Plugging into a real estate ‘ATM’
IF you thought only big-time property tycoons can rely on their real estate holdings to fund their lifestyles, think again. The words “rich” and “wealthy” are often used interchangeably, but what I find fascinating is that the original root or etymology of our English word “wealth” is from the Middle English word “wele”, which ― a long time ago ― meant general well-being.
Middle English was spoken from around 1150 to 1500 AD. So between five and eight centuries ago, the concept of wealth was tied primarily to the holistic, positive welfare of all people, including their contentment, happiness and joy.
Today, though, for all of us to enjoy increased well-being in a world where inflation is embedded within our economic system, we must grow our money faster than inflation erodes its purchasing power. So we should each exercise personal responsibility to learn a little more each year about financial planning and investing.
Toward that end, two asset classes that are well suited at staying ahead of inflation’s insidious destruction of our money’s precious buying power are equities and investment real estate.
Equities are the turbocharger of most portfolios, and I am a mega fan of dividends. Today however, just as I promised readers last week, we will zero-in on the sizeable benefits of using real estate to help us live well. (You may read or reread last week’s column here: www.
Possessing property and collecting rent while waiting for the buildings and land we own to appreciate in value appeals to the latent capitalist within all of us. Yet few of us succeed in building a real estate empire, often because of unwillingness on the part of our esteemed bankers to lend us as much money for property purchases as we might covet.
The scaled down solution then might be to invest in listed REITs or Real Estate Investment Trusts, and in REIT funds. As I’m unwilling to place my financial planning clients into products I don’t own, my personal (modest) portfolio contains quite a few listed REITs, a regional REIT fund and even a global REIT fund. More broadly, this is how my portfolio and those of my clients are structured: They are typically diversified across several asset classes spanning different geographic regions, and built up over a long timeline through the gradual flow of funds from cash and fixed income (bond) savings vehicles into riskier asset classes at many different price points; all that is done to try and stay ahead of inflation.
When savvy investors succeed in this endeavour, they create metaphoric ATM machines that are plugged into rent-generating investments that can provide them with a lifetime of rising passive income. That type of income is nice to have while we’re still toiling for active income but it becomes essential after we retire.
What’s tragic, though, is that many people own property but only in the form of their solitary dwelling place! Understandably, later in life, such people hold off selling their only sizeable asset, their home, for money to live on in late retirement because they don’t want to lose their roof.
Intriguingly, in places like the UK there have been so-called home equity release programmes in place for more than half a century. These have allowed such older folk to sell their home at a discount to the market price in exchange for a legally binding right to remain in their cherished home for as long as they live.
In Malaysia, such a useful facility has just been rolled out by the local company More To Life Sdn Bhd I mentioned in last week’s column.
I touched base with its co-founder Soalen Sittampalam to better understand how a home equity release programme might help asset rich but cash poor owners.
The company’s platform (found at www. moretolife.asia) makes it possible for motivated elderly sellers who wish to monetise their home while continuing to live in it all their lives to raise funds from extremely patient buyers willing to wait years or decades to take eventual vacant possession.
Soalen told me that his platform currently only serves people over 65 living in a landed home in the Klang Valley. Commendably and wisely, in my opinion, his company insists on an independent real estate agent and lawyer acting for the elderly homeowners.
Such an arrangement isn’t for everyone. For instance, those with children might not be interested in a home equity release arrangement, especially if those same children provide their aged parents with generous monthly allowances.
Anyone who opts for a home equity release deal should, I believe, work with a reputable licensed financial planner to allocate and invest the money they raise through the transaction to ensure it lasts as long as necessary. (A great place to start such a search for a licensed Malaysian financial planner by state or even surname would be at the website of FPAM (the Financial Planning Association of Malaysia): www.fpam.org.my/fpam/ membership/membership-lists/)
In closing, if we choose to act wisely we might turn our personal real estate (or even REITs) into a metaphorical ATM that helps fund our retirement years. But monetising such assets effectively requires self-education and personal responsibility. When done right, that can lead us to old style wealth: Long-term personal well-being. Read his free articles at www. FreeCoolArticles.com; he may be connected with on LinkedIn at www. linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com
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