Saturday, October 23, 2010
Getting Started in Property Investments Seminar
Sara and I spent an amazing day at this seminar, held at the UEM academy in PJ. Although I have attended such seminars before, we still learnt a lot from the 2 gurus, Michael Tan and Dr Peter Yee.
One of the important lessons I learnt from Peter Yee is to have a support group. Meeting with like-minded friends once a month, and sharing and mapping your goals out during the monthly meetings will help. Dr Yee himself had the support of his close friends who are property enthusiasts like himself, and they all managed to make good progress along the way. That is because if you don't have a group with whom you could discuss, and which would prod you along the way, it was very easy to slacken and forget about your property goals while you are caught in your daily job.
Another important lesson I learnt from Michael Tan is "What's your number?" which is the amount of lump sum money (pension fund) that one must have at retirement in order to comfortably live out the rest of the years. While he admitted the calculation method did not originate from him but from an insurance company, he still stressed on the importance of realizing the big figure that we need at retirement. He showed us how this principle can be applied using rental properties as the desired income vehicle, and how to work backwards to know how much is the value of the property to be invested now.
Let me illustrate the formulas here:
Pension fund = (Desired monthly income) X (Passing on Age - Retirement Age) X 12 months
Example: Let's say you need RM10k a month to live a comfortable life post-retirement.
This person retires at 55 and projects that he will live till 80.
So his pension fund at retirement is 10k X (80-55) X 12 months = RM3 million
In order to have this pension fund through properties, what is the property value that he must buy now to get this monthly rental income? Assuming this person is able to get rental yield of 8% per annum and there is no capital appreciation of the property.
Property value = (Desired income) X 12 / (0.08)
which is 10k X 12 /0.08 = RM1.5 million
In other words, if this person buys a property worth RM1.5M now which he can rent out at RM10,000 per month, this person has already set up the rental cash flow that he needs.
This is really a very simplistic rule, however the lesson learnt here is valuable nonetheless.