The biggest cost of market timing is the opportunity cost of missing out on market returns that are necessary for many investors to accomplish their objectives.
Unfortunately, we don’t get a “do-over” when we miss out on positive returns.
Successful investing is truly about
“Time in the markets, not timing the markets.”
Yes, it’s a cliché, but it is also a key tenet of a successful investment experience.
Malaysia is among the top destinations in Asia for expats, and not without reason. While the country’s economy depended on exports for long, it has now expanded to cover spheres such as tourism, medical tourism, science, and commerce. This, in turn, has opened up a sea of employment opportunities for locals and expats alike. If you are moving to Malaysia, exercising some financial prudence may take your money a long way.
Watch How Much You Spend on Rent
Rents are high in the center of cities and get affordable as you move outward. For instance, a one bedroom apartment in the heart of Kuala Lumpur may set you back by around $650, whereas you might find something similar outside the central district for less than $200.
If you have a choice in the city you can move to, you may want to consider places other than Kuala Lumpur and Penang, as this can lead to savings. If you move to a good neighborhood in Kota Kinabalu, you can find a one bedroom apartment for around $200. In Malacca, you’ll spend around $275 for a similar living space.
Day to Day Costs
Unless you’re on a tight budget, you don’t have to worry about everyday expenses. If you plan to do a majority of your eating at home, you’ll do rather well in less than $200 per month. Eating out is fairly affordable. If you eat at a local restaurant or a street hawker, you can get by with as little as $2. A three course meal for two at a mid-range restaurant will cost around $12, and if you want to order a bottle of mid-range red wine, add another $12 to the tab.
If you plan to use your car to get to work, consider getting a monthly parking permit from your local council. Make sure you use designated parking areas, failing which you may need to pay a fine. If your car is clamped you will need to pay a fine of around $13, and the costs begin escalating if your car is towed away and impounded.
If you are moving to Malaysia because of work, you may consider asking your employer to pay for your children’s education. While expats get to choose from a number of private schools in Malaysia, enrolling your child in one requires that you spend a considerable sum. If budget is not a constraint, you may even look at international schools, most of which are in Kuala Lumpur. Public schools are the least expensive way to go, but language can serve as a barrier and you may have to deal with a prolonged bureaucratic registration process.
Moving money in and out of Malaysia is no longer as costly as it was until a couple of decades ago. Now, you no longer have to deal with the steep fees and unfavorable exchange rates associated with banks, and you get to choose from a number of specialist money transfer companies. While companies such as InstaReM and Payoneer give you easy means to receive funds from other countries, there are several alternatives when it comes to sending money out of Malaysia.
There’s a good chance your employer will decide where you hold your salary account. When given the choice, some expats choose to open offshore bank accounts. This way, you can keep all your money in a central location even if you keep moving between countries. Besides, these accounts may offer potential tax benefits. If you open an offshore account, it is your responsibility to keep tax authorities in your home country and Malaysia informed.
Living is Malaysia does not require that you spend too much money, especially when compared to the U.S., the UK, Europe, Australia, or even Hong Kong and Singapore. A great thing about this country is you can make do with just about any budget.