By Gerald Tay (guest contributor)
A Business Times article titled “Property Investment Seminars on CEA Rader” was recently published, where PropNex Reality Chief Executive Mohamed Ismail said: “There’s a need for the authorities to regulate the content and claims by these speakers.” I support Mr. Ismail’s call for the authorities to tighten the content and claims made by these speakers, be it in property, stocks, or commodities investment.
More Singaporeans looking at overseas property investments
With the implementation of multiple rounds of cooling measures and the Total Debt Servicing Ratio (TDSR) framework, more Singaporeans are looking at overseas properties to invest in. From a business point of view, it is enterprising for some seminar providers to tap on this demand pool of potential buyers with enticing claims in their advertisements.
Having spent more than two decades in sales with a majority of that in direct sales, I’ve known and used every sales trick in the book. If you’ve been to free seminar previews, you would know what I mean. Some speakers are in fact more a salesman than the ‘expert’ they claim to be.
From my personal wealth background and experiences, I’ll share and debunk four popular outrageous investment claims by property ‘experts’.
Claim #1: Own Multiple Properties in Multiple Countries
I suspect the real reason these speakers are saying to invest in multiple countries is to make themselves sound like jet setting international tycoons. They advocate that ordinary folks should invest in multiple foreign countries, although they give no reason for doing so other than their contention that it is easy and the properties are cheap.
To invest overseas, you have to learn the real estate tax framework of each country, numerous real-estate laws and customs and, worst of all, how to value properties in each country. It’s amazing how these speakers know so much about so many different countries they claim to invest in when they neither live nor were born there.
My late multi-millionaire grandfather never owned any overseas properties outside Singapore. I mentioned this once and he asked, “What would be the point of investing in different countries?”
You could get some diversification against certain nationwide risks like adverse changes in government policies, but the potential losses could outweigh the gains.
Also, owning in different countries does not protect you from multi-national risks like higher global interest rates or worldwide recession or depression. I know of a couple of property investors who have a vacation home or two in foreign countries, but no competent investor wants to own rental properties in multiple countries.
Some major developers have decided to “conquer the world” by doing their thing outside Singapore. Not everyone is successful. About the only property investors who should be in multiple countries are owners of hotel chains and theme parks like Disneyland.
Your rental properties generally should be in one specific country you know very well, i.e Singapore – and maybe two at most.
Claim #2: Own Multiple Overseas Properties with Little or No Money Down
The main reason the mass market gurus push nothing down is to overcome the objection of “I don’t have any cash to invest” when they try to peddle their expensive “boot camps” or “mentoring” services.
Gurus do not push little or no money down because it makes sense for an investor. Rather they push it because it helps them market their products and services.
I mentioned this advice to one of my USA friends who is a local multi-millionaire real-estate investor and he said, “In the USA, a sound, long-term investment, in other words, quality properties in good neighbourhoods, is much more important than finding a deal with 100% financing. Even if it’s 100% financed, a bad property is a bad property.”
From experience, “no money down” is not the bed of roses most people think, especially for foreign investors. The type and quality of the property offered by sellers willing to finance you is rarely mentioned. Quality properties in good markets rarely if ever can be bought with little or no money down.
An example is my recent successful acquisition of a US$2.2 million commercial property in the USA which was financed partially by a US bank with some cash down-payment. With tight credit financing in the US, the only reason why banks are willing to finance such deals is because it is a quality property deal with a quality tenant.
Unfortunately, many local gurus have made buying overseas properties with no or little money down more important than buying a quality property. Ordinary folks would be better off in most cases spending the extra time working a second job and saving money for a down payment instead.
Claim #3: Below-Market Value (BMV) Deals are the Norm
This is an old chestnut of property gurus. In the real world, below-market value (BMV) or under-valued deals are very rare. Experienced investors regard them with suspicion. They typically mean the buyer overpaid or the property is just worth what it is.
Competent investors always pay market price if it meets their required yield returns. It is much more time consuming to find BMV deals, so it is mainly a strategy for those whose time has little value. If you always try to source for BMV deals, you would be forced into a few niches where you would wander the land as a sort of beggar pleading with sellers to sell you their properties at below-market price. You don’t become rich by being cheap to others.
Instead of trying hard to find that magical BMV deal, try asking yourself this: “Where can I find under-valued areas to invest in instead?” Also, “Have I acquired enough financial education to know when that opportunity comes along?” Often, the answer lies in your own backyard.
Claim #4: Anyone Can Play the Property Game and Become Rich/a Millionaire
When property gurus peddle their expensive “boot camps” or “mentoring” services to the masses, this makes a very compelling sales pitch. But this is the opposite of the truth. As long as anyone is holding on to a day job as an employee, this dream is forever improbable. I do not know anyone attending those expensive “boot camps” or “mentoring” services who have become rich or a millionaire. Have you?
You can become wealthy through investments, but you might not become rich or a millionaire. There’s a huge difference in those terms. Becoming wealthy means being financially free without having to work (if you don’t want to) as you have other recurring income sources. And in property, it means recurring net income after all debts and expenses.
You don’t need a large number of properties to become wealthy. All you ever need as an ordinary investor is learn to acquire one or two really good quality properties that will put money in your pocket every month and help pay off your home mortgage and daily expenses.
The more important problem is that the novices these gurus target cannot tell whether the sales pitch is a bad idea or a good idea. There are no magic formulas, secret techniques or fanciful investment strategies to bring you quickly from rags to riches.
For Property Wealth, as in any successful business venture, there’s only your hard work, constant education and an entrepreneurial mind-set with steep learning curves to successes. I hope you’ll discard sales advice and get sound advice on property investment through proper education.
I welcome your comments if you are one of those who have been ripped off with these over-hyped claims disguised as wisdom.
By guest contributor Gerald Tay, CEO of CREI Academy Group, who exposes widely-held property investment myths that have proven highly ineffective in creating wealth, and prevent a comfortable retirement for the ordinary investor.