I always believe that there are things best leave it to the professionals, such as legal and taxation matters. On the other hand, there are things best to be managed on your own, especially when it comes to finance and investment.
I immediately struck a chord with Andrew Craig when I read his book How to Own the World: A Plain English Guide to Thinking Globally and Investing Wisely.
Craig repeated an important message in his book: If you take the time and efforts to learn, you can invest your money better than most financial advisors and finance professionals.
This is not surprising.
The main objective of financial consultants is to sell you a product in order to make a commission from you. Or to manage your money in order to charge you a fee. They don’t have the obligation to grow your wealth or make you rich.
But for you your main concerns in investment are: Number one not to lose money. Number two make the most of your money.
The same goes for buying properties.
The main objective of developers, agents and media is to sell you a property in order to make a profit, earn a commission, or generate advertising dollars. They don’t have the obligation to help you buy the right home at a good price.
But for you, your main concern in property investment is: Number one not to lose money. Number two make the most income and profit out of your property.
When two parties have different priorities, how to ensure the message is transparent and neutral? How to ensure the recommendation will put the interest of the customer first?
Through my years of investing in properties, I have met good property salespersons who shared very insightful and honest views with me from their experience in the industry. But there were far more who shared biased views and groundless statements that don’t hold water. They made me walk away with more questions than reassurance.
Interestingly, not all buyers know the difference between the two. Some thought the sales talks they just heard are golden rules and go around repeating them to everyone else like parrots.
Statement #1 Real estate is the safest investment that can’t go wrong.
If buying properties can’t go wrong, why did so many people email me about their buyer’s remorse?
If putting money in properties is the safest, why did so many owners end up with a negative equity (market value of a property falls below outstanding mortgage) when prices crash?
If investing in real estate is really risk-free, how could subprime crisis wipe away 5 trillion dollars and take away the homes of 6 million people just in the US?
“You might find it hard to believe, but “you can’t go wrong with bricks and mortar” is also a dangerous statement. Many people throughout history, including in the past few years, have gone horribly wrong with bricks and mortar, and many more will do so in the future.” – Andrew Craig, How to Own the World: A Plain English Guide to Thinking Globally and Investing Wisely
Why are there more people buying stocks than private properties? Because investing in equities has much lower entry and exit cost.
Stocks is also more liquid than properties. You can buy and sell a stock with the click of a mouse. But it takes twelve weeks to buy or sell a home and complete the transaction. That is not even counting the time needed to find a buyer or seller.
Property is probably one of the most illiquid and risky assets to own.
Statement #2: Any time is a good time to buy because prices will always go up.
As Benjamin Franklin told us, “in this world nothing can be said to be certain, except death and taxes”.
After you pay the downpayment for a property, income and profit are not certain, except stamp duties and property taxes.
When buyers say prices are high and return is low, agents would remind them that prices will always be higher in the future. Buying properties is a long-term investment. Take the chance to upgrade your home or buy for investment now. Afterall, how many ten years do you have?
After you buy the property, you hope prices will go up in no time. But when prices keep falling, you console yourself that you are investing for the long-term. Because prices will always go up. The problem is you don’t know when.
“It may come as a surprise to many readers that UK property basically did not appreciate in value at all from 1900 to 1960. That is no less than 60 years.”
– Andrew Craig, How to Own the World: A Plain English Guide to Thinking Globally and Investing Wisely
Remember Singaporeans who bought condo units at the peak of the market in the mid-1990s? It took them almost 20 years to break even. Remember the two lost decades in Japan after the economic and property bubble burst in early 1990s?
How many ten years do you have?
Every time you make a wrong decision in property purchase, you have no choice but to take a long-term approach. You have to watch out on your diet and exercise really hard – to make sure you live long enough to see the value of your property breakeven.
Statement #3: The richest all built their wealth from properties
This is probably the biggest fallacy of all.
The saying that “the richest men in Singapore, Asia and the world all made their fortune from properties” may sound convincing in a sales pitch. But unfortunately, it is not true.
Those property salespeople are taking it out of context. They are making good use of the names of the rich and they know that the rich won’t come out to defend themselves.
Warren Buffet, Bill Gates, Mark Zuckerberg and Jeff Bezos didn’t make their money from properties.
Hong Kong’s Li Ka-shing made his fortune from making plastic flowers. He was the largest plastic flower supplier in Asia in the 1950s. He only started buying land at low prices after the 1967 riots.
Malaysian tycoon Robert Kuok built his wealth from 1949 after inheriting his family business in trading agricultural commodities. He didn’t go into properties until the 1970s.
The Ng brothers’ father Ng Teng Fong first started his business by opening a provision shop in the 1950s. Far East Oganization was formed only in 1960 with the financial support of a billionaire.
What are three of them in common? They all built their wealth from other business before venturing into properties.
If you too want to get rich from properties, ask yourself whether you have saved enough in your first pot of gold to support yourself in property investment.
Buying the right properties can make a rich man richer. But buying the wrong properties can also make a poor man poorer. Foreclosures happen when owners are overleveraged, lose their jobs or have a failed business. They stop paying the mortgage and their properties are seized by the bank.
The sales pitch may appeal to your aspiration to be rich and the illusion to be among the richest one day. But the truth is: Buying an overpriced property at the wrong time and hoping to get rich from it is just a fairytale.