Be a real estate owner the easy way.

I have blogged about the importance of wealth building especially at a rate which would beat inflation.

I also mentioned that investing in real estate is part of a complete approach towards wealth building and how it could be a hedge against inflation.

I have shared on how this could be achieved and how there is no short cut.  Rome was not built in a day and for the vast majority of us, wealth building is an incremental process.

Recently, a customer whom I have known for many years had a conversation with me. He was quite excited and told me that there is a way to own real estate with no money or very little money. 

Right away, I remembered some ads I saw in the newspapers with some similar proposal.  I have always ignored the ads because there is simply no way one could own real estate without any money, or own anything for that matter without any money.

However, then, I was a captive audience and I listened as my customer went on to say all we had to do is to get 120% financing for a piece of real estate. Simple. With interest rates at record low and with rental yield at record highs, it is a no brainer. 

My customer is from Malaysia but I am not sure if he was referring to the situation in Kuala Lumpur. Rent out the property, pay the banks the required monthly repayment and the balance is ours to keep.  Simple again.  It sounds great from a cash flow perspective.


I asked if he would be buying a condominium unit using this method then.  He gave me a look that made me felt quite small and asked why only one?  Imagine the amount of money which could be flowing into our bank accounts every month if we had five or ten units! It is so simple!  It sounds irresistible from a cash flow perspective.

Easy money is always tempting but bearing in mind that there is no free lunch in this world, let us look at this proposal carefully.  Remember how I instinctively brushed away ads with similar proposals? 

Well, firstly, we cannot own anything unless we have paid in full for it with our own money.  If we had borrowed money to buy something, we do not own that thing, we simply have control and possession of it but we do not own it.  The lender could do a repossession if we failed to make repayments in a timely manner.

Secondly, 120% financing is leveraging in the extreme.  Yes, if the party continues for another decade, we could become quite rich.  The exact figures depend on how low the interest rate is for the loan and how high the yield could be from renting out the property in question. 

What if the party were to stop abruptly?

We would find ourselves suddenly under a ton of debt without any income. This would make Nightmare on Elm Street look like a walk in a park! Pardon my use of a piece of horror real estate as a comparison.

An environment of easy credit and rampant risk taking is helping to fuel inflation.  I continue to believe that we will see higher inflation in Asia (ex-Japan) over time. 

In Economics, linear relationships are the norm and this cycle will have its run.  Riding on this wave could be exhilarating but as any surfer would tell you, even the best surf would come to an end.

Related posts:
Grow your wealth and beat inflation.
Real estate as hedge against inflation.

Tea with AK71: Top 5 posts (Part 2).

On 17 April 2010, I mentioned that I was surprised to find that the most read post in my blog was one of my first blog posts written last year on Christmas Eve. That same post remained in the top spot until recently.  It is now in number three position.  Considering its age and having more time on its side, which later posts could have dethroned it?

The following ranking is based on the number of pageviews each post generated since the day they were published:

Number One:
Create more passive income with limited capital.
(29 May 2010)
- All of us have limited capital.  How do we make our capital work harder to give us more in return?  That is a question that many would like to have answered.  This post provides a possible answer to this question and this is probably why it is in the top position.

Number Two:
A minimum of 50k in annual passive income.
(5 Sep 2010)
- The interest this post has generated has been astounding thus far. The allure of passive income is unmistakable and when we put a value to what could be achieved annually if we work at it, it becomes a powerful statement.

Number Three:
High yield portfolio.
(24 Dec 2009)
- Previously Number One and the only post in the previous top 5 posts to retain a position in this ranking exercise.  The interest in building a high yield portfolio is perennial, it seems, and stronger than I could ever imagine.

Number Four:
K-Green Trust: A stable source of passive income.
(3 Jul 2010)
- Making it to the top 5 is my first post on K-Green Trust.  This is a very safe instrument for passive income generation.  I like this trust but wish it could be cheaper, of course.

Number Five:
AIMS AMP Capital Industrial REIT: Rights issue.
(23 Aug 2010)
- This is a post which could slowly fade into oblivion once the rights issue is done and over with.  For now, it is generating quite a lot of interest.

Related post:
Tea with AK71: Top 5 posts.