Introduction
Hello everyone, I'm Spark. Today, I want to share with you how to achieve financial freedom through real estate. I believe many people have this goal of attaining financial freedom. Among the paths to financial freedom, there are two major assets: stocks and real estate. I'll be sharing about both, but today we'll focus on real estate because it's a tangible asset that we can see and touch, making it more accessible to most people compared to stocks. However, real estate is also a large-scale investment. In Malaysia, buying a property can cost around 300,000, 500,000, or 800,000 ringgit. Making the wrong decision can lead to serious consequences. Therefore, it's essential to learn before purchasing a property.
The Path to Financial Freedom
There are two main ways to achieve financial freedom. One is to accumulate a large amount of assets over time. For example, if you spend 40 years accumulating 4 million ringgit, you can then live off this amount until you pass away at 85. During the period from 40 to 85 years old, you are financially free and don't need to work. The other way is to accumulate passive income. As long as your passive income exceeds your daily expenses, you will never have to work again.
How to Accumulate Assets and Passive Income
To accumulate a large amount of assets, you can save bit by bit over time. Whether you save 1,000 or 10,000 ringgit per month, you can gradually reach 1 million, 2 million, or 3 million ringgit. When it comes to accumulating passive income, you need to have a "tree-planting" mindset. You use your money to buy a fruit tree or plant a seed, and over time, the tree will grow and bear fruit, which represents your passive income.
The Problem with the Traditional Methods
The main problem with these two methods is that they are slow. By the time you reach 80 years old and want to retire, your assets and passive income may not be sufficient, and it may be too late.
How to Accelerate the Accumulation of Assets and Passive Income
To accelerate the process, we need to use tools and leverage. Just like using a lever to lift a heavy stone or the ancient Egyptians using wooden sticks to move large stones for building the pyramids, we can use real estate as a wealth - leveraging tool.
Leveraging with Real Estate
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Leveraging Other People's Money: If we rely on our own savings, our asset growth rate is slow. But with real estate, we can use other people's money deposited in the bank. For example, if we have 100,000 ringgit in assets and it grows by 10%, we only gain 10,000 ringgit. However, if we borrow 900,000 ringgit from the bank with our 100,000 ringgit as a down payment, we have 1 million ringgit. A 10% growth on 1 million ringgit is 100,000 ringgit, which is ten times more.
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Leveraging Other People's Time: Working 8 hours a day to earn money has its limitations as we only have 24 hours in a day. But with real estate, when we rent out a property, the tenant pays us rent, which is the result of their hard work. Thus, we are leveraging their time, and the potential of other people's time is infinite.
How to Buy Real Estate and Buy More
Buying the First Property
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Assess Your Finances: Start by looking at your income. If your income is 5,000 ringgit per month, after deducting living expenses of 2,000 ringgit, you may have a monthly balance of 3,000 ringgit. Over time, you may save up 50,000 ringgit.
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Purchase Process: If you want to buy a 500,000 - ringgit property with your 50,000 - ringgit savings, you need to borrow 450,000 ringgit from the bank. The monthly installment might be around 2,500 ringgit. After paying the installment, you have 500 ringgit left. But if you rent out the property and get a rent of 1,500 ringgit, your monthly balance becomes over 2,000 ringgit.
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Long-Term Benefits: As time passes, the value of the property may increase due to inflation, and your loan will decrease as you make monthly payments. For example, in 15 years, if the property value doubles to 1 million ringgit and your loan reduces to 200,000 ringgit, and you have saved 200,000 ringgit in cash, you can pay off the loan and own a 1 million - ringgit asset. Additionally, you will have a monthly rent income of 3,000 ringgit.
Buying Multiple Properties
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The Need for More Cash and Higher Income: If you want to buy more properties, you need more cash for down payments and higher income to meet the bank's lending criteria. For example, for a second property, you still need to prepare about 15% of the property value in cash. And to get a larger loan, you need to increase your available funds.
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Bank's Calculation: The bank calculates your available funds based on your income. If you have an active income of 5,000 ringgit and a rent income of 1,500 ringgit, after tax and deducting 30% for living expenses, your available funds are 1,140 ringgit. This can allow you to borrow around 240,000 ringgit. But to buy a second 500,000 - ringgit property, you need more income.
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Increasing Income: To increase your available funds by 1,000 ringgit, you need to increase your active income by 2,000 ringgit because of tax and other deductions. The main ways to increase income are through salary or business income.
Conclusion
In summary, to achieve financial freedom, we can either accumulate a large amount of assets or have sufficient passive income. Real estate can accelerate this process by leveraging other people's money and time. To buy more properties, we need to increase our cash reserves and income, which mainly comes from salary or business. I hope this sharing has been helpful. In the next episode, I'll share how to effectively increase active income. If you like this video, please give it a thumbs up and leave a comment below. See you in the next video. Bye!
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