I was intrigued by the Facebook ads which show how one can own multiple properties and create passive income from them. This is the key objective when I attend not one but two workshops. The first one is from IQuadrant and the other is with Markoandfriends.
Germaine Chow is the lead trainer at IQuadrant. With her ex-air stewardess look and figure, it is the key reason when she stands on the stage, she captivated all the men’s attention. Sorry for digressing and hope that my wife doesn’t read this section. She started to moonlight as internet marketer when she was working as an air stewardess with SIA. That’s how she met her husband. She explained that she went through some adversity when her business went bankrupt.
Through desperate situation, one becomes very creative. Perception is not equivalent to reality. She emphasized that she wanted an investment vehicle which put her in control and it is passive. That was the reason why she chose property.
She asked the crowd what is the ideal passive income required to retire. The crowd gave an average of SGD 9,000/month.
Assume 1 unit of property produces $1,500 per month
We will need 6 units to produce the required income.
Due to all the various restriction, it is no longer viable to flip residential properties in Singapore and the rental yield of both commercial and residential units are not attractive enough. Furthermore for residential units, you will be subjected to Additional Buyer Stamp Duties and penalties (tax) if you sell earlier. Therefore it is not a viable investment strategy for passive income through rental yield.
The more attractive is industrial properties which can have better capital appreciation and rental yield. Hope and pray is not an investing strategy. You need to buy undervalue units. Asset is defined as gaining positive free cash flow whereas liability is taking money out of your pocket.
One rule of thumb is minimum rental yield required is 4% for industrial building. This is after less maintenance fees, mortgage and property tax.
As it is a preview only, Germaine only shared one strategy which is go for an industrial building with 95% occupancy rate. If it is 95% occupied, it indicates that there is demand for the property and you can determine who your neighbours are already. For new project, you pay upon completion of the unit, it will take 3-4 years for tenants to fill up. New unit does not mean it can capture tenants. You will not know who are your neighbours.
There are good and bad debts. If you buy an unit for 1m and sell at 1m 30 years later, do you make money or lose money? It depends. Germaine presented the following:
$4k x 12 months x 30 years = $1.44m
On surface, you make money right? However, she did not consider interest expenses.
She further elaborate on using Debt. For a 1m unit, you use down payment of 200k.
Mortgage $800k -> $3k/month
Cash flow = ($4k – $3k) x 12 months x 30 years = 360k
$360k + $800k = $1.16m
$1.16m/ (200k x 30years) = 19.3% ROI
Mr unlucky scenario
Buy at 1m and 30 years later sell at 800k
+ve cash flow = (3,600 – 3,000) x 12 months x 30 years = $216k
$216k + $600k =$816k
ROI = 816k/(200k x 30 years) = 13.6%
She explains this is the power of leverage, make our money work harder for us. She showed one of her personal investment as below:
Bought the unit @ 488k
Cash outlay 97.6 k
4 years of passive (rental) income = $1616/month x 48 months = $77k
Principal paid = 874/month x 48 months = 41,952
Assume 15% capital appreciation = 73,200
Less (stamp duties, lawyer, company maintenance fees) = 40k
Net Profit = $152,720
5 components to be successful property investors
- Really want to own a property
- Practical optimist
- Earn 2k – 5k/month
- Safe and predictable path
- Team player
Spot Gold Location – Germaine explained how an industrial unit can be craved out into 3 sub-units with 2 separate entrance for the two main unit and an individual door for the 3rd unit. This way she increased rental income from original $2,300 to $3,450 (from 3 units). She further explain it is important to add value through renovation and decoration. Always value add others. This is the biggest take away.
She touches on negotiation tactics through creating long term win-win situation. When you want to buy an unit, you need to give what the owner wants.
She briefly touches on raising fund, using Other People’s Money is the key to own multiple properties. You need a legitimate entity to return money, a legally binding contract needs to be in place, it is important to position yourself as someone credible.
At Markoandfriends’ preview, I paid $27 for the session. The only thing I learn is FAST. FAST stands for Furnish, Advertise as Owner, Seed and Take. Advertise as Owner means you advertise as Owner and pay commission to the property agent, he will be incentivized to look after your interest as well. Seed represents different tenant will have different needs, you need to know what is in the market. Take means just take the first decent offer because any waiting will be opportunity cost and loss of income. For example, if you are looking for $3,000/month and they counter offer $2,800/month just take first.
Strategy – group together, setup a company and buy properties
Story – Mindset
State – Belief
Germaine is an ex-student of Marko. She came out to start her own training which replicates what Marko taught. I will say Germaine did a better job to teach more during the preview but Marko is the original teacher.