I dont recommend flipping houses

I'd rather go for cashlfow. Buy a house and let it cashflow for the rest of my life...

Wow, just wow

BLR-2% loan of 40yrs Vs BLR-2% loan of 30yrs VS 4.85%fixed rate loan of 30 years

Say you have found a house which has a market value of RM120k and you managed to get it tenanted at RM650 per month for the rest of your life.

How much cashflow would you get based on the type of loan you take?

Most people have the perception that they make more cashflow if they take a fixed rate loan.
However fixed rate loans only have a max payment time of 30 years. Therefore you can only stretch your monthly payments based on 30 years.

On the flipside, major banks today are giving rates of BLR-2% which is the lowest in history. On top of that, you may take a loan of 40 years if you are young enough. Theoretically, you may stretch your monthly payments thinner if you have 40 years.

Let's perform a case study on which type of loans you should take to make the most cashflow.

Inputs:

House price: RM120,000

Rental income: RM650

Down Payment: 10% of 120,000= RM12,000

Max loan= 90% of RM120,000 = RM108,000

Let's assume market will only pick up 2 years from now, so BLR would stay at 5.55% til 2011.

Let's also assume that the simple average BLR of Malaysia for the past 30 years is a cool 8%, so worst case BLR would readjust back to 8% when the bull market comes back.

For history of BLR click here

The question now is, which loan should you take to get the MOST cashflow?

Let's assume Cashflow accumulation is linear and not compounded. Also, fluctuation of BLR will not be taken into account in this calculation as this is a theoretical model.

Case 1: BLR-2% for 40 years (from any major bank, zero moving cost, MRTA included)

For the first 2 years, BLR will be 5.55%
After 2 years, BLR will shoot up to 8%(Average) for the next 38 years.

a)Monthly payment for 5.55%-2%: RM423;

Click on pictures to enlarge

therefore positive cashflow is RM650-RM423 = RM227

Cashflow for 2 years is RM227X12X2= RM5448

b)Monthly payment for 8%-2%: RM593;


therefore positive cashflow is RM650-RM593 = RM57

Cashflow for 38 years is RM57X12X38 = RM25,992

So the total cashflow for the next 40 years would be RM25,992 +RM5448 = RM31440

Case 2: BLR-2% for 30 years (from any major bank, zero moving cost, MRTA included)
For the first 2 years, BLR will be 5.55%
After 2 years, BLR will shoot up to 8%(Average) for the next 28 years.

a)Monthly payment for 5.55%-2%: RM490;


therefore positive cashflow is RM650-RM490 = RM160

Cashflow for 2 years is RM160X12X2= RM3840

b)Monthly payment for 8%-2%: RM646;

therefore positive cashflow is RM650-RM646 = RM4

Cashflow for 28years of= RM4X12X28 = RM1344

So the total cashflow for the next 30 years would be RM3840 +RM1344 = RM5184

Case3: 4.85% fixed for 30 years (from insurance company, must pay 5% moving cost based on assumption)

Monthly payment is RM570
and positive cashflow is RM650-570=RM80

Cashflow for the next 30 years = RM80X12X30=RM28,800

Say,total moving cost is 5%XRM120000= RM6000 (usually is less than this)

Net linear cashflow is RM28,800-RM6000 = RM22,800


Conclusion:

If you are given the choice of taking a flexi loan of BLR-2% and if BLR shoots up to 8%, but your loan is 40 years, your linear cashflow is RM31440

If you are given the choice of taking a fixed rate loan of 4.85% for 30 years max, your linear cashflow accumulated is RM22,800

The difference between these 2 packages is RM8640. So you would make RM8640 more if you go for a 40 year flexi loan of BLR-2%.

Therefore a flexi loan gives you more cashflow IF and only IF you can take a 40 year loan.

On top of that, the advantage of a flexi loan is that
you can withdraw the total amount out for other investments


However if you are entitled to a flexi loan of max 30 years, your cashflow would only be RM5184.

Then it makes sense to take a fixed rate loan of 4.85% for 30 years as your cashflow would be RM22800 which has whopping RM22800-RM5184 = RM17616 difference!

Fixed rate loans do not have a withdrawal advantage.

If you have feedback on my calculations, please write in the comment box below.

Have a nice day.

Man are you crazy?

You see, the only thing between a genius and a moron is a very very thin line.

Read this article:

"During a recent seminar, I challenged all the participants that each one of them must have a goal of having at least RM5 million in bank borrowings for property investments, provided the returns are higher than the borrowing costs. Many participants almost fell off their seats, as it was a little difficult for many of them to comprehend such a figure. Most of them never had any sort of goal as to how much money they should aim to borrow."

Full story here.

How do you find capital gains

Right here of course!

http://www.makingmoneyforextrading.com

There is no better market than the Forex market!

A story of a fresh graduate

His name was Neo. Neo had a degree in engineering from a prestigeous university. After graduation, Neo got a job at a very good transistor manufacturing company.

His income was fixed but he was happy that he got paid more than his other classmates in school. His monthly salary was 3000 dollars. To him, it was a lot of money. He's got game or so he thought...

After 5 years, Neo had accumulated a hefty sum of money and was ready to move on to the next phase in life. He had decided to buy a house. Neo knew that a house is a big commitment. Alot of money would be spent throughout the rest of his working life in order to own a big house.

He said "If I'm gonna pay so much, might as well use the money for a brand new house with a nice view!" " It would be an asset!"

Inside him, Neo assumed that owning a big house would impress his girlfriend very much. His girlfriend on the other hand assumed that Neo should be able to afford a big house for the both of them, afterall she knew she was worth it.

So Neo came across a brand new house in the heart of town. It was worth 250,000.

Neo calculated his monthly payment using the latest lending rate from his favourite bank which is at 3.55% for a loan period of 30 years. The monthly payment came up to 1,130.00 a month.

He exclaimed," Wow! That's like 38% of my monthly salary!"

But Neo consoled himself and said," Oh well, if that is the price of impressing my hot girlfriend, then it's worth it! It wouldn't hurt to pay so much for a beautiful house would it?"

So Neo went on to buy the new house.

As Neo was walking to the bank to apply for a loan, a tall black man stopped him and said,

"Hold on Neo, are you sure you are doing the right thing?

I've been looking for you all my life. You are the one Neo, the one to free us from poverty!

I'm from Zion. It's the real world.

The world as you know today is just an illusion. A big lie! The bankers have made you think that you are living in a world of abundance. That you will never be downsized and that you will always be able to afford a big house.

Your employers had tricked you in climbing the corporate ladder, making you fight for a spot in the system, giving you false hopes that you would get an increment every year.

The truth is Neo, we had been down that path before and now, we are trapped in debt. Our employers had given us false hopes and our company had shut down. We have been jobless for years and we are trapped in Zion, a world filled with tremendous debt!

We have been searching for a savior to rescue us! After years of research, we have found you Neo! You are the one!

If you buy this house, you will forever be trapped in the rat race and there is no way you can free yourself from the monthly instalments.

What more, you will never be able to wake up from the rat race to free us from Zion!

You will not have time in your hands as you will be looking for higher income jobs that demand more of your time. We need you Neo. We really need you! Save us from poverty!

And oh by the way, your girlfriend's been cheating on you. I saw her going out with a pilot. She thinks he's safer because he earns more.

So. Let me offer you these pills. Take the blue pill and you will forget that you have met me. You can go back to your routine, and life as you know it, shall remain as you want it to be. Safe. Secure.

Take the red pill and you will be able to get out of the rat race.

It will not be a comfortable journey but I assure you, you will have more time to help more people.

Besides, you can own more than 1 house and not be bound by an ever demanding girlfriend. Ditch that bitch bro, she's a gold digger."

Neo thought for a while and said " Yeah, that brother's got a point. I don't need to be a slave like everybody else! Hell Yeah! I'm Neo! I'm the one! I can do this!"

So Neo took the red pill and man, his life changed forever!

Neo entered a world where there were endless possibilities. He could do stuff that normal people could not do. Like he had time to learn kung fu and stuff!

Now Neo went on to rent a place to stay for just 300 a month. He didn't need to stay in a big house anymore.

He dithced his cheatin' girlfriend and found another girl from Zion. This new girl doesn't mind staying with Neo in a rented house because she knows that a big house is a liability. She wanted to get out of debt as badly as Neo did. She hung on to him. She's baddass, you know I'm sayin?.

Both of them managed to get more cashflow. They reduced their expenses and used the extra cash to buy 2 rental properties every year.

They looked for auctioned properties and managed to rent out the houses for more cashflow!

After 5 years, Neo was finally out of the rat race. His passive income from his rental properties had exceeded his monthly expenses.

Neo could finally quit his job as income pours in without him going to work everyday.

He finally had time to free the others from Zion.

The best part is, Neo got to travel to California for San Diego's Comic Con on an annual basis totally free of charge!

He could finally live his dream and rest in peace.

Moral of the story. Take the red pill. It'll change your life too!

Step by step guide to owning a free house

1. Look for a house which is worth RM120,000. (You can buy from auctions as the prices are 30% lower than market value) Age of house is not important. As long as house is not tumbling down. The lesser repair needed, the better.

2. Make sure the house could be rented out for more than your monthly installment. To check monthly installment, use the loan calculator on the side of this site and key in the latest interest rates given by your bank. (Interview as many banks as you can to get the lowest rates)

3. Purchase the house with no down payment. How do we do that? Agree with the seller that he/she will quote the house at RM140,000.

4. Go to the bank and ask for a RM130000 loan. Use the extra RM10,000 of the loan money as down payment to the seller.

5. Stretch the monthly payment of the RM130k loan for the longest period so that the monthly installment is the least.

6. The extra cashflow from the rental will be used to reduce the principle of the loan. Your loan can be paid up in the shortest time if you keep on reducing the principle.

You may take money from your EPF Account 2 to pay more of the principle. If you have bonuses, you may put it in too. Be creative. This strategy is best for married couples who have more earned income. For singles, they just have to work harder.

7. Once deal is done, put the house up for sale at 140k. You will either profit RM10k as capital gains or you can choose to keep the house for pure cashflow once the loan is paid up. Step 7 is totally optional.

8. After the lock in period of the loan is over, refinance the house and take out the equity of the house at market value to repeat steps 1 to 6.

9. Repeat step 1 to 8 til very very rich.

The cons of capital gains: You can use the 10k to buy liabilities but you will loose the residual cashflow from the property.
However you can use the 10k to cover whatever debt you have due to education loan or business failure.

The pros of cash flow: You can have infinite cashflow as long as the house is rented out. Some people have so much cashflow from their rental income, they can actually quit their jobs.

If all this does not make sense to you. I really don't know what else does.

Welcome to free house Malaysia.

How long does it take to double your money?

http://www.investopedia.com/terms/r/ruleof72.asp

Say if you can find an investment that gives you 11% of interest.

You would double your money in 72/11=6.5 years!

Yes! it's as simple as that!

Check out this cool tool

EPF withdrawal calculator

Where to look for money!

Here are some facts for you to take money from your EPF account for your house investments:

Fact 1:

Withdrawal to Reduce / Redeem Housing Loan

This withdrawal allows you to utilize your savings from Account 2 to reduce or redeem the balance of yours or your spouse’s housing loan taken from a financial institution approved by the EPF for the following mode of purchase or construction of a house:

• Individual purchase; OR
• Joint purchase with spouse, family members or other individuals; OR

Withdrawal to reduce / redeem the balance of housing loan of the second house is allowed after the first house purchased utilizing EPF withdrawal has been sold or disposal of ownership of property has taken place.

Disposal of ownership refers to 'loss of ownership of the first house owned by you either due to auction, surrender of property by court order, transfer of ownership because of love and affection, destruction of house due to natural disaster, abandoned housing project or cancellation of purchase.

Application Eligibility

• A Malaysian Citizen; OR
• A Malaysian Citizen who has made Leaving The Country Withdrawal before 1 August 1995 and has opted to re-contribute to the EPF; OR
• A Non-Malaysian Citizen who:
  • Has become an EPF member before 1 August 1998; OR
  • Has obtained a Permanent Resident status (PR).
• You have not reached the age 55 at the time the EPF receives your application; AND
• You have a minimum savings balance of RM500.00 in your Account 2.

Step by step process is available here

___________________________________________

Fact 2:

Withdrawal to Purchase a House

PURPOSE

• This withdrawal allows you to utilize your savings from Account 2 to partially finance your purchase of a house individually OR jointly with your spouse or close family members namely parents or siblings.
• Buying of a house with another individual who has no kinship is allowed provided that the other individual is a buyer and borrower.
• This withdrawal allows you to buy a house from a developer or an individual or through a public auction.
• EPF Withdrawal to purchase a second house is allowed after the first house purchased utilizing EPF has been sold or disposal of ownership of property has taken place. Disposal of ownership refers to 'loss of ownership of the first house owned by you either due to auction, surrender of property by court order, transfer of ownership because of love and affection, destruction of house due to natural disaster, abandoned housing project or cancellation of purchase'.

APPLICATION ELIGIBILITY

• (i) A Malaysian Citizen; OR
  (ii) A Malaysian Citizen who has made Leaving The Country Withdrawal before 1 August 1995 and has opted to re-contribute to the EPF; OR
  (iii) A Non-Malaysian Citizen who:

• Has became an EPF before 1 August 1998, OR
• Has obtained a Permanent Resident (PR) status.
  
• You have not reached the age 55 at the time the EPF receives your application; AND
• You have a minimum savings balance of RM500.00 in your Account 2.

Step by step process is available here
____________________________________________

Fact 3:

Housing Loan Monthly Instalment Withdrawal

This withdrawal allows you to utilize your savings from your Account 2 to pay for your monthly installments of a housing loan taken for the purpose of buying / building a house.

This withdrawal is in addition to the withdrawal to reduce / redeem housing loan

Payments will be made via direct-crediting into your personal bank account. or will be sent to you in form of banker’s cheque payable to the financial institution concerned for those with Non Performing Loans (NPL).

Withdrawal Eligibility

• (i) A Malaysian Citizen; OR
  (ii) A Malaysian Citizen who has made Leaving The Country Withdrawal before 1 August 1995 and has opted to re-contribute to the EPF; OR
  (iii) A Non-Malaysian Citizen who:
  • Has become an EPF member before 1 August 1998; OR
  • Has obtained a Permanent Resident status (PR)
    
• You have not reached the age 55 at the time the EPF receives your application; AND
  
• You have a minimum savings balance of RM600.00 in your Account 2.

Step by step process here

____________________________________________

So now that you have the extra cash, what can you do with it?

You can reduce the principal of your home loan hence reducing the term from say 30 years to 15 years!

Besides, you get to reduce your interest by a few thousand dollars! That's like a double bonus!

How can you see this effect?

You can use this tool.

Don't thank me. Thank yourself for dropping by.