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The riskiest element in investing and property in the US

Nak kongsi sedikit artikel yg ditulis oleh Azizi Ali tentang pelaburan hartanah khususnya di US.


The riskiest element in investing

I wrote about the advertisements in the media about investing in properties in the US in the July issue of Malaysian Business. In it, I shared seven points as to why all of us should be careful before doing so. While there is no doubt that property prices there are lower than two years ago, there are still a lot of risks for us to take the plunge. One of it is that prices still have some way to go before stabilising. In fact, many experts are predicting that prices will drop further from the current levels.

While the seven points that I mentioned in the article are already a lot, it turned out that there is at least one more point that we should consider. My good friend and fellow columnist of this magazine, Bill Wermine, sent me an e-mail about his thoughts on the matter. Being an American himself, Bill knows a lot more about the country than most of us. It turns out that even he himself would be wary of investing in the US because of all the seven points that I mentioned, plus an additional point.

Let me share Bill’s e-mail with you:

“Dear Azizi,

I read your article about the pitfalls in investing in US property. It was an excellent article.

There is another downfall which in my opinion is crucial and most Malaysians are ignorant – property taxes.

All over America local and state governments are facing budget shortfalls.  A way they are raising money is to go after property owners by raising property taxes and fees related to property.

As a house is visible, it is impossible to hide from tax authorities – unlike gold. If you do not pay the property tax, in some states the government can seize the house. Each of the 50 states has different tax laws, and property is taxed by the state unlike federal taxes where taxes rates are uniform. Property taxes are much higher than Malaysia. Your home would incur a tax of at least USD50,000 a year if in New York, New Jersey or Massachusetts. I am sure you only pay a fraction of this.

I’m paying a property tax of only RM600 per year (quit rent plus assessment) for my house (about 2,200 square feet) in Ampang Jaya. A comparable house in an area close to a city in Maryland would be at least USD800 per month.

The 50 different state property tax laws are a minefield of confusion and penalties.  Before buying a US property a buyer would need to consult with a property tax lawyer – and these fellows are not cheap.

Any Malaysian investor buying a property in America is a sheep waiting to be slaughtered by the tax collector vultures who wait for their prey.

Even me as an American would never venture in a US property unless I lived there and needed a roof over my head. Were you aware of the tax situation regarding property in the US?”

My answer to Bill is that I wasn’t aware of the high property taxes myself.

Now this only adds to the already long list of complications that awaits anyone who wants to invest there. I’m willing to bet that there are even more points that will only make things worse.

This is why I always caution my coaching clients, readers and seminar attendees to be very careful before investing overseas. While the investment itself may look lucrative and profitable, often time, there are hidden dangers and traps that lie unseen. The high property taxes in the US is just one example. We in Malaysia do not even consider property taxes when buying properties. So we assume that the same thing applies in other countries. But this assumption is dangerous and often costly. Many things that are normal here are not applicable elsewhere. Many fees that are low here are nose-bleedingly high in other countries. Often time, traps like these have led investors to lose a lot of money.

The riskiest element is the investor himself

This brings me to the main point of this article – the riskiest element in investing is not the investment. Actually, the riskiest element is the investor himself. <

I have seen, and I’m sure you have as well, people losing money from the safest of investments. At the same time, I’ve seen people making money from the riskiest of investments. While there are many reasons for this, a common thread why people lose money in ‘safe’ investments is because they know very little about the investment. Often time, they know nothing about it all. They made the investment because someone they know made the same investment. Or they were talked into it by a salesman. And usually such blind-faith investing does not end well.

Now while an investment can be safe, it does not mean you do not have to learn about it at all. Just because it is categorized as a ‘safe’ investment does not mean you will definitely make money investing in them; that all you have to do is to deposit money and then the investment will do the rest and dish out the returns tomorrow.

Actually, if you know very little about it, even a safe investment will turn out to be a risky proposition for you. If you do not know how the investment makes money, who the managers of the fund are, their fees, the track record and the future prospect of the investment, how can you expect to make money from it consistently? Wouldn’t it be like expecting to track across Taman Negara without any equipment, guides, training or even knowledge on jungle survival? In all likelihood, you will be lucky to come out from the jungle alive!

However, if you took a course in jungle survival, you would have increased your chances significantly. If you brought all the relevant equipments – compass, Sat Nav, food, water, parang – you would increase your chances further. And if you brought along two Orang Asli guides with you, I believe that you would appear on the other side of the jungle not only in one piece but ready to write a book about your experience!

Educate yourself on money matters

Likewise, your chances of making money from an investment would have increased significantly by educating yourself about it. You can do this easily by reading a few books on the subject matter, attending seminars on it, observing others and learning from the true experts. While this is no guarantee of success, it is clear that your batting average would rise with the knowledge.

One example of a risky investment is property auctions. If you don’t know what you are doing, you can get seriously burnt. So it is a risky proposition for most people. However, if you know what to do and what not to do, there are plenty of opportunities for you here!

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