Property Asset Progression
Are you debt free or financially free? Or do you want to be debt free or financially free? The middle class belief surrounding the concept of financial freedom is being debt free. Becoming debt free is often listed as a notch on the belt of financial progress. It is widely discussed, admired, longed for, celebrated and even praised by so-called financial experts. This is simply not true. You’ve paid off your house and a car, now what? Are you financially free? No, you still have to pay for home maintenance, home insurance, property taxes, income taxes, car maintenance, car insurance, groceries, entertainment, cell phones, internet utilities, medical bills, clothes, gifts, and many more. How are you paying these expenses? With your job? Yes, but I thought we are after financial freedom? Please explain to me how relying on your job for income makes you free. That is not freedom.
Financial freedom can only be achieved with Passive income. To be free, we need income apart from our jobs. We need enough that we could either, quit our jobs and live financially secure for the rest of our lives or to have a better and quality life ahead. However, if you love your job, then do continue working. Our time is too precious to not be doing something we enjoy. I ask only that you build up enough passive income to hedge against the likelihood you will be fired, demoted, or laid off. It’s usually not a matter of will you be laid off, but when.
So, where does the passive income comes from? It comes from real estate investment. 90% of all millionaires become so through owning real estate. Andrew Carnegie, a Scottish American industrialist who led the expansion of American steel industry in the late 19th century said that “More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate”. The truth is that many of the rich, wealthy, and financially free are deep in debt. Good debt, that is. All mostly mortgage debt to be specific. They understand how to safely use debt, or leverage, to their advantage.
By investing in real estate property, it helps you to hedge against inflation. As inflation refers to a decrease in your buying power, an inflation hedge— in investing—protects you from it. An inflation hedge typically involves investing in an asset expected to maintain or increase its value over a specified period of time. That’s why real estate is considered a hedge against inflation, since home values and rents typically increase during times of inflation.
By investing in real estate property, it helps you to generate passive income as well as capital gain. Most or all investors rent out their properties to collect passive income and also sell them off when they want to cash out their profit from sale of their properties. They will then use their profit and re-invest back into real estate property.
Do the investors use all their money to buy and pay off a property? Yes? No? Clever investors will never use all their money to buy one single property. Why? Because, if they do, all their money will be stuck in the property. Let me introduce you a Concept of OPM. What is OPM? It is referring to Other People’s Money. So, what is Concept of OPM? It is a concept of using other people’s money to help you earn more money. Clever investors will normally just use minimum amount of money while taking a bank loan to buy a property. In this way, they can use their remaining money to either invest in a 2nd or 3rd property while also taking a 2nd or 3rd loan. Let me give you an example. John has $1.2 million of cash and CPF in total. He is buying a property valuing at $1 million. He has 2 options. Option 1, not taking any bank loan and pay off the new property with the cash he has. Option 2, pay 25% in cash/CPF and take a bank loan for the reminder. If he chose Option 1, he will have less than $200,000 (taking in account of Buyer Stamp duty as well as legal fee) left in his bank and he will not be able to do further investment if he wants to. If he chose Option 2, he will have more than $950,000 left in his bank for him buy 2nd property or even 3rd property for investment. Of course, he must also take in account of him being able to service the loan. If his 2nd property is a resale, he can also rent it out have the tenant helping him to service the loan (assuming his rental is able to cover his monthly loan installment). This is also a concept of OPM.
But in Singapore, you will need to pay Additional Buyer Stamp Duty (ABSD) if you already own a property. Depending on the value of the property, it might work out to be substantial amount money for the buyer. How can investor go about buying a 2nd property without pay ABSD? One of the ways is by decoupling their 1st property before buying the 2nd property. So what is decoupling? Decoupling happens when one partner's share in a property is transferred to the other person. This creates a sole owner, leaving the other half of the pair free to buy another home without having to pay the ABSD, as that purchase will be seen as his or her first. But do note that decoupling can only be done for private property. For HDB owners, the only way they can start their wealth creation or asset progression are by selling off their HDB flat and buy the private property. For those who feel that private condominium is too expensive for them, they can start off by buying an Executive condominium (EC). The benefits of buying an EC are that, the price of an EC is normally 15%-20% lesser compare to private condominium, you are able to stay in your current house and only need to sell your HDB unit, 6 months after Temporary Occupation Permit (TOP) obtain for the EC and lastly, you don’t have to pay ABSD. People living in the North and North-East will have new Executive Condominiums looking forward to. In the North, it will be Parc Canberra EC by Hoi Hup Realty and Sunway Developments which is less than 500m away from the new Canberra MRT. In the North East, it will be OLA by Evia Real Estate and Gamuda which is within walking distance to Compass One and Sengkang MRT.
So, what are you waiting for? Contact us to start your wealth creation or asset progression now and you will be on the way to achieve financial freedom.