• Gerald Tay

Rich Invest On Cash flow, Amateurs Invest on Net Worth

Updated: Feb 15, 2020

Amber Park in East Coast sold 115 of 150 units at $2,425 psf in a recent weekend launch.

85 per cent of the buyers were Singaporeans, while the remaining were foreigners mainly from China, Malaysia, Indonesia, India and others.

Prices started from $1.088 million for a one-bedroom plus study apartment, $1.608 million for a two-bedroom plus study, $1.628 million for a two-bedroom, $2.18 million for a three-bedroom, $3.068 million for a four-bedroom plus study, $3.438 million for a four-bedroom and $4.98 million for a five-bedroom premium.

Unit sizes range from 463 sq ft for a one-bedroom plus study to 5,005 sq ft for the largest six-bedroom plus study penthouse.

CDL's group general manager, Mr Chia Ngiang Hong, said:

"Sales for this project are off to a good start, indicating healthy demand for well-located projects that are exceptionally designed. As a freehold project in District 15 located so close to an MRT station, Amber Park draws buyers looking for projects with good investment value."

What a load of Rubbish!

Good investment value? Serously???

Did Chia just do a snakes-oil sales pitch to buyers, the whole of Singapore today has only ONE MRT station located at District 15 ????

We can see many dream-to-become-millionaire property investors on the streets. It’s interesting to see how dreamers of ‘The Next Singapore Property Millionaire’, behave like the hilarious first round participants of ‘The Next Singapore Idol’ contest who are thick-skinned enough to believe they have ‘it’.

My late multimillionaire grandfather said, “The Rich makes money with control, while dreamers always make money on hope… and hope is their only saviour.”

Dreamers invest on capital gains and a hope.

They don’t have intelligence. You don’t need intelligence to make money in a "herd" market, because just anyone can make money when the market is exhuberant.

But when the crunch time really comes, many of these dreamers lose control, confused and panic like lab rats. They don’t have the necessary skills and the pre-controls to prevent a financial disaster.

All they have is… Hope.

They have what I called ‘herd intelligence’. They see the immediate situation just like everyone else. They copy and paste. They think narrowly and call it being focused. They don’t see the surround. They don’t see the consequences.

That’s how dreamers often get ripped into pieces by the unforgiving market. …… For ‘herd intelligence’.

Years ago before the passing of my late multi-millionaire grandfather, I have had the fortune of frequent conversations and debate on investment and wealth with him.

His simple teachings had taught me many vital lessons on REAL wealth acculmulation

Me: “Do you know your Net-Worth and how much are you worth today?”

Grandfather: “I don’t know and I don’t care.”

Me: “I don’t understand.  Why don’t you care and want to know your Net Worth? Isn’t that what defines you and makes you so rich today? ”

Grandfather: “Young man, how do you grow a healthy apple tree that can produce many juicy apples for you?”

I know my grandfather will always give an anecdote to his teachings.

Me: “You need to first plant the seed and watch it grow.”

Grandfather: “For it to grow, what elements must come first?”

Me:  “Constantly water and fertiliser.”

Grandfather: “Correct. For that apple tree to grow up and produce juicy apples, it needs enough constant water, sunlight, food, besides patience and love.

Me: “I still don’t understand.”

Grandfather: “If you only focus on growing the tree to produce apples for you without ensuring it has enough water, sunlight food, besides passion and love, do you think the tree is able to produce that many juicy apples?”

Me: “No, definitely not.’’

Grandfather: “Exactly. And it’s the same with wealth creation. If you constantly feed your assets with enough Cash flow and patience, your wealth with naturally grow.”

Me: “Now I understand.”

Grandfather: “Besides patience and love, the other vital elements to grow your assets healthily so it can produce enough passive income for you, is to ensure a constant supply of enough Cash flow. Cash flow is the food, sunlight and water. Net-worth is the number of apples you can get from it.

Me: “So, if I focus on ensuring enough food, sunlight and water reaches the tree, the juicy apples will come naturally. If I focus on bringing enough Cash flow for my assets, my wealth and net worth will grow eventually.”

Grandfather: “The reason why I focus on Cash flow and never Net-worth is because your Net worth doesn’t tell you anything, just like the number of apples may not necessarily tell you how healthy your tree is.

It’s the Cash flow that will determine your financial wealth and health, and as long as you’ve enough of that coming in every month, you’re financially wealth and healthy.”

Me: “You mean you may have a high Net worth, but you may not be financially wealthy or healthy?”

Grandfather: “Yes.  That’s why the rich always invest on Cash flow, the amateurs on Net worth.”

Me: “Gamblers invest on capital gains. The rich invest on Cash flow.”

Grandfather: “Most of these amateurs think they’re smart to buy and sell on capital gains. It’s called stupidity not investment smart. They ignore good cash flow, and invest on capital gains because they believe their assets will always go up in value.

They want to be like the rich and hope to join the rich club. And they would just simply own any investment like a property so it can increase or add to their Net-worth, and they can feel richer.”

Me: “So it’s not Net-worth that determines your wealth. It’s Cash flow. That’s why I remember you said before you never care about how much your home is worth and how much it can sell, because even though it’s sitting on a valuable 25,000 square feet of land, it doesn’t produce any cash flow for you.”

Grandfather: “Exactly!  And it’s not just Cash Flow. Your Cash flow, like food and water, must be more than sufficient for the tree to grow healthily. If you aim to give it the bare minimal, your tree may not survive. And if you cut the water and food completely, the tree will soon wither and die.”

Me: “Your Net-worth will always fluctuate according to the surroundings (Economy). But with enough Cash flow, your wealth (Tree) will continue to grow healthily and your assets (Apples) will also increase or least be safe no matter what happens. Focus on Cash flow, never Net-Worth.

Grandfather: “That’s the reason why I never care and don’t want to know what my Net-worth is. It’s the quality of Cash Flow I am getting in every month from my businesses, properties and other assets that define my wealth today, not the quantity of those assets I own.”

Invest on Quality, Not Quantity. Invest on Cash Flow, Not Net Worth

It is the quality of your income producing assets that will define your wealth, never the quantity.

As an ordinary investor, if you want to be truly wealthy through property or any other investments, it is absolute vital you need to focus on buying on immediate Cash flow, rather than capital gains (Net worth).

It sounds too tempting to buy on capital gains, knowing your neighbour or your friend just happen to make a $200,000 profit by selling his or her property.

I know many property investors who boasted how many fanciful new launches they have bought recently. The big question here is, “What’s the quality of those investments?”

Hype and Overdone Eggs

As for buyers of Amber Park, they reminded me of naive buyers of Bishan 8 in 1997 and St Regis Residences in 2007.

The contrasts are very similar. During their early launches, naive buyers bought into hype and sales pitches of developers and at high prices believing the properties were a gem.

Both properties turn out to be no more than an overhype sales pitch and overdone eggs that turn rotten.

What can we say? May the force be with them.

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