Low pay and property investment, how ironic!

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Yesterday, I had dinner with a senior manager of a top developer in Malaysia. He told me that he intends to buy another property for potential capital appreciation. He already owns more than 2 properties, so it’s not that easy to buy another one but he is doing his best to ensure the bank approves his loan. Many months back, an ex-colleague bought her 2nd property after understanding a little bit more about property investment from me. Her salary is below RM4k. 15 years ago, I was forced to buy my first property, an apartment of 730 sq ft. What do all these three people have in common? All three are working people. Okay, one earns a huge five figure income, another earns below RM4k and 15 years ago, I think my pay was also around RM4k. Second thing we have in common? Our properties would continue to increase in price, even if slowly and the amount is huge, in comparison to the potential yearly increments. Take a look.

Case 1. RM800k landed, growing by just 2% per year is RM16,000 per year or RM1,333 per month.  Assuming this senior manager earns RM18,000 per month and receives a typical 6% increment, that’s an extra RM1,080 per month. It is still lower than the potential capital appreciation from his property. Yes, I know many would like to point out that he is also paying interests for the property. Well, what if he rented it out and the rental covers ONLY the interest portion? 🙂

Case 2. RM350,000, growing by just 2% per year is RM7,000 per year or RM583 per month. Assuming that ex-colleague earned RM4k and has a typical increment of 6 percent, she would receive extra RM240 extra per month. Looks okay as this extra RM240 surely give her a bit more shopping options. However, this is less than half of what her new property is potential giving her.

Case 3. RM123,000, growing by 2% per year = RM2,460 per year or RM205 per month. Assuming I was actually earning RM4k then. With an increment of 6 percent, I would receive RM240 extra per month. Hey, my salary increment is higher than the property price increase! Did I make a loss then from buying the property? In the 4 years that I owned the property, four people stayed in this apartment that I bought. My sister and brother-in-law also pays me room rental every month and it is BY FAR higher than RM240 per month. 🙂

Whether we are a senior manager or a junior executive (like my ex-colleague) or a senior executive like me 15 years ago, we can see that as long as we did not buy some wrong property somewhere, the financial benefits are clear. Property acts as a hedge against the inflation and helps in wealth build-up. I also have another ex-colleague who earns around RM4k (a few years ago) and he says he could not buy a property because his pay is still low. He needs more time to save money. He has TWO cars. One that he drives daily and another one that he uses for driving sessions with his buddies. He has a more expensive handphone than me too. Sometimes, we wonder why our pay is low and we think property investment is always too expensive to start. Well, perhaps it’s time to think of these two as opposite sides instead?The lower our pay the more important property investment is, perhaps? No right or wrong, everyone should enjoy their lives the way they like it. As for those who think perhaps it’s time to start, then really put some efforts into it. Happy investing or driving a ‘better’ car.

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written on 15 March 2018

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