Once upon a time…..
There was a young man who paid RM4000 to attend an investment seminar.
After going to the seminar, feeling all good about the knowledge he gained from the seminar, he went to some more “advanced” courses.
This cost him an additional RM10000.
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As part of the benefits of joining this “advanced” course, he get to join the “insider” bulk purchase club.
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So, a few months down the road, he was being offered to purchase a property in Kuala Lumpur at 40% discount from developer.
Don’t play play lo….40% discount!!!! 😱
Wah Lao Eh, each unit he purchase is going to give him a RM250,000 cashback!!! 😱😱😱
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Well, he feel it is a fantastic deal because the property guru he paid so much money to says so.
Everyone in the “advanced insider” group was super excited and they plunk down their down-payment without doing any research.
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So he bought 4 units immediately via multiple submission and was given a RM1,000,000 cashback. 😘
Well, he was taught that as long as you have cash, “negative gearing” is acceptable.
After all, with RM1,000,000 in cash, this will last him a significantly long time even though the rental might be negative a few thousand per month, right?
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His logic was…
4 units of properties
Each unit loan amount is RM5000/month.
Upon completion, each unit can fetch RM2500/month in rental.
So yeah, negative yield of RM2500/month, but hey, there is no problem because I have RM1,000,000.
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So, since I have 4 units, that is “negative gearing” of RM2500 x 4 = RM10000/month.
And seeing that I have RM1,000,000, this will last me 100 months = 8 years 4 months.
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By that time of 8 years, I hope the property would have appreciated to that amount and then I can sell off for profit since my guru says that property price double every 10 years.
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REALITY OF THE MATTER
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🔵 POOR MONEY MANAGEMENT
Upon getting that RM1,000,000 of cash back, he took his wife for a holiday in Spain (RM10000 only), then bought himself a nice Apple iPhone XS Max (RM5000 only), then bought himself a nice Honda City (RM80000 only)…etc
When it was time to collect keys to the property, he spend another RM150k only to renovate his 4 units to prepare them to rent out.
He realised that by then, he only have around RM700k cash left.
Well it is ok….he still can last around 5 years. Right?
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REALITY
A person who has never earn RM1,000,000 will never know how to manage RM1,000,000.
Read this statement again and again.
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This is the reason why those who won huge amount of lottery money never get past 5-10 years. They simply have no financial literacy to manage the huge windfall of cash.
Remember, the cash back from property is NOT YOUR MONEY!
It is the bank’s money on loan to you.
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🔵SELLING PRICE DOES NOT CORRESPOND TO VALUE
When he bought those properties back in 2014, the SPA value was RM1400psf.
Developer gave him a 40% discount so he was buying at RM1000psf.
But the reality of the matter is, the median price psf in that area at that time was only RM700psf.
So, he was literally still paying above market price to buy that property.
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REALITY
At the end of the day, the developer’s valuation and market valuation is totally different matter.
The subsale market always reflects the actual valuation of an area.
Unfortunately most investors in the primary market still do not realise this.
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The reality is…
If the developer want to make the buyers feel good, they can increase the price to RM1400psf and give 40% discount to buyers (feels good right?) and sell it at RM1000psf and still give cashback because the market rate is around RM700psf only.
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Buying at RM1000psf is still financial suicide despite the 40% discount, can you guys see why this discount nonsense is IRRELEVANT to the true value of the property?
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So at the end of the 8th year as a property buyer…
➡️He is out of cash to continue this “negative gearing” (remember the loan is 30 years)
➡️His rental is still bleeding RM10000/month from that 4 units
➡️The bank valuation of the property is not double as he hope it will be, banks are only willing to give a valuation of RM900psf (due to inflation from the original market rate of RM700psf), still below what he paid for at RM1000psf
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➡️He went into default as the rental in that area has not risen much
➡️Banks issue him show cause letters
➡️Unable to service his loan anymore…😫
➡️Went into bankruptcy
➡️Committed suicide so that he will not burden his family anymore because he is in massive debt
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This my friends, is how you die in massive debt.
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To be continue… in another article for the Part 2
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Please “SHARE” this article out to help your friends who might be walking into a death trap.
This is the reason why I spend countless hours writing every week so that people will not fall into this debt trap.
“SHARE” this out if you value those around you.
Help them before it is too late.
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