I Want It All And I Want It Now!
This seasoned adagio and great song from The Queen appears nowadays to have become the chimeric property investment dream of too many people. Who has never dreamed about becoming “overnight” millionaire through property investment? I personally love dreams but, the ones I like more are the dreams which can become true.
Millionaire by the age of 30
And here we come with today’s story of a friend of mine, we call him “A”. He is a middle twenties successful and rampant professional with big dreams. Before his 30 he wants to achieve financial freedom via property investment and, besides his busy working life, he has invested time and money to buy books on stock and property investment, forex and more. He is dedicating his free time and sleepless nights to read avidly and learning! His weekends are normally spent attending seminars and property investment masterclasses from super successful sifus and investment gurus.
One day, towards the end of 2018, he buys me out for coffee and, very excited, start telling me how, within the next few weeks he will finally become a property millionaire, almost.
3 Properties in One Shot!
He start explaining that this famous property guru has managed to get a super special deal with XXX developer securing a 40% discount! Can you imagine a residential property priced RM800k is now available thanks to this mahaguru @ RM480k? He told me excited.
But the best still has to come, he added in! The guru managed to maintain the property SPA (Sales & Purchase Agreement) value at the original RM800k and he taught me how to buy three units and get 90% loan for all!! He calls this strategy “compressed loans”! With my income I can easily get a loan approved @ 90%, he added, and with his strategy I can buy three properties.
I tried to talk to him and explain how dangerous the game was but, he just left me there with my coffee as the bankers called him up to sign the related offer letters.
It’s clearly the “I Want It All And I Want It Now!” mindset which made him very “mind full” of greediness and not mindful at all about the consequences of his actions.
Math To Understand: Numbers Never Lie!
Let’s make some math together. Our Mr.”A” friend is a 25 years old rampant professional in Kuala Lumpur and earns RM9,500 net per month. He is not married and is living alone. As per the above he’s entitled to 35 years loan (prudentially we will consider 30 years) and current rate, thanks to the recent OPR cuts by Bank negara Malaysia (BNM) at 3.2%.
By looking at this table we can see how, in one shot, Mr. “A” has become a property millionaire with RM1,200,000 in his “pocket”. Of course, being the properties still under construction, he is not at all concerned about the almost RM9,400 of loan repayment. The Master has also “verbally” guaranteed to him that, once the properties will be delivered, he has, exclusively prepared for his members, a data base of tenants ready to come in.
Our friend “A”, wisely, decides to place RM100,000 aside, as emergency funds in case of any delay in renting and, an additional RM100,000 as renovation fund. The master Sifu has recommended him to keep aside the renovation money as it will be a must to provide fully furnished units to his “members access only” tenants list.
From Zero To Hero!
And then what “A” does with the remaining RM1,000,000? Enjoy life mah! Change car, buy expensive watches, go for luxurious oversea holidays and more. Lifestyle of a millionaire!
September 2019, Mr. A receives the keys of his three units and, as per previous Master Super Sifu instructions he appoints a renovator who complete efficiently the work in his brand new properties by the end of October. Total cost RM120,000 which our friend “A” pays on the spot, millionaires are good paymasters mah! The day after receiving the three fully renovated properties, he picks up the phone, excited to start earning passive income, to call his Master and…..
Fast forwarding to January 2020, “A” invites me for coffee again. I was expecting a Mandarin Oriental style coffee and, at my great surprise, we ended up having Kopi-O, which by the way I like very much, in a mamak shop. I guessed something was wrong and, unfortunately, I had an immediate confirmation when “A” opened his “Pandora Vase”.
In October 2019, he found out that the self appointed “Property Guru” has moved oversea and is no longer reachable. Voices are saying he has been receiving a multimillions payment from the property developer, as commission for all the properties sold, and disappeared right after it!
Shortcut To Hell!
Banks are asking him to pay RM9,350.00 for his three property loans when he is earning RM9,500.00, how can he sustain the repayments? I suggest him to sell, even with haircut, at least two of the units. Purchased at actual value of RM480,000, if he sells two at around RM500,000 he will not gain but either not lose. And here is the crash and the reason why I personally call these Cash-Back from property deals “Short Cut to Hell”.
Unfortunately, “A” has spent most of the money and cannot refund the banks RM810,000 total difference between approved loan to the new purchaser and loan amount approved when he purchased. No way out for him, unfortunately.
When banks found out he used compressed loans to buy three properties, automatically blacklisted him, which means, no way for him to apply for a restructuring of the loan or other forms of financing.
My friend “A” contracted me again right before CNY 2020, he has been declared bankrupted by the banks, his luxurious car has been repossessed, all his credit cards have been cut in half, the property where he was living, a gift from his parents, has been caveated and he doesn’t have enough money even to eat. Banks are after him by all means as, after auctioning the three properties, he still owes them more than RM700,000! I better stop here.
I’ve written this “property story-telling” article with the hope that people thinking about becoming millionaires overnight will rethink about it.
In real estate you have to be a millionaire first and then invest in properties to become multi-millionaire, being greedy doesn’t help and the chances of ending up as above are extremely high!
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