5-O Agency : Together We Share, We Learn

The Biggest Gift A Dad Could Give – A Child’s Financial Security

Posted by faisalrenzo on May 28, 2011

Article by Michael Tan

June has been one of the most amazing months of my life. My wife gave birth to our second child in the middle of June. I took time off from my busy schedule to spend the whole month with my wife and to witness the birth of my newborn daughter, as well as to spend time with my family.

It’s times like these that I count myself fortunate to be able to enjoy time off with my family. To me, this is what really counts. Although I still have to work, my time is very flexible and it is only because we made a wise decision three years ago to invest into real estate. Both real estate and business has given me the opportunity to spend more time with my loved ones.

We are fortunate to live in an age where modern medicine makes childbirth a relatively safe and routine event. However, it can be quite a burden to see how much the medical bills can amount to these days. A decent birth in a private hospital is easily a four-figure or five-figure event. Looking into the future, with an additional member in my family, expenses will definitely go up. According to several studies in the United States, the cost of education for a dual income family per child until the age of 18 will be approximately USD250,000 in total (reference: This would be chalk up to almost RM1,000,000 per child!

A friend once warned me that the aftershock will arrive 20 years later, when it’s time to enrol the kids for higher education. Parents would normally want to provide the best education for their children. Depending on where you intend to send them, you should allocate anything from RM200,000 to RM500,000 per person for their education.

Important questions
As a parent, here are a couple of questions that you should ask yourself.

a) What is a good guarantee that you’ll be able to provide fundamental/ basic higher education to your child without breaking the bank?

b) How can you hedge against inflation, and ensure that you’ve sufficient savings, should the cost of education double in the next 20 years? (It’s very likely!)

c) How can you provide for your children’s higher education expenses for just a fraction of the cost… say only 10%?!

The answer is simple. Yup! You’ve guessed it. Get yourself an investment property or more.

Securing your children’s educational future
To ensure your children’s financial security, you should invest into a property when your child is born. That is one of the safest and cheapest ways of securing your child’s education fund.

Green line = Property capital appreciation
Red line = Loan reduction with time

Allow me to illustrate this in an example.Peg your estimated education fund to a property. For example, you need RM200,000 for your child’s education in 20 years’ time. You immediately invest in the following:

• Purchase property: RM250,000 (Property value to be 25% more than total education value, just to be safe)

• Down payment: RM25,000

• Assume fixed interest of 6% for entire tenure of 25 years

• Assume minimal appreciation of 1% per annum

Looking at the illustration above, at year 20, you could easily sell the property and make a net profit of RM230,063. Alternatively, you could keep the property and still get money by refinancing the loan. If you refinance the property at 90%, you could still cash out RM199,558.20

Regardless of the strategy used, the property could easily provide a good education fund for your child. All you need to do it to manage the property and consistently get tenants for your investment unit. Tenants will rent your unit, which in turn will pay for your loan’s installments, hence indirectly sponsoring your child’s education.

Repeat the steps
If you do it right, you can repeat the same formula for your children’s education fund and also create your retirement nest egg and so forth. I’ve made it a habit to invest in a property for each of my child, when they were born. Perhaps I’ll even extend it to invest one property for each of their birthdays!

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