Steve book 2017 Final Print Version PDF

A STEP BY STEP GUIDE TO PURCHASING Don’t panic. Your ongoing role is fairly easy. Take some photos of your new property, open a bottle of champagne and celebrate, then pass over the keys to your property manager. Next I would advise you to open up a separate bank account for your property management purposes. I recommend if the funds are available that you place $5,000 in this bank account – a bit of working capital as a slush fund. Next arrange to have your property rental, tax refund and place your own weekly contribution into this account each month. Then arrange your interest payments to be taken out of this account each month. Now each month balance your account, make sure the rental and tax refund are going in and you are placing enough personal contribution to cover the monthly shortfall. Every 6 months review your capital growth with your finance specialist, to see when it’s time to add the next property to your portfolio. And when the time is right, buy your next investment property. - 149 -

Chapter Eleven Building Your Support Team Building wealth through property investment should be viewed as a business, not just a hobby and as business it needs good support – people with the right experience to assist you. It is just not good enough to find a property with your local real estate agent, have a family friend handle the legals and then call your local bank manager and ask for a loan. - 150 -

BUILDING YOUR SUPPORT TEAM Sadly our statistics show that less than 5% of investors who handle their property investment purchase without professional assistance and mentoring will never get passed their first investment property purchase. They never create the property portfolio they set out to build. Over the years I have witnessed that people who have purchased their investment property through their local real estate agency and used family friends to handle their legals and finance, are the least likely to make it as successful property investors. - 151 -

BUILDING YOUR SUPPORT TEAM I have also observed, over the past 3 years, approximately 70% of those clients who used a family member or friend for legals or finance, never went through with their investment purchase. - 152 -

BUILDING YOUR SUPPORT TEAM They simply lost their dreams to a Dream Stealer. And those who did complete their property investment purchase quite often ended up with the wrong finance structure22, the slowest legals, inferior service and strangely enough, they usually paid more for the privilege. Free or discounted legal, finance or accounting advice can become the most expensive advice you will ever receive, if you lose your dreams because of it. Remember, if your support team does not fully understand your goals of becoming wealthy through using the concept of building an investment property portfolio, then they can become your Dream Stealer instead. 22 finance structure: The way in which your finance is arranged in relation to your personal circumstances. - 153 -

BUILDING YOUR SUPPORT TEAM It only takes one silly comment to make this happen. The following is a story of how one of our potential clients had their dreams stolen by a Dream Stealer. The client was using her own lawyer for handling the legals on her investment purchase, he was a family friend and she had been using him for years. During her appointment with him, and as they were going through the contract, he said to her (and I kid you not), that if the Taliban were to fly to Sydney and bomb her new investment unit, that it would not be insured and she would lose her family home. - 154 -

BUILDING YOUR SUPPORT TEAM It was with that simple, silly comment her dreams were stolen. Her lawyer and friend had become her Dream Stealer. - 155 -

BUILDING YOUR SUPPORT TEAM She did not proceed with that, or any other, property investment purchase. The property she let go of because of her Dream Stealer, went up in value by over $45,000 in the following 9 months. That’s $45,000 she had lost through bad advice from someone she trusted. - 156 -

BUILDING YOUR SUPPORT TEAM Having seen similar scenarios occurring frequently over the years, I cannot stress strongly enough that it is vitally important to the success of your venture that you put together a professional support team to assist you in the building of your property investment portfolio. You may think that I am overstating this point, but I am simply trying to save you from making the same fatal mistake that I have seen so many people make before. It may require a bit of extra work to put your support team together, but it will be well worth the effort in the long term. A good support team consists of the following: 1. A property group that: - specialises in residential property for investment purposes. - understands what you are trying to achieve. - understands the concept of building a property portfolio. 2. A financier who: - specialises in property investment structures. - can set up your finance so that you can build your portfolio and maximize your tax benefits. 3. A legal team who specializes in all areas of conveyancing23 – especially off-the-plan contracts. 23 conveyancing: The transferring of a property from one person to another. - 157 -

BUILDING YOUR SUPPORT TEAM 4. An accountant who is himself proactive in the property investment area. One who believes that property is a good investment. 5. A property management company that is creative, is on the ball, finds you good tenants, and can maximise your rental returns. 6. A quantity surveyor24 who can quickly and professionally provide you with a detailed depreciation schedule for your investment property, so you can maximise your tax benefits. Once you have selected your team, if possible introduce them to each other or explain to each of them, who the other members of your team are and what role they play. 24 quantity surveyor: one who can professionally ascertain the value of a property’s construction cost and fixtures and fittings. - 158 -

BUILDING YOUR SUPPORT TEAM Explain to them that you are building a property portfolio and they will be working with you and each other to assist you to build it. I assure you this will make it much easier for you to reach your goals. The importance of selecting and putting in place a good support team, who are all positive and pro-active in helping you achieve your personal goals, cannot be understated. It’s also important to locate someone in your life who is positive and successful. Someone who will be a good mentor. Someone that you can talk to when doubt and fear drift into your life, trying to knock you off course. Someone who will help you get back on track. - 159 -

BUILDING YOUR SUPPORT TEAM Now, I know it’s not always easy to find someone like that, but just keep looking and someone will turn up. Also when you get a chance, send me an email to: [email protected], let me know how it’s going and tell me about any successes or problems you are having. I would love to hear from you. - 160 -

Chapter Twelve What More Can You Learn? The world of property investing can be exciting as well as extremely profitable and like most professions the more you learn and develop your skills the more wealth you can create for your family and yourself. This book serves as a simple guide to help you get started with your first investment property. It is by no means a comprehensive guide to property investing. - 161 -

WHAT MORE CAN YOU LEARN? There is so much more you can learn as you go along. It is vitally important to keep on learning new ideas and advanced methods of property acquisition. The information and knowledge regarding advanced methods of property acquisitions and building a property portfolio are contained in a variety of property investment books, some of my favourites are listed in the back of this book in the Appendix. So what else can you learn? I have outlined a few advanced techniques that are possible for you to learn as you develop your skills as a property investor. 1. How to balance and grow your property portfolio with a combination of negatively geared properties and positively geared properties, so your out of pocket weekly contribution is greatly reduced. 2. What is an option and how do you use them to secure properties for future purchase, for a small amount of money out of your pocket. 3. How to 100% finance an investment property by getting the Vendor to lend you the deposit. 4. How to find property below bank valuation. - 162 -

WHAT MORE CAN YOU LEARN? 5. How to create immediate equity in your property portfolio. 6. What is property trading and how to make money from it. 7. How to become a property developer. The above is a sample of what you can learn to do, as a professional property investor and by learning new skills it will help you to accelerate the growth of your property portfolio and also your personal wealth. - 163 -

WHAT MORE CAN YOU LEARN? A great motivational book is the one written by Jan Somers entitled: “Story by Story”. It is a compilation of property investment success stories; about ordinary Australians who tell you how they have achieved extraordinary results and financial success once they overcame the barriers that stopped them from becoming property investors. There is an exciting world out there, in property investing, so keep on reading, keep on learning and keep on building your portfolio. But for now, get started as a property investor on an easy gradient using this book as a guide. - 164 -

Chapter Thirteen Frequently Asked Questions Question: Why would you buy a residential property as an investment? Answer: More and more families and individuals are becoming residential property investors, the reason why is very simple, property has one of the strongest proven records of success in the area of creating wealth. Property has doubled in value in Australia every 7-10 years on average and is one of the last remaining areas the government will contribute tax benefits to, to help make your investment purchase affordable. - 165 -

FREQUENTLY ASKED QUESTIONS Question: What if I am afraid to borrow money? Answer: Learning to master the fear of debt is a major factor in how much wealth you can create for your family and yourself. Remember you have an asset (the property) to the value or close to the value of the loan, but let’s look at how much debt you would really be in if things went terribly wrong. Let’s say you purchased a $500,000 investment property, plus establishment expenses – a total cost to you of around $520,000. Now suddenly you lose your job and, (worst case scenario), you need to sell your investment property. - 166 -

FREQUENTLY ASKED QUESTIONS Would it be feasible if you paid $500,000 for the property that you would sell the property for the same amount? Now let’s work out what would happen if you sold your property for $500,000, although the property cost you $520,000 including expenses. So your total financial risk could be worked out as follows: Your purchase expenses of $20,000, plus selling fees at say 2% around $10,000. Add all that up and that comes to around $30,000. Hopefully you can see that even though you have a loan of $520,000 your total financial risk, in the unlikely event that all went wrong is only about $30,000. This amount could be added to your existing mortgage and would increase your repayments on by around $40 per week on a 20 year loan. This possible risk of $40 a week compared to a life of poverty in retirement if you don’t do anything to secure your future, is a small risk and well worth the gamble. And purchasing an investment property may springboard you into a multimillion dollar property portfolio, allowing you to live a comfortable retirement. - 167 -

FREQUENTLY ASKED QUESTIONS Question: What if I lose my job? Answer: I guess the simple answer is you will have to find another job. Most people can find a job if they really want to especially if they need money to pay their home mortgage and other living expenses. The best thing to do is allow enough funds in your line of credit loan to cover you for a period of say 3 to 6 months while you are finding a new position. The good news is if you’ve had your investment property for a few years and you lose your job, you’re likely to have enough capital growth in the property that you can get a loan against the equity to help cover your living expenses. - 168 -

FREQUENTLY ASKED QUESTIONS Question: What happens if I have an accident and I can’t work? Answer: There is a wide range of comprehensive insurance policies on the market today including sickness and accident insurance, income protection and life insurance. So if you would like that extra protection and security in case of an emergency simply take out an insurance policy to cover yourself. Some of these policies are also tax deductible. - 169 -

FREQUENTLY ASKED QUESTIONS Question: What if I need money quickly? Answer: The best way to access funds if you require them is to simply use the equity in your investment property by withdrawing funds from your line of credit. If you don’t have a line of credit in today’s finance market it shouldn’t take you long to refinance and access funds. - 170 -

FREQUENTLY ASKED QUESTIONS Question: What if interest rates rise? Answer: If you are worried about an interest rate rise you can simply take out an investment loan that is fixed for a set period of time, normally between 1 to 5 years. This is not a bad idea if you want the security of knowing exactly how much you will be paying in interest for a set period. - 171 -

FREQUENTLY ASKED QUESTIONS Question: What if I can’t find a tenant? Answer: Make sure your investment property is in a good condition and that the rental you are asking is not too high for the area your investment property is in. The reality is tenants like you and I like to rent new properties. Buying a new property should automatically increase your chances of finding a tenant. You can also reduce your rent. If the market rental is $450 per week, then offer yours at $430. The $20 discount in rental is tax deductible and should help you secure a tenant. - 172 -

FREQUENTLY ASKED QUESTIONS Question: What if my tenant damages my investment property? Answer: The reality is most tenants are good, bad tenants only make up a small percentage of the rental market. In today’s market there are insurance policies known as tenant insurance, where you can insure yourself against damage your tenants may do to your investment property. These policies also cover loss of rental. And the great news is they only cost a few hundred dollars a year and are tax deductible. Your property manager will normally arrange cover for you. - 173 -

Glossary of Terms - 174 -

GLOSSARY OF TERMS accountant: Someone who keeps financial records and accounts up to date. accrued interest: Interest accumulated on your loan, which is not yet paid. agent: Someone who acts for someone else, with that person’s authority. amortisation: Paying off a loan, over a period of time. analyst: Someone who examines things so that correct judgements can be made and solutions found. application fees: Upfront fees, that the financier will charge you to process your loan application. arrears: Amount that the loan is overdue for repayment. asset/s: Something, such as money, property, goods, etc., owned by a person or group that can be converted into cash. - 175 -

GLOSSARY OF TERMS Baycorp Advantage: Baycorp Advantage, was formally known as “CRAA\". An association that lenders subscribe to which holds credit information on all borrowers of finance. Individuals, for a small fee, can obtain a listing from Baycorp Advantage, detailing their credit history. Note: now named “Equifax” bills: A list of moneys owed for goods or services given. borrow: To get something from someone on the understanding that it (or its equivalent value) needs to be returned. bridging finance: A short-term loan, usually with high interest, that covers a financial gap between the purchase of a property and the sale of a current property. broker: Someone who buys or sells, for someone else. bureau: An office or government department dealing in a specific subject. capped loan: A loan where the interest rate is guaranteed not to exceed a stated rate. The interest rate can be reduced. - 176 -

GLOSSARY OF TERMS CBD: Central Business District. certificate of title: A document that details the land dimensions and the identity of the owner of the property. It also details any \"encumbrances” such as mortgages, easements (anything that affects your use of the property), and any other person’s interests. cheque (also ‘check'): A signed piece of paper ordering the bank to pay the person or group named on it, an amount of money from an account. commercial: Related to things that are made and sold for profit. commission: Pay based on a percentage of the value of the item sold. company title: A property title, where owners of units form a company. It is difficult to raise finance against this type of title because a new owner has to be approved by all of the existing owners. These types of titles usually sell at a discount. concierge: Attendant or doorkeeper of a building who performs custodial duties. - 177 -

GLOSSARY OF TERMS covenant: Special conditions that apply to certain properties. Are usually restrictive in nature. Example: House must be made of brick (not fibro). debt: Something owed to someone else for goods or services given. duplex: A house divided into two separate units for living purposes. equity: The amount of an asset really owned. Example: House is worth $500,000 and there is a loan of $100,000 against it, then equity is $400,000. estate: A piece of land used for housing development. finance: (noun) The money, resources, income, etc of a group or individual. (verb) To supply money, credit or capital to or for something. financial: Having to do with money matters. - 178 -

GLOSSARY OF TERMS fixed interest : An interest rate set for a fixed term. Penalties usually apply if the loan is paid out before the term expires. garnishee: The person or company who has had a part or the whole of their money diverted to another person or company. gearing: The ratio between your own money and borrowed funds in an investment. guarantee: A form of security for a loan where someone else (the guarantor) promises/guarantees to repay the loan if the borrower defaults (i.e. doesn’t pay). income/outgoing ratio: Ratio of income to loan repayments. There are several ways to interpret this. interest only loan: A loan where the principal is repaid at the end of the loan term and interest only is repaid during the term of the loan. These loans are usually short term, say 1 to 5 years. invest: To put money into something, in order to make a profit. - 179 -

GLOSSARY OF TERMS joint tenants: Where more than one person is the owner of the property. If one person dies, then the title reverts to the survivor(s) irrespective of the deceased's will. lend: To give money for a certain time with the intention of it being paid back, usually with interest. liabilities: A person’s debts – what one owes. loan: An amount of money given to somebody on the condition that it will be paid back. loan security duty: The State Government Stamp Duty on the mortgage loan. Also referred to as “Loan Stamp Duty”, “Mortgage Stamp Duty” & “Mortgage Duty”. First home buyers can be exempt from this duty subject to certain criteria. loan to valuation ratio: The ratio of the amount lent in relation to the valuation of the security. Commonly referred to as the LVR. millionaire: A person whose wealth is at least a million dollars or similar in another currency. A multimillionaire has several million dollars or more. - 180 -

GLOSSARY OF TERMS money: Something used as a medium of exchange. mortgage: An agreement by which somebody borrows money from an organisation and gives that organisation the right to take possession of property given as security if the loan is not repaid. mortgagee: The lender of the funds. mortgagor: The borrower of the funds. negative gearing: When the income from an investment is less than the costs of that investment. old system title: With Torrens Title (the most common title in NSW) all previous and current owners are listed on the one deed, as are all previous mortgagees etc. With the old system, there is a separate deed each time property is transferred or a mortgage is taken etc. If one transaction is missing, the ownership can revert to a previous owner. A very messy title system, with heavy associated legal costs. - 181 -

GLOSSARY OF TERMS options: The sole rights to buy or sell something within a set time at an agreed upon price. overdraft: A prearranged limit to which a person can exceed their account balance. owe: Something that still needs to be paid back. pension: A regular amount of money paid out as a benefit for retirement, etc. portfolio: A group of specific investments. positively geared: Where income is greater than expenses. Giving the landlord (property investor) a profit. principle: The capital sum borrowed. - 182 -

GLOSSARY OF TERMS principle & interest: A loan where both the principal and interest are repaid together on a regular basis, mostly by monthly instalments (P & I). property: A thing or things owned; possessions collectively; especially land or real estate owned. security: An asset that guarantees the lender their loan until it is fully repaid. Usually property such as real estate is offered as security. settlement: To finalized something. With the purchase of property, it means to finalize the purchase. The property is transferred to your name and the property is now yours. settlement date: Date on which the new owner finalises payment and takes possession of the property. shares: The parts the ownership of a company is divided into. Stamp Duty on transfer: State Government tax assessed on the sale price of the property. - 183 -

GLOSSARY OF TERMS strata title: Only a particular unit is owned within the development. superannuation: A retirement fund paid by employer and employee. survey: A plan that shows the boundaries and the building position on a block of land. tenants in common: Where more than one person is the owner of the property. If one person dies, then part of the title passes through the estate of the deceased. Also, each owner can have a nominated share of ownership such as 10% or two-thirds, etc. Torrens Title: Where the land, and everything on it, is owned and this is guaranteed by a Certificate Of Title. town houses: Houses built in a row and joined together. units: Properties arranged on top of each other, on a block of land, sharing common entrances and facilities, etc. - 184 -

GLOSSARY OF TERMS villa: A detached single storey house. wealthy: 1. a large amount of money or possessions. 2. enjoying an abundance or great quantity of something. yield: A profit obtained from an investment. - 185 -