Taking Risks in Investments and in Life
There is a popular saying that you can bring a horse to the water, but you cannot force it to drink. The horse will only drink when it wants to, especially when it’s thirsty.
Likewise, there are many people out there who are so afraid of taking a little risk to invest in properties that it can often be mind boggling at times. Even if you were to offer to bear all the risks on their behalf so that it becomes a zero risk investment for them, they will still decline the opportunity. My only guess is that they have not become hungry or thirsty for success.
Let me share two real life cases I have come personally encountered. I have intentionally changed some details.
A childhood friend of mine, Mr. A and his wife run a small business and they barely make enough to makes ends meet. Every night they have to give tuition to supplement their income. They make around RM1,000 per month from tuition as the area they are staying is a poor neighborhood. I don’t think they have more than RM20,000 in savings for their old age. Luckily for them, their 18 year old son who is their only child recently won a government scholarship to study overseas. Hopefully upon completion of his studies, their son will come back to Malaysia to take care of them financially in their old age.
Until today, Mr. A and his wife have not even purchased their own home as they have been enjoying cheap rentals of RM300-500 per month for the last 30 plus years. Their logic was that it was always cheaper to rent than purchase their own home. Also, they didn’t want to have a burden of a housing loan over their heads. Had they bought a home and made additional payments to the bank, it would have been fully paid off by now.
More than 10 years ago when Mr. A’s business was doing well, I gave him an opportunity to invest in a medium cost condominium in Kuala Lumpur through an agent who was very close to me. The location was great, the condominium was enjoying close to 100% occupancy with yields of over 8% per annum and the seller was willing to sell slightly below the going market rate.
Being risk averse and I guess, not “thirsty” at that time, Mr. A took a pass on it even when both me and my wife verbally “guaranteed” the deal by telling him we were prepared to take over the property at any time. Our noble intention was to help get them started on the road to property investments as they didn’t even have a single property to their name. I hate to admit it but we were also afraid that they might approach us in future for financial help to educate their son.
Had Mr. A invested in that condominium, today he would have been enjoying a passive income of at least RM500 per month and he would not need to give tuition every night. Also the Property Value today less the outstanding loan would be around RM100,000. In another 10 years once the loan is fully settled, his passive income would be around RM1,500 per month and the property might easily be worth more than RM300,000.
All Mr. A needed to do more than 10 years ago was come up with the small down-payment of around RM25,000 (which my friend had) and take a little risk by borrowing the rest (which he qualified for at that time). In fact, there was actually no risk to him as I was prepared to take over in case he felt uncomfortable at any time.
Today, my friend is over 50 years old and he can’t borrow to the maximum like what he could have done more than 10 years ago. Had Mr. A tasted the fruits of one property investment, it’s very likely that he will want more and more. For instance, a lot of my students are enjoying a passive income of more than RM10,000/mth on their property investments. And many of them are less than 45 years old!
Another good friend of mine, Mr. B, recently bought a semi-detached bungalow in a gated and guarded community in the Klang valley for RM1.8 million. It was a great deal he could not turn down. He was extremely confident of being able to sell it for more than RM2.5 million within 2 years once the construction completed as similar properties in the neighborhood were currently being transacted for around RM2.2 million. The expected nett profit was estimated to be RM500,000.
Since he had “max-ed” out his property loans, instead of inviting his other friends in Malaysia, Mr. B decided to invite his younger brother (aged 35 years) who was working in Singapore to come in as a co-investor. His brother needed to stand-in as a guarantor for the property loan under Mr. B’s name. Mr. B was willing to pay for everything, bear all the risks and give his brother profit sharing of 50%. He didn’t mind giving away such a big share as he wanted to team up with his brother to invest in Singapore properties in the near future. Also, Mr. B wanted to help his younger brother get started in property investments as he was still single and staying alone in a rented apartment.
Mr. B expected his brother to say yes because:
1) His brother had no intention to purchase any properties in Malaysia in the near future
2) There was little risk considering Mr. B already had over RM7 million in property loans. It was highly unlikely Mr. B, being a professional real estate investor, would default on any existing or new loans.
3) The time period of 2 to maximum 3 years was not very long.
4) The 50% profit sharing offered was very attractive.
Guess what Mr. B’s brother said? He said “I will give it a Miss this time”! In a way, it was a blessing in disguise as Mr. B was able to invite another close friend based overseas into the deal at a much lower profit sharing rate.
For Mr. B’s brother, I personally don’t think there will be another time. Often when low-risk high-return opportunities such as these come especially from your own family members or close trustworthy friends, you have to be daring and grab them. Assuming Mr. B does make a nett profit of RM500,000 within 2 years, that money could have been used to start off their joint Singapore property investing journey or be reinvested into other Malaysian properties.
After I related the story of Mr. A to Mr. B, Mr. B frankly told me that he sincerely hopes that his brother does not end up like Mr. A.
For those of you who are in Mr. A or Mr. B’s brother position, my strong suggestion is to start taking some investment risks in your life – preferably when you are still young and able to borrow for more than 20 years. It can make all the difference to your future.
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