The Property Market Cycle – Phase 4: Bust

In this series, I will cover 4 phases of the Property Market Cycle. The 4 phases are:

• Recovery

• Growth

• Bubble

• Bust

There is no specific length of time the cycle can stay at each phase. Therefore it is meaningless to make a forecast of how much and when. Governments also frequently intervene in different phases of the cycle causing the phase to shorten of lengthen.

Each phase of the cycle has it’s own unique identification features. Recognizing the various phase of the cycle allows an investor to maximize their investment returns by taking the right action.

In this article, I will be covering the characteristics of the Bust phase.

During this phase, the property price index declines quarter on quarter, perhaps accelerating downwards. The general public is caught unaware by some “black swan” event and the sentiment suddenly turns very bearish. Some may attempt to sell their properties lower than market value in order to cash out. Others caught unaware start to panic and sell at depressed prices. Still more are those who are unable to finance the monthly mortgage will have their properties seized by the banks and auctioned off.

All these create surge in supply of units causing prices to spiral downwards. Transaction prices and rental prices dip lower. Property listings garner little interest from the markets and take a long time to transact.

Property developers inventories start to climb. Desperate to clear inventory, they re-launch projects that did not sell well at much lower prices. Many sales gimmicks such as free renovation, cars, discounts and furniture vouchers are dished out in an attempt to close sales. There is a huge drop in new sales and resale volumes and virtually no sub-sales transactions at all.

Stock markets have likely crashed and bottoming out at this point. No one recommends equities or even properties and investment. Investors have been burnt by both losses in the equity and property market.

Banks tighten their financing restrictions and loans are difficult to obtain. Financial institutions may go one step further and demand customers top up differences in the property value and the loans. Those unable to do so will have their property seized.

Governments worried about the collapse in the property market begin to withdraw their cooling measures one by one. However, the public is not interested in property and prices continue to slide.

The wise property investor knows that the cycle has ended and a new one will begin shortly. He monitors the property trends to ensure that he enters only after the bust has fully run its course and bottomed out.

He feels secure knowing that his property portfolio is still generating him passive income and cash flow. He is sitting on a large profit from his previous investments and waiting to expand his portfolio at bargain prices. 

The Property Market Cycle – Phase 3: Bubble

In this series, I will cover 4 phases of the Property Market Cycle. The 4 phases are:

• Recovery

• Growth

• Bubble

• Bust

There is no specific length of time the cycle can stay at each phase. Therefore it is meaningless to make a forecast of how much and when. Governments also frequently intervene in different phases of the cycle causing the phase to shorten of lengthen.

Each phase of the cycle has it’s own unique identification features. Recognizing the various phase of the cycle allows an investor to maximize their investment returns by taking the right action.

In this article, I will be covering the characteristics of the Bubble phase.

During this phase, the property price index make incredible jumps quarter on quarter. The general public sentiment is highly positive. Those buyers who stayed sidelines before now begin to enter the market after seeing their counterparts making paper gains on their property purchases. Suddenly, everyone is a property expert! Every corner that you turn, you get property advice from friends, relatives, colleagues…etc. Property agents may start to make cold calls to property owners to convince them to sell their unit to their pool of ready buyers.

Transaction prices and rental prices shoot through the roof. Property listings of units don’t stay for long and are snapped up shortly after listing.

Property developers begin to launch a flurry or developments to cash in on the trend. News of long queues for new launches are everywhere, new launches are 80%, 90% or even 100% sold out over just a weekend. There is a huge spike in new sales and resale volumes. The sub-sale market volumes begin to climb as early buyers start to flip the properties before they are even completed! Phenomenal stories of speculators making hundreds of thousands over a few months by reselling their units spread wildly. Buyers begin to even sell their options-to-purchase!

Some analysts begin to warn the public about an impending bubble in the housing market that may burst anytime. However, they are ignored or dismissed as doomsayers.

Stock markets have reached multi-year highs are continue to test new peaks. Any minor bad news rattles the stock markets but after a matter of days or weeks, the worries fade and equities rally some more.

Banks are so loose with their financing restrictions that practically anyone can get a loan.

Governments may implement tough cooling measures that bite hard. Markets take a temporary ease as people take a wait-and-see approach. Yet, quarter after quarter, prices are still on the raise. These tough cooling measures have seemingly no effect on cooling the markets!

This is a seller’s market. The sensible property investor now wonders why the public are happy to part with their money to purchase brand new launches with no cash flow for the next 3 to 5 years. But he understands, this is part of the cycle and waits patently.

The prudent property investor now thinks about reducing his gearing on his property portfolio. He keeps only his highest yielding investments that are easy to rent out and putting up the rest for sale. He tries to renew his rental contracts with as high an amount possible for as long as possible locking in the tenant; he knows that he would need the stable income coming to tide him through the next phase of the cycle.

He is careful to pick his buyers, negotiating long and hard for the best price he can get. He is not worried that he can’t get a buyer, because the demand is so high. The profit he obtained are used to either pay down his existing property loans or kept in cash waiting for his next investment opportunity.

The Property Market Cycle – Phase 2: Growth

In this series, I will cover 4 phases of the Property Market Cycle. The 4 phases are:

• Recovery

• Growth

• Bubble

• Bust

There is no specific length of time the cycle can stay at each phase. Therefore it is meaningless to make a forecast of how much and when. Governments also frequently intervene in different phases of the cycle causing the phase to shorten of lengthen.

Each phase of the cycle has it’s own unique identification features. Recognizing the various phase of the cycle allows an investor to maximize their investment returns by taking the right action.

In this article, I will be covering the characteristics of the Growth phase.

During this phase, the property price index has been on the raise for a few quarters and usually much faster than the public expects. The general public sentiment is starting to change. Some buyers take the opportunity to pick up units they have been eyeing. While others still stay on the sidelines taking a wait and see approach. It’s a confusing phase for buyers as friends and families are likely to give them conflicting advices on property.

Transaction prices and rental prices show increases.

The topic of property is now gaining traction in the news reports. More and more people are beginning to tune in to the property discussion but still cautious of committing. Quarter after quarter, the growth in transaction prices and volumes surprises the markets.

Property developers begin to market and launch new developments in an effort to take advantage of the improving sentiment. Some old projects that did not sell well earlier may be re-launched. The demand is improving and new sales and resale volumes are picking up pace. Sub-sales volumes are still low and speculators dare not enter to flip new launches uncertain if the demand will hold up.

New of property developers purchasing whole projects en-bloc, rebuilding and launching them at smaller sizes and pushing up higher per square foot prices spread. This fuels more people to consider purchasing new units creating an increase in demand.

Stock markets have already had a good run up and possibly even now accelerating. Economic news are always positive and analyst begin to encourage property investment.

Banks begin to loosen their financing restrictions on housing loans. The credit approval cycle is easier and quicker.

Governments may warn property buyers to be prudent about their purchases and not to over stretch themselves. Weak cooling measures may come into effect to serve as a warning from the government.

This is a still a buyer’s market, but the prudent property investor has already made his acquisition. He is now taking the opportunity to raise rental prices to increase his investment yield while riding the upward trend. He may however still choose to pick up another unit if he can ascertain that it is under-valued relative to its peers.

The Property Market Cycle – Phase 1: Recovery

In this series, I will cover 4 phases of the Property Market Cycle. The 4 phases are:

• Recovery
• Growth
• Bubble
• Bust

There is no specific length of time the cycle can stay at each phase. Therefore it is meaningless to make a forecast of how much and when. Governments also frequently intervene in different phases of the cycle causing the phase to shorten of lengthen.

Each phase of the cycle has it’s own unique identification features. Recognizing the various phase of the cycle allows an investor to maximize their investment returns by taking the right action.

In this article, I will be covering the characteristics of the Recovery phase.

During this phase, the property price index has been stable for a few quarters or fluctuates within a small narrow range. The general public sentiment is to stay out of the property market. The public having been burnt by the correction phase is extra cautious and rather stay on the sidelines. They doubt that the stability is sustainable and believe that this period of stability is rather short lived.

Transaction prices and rental prices show stability.

There are likely very few news reports and reviews on the topic of property. Property developers are also reluctant to launch developments, as the market sentiment is weak. There is limited demand and new sales and sub-sales volumes are low. However, a keen eyed property investor may notice that resale volumes slowly and quietly creeping up over pass few quarters.

Stock markets are likely to show stable and sustainable growth during this period. Analysts frequently recommend placing money into equities for better gains. Property investment is hardly the talk of the town, again the sensible property investor knows that stock markets are leading indicators for property price increases.

Banks may still be reluctant to extent credit, being very careful to screen all potential loan applications. There may still be lingering news reports of banks rejecting hosing loans.

Governments may choose to eliminate all or the last of any property cooling measures implemented. Potentially, they may even introduce property-spurring measures to stimulate economic activity.

The patient property investor having waited out the bust phase is now searching through classified ads, talking to a few property agents, looking up property sales online and attending property auctions and sales viewings. They take their time to sieve through the information to pick only the highest investment grade properties. They take their time to negotiate to get the best value taking advantage of the low demand.

This is a buyer’s market!

My Home is Not an Investment

While having blogged about various aspects of property investments in the last few months, I wanted to caution my regular readers about the dangers of mixing a home and an investment.

Capgemini, a consultancy, defines a millionaire to be anyone with investable assets of $1m or more not including their residential home. There is good reason for this definition as having a roof over your head is considered a fundamental need.

My home is not an investment.

Investment grade properties may not simultaneously meet your criteria of an ideal home or fit into your family’s lifestyle. Some may prefer a home in a location near their workplace or close to their parent’s/in-law’s out of convenience. With lifestyle considerations, it is very difficult to optimize a property’s investment value.

Due to inflationary pressures, selling your current residence at a profit means having to use the money received to pay for the next property. Generally, and equivalent unit in terms of location, size, facilities and condition would command a similar or higher price that you sold your previous home for. This therefore negates any profits made.

With your home comes an emotional bond. Familiarity of the surroundings, memories of your youth all carry a sentimental value. These emotional bonds when considered will yield a sub-optimal investment decision. An investor needs to have no emotional attachment to the assets he owns in order to make sound buy or sell calls.

Therefore, the considerations of buying a home are not going to be the same as the criteria of buying an investment property. Don’t mix these up. Always have a clear objective for your property purchase.

8 Item Checklist for First Time Property Buyers

Are you an aspiring property owner?

Before you take the plunge, be sure to have run through this checklist to make sure you are prepared.

1. Have you worked out your investments goals and objectives? If not, stop now.
2. Have you estimated not just your purchasing cost, but also your running cost versus the expected income that you will receive from the property? If not, stop now.
3. Have you considered the various risks surrounding the purchase and the mitigation plans? If not, stop now.
4. Are you aware that properties have different segment and classes? Have you considered all the different classes before investing? If you have not, stop now.
5. Are your sources of property knowledge only from newspapers, property developers or sales agents? If it is, stop now.
6. Are you buying on impulse or buying because you keep hearing stories about friends and family buying? If you are, stop now.
7. Do you believe that anytime is a right time to buy property? If you do, stop now.
8. Are you afraid that if you don’t buy now, you will miss the boat? If you do, stop now.

If you have been stopped by any of the 8 items above, I strongly suggest you begin to reconsider your decision to purchase and put in more time and effort in your research.

Property is one of the largest purchases that we could make in our lifetime, therefore the time we spent on researching should be proportional to is value of our purchase.

5 Common Property Investment Pitfalls To Avoid

Property investments are capital intensive and highly leveraged. Typical property financing covers 80% of a property’s purchase value; in some countries here in Asia, up to 90%. Investors typically need to save up a substantial amount before making a purchase.

A property investment that has gone sour may take an investor back several years to recover. Besides the loss in capital, the opportunity cost is also high; the investor would be priced out of any future investment in years to come.

Therefore, understanding from the mistakes that others have made is already half the battle won!

1. Investing in Future Value instead of Under Value

Why would anyone buy a property at a higher future price? Beats me.

Yet, numerous investors continue to flock to swanky showrooms at new launches to buy units that have not even been constructed yet. They pay prices way above the completed project in the surroundings. This clearly is paying for future value.

The property development industry within Asia is typically dominated by a few large organizations. They benefit from large economies of scale, strong branding and large advertising dollars. These industry giants are also well connected and often collaborate in joint venture projects and time their launches to avoid a direct competition. They also garner strong support from banks and marketing agents to push sales.

Purchasing a brand new launch also provides zero cash flow to the investor for several years.

Brand new launches command a premium simply because they are new. Developers sell a lifestyle and a dream to home buyers to justify those premiums.

2. Investing in Sentiments instead of Evidence

Are you constantly making your investment decision by relying on newspaper reports and quotes from property experts? Do you frequently attend new property launches and seek options of developers and sales agents? Do you buy because you hear your friends of family members buying? Do you buy into the notion that property prices always increase so just buy and hold? Do you think that anytime is a good time to buy property?

If you have said yes to one or more of the questions above, you may unknowingly be investing in sentiments.

Remember, you should never put your trust in sources of information where the opinions come with a conflict of interest. Developers, agents and sales persons would always tell you that anytime is a good time to buy and property will always go up just hold long enough.

Instead, look at the facts and figures. Governments regularly publish statistics of home sales, housing starts, developer inventories, supply and demand data and prices indexes. Study the micro and macro economic factors in the region and country that you intend to invest. Understand the property sectors and behaviours.

Property purchases are likely the largest purchases we will make in our lives. Therefore are you spending a proportional amount of time to learn and comprehend your investment?

3. Investing in Capital Gains instead of Cash Flow

Always remember, just like any other markets, the property market also operate in cycles. Capital gains and losses will occur during uptrends and downtrends correspondingly. A full cycle from Bull to Bear and back to Bull again can take anywhere from 3 short years to 10 long years.

Therefore, there is little point in trying to make predictions of the market direction. Instead, a smart investor would watch for signs of market stability and search for properties that are undervalued and give a high and predictable cash flow.

This sustainable cash flow will allow the investor to stay invested without having to draw on their monthly salaries. Those with positive cash flow would even be able to build up cash reserves passively which could be used for emergencies or the next investment.

4. Investing in the Trend instead of Counter-Trend

A contrarian investor only invests after the property prices have been driven down due to a widespread pessimism in the economy and markets. They take opportunity to bottom fish and seek for properties where sellers are desperate and willing to sell below the market value. These investors use sustainable cash flow to tide them through uncertain economic situations.

When there is widespread optimism that drives prices to unrealistic and unsustainable levels, these investors will sell their properties and reap their rewards. They then wait patiently for the next cycle and start all over again.

These investors always buy low and sell high. They live and breath the Warren Buffet mantra, “be fearful when others are greedy and be greedy only when others are fearful”.

5. Investing without an Entry or Exit Strategy

As a final pitfall, many investors enter into an investment with no clear entry, hold and exit strategy. They have not considered the question of who are their potential tenants or have no idea who to potentially sell their properties to. They have not calculated their recurrent expenses versus rental yield. Bottom line, they have no clear investment goals.

For most average investors, we usually only have one shot and property investment, so make that bullet count!

5 Considerations for Overseas Property Investments

Many South East Asian countries have experienced a recent surge in property price. Many locals are finding it harder and harder to afford local properties. To make matters worse, various governments including Singapore and Malaysia had put in harsh anti-speculative measures to cool the property markets.

These factors contributed a rising interest in foreign property investments, which are viewed as affordable compared to local properties.

However, unlike local properties, purchasing an overseas properties entails many considerations which are absent when investing locally.

1. Local Knowledge

Familiarity and local knowledge goes very far in property investment. Know your goals and investment strategy – is this property a buy-and-hold or a buy-and-flip?

With your strategy in place, study the property market cycle in the respective country and area. What is the direction of the property market trend heading? What is your exit strategy?

Understand the local situation; is the country experiencing political unrest, strikes or anti-foreigner sentiments? What kind of natural disasters could occur in that area?

Research the location thoroughly. Ask for access to good quality maps of the surrounding area. Enquire about the accessibility – quality of public transports, access to major roads/highways, proximity to amenities, distance to commercial areas, is the location surrounded by good neighborhood.

Examine the track record and reputation of the developer. Has the developer completed projects of similar scale on time? Has the developer delivered on quality? Has the necessary permits for construction obtained?

Finally, understand the potential tenant and customer profiles. Who is willing to rent my unit? Who will buy my unit when I sell?

2. Rules and Restrictions

Some countries may impose limits on location, types, reselling restrictions, use or purpose of properties that foreigners may invest in. Check with a local authoritative source or read up on the regulations from government websites.

Prior to signing any documents, agreements or options, ensure that you have read and understood what the terms and conditions are. Ask for a translated copy if the document is written in a foreign language. When in doubt, seek advice from local lawyers, bankers or valuers.

Always do your homework!

3. Cost and Financing Limits

Property transaction cost and financing limits vary from country to country.

Find out the conveyancing fees, legal fees and mortgage legal cost. Obtain independent valuations on the property and find out the loan-to-value that you are eligible for. Study the interest rate situation in the respective country.

Be sure that you have properly understood and factored the taxation cost in the transaction. Some in some jurisdictions, foreigners are subjected to levies or taxes on property purchases. Additionally, there may be property related taxes such as income tax, property tax, stamp duties, capital gains, estate duties, state fees and withholding tax that may be imposed.

Overseas investments also exposed you to currency fluctuations and exchange rate risk, you may be affected by these currency movements.

4. Sales Pitches vs Reality

Always treat information from sales agents with a pinch of salt especially if the claims are too good to be true. Never trust artist impressions of the development which typically paint an unrealistic situation.

Don’t be mislead by cheap prices of the unit especially when they come heavily laden with discounts, waivers or freebies (eg free club membership, legal fee waiver, zero interest financing, rebates, furniture vouchers, flight tickets to visit the development). These “carrots” are usually priced-in. Check the terms and conditions of these offered. Ensure that all special incentives are written into the agreements. Finally, is the price offered something a local would pay?

Be cautious of investments that offer abnormally high returns or guarantee a minimum yield. These are usually capped, limited time frame or simply just projections! Obtain independent valuation reports, surveys and compare them against their peers.

5. After Sales

Find out the support that the developer provides to foreign investors. Ask for the frequency of progress reports and be clear of the payment milestones. Obtain contact information of the agents, bankers, valuers and lawyers.

Be aware of the legal and dispute resolution avenues available to you should things turn against you. What is the jurisdiction that the dispute is handled?

Who will assist you to run and maintain your unit? What assistance is available to advertise and seek tenants? Who execute your instructions in your absence?

Never rush into any overseas investments. Exercise due diligence and do not be pressured by sales agents. Carefully consider your strategy and financial commitments.

How to Invest in Property with No Money Down

In recent years, I seem to notice a trend in Asia of no or low money down property investments. In essence, these schemes sell on the fact that anyone can become a property investor without having to put down any capital or savings.

Out of curiosity, I attended these seminars and sharing sessions to try to extract the “secrets” of these so-called property gurus.

The “free” seminars usually start off with the speaker boasting about the portfolio of 10 or more properties that they have acquired in a fairly short time. They claim that they have started without forking out a single cent to purchase them. Over time, using the same technique, they acquired more and more properties that are now providing them a secure passive income. The remainder of the seminars usually deviates far from the property investment topic and focuses on the lavish lifestyle that these gurus now enjoy.

Towards the end, they usually will either attempt to market a property investment course or sell overseas investment grade properties to the audience.

Having exchanged contacts with some of the attendees, I soon managed to find out the real “secrets” of these gurus. The bottom line is…Creative Financing!

1. Borrow Money from Friends or Family

This is one of the simplest strategies is to employ. Many supportive friends or relatives may be eager to help you kick start your first foray into property investment and provide you with your initial funds.

However, there are inherent risks in such investment. Relationships between friends or family can easily turn sour over money when there is an unexpected situation. Perhaps they may need the money back urgently due to unforeseen circumstances or become jealous of your success.

2. Loan the Money from the Bank

This usually comes from alternate sources of borrowings and not from the normal property loans.

For example, one could take out a personal line of credit or overdraft facility with the bank. Another method is to pledge collaterals in return for credit; the collateral could be stocks & shares, insurances policies or even another property!

Loans from banks usually come with interest cost, and non-collateralized loans attract much higher interest than its collateralized counterpart. Therefore, one must ensure that the property will be able to command a certain sustainable cash flow before entering into the investment.

3. Co-invest With Other Investors

Like-minded investors may enter into a private agreement with each other to share the cost of the property investment. Investors could leverage one another’s credit ratings, age and earning power to maximize the loans from the bank and also sharing the cost and down payments.

Just like any business agreements, co-investment also entails business risk. Always ensure that detailed business agreements are drafted out and signed by all parties. Agreements should cover entry and exit strategies, decision-making authority, voting rights and spell out exceptional events such as death or bankruptcy of a partner.

Alternatively, investors could setup a company to purchase the property and use company shareholdings to divide up the property ownership proportionally. This method can leverage of well-established company laws.

4. Crowd Funding

Crowd funding is a method of attracting a large pool of investors to invest a small amount each via the Internet. The funds pooled would then be used for property investments or other projects or business as defined in the crowd funding scheme. Investors can put in very low amounts of capital to get started.

Under most company laws here in Asia, limited liability entities may only have up to 50 shareholders or else they will need to be publicly listed. Therefore, there is no real legal framework to support crowd funding here in Asia.

Therefore, crowd funding methods would require some level of trust with the agent. It can be difficult to differentiate legitimate crowd funding sites versus fly by night scams.

5. Other unconventional and/or questionable methods

Some of the methods I am about to share here are rather unconventional and entails much higher risk. Some of these methods are also be legally or morally questionable and may carry complex implications if the situation turns for the unexpected.

First unconventional method is a private arrangement with the seller to extend credit. The seller themselves assist the buyer with the down payment in which the buyer is obliged to pay interest.

Second unconventional method is to arrange to buy the property from the seller at a much higher price. After the transaction is completed, the seller would privately arrange for the excess funds to be transferred back to the buyer. Thus, buyer would then effectively loan the full purchase amount from the bank.

Third unconventional method is to sell property transaction options. In order to show commitment, property sellers usually require the buyers to put down a deposit (conventionally 1% of the purchase price) to secure the option to purchase. However, instead of exercising the option, these buyers would sell the options at a higher price to another buyer, thus passing on the rights to purchase the property and in the process make a profit.

Sustainable Property Investment

Investors in property are required in general to take a long-term view of the market. Property unlike stocks or unit trusts are very illiquid. It will take time to search, purchase, transfer or dispose a unit. Sometimes, it may be necessary to hold a property through a downtrend of the market cycle.

How then to successful property investors so heavily invested can sleep sound at night?

The secret is sustainable cash flow.

A property investor who is forced to sell his/her property due increase interest rates or margin calls from banks due to negative equity would have no choice but to top up the mortgage or increase their installment payments.

Those that are unable to do so suffer as a consequence. The heavy gearing on property as high at 90% could easily set an investor back many years of investment opportunities.

Cash flow calculations are simple, no more complex than primary school math.

Start by calculating your estimated monthly Income that you will receive. The income is typically the base rent of the unit. Sometimes however, there may be additional fees, for example the tenant agrees to pay an additional amount for furniture and fixtures, or perhaps an agreed amount for utilities or maintenance charges.

Next, determine the estimated monthly Expenses that your unit will incur. These typically include the installment payments for bank loans, monthly management fees and repairs. Don’t forget to also expenses that are incurred annually like insurance, property agent fees, property and income taxes.

The Cash Flow is simply the amount of money left over after all the expenses are paid.

So, for a property investment to be sustainable, it should be cash flow positive. This will help buffer for any unexpected increase in cost such as interest rate increases, unexpected repairs, hike in insurance premiums or rises in management fees.

Till date, I am glad to say, I have managed to make sure all my properties are cash flow positive. The left-overs are now prudently stored away awaiting the next investment opportunity.

The Middle Income Trap

In the past 3 decades, Asia witness the rise of the middle income families. Due to a booming economy, massive job creation and raising salary levels, the major Asia economies created a burgeoning middle class. These middle-income earners had stable careers, high spending power and plenty of disposable income.

These gave rise to a mushrooming commerce of premium lifestyle products and services to supplement the insatiable demand and appetite of these middle-income earners. Everything from soap, coffee, bread, noodles have all gone “artisan” and “premium”! In Singapore, a local coffee would cost about $0.80 to $1.00. Coffees sold at these “artisanal” lifestyle coffee joints cost anywhere from $4.50 to $7.00 a cup!

The fast food generation demands instant gratification, with the disposable income they have, they want the advertised lifestyle now. These middle-income earners today are spoilt for choice and indulge in lifestyle products and services, simply because they can afford it!

In the Asian culture, well meaning parents have always thought their children to spend only what they can afford and save their extra for a rainy day. The truth is, these middle-income earners are doing precisely what their parents thought them. They are saving up some money for emergencies, while spending within their means.

As their income rise, they raise their living standards to match their income. Instead of raising their savings rate, they raise their expenses in an effort to show they have made it. While they have a fair amount of savings, they are oblivious to the fact that the buying power of their money is constantly being eroded through inflation.

The Asian education system in general has also neglected to teach this fast food generation the management of their personal finances. The importance of maintaining a prudent lifestyle, constantly increasing savings, putting those hard earned savings to work for through investment and reinvesting the profits to achieve compounding returns have little emphasis in the secular education system.

True financial freedom can only be found through hard work and delayed gratification. If you are prepared to do the hard investment work now, the hard investment work will pay you back for years to come.

T. Harv Eker in his book, Secrets of the Millionaire Mind best summed up this concept in a quote:

“If you are willing to do only what is easy, life will be hard.

But if you are will to do what’s hard, life will be easy.”

Do you really need to upgrade to that new property now? Do you really need a new car? Do you really need do that renovation now? Do you really need that $6 cup of coffee?

How to Buy the Property You Can’t Afford

I have heard friend tell me that they have just spotted their dream property. It was located in the ideal neighborhood, close to amenities, conveniently located, had spectacular views of skylines and highly assessable via major roads or public transport. There was only one problem; they couldn’t afford the asking price.

They told me that they would keep that in view and try to save up for the down payment. Maybe after a year or 2 of additional savings, they will be able to afford it.

Would you do the same if you were in their shoes?

I wouldn’t.

In fact, I offer a simple strategy that you could use to afford to buy that dream property.

The key is to find properties that you can comfortably afford to invest in. These properties should provide high potential capital appreciation, easily rented out with a high yield.

Over a period of time, the investment grade property that you bought should in theory experience a price rise in tandem with the costlier property that you couldn’t afford years earlier.

This way, you have locked-in the price differences of that dream property. And once you have saved up the difference, you can always sell the current property and upgrade to your dream home!