“I Screwed Up.”

Kelly Wong @GoodPlaceHQ

Look dude, I screwed up,” Michael (not his real name) sighed as he slumped in his seat in front of me at the HackerHub. But his lethargy soon turned into mild anger. “I bought into this dream of getting rich through property. Someone sold the me idea of buying these three properties. And now I’m $120,000 down. Oh man, I feel like a sucker.”

I sat silently and waited for him to complete his rant. But his anger subsided as quickly as it had risen. “I’m not a newbie by any means,” he confessed. “I’ve owned properties. I bought the place I live in, and also two landed homes in Ipoh over the last ten years.”

“Then what happened?”

He sighed. “I joined a property club.”

cage-facepalm

I braced for the worst.

“…and?”

“So I drove down to KL to attend their seminar, and part of the perks of was a one-to-one mastermind 30-minute session with one of their investment advisers to discuss about my financial goals and life dreams.”

PRO-TIP: When you hear phrases like “mastermind“, “investment advisers” and “financial dreams“, GTFO.

I tried my best not to cringe.

“A day after the seminar, the investment adviser introduced me to an agent who then drove me around KL. He brought me to this showroom where he showed me some glossy brochures of newly built apartments in the city. I bought a small Soho unit by putting down $20,000 on my credit card.”

“You told me you bought three properties.”

Michael gave me a meek smile. “It didn’t end there. I guess he must have smelt blood by then. He then called another agent friend of his, and then chauffeured me to yet another showroom in PJ; this time it was next to the building site. Construction was on the way, and I was told that the condominium would be completed in 2016. I then bought an intermediate unit. I was told that I had qualified for this special package, and the deposit was only $5,000. I was happy.”

“And finally we drove to Rawang where we met up with the investment adviser. They convinced me that I should buy this newly built shop lot which I did. And so, in total I bought some $2,000,000 worth of properties in one day.”

PRO-TIP: If you’re in a poker game, and if you look around the table and you don’t know who the sucker is, then you’re the sucker.

I had wanted to ask him if he also sent money to that Nigerian prince that had been emailing him, but I didn’t want to be mean.

Nigerian prince at GoodPlace!

The $120,000 Lesson

Michael, you don’t look like that impulsive of a person to me. But come on, what on friggin’ God’s earth were you thinking buying three properties in one day?”

He slouched into his seat. “I don’t know, man. I mean, the investment adviser was pretty convincing.”

They all are, dude. They all are.

“During the seminar, we were given this step-by-step plan which sounded pretty feasible to me at that time. Using the spreadsheet that he gave me, I had worked out that I could afford to invest $80,000 in down payment and service a $2,000,000 loan. Next, he would help me build up a portfolio with this budget, and then generate rental income which could cover the mortgage. We’ll then wait for the property to appreciate in value, and over time we will refinance to draw the extra value to buy even more properties.”

PRO-TIP: Don’t automatically assume you’ll be able to cover your mortgage with your rental yield.

PRO-TIP: Property prices don’t always go up.

“This is wrong on so many levels that I don’t even know where to start.”

Michael nodded. “I know. In fact, I was blindsided by my own greed. I mean, he was pretty persuasive, and I really wanted to believe what he said. I remembered driving back on the PLUS highway to Ipoh that evening feeling damn pleased with myself. I had become a property tycoon! Then slowly I came back down to earth and doubts formed in my mind. What if I was unable to find tenants for the properties? Also, what if prices stay stagnant, or worse, come falling down?”

“Yes, all that, but you’ve got a bigger thing to worry about. Bank valuations.”

He chuckled sadly. “Yes, that was proverbial straw that broke the camel’s back. The first property was bought without much fuss. The second property, however, fell short of the bank’s valuation, and I could not get the 80% financing that I needed. At this time I needed to top up $30,000.”

“How about your Rawang shop lot then?”

“I called up the investment adviser, and he told me not to worry as I could wait for the first property to appreciate in price, and the draw out the extra value to refinance the shop lot. But here’s the final kicker… the bank valued the Rawang shop at 85% of what I paid for. By this time it was already too late and I had decided to ask the investment adviser for help.”

I almost could know how this story would end. Not well.

This will not end well

“I then went to the developer’s office and try to negotiate a deal. I was ready to forfeit the down payment, but the developer threatened to sue me if I reneged on the purchase since I have already signed the S&PA at this point. I tried calling up the investment adviser, but as you would imagine, he had gone cold on me. He even had the cheek to tell me that he had quit the property business and had since started selling insurance. As a final insult, he asked me to contact him if I needed a savings plan!”

I tried my best not to laugh. “What happened next to the shop lot purchase?”

I had no choice but to take up the third bank loan and fork out the differential from a personal loan that I took with my Ipoh homes as collateral. But Khai Yin, it’s not just the money although I got burnt really badly. It’s the severe emotional turmoil that I had gone through which will haunt me for life and probably beyond.”

Beware Of The Naked Man Who Offers You His Shirt

Michael then told me that had come to me not to seek assistance, but he had wanted me to broadcast his story far and wide. He knew that I had a distaste for property clubs and gurus, and he didn’t want the same thing that happened to him happen to anyone else.

“So here’s the most expensive lesson that I had paid for in cash and tears, but I’ll humbly offer it to your readers for free. Beware of those who want to help you seemingly out of the kindness in their hearts.

“You have to understand what motivates people. Agents and property clubs are there to make money from selling you property and loan packages. They are not there to help you to make money, although they claim they are. This is pretty disgusting, but that’s the true nature of the business. Never, ever accept anything at face value. Nobody has got your back but yourself.”

The truth is that good properties won’t need to be sold through property clubs. In corollary, these properties are probably lemons given that smoke and mirror sales techniques are used to get them sold. And finally, remember what we like to say here at GoodPlace – if it looks like a duck, walks like a duck and quacks like a duck, it’s no goddamn chicken.

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. Hi, sorry to hear this. This is a business, the more involved you are, the more scary it becomes.

  2. wah — this is badshape case, which club is this ….

  3. Sorry, am I missing something here? The guy has not officially lost 120,000RM. He still holds those 3 properties, right? No doubt it is true nobody gives you advice for nothing, but technically speaking, he doesn’t look like he lost 120000 RM. Perhaps some details are missing. cheers.

  4. My personal take is to treat property investment just like any other business that one might set up. If you were setting a cafe, or a laundry business, would you invite a bunch of people to partner with you? Highly unlikely.

    Look at it from this perspective and property clubs become a lot less desirable.

  5. There’s good reason why some smart Alex said “if you want something done right, do it yourself”

    Just got myself a unit with an agreed price at the lowest end of Bank’s panel valuation plus about RM50k worth of furnishing. Rented out to an expat almost immediately at 5% ROI, Ok lar in today’s market.

    Best part; no Guru, no Club, no Investment Adviser and no buyer’s remorse. Just good old legwork and patience (ok ok and reading through goodplace.my).

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