Why don’t I buy a NEW Property instead of an Established one?

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Open plan living, 3 bathrooms, double garage, awesome entertaining areas!!!!!

How wonderful is it to look at the glossy pictures of a new property in a development estate? I must admit I too like to peruse through these glossy pics and see what all the fuss is about, but that is where I stop. Why do I stop? The answer is simple, I can’t do anything with a new property…….

What am I saying?

My success has been built on manufacturing growth through the post-acquisition stage of an investment property purchase. What can I do to the property to provide leverage, equity – which I can extract? When I look at a property I don’t necessarily look at what great features it currently has, I look at what great features and offering I can introduce, what can I inject? In truth I like to inject my properties with steroids….. Hit them hard and watch them grow! I inject minor improvements like paint, carpet, minor furnishings, an additional room, a sub-division, a dual occupancy… etc etc.

Purchasing a new property either off the plan or in a new estate limits what I can do with it, usually these properties are purchased above market value, minimal capital growth and provide neutral to negative rental yields….. Not really the best outcome (Yes they will grow in value over time, but I don’t want to extract equity from the property in 20 years…… I want to do it within 6 – 12 months).

REMEMBER….. What is your goal? Why are you investing? If it is to purchase one property then kick around in your back yard on your hammock and take a snooze and bask in your success then that’s fine, but remember you will not become financially independent from buying ONE investment property, the secret is strategically structure and acquire a portfolio of MULTIPLE investment properties that generate LONG TERM CAPITAL GROWTH accompanied by positive cash flow. By “Manufacturing growth” in a property we are enabling the extraction of equity through refinance with our bank. Put simply, if we improve the property and have it re-valued we are able to pull cash from the property (Leverage) and go again….. Buy another property, and another and another….. Then we build MOMENTUM!!!!! When I was at the peak of my property acquisition phase I was picking up a new property every 6 weeks….. I had momentum, my solicitor loved me, yes….. I was in his office almost every month…… but I was on a roll, generating momentum, PUMPED!

P.S. think back to a time in your life when things just seemed right, you were on top of the world, you were happy, felt successful… on top of the world. This was most likely because you were focused on a goal and you stopped at nothing to achieve the goal.  Remember how everything just flowed…… answers to your questions would just land in your lap, you felt extremely efficient…… this is because you have momentum! When you focus on a goal you build a network of success around you. This just feeds off positive energy and provide the most momentous results, this is how you generate momentum and smash your goals.

So back to the “New” property purchase, for a safe long term investment “Property”, not “Strategy” they are ok, but you can’t do much with them except wait for it to grow through the property cycle….. Depreciation is good, but you need to be losing that money in the first place in order to pull it back through tax reconciliation…..

I love looking at the ugly duckling and challenging myself, tasking myself with a goal to turn it into a swan with a supercharger…..

If you want to know more or would like to speak in person just drop me a comment on this blog or leave your details for me on the contacts section for the site.

Until next time, be EXUBERANT!

That new car smell….. does it last? And what does that have to do with Property?

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When people come to me and say “I really should do something about property and start investing” the first thing I ask is “Well what are you waiting for? Tell me why you have not taken the next step?”

Comments range from the following:

• I don’t know where to start
• How do I know where the right places to invest are?
• I can’t afford it right now
• I don’t have enough deposit saved up
• I’m terrified the market will move

All of the above and the rest that you are thinking about right now can be overcome, that’s what we do, we help you launch yourself over these hurdles (Excuses) that you have conditioned your mind negatively with in order to throw up a STOP sign and hinder your life’s performance……..

Contact us now and we will show you have to turn that STOP sign around, stop making those excuses and take control.

Now the comment that grabs me EVERY time is this……

“Well I need to buy a new car so I really won’t have the cash to play with”

So there are a number of things that make me giggle when I hear this comment, and believe you me, I hear this every day.

The average new family car costs around $40 – $50K, that will get you an average Commodore, Mazda or Falcon wagon, for arguments sake…… Now many people (Lets call them John and Mary) will either save for the full amount/redraw from their home loan or pull some equity from their Primary Residence in order to pay for this little luxury, correct? So what we are saying is that because the goal is in their eyes achievable they have no issue at all about dropping $40 – $50K on a car????? That’s right!

Because they can see it, touch it play with it and the greatest thing….. it gives them a sense of accomplishment and success instantly with a great big lump of excitement thrown in as well. You can’t wait to splash the hose over it on your Saturday morning and wash it, detail it, make it look new again!!!!! John is out there every Saturday enjoying his new purchase……. He has created a sense of self accomplishment and euphoria.

But hang on…… how long do those feelings last for????

A few years?? A few months maybe? Yep that’s right, in 3 months John and Mary’s car will be sitting out in the driveway on a Saturday Morning looking dirty and sad and Mary will be yelling at John to get out there and wash the car…… They end up taking it to one of those dodgy auto car wash places that scratches the metallic paint on your new car that you just paid $50K for….. The feeling of excitement is now a memory…….. Your new car smell is vanishing and mixed in with the smell of your kids mess they have created on your back seat and floor. That piece of cheese from the sandwich you handed to little Jimmy this morning is now tucked down between the seats and is moldy and stinks, now you’re thinking to yourself, did I really need to buy a new car?

This is my point exactly.  Did you need to buy a new car?  Did you need to buy a car at all? Why did you buy the car???? Like I stated above, we purchase things in order to make us feel happy and excited!! This is great, however, what if we looked at this a different way.

So John and Mary were very comfortable in pulling $50K out of their equity bucket to splurge on a new car. What if we used that cash differently? Here are a few examples of what they could have done.

1. Use $50K to purchase 2 x $220k Properties and keep the existing car you have.
2. Use $25k to purchase a $220k Property and use the other 25k to purchase a near new car
3. Use $50K to purchase 2 x $220k Properties and finance a new car (perhaps through salary sacrifice or a lease at work) – Tax benefits may be applicable for you.

And so on…. There are many examples that I could throw out there, however, just think about this….. What if you got that new car feeling every few months?

Well you can, with property. We can show you how to build a portfolio of investment properties very easily. Once you have momentum you will see not only how easy it is, but also awesomely addictive and profitable.

Don’t forget, CARS are DEPRECIATION ASSETS. Property APRECIATES!!!

So ask yourself, do you want the hit of a new car now, or can you wait a few years to buy the car that you really want, the car of your dreams and have a strong property portfolio supporting itself as well. I can tell you what option I took……….

EQUITY MATE! – Buy 1 investment property or 4 ????

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If I had a dollar…… for every time a first time investor approached me and said “ So we have over $500k worth of equity in our house (Principal Residence), where can we buy a nice investment property for $500k?

This might seem logical, you have $500k worth of accessible equity built up in your house and now want to jump into the property investment arena. So why would you not just go out and use all the equity from your house to purchase one property outright, with no debt? Well there are a number of reasons, and here they are:

1. The loan interest that you pay to service your house (Primary Residence) is not tax deductable. That means that while you are not paying any interest on the investment property loan (As you don’t have a mortgage) you are paying interest on the 500k you just pulled out in equity to finance the deal. So all the rental income that you generate will be hit hard when tax time comes around…….

2. Cash gives you options, by using up all of your equity to purchase one property you now have nothing left, no buffer, no safety net. What happens if there are unexpected renovation or repairs that need to be carried out on either of the properties? Your now in trouble.

3. By Buying one property worth 500K you have put all your eggs in one basket, you now no longer have any cash, you have minimal tax benefits and you have placed all of your risk into one property. What if the area you just bought in is hit by a natural disaster, such as a flood, or fires, or if a new Highway is going to be built meaning that your capital growth will be stunted for years to come….. There could be one of many.

Buying property is about taking calculated risk, having a strategy, spreading your risk.

 Ok so that makes sense yes? Where to from here…….

Well instead of buying 1 property outright by leveraging the equity in your primary property lets look at how we can use the above to purchase more than one property, increase our tax benefits, leave us with a strong buffer (Cash) in case something goes wrong and let’s spread out our risk.

What if we were to buy 4 investment properties worth 400K each?

How??….. This is how……

To purchase a 400K property @ 80% LVR (Loan to Value Ratio) you will need:

Purchase Price = $400K

Loan @ 80% = $320K

Deposit @ 20% = $80K

Buy costs including Stamp duty, legals, pest and building etc = 5% = $20K

To purchase a 400K property you can see that you will need the initial 20% deposit and the buy costs which will total $100K.

So by using this formula you can see that you can now buy 4 x 400K properties, that’s a total combined property value of $1.6 Million! Sounds a bit better that just one $500k Property yeah……

Why 80% LVR? This means you are borrowing 80% of the property value, if you borrow more than 80%, say 90 or 95% you will pay LMI (Lenders mortgage insurance)

This is not always a bad thing, like I say, Cash gives you options, you may want to setup your first few loans at 90% in order to make your dollar go further and build your portfolio quicker. Sometimes it takes money to make money…..

Why would having 4 Properties that I have to mortgage @ 80% be more beneficial than owning one?

 1. By owning 4 properties you are now spreading your risk, these properties may be in different locations, have different attributes, different formats i.e. units, houses, duplex etc.

2. As mentioned above, by acquiring 4 properties with a total worth of $1.6Million, your capital growth is now more than triple that of the scenario of purchasing just one property at $400 – $500K outright.

If Capital growth was 7% pa on the $500K property the property would be worth $535K after the first year (That’s % $35K in growth) .

If Capital Growth was 7%pa on your $1.6M property portfolio, your properties would be worth $1.712 Million (That’s $112K in growth) after the first year (More than Triple)

3. You now have a $100K buffer! So you had $500k, you have used $400k to purchase 4 properties worth 400K each @ 80% LVR, you still have $100K left in the bank as accessible CASH. This buffer can remain there in your offset account or as available redraw for any scenario that may arise…… and it is still sitting against your primary loan reducing the interest payable that can’t be tax deducted.

Remember what I always say….. CASH GIVES YOU OPTIONS!!!!!!!! Don’t use it all up!!!!

Of course we are all in very different situations, some of you will have a great level of untapped equity in your primary place of residence that you can leverage and others may have a small amount, it does not matter.

The same can be achieved with 100K worth of equity, instead of purchasing one property worth 400K, you can purchase 2 properties worth 200K or 4 properties worth 100K, buy and hold them and watch them grow!!!!

Let me show you how to access that equity to start building your property portfolio right now!

Email me any questions you may have and let’s get you started!

What is your symbol? Successful or Stupid?

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The human brain operates largely by using symbols. As we look around the world, we see the symbols are familiar with, and associate our own meanings to these symbols.

The whole concept of ‘branding’ is based on the human brain/symbol association. Clever marketing tactics associate wealth, success, attraction, style, suave and status to a brand label, and the public will pay any price to gain the symbolic items in order to be perceived as desirable and enviable by others.

But let’s look at the reality.

A $10,000 Chanel leather handbag, purchased by a secretary who earns $70k per year, lives in a suburban house in a suburban street, with her white collar working husband, has a mortgage, credit card and less than $50k in the bank.

Or a $10,000 Chanel leather handbag, purchased by a woman who lives in a 10 million dollar house on the water who is a majority shareholder with her Managing Director husband in a large national company which provides them with an annual income of $1.2M per year and their net assets are in excess of $20M.

The reality is, that while an ignorant observer may see both women in the street and perceive them both to be wealthy, the same bag, does not have the same meaning in both situations.

For the wealthy woman, the bag is a tiny symbol of her and her husband’s financial success. It matches her $150k car, her $25k earrings, her income, her home, her lifestyle. The bag is a symbol of the ‘truth’ and a genuine result of her and her husband’s success.

For the other woman, the bag is a lie. Motivated by the desire for wealth, and the desire for the envy and admiration of others. For this woman, buying the bag is an act of financial stupidity. It is unlikely she will ever be wealthy or financially successful, and this bag and the feeling of having other people ‘think’ she is wealthy, is her consolation prize.

Most people desire to be wealthy, to look wealthy, to have a luxury car, house, boat, and lifestyle. In fact, middle class ‘wanna-be’s’ are a HUGE target market for manufacturers of luxury cars, boats, jewelry etc. and the finance and leasing companies love it! Realistically, any suburban Joe Blow can buy a status symbol – pull up in his suburban driveway in a new BMW 650i Coupe and get the admiration of his friends and neighbors… But the Ooohs and Aaaahhhs better be worth it, because the reality is, that unless you’ve really made it and the status item is truly a symbol of your financial success, then it’s not a symbol of success at all, but a symbol of financial suicide and desire.

Now to back pedal. If you are hard working bloke (or girl) and you want a Harley and that’s your end dream, then by all means, go buy… park it in your garage, and take pride. Same goes for that sports car, boat or whatever. If that’s your end goal, buy up now. Interest rates are low. Take plenty of photos to show the grandkids how cool you were. Everyone has goals, and if yours is to feel shit hot walking down the street with a Chanel handbag then I’m all for you doing that. You do whatever makes you happy.

Everyone has a choice when setting goals. You can set a goal for a CIRCUMSTANCE or you can set a goal for a THING.

The difference is, if you set a goal for a thing, your circumstance doesn’t change (not for the better anyway). But setting a goal for a specific ‘circumstance’ enables you to be in the position to easily acquire the ‘things’ you desire. If you have a goal to earn $2M per year, then buying those ‘things’ will be the true symbols of your success.

It’s all about the 80/20 rule, 80% of people will always be paying for the other 20% – 10% on welfare, and 10% financially successful – yes, you, you with the flash car in the suburban driveway, and you carrying that Chanel bag to your ‘job’… you pay for that 20%. You are the ones paying for the truly wealthy people. They own the finance companies, the ‘brands’, the hotels, the investments. You work for them. They make the symbols. They run the world.

What’s your symbol?

Talk to Encompass now about setting goals for your future financial circumstances, using Property as the pathway for success.