Saturday, 30 April 2016

Typical mistakes young people make with money - Cars

I was talking with a young acquaintance - friend of a friend - who was thinking of changing his car.

Now, to be fair, this young man had recently recovered from a year of medical treatment for his cancer and he's now back in good health.

So naturally, he's probably thinking of "rewarding" himself by getting a spanking new car that's way above his budget!

Honestly, I DO understand very much how he would feel, wanting to get a powerful new car is a great feeling for most guys! Right right?

But I probed a bit more and the financials doesn't make sense. He hasn't had any increase in salary but he is employed in a stable, semi-government organisation that is profit-generating, so no worries there vis-a-vis job security. In fact, his employer covered all his medical bills which is great for him.

So after some brainwashing hehe he did settle on booking a smaller car while he thinks a bit more about it.

My advice to him was to think strategically. Don't go rushing into buying your dream car now. Plan for it a few years down the road - buy a decent, cheaper car now that has good resale value and when the time comes, he would have enough equity in that to do a trade-in for a more expensive car but reduce the loan amount.

So instead of the car right now, plan for car 1, 2 and 3 - after all, by the time car 3 comes along, his career may have blossomed and he could very well go for something that he never even considered to be attainable!

That being said, we (as in my friend and I) encouraged him to think about buying a starter property first instead of changing his car which is fully paid down anyway. He's renting right now and for an extra few hundred on top of his current rent, he could be owning something outright.

Food for thought...

Developer road shows - some big discounts / rebates being given

Was at a mall just this morning and there were a few developers promoting some of their projects.

Interesting thing is, this time around, they are trying to push through the remaining handful of units that they have left - usually 20 or 30 units still unsold and the project is about maybe 70% or 80% complete.

They are also giving away rather generous rebates - I didn't have much time to go through the details but the sales lady quoted me 25%! So while you'd still have to pay the 10% initially which is quite substantial too because the unit in question was at 1.4 million, you will get it back from the developer. Then you'd end with applying for a 75% margin of finance loan but that is in effect a 100% loan.

Same conundrum lo - are you truly getting a 25% discount or are you paying the true market value which is actually 75% of the quoted price?

Anyway, the situation now that buyers can take advantage of is that these projects are almost done - the risk of abandonment has drastically reduced.

So it could be a good time to see which projects that are well worth the buy but they weren't in your radar back then - could revisit and see if you can find something suitable and you wouldn't need to wait that long for it to be completed. A win-win situation actually.

Friday, 11 March 2016

Property investment simulation

I created a simulator based on price, loan paydown, market value, profit on sale (including RPGT) and compared against using the same cash outlay into FD or investments.

Running the 2 investment options against each other, while property wins in the long run, the returns actually flatten out over a long period of time because a cash investment (e.g. even at the safest asset class which is FD) gives an ever growing rate of return while a property's value growth slows after 8 to 9 years!

That explains why mortgage portfolios price their rates on an 8-year longevity.

Here is the final result of the simulation with the RPGT in place means that while you are better off holding in FD for 5 years, your maximum return is within the 7-9 year window before the property value growth begins to flatten:

So you would break even at year 5 and have to hold for a few more years - up to 10 or 11 if you want to cash out more but that's up to you.

update: Some anonymous reader left a 'lovely' one liner in the comments saying 'who cares loser'; which seemed rather odd to me because he (usually it's a guy) obviously cared enough to leave a comment? Ah well, maybe you can go write your own blog lor then see who cares or doesn't care..