The year ahead
Coaching mainly by phone and email
Email 1-2 business days, phone call same day
Emy: any problem of logistical nature
Brendan and Simon: main coaches.
Norm: Norm became debt free through property over 20 years ago. Norm looks after graduates from RP 1, 2 & 3.
Future GT days:
23 Aug 08 melb Hilton hotel
13 Dec 08 RACV
29 FEB 09 RACV
30 May 09 Melb Hilton hotel
1st additional volume in early July.
If the strategy you are interested in is later in the course, start conversation with the coach now and the coach may give you the materials from last year.
Word of caution: don't pick and choose what you like in the material. Everything is there for a reason.
Current market and median price:
| | Movement | Median price |
| | Down 8.4% in 3 mths | |
| | Down 0.3% | $554k |
| WA | Down 2.5% | |
| | 1.8% | $420k |
| | | |
Affordability is key. Bottom end of the market is where most people are
Melb 3rd affordable.
While prices are dropping, rents are going up, so return goes up. Overtime it makes property a more attractive investment.
Drivers of Housing price:
1. Fundamental: interest rate, employment, housing supply, salary, population
Australian population growth is at record level. It grows by 1 million every 3 years.
In
| US | Australian |
| Housing Surplus | Housing Shortage |
| Interest Rate going down (at record low again) | Interest Rate going up |
2. Market sentiments and speculators: There is a lot of fear in the market at the moment. There is a lack of both home buyers and investors. There is a lot of negative press. There is a lot of fear going on. It would be interesting to see how long that fear will be going on.
Consumer sentiment overrides economic fundamental
Is cash better than capital?
The cost of accessing capital is the interest on borrowing.
The cost of cash is capital gain tax and forgoing future capital growth.
If the only way to access capital is through borrowing, then make sure the return on the borrowing is greater than the interest payment plus the added risk of extra borrowing.
Selling improves your borrowing capacity due to the higher income on your tax return. Only sell if you have got something else to do with that money
To grow a property portfolio, cash is more useful than capital over long term.
Rising petrol price
Oil rose 8% Friday night. For a 50 litre tank, it costs $17.5 more a week, i.e., $910 pa, = .23% rate increase on an average mortgage. On a 30% marginal tax rate, you need to earn $1300 gross to get $910 after tax.
Rising petrol priceàless money available for loan repaymentàless capacity to borrowàbrake on buying higher price housesàflatter housing price
The impact of petrol price rise on household spending is equivalent to one RBA rate rise, will it prevent RBA from raising rate further?
Steve: No. Petrol is a necessity expenditure as in contrast to Ipod and its price is built into CPI. When petrol price goes up, the CPI goes up, so the RBA will raise interest rate to keep inflation rate down. The RBA's sole purpose is to keep inflation rate within certain limit.
Has the domestic rate peaked?
Steve won't be surprised if the interest rate goes up to 12% in the next 18 months. It will be caused more by the bank's margin than RBA rate. Lender's might not drop their lending rate when RBA does.
Unless oil price, drought, credit card debt, and the spending on luxurious goods decrease, interest rate is unlikely to drop.
Goal setting:
You don't have to know your life goal to start with. Ok to start with mid-range goal and work backwards. The 7,30,60,90 days goals are designed for what to do next, and they need to evolve for you.
An example of how to set goals:
| Current gross income | | $1 |
| Divide it by 8% (8% being commercial property return in current market, it's a variable fig) | 8% | 1/.08= 12.5 |
| Average profit required per get-in-get-out quick deal (variable) | .5 | .5 |
| Number of deals required | | 12.5 / .5= 25 |
| Number of years required (variable) | 5 | 25/5 = 5 (.5 profit) deals of per year |
| Exponential growth | | You might not do 5 in the first year, but you can do more later, as your 2nd deal will leverage on the experience of your 1st deal |
What does it mean? This give you an idea how many deals you need to do per year, to have enough cash at the end of your time frame to buy a commercial property portfolio that will generate enough passive cash flow to replace your current income.
What strategy (
It might look daunting. Do it one deal at a time.
Profit àStrategyàwhat to buy
Let profit determine your strategy; let your strategy determine what houses to buy.
Do it one deal at a time.
Property portfolio template is in week 4 kick start too.
Joint Venture
l A couple of past RESULT JVs have gone sour (losing money)
l JV is not endorsed by RESULTS, if you do get into JV, do due diligence on JV, and joining JV, and get independent legal advice.
l Don't go into JV on best case scenario.
l Talk to the coaches before going into JV to avoid possible problem.
l Check the webinar archive on JV.
Other:
l Styrofoam is becoming more popular as people becomes more cost conscious. Though if you've got cockatoos or galahs, they will pick the beads out
l Building Materials in WA are dearer than the eastern states. Builder's incur 15% cost premium on material cost, and they probably add a 20% margin.
l Investment Structure:
If you guarantees company loans, and your home is under your wife's name. Then your home is not exposed to your creditors.
If there is no one to transfer an asset to in a trust, then you can look at setting up an accounting structure. Be careful though structure needs to be incidental to your investment not vice versa. For instance, if you rent your own house, while the interest becomes deductible, but you'll lose the capital gain exemption when you sell.
l Boarding houses and student accommodation
Regulations on boarding houses are very strict. Generally speaking, there is concession on parking and density on student accommodation. It is up to what VCA will approve. For new developments, banks will not allow 37m2 apartment in
l If a depreciation schedule is not included, in might affect the vendor?
l If you are in the business of doing bird dog, then you need a RE license. Speak to lawyer about how to structure it so you won't be caught by that.
l Playing real estate in real life is like playing Monopoly. The first round you buy anything; The 2nd round you buy the same colour; The 3rd round you trade and sell; The 4th round you develop, ; The 5th round you buy commercial.
Last word:
Stay accountable!
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