Whats your net worth

Imagine this scenario. We have another global crisis plus the big property oversupply coming. Your property value crash by 60%, your REITs value and your REITs crashed by 90%. Your REITs dividend cannot service your loan, the bank foreclosed your home to pay off the $4m loan. You will beg on the streets, no one else to blame except yourself for being greedy and playing a high risk game. I have seen so many who did what you are doing before the Asian crisis hit in 97. They went from multi millionaires to bankrupts. Serve them right. Anyway, why should I bother be telling you all these. In fact if the scenario I paint pans out, I will be the one buying your property using my cash in the bank, ready to snap up over leveraged foreclosed homes.

Originally Posted by Unregistered

I'm not assuming anything but making a judgement. I've borrowed 50% of the value of my home. I judge that if the property market crashes by 50%, which looks unlikely, the bank won't make a margin call because it's still a $4m home and they are fully collateralized. REITS can rise or fall. Probably over the longer term because rentals increase due to inflation, REITS will rise in value. I feel perfectly safe even if the worst happens. Perhaps you can say something useful by coming up with the scenario where I am begging on the streets.

Originally Posted by Unregistered

Imagine this scenario. We have another global crisis plus the big property oversupply coming. Your property value crash by 60%, your REITs value and your REITs crashed by 90%. Your REITs dividend cannot service your loan, the bank foreclosed your home to pay off the $4m loan. You will beg on the streets, no one else to blame except yourself for being greedy and playing a high risk game. I have seen so many who did what you are doing before the Asian crisis hit in 97. They went from multi millionaires to bankrupts. Serve them right. Anyway, why should I bother be telling you all these. In fact if the scenario I paint pans out, I will be the one buying your property using my cash in the bank, ready to snap up over leveraged foreclosed homes.

At 50%, I'm hardly overleveraged. I get $250K in dividends versus $40K of interest payments. It's not a mortgage, just a loan facility, and the loan doesn't amortize. In any case, I have enough savings to sustain $40K interest payments for quite a few years, even if interest rates double. If the property market falls 60%, its still a $3.2m home.

Also, your view that REITs fall 90% is extreme. Even during the recent global financial crisis, they didn't go down that much. Take A-REIT, which is trading around $2.30, if it went down 90%, it will be worth 23c only. The dividend is 14c a year. So it's quite unlikely that it will go down such that 2 years dividend, you get your money back. Unless you say that A-REITs dividend will go down. Maybe, but REITs pay out 90% of their earnings, and A-REIT has very long rental contracts with MNCs, so it shouldn't go down that much. Anyway, I held REITS through the global financial crisis and their dividends were only mildly affected even though the stock price fell. Having been through that, I'm not worried.

Your suggestion is to sell my landed and buy a condo and invest the rest. Well, the condo will plunge in value as well and so will the investments, so both scenarios are equally bad.

The problem with your investment strategy is you are investing in a risky asset (REITs) with borrowed money. While the amount you owe remains at $4m, the value of your reits can fall. Of course if your interest payments is less than your dividends, everything should be fine. I'm personally not comfortable with such a strategy, I prefer to invest with money not tied to my primary home. I will want to make sure that my home is not at risk at all. My peference is to sell your landed, buy a $2m condo, keep $2m as standy and invest $4m. In this way, I can sleep in peace as I know my home remains intact in the worst case scenario. Anyway, you seem to know what you're doing, the diff between you and me is that I'm more risk averse.

Originally Posted by Unregistered

At 50%, I'm hardly overleveraged. I get $250K in dividends versus $40K of interest payments. It's not a mortgage, just a loan facility, and the loan doesn't amortize. In any case, I have enough savings to sustain $40K interest payments for quite a few years, even if interest rates double. If the property market falls 60%, its still a $3.2m home.

Also, your view that REITs fall 90% is extreme. Even during the recent global financial crisis, they didn't go down that much. Take A-REIT, which is trading around $2.30, if it went down 90%, it will be worth 23c only. The dividend is 14c a year. So it's quite unlikely that it will go down such that 2 years dividend, you get your money back. Unless you say that A-REITs dividend will go down. Maybe, but REITs pay out 90% of their earnings, and A-REIT has very long rental contracts with MNCs, so it shouldn't go down that much. Anyway, I held REITS through the global financial crisis and their dividends were only mildly affected even though the stock price fell. Having been through that, I'm not worried.

Your suggestion is to sell my landed and buy a condo and invest the rest. Well, the condo will plunge in value as well and so will the investments, so both scenarios are equally bad.

Originally Posted by Unregistered

Imagine this scenario. We have another global crisis plus the big property oversupply coming. Your property value crash by 60%, your REITs value and your REITs crashed by 90%. Your REITs dividend cannot service your loan, the bank foreclosed your home to pay off the $4m loan. You will beg on the streets, no one else to blame except yourself for being greedy and playing a high risk game. I have seen so many who did what you are doing before the Asian crisis hit in 97. They went from multi millionaires to bankrupts. Serve them right. Anyway, why should I bother be telling you all these. In fact if the scenario I paint pans out, I will be the one buying your property using my cash in the bank, ready to snap up over leveraged foreclosed homes.

You are a typical kay poh fellow doing nothing around.. he obviously knows how to manage the risk and wealth... and making full use of the financial benefits he has which is a very smart move.. A lot of ppl are rich but they do not use their money to earn more money... like you, probably.. and if crisis comes, before falling 90% (which happens in your dream) he could have sell it when uncertainties comes, sell all reits and pay up the loan and hold big buck of cash on hand.. and buy when it falls to 10% of price.. and maintaining the life he has now.. but your way, sell the landed, and rent a room and keep waiting for his landed to plunge 60% and buy it.. can probably keep waiting until the next few rounds of crisis

Originally Posted by Unregistered

At 50%, I'm hardly overleveraged. I get $250K in dividends versus $40K of interest payments. It's not a mortgage, just a loan facility, and the loan doesn't amortize. In any case, I have enough savings to sustain $40K interest payments for quite a few years, even if interest rates double. If the property market falls 60%, its still a $3.2m home.

Also, your view that REITs fall 90% is extreme. Even during the recent global financial crisis, they didn't go down that much. Take A-REIT, which is trading around $2.30, if it went down 90%, it will be worth 23c only. The dividend is 14c a year. So it's quite unlikely that it will go down such that 2 years dividend, you get your money back. Unless you say that A-REITs dividend will go down. Maybe, but REITs pay out 90% of their earnings, and A-REIT has very long rental contracts with MNCs, so it shouldn't go down that much. Anyway, I held REITS through the global financial crisis and their dividends were only mildly affected even though the stock price fell. Having been through that, I'm not worried.

Your loan to asset is only 33% (4/12) so you are right that you are not overleveraged. And you are also right to make use of current cheap interest rates to borrow at <1% into relatively stable assets that yield >5% and earn the difference.

However, there is a major issue of diversification of risk here. Basically you have all your baskets in 1 asset class which is property. REITs are also property plays. So if property prices drop significantly by say 20-30% (which is possible in a bad scenario), then you will find that your REIT value drops too and so will rentals which affect the REIT yield. And if really sway, the revolving 1 mth interest rates you are loaning can increase to 3% when fed stops taper and raises interest rates in 2015/2016.

The other major issue is that too SG centric. Singapore is a small part of world. If we screw it up, property will plunge even if world is growing well. Then you get the double whammy above.

So be careful. I would do the leverage but invest in equities, bonds and REITs and even alternatives with cash(not leveraged). You can still get about 5% returns but more diversified. And i would buy global assets not just SG ones.

BTW, this is from someone who is also leveraged about 30+%, but net worth above 25M.

[whizzard]

Originally Posted by GR45

Hi Whizzard et al. Thanks for the education for the rest of us. Any suggestions for a couple in 40s with S$3M income a year, pre-tax? We are not financial instruments-savvy and hold only properties (2 residential and 2 commercial). We are still working and the cash is just piling up in various banks. Very negligible equities etc. Any uncomplicated pointers will be much appreciated. Zero debt. 2 paid up Japanese cars.

Hi GR45, looks like you can probably retire any time you want.

I would suggest you open some private banking accounts, if you have not done so already and get the bankers to sit down with you to evaluate your financial goals and your risk profile and for them to advise you on what suits you. Don't rely on just one bank because you need to compare notes and compare the quality of the advice. Then mull over their advice and talk with trusted friends. You don't need to invest immediately.

Secondly, invest in only what you fully understand. Forget about the esoteric stuff with high returns if you don't really understand what they are all about. I buy stocks but I don't buy speculative stocks because I believe they are prone to being manipulated by insiders. They may offer spectacular returns but that is a risk I am not comfortable to take. At least with blue chips, if you get the timing wrong, you can still wait for it to rebound and collect your dividends in the meantime.

Also, if you have no idea, leave the cash sitting in the bank. At least it's safe there. I have left my cash sitting in the bank because I have no conviction at the moment on where the markets are headed. We don't need to be invested at all times unlike the professional fund managers who need to beat the index. I remember during the recent global financial crisis, stocks were so cheap but as I was already invested, I didn't dare to buy too much even when I had some spare cash to do so because I was already sitting on a portfolio which has just fallen in value. However, if I was lightly invested then, I would jump in to scoop up shares on the cheap. This taught me to always have some gunpowder on hand and that it's OK to stay out of the market because they will always go up and down and if you miss one round, there's always the next round.

No one person, even if he is a professional investor, knows everything in the investment world. You will have your own biases and favourites. Stick to your winning formula that has gotten you to where you are today.

Lastly, good luck!

P/S: If you need someone to refer you to some private bankers, you can PM me. At least I get to receive some introduction gifts!

I feel small when I read about all the rich forumers here, with multi million net worth. I am but a 30 year old nobody, a cog in the wheel, so to speak. I own a humble HDB flat which I bought cheap, a BTO flat. Its MOP will reach next year. Its value has almost doubled from my purchase price. I aspire to sell it next year and hope to get a profit of $300k. I will use my profit plus my savings to pay for the downpayment of a $900k condo in the West region and loan about $500k for 30 years.

My wife and I now earn a combined income of $140k pa and we should be able to finance our mortgage comfortably since we don't own a car nor do we have a maid. We do the house chores together and buy food from hawker centres. We plan to stay in the condo till we are 60 years old and then we will sell it and buy a one bedroom studio HDB aprtment for the elderly. The net cash proceeds will be used to buy annuities for me and my wife. Our current net worth is only $400k and we hope it will reach $2m by the time we hit 60. Our net worth will not likely hit $8m, unlike so many forumers here.

Originally Posted by Unregistered

I feel small when I read about all the rich forumers here, with multi million net worth. I am but a 30 year old nobody, a cog in the wheel, so to speak. I own a humble HDB flat which I bought cheap, a BTO flat. Its MOP will reach next year. Its value has almost doubled from my purchase price. I aspire to sell it next year and hope to get a profit of $300k. I will use my profit plus my savings to pay for the downpayment of a $900k condo in the West region and loan about $500k for 30 years.

My wife and I now earn a combined income of $140k pa and we should be able to finance our mortgage comfortably since we don't own a car nor do we have a maid. We do the house chores together and buy food from hawker centres. We plan to stay in the condo till we are 60 years old and then we will sell it and buy a one bedroom studio HDB aprtment for the elderly. The net cash proceeds will be used to buy annuities for me and my wife. Our current net worth is only $400k and we hope it will reach $2m by the time we hit 60. Our net worth will not likely hit $8m, unlike so many forumers here.

Don't be silly. You are in a good position. 400 k net worth at this stage is very commendable.Your income is decent for your age, and it should grow with time.

What I might do instead of pumping all your cash freed up from selling your HDB into one condo is this: Buy 2 condos under separate names, (20% down for each, leverage the rest). Stay in one and rent out the other.

Age is on your side, so you get passive income while renting one out and can still bet on capital gains by the time you retire. This might help you to achieve that $2 m more quickly.

Originally Posted by Unregistered

I feel small when I read about all the rich forumers here, with multi million net worth. I am but a 30 year old nobody, a cog in the wheel, so to speak. I own a humble HDB flat which I bought cheap, a BTO flat........ Our net worth will not likely hit $8m, unlike so many forumers here.

When I was 30, I earned $66K per year working at a stat board. When I was 50, I earned $66K [b]per month[b] working in a bank.

Keep slogging away and saving.

Thanks for the advice, but we won't do that as it is too risky. If the market crash and if i have no tenant and if I and my wife both lose our jobs, we will be screwed and become bankrupts. Better be safe than sorry. I read many become bankrupt cos they overleverage and own multiple leveraged properties when the Asian crisis hit.

Originally Posted by Unregistered

Don't be silly. You are in a good position. 400 k net worth at this stage is very commendable.Your income is decent for your age, and it should grow with time.

What I might do instead of pumping all your cash freed up from selling your HDB into one condo is this: Buy 2 condos under separate names, (20% down for each, leverage the rest). Stay in one and rent out the other.

Age is on your side, so you get passive income while renting one out and can still bet on capital gains by the time you retire. This might help you to achieve that $2 m more quickly.