Investing in Real Estate

Real estate is usually one of the most expensive purchases that a person ever makes. The cost of real estate has risen significantly worldwide over the last decade until the economic problems came to life. Even now that housing prices have stabilized, they are still much higher than at the start of the last decade.

This can make it difficult for people to buy or invest in real estate, but it is great for anyone who bought before the prices started to rise. As any loans on the property are paid off over time, the cost of living there will be limited to any taxes and repair bills.

Advantages of Real Estate

As well as providing you with somewhere to live, or work, real estate can really work as an investment. If you own housing, you can rent it out to bring in a nice amount of money every month to supplement your salary. You will have to pay out for any repairs, and bad tenants can do a lot of damage, but many landlords have an agency that takes care of all that for you. Another advantage of property is the high cost of it. It might cost you a lot of money to buy, but you can usually sell it for a profit. Many landlords accumulate a portfolio of property that they use as a retirement fund, and sell it off when it is time to retire.

Disadvantages

Real estate is really expensive, and it can be difficult to borrow the money you need to buy a property. This can make it very difficult to start investing in real estate, although treating it like a business and presenting a solid plan to your bank may help if you want an investment property. A lot of people also end up asset rich and cash poor.

Choosing Real Estate

The hard part is choosing which real estate to invest in. Your intended use of the property will determine which is suitable. A house for your family might be a completely different choice to a property intended for rental to the holiday market in a resort area for example.

If you have the necessary skills, then you can make a lot of money by buying properties that need renovating and performing the necessary repairs. Your skills will enable you to perform the repairs quickly and cheaply and you can turn around real estate like this for a profit within a short space of time.

Building and maintenance skills are also useful if you want to be a landlord. By doing the repairs yourself it will save on the costs of paying for skilled craftsmen. It will also save money if you can manage the real estate yourself and deal with the tenants, but many people prefer to use an agency to do that.

Real estate can be a great property investment that can make a great profit, but can lead to large losses. Anyone considering property as an investment needs to research the market properly and invest in the right property in the best location they can afford.

[This is a guest post]

How Much of Salary to Save

Based on a recent online survey, it was found that 2 out of 3 Singapore workers were saving no more than 20 per cent of their monthly salary. How much salary do I save?

I figured that I am currently saving about 30% of my monthly salary.  This goes into savings plans, bank deposits or stock investments.  This is probably possible for me because I have kept my "wants" to the bare minimal.  Apart from the occasional dining at restaurants, I probably do not spend much on anything else.  No gadgets, clothes or whatever.  So most of my expenditure is really going into my needs and paying for the bare essentials.

Based on my rough calculations, I also figure that I am possibly able to save as much as 50% of my salary if I really want to.  But that will really mean cutting back on many of the "luxury" items that I can afford.  Saving comes really easy to me as I am pretty much of a saver rather than a spender.  I do not see the need to have or own the latest toys and gizmos.  Being frugal is perhaps part of me =)  And that is perhaps why I have written posts like:

1. What am I saving for?
2. Saving Money on Coffee
3. How Much to Save
4. Saving for My Child's Education

As many people have always advised, it really is not about how much you save.  The most important thing is to get into the habit of saving.  Try to build up an emergency fund and also set up a disciplined savings plan for retirement.  Thereafter, it should get quite easy as you discover more and more ways to save money.  Like they say, the first step is always the hardest.

What Should I Do With My Ang Baos?

Recently, I asked readers for their views on what should I do with my annual bonus.  This was really triggered by reading the newspapers and learning that most Singaporeans actually intend to spend their annual bonuses instead of saving it.

Since the Lunar New Year is upon us, I am sure many readers are still in the privileged group (i.e. unmarried) and are still entitled to collect red packets (or what we commonly call as Ang Baos in Mandarin).  Again, I post the same question:  What will you do with the money in your red packet?  

Or for those of you who are no longer entitled to collect red packets, what do you wish that the receivers of your red packets will use the money for?

At the same time, I will like to wish all readers a Happy Lunar New Year!

Retirement Age and Retirement Planning

As soon as we settle into working life we start to look forward to retirement - that great day when we can leave work for the last time and be free to enjoy our golden years. For most people, this happens at the birthday after you reach the government retirement age. Some people are lucky enough to have the financial security they need for early retirement.  In either case, some form of  retirement planning will be required.  Retirement planning basically involves finding out the age that you will retire at and working towards saving enough money so that you will be able to live comfortably without drawing a salary when retirement comes.

The Retirement Age Act

In Singapore, the Retirement Age Act determines the minimum age of retirement. A person can currently retire the day before their 62nd birthday. This may change in the future, and as the average population ages the retirement age is likely to increase like it has in other countries. In some parts of Europe the retirement age is as high as 67 currently.

Employment Contracts

The employer should give the employee advance notice of their retirement unless their employment contract explicitly specifies it. It is also unnecessary for the employer to give any retirement benefit unless it is in the contract.

Employers do not have to retire an employee once they reach retirement age. If both are happy, then they can continue to work for as long as the employee remains fit and able to perform their duties.

Wage Reductions

To help companies in Singapore continue to employee older people, it is legal for them to reduce the wages of employees over the age of 60. This can be a straight salary reduction, or a reduction in any other employee-related costs such as bonus, benefits and pension contributions.

This can lead to experienced people losing up to 10% of their salary as soon as they celebrate their sixtieth birthday. Luckily, employers cannot just base the reduction on age alone, but must take into account other reasonable factors. These can include the employee’s ability to perform their duties fully as they age.

It is important to remember that the 10% is a maximum reduction and can be taken off in one chunk or in several smaller deductions. This allows the employer to effect a gradual reduction to the employee’s salary over a period of time.

Working after Retirement Age of 62

The Singapore Retirement Act does not allow for compulsory retirement at the age of 62, and neither does it stop anyone continuing to work beyond that age if they want to. Anyone who wants to continue working should arrange it with their employer. Re-employment after age 62 is also probably going to be a norm in the future.

Other Exceptions

Some fixed-term employment contracts are immune from the Retirement Act. People on these contracts can continue to work as normal and then retire at the end of the contract. A notification exists to the Retirement Act that specifies which people are exempt.

Conclusion

Retirement usually marks the end of your "paid" working life, and for many people it is something to look forward to. Others love work and try to continue working for as long as they possibly can. Whatever your views, it is important to know the laws in your country concerning retirement so that you know what are the likely scenarios (e.g. pay cut)  when it is your time to retire.

"How to retire in Singapore?" is perhaps a question that is often on people's minds.  For some people, it might even involve drastic moves like moving to a cheaper country to retire (read: Retire in Philippines).  Well, if you are interested, you can also read some of my thoughts about retirement and let me know what you think.

Land Banking Investment Risks

[Photo credits: Image by kwerfeldein]

Land banking is an investment scheme where someone buys a piece of land and sells it later for a profit. Sometimes they divide the land into a number of smaller plots and sell each one to generate a profit. The investor can hold the rights to the land for a short time and make a quick profit or hold the position for years before selling the land.

Often the plot is a piece of pristine land that is agricultural in nature, but it can also be former industrial land which might be contaminated. If the landowner is able to get building permission to develop or rezone the land,  it will increase the value of the land, and they can make a profit by selling it to a building developer. Sometimes the land is completely undeveloped and it might be possible to use it for farming.

Advantages of Land Banking

One of the great advantages of land banking over other kinds of investment is this:  the investor owns something that physically exists. This is different to stock and commodity traders who own a certificate, a piece of the business which is not really tangible to certain people or in other more complex finance instruments, they are just "numbers on a computer". Land banking thus often appeals to a different kind of investor who like the idea that their investment is actually a tangible asset.

Problems with Land Banking

I have written previously to beware about land banking, primarily because it is often an unregulated investment in many countries.  In a previous poll that I did on this blog, respondents also felt that land banking was one of the more toxic investments around.   Most people in Singapore are also probably aware of the case surrounding Profitable Plots which was involved in land banking.

Like any other form of investment, the price of land can go down as well as up. If the piece of land contains industrial contamination or can never get permission for development then it becomes effectively worthless.

Another problem with land banking is that a number of unscrupulous people have used it as a way to defraud people. They buy a plot of cheap land and then produce fake documents that make it look like it is worth more than it actually is and sell it on to unsuspecting investors. The rogue land bankers just vanish with the money leaving the investors with a worthless tract of land.

Locations of the Land

Land bankers can, in theory, invest in land anywhere in the world. However, some countries have laws that prevent non-nationals from owning land. If you are considering investing in land it is important to consult a lawyer who is an expert in the laws where you are buying the land. This will help to prevent any legal problems surprising you in the future.

Environmental Issues

In some areas of the world, virgin land is being taken and cleared to become agricultural land. This virgin land is often some way from existing agricultural land and infrastructure making it cheap to purchase. The investor can then hold the rights on the land until the infrastructure moves closer to it. At this point, they can rent it out to farmers or sell it for a profit. It might also be that the land is in an area suitable for mining and the investor buys the land in the hope to sell it to a mining company. In either case, the government could decide that the land lies within a protected area

Buyers Beware

Land banking is one way for people to invest and actually have the feeling of owning something tangible. It can be a great way to make money, but it is also a risky business. Anyone considering this should probably get legal advice first and only risk money that they can afford to lose.

What Should I Do With My Annual Bonus?

The Sunday newspaper carried an article on how people were intending to spend their annual bonuses.  While most have or were planning to spend it on holidays, clothes and IT gadgets, others were thinking about saving or investing a part of it.

The article got me thinking on what I ought to do with my annual bonus.  Currently, it is seating in the bank and I realised that it is not being put to good use.  One idea that I have been toying with is to pay off my car loan which is still outstanding.  The idea of being a little closer to being debt free is just so appealing right now.  By paying off my car loan, I will just be left with my housing mortgage loan.

Another idea will be to invest that sum of money in a mixture of REITs as well as monthly dividend stocks like Gamco Global Gold & Natural Resources Trust (GGN).  This will serve as a passive income flow for me.

For REITs, I am choosing between Suntec REIT, Sabana REIT and LMIR Trust.

Any ideas or suggestions from anyone?

Investing in Silver

Since man first discovered silver, it has been an object of desire for both its value and its use as a form of money. This usually means that investing in silver gives a good long-term return to the investment.  Not too long ago, I wrote about buying silver in Singapore, how I was buying more silver (for collection purposes) and also some of my broader investment thoughts for 2012.  Of course, I warn readers not to take what I write as any form of personal finance advice.

[Picture credits to digitalmoneyworld]

The Silver Market

The market for silver is not as big as the gold market, but is still worth an estimated $15 billion annually. Traditionally, the price of silver tracks the price of gold. The ratio was set by United States law at 1:15 in 1792, but price increases in both metals meant that the gold/silver ratio rose to over 1:60 in 2009. The price of silver has continued to rise and reached record levels in 2011, with the average price reaching $41.20 for one troy ounce.

Like most commodities, silver trades on a market with traders buying and selling the metal to make a profit. The London silver bullion market is one of the main places where it trades. Another is iShares.

Silver in Banks

In some countries investors can walk into a bank and buy silver bullion over the counter. This can then be taken home and stored in a safe or kept in a safe deposit box in the bank. It is even possible to store your silver in allocated or unallocated storage with a bank or dealer to keep it safe.

Silver comes in a variety of bars, including:
* 1000 oz troy bars (31 kg)
* 100 oz troy bars (3.11 kg)
* 1 kg bars
* 10 oz try bars (311 g)
* 1 oz troy bars (31.1 g)
* Odd weight bars

The most popular bars are the 100 oz troy, with popular brands including Engelhard and Johnson Matthey. The branded bars are usually worth more than unbranded or odd weight bars.

Investing in Silver

Silver can be both a long-term and short-term investment. In the short-term, investors can trade silver for a profit in the same way as any other commodity by always aiming to buy low and sell high. Market fluctuations can give profits on each trade, but also losses meaning that this can be a risky investment as one needs to know how to time the market (something I admit I am totally not good at!)

Over the longer term, the price of silver has generally risen, with a sharp rise over the last few years. This is great news for anyone that owned silver before 2005, but not so good for anyone thinking of investing now. Of course the market price could continue to rise, but nobody knows for sure and it could fall back down to earlier levels.

Over the past few years, investing in silver has been a great way to make money. The price has increased by eight times in 11 years and doubled since last year, but that does not mean that it is guaranteed to continue that way so never risk any money that you cannot afford to lose.

You might also be interested in reading the recent article on Investing in Gold.