Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
Past blog posts now load week by week. The old style created a problem for some as the system would load 50 blog posts each time. Hope the new style is better. Search archives in box below.
I stumbled upon a blog on Marco Polo Marine and I was reading the comments section and felt compelled to make a comment to correct one of the readers. This was my comment:
For readers who just want to know what could have compelled me to make the above comment, this was the comment responsible for my response:
It seems that AK the blogger has been gravely misunderstood. It is either that or I have misunderstood what I should be doing as a blogger or whether I should be blogging at all.
Some time off from blogging to do some serious thinking is probably in order.
UPDATE: I was chatting online with another reader on this matter. Frankly, if I were after passive income by investing in hotel rooms, I would rather invest in a hospitality Trust and there are plenty of options here in Singapore alone.
For anyone who is considering buying hotel rooms as investments for passive income, ask how well do you understand this investment product?
"The rule of thumb is that a hotel room must earn $1 per night for every $1,000 it costs to buy the unit. That means if it costs $125,000, then the room has to rent for $125 per night, on average, and be occupied 60% to 70% of the time. Examine the hotels in the area, as well as the average vacancy rates, along with average room rates. Only then can you get a true picture of whether or not you’ll earn money on rental revenue." Romana King "...vast majority of people don’t know the full facts. They are sold on a made up ‘projected’ cash flow and a glossy brochure. That is nowhere near the due diligence that should be done on a specialised investment strategy like this." Brett Alegre-Wood ----------- A reader wrote to me about investing in a hotel project in Phuket recently. This was my reply: Hi R,
I have a friend who bought into a similar program offered by a hotel group in Phuket.
There are actually plenty of risks in such investments and you have to be one with rather deep pockets. I cannot remember the full discussion I had with my friend but here are a few points off the top of my head:
1. Concentration risk. It is one property.
2. Prospects. You have to question why the developer does not want to take a bank loan or a syndicate of loans to fund the project? If it is lucrative, they should do it. Or is it more lucrative selling rooms in the project to private investors?
3. Management risk. If the project does poorly and the management is not getting paid adequately because of this, could they simply walk out?
4. Is a guaranteed 5% return adequate compensation? I am inclined to think not.
(In fact, could it be a case of "taking back our own money"? Investor could be paying an inflated price for the hotel room to get the guaranteed yearly return for X number of years.)
If you wish to invest in Phuket properties, have you looked at condominiums and apartments? For the same amount of money, if I remember correctly, you could get a bigger property and in pretty good locations too.
Best wishes,
AK
THB 1.0M = S$40,000.
There are many investment opportunities out there. Some are legitimate while some are not. Those which are legitimate, we want to ensure that we would be adequately compensated for the risks that we are being asked to undertake. For sure, I am not an expert when it comes to investing in properties and hotel projects in Phuket. I was just voicing my concerns.
Related post: Returns of 15% per year invested. "Many of the hotel room investment options are fractional ownership. Fractional ownership no matter what the marketers say is Timeshare reborn. You only own a fraction of the property exactly like a timeshare. We all know what happen with the timeshare market and if you do a quick Google search, it will show you how millions of pounds were lost by investors. For me this is a deal breaker if you are offered a fractional ownership investment don’t walk away, run!" Source: http://rmpproperty.com/2013/03/why-we-wont-sell-hotel-room-investments/
"An investor who only wants to be known as Mr Wang bought two units at Ibis Lymm. He had heard about the investment from a friend who had purchased two rooms at Ibis Knutsford and then went on to buy a unit at Ibis Lymm as well. The $400,000 that Wang invested in the hotel rooms had been savings put aside for his retirement and his children’s university education. “And we need the money,” he sighs. “It’s been a burden.”
"Another investor, Mr Fu, who bought two rooms at Ibis Lymm, agrees. “A lot of us had sleepless nights,” he admits. “And so, we have been communicating with each other.” The amount invested, $400,000, may not sound like a lot, but it’s not a small sum either. “We have to answer to our families,” Fu says. “We thought we could get a brighter future, but it has turned out to be something opposite.”
"Mr Koh believes he was most likely the last investor from Singapore to participate in the Ibis Lymm scheme. The whole experience has made him more vigilant, and since then, he has begun to scrutinise property advertisements, especially those offering high guaranteed returns." Source: http://www.theedgeproperty.com.sg/
Mr. Market has been feeling rather pessimistic of late.
Winter has come?
In the last trading session, I bought stocks of the following companies': 1. SembCorp Marine 2. SembCorp Industries 3. ST Engineering These companies have relatively strong balance sheets and order books to keep them busy for years. It is hard to imagine that they might be going the way of the Dodo. Of course, prices could weaken further. If they should weaken significantly, I would probably buy some again. Buy some again? Yes, I will continue to pace my purchases in the face of possible continual market weakness. We do not know when prices have bottomed until we are past the bottom. So, nibble, don't gobble.
Not quite the Great Singapore Sale, for sure.
During the GFC, we saw SembCorp Marine and SembCorp Industries trading at PE ratios of 7x to 9x. Personally, I do not think that we will see another GFC but we could see a soft landing. So, PE ratios of 10x to 11x, perhaps? Based on my estimates, SembCorp Industries could see its share price at between $4.00 to $4.40 then. What about SembCorp Marine? Perhaps, as low as $2.50 a share. ST Engineering's PE ratio has always been somewhat higher and even during the GFC, its PE ratio was still pretty high at about 15x. Currently, ST Engineering is trading at a PE ratio of almost 20x which isn't crisis cheap but seems fair enough with a prospective dividend yield of about 3.8%, assuming a 75% pay out ratio. Compared to about $4.40 a share more than a year ago, current price level presents a more comfortable entry in more ways than one.
Learn from the squirrels?
Of course, it is hard to say whether Mr. Market would go into a depression or not. So, it is important to have a war chest ready. When to roll out that war chest? When valuations approach crisis levels and if that should happen, we want to be able to take advantage of the much cheaper valuations. Related posts: 1. SembCorp Industries: A safe price. 2. SembCorp Marine: A nibble. 3. Mystical art of wealth accumulation.
Recently, I had a chat with someone on my preference to invest for income and how I am now able to work because I want to and not because I have to. He said he would like very much to quit his job and focus on making money from the stock market.
He asked when would he be able to do that if he should follow my methods? I told him that it really depends. For some, it could take just a few years. For some, like me, it could take almost 20 years. For some, it could happen by the time they retire at age 62. For some, it might never happen.
He wasn't impressed and told me that a couple of presentations he went to told him that he could retire within a few months if he should follow their methods. I said that I am aware of such courses and claims out there but I really cannot comment much on these apart from saying I would exercise caution.
To his credit, he did not walk away but instead he asked when I said "it really depends", what did I mean?
Well, following my philosophy, how soon a person can choose to work because he wants to and not because he has to depends on: 1. How much money does he need in life? 2. How much money is he saving (not making)? 3. How much money are his investments making? We went through his answers to these questions and he was shocked to find out that he probably would not be able to stop working till he is in his 60s.
I reminded him that it is actually not too bad. Some people cannot stop working even in their 70s. He said he would like to stop working in his 50s although if he could stop working before he hits 50, it would be better. What should he do? Well, the answer is in those 3 questions mentioned above again.
1. How much money does he need in life?
Are the needs really needs?
After all, we only need so much money in life and the rest is for showing off, someone said.
2. How much money is he saving?
To save more money, he has to increase his income and reduce expenses.
It is quite simple. Find legitimate and ethical ways to do so.
3. How much money are his investments making?
If he is leaving the bulk of his money in savings accounts, he is doing himself a disservice. He has to make his money work harder.
One way is to make use of weaknesses in the stock market to accumulate some good stocks that will generate good income.
When we parted ways, he said he had plenty of thinking to do.
I do not know if he would become an income investor or if he would take up courses which would allow him to retire in a few months. The choice is definitely his.
Posts
Bloggy Award