Investing in Property is far safer than stocks? - Part 2

ST, Saturday, Aug 22, 2009

... bought a property .... intending to sell it about 10 years later, and confident of being able to repay the mortgage and make a handsome profit, he took a 90% loan. Any thought that he would lose his job and house prices would drop like a stone never occurred to him. But the unthinkable became an unpleasant reality. In 2001, after his employer merged with another company, he lost his job. Desperate to make ends meet, he tried to sell the cluster house in which his sister and mother had been living, but for 2 long years was unable to do it. Although he managed to secure a new job in 2003, his salary barely covered the monthly payments. Then the SARS crisis hit and property prices plunges further, recalls Mr Tsai, who is now operational manager in his late 50s. He eventually disposed of the house at a bank foreclosure sale in 2003 for $680,000 almost half of the original value and $300K below valuation. In total, he lost about $700K on the house.

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What may not be obvious to retail property investors who have small investing capital?

1. Risks of using of leveraged investment are never obvious to many investors mind as many are just only thinking like this - intending to sell it about 10 years later, and confident of being able to repay the mortgage and make a handsome profit.

2. If you are dying for rental income to cover your monthly mortgage. You have grossly under-estimate your risks as your grew older in the same company, you actually become more costly to hire and you are more likey to lose your job sooner than expected. I have seen many ex-seniors at all levels losing their jobs sooner than expected and that is the reality of the corporate world. If you are not a HORSE then you are just a COW slogging in your office waiting to be slaughtered when the time comes. Even if you are a HORSE now, for how long can you slog like a HORSE in your office before you finally got burnt out or brown out into a COW.

In reality, your performance in your office are just preceived relatively to the performance of your peers. Every year you are going to face competition from those young HORSES waiting to change the old HORSE into a new COW.

3. Under-estimate the events of Black Swan happening in your life sooner than expected.

4. Take the advice of Mr Tsai, you not only think twice but think 3 or 4 times.

Or alternatively join CreateWealth8888 in stocks investing as I never have to wake up in the middle of night wondering why the rental income has not arrived but the mortgage payment is already over due. (Take Point 2 seriously)