#6 Investing - Buying A Property in Singapore with LOW or Zero Down payment? Facts and Truth

You have all seen it....commercials selling "Free" Seminars which will promises how YOU can become the owner of Multiple Properties in Singapore with "Little or NO Money Down". These commercials feature stings of Singaporeans such as yourself telling you that ITS POSSIBLE to own properties with NO MONEY DOWN. Its often so easy to believe what a beautiful looking lady who tells you that in her 20s she is the owner of thirty something properties right here in Singapore.

Are such seminars free? No. What you will be exposed too is a first time "Free" invitation to a LIVE commercial where you will be told of all the benefits of attending the main course. You will be told its your lucky day because just for today, instead of the normal price of $12,888 you can sign up for $2,000.
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As with anything that sounds too good to be true, our first instinct is to disbelieve it as a gimmick. Well here is the truth, IT IS POSSIBLE. However investors should be aware of ALL the pros and pitfalls of such schemes.

Almost NO CASH Down Payment? Heres how...

Lets explore the techniques that some people may employ to "OWN" a property with almost NO down payments. Can a property just appear in your name for free? What are the consequences of such ventures? Always wise to see everything from all angles before embarking on such an adventure.

1. In Singapore its almost Impossible to buy a property without down payments. For residential properties its the LAW for first time buyers to pay at least 25% down payments in Cash and for Commercial Properties banks will finance up to 80% of the cost of the property. Since a down payment is a legal requirement the technique employed is to ask Investors to take an existing loan (Refinance) a property which they presently own. 

Many properties more than 8 years old would have gone up substantially in value and by refinancing their existing home loans an individual can unleash up to 75% of the value of his property in cash. This should be adequate to be enough for down payment for up to three properties of similar value as their home.

This technique is preferred by investors as a home loan is normally the cheapest form of loan as its borrowed against the security of your home.

Eg You Home has a value of $1 Million, you can refinance and get up to $750,000 in cash. This will give you enough down payments for up to three commercial properties of similar value as your home of $1,000,000 assuming each down payment is to the tune of $250,000.

2. An illegal way which may or may not have been employed by some individuals is to collaborate with the property seller to declare a higher amount of the purchase price so that the buyer in turn is able to get a "bigger" loan. The seller will benefit by receiving a few thousand more for his cooperation and thus becomes a win-win situation.

3. A technique taught in some seminars is to use a pool of like minded buyers to pool together and buy a property thus reducing the down payments for everyone. Note that the rental yields will be divided but its yield would remain the same as what you receive will be in proportion of what you pay. The hardest part is finding those like minded individuals and convincing one or more of them years down the road to hold for passive income and NOT to sell. Or vice versa...

4. Register a company and borrow from P2P platforms online. This technique is almost insane as P2P loans come with insane levels of interest will will nullify any rental yields you may have envisioned to receive. Interest can be anything from 5% to 15% per year.

5. Invest in foreign countries which sometimes have zero down payment deals. Its tough to oversee foreign investments and this method is NOT recommended as you incur currency risk on top of every other risk that local property investors are exposed too.

A Sure WIN Strategy? Or?

In order for this strategy to work, these schemes will "Teach" its viewers how to find "Undervalued" companies. By this we will presume that undervalued simply means any property which monthly rentals yields will exceed installment payments to the bank.

Bank Loans in Singapore are generally anything from 2-5% for properties. Assuming a property is found with rental yields of 3% and the investor is able to secure a bank loan of 2%....the investor is thus able to procure a "Passive Income" of 1%.

From a financial standpoint, YOU will be in partnership with the bank. You will incur 100% risk and will reap only 33% of the profits.

For the lady who is in her twenties and owns 30 something properties. This will translate into something to the tune her being in approximately $35 million dollars debt to a local bank/multiple banks and having a "Passive income" of around $30,000 a month. So long as the yields are in her favor she will have a positive cash flow of up to $360,000 a year. Good money for a young person in her twenties.

Now for the risk. We all know that rental yields can go up and down. Bank interest can also rise and fall. At 2% yearly interest a $35 million debt will cost you $700,000 yearly and added to your massive debt. A debt of $35 million at 3% will translate to interest cost of $1,020,000 a year.....every year. Can a passive income of $360,000 a year save an investor under such circumstances? 

Some GURUs will teach you how to MAXIMIZE your rents by carefully sub partitioning one single property into multiple sub units where you can then earn by leasing to multiple tenants. This will raise your yields slightly but still its effect on a monster size loan of tens of millions will be minimal.

Life for such an investor will be an endless game of refinancing and stressing over interest margins. With 35 properties, an investor will be faced with the nightmare of endless phone calls to banking agents and each time a bank sends a letter informing of a rise in rates, it will be heartbreaking.

While such seminar commercials will show you Singaporeans being asked if its "Possible" to own properties with zero or low down payments, it must also be known that its "Highly probable" that no economy can survive 30-40 years without Seeing property markets going through a bad patch. Due to the size of the loans, 30-40 years is a reasonable time frame when making a comparison. Almost every 10 years a market will see its hiccups and wobbles as the market self corrects.

We encourage every investor to make informed decisions and do their homework before committing to beautiful dreams sold by beautiful speakers. A much safer  technique to leverage and make money on properties is to use "Margin" Accounts by local brokerages and investing solely in REITs. That however will be another story for another day.

Invest YOUR money wisely. Discover with us HOW to best achieve Financial Freedom

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