hi CF Lieu here from CFLieu channel now

in this video I want to show you how not to lose money in real estate property

investing in Malaysia and to do that I want to actually show you two scenarios

whereby first scenario you buy a property for investment from a property

developer let’s say at 600,000 okay 600,000 that’s it right no discount no

cash rebate just fair price 600,000 the market price around the aviation so

600,000 and then the other scenario would be where you buy the same very

same property but then on the Sales and Purchase Agreement price it was actually

1 million but then the property developer actually give you of 40

percent of 400 thousand cash rebate and I’m going to give you these two scenarios

and compare the difference right which one is slightly to make you money in the

next 10 20 30 years which one is slightly don’t so to start off with this

let’s just imagine scenario one writes another one I say just imagine you know

we have to make some assumption to make this calculation easier simpler is that

I’m going to ignore all renovation costs and all other sunk costs are the cost of

real property getting taxed when you actually sell your property real estate

agencies in a renovation cost and all these up back end or front end all the

cost involved I’m gonna just join just ignore that right just ignore that but

you know that that is not practical but then for the sake of the point I want to

make this other sunk cost or renovation cost and what other cost other causes

involve it’s not significant compared to the point or the load amount or the

property value that you are buying so in this scenario one could imagine you go

to a property developer you buy a six hundred thousand property which is again

today’s internal model it should be considered as a mass-market property so

imagine you’re not even taking a my division loan it second hundred percent

loan just to simplify the operation okay now just imagine you

probably like that at least a 10,000 income per month before when you buy a

six hundred thousand property you get hundred percent alone and then the

interest is about 4.5 percent in 4.5 so what you have is two new is also equal

to ten years right ten years then you think why 10 years just stay maybe why I

choose ten years because Pena’s Pena’s is almost unheard of right even though

if you are you you always want to stretch your your your monetary duration

the duration of the loan to as long as possible so you lower your money

iteration but as you know that caused you to pay more interest but just

imagine stay with me second 1000 you just say that all right

I’m going to just pay that for 10 years right and money instruments about 6,000

– which is okay manageable no problem okay no problem

okay two one nine ten thousand or more per month even on 8,000 more per month

so what happened is that in this scenario one you end up paying about one

hundred forty six thousand for the next ten years from today to the bank so just

make a note on that in Scenario one you would be paying 141 for 6k of interest

it’s going to fund and make it maybe a bit smaller okay but in total you will

have taped 746 in total 746 K cotton you pay to the bank in seminar 1

now how about another – if you just imagine if you were to have like the

selling price was a 1 million again just a hundred percent right a marginal

financing but I’m not going to take 10 yrs anymore because if you say 1 million

then the bank is you want to approve you based on 1 million of selling price even

though you have cash rebate but but the bank when you’re selling application

depends on what you value based on your debt service ratio based on your

your purchase price now to actually talk about this to me let me explain more

about debt service ratio and to a certain extent about loan compression

just click on click on what is popping up on the upper right-hand corner should

be over here so you actually later can actually go to that at the lesson of

mind to understand you know what loan compression and and that’s the ratio but

I don’t want to wreck it country you just jump right back into here now it

doesn’t make sense if you have a one you buy it a 1 million valuation and you get

100 percent money on financing which means a 1 million loan it becomes 10

years become like 10,000 per per month and make sense so normally what people

will do and this is where you get a 400,000 cash rebate right so actually

the property could be just like two hundred thousand but because you get you

ask for 1 million kind of a purchase price and you take loan out of that look

at four thousand woohoo free money and then what happens is you are going for

let’s say that the years and then we are going to calculate that again now this

very manageable because every menu is given only need to pay like five

thousand okay so five thousand and here and scenario one is about six thousand

something again doesn’t make a lot of difference but when it comes to total

payment over here it makes a lot of difference because in this arrangement

you are actually paying 824 K interest to the bank and in total you have you

will have paid 1.8 million in total of a loan to settle the loan plus the

interest even though your loan actually is 1 million in the beginning but you’re

actually playing like paying like 800,000 interest over a period of 30

years to the bank okay now here’s the here’s the killer killer part right now

just imagine this imagine the valuation the fair value of that property the fair

value of that property at the point when your purchase is a second about them so

in Scenario one you we are actually buying that

imagine you’re buying debt at a fair value per market price or a reflector

market I know discounts and detain no no excessive or

Nicholas fancy marketing tactic of Cash Rebate and all that so just it is what

it is however in the second arrangement they property developer can actually

give you four hundred thousand cash rebate so 1 million in grade four

thousand cash rate because the actual value profits only probably like six

hundred thousand but you are taking another four hundred thousand of extra

loan now it is not really because ultimately you need to pay like four

point something interest per year out of that loan so it’s not free money

although it sitting in your account and you are the one they actually need to

bear this now jumping back right into here if you have a fair value property

price at a point of you buying it now is six hundred thousand let me answer in

ten years in ten years you’ll have thought you would have paid the bank set

on your loan to settle the interest of 746,000 so if in 10 yrs Integra is

another one if you were to even sell it at eight hundred K or even more

realistic maybe at 1 million actually if you compare what you have paid for the

past ten years German of 5060 thousand you sell eight hundred thousand 1

million already again making money make your money out of that

okay make sense right make sense so even like for example you could actually sell

it as soon as fifty you know so much so let’s say minimally you can actually

only able to search under fifty thousand this is just break even with the total

loan pay right auto loan debts pay for the past ten years now what you need to

do is that at the point of entry second a thousand you just need this 100k to

actually appreciate to 750 K in ten years in order for you not to lose money

as simple as that so let me ask you a cop a property appreciation price of one

of the PK okay in ten years that is equivalent to around

115 10 years so that you couldn’t to around to 150 K over your original price

600 K which is around 25% of appreciation in 10 years we despite

really – if you think about it right 25% so one year you need to appreciate the

Ottoman like to two point something percent it is very doable and that’s how

not you you don’t lose money now have a scenario – now scenario – sonata – is

that you have to look at the fact that in the next 30 years you will have paid

close to this 1.8 million total and I have not really included in all the

renovation costs or indirect incidental because this easily can add up all the

legal fees and all that easily add up equally two million but just low-balling

it here or 1.8 million so and you know that in either of this arrangement

whether there are four hundred thousand cash rebate or not the property doesn’t

change the fact that the property values at least six hundred thousand right six

hundred thousand so when you have like six hundred thousand okay at the kind of

project now in the next 30 years you will have paid 1.8 million so I would

say that now your hurdle is bigger because 600,000 you would have need the

property to go to one point three one four eight million in 30 years for you

to actually just pretty even this regarding or other incidental costs

which actually practically you can’t because there’s always this sunk cost

right so six hundred thousand one point eight million property value that is

like three hundred percent of appreciation or three times although is

in the years so every single year every single year can I say approximately just

simple do a simple average about compounding three hundred percent in the

years we divide by 30 every year probably you need like ten percent

appreciation for the property actually a lot

the public actually appreciate 10% per year now there is a lot and there is not

really not easy to do but that is the fact that you need in order for you to

only break-even okay and then the other other things come

the other problem comes because for a property in ten years time a property of

some under fifty thousand is not a one it’s probably still very affordable or a

hundred thousand but in 30 years time again I don’t know what’s going to

happen in 30 years but as what we can see you today just you know just a

property maybe an apartment or condo that cost 1.8 million is unthinkable

maybe that is very common at the point of time but here’s the fact right who

wants to pay actually 1.8 million for a property that is already 30 years old

think about that property at that point of time might cost one for 8 million yes

that’s fine inflation yes I understand but can you imagine if you people have 1

by 8 million they would rather buy a newer property at that point of time 30

years which has I don’t know how the world actually change whether you’re you

and I are or is still here or not whether there’s any world wars even like

world war two or three right so and I don’t I don’t want to even talk about

like weather in the next 10 20 30 years whether your rental cash flow will be

positive or negative is negative then it will be a double whammy to this

this calculation okay and of course when you say that you had like four four

hundred thousand K of cash back you can say oh I can use that money to roll fair

enough if you really know how to let’s say this one a thousand is a cash right

but the interest I mean if you’re just going to put back that that in your loan

account that reduces the outstanding principal a hundred thousand which the

4.8% is charged on your six hundred thousand loan and reducing rather than 1

million on which it’s fair okay which is fair but then again you are not really

again that doesn’t make any difference if you were to actually buy this

property following scenario one despite their property 600,000 no fancy

technology cash rent no fancy discount just just go there right but for most

people actually actually want to we found a thousand k of cash back

they’re going to use that for something else right now unless you could actually

generally turn out there for a thousand which is that lift double okay I get

double higher or even blue or a two three percent higher then what the the

interest are there for the patent is a four point five percent then you would

that would be there will be a lost opportunity cost over there now for very

easy way to a gigantic six seven percent per annum very consistently this is how

actually people playing this game that you putting that Cash Rebate in a very

stable instrument which is called real estate investment trust REIT instrument

as a class if you six seven percent very consistent every eligible put it there

liquid enough anytime they spot an opportunity or situation need to use the

money they can actively draw the front a thousand or partial of the upon a

thousand I just do whatever they want to do so to really understand how people

actually play this you see like real estate investment trusts or REITs as a

temporary parking place for your cash back amount from buying a

brick-and-mortar property just head on to click on this description below or

what is shown below go on to reach method and then you can join join a

webinar and then our actually totally free give you insights of how you can do

that how very in front of the investor actually doing that so it’s about

shifting your money around right to something that is still property that

property co related but it’s liquid enough so that you can sit there before you

actually use that or part of that money for a thousand a to make a big project

so the check on on that links description below or just go see below

this video on this line right so I’m just coming back to here I’m just to

tell you now it has to make sense right so another one for me

it really doesn’t make a lot of sense because again I say property needs to

appreciate by that much about 1.8 million into the just so that you can

actually break even because a lot of people forget for go

in the in the 30 years how much they would have paid and how much your

property would need to actually appreciate in order for you just to pay

even which is why people say that why I can’t feel my property is making money

but then they fail to at least see this angle of things they said okay

ultimately if I will make big money I will make the grundy I will only cover

the other positive equity right at the end of it I can sell it but it’s

very hard edges sell this property may be in the US and one is because it’s all

second is because for that value they can valuable property and the fact is

forgot over over the the past the past 30 years they have paid more than double

almost double of what is the original loan amount that they have now this

image just compared to against a hundred thousand if I go to put like 10 years

you know that the interest is just probably a fraction of the total pay but

if you were going to do this a cash rebate or cash rebate a know and maybe

couple with loan compressions is where really doesn’t really make sense what do

you think now I want you to poke holes into my into my desire this peace this

insider perspective maybe you have other opinions which I welcome you to actually

you know as disagree with me so that’s what I want you to actually post your

comments in the comment section below and see whether I miss anything with any

insights that you would like to share with me and I’ll be happy to actually as

you look at what you have to say what you think what is your perspective or

even a similar situation right or has this perspective ever surfaced in your

mind at all so just go to comment section below just type in your comments

and if no other than that if you think this lesson has been useful click on the

like button just like button I really appreciate that if you really helped

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like this now that thing same time Cefalu and I will see you in another

lesson okay you take it

Good presentation Mr leou, expecting more about investment strategy in Malaysia