Hi, my name is Ka Hoe and I’m the founder of J Advisory and happy to be back, to be sharing with you after such a long hiatus. I was very busy preparing for my debt management workshop and we have successfully conducted 2 sessions now. So today I’m gonna share with you what I mean by property net worth. Have you heard of this before?
If not, basically, there’s a misconception, which recently, I did a personal coaching with one of my mentees. As I was asking him to prepare his financial compass, basically to know where he is financially right now. He prepared it in such a way that he thought that his property net worth is his property price in SPA, minus his property price, which is the nett price, if you understand what I’m trying to say.
I think you would understand that this is a common thing that developer do when they actually markup the property price right? What I mean by that is for those who were not very sure, I think now is a very common thing where the developer actually sells you say for example a property at RM 500,000 and yeah, I mean in SPA and then eventually give you a nett price of 450,000 and they give you a discount for that.
So my mentee actually thought that the property net worth was the difference between the SPA price versus the nett price, which is not what we’re actually looking for. In actual fact, a property networth is basically the current market value of your property, minus the current outstanding balance of the loan.
Why is it so important for us to know property net worth? This is because for anybody who invest in property you need to understand that over a long period of time when your property increases in terms of the market value and when you continue to pay a loan and the loan amount reduces, this is what we mean that of the widening of the gap where the leverage effects come into play. (The profit you have gotten before you sell, as property is a long term play. This is also known as Property Equity)
So over what time by just having an increase of let’s say 5 percent per year on the property price and having a reduction of what you’ve been paying on your property loan. There is a compounding effect if you understand what I’m trying to say. That is 1 of the reason why a lot of people favour property investment as an asset class into their portfolio because of this effect.
So of course, the bigger the property net worth the better it is and this is very important because without knowing where you are currently financially, it’s actually very hard for you to chart where you want the go-to. So this is 1 of the basic needs that you must know how to calculate. Because everybody wants to be wealthy, but how many people actually know how to do it and know the basics of getting that.
So the analogy I shared in my class was that, can you imagine somebody keeps shouting that he wants to be an Olympics swimming champion but that person doesn’t know how to swim. So how do you even take the first step into realizing that dream? So if this is something that you can resonate with, help me like and share this video and I’m gonna see you in the next video. Peace.