Wednesday, September 30, 2009

Guarantee Property Investment method

There are 2 embedded messages in this insurance article (1) and this financial freedom (2) talk.

(1) Build a passive income instead of thinking how to keep an active one
(2) You don't need Money if you have a solid finance plan

This article is about how to achieve both using property investment. But before we proceed, you must agree with a few pre-requisite concepts that were explained by this site before;
Income is a pre-requisite to Personal Finance but NOT a part of it, so amount of income is irrelevant to the strength of a personal finance plan.

Passive Income is achieved when you use 1/100 effort for an income.

Personal Finance is NOT the same as finance, Personal Finance is simple, straight forward and usually there is an obvious single best method.
Here are the 2 things to focus on; ( and these are strict requirements )
  1. Buy a property with Other People Money ( OPM )
  2. Rent the property out higher than repayment amount
By OPM this means using absolutely NO MONEY from your own pocket at all ! That's RIGHT ! You should get 100% or more loan in order to buy a property. If you can't get that, it only means 2 things; you don't have the right property OR you haven't used the right method yet. When you break this rule, you will also bear the consequences that this deal may NO longer be a personal finance tool.

If you borrow money, you have to pay it back. Your rental income must be more than your repayment amount. If you cannot ensure such a condition before the purchase, it is a NO DEAL ! When you break this rule, you will bear the consequences that this deal may NO longer be a passive income tool.

Remember this is all done at personal level, nothing fancy like real estate business world - which is earning much more but as an active income.

Impossible to get 100% loan and rent so high you say ? Then this is NOT your cup of tea. Period.

Both of these can be achieved by looking at only ONE factor - the actual buying price.

When you find a property, first identify its real worth. If it is a standard property then just refer to market price. Once you are convinced on the tenant-ability, then buy the property below its worth. For example,
A property worth $ 130,000 renting at $600 per month.

A 5% interest on $130,000 for 30 years may result a monthly repayment of $700 - which fail rule #2. Every month you are paying out $100 from your own pocket for someone else to use your property.

If you borrow less loan ie. $100,000 your monthly repayment is less than $550 which has positive monthly cash flow but this fails rule #1. In short, you have to fork out $30,000 now in order to get back $50 a month.
The rule of thumb is always buy a property 20-30% lower than its worth. So you buy above property at $ 91,000. Bank values the property at $130,000 and may finance you 80% or $100,000. After deducting all the fees, you may get $5,000 cash up front and then $50 every month. If the property price goes up in future, capital gain is to your advantage. If it goes the other way round, the risk is shared by the bank. A rock solid plan personal finance plan !

The lowest finance one should accept is 100% ( example above is 110% ) and the lowest net rental income is ZERO. It is ok if you have to pay some lawyer fee and stamp duty to buy a property. It is also ok to have your tenant pay your monthly repayment in full. Anything worse than that, is NOT a personal finance method.

But how often can you buy a rentable property 20-30% lower than its market price ? Not very often, not very often at all. There is only 1% chance of this will occur.

Can normal people like you and I get it ? Absolutely !

The funny thing is most property investors are Active Income chaser. They do NOT follow these rules strictly. Sometimes they don't care about 100% financing, other times they don't care about renting. Most of the time, they just have no patient. So they don't really bother this 1% of the pie. ( An example of property investment that is highly relying on capital gain alone )

Other non property investors simply DO NOT believe such things exist, hence they are not grabbing this pie neither.

In Kuala Lumpur I can be offered such opportunities 4-5 times a year.

Finding such opportunity should take more creativity than hard work. As of exactly how and all the methods of how to find them .... are whole new topics that are even more complicated than stock investment. Which is why not covered by malpf.

Stock investment is the highest level personal finance tool malpf promotes, Property investment is NOT within the 1Picture system. A good personal finance solution is straight forward, repeatable and practical. Property investment has too big a room to play about and most people get deviated and get into debt instead.

But if you follow this fundamental property investment method strictly, the most often said location factor is now secondary. Anyone anywhere can obtain unlimited passive income no matter how little money he has to start with.

Monday, September 28, 2009

Bears feeling cheated??

Understandably the bears are growling.
They were on the cusp of a major drop in house prices, a veritable waterfall in the numbers and then <<<<<<< happened.

Rates were cut and banks were bailed out world-wide, including in Canada.
Forcing consumption, penalizing savers became the 'play book' that governments followed. Never mind that the poor earth is groaning under our current orgy of consumption. We have built such a worldwide ponzi scheme that any let up will cause the over-leveraged house of cards to collapse.
Welcome to Capitalism in the 21st Century.
So 'cash-for-clunkers', zero interest rates on deposits, 'home improvement' tax-credits and other imaginative schemes were implemented. There aren't many more bunnies to be pulled out of the hat though.
So if/when RE resumes it's drop (unless we are in an inflationary spiral), there wont be much else that can be done. I doubt we will have tax-deductible mortgages in Canada, as they do in the US, the costs of this would be fiscally prohibitive.
Meanwhile Vancouver's housing bounced on a trampoline.
A quick drop, blink and you missed it, and up we went again.
Here is the graph again in case we forget how far we went up and then down:
Based on Kelpto's numbers below, September should be pretty flat. Now we will have to wait and see what October's has in store for us.

PKFZ vs Buy A Car in Malaysia

One of the messages this site insists on spreading is that "Buying NEW car is the BIGGEST killer to a Malaysian Personal Finance". Today lets look at this at national level.

One of the hottest money topics in Malaysia now is PKFZ where RM 12 billions people's money has gone 'somewhere' that you and I have no business in. And we are going to compare that with the cars you and I bought some years ago, recently and even soon again.

641 out of 1,000 Malaysian own a car. Rank #3 in the world ( USA is #1 ofcourse ). Can you imagine a developing country aka NOT a Developed nation, rank #3 as the top car owners in the whole wide world !? If car ownership by land size is a benchmark, Malaysia would have already been a Super Nation !!

In Malaysia, when you pay RM 100,000 for a new car, RM 55,000 goes to the car. The rest of the 45% goes to 'somewhere' you and I have no business in. Below show some examples of different car prices in USA and Malaysia;

Hyundai Elantra costs about USD 12,000 in Lexington and MYR 96,000 in Kuala Lumpur
Honda Civic costs about USD 15,000 in Pittsburgh and MYR 113,000 in Malaysia
Toyota Camry costs about USD 20,000 in New York and MYR 150,000 in Malaysia

Use exchange rate USD 1 = MYR 3.5, you may get these numbers in comparison;

Car 1 : MYR 42,000 in USA vs MYR 96,000 in Malaysia ( overpay 56% )
Car 2 : MYR 52,000 in USA vs MYR 113,000 in Malaysia ( overpay 54% )
Car 3 : MYR 70,000 in USA vs MYR 150,000 in Malaysia ( overpay 53% )

Although most of the times you may find Malaysia car price is more than 2X the foreign car price, but some costs and fees are legitimate so trust me for now that only 45% has gone 'missing', not the 50+%.

Malaysia has a population of 25 millions people, that means there are 16 millions cars have been purchased. ( 25 millions/ 1,000 x 641 = 16 millions ).

Takes average car price at RM 50,000 ( actual figure is RM 68,XXX), then there are a total of RM 800,000 millions car sold. ( 50,000 x 16 million = 800,000 millions )

45% goes to 'somewhere' you and I have no business in, that is a total of RM 360,000 millions or RM 360 billions.

How much have we lost in PKFZ again ? RM 12 billions !

Game Over ! The result is :
RM 12 billions vs RM 360 billions

Yet everyone buy cars, made someone else rich and NO major news reporting this fundamental flaw. Ever heard of Slow Boil Frog's story ? Its happening right now right here everyday to everyone .... our daily lives ....

Lets make some sense out of this RM 360,000 millions.

16 millions of us own cars, so our car prices were to be normal all this while, Each and Everyone of us would actually get back MYR 22,500 ( 360,000 millions / 16 millions = 22,500 )

Most should know that Malaysia as a country earns money from Petroleum. In 2007, our export minus import net profit is MYR 129,000 millions. Still 50% less than all the money we 'contribute' by buying cars.

My friends always ask me why I wasn't shock when I heard the 12 billion PKFZ case. Well, I buy cars in Malaysia and that gives away 30X more than the PKFZ case ...

Other related topics

Sunday, September 27, 2009

Automatic Save First case study

A case study was raised in Automated Saving article

this is the practice I implement for myself with CIMB bank:
1. open one Basic Saving account type2 as "income account"
2. open one Air Asia Saving account as "budget account"
3. open one Basic Saving account type2 as "expense account"

income acct is my receive the $$$ I earn
budget acct is where I keep my 3-6 mth emergency fund and budget for any annual expense.
every month, the standing instruction from income to budget and from budget to expense is automated.
and I only keep expense ATM card with me, so my spending capability is limited to what I have in the expense acct.
whatever left in the income acct will be used for investment purpose.
if I ever want to buy something in future, I just add the SI into the flow I had above.

would my practice contradict to "pay yourself first" idea? what is the loophole/drawback in my practice?

Analysis is in progress now ..... What do you think about this ?

Pardon the delay in reply. When I first read this, my first thought was Great, Superb, Excellent ! But that was only as a comparison to others who do not save at all. So the discipline of setting this up is worth congratulating !!

The reason I didn't respond immediately that way thou ... was because I felt something wrong too but I couldn't identify what it was. Now that I sit down and look it through ... the only small potential pit fall is the investment part. You were saying you will use your "Income" money to do investment. Now investment usually comes with risk and it could earn as well as lose you money. Losing money from your #1 income account is not a soothing idea. So its best to allocate aside some money for investment purpose. I am guessing you haven't really started any big time investment yet, that's why you were just briefly thought of it. So its ok, not that big a deal.

Basic Saving Account in CIMB pays 0.25% interest which is relatively better than others account which pays 0%. However Mudharabah pays around 1%. Although not a fix rate scheme but it evidently will continue to pay higher interest than other saving accounts.

So one of the ways to improve an ASS or automated saving system is to keep the saving at the highest interest account. This may not be feasible now since your salary is already paid into the Basic Saving Account. You can change now or wait till next career change or major promotion.

Air Asia account on the other hand, although seems pretty attractive now, but I personally do not like this kind of marketing account as my 'saving' accounts. It is designed mainly for frequent flyer and it should be roll under expense category. I live long enough to see this kind of accounts come and go not lasting very long. This Air Asia account is also tight to Tune Money and a Visa card. In short, this account will tempt you to spend money a lot in months to come. Then in a couple of years, this account will be de-prioritized when CIMB partners with another merchant. By then the interest will drop to Zero etc.

If you are sure you wouldn't use the ATM, Tune Money, Visa Card and online features that comes with Air Asia Account, you may keep it to enjoy the higher than BSA interest now. But I DO NOT recommend keeping emergency fund and annual expense in this account.

Ok, generally this is my recommendation:
1. Keep your 6 months emergency fund and annual expense in your "Income" account.
2. Use your Air Asia account as your "Expense" account
This way you reduce one SI and keep more money in your "Income" account. So if you also move your "Income" account to higher interest at one shot you also earn more effective money too.
3. If investment is still needed, setup a dedicated account for that.
As for the investment account, you can use existing "expense" account for that purpose. If you are serious about investment ie. investment is more important than expenses or investment is the door to your future etc. then you should SI from your Income account to the Invest account. Otherwise, if it is still too early to talk about investment, ie. I don't mind invest some when I don't use up my expense money. Then you can transfer investment money from your left over expense account from time to time ( no need SI ).

However in real life, usually once you fix an investment method, they will have an 'account' for you too. So in general you just transfer the money straight to that investment account and not to another saving account. For example, I open an account to invest in stock market with Jupiter, so I transfer my investment money from my bank saving account straight to Jupiter's account. This is why I was guessing you haven't really started investing yet.

Using bank account to save first before actually investing is ok too. In that case, you may also consider Fix Deposit which gives much higher interest and you are not sure when you will use the money yet.

The rest of the recommendation are optional;
4. Use a higher interest account like Mudharabah as your 'income' account

5. Or keep your 'income' account but SI your saving into Mudharabah to store your 6 months emergency. Leave annual expenses in 'income' account.

6. Once you achieve 6 months emergency fund, move them into a monthly re-invested FD.
Annual expense is another topic worth mentioning. Basically this year you are saving for your next year annual expense. Then by this year end, the fund is moved to the 'expense' account for next year use.

MalPF's method was simpler and cover less categorization ... all it says is once you get your income ( time1:salary ), save a FIX portion up immediately ( ie. time2:using SI ). Then its up to you what you do with the rest of your money.

Remember this is just a blog post in Internet, I do not know you and your real condition. Use your own best judgement what to agree and what not. Afterall a paid consultants will always say, "Lets meet up" and spend 8 hours asking all about your ancestors before giving you advice - "Yes! You did good and now you should also open this and that accounts too with my partners."

Hope this helps some ...

Saturday, September 26, 2009

Big vs Small Finance Size

An old man said, "My business's transaction is used to be more than $1 million a day, you think I can't earn $100 now?"

A sale man said, "I have been earning $100,000 annually all by myself, I can easily earn $1million by hiring 10 people!"

Both of them failed miserably after that, why ?

While it may be common sense that a small scale system may not be easily upgraded into a large scale arena, but actually it is also as challenging the other way around - large solution cannot easily fit into small problem. Simply put, they just DON'T MATCH ! They are Different !!

The old man used to have thousands of employees, super computers and special linkage to FBI, CIA etc. He executed his idea at the speed of one phone call and see result immediately so that he could make the next move. Now that he has retired, there are no one answering his call now. Although with the same great mind, the best he could do now is 'talk about' what the world could do in a leisure coffee shop. Without all the facilities he had before, he couldn't even earn a fresh $100 now ...

The sale man hired 10 staff and soon discovered he needed a training system. But the 2 years rental contract is pressuring for cash flow. He had to stop replicating his skill on his staff and went out there to make some income. The staff never become as good as he was. Salary payout further deteriorate last years wealth before he called it a quit. Better settle with what he could handle before digging too deep. Without a proper business system, he couldn't grow his business size.

'Finance' is a concept, hence sometimes may be it is hard to feel the differences. Lets take an analogical example;

.. .. .. ..

Mathew is an experience construction worker. He built himself a GREEN home and even appeared on news a few times. 4 months ago, he accepted a job to build 44 houses. He just couldn't do it. The suppliers are not right, workers not discipline, he doesn't even know what are the available solutions for some of the heavy duty tasks ....

.. .. .. .. ..

Tan is the CEO of a huge property development company. He has built thousands of houses. Last week he and his son went camping on Yellowstone river. While building the tent from nature resources, he realized he didn't have the right tools. Even the rope is not strong enough to sustain a slightly stronger wind. They ended up living in a cabin.

The earlier you know the size that is suitable for you, the better chance you can focus on getting what you really want. Income is a pre-requisite to personal finance but it is irrelevant to a solid finance plan.

September 2009 Projections

The Fish has invited me to post GVREB MLS monthly projections on his blog. I'll try to post weekly updates on Friday/Saturday plus an end-of-month final summary. It may take a couple tries to tune my format to suit the blog and it's audience. Feedback is welcome.

These projections are based on a linear model driven by the daily stats published by Gavin Hughes ( I also need to credit Canadian from RE talks for initiating these projections and Jesse for helping to fill in missing historic data.

The intent of these posts is to get an early or predictive feel for how the month's numbers may end up, and discuss the impact and ramifications to our local real estate market. Please remember, that all models are wrong, but some models can be useful.

Projection from25-Sep-2009: 17 of 21 days

Listings:5614(-9% yoy)(+24% mom)
Sales:3547(+124% yoy)(+3% mom)
Sell/List:63%(+37 pp yoy)(-13 pp mom)
MOI:3.8(-71% yoy)(+2% mom)
Actives:13,643(-35% yoy)(+5% mom)
Rate of Increase:
46 per day

Avg Price SFH:$857,048 (+8.5% yoy)(-3.7% mom)(-6.9% from peak)
Avg Price Condo:$434,517 (+7.3% yoy)(+3.0% mom)(-3.5% from peak)
5-day Average SFH:$911,863 (+6.4% from current month)
5-day Average Condo:$423,588 (-2.5% from current month)

Median Price SFH:$701,271
(+0.8% mom)
Median price Condo:$375,051
(+0.4% mom)

Month to date:

Total Listings:4545(Avg 267 per day)
Total Sales:2871(Avg 169 per day)

We're still seeing very strong sales for this time of year, but new listings are on the rise. September will have the highest monthly total of new listings this year.

It looks like we have more sellers trying to take advantage of the recent price increases and sales activity. If sales hold up this fall, we may be able to reach an awkward balance. If sales decline and listings remain high, prices may begin to recede. This fall will be a good test of the strength of the market.

Note: Missing data for September 21. (Not published by Gavin). Baseline numbers will be posted in the comments.

* Disclaimer: These projections are not produced or endorsed by the REBGV.

Friday, September 25, 2009

malpf feature on New York street ...

malpf - not noticed by a walk by .....

FREE lunch at Melaka and Penang

Jupiter is one of the cheapest online trading brokers in Malaysia. Partnering with Bursa Malaysia they are organizing seminars on stock market talks. LUNCH and TEA provided, FREE registration !!

3 October 9am to 4 pm
Avillion Legacy Melaka, 146 Jalan Hang Tuah, MELAKA

24 October 9 am to 4 pm
Northam All Suites Hotel, 55 Jalan Sultan Ahmad Shah, PENANG

More good news – ZERO BROKERAGE for one month for all who open a new online trading account with Jupiter Securities Sdn Bhd during our Bursa Malaysia Market Chat 2009

REGISTER NOW. Please call 03-2026 9691 or send an email to Bring your friends along.

If you plan to buy sell a lot this coming month, this should be a good opportunity. Else just go for the free fried mee.

Wednesday, September 23, 2009

Fall is darker and more gloomy

The optimism of summer has passed, reality is sinking in. An Angus Reid poll showed Canadians more concerned about their finances and work situation than July, even though the stock market and commodities and RE have been strong in the last two months.

I think people are realising that, while we will not have an-end-of-the-world-as-we-know-it scenario, things are NOT back to normal. The economies of the world have only been prevented from falling off the cliff by the tax-payers assuming a large portion of the private sector's debt obligations.

If people are more concerned about their finances they will reign in spending and we will have another round of pressure on assets world-wide.
I don't think we have had enough of a purge to make up for the years of excess.

BTW here is Mish's thoughts on Canada's/Vancouver's RE:
He is saying the same things us bears have been saying for some time.
Inventory does seem to be moving up as the list/sell number drops.

Investment Link Insurance products

Insurance is an industry that is most dedicated to the complete picture of our personal finances. This has become even more apparent when Investment Link Products (ILP) are introduced to the market.

There is really nothing new to ILP other than it actually reveals the elements of insurance to agents and buyers. Which used to be secrets and all they told you was "Don't worry, we will be able to pay you 6% interest every year".

Now with ILP, agents and insurance buyers can decide
1. What elements to put in their policies
2. How much of each element to put in
3. to change the allocation from time to time
This can go either way, good or bad, for you. Before there was ILP, the proffesionals inside the insurance company decide all these for you. In return they can vaguely promise you a 6% return ( in quotation but not in policy ). So in the simplest term, if you can DO BETTER than the pro, then ILP is better for you. Else you may not even get the return like others who are just paying premium, without the need to understand anything else, as in a truly 'passive' tool.

There are 4 to 5 important elemetns to understand in ILP but for simplicity we can group into 2 first; protection elements and invesments.
Protection element in ILP is almost the same as Term Insurance.
Investment element in ILP is the same as mutual fund.
So basically ILP = Buy Term Invest The Rest, which is one of the best ways to build your personal finance portfolio.

Since the elements are configurable now and that the agents are trained but most buyers have not caught up to the idea yet, the agents can configure in a way that;
High Protection Low Investment ~~> Cheaper than Traditional Products
Low Protection High Investment ~~> Gives Better Return than Traditional Products
without properly educating on the side effects
High Protection Low Investment ~~> May Not have enough cash value to keep the policy alive in future
Low Protection High Investment ~~> Not enough protection for initial years
So if the buyer is only stressing on one aspect only ie. Low Price OR High Return, then very likely the buyer may be getting an un-balance ILP, which carries a higher-than-you-can-take kind of risk. In addition, such a buyer may as well;
High Protection Low Investment ~~> Buy Term Insurance
Low Protection High Investment ~~> Buy Mutual Fund
The justifying detail factors may be too much to share here but generally in developed nations, one can expect to use 0.8 to 0.9 times of traditional insurance premium to achieve a good balance ILP. However, in developing nations, one may need to use 1.5 to 2x of traditional insurance premium in order to build a safe and solid ILP.

Do you agree with this rule of thumb ? Why or why not ?

Tuesday, September 22, 2009

Demographics and all that

There is a discussion on the Real Estate Forum about whether BC should continue to attract young people. Migrants from other Provinces or immigrants to keep the tax base high.

There are lots of opinions but no data.

Well here is one piece of data- median age:

As you can see we are sitting at a pretty high median age in most parts of the Province. Some parts like South Okanagan are over 50. That means half the population is over 50 years of age!

Lots of areas are over 40, and the curves are pointing upwards. BC's over-all median is 40 and is likely to keep moving up. Even if we had a baby boom now, and the median age came crashing down, those bouncing babes wont be paying tax for two another two decades.

Take out the children and students and retired folks and that doesn't leave a lot of people left to carry the increasingly heavy tax burden. WE NEED YOUNG PEOPLE NOW.

By contrast China's Median age is 33. In India it is 25. Canada is 39. Ontario is 37.

The fight in the near future will be to how attract young people. Countries which have low birth rates and low immigration, and an elderly population who expect good benefits are near implosion.

eg Japan which has been a two decade long deflation partly due to demographics.. has a debt to GDP of...wait for it...of 197%!!

How are young Japanese going to pay this huge debt, when there are less of them and lots of older folks who will need care and support? It defies belief.
This graph demonstrates the shift that is going on quite dramatically:

Sunday, September 20, 2009

Is Gold Pawning ALL BAD ?

There was an article that says gold pawning is strategically disadvantaged, usually by a 0.X% This implies that you will most probably lose out when you pawn more often (1) longer of time (2). So does that mean gold pawning is an all bad thing ?

The answer is NO!

There are 2 words in relation, Gold and Pawn. Gold is an investable commodity. As a matter of fact, gold could be viewed as the god of all commodities. There is an old saying "When you don't know what to do with your money, buy gold!". Gold is a well known hedge against inflation. So overall if there is Gold involved, it cann't be too bad.

Pawn on the other hand is a not-so-good-thing in general. Basicaly you exchange your valuable items for cash. Your item will be safe kept for a certain period. You can buy back your item before an expiration date. Usually total buying back is lower than initial surrender price so that the pawn shop can earn a profit. On cases where the opposite may happens, the pawn shop enforces a safe keeping fee to minimize loses.

Although pawning is not a good thing, as in you have cash flow problem and you pay extra fee to safe keep your own stuff, but if there is anything a person should pawn it is Gold and Silver.

So gold pawning is not bad at all.

Rob has Rich Dad in his life, as a matter of fact I went through a similar life path as his, but I have Rich Friend instead of Rich Dad. From where I grew up, gold pawning is a way of life. My Rich Friend runs a gold pawn shop. Despite the fact pawning is disadvantaged both strategically and psychologically but over the years we cann't ignore another fact that some people who pawn their golds are still surviving and some doing pretty well indeed.

Lets review some facts again, a 0.X% disadvantaged investment is still better than gambling, borrow money from illegal sources ( Ah Long ), over draft, credit card interests etc.

Some of the key reasons why quite a number of people can make it through their whole lives simply by pawning golds are;

1. Gold's trend growth is REALLY more than inflation rate and
2. Gold provides an excellent cash flow facility today.

If you are earning an interest that is higher than inflation rate, then minus it with a 0.X% disadvantage by adopting some not-so-good strategy ( pawning ), the worst it gets is you are still hurt a bit by the inflation. Relatively, most people do not save at all! Hence,

Earning Gold trend - pawning disadvantage rate > Not doing anything at all

After all, that is why there is the saying when you don't know what to do, just buy gold ! But there is NEVER a saying "Pawn your gold to get Rich".

The delusion of pawning gold strategy is because it does actually increase cash flow. And sometimes some people mistakenly take extra cash flow as wealth. Pawning gold is also a very valid leverage technique. Hence combining its leveraging 'fun' and extra 'cash flow', people easily mistaken it as a way of 'wealth path'.
Gold is an excellent tool to hedge againsts inflation,
Gold can provide you great cash flow especially at bad times,
but pawning will lower all the advantages you get above although in small scale only.

Pawning your gold is not an all bad thing but its NEVER going to be the best thing you can do in your personal finance.

Saturday, September 19, 2009

Some of Robert Kiyosaki's sayings ...

Below are some of Robert Kiyosaki ( Rich Dad ) sayings and my thumbs UP or DOWN as a respond ...

"The recession is NOT over ... it has been Glossed over ..."
I was calling it the PM effect - (Prime Minister). I knew for sure Obama and Najib could have brought some effect but never did I know that they can really pull it off until today. Anyway, a nice 'gloss' they did indeed ...

"I park my money in gold, silver, oil commodities that goes up as USD goes down ..."
I agree but then again, don't forget in forex trading, USD down could easily be hedged by trading reverse currency pair too. I don't know if Rob knows about forex.

"Gold will crash in October November down to $800 range ..."
I was thinking December but there about share the same philosophy of gold trend.

"Market will be volatile for years to come, this means traders wins over long term investors."
I agree with the volatile part. Duh ... what market is not volatile in today's finance ? By traders Rob meant the speculators. This is the part why clearly Rob fails to make money from stock market for the past 40 years ( Not really true, but relatively it is true especially when compares to his passion in real estate). In a market that is more volatile than you, the higher frequency of transactions imply higher chance of losing. The only time when a speculator earn money in a volatile market is when the speculator's ability is still beyond the volatility, or in other words, to such a speculator, the market is not that volatile yet. This is a big topic and could probably be the last thing I can ever share in this blog but it will come eventually. But basically Rob gets this part in reverse and hence stock market is never his cup of tea.

"Stock market is not the place to invest for long term."
Its quite funny reading some of his views in stock market in his latest book Conspiracy Of the Rich to be published tomorrow. He was quoting the lows and the highs of Dow Jones. Then shows how bad it is going from the Highest to the Lowest. He also shows after one big cycle of Lowest to Lowest, there is really not much left. Although what he shared is true but nevertheless Definitely is NOT the complete picture. If a person is so smart spotting the cycles and patterns of ANY investment vehicle, why cann't he make use of it to his advantage ? That ... will always be my biggest puzzle to Rob's life story unless he admits he has personal preference to real estate and thats about all.

"Saving is bad."
This is a OMG respond some of the gun you sucker Rob kind of protest from me. USA is going through a very special kind of transformation in its finance today. So it may be ok to say savings is bad of USA folks but it ABSOLUTELY DOES NOT APPLY to the rest of the world.

Lets face the simple truth;
Spending less is better than spending too much,
Saving is better than NOT saving,
Able to INVEST with higher return is better than saving.
and lets review today's personal finance status;

Most personal investments produce an average return of less than fix deposit guarantee interest. Only 30% of such investments provides a positive returns, this means 70% lose money. And only 10% of them make a significant return in comparison with mutual fund return.

Although the title is 'Don't Save', but what Rob is really saying is 'Invesment is better than saving'. Which I agree with the content of the whole chapter. But the title is so misleading that it actually damage many young minds. All they see is the title and they stop saving and start spending ! They spend to lose, not spend to win. They would thought they are spending as to invest but as there is certain way that a human mind would work best - instinct - more and more fail just because our global personal finance guru, Mr. Robert Kiyosaki said that Saving is BAD.

The biggest conspiracy in "Conspiracy of the Rich" is Rob in need of making more money by abusing his global influence and cross the ethical line in his new book marketing ....


nevertheless still a good book to keep. Other than the crazy 'Don't Save' stupid marketing talks, there are a lot of useful contents inside ...

Friday, September 18, 2009

Money makes the world go around...

A good comment from Markoz..

MarKoz here: I had really thought that the stagnation in sales and surge in listings last year was the beginning of the end. I was wrong. I had always considered government intervention in the RE market to be somewhat random, and that ultimately market forces would bring prices down. I now believe that no provincial or federal government will let prices down as long as their members have a pulse ...... I know that nearly 70% of Canadians are homeowners. Virtually all politicians are certain to be homeowners....

He is absolutely right. The politicians will do everything they possibly can to prop up real estate. It is the big kahuna. The result of it's collapse can be seen in the US. Wide spread bankruptcies, unemployment and bank bail-outs.

It's too bad they weren't a bit more concerned on the way up, allowing banks, speculators and regulators to behave completely irresponsibly. If you allow a huge unstable tower to be built in front of your eyes, don't you think it could come crashing down one day??

What more can they do in Canada if/when the down-trend resumes?

Not a lot.

Interest rates are already rock bottom and tax-relief on mortgages or other mechanisms to support prices will just exacerbate the huge deficit. (BTW the UK just posted it's largest ever deficit). So their options are becoming very limited.

Firstly we have to get one thing straight- who are these much maligned politicians? Are they aliens bread in captivity sent to rule and ultimately destroy our planet. No. On the whole they are just like us. Apart from the odd Billionaire like Paul Martin the rest of our pols are fairly regular Joes..who like to feel important (and popular). Some have a vision, others are guided by polls.

They will tell us what we want to hear, not what we (deep down) know has to happen. This is the same the world over. The response to the financial crisis, which by the way was completely avoidable, was to loosen money even more...punish savers yet again...and reward irresponsible activities, especially by highly paid bankers.

Was there an alternative. You bet, but I am not sure anyone would like it very much. Let real estate drop.
1) Let all assets drop and find their natural support.
2) Let the big banks fail if need be.
3) Pay up on insured accounts.
4) Seize the bonuses of the bankers responsible and let the chips fall where they may

The result would have been a catharsis of default and even possibly a rapid depression. Awful, yes. But the excesses of the last twenty years of bubbling assets, deregulation, greed and materialistic orgy would have been dealt with in one fell swoop.

Governments would be there to pick up the pieces afterwards and stop people from starving -at a much lower cost. Then we would have had to rebuild a system that was not based on fractional lending or which did not allow the privatization of profits and the socialization of losses.

Were we ready for this around the world?

Not at all.

So our politicians did their damnedest to plug the hole, for now. As one economist said..."they just kicked the can down the road". The degree of debt that they are accumulating will require a huge expansion in the economy to service, if that doesn't happen there will be a de facto default which is monetization (you print the money to pay your debts).

Future generations won't be burdened by it, because it will probably come to a head in the next few years and will have to be dealt with: by slashing and cutting, or defaulting and printing money.

Tuesday, September 15, 2009

The FIRST Life insurance - a Whole Life Plan

Although Buy Term Invest the Rest is a better option but generally the first life insurance you should buy is a Whole Life Plan.

Typically such a plan runs until you die so its an insruance for them, not for you. One of the facts that some may overlook is that you will have to pay the premium your whole life too. However, the quotation is usually presented in a way that you pay a number of years and then the policy will be able to substain itself. Traditional policy would actually take a loan from yourself by paying interest to the insurance company. Which is usually viewed as a big disadvantage in personal finance planning. However in this article, it works towards our advantage, at least for 'most of us'.

Lets start by reviewing Buy Term Invest The Rest (BTITR), although it works best ideally but in real life when will it work and more importantly when will it NOT work ?

Statistically and historically, most people who practises BTITR starts with buying term insurance and almost certainly did not ends with investing the rest. Everyone has ups and downs in their lives. During the downs time, almost everybody's 'Buy Term' is stopped not to mention there is no such thing as '... The Rest' when cash flow is tight.

What is the ONLY requirment in BTITR to make it a success ? DISCIPLINE ! And guess what human nature is lack off ? DISCIPLINE !!

So if you have been having discipline your entire life up to this point, congratulation, you can start your first life insurance as BTITR. Else, buy a whole life insurance plan instead. You can always BTITR for your subsequent plans and just in case when lack of discipline really screw you in future, you still have at least one plan you can always fall back to - as a safety net.

This way, the worst it could become is you earn less but you are almost guarantee a fail safe approach. Strategically it puts you in a very good position even to start with.

If you are one of those who asked, "Term insurance premium increases as age increases" then you should buy the Whole Life Plan instead. Because you didn't really understand BTITR where the 'Invest The Rest' part should have ironed out this problem.

If you asked, "Should I buy term insurance until age 50 ro 60" then BTITR is also not for you. the 'Invest The Rest' part should usually take over the 'insurance' part after 15-20 years. If you didn't see that in your thoughts, you should be better off with a simply assuring whole life plan, although slightly more expensive.

Today Investment Link policy can also be quoted as a whole life plan. The good thing of investment link whole life plan is the elimination of policy loan - taking money out from your own plan to pay your future premium does not cost too much extra than just the unit price calculation. However, a badly configured link policy can lapse by itself when the market price goes too low. So a traditional whole life plan is implicitly having more assurance than investment link whole life plan.

Another rule of thumb to make your life easier, if you can pay high premium for your first policy, take investment link whole life plan. If you plan to pay minimum premium, then go for a traditional whole life plan.

Lastly, if you know you haven't been discipline but you are sure that you can be and will be from now on, do me a favor, buy a whole life plan now and then do the BTITR thing a couple of years later. 20 years later if your BTITR really does better than your whole life plan, come claim the 2 years differences from me.

British Starts educating finance in Primary School

One of the nicer effects left over from Lehman's trigger on world finance crisis is that now British starts to teach finances even in primary school. All the kids are taught what finances are all about, how to start a business and the importance of accountings etc.

The timing couldn't be more right especially when Internet has changed the way business can be.

Although there will be doubts on who can be teaching all these and what syllabus are considered 'correct' ? Afterall it is still hard to say if the world greatest finance is evil or saint. There isn't exactly a blue print to be based on. Don't forget not too long ago, Lehman is the exact blue print for everyone else to follow ...

This is nevertheless an exciting start. If I were to have a say, I would just recommend they should focus on "personal" finance first rather than the big 'finance' subject. If a person can manage himself well, the risk of a failing like Lehman would be greatly reduced ...

Sunday, September 13, 2009

Where are all these bears coming from?

As a reader once stated, Fish..'you write an obscure blog that no-body reads'. He/She was right.

It was therapy for me, a way of thinking aloud.

In any case I would have about 130 readers on a busy day and 100 on a quiet one. The same folks.

The numbers have recently been moving up. Last Friday they reached

Who are these new readers? They could only be coming from 4 groups:

1) Those that own but don't want to sell
2) Those that own but want to sell
3) Those that don't own but want to buy
4) Those that don't own and don't want to buy

Groups 1 and 4 aren't going to waste their time reading a RE blog, so it is the potential buyers and sellers who have flocked here.

I wonder which group is more? I could run a poll if I thought it would be truthfully answered.

Ok whither the market.

That was a VERY strong bounce from March. It caught a lot of us by surprise. It mirrored the US and Canadian stock-markets. As soon as it was apparent that the world (actually the banks of the world) would not be coming to an end, the buyers rushed out to buy, benefiting from lower mortgage rates and lower prices. For a short time the rent/buy comparison got pretty close.

The mortgage rates have inched up a tiny bit recently, the prices have firmed and so the 'great deals' are not so great. Once again the numbers support renting rather than owning.

Now we are starting to see some early signs of weakness. Two things to remember if we have moved into a bear market:

1) The bubble graph suggests that we should start seeing the drop starting soon or all bets are off.
2) The initial drop is precipitous, the subsequent one long and drawn out.

That would support what a RE-savvy friend said last night at dinner. Now retired, I asked him what to do. You missed the big drop last year when the blood was running in the streets, now you have to wait for the slow drop.

Wednesday, September 9, 2009

Buyers Gone Wild

As I said in my last comment in the previous post, folks can get too excited when they are in 'buying mode' and throw caution to the wind.

Not just foreclosures which SHOULD be bought at good discounts to asking, but often ARE NOT...but even regular purchases.

They have probably looked around a lot and finally found something that both partners (and their parents) agree is suitable, they have the pre-approved mortgage in their back pocket which will soon expire, the poor realtor has taken them to dozens of showings, friends are asking.."haven't you found anything you liked yet?", implying they are being difficult and picky.

In short, there is a lot of emotional baggage tied up in the property, and it is hard to walk away if the sellers refuse to budge on price.

That's why it is critical to decide exactly how much house you can afford and stick to it. Remember to draw up a spread-sheet and plug all possible expenses in like repairs and special assessments and higher mortgage rates in a few years.

And look around. There is no need to be panicked into buying. Remember no one HAS to buy, but many people HAVE to sell.

Yaletown and Downtown

Looks to me like the going rate is now $500 +/- /foot. Anyone paying more should have a good reason to do so. Anyone paying a lot less, is probably doing well in this market.

coal harbour:

Here's your choice:

A one bedroom in the Fraser Valley or a 4 bed on an acre in Hawaii:

Sunday, September 6, 2009

Time to clear something up...

I read on many bear blogs that rich outside investors from China, Hong Kong, the US, Alberta, The Middle East, South Africa, Israel etc are helping drive up real estate. (These are just some of the absentee owners in my building)

I think it is true, they are a factor. Especially in the high-end and down-town market.

However before we get too self-righteous about it, we have to remember that one of the reasons we get to live such a high standard of living is due to the constant infusion of outside money.

What do we produce in this Province that has monetary value:

Some of our fruit and vegetables and meat.
Natural gas and hydro power
Natural resources- coal, metals, wood, some oil
Gaming Software
Gold and silver

The price of many of the above have plummeted in value.

Meanwhile we have a lot of things to pay, trips to Mexico, TV's, fridges, medicines, huge medical costs for the greying population, doctors fees, huge costs for the permanently-on-welfare and drug-damaged populations. We also have to pay for a Province the size of a huge European country, where everyone expects clean water, electricity, a school nearby and to be flown down for free, for emergency treatment, by helicopter even if they live in the farthest flung corner or an inaccessible Island.

Then there is the Olympics...

How can we possibly afford all this?

We can't.

We have been kept solvent due to the constant influx of outside money. From tourists, unfortunately from drugs (with all the mayhem that brings) and outside investors. They maybe Taiwanese 'helicopter' families living on the Westside sending kids to Private Schools, they maybe Korean or Middle Eastern investors on the North Shore, Germans buying ranches in the interior or South Americans parking money in our banks.

What they all have in common is the dollars they bring with them. Millions of them to buy their properties, pay for the up-keep and enjoy our Province. Their money moves around, gets taxed, gets deposited in our banks, gets lent out, gets spent again and makes jobs etc etc.

So while us bears may complain about these folks competing with locals for properties, the truth is, without the constant infusion of outside money we could not sustain our life-style. A lot of us bears would probably lose our jobs and the medical and social system would not be sustainable.

Even now our Province is in a serious financial mess. Somehow the Liberals believed that despite the financial catastrophe down south and in Europe we would only have modest deficits, or that is what they told us before they were re-elected. Well that myth has been blown out of the water. Major cuts are coming.

If the money stops flowing from outside, you can expect those cuts to be a LOT deeper.


Friday, September 4, 2009

Rich Dad : The Best 20th century Personal Finance

Just want to make sure that you know Robert has a site that teaches people all about personal finance for FREE, it is one of the most comprehensive resources as well ... its called RichDadWorld.

Even if you don't like this old type of personal finance concepts, you should still sign up and browse through the resources briefly. Its a good way to counter check if you have missed anything. Its almost a guarantee you can find some eye opener concepts there or some key concept you already knew but forgot.

Basically it says you record down how much you earn and spend then set a goal and achieve what you really want in life.

Some may ask why is this called last century's methods ? Well, lets look at some facts ...

1. Starting such an exercise is exhausting
2. Keep doing until it becomes a habit is even tougher
3. 90% or Most people WILL NOT be able to do it
4. The Rich didn't really do this before they become rich
Come on, lets face it, as much as I personally a great fan of Rob, his first book is all about his passion. Dying to share what he has done right especially in property investment. Since then, all other works he did are all about business. So for NOW, if you ever approach Rob hoping him to change your life, keep your fingers cross. His aim is in expanding his bussiness. With that note, it is still SUPERB to work something out with Rob if what you have in mind is 'business'.

Ok, I felt bad already making such a comment. So lets add another positive note. Among all the Riches in the world, Rob is the ONLY person I know who are willing to share his failure openly. May be you need to buy him a few more beers before he opened up but relatively he did open up so much more willingly than .... and the person who is so scare to share his faiulre - Mr. Trump.
With the above 4 points, I mark his site a 20th century personal finance. The only thing missing from 20th century personal finance to 21st century is psychology. Intuitively human are lazy, when not paying attention and close focus, we tends to always choose the easiest path. 21st century personal finance is all about securing a solid personal finance without trying too hard ... by using the right ways ( easiest and laziest path possible ).

Lastly I need to re-emphasize ... there is nothing wrong with 20th century personal finance. Here comes another fact ... if you can do all things mentioned in 20th century personal finance persistently, you are almost "guarantee" a success in your personal finance. However, statistically only 10% of the people would be able to make it. If you think you are the 10%, by all mean go do it! Another great point is ... there is really nothing to lose. Even if one day you found out you are not the 10%, its perfectl OK! You have gained a superb experience. Then it is still not too late to explore 21st century personal finance ... after all, there are 91 years for your to catch up ....