Do you already own a property?
The following training reveals why you should get one as soon as you can afford it.
I made a simple comparison of investors who invest in property versus those who don’t.
There is an interesting finding that most people who don’t invest in property failed to realise.
The finding also answered the following questions:
– Should you settle your mortgage as soon as possible?
– Where should you invest first: FD, unit trusts, stocks, properties or something else?
I showed you all these materials:
– Property investors VS. Non-property investors
– ROA Vs. ROC Vs. ROE
– How many properties can you buy?
– How do you make more money from properties?
After going through the session, I am pretty sure that you will look at property investment from a different angle.
You will find that even if you can get 8% return every year from a unit trust fund that you luckily picked, it is still way off compared to your first property purchase.
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Assignment
- Complete the relevant exercise on PWM Personal Finance Workbook
2 replies to "How Property Investment Enhances Your Net Worth"
Hi KC,
I have 2 questions pertaining to this topic that I appreciate your explanation.
1) When you said “comparing the case of 90% loan vs 50% loan vs no loan, though the ROA is higher, the ROE and ROC are lower, revealing that it may be more profitable to invest like ABU (Non-property) rather than Ali (property with low loan ratio/no loan).” Theoretically, which is more important among ROA/ROC/ROE to look at in property investment? and why did you say higher ROE & ROC in property investment is better?
2) When you said “buying one property every two years is possible”, why two years instead of 1 year? In your case study of 2016 vs 2018, the income is RM5000/m + RM830/m thus higher loan servicing capability and able to buy another property. What I am lost at is don’t we already have the RM5830/m (and higher loan servicing capability) in year 2017?
Thank you.
Hi Kah Seng,
Thanks for your questions, happy to explain further.
1. ROA, ROC, and ROE in property investment:
For property investment, ROA (Return on Assets) is often key as it measures the efficiency of the property in generating rental yield and capital appreciation. However, ROE (Return on Equity) and ROC (Return on Capital) are critical when leveraging loans. Higher ROE and ROC are preferred because they show that by using a loan (leverage), your returns on the money you put in are higher compared to using all cash. This means you are maximizing the return on your own capital. Essentially, leveraging allows you to grow your wealth faster if managed correctly. So the sequence is: Make sure good ROA, then only leverage with loan boosting the ROE.
Why buying one property every two years, not one year?
When I mentioned buying one property every two years, it’s due to practical lending considerations. Even though your income may increase after adding rental income (like RM5,830/m in your example), banks usually only count a portion of that rental income towards your loan eligibility. They also need to see a consistent pattern, often requiring a few months of proof before adjusting your debt servicing ratio (DSR). Furthermore, the rental income boost may not fully cover a larger loan installment immediately (due to DSR limits). For example, the income increment of RM830/m doesn’t mean you can take another loan with installment of RM830/m. DSR still comes to play. That means your additional loan installment could be only additional RM300/m meanwhile your income already increased by RM830/m.
That said, if you’re more aggressive and have the borrowing capacity, it’s possible to buy multiple properties within a shorter time frame, even within the same year, as long as the banks approve it.
Let me know if this clears things up!
Best regards,
KC