Buy properties with little cash? It’s too good to be true

It is not a sure-win to invest in properties for rental income when many businesses are shutting from the downturn, leaving many shops vacant. ST PHOTO: LIM YAOHUI

The marketing materials of a property education company claim that it can help its students buy properties with little or no cash down payment.

To prove that its “secret” formula – taught only to those in paid courses – works, it shows photographs of past participants who had apparent success, such as buying two properties in 18 days.

As such claims seem too good to be true, some netizens have questioned whether this course is a scam.

The firm responded to one such post with: “(Our company) is not on the MAS alert list… You can verify here at this website“.

The Monetary Authority of Singapore (MAS) is aware of companies using its name to lure customers with false assurances.

However, the fact that a company is not listed on its Investor Alert List does not mean it is regulated or approved by MAS, says a spokesman for the authority.

The list, which is not exhaustive, indexes unregulated entities that give the impression of being licensed or regulated by MAS.

“It is important to note that MAS’ regulatory safeguards apply only to regulated entities.

“Hence, consumers must exercise caution when dealing with all unregulated entities, including entities that may not be listed on the Investor Alert List,” the spokesman says.

It would be unwise to base any investment decision on whether a company has been flagged by MAS on its alert list, as the authorities cannot immediately identify every single dubious case since new entities can appear any time.

So the safest way is for investors to deal with companies that are listed on MAS’ Financial Institutions Directory, which lists financial institutions regulated by MAS, as well as the activities they are authorised to provide.

The spokesman says: “MAS strongly encourages consumers to deal only with entities regulated by MAS, so that they will be protected by the laws administered by MAS.

“Our regulatory regime seeks to ensure that investors receive adequate information to make well-informed investment decisions, and are dealt with fairly by product distributors.”

This follows its advisory to Singaporeans to be wary of irresponsible sales tactics of some parties here that use the fear of uncertainties in a pandemic, as well as the promise of easy money, to lure people into signing up for their property investment courses.

Possible to own properties easily?

The claim that even those who face job uncertainties now can suddenly own multiple properties overnight without having large sums of cash for the down payment is certainly too good to be true.

The premise is simple: Borrow money from the bank, buy multiple commercial properties and collect rent to pay for the loan.

If you own multiple properties, this means multiple sources of passive income so you no longer have to work.

Of course, happy endings are guaranteed in a make-believe world.

If this is so easy, the most coveted position in Singapore should be that of a landlord, since it is only about earning money and no work.

Yes, it is possible to own a property without any cash because you can borrow money from your relatives or pool money with friends to make the purchase.

But this is a highly irresponsible act because you are investing with other people’s money.

As with gambling, you may win, but what if you lose?

In good times, property investment does sound like a good idea, but the whole world now is being ravaged by a pandemic that is not ready to go away yet.

If well-known companies here and around the world can fail due to extreme poor business now, what makes you think your investment property will still yield high rental income for you?

Furthermore, if the going is so good, why would the current owner sell the unit to you when he can collect his rent and enjoy passive income?

A savvy investor is someone who has made plans for the worst-case scenario so that a failure does not ruin his life.

So those who play with money that they do not have should think hard about whether they want to put themselves under such great risk.

Here are some prudent tips on property investment from MAS worth heeding.

No quick gains with properties

Buying a property is a long-term commitment that carries an obligation to service mortgage payments.

It is not without risk, and these risks can greatly increase with debt leverage, rise in interest rates and during economic downturns that can affect property prices and rental yields negatively.

So, you should buy a property only after careful consideration of your means to afford it, especially during a recession.

Setting up companies

You can set up a company to buy commercial properties. But banks will perform due diligence to check the creditworthiness of the people behind such ventures.

So those who try to over-leverage on their borrowings for speculative purposes will probably get much smaller loans now.

Following the recent spate of irresponsible business tactics and MAS’ advisory, you can expect banks to scrutinise each application more closely now to avoid having to foreclose on properties that the borrowers cannot afford.

Pooling people together to buy properties|

Even if you are only a co-owner, once a property loan is taken out, you can be liable for the full property loan amount if other investors bail out or if there is insufficient rental income to pay for the loan.

There are also other costs such as stamp duties, property taxes and maintenance fees.

Before entering into such deals, you should also ascertain who or which entity is holding the property title deed and whether the holder can sell the property unilaterally.

Most importantly, check the exit strategy on how you can cash out if you want to take profit or how much you stand to lose if the investment fails.

There is a reason why the Government took the unprecedented step of enacting a special law to grant rental waivers to both retail and commercial tenants here.

The circuit breaker and the lack of visitors have dealt a big blow to many businesses here, with incomes plunging to levels not seen in previous recessions.

That many employees will still work from home in the months to come means that many companies will be looking to cut their rental expenses on leasing office and commercial space to reduce costs.

In such dire times, those who still buy properties for rentals without regard to their affordability are truly irresponsible about the well-being of their families.

“Source:[Buy properties with little cash? It’s too good to be true] © Singapore Press Holdings Limited. Permission required for reproduction”

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