Sunday, 20 July 2014

b.Before You Gear, Watch Your Waist-Line

The last part is here:   The Best of Both Worlds (Loan)

The bank is basically a bitch. It is never a friend.

Some suggested that if I become too big to fail, the bank will be my friend. There is no such thing. The bank is run by human staff and human staff are prone to corrupt, i.e., these staff will bankrupt you officially, raid and take away your properties and hard-earned cash and then tell all their relatives to bid for the cheap properties to be auctioned coming online. This is how these human bank staff cheat. Don't blame them, they are just good at their job. There is no need to build a good relationship with them. When the time is ripe, they will turn asshole bandits. They will line their pockets with your ills. No amount of good relationship will avoid that raid.

How then to avoid an asshole bandit raid?
  • Property Price:   This is the number one killer. So buy property that has a true rental value and rate it. If the rental goes down, what could happen? Can you still lower the rental till it click "rentable" again? With this in mind, never buy a property during a bull market, no matter how tempting.
  • Rental Return:   This is a must if you are into rental yield. The only time you don't talk about rental yield is your own house, but even then, you are talking about the possibility of renting your basement apartment away at all times. The rental yield should cover 150% of the instalment. Tall order? You bet. There must be a buffer in the event you need to lower the rental to rent the property out.
  • Commercial?   Never get involved with commercial property. Commercial properties are not only expensive to collect. They are prone to not having a rental for a long time during a down time. Never be tempted even if the rental yield is 20%. Residential is still the safest.
  • Land:   There shall be no gearing when buying land. Lands are hard to rent. But they give the best pleasures.
  • Paying Instalment On-Time:   Never miss a single instalment. Don't give the bank an excuse to close on you. It helps but asshole bandits are the bad ones, not the banking system.
  • Refinancing:    Never refinance your loan. You may transfer it from bank to bank, but never increase the gearing just because your property has risen in value. Let the property rise in value. So even if there is a recall by the bank. The bank will usually starts with the property that is out-of-money rather than in-the-money. They can't recall a loan that is in-the-money all the time, i.e., no matter how bad the market is, your property is still worth more than the bank loan. That way, the asshole bandits would not be able to raid it as you have an easy time servicing the instalment, due to the low gearing. In the event, your property is raided, don't despair, you are still positive. You are allowed to restart with zero to no risk. Asshole bandits hate these group of property owners. They are so blameless and pay instalment on time. They have no good opportunity with them.
  • Buy Only On the Down Cycle:   This is surest way to protect yourself against the asshole bandits. They were willing to lend you because they need your loan as their key-performance-indicator. So win-win.
  • In the Event of a Raid:   Sell off the worst performers first. Try your best not to sell off your better performers. Don't do it the other way round. It is going to be tempting.
All being said, good luck to one and all ...

Property investment remains the best way out of poverty. It is very easy to get real rich very fast, but the converse is also true. It can made poor a guy real fast too. So if you need to gear, play it real safe. Buy properties at only 5-15% of your cash flow. Time-line your property investment, i.e., don't buy all at one shot. Buy one at a time and let the new one settles down before moving again.

The property price is running away ...  This is only true in a bull run. So stay the fuck-out. Otherwise, you can mostly take your time.

While you are it, use some of the rental yield to fund your luxury. It doesn't hurt to enjoy a little more.

Fly MH now. It is so cheap.

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