20181117 (Sat)
How easy is to run the Crowd Funding Company?
Imagine you now have 10 persons who invest with you RM100,000 each. You have RM1mio, right?
This RM1mio you take 80% to buy a RM1mio property (may be with some kick backs – as expected), with the remaining 20% coming from Nancy who desperately wants to own a property. You are left with RM200,000 in your pocket. You need to make money with this RM200,000.
Your Nancy needs to start paying the RM200,000 loan for 5 years. You need to give back your 10 investors 10% per year (RM10,000 yearly) for 5 years (RM50,000 per person). That is a total of RM500,000. You invest in some stock market with 20% annual return – this is challenging but just for illustration (RM200,000 x 1.2%^5 = RM497,664). By 5 years’ time, you ask your Nancy if she wants to sell this property or not. If she wants to sell it, we split the profit.
RM1mio property by then would probably worth RM1mio x 1.06^5 = RM1.3mio. So, you sold off RM800,000 investment with RM1,040,000 return (80%:20% shared with Nancy. Total return and total cost would be:
TOTAL RETURN RM1,040,000 + RM500,000 (20% annual return on RM200,000) = RM1.54 mio
TOTAL COST RM800,000 (80% of the property) + RM200,000 (investment in stock market) = RM1.0 mio
Net earning = RM540,000.
At time of economic slow down, sorry, 10% no more, but 7% or 5% for your crowd investors. Worst situation is when market is so bad, we can just declare losses. Sorry, you cannot recover your investment – like what happened in China around August, 2018. Hello, don’t you know ALL investment comes with risks!?