Cash Flow : Rental Income From One Investment Property vs. Dividend Income From Portfolio Of Stock? (Refresh)

Real people. Real ex-colleagues. Real retail investors!

Not views from commercial vested "Gurus"


Read? Cash Flow : Rental Income From One Investment Property vs. Dividend Income From Portfolio Of Stock?


Stocks or properties?

It depends on your flow capacity of ALL your buckets or taps.

Is your rental income one of the few taps or the main tap providing cash flow during retirement?

Like Rolf's ex boss; he has a portfolio of investment properties for rental income. Of course; he can say stocks are waste of time! Who can challenge him?

Property or Stocks???

When we understand where we are coming from and understand that our property is not stronger than the Economy. 

Don't ever be mistaken about it!

How Ant thinks?

Ant follows plan and got formula somemore!

Wealth = Asset Value + Cash Flow


For property, it is true that your asset value will never go down to zero; but our cash flow may go down to zero when the rental market is soften and we can't find tenants.

Uncle8888's annual company off-site event is a good time to catch up with those veteran investors on their views on investment and their progress and development on retirement planning.

Currently, two veterans (old timer property investor) are unable to find tenant for their investment property. One is three months and the other one is 9 months. Their cash flow is zero now and for how long more?

For stocks; it true that single stock(s) may drop to zero; that is why Portfolio Management is a must for us to survive across market cycles so that our portfolio will drop big but never drop to zero. If our well diversified portfolio drop to zero;  we will have other bigger thing to worry than our investment.

Cash flow from a well-diversified stock portfolio will not drop to zero as Economy can't drop to zero.

There is no free lunch in the market - stocks or property. It is like ..

Read? You still want to play equities in your 80s?

Rolf's comment :

I spoke to one of my ex bosses and asked why he always say stocks is a waste of time. This is bcos for 30 yrs he only break even or earn so little in his stock investments.

Yet, he had countless of properties all over Sg and Msia collecting rents which I always reckon he think property is a better investments.

In his 60s now, he said to me this year, it's not about whether stock or property which is better. Both are only as good as urself.

End of the day, it is all about what suit u the best! Even for all his pragmatism and success in work or business ventures, he was easily influenced by the swing in stock markets. So it does not suit him.

While in property, he just feel so comfortable.

Eventually it's knowing urself and wat that suits u. It's the same as finding a partner, although this is much more tricky...



 

Are new HDB prices really not affordable now?

When I bought my 4-room HDB at $55K; I was earning around $9K on that year so this was about 6.1 times my annual salary.

I understand that a new 4-room at Punggol now is selling at about $300K; but these flats built now are of better design and quality. Mine was a standard rectangular block of flats.

I understand people now earn more.
Let assume someone earning:

• $48K a year, it is 6.3 times annual salary
• $36K a year, it is 8.4 times annual salary

I think the problem is on HDB Re-sale flats that are priced too high due to investment gains that are expected by the current owners to give up their prize flats.

The day when doctor brings bad news. It can happen to anyone.

Under-estimating risks and over-confidence - The day when doctor brings bad news. It can happen to anyone and nobody is exempted.

TODAYonline
Friday, May 28, 2010

'I was in denial ... it was sheer stupidity'


Health minister hopes confession about surgery delay will be 'life-saving reminder' to others

05:55 AM May 28, 2010SINGAPORE - He has spoken to many patients in denial when confronted with an illness. But faced with the same situation himself, Health Minister Khaw Boon Wan fell into the same trap.

With a high calcium score and an abnormal electrocardiogram stress test reading, it was obvious to the cardiologists that he needed a coronary angiogram as soon as possible.

"But I was in denial," Mr Khaw, 57, wrote on his blog, in two postings titled 'A lifesaving discovery' and 'Living at cliff's edge'.

This resulted in a "risky six weeks delay", against doctors' advice, before he finally got the angiogram done on May 3. He is now recovering well after undergoing heart bypass surgery on May 4.

It was in March that Mr Khaw, who professed to have been "fit as a fiddle" with normal cholesterol and blood pressure levels, discovered - during a scan for calcium deposits in the heart - that he had a serious problem.

He thought he would be "in the mild or at most moderate range, say around 100. So it was a shock to me when the NHC (National Heart Centre) cardiac radiologist reported a reading of 507 ... I was literally disoriented", Mr Khaw wrote.

NHC medical director Professor Koh Tian Hai pressed him to go for a coronary angiogram that very week, but a "very reluctant" Mr Khaw negotiated for more time to mull over the situation.

When an NHC staff member called up a few times to schedule the angiogram session, "I played delay tactic".

Mr Khaw kept the information from his siblings, when he went to Penang one weekend for Qing Ming, the Chinese tradition of ancestral worship at the graveyard. "I did not want to alarm (them) and I still thought that it was all a false alarm," he said.

But he did confide in labour chief Lim Swee Say, who was most alarmed and thought that he was wrong to postpone the angiogram.

Mr Khaw even intensified his exercise routines - against doctors' advice - to prove he was in top physical form. "I used to run on treadmill three times a week, I increased it to five."

His doctors had also urged him to carry a Glytrin spray, which he should spray under his tongue in the event of angina, so as to bring down his blood pressure while waiting to be taken to hospital.

Mr Khaw faithfully carried the spray with him wherever he went - but only for a few days. "Then I told myself: I am not going to get a heart attack; I am not going to carry this."

Looking back, the Health Minister wrote: "While it is understandable why I did what I did, it was sheer stupidity and madness."

He expressed his gratitude to the NHC, Prof Koh and the NHC Sister who persisted in getting him to finally sit down with doctors and run through his options. "That session pulled me from cliff's edge and got me back on the rational track." Mr Khaw also recalled the comments of a general practitioner (GP) with over 30 years of experience, who had noted that patients who comply well with his advice, especially in taking the lifelong medication, are largely still around.

Those who suffer from a heart attack, stroke or other major complications, come largely from the group who do not comply, or do so half-heartedly - either in denial or over-confidence of the state of their health.

"I was stubborn and was not a good patient for nearly six weeks. I am making this confession so that hopefully, it can be a life-saving reminder to others.

"Please do not follow my example," said Mr Khaw.

All Investments by nature is risky.

sundaytimes April 18, 2010

"Budget hotels move in ... then sex workers follow"
"Residents are upset over influx of prostitutes into some neighbourhoods"

What in the mind of those property investors in Kovan area now?

Property investment over long term is generally safe but bad things do happen more than expected. Who will expect a quiet and boring Kovan turning into mini Geylang?

Market Crashes: What are Crashes and Bubbles?

From http://www.investopedia.com/


A bubble is a type of investing phenomenon that demonstrates the frailty of some facets of human emotion. A bubble occurs when investors put so much demand on a stock that they drive the price beyond any accurate or rational reflection of its actual worth, which should be determined by the performance of the underlying company. Like the soap bubbles a child likes to blow, investing bubbles often appear as though they will rise forever, but since they are not formed from anything substantial, they eventually pop. And when they do, the money that was invested into them dissipates into the wind.

A crash is a significant drop in the total value of a market, almost undoubtedly attributable to the popping of a bubble, creating a situation wherein the majority of investors are trying to flee the market at the same time and consequently incurring massive losses. Attempting to avoid more losses, investors during a crash are panic selling, hoping to unload their declining stocks onto other investors. This panic selling contributes to the declining market, which eventually crashes and affects everyone
 
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CreateWealth8888:

Asia is faced an asset bubble, due to speculation in real estates caused by low interest rate, due to stimulus spending by governments in many countries - NYTimes


With the current very low interest rate, many potential retail property investors ( defined as those are seriously net worth negative after taking on the housing loans as leverages) are thinking that investing in properties is the way to go for potential cash flow and future capital gains. How nice is to be a landlord?

Yes. While it is true that the fastest way to build up your wealth is through using the biggest leverages that you can find. But, retail property investors also have to be mindful that leverage is a double edged sword - it can also kill you faster than expected.
 
What made you think that the interest rate will remain low for a long time? Look at the historical Fed Rate, it could rise faster than expected and could keep rising for a long while.

http://createwealth8888.blogspot.com/search/label/Charts%20-%20Fed%20Rate

And if the interest rate is rising faster than expected, what will happen to the wonderful dreams of those retail property investors ( defined as those are seriously net worth negative after taking on the housing loans as leverages).

Do understand what is market crash - almost undoubtedly attributable to the popping of a bubble, creating a situation wherein the majority of investors are trying to flee the market at the same time and consequently incurring massive losses. Attempting to avoid more losses, investors during a crash are panic selling, hoping to unload their declining Properties onto other investors. This panic selling contributes to the declining market, which eventually crashes and affects everyone.

One thing about the leveraged properties, you may not need to sell it yourself, your friendly banker will force sell for you. Does it sound good?

"While we are free to choose our actions, we are not free to choose the consequences of our actions." - Stephen R. Covey

Are you shaken by this Grizzly Bear?

Are you shaken by this Grizzly Bear and now the Bulls have come to your rescue and probably your stock portfolio may have break even or making some profit and now you are seriously thinking that stocks are too volatile and too risky for wealth building and thinking that investing in property for long term is a lot safer.

You may wish to re-visit ..

http://createwealth8888.blogspot.com/2008/12/investing-in-property-may-be-less.html

Your Size of Investing Capital Matters

Your investment strategy and the choice of assets and markets for investment should fit into your size of investing capital. You only have small capital to invest and yet trying to follow other big boys with plenty of capital investing across different markets and asset class.

http://createwealth8888.blogspot.com/2008/11/assets-in-your-portfolio.html

Larry Williams once said: Your fortune will come from your focus - focus on one market or one technique.

A jack of all trades will never become a winning trader. Why? Because a trader must zero in on the markets, paying attention to the details of trading without allowing his emotions to intervene.

A moment of distraction is costly in this business. Lack of attention may mean you don't take the trade you should, or neglect a trade that leads to great cost.

Focus, to me, means not only focusing on the task at hand but also narrowing your scope of trading to either one or two markets or to the specific approach of a trading technique.

Have you ever tried juggling? It's pretty hard to learn to keep three balls in the area at one time. Most people can learn to watch those 'details' after about 3 hours or practice. Add one ball, one more detail to the mess, and few, very few, people can make it as a juggler. It's precisely that difficult to keep your eyes on just one more 'chunk' of data.

Looks at the great athletes - they focus on one sport. Artists work on one primary business, musicians don't sing country western and Opera and become stars. The better your focus, in whatever you do, the greater your success will become.

Dividends are tax exempt

I didn't really follow the changes in One-Tier Corporate Tax System (Applies to all companies) until today when one blogger mentioned it.

Dividend paid out of "after tax profit" will be exempt from tax in the hands of shareholders (exempt one-tier dividends).

Payment of dividends on or after 1 Jan 2008

Effective from 1 Jan 2008, all companies remaining on the imputation system will be moved to the one-tier corporate system.

All dividends paid on or after 1 Jan 2008 will be exempt one-tier dividends. Companies cannot pay franked dividend on or after 1 Jan 2008 even if there is any Section 44A balance remaining as at 31 Dec 2007.


With the new tax development, Dividends as passive income has becoming more attractive over rental as alternate source of passive income as it is tax exempted.


http://createwealth8888.blogspot.com/2009/04/passive-income-after-retirement.html <-- previous post

My No Leverage Principle- Why? Part 3

My No Leverage Principle- Why? Part 2

Understanding Debt, Risk and Leverage

I don't like the ideas of getting into Negative Passive Income. Read on. The Story ...

Seems unrealistic. Make money while you sleep. While you spend time with family. While you're in your car, on your bike, or eating. Passive income is income that you "set and forget". Wow, passive income is so shiok!!!

Rental income from properties can be the biggest form of passive income you can generate. It can also be the most detrimental to your work free lifestyle and can lead you down the road for another 40 hour a week drudgery if you ever fail in your property investment.

What is Negative Passive Income?

Recalling from Part 1 ....

For 30 years mortgage loan, you probably spent the 1st ten years paying more interests to the bank and little on equity.

Negative Passive Income happens when your monthly mortgage payment exceeds your rental income or no rental income.

If the current recession prolongs for another few years and the property market continue to fall further. Rental is going to drop drastically, and in the worst case, the property may remain vacant for sometime.

A better way for passive income generation through property is not to start with any passive income at all, but removing any negative passive income.

Getting out of debt is the first and hardest part of generating passive income and long term wealth.

That's all, folks. End of My Story. If you like my story, buy me kopi O.

My No Leverage Principle- Why? Part 2

My No Leverage Principle- Why? Part 1

I don't like the ideas of getting into Negative Equity. Read on. The Story ...


What is negative equity, and how does it affect a home buyer?

Generally, a home is said to be in “negative equity” when its market price is less than its outstanding loan.

Banks say that as long as customers pay the monthly instalments on time, they won’t ask them to top-up the difference between the market price and the outstanding loan.

However, if payment isn’t made for a few months, and the customer is unable to work out a payment plan with the bank, the bank may get a court order to do a “forced sale” to recover the outstanding loan and unpaid interest.

While it’s less common for HDB flats to be in negative equity, it’s possible for resale flat buyers to find themselves in such a situation, especially if they had bought the flat when prices were at a relatively high level.

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Psychological Losses - Can you stomach it?

If someone looks at his value of his portfolio falling as much as 60-70%, and keeps shaking his head, and feeling so sad and wondering how he gets into this mess?

But, the worst and unlikely scenario that can happen is ZERO EQUITY.

If someone felt so disheartening at falling portfolio value, believe me, the psychological losses of NEGATIVE EQUITY may drive him into depression!

Successful Investing

Successful investing in any asset class (stocks, bonds, commodities, gold, or property) does not come overnight, but through years of painful experiences, emotional stress, and could even involve huge losses or sitting on unrealized losses.

But, the investors can continuously learn from their mistakes, seeking new knowledge and revising strategies to attempt for a comeback and be successful again. You can't stick to the same strategies if it is not producing the result that was expected in that asset class. Usually it is not the asset class that is the problem, it is usually YOU and YOUR STRATEGY is the PROBLEM or you got caught in the middle of wrong CYCLE.

Look inwards for the PROBLEM. Hang your EGO at the doorway and really think through it. If really there is NO PROBLEM, then it is better to have the COURAGE to ride through the wrong CYCLE for this asset class.

However, there is one asset class called PROPERTY, where it typically very TRICKY and may not offer under-capitalized investors more chances for learning from mistakes, seek new knowledge and revising strategies.

It is more likely to be a MAKE or BREAK strategy for those under-capitalized. Got it right, you are on your way to an early retirement. Got it wrong, you are likely to work as slave for a long, long time. So you jolly well make sure you got what it takes to get it right. So is there a MIDDLE ground? Think about it. Don't PRAY, PRAY!

Property is about location, location, location. Really good ones are really hard to come by and the supply is definitely limited. So it can be really much harder to find than to look for the next multi-bagger stock.

Predicting the Bottom?

We will always hear this in a bear market or down turn: Don't try to pick a market bottom. No one can.

Actually, trying to pick a bottom for stock speculators or value investors is not really that serious if they got it wrong. It is not too difficult to recapitalize and try again to pick another bottom. Wrong again, save hard, recapitalize, and then one more try.

But, there is one group of investors or speculators who think they can PICK the bottom with one try. Who are they? The small capitalized property investors or speculators who think that they are good enough to pick the housing bottom and going in with just ONE BANG. Some even go in highly leveraged with a NOOSE round their neck.

Market wisdom: Don't try to pick a market bottom. No one can. For this worst recession, the path to recovery could be many years. Best is to plan for the worst scenarios.

Property is unlike stock. Stock price is naturally upward bias as the Management and Board is tasked with the roles and responsibilities to take the company continuously to a greater height. For property, there is a natural limit to stop its climb as government will intervene. For property price to drastically increase, a Greater Fool must come to push it up or a Greater Lover to come and fell deeply in love with it and pay at all costs.

If you do not have huge capital, then picking Bottom for stocks may be a better option. If you still can't thinking clearly. Hmm... go to the top of Bukit Timah and sit there, and don't come down if you haven't got an answer.

Private properties looking attractive

By Shila Naidu

THE recession has resulted in a 25-per-cent fall in private- property prices from their market peak, and with prices expected to dip further next year, there may be opportunities to pick up some bargains.

However, buyers of properties - whether for investment or occupancy - should do their homework before committing to such big-ticket items.

Here are 10 tips to keep firmly in mind.

1 CONSIDER LANDED

The executive director of HSR Property Group, Mr Eric Cheng, feels that if buyers are willing to fork out $1.2 million to $1.3million for a condominium, they should consider buying landed property instead.

Due to land scarcity in Singapore, there is always more demand than supply for landed property, which is not the case with condos, said Mr Cheng.

2 INSTALMENT RESERVE

Mr Cheng said it is important to invest within your means. Have a reserve of at least one year's worth of instalments in case of shocks, like a loss of income.

3 LEASING OR LIVING?

Mr Arvin Sylvester Lim, division director of Century 21 SHL Realty, said it is important to be sure if you plan to live in the property or rent it out.

If you are making it your home, the equation is simple: Find something that you like and can afford.

If you are looking to invest and rent out, do your research to see if there is good demand in an area, and if the rent will be enough to cover the instalment payment and still allow a profit.

4 DON'T WAIT TOO LONG

While one should hold back until one finds something ideal, Mr Lim does not encourage overspeculating on trends.

"Buying a house is not like buying a car. The moment you drive the car...the value drops, but with property the value can go up or down," he said.

Even though prices are expected to fall further, "a home is a must", Mr Lim said. He advises against pegging buying one to unpredictable market movements.

5 MAKE OFFERS FAST

Buyers who bought too many properties or can't afford to keep up with payments, given the weak economy, will be selling off their investments now, said Mr Shannan Govindarajoo, marketing manager at ERA.

He suggests you start looking and making reasonable offers as he thinks more buyers will be entering the market, which could mean prices for these "must-sell" properties may rise.

6 CHECK MASTER PLAN

Look at the Urban Redevelopment Authority's master plan and invest where the Government is pumping in money, said Mr Govindarajoo.

For instance, he thinks those interested in the Marina area should strike now, as prices are down by 40 per cent, compared to last year's.

Mr Lim said investing in property in that area will reap great returns when the integrated resort is ready as "a lot of the management staff will be living there, so rentals will be high".

7 SHOP FOR A LOAN

Banks are now becoming more cautious with making home loans and how much they are willing to lend, said Mr Govindarajoo.

He advised shopping around for a good home loan first, so that you do not commit yourself to a seller before knowing how much you have to work with.

8 PRICE VS VALUATION

Check the valuations of the property you are considering at different banks to make sure you?re getting a good deal, said Mr Govindarajoo.

9 OLDER CONDOS

Mr Parthiban Sadagopal, a Prop- Nex realtor, suggests buying a condo "between seven and 10 years old in the outskirts", like Pasir Ris or Tampines.

Judging from the trend seen after the 2003 recession, such condos are good buys for living in and investment, as you could hope to buy one at $400,000 to $500,000 now and sell it for up to $800,000 when the economy picks up.

Renting it out could fetch $3,000 a month as well.

10 DISTRICT 15

Keep your sights on the East Coast area of District 15, said Mr Cheng, as prices there are unlikely to dip drastically.

Good schools, malls and eateries add value, making it a good option for those who feel prime locations are too expensive. Meyer Road, Ceylon Road, Telok Kurau and Crane Road are some of the best places to buy a house, according to him.

Mr Govindarajoo agrees, saying District 15 is "evergreen".

Under-estimating risks and over-confidence

One indicator that will tell us. Have you got a comprehensive WILL in place? If not, likely you have under-estimated risks and over-confidence. Wake up, my dear friends.

The ONLY THING I can guarantee you, 100%. It will CERTAINLY HAPPEN and it is matter of time, sooner or later. Either or both happening.

The day when doctor brings bad news, you about to DIE.

or

The day when police brings bad news, you have GONE.

What will happen next?

Emotional shock (certainly)

Financial shock (maybe)

We can't really mitigate emotional shock but for financial shock, we can by all means to mitigate or better to leave behind no debts.

So don't give shock, and better NOT to shock your dependents and by taking out the calculator now and compute the amount of the debts payable by them. Take care of the debts payable while you still can, if possible adequately covered by insurance.

Coffee or Tea?

Sir/Madam, coffee or tea?

What will you order? coffee (stock) and tea (property)

If property sepculating or investing is your Cup of Tea, then go for Tea, or else, stay with coffee.

But, coffee drinker may sometime drink tea or convert to tea drinker.

Me. Coffee Black please.

Feeling of financial abundance?

How do I know I am ready for the one CARD BIG POKER GAME? Probably, one way is to look inside me, do I have the feeling of financial adundance?

How?

Q1. When ordering food from the Menu indicating Market Price, do I check what is the Market Price before ordering? (i.e. not prepared or willingness to pay Market Price)

Q2. When shopping and came across something interesting, but after looking at the price tag, put it back IMMEDIATELY, and start looking at something else?

What is the answer to Q1, and Q2?

A1. Always. Probably, I am not ready for one CARD BIG POKER GAME.

A2. Not frequent. Congralutions. I am certainly READY lor.

As with any Indicator, there is no one right indicator. Cheers!

Leverage and Greed - Double edged sword

One has $200K investing capital to invest, but not enough to invest on an asset of $1M. One becomes greedy and want a multi-bagger ROC (return on $200K capital). This can only be achieved by taking excessive risks, through leveraging (i.e. borrowing several times of one's initial investing capital of $200K).

If one is overly greedy and is leveraged more than 10, 20 or 30 times their annual earning, (30 times is maddness) and thinking one has control over future earning like a man who has plenty of drinks and still thinking that he has control over his driving.

Assets in your portfolio

Make sure the assets in your portfolio suit your needs and your personality, just your furniture fit your living room and your own individual style.

If you have a large and fully air-con living room, by all means fit in a really big, leather sofa set, and a 60" wall mounted LCD TV and enjoy yourself.

If you have a small living room with no air-con, try to fit in a really big, leather sofa set, and a 60" wall mounted LCD TV. Are you really enjoying yourself? See how long you can sit in your sofa without getting heated up (credit squeeze happen, will happen again). Are you going to have a stiff neck and shoulder watching 60 " LCD TV from a short distance? (Investing in property is like putting your big eggs in one basket at one big bang, leveraged or some overleveraged to seek high debts for one big single return)

Choose your assets wisely, and do not follow others blindly because our living rooms are of different size.

Thinking of Risks before Profit

It is very important when investing to think of risks before profit, whether in stock or property investing. Do we need to learn through the painful way of losing huge sum of money before we learn how to think of risks before profit.

Also there is such no investment that is low risk, and moderate return; otherwise, this investment will definitely be overbought by the Market and return will be significantly reduced or out of stocks.

In another word, for better return, higher risk is expected, and chance of losing your invested capital is real, and can happen unexpectedly.

Think of risks before profit.

1) How much I could lose without hurting me financially, if not to reduce the investing capital to the level that is not hurting.

2)For smaller capital, one could take higher risk as one could have not much difficulty in restoring the lost capital through more aggressive saving or reduced expenses to rebuild the investing capital to resume investing. Investing is a marathon, once started, no matter how, one have to stay invested; otherwise, there is no chance to recover those losses through return on safe financial instrument like fixed deposits. For bigger capital, one will have to take lesser risk approach and diversify the risks, it will be harder and take longer time to rebuild capital back to this level again.

3) If one thinking of using leverage (borrowing or taking loan to buy property), it is better to consider the numer of times of leverage against your annual earned income. Do you want to be 20 or 30 times leveraged? Look at those bankruptcies, they all killed by overleveraged. Period.

4) Long term investing does not mean no risks. In the market, corporate raiders are constantly prowling the Street to take companies private. It is not wise to overweight one counter to more than 40% of your portfolio. Overweight is a double edge sword, it can boost profit signicantly but it can kill too.