Top Secret of Property Re-Finance by Milan Doshi

Milan Doshi shows you how to recoup your original downpayment within 7 years and use that amount for the downpayment of another property via Refinancing.

In chapter 5 of my best-selling book “How You Can Become a Multi-Millionaire Real Estate Investor!”, I wrote on the five types of returns from property investment. There is a sixth and powerful return which I shall call The Secret and Magic of Refinancing!

Unlike other returns like Rental Yield, Capital Appreciation, etc., it’s not possible to come up with a number or do an “apple-to-apple” comparison against other investments.

One unique feature of property investing is the ability to pull money out every few years via refinancing as the value of property increases due to inflation and the outstanding loans are reduced thanks to the rental income. In this article, I will highlight a simple example where you can take out your original down-payment in 7 years. Thereafter, you own a “zero money down” asset working hard for you that generates infinite returns.

Firstly, Some Assumptions:
Purchase Price = RM100,000 for a low cost apartment which most people can afford
Down-Payment = RM20,000 (20%)
Loan = RM80,000 (80%)
Interest = 5% pa
Tenor = 20 years
(the interest and tenor is on the conservative side as it’s possible today to get loans at BLR – 2.2% pa up to 40 years or age 70)
Yearly Installment = RM6,418 or RM535 per month
Rental = RM600 per month which is enough to pay the monthly installment and service charges.
Hence the Cashflow = Zero every month
Apartment Location: within 15 minutes walking distance to a nearby train station where the occupancy is more than 90%.
For simplicity, other costs such as legal fees, stamp duty, etc are ignored.
Other Assumptions: Interest rate remains unchanged, no rental increase and price appreciation over 20 years.

Take a look at how the loan of RM80,000 reduces over time from the Loan Amortization Table below:

Under the column Total Principal Repaid in blue, take a look at the numbers highlighted in yellow. At the end of year 7, the total principal repaid is around RM20,000 which is the original down-payment amount. It’s possible (subject to the bank’s terms and conditions) to refinance this apartment and increase the loan quantum back to the original amount of RM80,000 and cash-out RM20,000.*

* Note: In reality, as property prices go up over time due to inflation, it’s even possible to refinance to an amount higher than the original loan amount. Alternatively, you can pull-out the RM20,000 in a shorter time, perhaps 5 years instead of 7.

What Happens in this Example is:

1. An investor is able pull out his original down-payment or equity of RM20,000 within 7 years and put it to work somewhere else, preferable on a second property. Thereafter, none of his original money is left in the first property. The first property then becomes a “zero-money down” investment enabling him to enjoy infinite returns.

In fact, he can keep refinancing and pull out RM20,000 every 7 years for the rest of his lifetime. Even after he passes away, the apartment will still be around and his children will be able to withdraw RM20,000 every 7 years for the rest of their lifetime. Human beings will come and go whereas properties will always be around!

2. The investor enjoys a payback period of 7 years on his capital of RM20,000. This is not considered long considering the low risks involved as long as the property is in a good location that has high occupancy. In comparison, the payback period for new restaurants or retail outlets which are considered to be much higher risks is approximately 3 years.

For example, a good friend of mine today owns three franchises of a famous kopi-tiam chain. He told me that his investment in one outlet is approximately RM1 million. Each outlet is able to generate profits of around RM30,000 per month or RM360,000 per year. Within 3 years, he is able to recover his original investment of RM1 million which he then uses to open another outlet. On the surface, the returns and payback period may seem very attractive, but the risks he takes are also very high.

Keep Duplicating

If you are a full time employee, it’s possible for you to replicate my business friend’s success via property investments which entails much lower risk. You can easily recover your down-payment of RM20,000 within 7 years which you can then use for a down-payment on your second property. If you wish, you can then duplicate the formula 7 years later (in year 14) by refinancing the first and second property and pull-out RM40,000 which you then use to purchase two more properties.

An initial down-payment of RM20,000 in one property has enabled you to acquire four properties within 14 years. Another 7 years later or in year 21, you can refinance all four properties, pull out a total of RM80,000 and purchase another four properties! This is the best kept Secret and Magic of Refinancing that no other investments can offer!