In 2019, I shared the top 3 secrets in investing.
The first one is any time is a good time to enter the market as long as you buy and hold.
Because the market always goes up and down but over the long term, the trend is always up and the ups and downs would become irrelevant.
The second one is leveraging other people’s money, time, knowledge and connections to build your wealth.
The third one is putting your investment into autopilot mode so it’s like a self-running business making money for you.
Now that we’re in 2022, I want to give you another 3 investing secrets, at a more advanced level.
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Secret #1: Know the Rules of the Game
A long time ago, I used to think that an investment was all about making more money with my money.
I was completely wrong.
One of the things I had to unlearn was:
“Debts are bad”.
In fact, debts can be very good if you know how to make use of them correctly.
Let’s suppose I want to acquire a one million dollar property.
If I want to avoid debts, then I would need to save up a million dollars.
On the other hand, if I get a mortgage from the bank, then I only need $200,000, only one-fifth of the cost.
But in both cases, I get to enjoy 100% of the appreciation from the property.
It sounds incredibly simple, but it actually took me a while to upgrade my mindset to think that debt is a very powerful tool to build more wealth.
That’s just one side of the game.
There’s the other side.
Let’s say I’ve been holding onto a property for some number of years and the property value has doubled.
It’s very tempting to just sell and grab the profit.
But wait a minute.
I don’t actually get all the profit.
I have to share it with the government because I need to pay taxes on the profit.
How can I avoid paying taxes legally?
I can keep the property, refinance it, take out that extra equity from the appreciation and buy another property.
You see, instead of paying taxes, I build more assets.
On top of that, mortgage interest is an expense that I can deduct from the rental income, which means the government is actually sharing the cost with me.
So here’s what I think an investment is really all about.
An investment is about how you play the game with the bank and the government.
Keep in mind that they are playing opposite sides in the game.
The bank puts money into your investment while the government takes a bite out of your profits.
You see, a winner of the game is someone who knows how to maximize borrowing from the bank and minimize paying taxes to the government.
We don’t get to set the rules of the game, but if you know how to play according to the rules, you can do very well.
Secret #2: It’s Not about You
Self-use and investment are often two conflicting objectives.
When you are picking out a property for your own use, you would be very picky.
You want to make sure the location is convenient for your day to day activities…
You might want more space…
You wouldn’t mind paying more for a better view…
You see, everything is about you, you, you.
The purchase is centered around you.
If you apply the same principles to pick out an investment property, you are screwed.
Because an investment is not about you.
It’s about what the market demands.
A common mistake that I see investors often make is that they assume most people in the marketplace think the same way as they do and they end up missing a lot of opportunities.
You might think that a 450 square feet 1 bedroom unit is way too small, but it’s actually one of the easiest to rent and sell because it’s a basic entry level product.
If you watched some of my unboxing videos, you know that I often pick up some leftover units, some with ugly views, some with wasted space in the layout.
Why would I do that?
Because I’m a big picture guy.
An investment is not about picking out the perfect unit, as long as it keeps rental income coming and it appreciates well above inflation over the long term, I see it as a good investment.
Over the long run, the small imperfections in a commodity product just become irrelevant.
Secret #3: Earn More with Less Effort
One of the most popular questions I get is whether pre-construction or resale is a better investment.
They are just different.
And you need to understand the key differences in order to make the right decision for yourself.
Buying a resale means that you need to get a mortgage immediately.
With a pre-construction, you won’t need to worry about a mortgage 4-5 years down the road.
If you foresee a change in your situation in the near future and you want to take advantage of getting a mortgage now, then of course resale is a better choice for you.
On the other hand, if you don’t want to carry a mortgage at the moment, then you would go for a pre-construction.
In terms of price, pre-construction is typically 10 to 15% more expensive than resale.
Because you’re buying a future product 4 to 5 years down the road with today’s money.
Let me repeat the key words.
With the pandemic money printing, today’s money is going to be worth a lot less in 5 years.
We’ve already seen a 20-year high inflation rate of 5% over the past year.
Just by doing nothing, your spending power has been reduced by 5%.
Do you think property prices would only increase 10 to 15% over the next 5 years?
It is true that interest rate hikes will be coming to tame inflation.
In fact, the stock market has already been falling because of that, just the news that rate hikes are coming.
Higher interest rates are going to discourage borrowing and many technology companies rely heavily on borrowing to develop new things, so the stock market is very sensitive to interest rate changes.
On the other hand, the real estate market is a lot less sensitive to interest rate hikes.
Let’s suppose there are 3 rate hikes this year, 0.25% up each time.
Mortgage rate is going to go from around 1.5% to 2.25%.
If you have a $500,000 mortgage, it’s going to cost you around $180 more a month.
That’s not going to make a significant difference in the grand scheme of things.
Besides, our mortgage stress test rate is at 5.25%, which is way above 2.25%
So I think the rate hikes are unlikely to cause any problems in the real estate market.
The good thing about the stock market is that you can buy and sell with a few clicks.
But it is also for the same reason that it is much more emotional than the real estate market.
We are already seeing some panic selling over the past couple of weeks and I can foresee some capital flowing from the stock market into the real estate market this year.
The pre-construction condo market offers a very unique opportunity in this money printing era.
You can put down $150,000 cash, do nothing for the next 5 years and just enjoy the appreciation.
That’s how you can earn more with less effort.
In recent history, there were only 3 times when money was significantly printed to stimulate the economy. The situation couldn’t be helped by lowering the interest rate as it’s pretty much at 0 already.
The Great Depression in 1930, then the Great Recession in 2008 and of course the pandemic in 2020.
The 3 secrets I just shared with you have served me well since the Great Recession in 2008, so I hope they will help you out through this pandemic money printing.
It might seem scary to invest now, but remember, every crisis is an opportunity.
If you want to know how to make successful investments in 2022, schedule a call with me at the link below.