Knowing The Risk As A ‘Compressed Loan Kaki’ In Property Investing
What Is Exactly A Compressed Loan?
For all of you who have always been actively joining any seminars by property investment gurus in the market, the term ‘Compressed Loan’ might sound familiar to you. However for some of you who don’t really know, Loan Compression has always been a secret multiple loan submission strategy advocated by some of the property investment gurus in the market. The results? You will be end up investing multiple real estate properties in one shot. (Wooo, sounds awesome uh?) The fact is most of the time what you are getting is beyond your financial affordability.
Tricks or Tips?
It is undeniably that there are many responsible property consultants who are able to guide and help you professionally to invest your property asset by assessing your personal financial status, debt service ratio, job, and many other considered factors. Despite of this, there are still a lot of unethical ‘property investment gurus’ out there who don’t really care about your financial affordability and continue selling their trick to achieve financial freedom in short period by using the Loan Compression method in property investment. They often project you with a wonderful exit plan too. In this way, they can triggers the interest of their attendant in their seminars to follow their steps.
But.. think of this, what if the plan doesn’t work as you or they think? Other than that, most of the time these ‘property gurus’ have ‘dedicated helpers’ to ensure all your loans are taken care well to get multiple unit of properties. (Tip-top service when you signed up their seminars)
How Does It Works?
To get this done, it usually involves 4 main parties in the circle which could be the investors, property investment gurus, developers, and of course more than one bank. In this case, the property investment gurus, developers and banks will work as ONE to assist you in getting your loans submission approval. These ‘property gurus’ and ‘developers’ usually target Malaysian with aged between 35 – 40 years old to involve in their Loan Submission scheme.
In fact, considering the income and other financial factors of these people (usually around RM5000 – RM8000), it is unpractical for them to signed up multiple loan simultaneously. So, how do they bypass the checking of CCRIS in order to get the loan amount which sum up to millions. They have to commit a monthly repayment amount of RM15k – RM30k to the banks. How are they able to make it?
For instance, when a property investor is found to be interested to invest 6 properties from a developer in one shot, the property investment gurus will get them to participate in their Compressed Loan plan. Then this is how and when these unethical ‘property investment gurus’ play into role and join forces with ‘banks’ to approve their house loan submissions. Assuming all the ‘banks loan’ they apply are approved without any issue, so instead of signing one offer letter which giving you the lowest interest, they SIGNED ALL!
These ‘gurus’ will work along with your developers to discuss and markup the net pricing of the property you are buying. As a result, investors will get 90% property loan (FOR ALL THE LOANS THEY SIGNED ON PAPER) based on the mark up pricing to pay off the following:
- Net price of the property before mark up
- 10% downpayment offered by developer to customer (Good thing for developer? They sell it without compromising their profit earned.)
- Cash rebate offered by developer for investors which could support their monthly repayment for around 1 to 1.5 years before their purchased real estate property value appreciate higher than their loan amount and eligible to gain profit by selling off.
Even if they are able to sell off their property, not forgetting about the real property gain tax will be eating into their profit. Real property gain tax is tax you need to pay to government when you sell off your property. Bare in mind we have not taken other cost such as renovation, legal fees, or any other relevant expenses into consideration.
What If The Investors Fail To Manage Their Cash Rebate?
Most of the time these investors will be intoxicated in their current financial status after receiving huge amount of cash rebate from their developer. When these investors use up or fail to manage their cash rebate, they realize they don’t have the ability to settle their monthly loan repayment anymore and evenworse, bank will be declaring them as BANKRUPT if outstanding loan amounts remain unpaid. In Malaysia, there are more than thousand of victims who fall into the trap of these irresponsible property investment gurus and developers every year and still counting. We are not here to oppose all the gurus nor developers. Maybe there are some good ones but generally they’re there to make money for themselves. Thus, always remember to protect yourself first.
After all, there is no right or wrong but we don’t really recommend or encourage to be a Compressed Loan Kaki. Aggressive is good if it’s well thought out, but life has a lot of uncertainties. If you don’t have a big head, don’t wear a big hat. Be practical and wise, not greedy.