Investing for a positive cash flow during a pandemic is possible as long as 4 rules are followed, writes Nicholas How.
You have lost your job during the pandemic and you have now resorted to doing part time gig jobs to sustain yourself.
You have suffered from a salary cut due to the ongoing CMCO that has severely affected the business’ income; and you don’t foresee things will become better anytime soon.
Things are getting from bad to worse. Every day, you wake up stressed about your impending loans. You have applied to the banks for a loan waiver but still you are anxious about putting food on the table for your family. Your children’s hunger cries echo in your memories as you think of ways to reduce your financial commitments.
The biggest challenge for most people nowadays is to solve the debts or bank commitments that they have. And it doesn’t matter what debt they have now. Whether it is credit card, personal loan, car loan or housing loan. Financial problems are one of the biggest problems in almost every household in the country. The repercussions are tragic.
From suicide rate increasing, to child and wife abuse, to the rate of divorce increasing each day, it’s proven that the No. 1 reason why most married couples divorced in 2019 is due to financial problems.
But before we start, please note the following:
- Good debt – Debt that puts money in your pocket
- Bad debt – Debt that takes money out of your pocket
- Examples of good debt: A positive cash flow property or a car loan for a car that is being used for ride-hailing like Grab/ Mycar
- Examples of bad debt: Credit card loan, personal loan to get married or to renovate the house; or a negative cash flow property or properties that you buy for own stay
So, in a nut-shell, the more good debts you have, the richer you are likely to become. Gone are the days in which any property you buy will make money.
Our internal research shows that nearly 90% of newly launched and newly completed properties will cause you to lose you money.
So, let’s focus on how to get more good debts.
a) Don’t let emotions come into play
If you are buying for own stay, by all means, you must love the place. You must love the community and the project. But if you are buying for investment purpose, always remember, numbers will never lie. Data will never lie. Always go back to data and always go back to fundamentals. (Figure 1)
b) Make sure you have the required cash
Buying a property requires cash. And a serious amount. You need cash for down-payment, stamp duty, SPA legal fees, stamping for SPA, SPA legal disbursement fee, loan agreement legal fees, stamp duty on loan agreement, government tax on legal agreements and your renovation.
However do note that under Budget 2021, to promote home ownership for first-time home buyers, it’s proposed that:
• Stamp duty exemption on instruments of transfer and loan agreement for first time home buyers is extended until 31 December 2025.
• Stamp duty exemption for first residential home is also increased to properties worth up to RM500,000, effective from 1 January 2021 to 31 December 2025.
“The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity.”
During the past few years, as the market slowed down, it has an inverse relationship with developers’ rebates ( to the public and to closed groups).
Coupled with the slowdown during this Covid-19 pandemic, I know there are a lot of deals to be made.
Now, I would like to ask for those who want to buy properties with no down-payment to drop me a message so that I can help with that.
There are properties that we are buying that do not require down-payment, has cashback and will be positive cash flow from day one.
And the best part is that it is actually completed; meaning you don’t even need to pay for the progressive interest and can start collecting your rental NOW.
c) Pay off your debts
I want to share with you the story of Jenny. Jenny is working in the private sector. Even though she earns a comfortable salary, she still has a lot of debts as follows:
• Car loan: RM1,400/ month
• Personal loan: RM500/ month
• Credit card debt: RM1,000/ month
On top of that, she was paying rental of RM2,000 per month. Her monthly commitment amounts to RM4,900 per
month. After learning and searching for the best way to reduce her debt, she finally found a solution. So, Jenny bought a property as a solution. I know, it doesn’t make sense for someone to add another debt to an already huge pile of debts. But that was what she did.
She bought a 3-bedroom condominium. The property she chose had 3 critical criteria – Can Rent, Can Stay and Priced Below Median Price.
Her monthly instalment for the property she bought is RM2,400. Since the house has 3 bedrooms, she only stayed in one of the rooms and rented out the remaining 2 empty rooms. The rental income she received from the 2 rooms were RM1,400/ month. As for the housing loan, Jenny only pays RM1,000 per month to the bank. That’s rm400 extra cash flow in her bank account. The property that Jenny bought also comes with a cash back of RM40,000. From the cashback that she received, she used it to solve all her car loan and credit card debts. (Figure 2)
Her monthly commitment went from RM4900 to RM1500 and she has her own property. If you want to be like Jenny, I implore you to reach out to get access to the same kind of properties.
d) The 3 Universal Criteria
- Can rent. The property must at least cover 70% of your monthly instalment. However, all our projects can cover 100% of your monthly instalment and can give you positive rental yield.
- Can stay. The property in itself is in a location where you don’t mind staying. It has the necessary community that appeals to you.
- Can sell. Make sure you don’t pay above median if you don’t want to lose money selling it.
As long as you follow the 3 universal criteria, the odds of your losing money is very low.
Now we are at the end of the article, so always remember, during this pandemic, you can either complain about the problem, or you can find the opportunity among the problems. Happy hunting!