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AUS USA
Americas hidden wealth investments of 20% rental returns and why Australia is still rock solid
ISSUE 01
The importance of the contract of sale Using your super to build your portfolio
Land banking: its like winning the lotto REAL LIFE SUCCESS STORIES
The US Economy And Housing Markets Are At Their Absolute Lowest Point In 30 Years!
Discover How You Can Take Advantage Of This Financial Turmoil
With the Aussie dollar at an all time high, international investors of all levels are swooping in and snapping up properties in the US, before the market bounces back. Since the US economy and housing market plummeted weve seen: A dramatic swing towards rentals And, in a lot of cases, increased rental returns Properties that were $250,000 are now selling for as little as $35,000 with rental yields of up to 28%! But it wont last forever.
Recent research shows US property prices have risen for the third month running.
Dont miss out on this opportunity call 1800 999 270 or visit www.21stCenturyUSProperty.com
Free US Property Education for Property Inc. Readers!
For a limited time were giving Property Inc. Magazine Readers access to free US Property Market update resources including... Free Online DVD that explains how you can access turn key properties from as little as $28,000 Access to 21st Century US Properties latest property listings!
Absolutely Mind Blowing! Today [the US Property Tour] was a very intense and exciting day as we got to pick our properties. I started off with a little 2 bedroom condo for $42K as a nice entry point to the US Market. There is a pool, a play area and very good property managers. - Charlie Tusk
W 34TH, INDIANAPOLIS, IN
Bedroom 4 Bathroom 2 $76,000 $71,000 $66,000 $1,300 $1,200 23.64% 18.55% $15,600 $3,360 NIL Previous high Non members price Members price Montly rental Annual taxes (2011) Gross yield Net yield Annual revenue Annual expense Stamp duty
ARLINGTON, INDEPENDENCE, MO
Bedroom 4 Bathroom 2 $112,000 $57,800 $52,800 $800 $723 18.18% 13.86% $9,600 $2,283 NIL Previous high Non members price Members price Montly rental Annual taxes (2011) Gross yield Net yield Annual revenue Annual expense Stamp duty
I have been very impressed how you are handling these sales. The fact that these are pre-rehabbed AND rented prior to sale is HUGE. I know many people who have purchased and 8 months later still dont have their place finished, rented, nothing. - Matt Robson
contents
issue 1
COVER STORY
foundations
Australian Property
38 Dont wait to buy property, buy property and wait. 40 An education guide to property investment. 42 Take on more to succeed. 44 How to avoid capital gains problems.
US Property
46 How to invest in the US. 48 What you should know about US property investment. 50 Your due diligence checklist. 52 Property management requirements. 54 Tax and structuring when you invest internationally.
features
68
House
06 08 14 16 66 Editors Desk The Property Beat Q&A Case Studies Book it In Property Showcase The Last Word
The Australian property market is not all doom and gloom. In fact, there is rarely a bad time to invest.
60
4
76 82
54
33 Your due diligence checklist
As an investor, checking off receipts of the standard items falls far short of what a successful property must deliver.
22
56 The armchair developers guide to land banking
Land banking is just like winning the lotto.
lifestyle
72
e d ito r s d es k
The investment
conundrum
Property
Publishing Manager Tony Maughan Editorial Editors J2Media: Jonathan Jackson, Jonathan Green Sub-editor Dimi Kyriakou Administration Accounts / Distribution / Subscription Manager Kerry Gladman Media Sales Consultant Anamika Chowdhury
Inc.
It is a confusing time in the investment market; what are the best options for longterm financial growth, do you want to make a quick buck, should you invest in property or stocks? Most savvy financial advisers will tell you to invest in a mixture of all of the above, however scepticism currently abounds with regard to property. So what do you do? Doomsayers are predicting a spectacular crash in Australian property prices and have been saying this for two years, but while the market has dropped, this seems more to be about a natural cycle than a market collapse. Property prices are lower, auction clearances are down and there is no doubt a soft correction has occurred. Yet, around the country there are areas that are still improving in market value; regional areas such as Bendigo in Victoria are experiencing strong growth, while certain suburbs with heavy infrastructure suited to young families are also exceeding price expectations. Its true the more affluent suburbs have suffered a dramatic downfall, but these are not the suburbs you want to invest in. Look hard enough and there are bargains to be found and astute investments to be made. The same can be said of the US property market and Australians could do worse than consider US property as their property investment of choice. Riana King is general manager of US property company Real Property Management Platinum in Phoenix, Arizona. Riana says that the current outlook can be misleading. She is not alone; recent reports suggest the US is on the road to a slow economic recovery. There is no doubt that Americans are still investing in real estate in the United States, Riana says. Individuals, who have the money, are buying all the property they can. Those who have suffered a foreclosure will eventually re-enter the market as home owners. Many of those people will not qualify for financing for up to seven years after the foreclosure. So, what are they doing? They are renting homes in the same neighbourhoods they lived in before and paying down their debt. They are also preparing their personal finances so that they can once again own a home. If this is the case, the US property market offers great opportunity for Australian investors who want to buy and rent, with the view to selling in the not too distant future. This is not exploitation. Although some areas of the US have been hit hard by job loss, by no means are the majority of Americans eating out of soup kitchens, Riana says. There are many companies still expanding, and in our case, moving their business and jobs to Arizona at a rapid pace. People can and do pay their rent. Our eviction rate is .013% which isnt much when you look at the big picture. There will always be people who cannot see opportunities in the darkness, but most Americans are continuing life as it was prior to the downturn. People are getting married, having children, going to college, taking vacations, buying cars and more. It is not taboo to have foreclosed or sold your home. It is okay. It is hard to come across someone who hasnt these days. If anything, this has been a reality check on personal spending and savings. People are continuing to live, just with some hard lessons learned. We all need that sometimes though, right? Dont spend more than you can pay. This is sage advice. Real estate is a rewarding investment, but you must invest within your means whether in Australia or overseas markets. The same principles apply. The following section is the foundation of your investment knowledge. We take a look at what it means to invest in Australian and US property, the traps you should be looking out for and the ways in which you can best maximise your investment. Investing is like everything else. You must educate yourself to know if this is a choice that is right for you. pi
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Contributors Warren Black, Konrad Bobilak, Joel Dobson, Aneta Gorelik, James Kobzeff, Jamie McIntyre, Blake Ratcliff, Peter Vekelsman Advertising enquiries T: 02 8404 2357 E: advertising@tgrmagazine.com subscriptions enquiries T: 03 8637 1577 E: subs@tgrmagazine.com Written Correspondence to: Level 9, 222 Kings Way, South Melbourne, VIC, 3205 E: editor@tgrmagazine.com 21st Century Media Holdings Ltd ABN 26 140 795 777 T: 1800 999 270 F: 03 8456 5973
CEO of 21st Century Group
All material appearing Property Inc. magazine is copyright. Reproduction in whole or in part is not permissable without the written permission of the publisher.
IMPORTANT NOTICE
Property Inc. magazine is distributed by Network Services. Property Inc. magazine publishes articles and information about people who have successfully devised and applied strategies that have proven successful for them. All information contained in Property Inc. magazine is intended to inform and illustrate and should not be taken as financial, real estate, legal or accounting advice. We do not endorse the views, statements, claims, strategies or ideas put forward by contributors to the magazine. We are merely relaying information. Any strategy in business or investment should only be applied after taking into consideration your own financial situation and objectives. Investing and business can be risky and you should seek independent professional advice before making any decisions. We are not liable for losses you may incur directly or indirectly as a result of reading Property Inc. magazine.Property Inc. magazine does not endorse any of the advertisers or their products that appear in this magazine, nor do we support any representations or claims they may make. Readers are encouraged to do their own appropriate due diligence when making a purchasing decision as a result of reading this magazine. Several individuals associated with advertisers in this edition of Property Inc. magazine have also contributed articles. These articles have been published because they fit the theme of our magazine. These articles are not advertorials. Publication of these articles is not in any way dependent on their respective authors or organisations taking up advertising space in this magazine. Where an article or feature has been included in this magazine in return for fee, it is identified as an Advertisement or Advertorial.
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Boom, shake the room The Queensland mining boom is having a clear affect on real estate with the first milliondollar home touted to be sold in Queenslands central highlands town of Capella. Two years ago Steve and Ruth Franettovich decided to sell as economic activity in the area began to pick up amid mining expansion. They have bided their time since, to wait for the economy in the area to peak. Mining drove the median house price in the central highlands to a 16.1% rise in the September quarter last year, bucking all property trends. The land on which they own a sawmill was also sold to a mining company. The pair is prepared to wait for the right deal as they have put a lot of effort into building the home: high wooden cathedral ceilings, with wide verandas that span the whole 420 square metre feature prominently. They believe its not a question of if, but when, their dream home changes hands. Mr Franettovich said they had had many offers close to the asking price but would wait for the $1 million deal to come along.
Welcome to Lilliput The financial crisis in Europe has decimated the property market, however as people look to downsize we have seen the rise of what are being termed Lilliput properties. Lilliput properties are micro-apartments and have flooded the Italian market specifically. Costing approximately 50,000 ($AU61,600), these tiny homes offer as little as four square metres of floor space. UK newspaper The Independent advertised a Bachelor pad, near Pantheon for 50,000. It offers a sink, a toilet and a shower along the left-hand wall and three steps leading up to a narrow bed on the right. The pad spans a luxurious total of five square metres. New Yorkers have known about micro apartments for a long time. The narrowest home in the Big Apple is just 2.89 metres wide. US blog Curbed refers to the Bedford St address as The Half listing it as 75 Bedford St. The home does stretch back from the street to accommodate 91.97 square metres of room. This will set you back a mere $US3.95 million ($AU3.74 million). Prices outside of New York are much more palatable and micro apartments are seen as an affordable option for low income earners or those who are forced to scale down.
Buy a piece of NASA No, you cant buy space on the moon, but you can buy space in a Space Centre. To celebrate their 50th anniversary, NASA reluctantly turned its attention to renting disused facilities at its Kennedy Space Centre in Florida. The organisation that put the first man on the moon is apparently a little cash strapped, so to maintain its famous Cape Canaveral hangars, it is looking for tenants. Among the facilities available to rent are a space shuttle launch pad; two giant mobile platform launchers; two space shuttle maintenance hangars; a caterpillar crawler used to move rockets; a 52-storey Vehicle Assembly Building with four rocket assembly bays; and a 4.57 kilometre concrete runway. If you were a James Bond villain, youd be all over this. Robert Cabana, director of the Kennedy Space Center, told the Washington Post: I have a lot of facilities that we, NASA, no longer need. I dont have the money to maintain them; I dont have the money to tear them down. Theyre just going to sit and rot.
Number crunch $4 trillion: The estimated worth of the Australian housing market, making it the countrys biggest asset class, representing 60% of bank balance sheets.
Number crunch 7.5 billion ($AU12.2 billion). This is the value of the most expensive house in the world. The Swiss abode is heavily invested with solid gold and platinum fixtures and fittings, including more than 200,000 kilograms of precious metal. The exclusivity is further realised by using meteoric stone with shavings of original Dinosaur bone from the 65 million year of Raptor, the T-REX, right throughout the flooring.
Top tween Twelve-year-old Noah Lamaide has also proved that you can beat the foreclosure crisis by being creative. Noah raised more than $US10,000 ($AU9,491) through his philanthropic website to save his grandmothers home. Since he was nine, Noah has been influenced by his grandmother to take part in community service. Janice Sparhawk, who fostered hundreds of local children in Wisconsin, was facing foreclosure of her century-old home. After taking out a loan to put a new roof on her circa-1900 home, the 72-year-old fell behind on the mortgage payments. Eye surgery and complications from asthma then forced Janice out of work. Her home, which had been in the family for three generations, was slated for auction on 15 February, 2012. That is when Noah came to the rescue. Noah had previously set up a website, Noahs Dream Catcher. When he heard of his grandmothers plight, he refocused the site to raise money to save his grandmothers home. My Grandma, in case you dont know her, has a heart of gold, he wrote on the site. If I have 400 friends give $25 I can give her home back for Valentines Day!!! Donations poured in from all over the country, and within a month, Noah had raised $10,500. He signed cheques over to the local bank, allowing Janice to stay in her historic house.
Dude, wheres my car? A 36-year-old Detroit mother listed her four bedroom home on Craigslist (its like eBay) and suggested a straight swap for a new car would do. While it doesnt seem to be the smartest move, the short-term benefit is that the Detroit property market is so poor at the moment (as we state further in this magazine) that currently a car is worth more than a home. The Detroit market is not supposed to turn around for some time, so LaWanda Flake has done herself a short-term favour. You see, LaWanda only bought the neo-Tudor house for $US3,500 ($AU3,321) the house is valued at $US96,000($AU91,114). However the mother of six feels that a car to take her kids to school is of more benefit to her. I am having a little problem parting with it, LaWanda told The Detroit News. I do love that house, but in the end ... Im really hoping I find the perfect person who can help me get the car I need, and I can get them the house they need. LaWanda requested a 2003 or newer car or truck, but is yet to be satisfied by any offer. Her plight is a reflection of the US housing market, but highlights what a great opportunity it is for US and international investors to seize on deals. For instance a Bahrain company recently invested $US300 million ($AU284 million) in American real estate, attracted by discounted offices and residential property in California, Florida and Georgia. In Florida sales have jumped by 13% compared to October 2010.
Put your money on the fridge Paul Hogans four-bedroom home on 2,000 square metres in beachside Malibu, California was listed recently for almost $US6.5 million ($AU6.1 million). Hogans lawyer Andrew Robinson said it had nothing to do with Hogans muchpublicised battle with the Australian Tax Office. Apparently Hoges feels that a second luxury home, his other is in Santa Barbra an hour and a half a way, is a bit excessive. It is reported that initially Hoges listed the Santa Barbara estate but because of the depressed high-end property market he decided to sell the Malibu property instead. Hoges bought the Malibu property in 2009 for $US6.45 million ($AU6.08 million).
[ Cover Story ]
S U A A S U
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S? the U n i s ure eclos nderstand r o f l ia u th ul to ident f s p e l r ch wi e a n h i e s t , i s s It re ve t to in re to start? foreclosu eller. n a w e u to ndy H te wh ree faces So yo i A u s q e t ri th ure Not s t there are teristics, w c ha chara t first t n e r diffe very
he first face of foreclosure investing is the preforeclosure. The pre-foreclosure period begins when a home owner gets behind on his or her loan, and ends with the foreclosure sale. The pre-foreclosure phase itself is divided into two stages. The first stage covers the period of time beginning when the home owner misses their first mortgage payment, and ends in the final month preceding the impending foreclosure sale. During this time if a home owner is not already marketing their home, it will be up to the investor to reach out to and find these distressed home owners through ads (We buy homes fast and We have CASH for homes) and networking. The second stage occurs during the final month leading up to foreclosure. The precise laws differ from state to state, but most states require some form of public notification of a pending foreclosure. Investors can seek out these notifications, and many have ample contact information for the investors to approach the distressed home owner. Many larger communities have a number of online and subscription services which compile the pending foreclosures in a specific geographic range. You can also network within your local real estate investors association and/or conduct an internet search (e.g. foreclosure listings in order to find these publications and services).
...The pre-foreclosure period begins when a home owner gets behind on his or her loan, and ends with the foreclosure sale...
The pre-foreclosure face offers wonderful wealth generating potential to investors. They can approach distressed home owners, and give them some quick cash when there is ample equity in the homes. There are also opportunities to work with some of the foreclosing lenders directly (with the distressed home owners approval of course), as it is in the lenders interest to avoid costly foreclosures. Pre-foreclosures may be arguably the most written about method of finding discount property. It is amazing how many distressed home owners wait to the last minute with their properties, always thinking they would be able to bail themselves out. It is then, with little time left on the clock, that some of these distressed home owners realise that the only viable remaining option is an investor in a position to move quickly. On the plus side, pre-foreclosures can be very, very lucrative. A typical pre-foreclosure might have an investor paying off a distressed home owners $220,000 loan, giving the distressed home owner $25,000 in cash to restart their lives, and taking over the $350,000 property. The primary negative associated with pre-foreclosures is the taxing emotional element associated with constantly dealing with home owners involved in a downward spiral. Simply put, this will not be feasible for every investor.
In the 1990s, the Australian government adopted the four pillars strategy. This strategy prohibits the big four banks from acquiring one another or merging. It meant the banks were given no incentive to do anything dangerous in pursuit of size or earnings per share . As a result, they now dont have much exposure to problematic European debt. It also means they have been able to sit back and learn from the mistakes of their Western counterparts. In doing so they adapted funding and liquidity policies to boost deposits and liquid assets, thus strengthening their balance sheets. Australian banks are so strong at the moment they reported a collective 11% rise in full-year cash profit of $24.2 billion and lavished increased dividend payouts as a result. They have APRA to thank. It has set policies that induce Australian banks to be prudent and to adopt conservative approaches to lending and investments. The result was that careful regulation ensured that Australian banks did not share the fervour of many banks in the US and Europe to buy mortgage-backed securities. Subprime mortgages are, most would say, the cause of the current financial crisis. However Australian banks did not invest heavily in the securities backed by these mortgages, meaning they will not lose the enormous amounts lost by banks around the world. What will have an impact is the amount of credit being borrowed. It is now more expensive for banks all over the world to borrow money from each other. Despite this, the governments strong budgetary position (the deficit is nowhere near as large as other countries) has held the country in good stead. The government set up a short-term deposit facility to infuse liquidity into the banking system. APRA also ordered banks to stress test their ability to withstand a sharp rise in unemployment, a collapse in the property market and economic recession amid rising anxiety over the European debt crisis. They had one week to do so. The purpose of this was to understand the impact of a severe external shock. The results were encouraging. Separate tests conducted by Fitch Ratings and Deutsche Bank found that Australian banks are well placed to withstand a severe property downturn. Both tests showed that low loan-to-value ratios, or the high level of equity within mortgages, provided a buffer in the event of house prices falling sharply. The Australian property market is in a far better position than the US. The banks are strong and their lending policies so stringent that there could be no subprime mortgage disaster here. While the market could be seen to be flat, it will not crash and that means no matter whether you invest in Australian or US property, you should feel quite safe.
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[ Cover Story ]
Almost 20 years ago we were one of those investors fresh out of one of those get rich quick seminars. Our model was to focus on pre-foreclosures, and we went to one and only one home. The family we visited was the most likeable family. The husband was a veteran, and both he and his wife lost their jobs within a short time of each other. When visiting the home their little girl took my hand and showed me the doggie window, the hole in the kitchen door for their family dog to go in and out of the house. I left this visit emotionally drained and with a sour feeling in my stomach. This was the last pre-foreclosure we ever visited.
fall into one of three categories. There are many ways to find these institutional sellers. We teach how to find and approach institutional sellers as well as the agents that many institutional sellers utilise to sell their inventory of properties for more information please go to www.regularriches.com. The first category is those institutional sellers that will be happy
...One of the key benefits of purchasing post-foreclosures is that the sellers have no emotional tie to the property...
to work with an investor directly, bypassing listing the property with a real estate agent. The second category is institutional sellers that will at first indicate plans to list their REO property, but can be persuaded by the skilful investor to delay the listing until the investor has a chance to see the property and make an offer. The third category is those institutional sellers that will not consider working with an investor directly, but will instead list their properties with selected real estate agents. One of the key benefits of purchasing post-foreclosures is that the sellers have no emotional tie to the property. For financial institutions, this is a simple business transaction. Further, investors seeking post-foreclosures should remind themselves that institutional sellers are in the business of lending money, not managing real estate. At some point, if a bank or lender has too many properties on their books, the number of REO properties will need to be reduced, sometimes quickly, and oftentimes at a discount to investors. It is not as common to acquire post-foreclosures at 30%+ investor discounts as is possible with some pre-foreclosures (and even some foreclosures), but the available pool of properties at investor discounts of 10% to 20% is plentiful. If the investors sale or rental model minimises the marketing time and holding costs associated with each purchase, the investor will find post-foreclosures to be a good source of discount real estate. Many predict this source will increase significantly in the coming years due to record numbers of new loans today offered with little or no down payment required. Our model allows us to minimise holding costs and marketing time, so we have elected to focus on postforeclosures as our primary source of finding discount real estate. Foreclosures is a buzz word that attracts the interest of many new real estate investors. It is helpful to understand from the start that there are actually three very different and unique faces to the foreclosure process. Most established investors that buy foreclosures are actually focusing primarily on one of these three faces. Therefore, for new investors who are just getting started, take a look at the characteristics (time, money, risk, emotion element, potential
Stage 3: Post-foreclosure
The third face of the foreclosure process is the post-foreclosure. If the property is not sold in pre-foreclosure and not purchased by an investor at the foreclosure sale, then it goes back to the bank or other lien holder who secured the loan. With interest only, 100% financing, and other loans offered today requiring little down payment, record numbers of properties are going through the foreclosure process without attracting investor interest in the pre-foreclosure or foreclosure stage. These properties eventually land on the desk of someone within a financial institution (bank, mortgage company, etc.) that has the responsibility of disposing these properties. Many institutional lenders dispose of so many properties that they have entire departments dedicated to this task. Oftentimes, these departments are referred to as REO (real estate owned) or PostForeclosure Departments. When contacted by investors, institutional sellers will generally
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profits) of each of these faces of the foreclosure process and select the one that is the best fit for you. Whichever one you select, implemented properly, the three faces of the foreclosure process all have the potential of putting a smile on the face of the investor. That is the one common denominator of the three very different faces of the foreclosure process. pi
Andy Heller is co-author of Buy Low, Rent Smart, Sell High, number two on Fortune Magazine recommended list of real estate investing books. Andy has helped countless people in their efforts to realise their dreams through sharing his knowledge to put you on the road to financial freedom. Copyright 2011, Andy Heller. All right reserved. For information contact FrogPond at susie@FrogPond.com.
What rental property laws are necessary to know when looking for tenants?
Knowing your rental property law is the most effective way of managing your tenants smoothly and staying out of trouble, writes Teo Zhenjie.
most areas the rental property law disallows the landlord from imposing late fees that are too high. Generally any late fees that are over 30% of your monthly rent will be considered too steep.
a broom. Firstly you will have to give your tenant a written notice to quit. The tenant will have a last chance to clean up his mess within a time limit before the landlord can kick start an eviction lawsuit. To formally begin your eviction lawsuit, you will have to go to your local authorities to obtain an unlawful detainers order. This will fix up a date for your court hearing and your tenant will be summoned to appear for it. If all goes well and you win the eviction lawsuit, your tenant will have to leave your rental property within three to seven days.
If you are a residential landlord, its important to know that your local rental property law does not grant you the right of self help. This means that you cannot change the locks by yourself or cut off the electricity and water supply to chase away bad tenants. You will have to wait for the local authorities to do that for you. pi
Teo Zhenjie has been showing landlords how to manage their tenants and rental properties effectively on Propertydo ( http:// www.propertydo.com/ ).
...When you reject someone as your tenant, be sure to give them a valid reason...
Contracts of Sale are one of the most important facets of property investment. Anthony Alabakov and Ben Reid answer the question of what to look for.
Signing a Contract of Sale to purchase a property can be an intimidating experience, particularly if you are signing one for the first time. But theres no need for panic. Remember, you cant become a home owner without signing one first. Heres a few simple things to keep in mind to keep you out of trouble. The first step is to check the Section 32 Vendors Statement. It must be signed and dated by the vendor before you do the same, otherwise the contract could be considered null and void. You should also check that the vendors name on the title is the same person who has made out the statement, and who is specified on the contract. While you are looking at the Vendors Statement, pay close attention to the details surrounding the title itself. Are there any caveats under the
vendors name that you need to be aware of? The last thing you want is an ex-business partner or bitter ex-lover holding up settlement and costing you time and money. Also, be sure there are no easements on the title or heritage overlays that may affect your future plans for the property. You certainly dont want to buy a home with plans for a major renovation or extension only to discover that they cant be done because there is a drainage easement running right underneath your planned home cinema! Take a look at the outgoings for the property. Are there any Owners Corporation fees, and if so are they exorbitant? You may also want to ask for a copy of the most recent minutes of the Corporations meetings to see if there are plans to incur major expenses. It is also important that if any works have been done to
the property over the previous seven years, that a permit was obtained if required. Imagine receiving a knock on the door from a member of council and being advised that your wonderful new deck was actually built illegally and you are now up for the cost of demolishing it! These days Google Earth makes these things pretty hard to keep secret. Last but not least, even though you may have a cooling off period, if you have any doubt whatsoever about any information or the wording of the contract, be sure to seek legal advice BEFORE you sign. pi
Authors: Anthony Alabakov is general manager at My Mortgage Freedom and Ben Reid is the manager at Vendor Advocacy Australia.
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roperty investment in Australia can be tricky business. Over the past 12 months, blue chip suburbs across the country have taken a tumble in price, yet regional areas and outer city limit properties have gained strength. In fact, some consider the market a no go zone at the moment; invest at your peril if you will. Of course, in any market there are bargains to be found and while some consider the market to be correcting itself, the old adage that property investment is a long-term wealth-building strategy remains. Those willing to do a little homework and due diligence will come to understand that the rewards far outweigh the risks. There are plenty of stories about investors making good in property, but it isnt all bells and whistles and an honest account is always best. Johns story is as honest as they come. Having struggled with shares investment, John tried his hand at property. After eight years of unsuccessful investing in shares through a managed fund I felt as though I needed to try a different strategy in order to build the financial future that I desired. A close friend of mine had been
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successfully investing in property for a number of years and this also helped to motivate me. John wouldnt take the plunge until he knew all he could about market movements and the risks involved. I felt as though I needed to educate myself on all aspects of property investment, but was most concerned about being able to buy a property in an area that was going to give me the greatest opportunity for capital gain. I also needed to develop the mindset required to be
an investor and become comfortable with debt and dealing with larger amounts of money. Other important areas I needed to improve included learning how to deal with real estate agents, mortgage brokers, accountants, solicitors etc. and to ensure that I understood every step of the property investment process. There were two things John did not want to do:
To overcome his doubts, he began to attend seminars, read quality property investing books, speak to like-minded people, watch DVDs and complete a homestudy. His research directed him to the bayside suburbs of Bonbeach and Carrum in Melbourne. He had viewed prices for similar properties being sold in the area, investigated property trends, undertook building inspections and studied the
suburb and surrounding areas, with particular regard to what they had to offer. John found the area to be affordable, close to the beach and within 30km of the city. It was also attractive because of the low vacancy rates and potential for value increase. Carrum was Johns first investment.
As a novice himself, he has some sage advice for other investors: Educate yourself as much as possible through attendance at investment seminars, reading books, watching DVDs etc. Communicate regularly with a mentor/s who can give you advice and help you avoid any pitfalls. Set yourself realistic goals, work hard to achieve them and re-evaluate regularly. Reward yourself when you achieve goals. Surround yourself with the best possible team including a mentor/s, solicitor, accountant, mortgage broker, property manager etc. Commit to a realistic and disciplined savings plan.
... John says he hasnt seen the capital gains yet, but expects that he will make strong returns....
I purchased an off the plan property in Carrum which settled in March 2011; since then I have purchased another off the plan property in Bonbeach which will settle in mid-2012. My partner and I are saving for another deposit and plan to buy an additional property in early 2013. He says he hasnt seen the capital gains yet, but expects that he will make strong returns. Then message here is dont expect immediate profits. As Ive only been investing in property for a short period of time my investments havent had enough time to realise any significant capital gains yet. However, the returns Ive been able to make via rental income and tax benefits have given me confidence that Im able to service my mortgages much more comfortably. As time progresses and values increase I expect to realise much greater capital gains.
What are the five advantages and disadvantages that you have found when investing?
Advantages
The increased value potential. The ability to use equity in one property to buy more assets. Rental income. Tax benefits through depreciation and negative gearing. Your money is working for you.
... The first thing you must overcome is the fear of investment itself and the fear of being in large debt....
Property investment can be daunting, whether you are a teacher, lawyer, journalist or even a single mum. The first thing you must overcome is the fear of investment itself, the fear of being in large debt and the fear of parting with so much money in the beginning. John is just one of many who have done their homework to help overcome the fear and it is likely he will have a passive income that secures his future.
pi
Disadvantages
Can take time to save for the initial deposit. If you arent well educated in property you can easily make mistakes. Mistakes can be costly. Its a long-term strategy. Purchase costs including LMI can be expensive.
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dapting to new cultures and lifestyles can be difficult. For some, especially those with a specific skill, not being able to find work in their preferred field is frustrating and disheartening. However, many come to Australasia with a strong work ethic and a determination to defy the odds. Polin Lengkeak arrived in New Zealand from Cambodia in 1997 with his parents. There were the usual language issues, but Polin worked hard to graduate with a bachelor degree in Three Dimensional
Object Design in 2008 from Aucklands Unitec. What was supposed to be the start of a long career, turned into his annus horribilis. I couldnt find a job after my graduation, but at the time my parents were planning a holiday so they asked me the join them. They offered to pay for my ticket as my graduation present, so I agreed to go. Meanwhile, Id found a job and was working as a furniture assembler. I told the boss about my holiday plan and he told me hed keep the job for me. When I got back the
job was gone. I was stressed, confused and lost. In the late 2000s the migratory patterns of New Zealanders to Australia were high. A lot of Kiwis were moving to Australia so I moved to Melbourne, where my two brothers reside, Polin says. Polin arrived in Australia without a job, friends and with a lot of spare time on his hands. It prompted him to ask: what am I going to do with my life? What do I want in the future?
...There was always this thought that if you want to be rich then real estate investment is the way to go...
I dont know much about the real estate market, but there was always this thought that if you want to be rich then real estate investment is the way to go. Polin set the goal to buy
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a property in Melbourne within two years. He sought work and secured a full time job as a forklift driver at a factory in Noble Park, where after several months he was promoted to a quality auditor position.
... I would never have guessed a house would only cost as much as a new car...
He was putting money away and looking for opportunities, when he happened on a Richard Branson-led summit. I paid around $200 for the ticket thinking I might learn something valuable from Sir Richard Branson and so I attended the event and thats where I discovered the US property market. I knew that the US real estate market had crashed as a result of the Global Financial Crisis so prices would be cheap, but the prices I saw were a lot lower than I thought. I would never have guessed a house would only cost as much as a new car. I felt it was my opportunity to get into the market because I had saved enough money to pay for one house. There were, however, concerns especially for someone unfamiliar with the investment market. Polin was not going to be taken for a fool. At first the biggest concern I had was whether the company I would be dealing with was fraudulent, but the event also featured Eddie McGuire and Tim Ferriss as their guest speakers; these are credible people with conviction.
He also did a bit of homework before signing up for a membership with 21st Century US Property. I went through the home study course and did some more research into the US real estate market. My plan to buy one US property turned into six condos. The US real estate market is not just an affordable option but to me it is an opportunity of a lifetime. Other concerns Polin had were whether there would be secure rent, if there would be a decent tenant occupying the building and who would manage the property. Polin felt the rewards outweighed those risks. There are talks that the US could head into another recession. If it does, wouldnt it be a good thing if you have houses to rent? As the old saying goes: what goes up must come down and what comes down will rise again.
The US real estate market went up during the Sub Prime credit explosion between 2003 and 2005; by 2008 the Sub Prime credit crisis began and caused millions of foreclosures. The US real estate market fell 50% or more. Now, will the US real estate market rise again? Personally I think it will, although it will take some time. Polin understands that real estate investment is a longterm venture and is willing to ride out the economic storm until the market recovers. In the meantime he will enjoy his rental returns. He also offers this advice to would-be investors: When it comes to real estate, location is very important. When looking at the US property market you need to look at the State and city you are buying into, the economy of that region, GDP, employment rate and population growth. All these factors are important because they help predict
future growth. There are States that have strong potential and there are States that dont have any potential growth. I would recommend anyone who wants get into the US property market to talk to an expert about these matters. Polin is still relatively new to property investment and to the US property market, but so far he says his experience has been a positive one and he is now looking to add a seventh property to his investment portfolio. This investment has changed the way I see my future, but the biggest benefit I have to say is it is giving me the confidence to take action in order to have a financially secure future. I have achieved my first goal of owning an investment property within two years, now my new goal is to make $10,000 per month from my investment properties. It means I have a lot more buying to do. pi
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t was price that first attracted Steve Ellery to the US property market, but you cant help but be a little wary when there are stories of houses selling for just one dollar. Immediate questions are raised; where exactly are these houses that no property manager would touch, does the state of the US economy and the fear that it may never fully recover have a hold on the market? Further to this, if everyone is broke will they continue to pay rent? As a professional real estate agent in the commercial market, Steve had some legitimate concerns. From my professional point of view, my concerns were:
over things being so far away. 5. Legalities, insurance, litigation. 6. Tax implications. 7. The quality of my tenants and their ability to pay the rent. 8. The area I was buying into. 9. The quality of the house I was buying. These were the main ones but other little things kept popping into my head as well. Certainly being in the real estate market helps. Steve was able to conduct in-depth due diligence before committing to purchase. He began looking into the residential market to test the waters (however commercial real estate is high on his priority list) and he travelled to the US to further his knowledge. The education we received in the US was intense, but worth it. We had local professionals
from tradies to lawyers explain what was happening in Phoenix and how they could help. I was in overload but it got me excited. There was this guy from, in Aussie terms, the local council. He turned up in place of the mayor. He was the manager of The Economic Development Department in Phoenix. This bloke had staff of around 150 whose sole job was to attract business to Phoenix and develop existing business. He told me about a company called Intel beginning construction of a factory in a suburb called Chandler. It would employ approximately 4,000 people. Another well-known company PayPal was already operating in this suburb and employed a few thousand people as well. I saw an opportunity in this area and thought it was too good to pass up. Also, something that hit home pretty hard was the growth rate of Phoenix. Being in the desert theres plenty of land
to develop, plenty of water from the Hoover Dam, and bigger industries looking to develop this region because of the smaller costs. The main thing I was attracted to was the population of four million; this has been estimated to grow to eight million people in 40 years. Its like doubling the population of Sydney. There were some risk factors involved. While Phoenix presents an excellent opportunity, it is important to be aware of what is available. All of the houses Steve viewed were vacant and most needed development. The positive was that all houses came with a detailed report about what needed repair. From what I heard a few of these properties had other things come up which added to the cost, Steve says. My quote was about US$1500 more than the original quote, but I made the decision to get
everything done so I had a quality property to rent, which I hoped would attract a good tenant. Other problems are as follows. - Vacancy. - Quality property managers. - Getting ripped off by contractors who might jack the price of repairs up. - Unknown or undiscovered repairs and maintenance that may be required. - Bad tenants. - Litigation issues. In fact, although US property investment can be lucrative, it can also be a minefield and people should make themselves very aware of the problems as well as the advantages. There are a lot of bad deals out there waiting for the unsuspecting investor. Steve makes the following recommendations: Do your due diligence. Talk to people and neighbours in the area you are considering for purchase. Remember the Australian market is totally different to US property. On my trip to Phoenix there was a guy from LA who was investing there, he seemed like an interesting bloke so I started chatting to him. I found out he was from a police SWAT team in LA. We went to a place that looked a bit like a housing commission area and the guys selling us houses were telling me what a great area it was to invest. I thought otherwise. So I spoke to Mike about what he thought if it. He said, Steve, tell me what races do you see in this neighbourhood?
I answered, African Americans, Latinos, Asian and whites, wondering why he had asked the question. He said to me, This situation is as close to Utopia as you can get. Mixed races living together in a working class neighbourhood with almost non-existent crime, no graffiti, clean streets, kids playing, was to him a good place to invest. Although the houses werent what I was used to in Australia, I was beginning to understand the logic. Get educated by someone who has been there and done it. Speak with agents, lawyers, tradies, bankers, accountants, insurance agents, economic development managers, councillors, investors, property managers and everyone that you would likely need to answer questions about investment opportunities. Get the right team in place. Find a manager who will spend time researching the market for you and set up a team of local people who are invaluable to the process. This was critical to me moving forward with my US investment. Read. Read. Read. Watch DVDs, look at the websites and become market conscious. Invest in educating yourself. Enjoy it. I met some great people over there and have made some good friends and contacts. They become good local advisors. Ive also got a free place to crash when I go back!
Remember the Americans love Aussies. One lady said to me we love your accent, but we also love the fact youre helping our economy. The Americans were all very warm, friendly, inviting, and courteous and took great care of us. While Steve can only refer to the Arizona market, he says that the type of education mentioned above is critical because the Australian and US markets are chalk and cheese.
It is totally different, however I actually think it is easier to buy in the US and the returns on your money are far greater. When I see what you can get in the US and you compare it to the Australian market I could buy two to three properties for the price of one in Australia. Its like buying houses in Australia in the 1970s. pi
Steves positives
The people I have met and the friends Ive made. The tenants I have. One IBM computer engineer and another who works at the Bank of America. Learning about property in another country. The money Im now generating. My understanding of whats happening in the US market and the opportunities for Aussie investors. The massive opportunities in the US which I believe will be a once in a lifetime chance for us to cash in. Now knowing that my twin boys are going to have their first property investment in another country, and be set on their 18th birthday when I hand it over. (Lucky buggers, all I got was a beer from dad.)
The professional team who are happy to Skype me and answer my stupid questions. The fun I had doing this; it was a real adventure. The beer in Phoenix.
Steves negatives
A few things with the rehab on the property I bought that popped up and cost me money. Some of the tradies (no different to Australia). After a few emails all was sorted. The time it took to get some things done when I was back in Australia. Basically there was some to-ing and fro-ing between my property manger and workmen while fixing the place up, but all was sorted in the end.
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[ Feature ]
he extreme Armageddon-like Australian property outlook portrayed by the likes of Harry Dent, Dr Steve Keen and Jordan Wirsz have been extensively publicised recently by the media, spreading wide concern among first home buyers and the largely uninformed mum and dad home owners. While these views are not only unfounded, flawed and often sensationalised, they also have a tendency to rob the average Australian of the opportunity to invest into an asset class that has proven its resilience to global economic downturns and recessions for well over 100 years, essentially scaring them from buying an investment property. The most extreme point of view was voiced by US real estate analyst, Jordan Wirsz, who believes that Australia is heading towards a property bloodbath as the global economic downturn spreads. Right now is not a time to be buying
22
real estate in Australia, Wirsz said. The market has slowed substantially but residential prices are likely to fall up to 60%, possibly even more, within five years. Similar doom and gloom opinions were voiced by visiting US economist Harry Dent who recently said Australian house prices were 50% overvalued and were destined to crash just like they did in the US. Conversely, these extreme views have been largely slammed by Australian property experts, leading economists and property research-based companies including, but not limited to, Residex, RP Data, AMP, ANZ, HIA, BIS Shrapnel, HSBC leading economist Paul Bloxham and the list goes on. To put this statement into context, a 60% decline in property prices across Australia would translate to Sydneys median house prices dropping from $660,000 to $264,000, Melbournes house prices dropping from $550,000 to $220,000, and Brisbanes house prices
dropping from $580,000 to $232,000. Its laughable, isnt it? This proposed market crash is supposed to take place in an Australian economic environment which includes low unemployment rates, historically low interest rates, a strong Australian dollar riding on the back of a resource and commodities boom and a massive surge in migration; most migrants will settle in the major capital cities. All of this is occurring against a back drop of declining housing construction and shortage of dwellings of approximately 160,000 by 2021. These doom and gloom ravings of Steve Keen, Harry Dent and Jordan Wirsz remind me of the childhood story of Chicken Little. The main theme and phrase of this famous fable The sky is falling! has been used to make light of the behaviour of those paranoid individuals who incite panic and fear in others, sometimes to the point of mass hysteria.
Market defiance
Before we examine the basis on which most of these doom and gloom arguments rely, keep in mind that this is certainly not the first time in the last 50 years that predictions of the Australian Property Market crashing have been made. In all instances they were proven wrong, as the Australian Housing Median Prices continue to defiantly appreciate decade by decade. The table below depicts median price increases across the major capital cities in Australia since 1966. Here is a short list of major economic events, both local and global that triggered a flurry of media articles and predictions that the Australian property market would crash. 1. Early to mid 1960s Australia was experiencing a major credit squeeze and finance dried up. Banks lending policies were tightened, resulting in an environment where it was very difficult to borrow any money to buy property. Due to the inability for most Australians to enter the property market, academics and experts predicted that the Australian property market would crash. They were wrong. 2. The late 1960s Poseidon bubble saw the price of Australian mining shares soar, especially in late 1969, then subsequently crash in early 1970. This stock market bubble was triggered by the Poseidon NL companys discovery of a promising site for nickel mining in September 1969. As a result, academics and experts predicted
that the Australian property market would crash. They were wrong. 3. In the 1970s, Australia, along with most industrialised countries except Japan experienced an economic recession due to an oil crisis caused by embargoes by the Organisation of Arab Petroleum Exporting Countries (OPEC). The crisis saw the first instance of stagflation. Coined the OPEC Oil Crisis, this global event created a media frenzy of doom and gloom, and academics and experts again predicted that the Australian property market would crash. They were wrong. 4. The early 1980s saw a severe global economic recession, affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited the recession relatively early, but high unemployment would continue to affect other OECD nations including Australia through to at least 1985. Long-term effects of the recession contributed to the Latin American Debt Crisis, the Savings and Loan Crisis in the United States, and a general adoption of neoliberal economic policies throughout the 1980s and 1990s. Academics and experts again predicted that the Australian property market would crash in the mid 1980s. They were wrong. 5. After the Australian property market refused to crash in the early to mid 1980s, many financial and economic commentators jumped onto the doom and gloom bandwagon, fuelled by the
Brisbane $9,700 $30,000 $60,400 $132,000 $475,000 Adelaide $10,000 $31,000 $77,700 $110,000 $362,100 Perth $10,200 $38,000 $55,100 $127,300 $460,000
$200,000
1966
1966
1966
1966
$100,000
Sydney
melbourne
brisbane
adelaide
1966
...These prophets of doom seem to reappear every time the property market enters its decline...
2008
$400,000 $300,000
1986 1996
2008
$500,000
2008
1976
perth
1976
1986 1996 23
2008
$600,000
[ Feature ]
media, stating that Australian house prices were way overpriced compared to other industrialised countries, and that the property bubble would ultimately burst. The prevailing argument here was that the average household debt had reached a peak level, and based on academic deduction of the data, conclusions were drawn that people would simply not be in a position to borrow more money, hence property would stagnate and eventually crash. At the time, property median prices in Melbourne and Sydney were about $85,000. They were wrong. 6. On 20 September 1985 the Australian Government introduced Capital Gains Tax. The implication for property investors was that any capital profits made from a sale of an investment property was now subject to a marginal tax rate of the investor. Financial commentators, financial planners, and so called experts predicted that this was going to BE THE END of property investing as we knew it. They were wrong. 7. In 1987 we had the stock market crash and what many referred to as a 1930s-type depression. With consumer sentiment at record low levels, the media once again jumped on the doom and gloom bandwagon. With super funds being wiped out virtually overnight, many financial commentators and academics predicted that this prolonged period of economic uncertainty would be followed by a property market crash. They were wrong. 8. In 1989 to 1991 Australia experienced historically record-high interest rates and inflation. The early 1990s were the beginning of another recession; many of us will remember it for the famous quote from Treasurer Paul Keating, this was the recession we had to have. Of the 18 OECD countries of reasonable size and development, 17 experienced a recession in the early 1990s a similar situation to the mid-1970s and early 1980s global recessions. The cash rate reached a staggering 18% in the second half of 1989, and mortgage rates of 17%; many loans to businesses were well in excess of 20%. Unemployment ended up peaking at 11.3%, and once again many academics and experts predicted that the property market would crash. They were wrong. 9. The Asian Currency Crisis, which gripped many of the Asian countries in mid 1997, raised fears of a worldwide economic recession. The crisis started in Thailand, and soon spread to neighbouring countries, eventually reaching as far as China and Japan, which directly impacted the US and Europe. With major impacts on the various stock markets and managed funds around the world, many academics and experts predicted that the Australian property market would crash. They were wrong. 10. The coordinated terrorist attacks on USA that took place on 11 September, 2001, resulting in the collapse of the Twin Towers of the World Trade Centre, created a virtual stock market freefall in the US and considerable drops were witnessed around the world. The uncertainty of follow-up terrorist attacks created a downward spiral of negative consumer sentiment, and once again, academics and experts predicted that the Australian property market would crash. They were wrong.
...These views are not only unfounded, flawed and often sensationalised...
11. The Sub-Prime Crisis in the US in 2006 to 2007 was triggered by a rise in sub-prime mortgage delinquencies and foreclosures, and the eventual collapse of subprime mortgage backed securities. Being essentially blamed on poor banking credit standards, greed and speculation of assets continuously rising in value, the impact of this crisis triggered a plethora of media articles and commentary warning that what happened in the US would eventually happen in Australia. In fact, many so-called academics and experts went on record to say that the Australian household debts in relation to house prices were unsustainable, and the bubble would burst somewhere in 2009 to 2010. It didnt. And as the table below depicts, the market slowdown was minimal, and was absorbed by the buyers market almost instantly. 12. In 2010 to 2011, after defying the predictions of many academics and experts, the Australian property market once again continued to climb, with Melbourne hitting a new peak median price of $601K in December 2010. This defiance to conform to predictions of collapse, lead to, in 2011 and early 2012, another campaign of predictions that the ever-mounting household debt locked in the Australian housing market would ultimately lead to a bubble bursting with many families and household
GFC
Source: REIV
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FOREX
21ST CENTURY
4 LIFESTYLE
4 FREEDOM
4 CONFIDENCE
4 INCOME
RISK DISCLOSURE: All investing carries risk. Investing utilising derivatives and/or leverage increases that risk. One can lose all of ones investment and in some cases more. One should fully educate oneself and seek any appropriate advices before deciding to invest. FOREX DISCLAIMER: 21st Century Forex refers to derivatives restricted to those arrangements that are, at the time of providing a financial service, subject to the operating rules of a licensed market complying with Regulation 7.2.07(e)(i) or Regulation 7.2.07(e)(ii). EDUCATION DISCLAIMER: 21st Century Education Holdings Pty Ltd (A.C.N. 129 551 917) provides general advice only and does not take into account your objectives, financial situation or needs. 21st Century is an educational company and provides access to educational products. These educational products should not be construed as investment products. Investing carries risk and one should seek professional licensed advice before considering any investment. 21st Century Education Holdings Pty Ltd is a corporate authorised representative (ASIC No: 396633) of CLEARING AND SETTLEMENT SERVICES LTD (AFSL 238796).
[ Feature ]
owners losing their life savings when the housing market corrects by 30% to 60% of its current levels. Perhaps the most memorable example of a doom and gloom article is that of commercial property advocate, Chris Lang, who proclaimed that Baby Boomers who do not sell their homes in 2012 will have to wait until 2025 before they could sell them, as no one would be interested in large four bedroom houses in Melbourne and Sydney... Baby Boomers are facing an enormous challenge. And the sad fact is that they are probably not even aware of the problem. You see, if they havent sold their traditional inner-suburban homes before 2012 they need to be prepared to hold onto them until 2025, because there simply wont be a market for that type of property before then. There is, in fact, an exhaustive list of other arguments that all predict that the Australian property market has to crash, ranging from demographic reasons, to economic reasons, stock market-related reasons, to monetary and fiscal changes in Europe. One argument used excessively by various commentators is that Australian house prices are overvalued, with the average mortgage representing the equivalent of 9.2 times the average annual income. Hence, the argument is that this is unsustainable, as eventually people
2007 Population 6,816,087 5,126,540 4,090,908 1,567,888 2,059,381 489,951 210,627 334,119 20,695,501
2056 Population 10,158,043 8,482,497 8,653,819 2,195,768 4,252,618 571,015 397,322 506,424 35,217,506
Total Growth 3,341,956 3,355,957 4,562,911 627,880 2,193,237 81,064 186,695 172,305 14,522,005
Avg Annual Growth 0.8% 1.0% 1.5% 0.7% 1.5% 0.3% 1.3% 0.9% 1.1%
2007 Population 4,281,988 3,743,015 1,819,762 1,145,812 1,518,748 205,481 114,362 334,119 13,163,287
2056 Population 6,928,400 6,734,991 3,936,363 1,644,040 3,323,089 278,845 240,171 506,424 23,592,323
Total Growth 2,646,412 2,991,976 2,116,601 498,228 1,804,341 73,364 125,809 172,305 10,429,036
Avg Annual Growth 1.0% 1.2% 1.6% 0.7% 1.6% 0.6% 1.5% 0.9% 1.2%
will not be able to service or even qualify for these loans if prices continue to rise. This argument was addressed in a recent report issued by the ANZ bank, senior economist David Cannington and Paul Braddick, head of property research at ANZ:
$547,861
Despite the continued concerns about significant Australian house price overvaluation from some commentators, housing market fundamentals remain supportive. The report goes on to state that majority of the capital growth in Australian median prices since 1986 can be attributed to gains in average household incomes and a structural decline in the cost of borrowing. (See Australian House Prices Vs. Purchasing Power graph.) Furthermore, the report stated that some 92% of the median price appreciation since 1986, of the residential market, can be explained by these two contributing factors (shown above) which are interest rates, and household income growth.
* Represents the average households purchasing power over the median priced home ** Calculated using trend discounted variable bank mortgage rate *** Calculated using average household disposable income
Here are my personal top eight reasons why the Australian property market will continue to beat the odds and continue to exponentially appreciate over time, especially over the next 15 to 20 years.
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at approximately 160,000 by 2020 in NSW, 112,000 in WA, and there will be a shortage of 105,000 in VIC. As can be seen by the table above, the shortage of new dwellings coming into the market is dire across the board, with a prediction of over 500,000 dwelling shortages across Australia by 2020. While these shortages are staggering, there are two more aspects of this issue that need to be appreciated in order to fully take in the gravity of this situation. The first is that the majority of new dwellings are being constructed on the fringes of the major capital cities in Australia in new estates. This is mainly due to established suburbs having height and density restrictions; large scale developers are usually left with fringe city farm land that has been rezoned as the place to establish new housing estates. In Melbourne, there are over 105 new housing estates located in all directions on the outskirts of the city. This means that the housing pressures on established suburbs and inner city areas are likely to keep increasing, along with their prices, due to the majority of jobs and infrastructure being concentrated in the city areas of the major capital cities in Australia. The second point to appreciate is that currently Australia does not have a workforce that is capable of building 500,000 new homes by 2020. This shortage of skilled labour, combined with the bureaucracy involved in creating new land estates will continue to underpin
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[ Feature ]
A unique banking system that is underwritten by the residential property market. Our $3.5 trillion private residential housing market is completely dominated by the four major banks in terms of mortgage exposure, which only stands at about 30%. Putting aside unencumbered houses and investment properties, owner occupied properties in Australia have mortgage levels where the average loan to value ratio is located somewhere between 50% to 60%. This is a very important point for two reasons. One, properties would need to devalue by 40% to 50% before there would be any effect on mortgage sentiment, and even at that point in time, given the strength of the economy and emotional link to owner-occupied living, most people would be hesitant to sell their house. Perhaps more importantly, the mortgage debt is not evenly spread against all dwellings across all suburbs. Taking Melbourne as an example, top suburbs like Kew, Camberwell or Balwyn have 65% of all properties unencumbered, contrasted with new ring estates like Point Cook, Tarneit, or Pakenham with 95% debt. The reality is that there are a lot of rich people in Melbourne, Sydney and Brisbane, sitting in houses that are completely paid off, and completely unaffected by any property price movements. The other unique aspect making up the Australian banking landscape is the very stringent lending policies and credit scoring systems that are widely used in Australia, where the majority of loans written are full doc loans, insured by QBE or GE, resulting in an extremely low mortgage default rate of 0.7% per year. This is an extremely low default rate by international standards, and its a credit to our banking system, which has provided so much needed stability in recent economic times. Strong social emphasis on house ownership, entrenched by government and developers. We have all heard at one time or another that the Great Australian Dream is to own a four bedroom house on a 1200 square metre block. For many this is now all but a dream, with median prices around Australias major capital
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4.
cities hovering around the $550,000 to $600,000 mark, and realistically requiring $900,000 to buy a four bedroom house in an established area; many first home buyers or migrants struggle to buy into one of the most expensive markets in the world. Ranking ahead of London, New York, Rome, Los Angeles, Berlin or Hong Kong, the latest survey by the Economist Intelligence Unit, shows that Sydney leads the list of the five Australian mainland capital cities in the Top 20. Sydney globally is ranked at number seven, slightly ahead of Melbourne at number eight. Perth is the 13th most expensive place to live in the world, Brisbane is 14th and Adelaide is 18th.
has been developed and reinforced by family members and peers over decades. Geographically isolated premium suburbs and estates. One of the most unique features of the Australian housing landscape is that virtually every suburb in Australia came into existence within the last 200 years, and more importantly, each suburb was at one stage a master planned estate that was sold to home buyers based on a stage released process. This means that each and every suburb at one stage or another had a similar price range, and housing design guideline, attracting a similar type of buyer based on demographic and income band. Needless to say, over time, some suburbs have transformed, with many of the traditional inner city suburbs which were originally made up of blue collar workers, such as Melbournes Middle Park or Port Melbourne attracting white collar workers due to their unique proximity to the city, access to infrastructure and the beach. However, there are always exceptions to this rule; many of the original affluent suburbs have also remained affluent over the decades, such as Melbournes Toorak, South Yarra, Canterbury, Kew, all of which shared a common thread of having land blocks in excess of 1000 square metres and houses of 25 to 50 squares being offered in the original suburb marketing plan. The end result being that Melbourne, Sydney and Brisbane have ended up with very distinctive and often fragmented property markets, virtually independent of each other, and have no real common links. In Melbourne for example, there is no correlation between Broadmeadows in the northern suburbs, where the median price is $350,000 compared to Toorak, where the median price is $2.75 million.
6.
5.
These distinctive suburbs have virtually nothing in common in terms of level of debt, income bands, job industries, etc. Due to this unique and fairly recent establishment of suburbs by international standards, within the main capital cities around Australia, we have ended up with a situation where the rich are concentrated in very specific areas or suburbs, as are the middle class, as are the less affluent. This has resulted in different suburbs and areas being affected in completely different ways depending on what the economy or interest rates are doing. During times of high interest rates for example, the outer ring suburbs in Melbourne experience much higher mortgage stress levels than the old money suburbs, where over 50% of house are completely paid off. Further to this, suburbs within the 10km ring around the CBD have also been under mounting pressure due to their close proximity to major job hubs, transport, and lifestyle areas.
literally into hundreds of potential tax deductions that are available to individuals who choose to invest in property. Perhaps the most notable of these is the ability to claim the interest component of the loan as a tax deduction, not to mention building deduction of 2.5% over 40 years, depreciation of fixtures and fittings over five to 15 years (depending on method of depreciation, diminishing value or straight line) and a multitude of other deductions relating to upkeep, insurance, property management costs, and ongoing costs associated with an investment property. All of these factors combined have the potential to turn a negatively geared property (whereby the rental income from the property does not cover the interest only repayments) to a neutrally geared property or even cash flow positive. Essentially, the implications of a taxation system that is completely biased in favour of property investing means that accountants, mortgage brokers and some financial planners will recommend direct property investing as a holistic solution to wealth creation. Social proof of property investing as a safe, predictable way to make money. Despite the recent international stock market volatility, according to an investment report by Russell Investments, the average house in Melbourne has
8.
returned an average of 49.8% over a five year period until June 2011. This equates to an average annual return of 9.98% per year, which is a hefty contrast compared to the stock market, bonds, or commodities. Whats more astounding, is that despite all the doom and gloom predictions, and in light of major international economic turmoil, the Australian residential property market has managed to return an average of 10.1% for the 10 year period until June 2011, and a staggering annual average of 11.6% of a 25 year average until June 2011. Similar results were documented in a recent ANZ report, which showed that over a 24 year period, taking costs, taxes and gearing into account, property was the winner compared to that of the ASX200, Government bonds, commercial property and term deposits (see table below). Further studies by RMIT substantiated these findings, showing that over a 20 year period of time, residential property outperformed the ASX top 200 companies. The ANZ report called Australian Property Research Asset Returns: Past, Present and Future, showed that once all the associated holding costs were considered for the various assets included in the study, owner-occupied housing was found to have generated an annual return of 12%. Investment property 9.6%, stocks 8.9%, government bonds 4.8%, commercial property 4.2% and term deposits 3.7%. Despite these unquestionably outstanding results, every year there is a new breed of doom and gloom seers, who eagerly wait for the mythical property bubble to burst. These prophets of doom seem to reappear every time the property market enters its decline or stabilisation part of the property cycle, and they disappear as quickly as they came, when the market shows signs of recovery and progresses, once again, to the upturn and boom part of the property cycle. They then retreat into the dark cubicles, libraries, or university research departments, collecting new documents and data, preparing for a new opportunity to herald their next apocalyptic prophecies. pi
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[ Feature ]
ouve located the property that you are potentially interested in purchasing, have looked at it and determined that it meets your basic investing goals. Before you pat yourself on the back for a job well done, you need to establish its value to avoid potential financial disaster. If you take the word of the seller or the tax rolls to establish its value, you could lose your shirt, especially in a real estate market that has seen values drop by tens of thousands of dollars within a matter of months. Depending upon the kind of investor you are, youll utilise one of the three methods of establishing the value of a property. They are:
Comparable Sales - If youre investing in primarily single-family or multi-family properties with fewer than
30
five units, by far the most popular method of establishing value is the comparable sales method. This method consists of locating recently sold properties that are substantially similar to the one you are considering purchasing and are located in the same general vicinity. A skilled appraiser typically has many years of experience in determining value, but you can do the same thing either by going to your local courthouse and compiling the information yourself or by working with a realtor who might be willing to provide these figures to you. You can also get a rough estimate of values in many areas by utilising an online resource. Once you have your comparable sales figures youll need to compensate for any differences, such as the lack of a garage, fireplace, or even a swimming pool. In order to compensate for the differences in square metres of your subject properties, you
can divide the sales prices by the square metres of living space to come up with a cost per square metre.
...A skilled appraiser typically has many years of experience in determining value, but you can do the same...
Replacement Cost - While not
nearly as popular as the Comparable Sales method, another way of determining the value of a property is by estimating what it would cost to recreate the same property in the same area. You would need to determine building costs, the cost of materials and also make allowances for depreciation of the property so that it is substantially similar to the property you are considering purchasing. If youre
experienced at estimating building costs accurately and are aware of the current cost of building materials and supplies, the Replacement Cost method may be one you will want to utilise. However, it isnt utilised very frequently. If the Replacement Cost method is one that youd like to use to determine value, you could very quickly arrive at a figure by contacting a local contractor and asking them how much they would charge you by the square foot to build a home in the area of your subject property. Dont forget to factor in depreciation to match the condition of your subject property.
the risk of overpaying for a property. Remember, though, that real estate prices can be extremely volatile, so make sure any properties you use for comparative purposes are recent sales figures. If you have accurate numbers, you can write impactful, precise bids that stand a greater chance of being accepted and allowing you to turn average returns into explosive profits.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1000 real estate deals, owned a construction company, been a private lender and owned a property management company. Peter currently works with clients all over the US http://www. CoachingByPeter.com.
...Determine what the gross income is for the property and then subtract all expenses, including debt service on an annualised basis...
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[ Feature ]
ets take a look at five questions that an investment property analysis should consider and address before an investor makes a real estate investing decision to purchase.
sights on retirement and are looking for long-term ownership as a means to generate future supplementary income.
property stack up well against other properties, or not so well? Along these same lines, could minor changes to, say, property management for instance, improve the propertys position in the market? Or are there issues like location, for example, that are unchangeable and will continually present challenges for you to keep the units occupied at market rents?
2) What do you expect of the property for the time you plan to hold it?
This concerns your investment objectives and the period of time that you expect to hold the investment. Whereas some real estate investors, for example, might simply want to add value by increasing the rents and then re-selling for a profit immediately, others might have their
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[ Feature ]
The usual items are: Principals personal financials Property condition reports Phase I environmental reports Financials Leases Survey Zoning and historical site info Pro forma financials Appraisals Unfortunately, ticking off these items leaves a great deal of risk on the table for the investor unnecessarily. An effective checklist will provide: Financial, experience and background of the principals Financial position of the key (largest investors) Physical condition of the property Submarket and market situation Sales and marketing plan Resident factors Improvement plans Management and maintenance plan and resume Staff assumptions for the purchase Organisational and legal documents and considerations including operating agreements, licenses, securities filings, etc. Under each of these areas, investors should seek significant detail. In the following paragraphs, I provide a high level view of each of these items to support investors.
need to be examined. A detailed plan determining the specific plans relative to the disposition of the current residents, evicting problem residents and replacing with new residents must be developed.
Improvement plans
The property condition, condition of the submarket, the sales and marketing plan, and resident situation will all be used to develop a comprehensive capital improvement plan for the property.
Resident factors
If the market is new, tenant rights must be understood. The current leases
33
[ Feature ]
34
ver the past five years I have witnessed a lot of new property investors in Melbourne being completely priced out of the market, with the house median price in Melbourne reaching an all-time high of $601,000 in December 2010, currently hovering around the $560,000 mark as of March 2012. Looking more closely at the situation, it is difficult to buy any three to four bedroom house under $800,000 to $1,000,000 with a decent land component in top tier suburbs like St Kilda, Elwood, Brighton and Hampton in the bayside suburbs and Kew, Camberwell or Hawthorn in the eastern suburbs. The preferential inner city fringe suburbs, which are positioned roughly within a 10km radius of the CBD are in most cases completely out of reach for most new investors entering the market. Hence, the only viable option for these investors is to purchase an apartment or a townhouse, but in many cases, even two bedroom apartments in St Kilda, Bentleigh and Sandringham, are coming in at more than $550,000. In fact, these sought-after inner suburbs of Melbourne have soared in price over the last 20 years, as the figure below shows. While many new investors are becoming either discouraged from investing altogether, some are turning to the largely untapped regional areas, such as Geelong, Ballarat, Shepparton and
Bendigo in order to get their foot in the door. Many are finding this strategy very lucrative, with some surprising capital growth and rental returns. Before we explore the viability of investing in regional centres, it is important to reiterate the key fundamental components that experienced investors look for in an investment property, then apply that regional centre template to see which pass the criteria and constitute a good long-term investment opportunity. The following is a short list of the top six key fundamentals that I look for in an investment property insights which I have gained over the past decade as a real estate agent, and ex-banker, working closely with sophisticated property investors. 1. Capital growth of at least 10% over the last 10 years. (RP Data) 2. Low vacancy rates of 2.5% or less. (REIV) 3. Proximity to CBD and infrastructure, transport, shopping, schools. 4. Positive population of growth of at least 1%. (ABS) 5. Rental yield of at least 4% per year. (REIV) 6. Maximum depreciation on building and fixtures and fittings. (Quantity Surveyor) Although this is a very short list, it can be used as a rule of thumb to eliminate
more than 50% to 60% of the properties currently listed on the property market. And just in case you are curious, the next few key fundamental points relate to the land component and density of the project; in a nutshell, the bigger the land component and lower the density of the project, the better. After applying these criteria to all the major regional centres in Victoria with a population greater than 100,000 people, Bendigo shines with flying colours. In fact, apart from advantage of the major price difference, Bendigo beats Melbourne on all key fundamental components when it comes to analysing the viability of buying an investment property.
...Bendigo beats Melbourne on all key fundamental components when it comes to analysing the viability of buying an investment property...
Bendigo is experiencing a second gold rush, but this time investors are scouring for investment properties. Over the last 10 to 15 years, Bendigo has become a destination of choice for tree change for many Melburnians who are wanting to escape the fast-paced and expensive lifestyle of Melbourne, without sacrificing unique caf culture and architectural heritage of 150 year old suburbs like St Kilda and Brunswick. Bendigo is located 130km north of Melbourne, only 1hr 45min by fast train and enjoys a population of 216,000 (as at 2011). Bendigo is experiencing record population growth of 2.7% and a potential housing shortage in the next five to 10 years. This has resulted in unprecedented vacancy rates dropping to 0.2% in 2012 according to REIV. With substantial infrastructural redevelopments in the pipeline, such as the $630 million redevelopment of the hospital precinct over the next six years, not to mention Bendigo benefiting from the $4.3 billion Victorian Government regional rail link, key areas in Bendigo have the future potential of outpacing the capital growth of some of the most favoured Melbourne suburbs.
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Source: REIV
c06 ar -0 7 Ju n07 Se p07 De c07 M ar -0 8 Ju n08 Se p08 De c08 M ar -0 9 Ju n09 Se p09 De c09 M ar -1 0 Ju n10 Se p10 De c10 M ar -1 1 Ju n11 Se p11 De c11 M
De
[ Feature ]
2.3% 4% 1.6%
Below is a snapshot of the capital growth of the main areas in Bendigo over the last 10 years. Surprisingly, a number of key areas in Bendigo have outperformed some of the best suburbs in Melbourne in terms of capital growth and rental yields over the past 10 years. What makes this even more attractive for investors is the low entry price point, as the median house price in Bendigo is only $285,000, virtually half of that of Melbournes $563,000. Furthermore, upon closer examination of the driving factors of the local economy, its surprising that Bendigo is not reliant exclusively on one specific economic driver such as tourism or mining. Rather, it has a diversified economy consisting of manufacturing, financial services, health, education, mining, agriculture and engineering.
Bendigo school.
largest Art Gallery in Australia, which made headlines recently due to the Grace Kelly iconic exhibition that was hosted there.
...Bendigo is definitely a hot-spot, but is by no means the only regional area worth investigating...
With a significant wine region and splendid architecture stretching back 150 years to the gold rush era, Bendigo has a sophistication that is completely unique compared to that of any other regional area in Australia. Having ranked number 69 on Your Investment Propertys Top
100 in 2011, no wonder so many savvy investors are looking at Bendigo as their foothold into the property market. Bendigo is definitely a hot-spot, but is by no means the only regional area worth investigating. While a lot of investors avoid regional areas because of a perception of low capital growth and high vacancy rates, nothing could be further from the truth. Thats why smart investors, who know how to conduct unbiased due diligence, are winning the game, compared to those who hold false and limiting preconceived ideas of regional property markets. And with so many excellent investment opportunities outside of the major cities, before your next purchase, it really is worthwhile casting your eyes over greener pastures. pi
...A number of key areas in Bendigo have outperformed some of the best suburbs in Melbourne...
Its also worth noting that Bendigo has one of the few provincial stock exchanges which was founded in the 1860s, as well as the headquarters of the Bank of Bendigo. The area has a strong education sector, including Bendigo Regional Institute of TAFE, La Trobe University, Monash University, Bendigo Senior Secondary College and Bendigo Catholic College. Bendigo also boasts the oldest and
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Location Bendigo California Gully Eaglehawk East Bendigo Golden Square Ironbark Kangaroo Flat Kennington Long Gully North Bendigo Strathdale
House median $285,000 $210,000 $220,000 $255,000 $250,000 $240,000 $245,000 $285,000 $205,000 $220,000 $315,000
Growth rate 11% 10% 10% 11% 10% 10% 8% 10% 11% 10% 7%
Median yield 5.2% 5.3% 5.4% 4.8% 5.1% 5.4% 5.2% 4.7% 6.2% 5.7% 4.6%
Source: Australian Property Monitors. No. of sales is house sales in the past 12 months. Growth rate is the average annual growth in the median house price over the past 10 years.
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foundations
How To
Finding the right structure to invest in property can be difficult. In the following section we aim to break down those structures by enlightening you on matters such as how to invest, how to best manage your asset, what sort of action plan you need and how to best educate yourself. Of course, it is up to you to do your own due diligence, particularly when buying overseas, but we hope this section guides you through some potential minefields to make you a smarter investor for both Australian and US property.
...My advice is not to wait to buy property, rather, buy property and wait...
38
...The market is simply a vehicle that transfers wealth from the uneducated to the educated...
With a high probability of substantial interest cuts, coupled with escalating rental yields across the major capital cities, 2012 is looking like the beginning of the next strong upward trend in the property cycle, especially in Melbourne and Sydney. Many people will look back at 2011 and correctly identify it as the best time to buy property under market value, and by that stage of course, it will be too late, as all the bargains will be gone, and the market would have moved into the next phase of the property cycle. One of the most fundamental principles of investing in property in Australia is to appreciate that the market moves in distinct cycles which are characterised by periods of strong capital growth and demand for properties, through to periods of a flat-lining market, following periods of distinctive falling median prices, lower demand for properties, and a decline in property prices. The money is made by both the timing of the market, and of time in the market. Hence my advice right now to investors is not to wait to buy property, rather, buy property and wait. The general rule of thumb is that these property cycles last seven to 10 years, and can be segmented into four main parts, the Peak of the Market being the shortest of the four:
can be further characterised by a shifting balance between capital growth and rental yields, this relationship being largely an inverse one. That is, during times of strong capital growth, rental yields tend to drop as a percentage; the reverse is true during times of stagnant capital growth, or declining capital growth, when rental yields eventually catch up to the market, and increase as a percentage.
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foundations
Get Educated
An education guide to
Oz property investment
No matter whether you are investing in property or shares, the principles remain the same. This article looks at how to invest and what makes you a smart investor. Indeed, what makes you a smarter investor is education.
There is no luck when it comes to property investment. Successful investment is all about diligence. A smart investor will ensure he or she is educated about basic investment principles. The skill comes in using those principles to develop a sound investment strategy. So how do you educate yourself? The first thing to do is: They include: The Renovation Strategy This is a strategy used by real estate investors who buy properties, add value through renovations, and on sell them quickly. Capital Growth Strategy Investors who buy properties in areas with high rates of projected capital growth to provide equity in the future e.g. as a retirement plan. High Cash Flow Strategy This is a strategy often used by investors who want to use their income from real estate investments to fund their lifestyles.
...A smart investor will ensure he or she is educated about basic investment principles...
Many investors will take the plunge and buy a property, and then try to figure out what their strategy is afterwards. This is doing things in reverse. To give yourself the best possible chance of success, you need to pick a strategy and decide what your long-term goals are, then find a property or properties to match. There are many different types of strategies that can be employed by real estate investors and their relevance always depends on the investors individual circumstances, income and time of life.
Suburb / postcode performance trends are prices going up or down where you intend to buy, what is the make-up of mortgage holders vs. renters?
How long properties are taking to sell in your suburb so you can get an idea of the level of demand.
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The median price for similar properties in the area so you can tell (broadly speaking) whether your target property is priced competitively.
Choosing the right experts will reduce your investment risk right from the start, and no doubt save you money and mistakes in the long run.
Study the area on the council website so you can ascertain if there are planned developments / infrastructure improvements etc. locally which can increase prices in the future.
Be first
How many times have you heard the phrase, I wish Id known...? Hindsight can be a horrible thing.
The traditional way to find property investments has been to scour classifieds or trawl through listings. There are a million other investors doing the same thing. So find a tool that can help you technology is amazing these days. In a nutshell you need to think ahead, choose your investments wisely, then manage and monitor them using all the assets available to you, including expert advice. By educating yourself properly and following through with your strategy you will come to understand your goals and risk tolerance, your risk and return and ultimately the power of your investments. Once you know how to keep track of your investments, you will no doubt see your portfolio expand. As they say at moneysmart.gov.au, There are no short-cuts to becoming a successful investor. Youll need to understand the basic principles. Start by identifying your own needs and attitude to risk.
Note that the bank, valuer, vendor etc. will all have a different opinion about what a property is worth. An educated investor will pick up properties at a discount and receive instant equity. To do this, make up your own mind on what the property is worth, and do it using the very latest data. As a minimum, find out the sales history of the property, the on-the-market history and what comparable properties have sold for recently. The more information you can get hold of using the latest, reliable data, the better informed you are going to be when making an offer.
Consider the benefits of having a team of expert professionals in place before making serious decisions about properties to add to your investment portfolio. If you can, get this team together to be called upon when you need them: Contractors such as plumbers, painters, cleaners and pest controllers. Solicitor. Valuer. Property manager. Financier / mortgage broker. Accountant. Building / pest inspector. Real estate agent.
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foundations
My Action Plan
Take on more to
succeed
When you have a plan, you have something to fall back on. You have a framework for success that serves as a roadmap to financial empowerment and investment success.
The framework itself is very basic. Given here is an example of one that includes the major elements of a successful wealth creation plan. It begins very simply with your decision to commit to wealth creation. Without a commitment to yourself, there will be no sustainability to the plan. Once you have committed to your own financial program, the next step is to take the action that results in building wealth. These include: Financial/wealth education; such that you get through other forms of reading and researching. This is necessary to learn what is missing and what you need to learn in order to enjoy and thrive while building wealth. Setting goals; goals are benchmarks that tell you how you are progressing and give you something to aim for. They are an important test of your financial success, and also an important motivator. Thinking wealthy; mindset is at least 80% responsible for your financial future. Taking action; thoughts rely on taking action to build wealth. Continuous commitment to creating wealth; to be sustainably wealthy you have to commit to following through. Plan to build wealth in a way that is continuous and commit to your ongoing prosperity and life success.
This framework gives you the basic means of how to get there. Your job is to personalise it and internalise it. You decide how you will achieve each of these steps. You decide how you want to go about achieving financial empowerment, financial freedom and wealth. You decide how large you should aim and live. You get to call the shots and take the actions, and enjoy your own flavour of success with money.
At some point we all have to get down to action. We have to take steps and move forward. We have to take on more to have more so that we can eventually do less of what we have to do and more of what we love. There cant always be an easy way to do this, but at least there is a real, definite way. We all have the ability to become successful property investors.
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Dream home
Holiday
Financial freedom
The Financial Education DVD Pack covers: - Discover the Tools To Excel Financially in the 21st Century - How to Take a Slice of the $4 Trillion Dollar Foreign Exchange Market - Business Strategies for the 21st Century, Including How to Grow or Start a Business with Zero Outlay or How To Profit More Than the Owner by Becoming an Entrepreneurial Manager - How to Secure Wholesale House & Land in Australia and Bargain Priced Turnkey Properties in the U.S.A - Why Most People Fail Financially and How to Avoid Those Mistakes - Why Taking Financial Advice From a Financial Planner Can Sometimes Be a Big Mistake - The Strategies Used By Professional Traders to Trade the Billion Dollar Eminis Market - How To Implement a Millionaire Mindset - Develop a Results-Driven Education For Life That Isnt Taught at School or University
21st Century Education Holdings Pty Ltd (A.C.N. 129 551 917) provides general advice only and does not take into account your objectives, financial situation or needs. 21st Century is an educational company and provides access to educational products. These educational products should not be construed as investment products. Investing carries risk and one should seek professional licensed advice before considering any investment. 21st Century Education Holdings Pty Ltd is a corporate authorised representative (ASIC No: 396633) of CLEARING AND SETTLEMENT SERVICES LTD (AFSL 238796).
foundations
...Owners of a unit can not only claim items within the strata unit , they are also entitled to claim their share of the common property...
location: wollongong, nsw purchase price: $365,000 construction date: march 2008 House Year 1 Depreciation: Year 1-5 Cumulative Depreciation: Total Depreciation over 40 years: $10,000 $40,000 $245,000 Year 1 Depreciation: Year 1-5 Cumulative Depreciation: Total Depreciation over 40 years: Unit $14,000 $55,000 $266,500
Note: When purchasing a strata unit there are other costs, such as strata fees, to consider as an ongoing cost of ownership.
...Consulting a quantity surveyor who specialises in depreciation will guarantee the investor gets the maximum deductions available...
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foundations
How To
How to invest
in the USa
The state of the Australian dollar opens a small window of opportunity to securing a positive cash flow investment in the US property market. Some smart Australians have already noticed the remarkable and quite obvious investment trend in purchasing US properties. The situation is similar to what Australians experienced within this country 10 to 20 years ago. There are many here who regret not investing when property was more affordable; a time when property didnt cost more than half a million just for an average two bedroom flat. If you bought 10 to 20 years ago, youd have a major capital investment and youd be a very happy investor. For those who missed the boat and now have the cash to revisit their investment portfolio, the US property market provides an excellent opportunity to increase wealth. While it is not guaranteed that prices in the US will ever rise back to their peak, it is estimated that they will eventually meet replacement value. For now, an investment of $AU30,000 into the US property market may automatically enable you to start receiving a continuous positive cash flow no matter what happens to the market and property prices in the future.
The property market in the US has suffered dramatic falls, forcing property prices to drop to as much as 70% in some cities. This means it is a good time to invest, writes Aneta Gorelik.
are usually the same. The difference here is that the US does not have stamp duty and a $US300,000 suburban home can now be bought for $70,000. To invest, Australians may use their lines of credit, equity or cash reserves to buy in the US. If you get this right, youre borrowing money in Australia at 8% and its returning you anything between 15% to 25%. Some investors are even going as far as selling some of their Australian properties or homes, purchasing five to 10 US properties and sitting on an automatic cash flow which not only covers the rent of their upgraded home, but also leaves them with some spending money. It is important to shed the Australian attitude and fear when considering American investments. To have success in America through investments, you need to be able to take on an American perspective, which comes from understanding the differences between Australian and American markets.
46
dollar since the inception of the free-floating currency market back in 1971. Before we go any further it is important to note that even though it may take time for the dollar to increase, not all investors are looking for capital. Some investors want cash flow and are purchasing in quality residential areas such as Indianapolis and Kansas City where the properties were always quite low ranging from $30,000 to $60,000 and never really dropped during the GFC. These properties provide a net return of 24% after tax, insurance, property management fees etc. US economy expert Jay Crooks believes the dollar is at the beginning phase of a selfreinforcing process in the other direction. He says this is the precursor to the most powerful leg up. Theres a while to go after this stage until confidence is at its height and the currency moves higher in spite of bad news, because players are still adding to their winning bet. As Jay says, When everyone in the world will love the dollar every day, all the time, youll know the trend is at its peak. Shoeshine boys will be playing the FX market, going long the dollar and making a killing. What this means is that the US dollar has bottomed and now the only way is up. It may take a while for it to reach past heights, but the trend is changing. The credit crunch is forcing change and US savings are inclining; debt sentiment has changed. Also, growth in the US is not as bad as reported; its much better in the US than Europe, UK and Japan. It is likely you will also see interest rates cut. If you are looking to invest, based on the current US dollar trend, now would be a great time to buy.
ranges below $150,000. And we all know what that means. While active listings are down, median sales prices are their highest in 12 months. The biggest jumps have come in Phoenix, Arizona. For greater Phoenix, the monthly median sales price jumped from $80,000 to $86,000 in less than seven weeks, an 8% increase. Kansas City (recently rated one of the top States in the US for their consistent high rental yields and returns) and Atlanta (in April 2011 Fortune Magazine rated Atlanta as the number one city in the US to buy into) are also worth considering. If you are an Australian looking to invest in the US market, Phoenix is currently the perfect place to invest. On 2 February 2011, it was voted one of the best places to reside in the US. There are clear signs that supply is decreasing and demand is increasing, vacancies are down, rents are up and price momentum is starting to build. The property market bottom out is mirroring that of the dollar. If you are an Australian investor the good news is that rental properties, especially single family homes, are in huge demand. This demand coupled with rising rental rates is giving Phoenix landlords reasons to celebrate their decision to invest in cash flow property. It is an unfortunate situation, but as many US citizens lost their homes to foreclosure or short sales, there is a greater need for single home rentals. Demand has pushed the supply of rentals down to about a 6.6% vacancy rate and rents have recently risen about 2.5%. This is very good news for landlords and investors. There may never be a better time than now to become a landlord, particularly in greater Phoenix. Take advantage of the still high dollar, before the trend reverses, and utilise that to get into the US property market now, before time runs out. And it will its just a matter of time. pi
Here are
five
2. What is the
percentage of tax you will pay in the US?
3. Make sure you research your property manager. Go with one who is currently running a US property, or go with a company who sells US properties to Australians. 4. When purchasing a home on your own ensure there are no tax liens or mortgages attached to the property. 5. Then get a building
inspection done and put property insurance in place. I recommend putting the property under an LLC.
47
Investment in property within the US is also trending up. In October 2011, there were 7,556 closed sales, up 16% from this time the previous year. Demand is accelerating while supply is falling, especially in the price
foundations
Get Educated
There are several questions that crop up regarding overseas property investment. The following questions are the most common and will give you an idea of what your investment means to your tax bill, bank account and future. Being educated is the first step to success, so ensure you know as much as you can before you commit.
3 4
lawyer to take care of US structures including your bank accounts. You may wish to invest using a Limited Liability Company (LLC) which is commonly used to own real estate because of several legal and tax advantages.
...If you own a US property your trips to inspect are tax deductible...
money is deposited weekly or monthly into this account. You will need to build up a US credit history, however your property manager should provide you with a Visa Debit Card and access to internet banking to ensure you have full control of your finances.
Q. Can we borrow money from US banks? A. It takes two to three years to build up a
credit score with US banks for them to lend you money. However you have a few options for payments. After speaking with your accountant you may choose to use your superannuation to invest or pay cash. Some companies will arrange 50% loans using private money contacts to assist in property acquisition. If you take this option, you can then, after two years, refinance your loan to a US bank where interest rates are currently at only 4% pa.
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Q. What if the Australian dollar crashes? A. This works to your advantage. The AUD
is better than parity with the USD at the time of writing, however if it falls back to its weighted average of around 75 cents then you stand to make a 25% gain on your investment. If the property itself gains 25% in value, you will then make 50% on your investment.
6 7
Q. Do I get the property title? A. Short answer. Yes, once the property
has settled you receive a clear title.
Q. What if the US economy fails to recover? A. There is a chance that the economy may
not fully recover for another 10 years (even though its starting to show signs of life again). If this is the case you can still rely on your rental yields (10% up to 20%), which will pay themselves off and produce an income for life. The terrible truth of the situation is that as more and more people foreclose across America, they need to find somewhere to rent. Some people are foreclosing on their houses and renting them after sale.
Q. What questions should I ask of my property manager? A. The following questions are crucial:
3. Will the property bring in a high rental yield? 4. Has the property been checked thoroughly? 5. Is there any undisclosed tax lien on the property? pi
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foundations
My Action Plan
Checklist
When investing into any property market you need an action plan. The following is a checklist of what you should be looking out for when US property investment is under consideration. You could use this as a checklist or just as a guide, however the points here will set you up for a more knowledgeable and easier process. This checklist could apply to all properties you wish to invest in, not just those in the US. This process is used to create a comprehensive report for each property, so that the asset can be evaluated well in advance for quick decision making during the sale. Create a list of all properties in a particular portfolio. Prepare a coversheet with basic information about the property. Eliminate everything outside of your current interest, including location, type of asset and price range. Assign drivers to property, including neighbourhood, damage or theft; take photographs of the inside and outside of properties you have an interest in; write down any comments and opinions you may have. Estimate the market value based on information from the foreclosure database. This should include price and projected trends, number of foreclosed properties, number of pending foreclosures in the area, market value of recently foreclosed assets in the neighbourhood. Estimate market value of the properties based on recent sales in the area. This should include average price (total per square feet), time to sell, type of asset, type of deal. Check County records to discover if there are any unpaid taxes, outstanding liens, city country violations, other potential outstanding liabilities. Estimate rehab costs from drivers reports and pictures. Enter collected information into a proprietary spreadsheet. Apply multi-input formula to obtain grading for the property based on information collected. Calculate potential income and expenses for each residential asset, including rent, maintenance, taxes and insurance. Establish desired purchase price for each asset based on estimated value, market conditions, grading of the property, estimated rehab and other liabilities. Calculate the CAP rate to determine cash flow and revenue potential of the asset.
There you have it. Follow these simple instructions and you will no doubt make your investment decision more learned and easier. Why create the stress, when you dont need to? pi
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E V I L
T N E EV
DAY 1
Prepare For Massive Change
DAY 2
Evaluate Your Current Approach
DAY 3
Accelerating Your Financial Freedom
DAY 4
Taking Action!
foundations
Property
management requirements
When considering overseas property investment, one of the most important decisions you can make is to find a trustworthy property manager with a range of expertise. Property Inc. spoke with management expert Joel Dobson to examine the traits and services you should be looking out for. A little history
A study by Ibisworld into US property management found that before the subprime crisis, revenue was increasing as the real estate boom benefited the industry. Real estate owners began to outsource property management services at higher rates to reduce operational costs and liabilities. But outsourcing failed to save the industry during the Great Recession between 2007 and 2009, largely because the recession and credit crunch originated within the real estate sector. On a positive note, the US homeownership rate has steadily declined, thus increasing the number of renters. Declining homeownership should support industry growth through 2017. This means its a great time to invest, particularly if you are an Australian investor. Yet who out there is able to help and what should you be looking for? Well look at these factors in further detail, but if you are investing in a foreign property market you need to consider the following. According to Ibisworld the industry is highly fragmented because participants must have strong contacts and personal knowledge of local markets. Additionally, the majority industry costs are variable or semi-variable, so it is harder for firms to gain economies of scale in comparison to smaller counter parties. At the same time, the industry is characterised as having low barriers to entry and capital costs, which makes it easier for smaller firms to enter the marketplace.
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This means that when you consider your manager, you must acknowledge your needs: what are your investment requirements and who can best facilitate these?
Management requirements
Each property will have different requirements based on location, emotion and tenancy. What your property manager should have a good grasp of is: Asset management - the fiscal health of the property. Property management - staffing, maintaining and operating the building and its systems. Relationship management - the quality of life in the building and accommodation of the diverse interests of the individual resident owners if the investment is in a block.
...A good US property manager who is representing Australian clients will focus on the satisfaction of the client by identifying the unique style and character of each property under management...
A good US property manager who is representing Australian clients will focus on the satisfaction of the client by identifying the unique style and character of each property under management. This means controlling every aspect of management. It also means effective deployment and supervision of staff to ensure that the investment objectives are
met. Annual operating and capital budget should be drawn and the common charges needed to balance it should be advised. The property manager should take care of all issues including accessibility to the property, responsibility for the property and accountability for every aspect of each. The manager is familiar with the property and is fully integrated into every area of operations and finance.
investment. This is perhaps one of the most vital aspects of your investment.
It takes trust
You need to trust your property manager to find the right tenant for your investment. This requires screening and testing procedures that best identify compatible clients. Your property manager should be able to give you a detailed profile of all potential tenants, so that you are comfortable with their decision. Once the client is in, maintenance is required. Periodic inspections of the building, its systems, and equipment and outside areas are necessary and a log is kept by the resident manager. Surprise inspections are made from time to time, just not so frequently as to interfere with the relationships. Finally, comprehensive advice on the most effective tax structure to use for acquiring your property is required. Accountants should be able to offer company registration services and will continue to assist with your tax returns year after year. Successful property management is based on communication and client relations. You need to find a manager who holds the highest standards of honesty and integrity. Quality property management is what makes buying property in the US a truly passive investment from the moment you acquire title. pi
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...The property manager should take care of all issues including accessibility to the property, responsibility for the property and accountability for every aspect of each...
The manager or property management company must also have an exceptional network of technical, operational, accounting and legal expertise. This company will take care of basic management functions including accounts payable, accounts receivable, budgeting, overall finances, monthly statements and title transfers. He/she can also make available to resident/owners the services of affiliated companies that provide insurance, mortgages and shareholder loans. Insurance is also important. If you are unfamiliar with US insurance policy, your property manager should be able to negotiate for the best value in comprehensive property insurance to ensure your investment property is completely protected from day one at minimal cost. You should be informed of a wide range of insurance options that can be customised to suit your needs. Whether you are interested in renters insurance, or protection from natural disasters, you need to feel secure in your
foundations
property tax
internationally
There are several things you need to know about tax when it comes to investing in US property. Lawyer and tax expert Warren Black answers the outstanding questions.
Many clients are telling me how excited they are about what Warren Buffett just said about US properties. In case you didnt know, the worlds richest man said that if he could manage it, hed buy 30,000 US properties right now as the properties are so undervalued. The fact is, US properties are selling for less than their replacement cost. That is insane. Even blind Freddie can see that this wont continue for too long. We saw this happen in the Australian property market over the last 10 years, but many of us missed the boat. But this raises a lot of questions. Things like: there are many greedy gold diggers in the US who would love to sue you, and reap where they have not sown. And it is far worse over there than it is in Australia. Not sounding good so far, I know. But there is light at the end of the tunnel. Bear with me. I have five pieces of good news.
Warren Black is a specialist accountant, tax and commercial lawyer, who specialises in Australian tax law and international tax law. Warren has worked in tax (with the ATO), asset protection and commercial law for more than 20 years. Its Warrens pro-active pushing of boundaries while keeping you legal approach that his clients appreciate.
1.
I have good news and I have bad news on these questions. Being a pessimistic lawyer, I will start with the bad news. OK, hit me with it. What is the bad news? The bad news is, it is true: the only certainty in life is death and taxes. You will be up for taxes. You will pay tax on the income that you make, and you will pay tax when you sell it. Not only that, but
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...The fact is, US properties are selling for less than their replacement cost...
Thirdly, although you pay more in capital gains tax in selling the property in Australia than the US, you get a 50% discount on the tax when you sell the property, so long as you held the US property for
more than 12 months. This ensures that you will usually only pay tax at US tax rates. The maximum tax rate you will pay is 20%. And if you use a family trust, you can minimise it even further.
Fourthly, you can protect your US investments and minimise your tax by setting up an LLC. You can ensure tax is minimised by having a family trust as the member of the LLC rather than individuals. (Be careful here, as most LLC providers automatically make the individuals the members, whereas you want the family trust to be members). The LLC separates the risk at the entity level in case someone sues the property owner, e.g. the tenant, or someone coming onto the property sues the landlord. And the family trust reduces the risk at the member level. Fifthly, you can lower your tax even more by buying through superannuation. This is particularly brilliant, as US property is a long-term investment for capital growth, but a good short-term investment for cash flow (in most cases). You only pay 15% tax in Australia, and after age 60, you pay no capital gains tax in Australia. So you will only pay the taxes in the US.
...You can minimise tax on your income in Australia by using a family trust...
The biggest thing is make sure you are properly structured now, and you will suffer less pain, and pay less tax, later on. pi
DISCLAIMER: We are tax and asset protection experts, but laws can, and do, change all the time. Also, we are not licensed investment advisors. The above is only meant to constitute tax advice.
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[ Feature ]
Y
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ou might have read a recent article in the Herald Sun published on 16 February 2012 titled Like Winning Lotto, documenting the case of a small group of 12 families in Melbournes outer fringe area of Rockbank who were offered $47 million for their combined parcel of land from a developer. The couple featured in the article is Mark and Judie Sobotnicki, who bought their 13.5 hectares of property
for only $200,000 a decade ago. According to selling agents Oliver Hume, the combined parcel located between Caroline Springs and Melbourne probably represents the biggest privately owned sale of freehold land in Victoria over the past five years. The interesting aspect of this story is that the perception by the public is that these are rare and isolated cases, as the
headline suggests its just Like Winning Lotto. And while this may be true for the general population, there are a group of people who have been benefitting from the process of adding value to land for well over a century. Largely this market and methodology has been inaccessible to everyday investors due to a number of barriers of entry until now.
plan of sub-division which is to be submitted to the council with an application to issue rezoning permits on the specified parcels of land. The final players in the game are the sophisticated investors and speculators who are hoping to create millions of dollars through the process of identifying parcels of land which have the potential to be rezoned, and sold or optioned to large property developers. Although very few individuals end up successfully pulling off a land banking deal (for later discussion), many are seduced by the large potential profits which run into the millions and tens of millions of dollars.
they have been rezoned by developers, and realising that now their land is 10 to 20 times more than previously, with some cases ending up at the Supreme Court. In all cases, the option holder won, forcing the farmer to sell his land at the agreed option strike price, this is usually above fair market value at the time of entering into the option agreement. The reality of land banking is that it is the skill set of the developer, or entrepreneurial deal creator, and their ability to add value to the land and get it rezoned, that is where the money is. In the above example, if the farmer or land owner truly knew and understood the process of rezoning, she or he would have capitalised on it. With the fringes of our major capital cities ever expanding, there are literally thousands of land owners who are sitting on goldmines, completely oblivious to the potential of having their land rezoned and realising a fortune that would last them generations to come.
in the estate. What I found was that it was extremely difficult to orchestrate such a project. After spending two years, some $2 million in investors funding outlay on resources ranging from legal advice, urban design, town planning, right down to creating a master plan of subdivision, I realised that land banking was not as easy to pull off as I initially anticipated, and this was working in a team of six to 10 people full time to create the end product. The barriers to entry into this lucrative and seductive property investment strategy range from the capital that is required to successfully submit a rezoning application to council, but more so the specialised knowledge and unique skill set that is required, not to mention the time that is required for a parcel of land to be rezoned form rural to residential. In some cases this could be as fast at 24 months to 36 months; however, many can take up to five years or more, depending on the population pressures of a particular area, and how keen the council is to get a new estate approved. This time frame is based on a parcel of land already falling into the councils housing strategy report as an area that warrants future rezoning. The diagram below depicts a conservative time frame for rezoning a parcel of land from rural farmland to residential. The diagram takes into consideration the initial identification by the local council of an area where they would like to see new residential developments take place, to lot construction, marketing and sales by agents, to the end buyers building houses on their residential zoned land blocks.
Lot Construction
Housing Construction
2-3 years
1-2 years
2 years
1 years 7 to 10 years
.5-1 years
.75 years
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[ Feature ]
arren Buffett has spoken no truer words. If you have the money it is time to load up on US property investments. In key cities across the United States, we are now seeing the bottom of the US housing market. And with many foreclosures about to be released it presents perhaps the best property buying opportunity so far. Here is why. House sales in the US are now increasing. Once surplus supply has caught up as a result of the growing US population (estimated to be two to three years in select markets) we will see price growth again.
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In some markets we have seen it already. However Im happy to acquire as many US properties as I can based on zero growth for 10 years. Why? If youre getting 20% net return, the house is repaid in five years and capital growth becomes irrelevant. Other key points of why I believe we are close to the bottom of the US housing market include:
5. Borrowing costs are also staying low. 6. The average rate on a 30 year fixed
mortgage is 4.09%.
It will be a slow recovery but a recovery nevertheless. Patient investors who act now will do well. This is why I think Australians should load their Super up on US property.
Ive made up to $86,000 in a single month with this strategy. In fact I originally taught John Thompson this strategy, a 78-year-old Australian who perfected it even further to make it even more conservative and consistent, and who I now learn from and follow. Selling insurance has enabled John to make cash returns of $40,000 to $50,000 per month on a $500,000 portfolio. What I like about John is his conservative way of going about it, and his consistent results. I currently do not know of any better financial strategies than the three above for switched - on investors in this market. Did you know, this strategy was ranked the number three investment strategy for 2012 behind land banking and US property and ranked the number one trading strategy? The fact that the top performing fund as reported by Morningstar achieved its success by using this strategy should only encourage more people to consider nonconventional strategies that the majority are unaware of. The fund was ranked number one by Morningstar as of 31 December 2011, and has outperformed the benchmark by 40% since its inception in October 2005.
...Selling insurance has enabled John to make cash returns of $40,000 to $50,000 per month on a $500,000 portfolio...
Heres how it works: Once the fund selects the stock (only ever top quality), instead of buying, it makes a promise to buy the stock below its current price. This strategy generates upfront cash to boost and smooth returns for the overall fund. As you can see, combining the above strategies is an exceptional way to boost your investment portfolio and make your mark across property and stocks. pi
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[ Feature ]
ack in 2004, superannuation was considered the poor cousin to property trusts when it came to investing your money tax effectively. Back then, superannuation was hard to understand and awkward to deal with, just like that strange cousin of yours who used to sit in his room and play on his computer all day. That was in 2004... but in 2012 selfmanaged superannuation is the sexiest investment vehicle in town and that weird cousin of yours is probably Mark Zuckerberg or some other online millionaire. What really changed the game since 2004 were two things:
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The GFC certainly changed the world and the way most people view investing, but also empowered people to take control of their finances and investments, which in turn saw the number of SMSFs grow rapidly in Australia. The other factor that really changed superannuation to be the it way to invest was the ability to borrow inside a SMSF. This ability to borrow can allow some clients with balances lower than the
Also it is likely that depending on your bank you can borrow between 50% and 70% of the purchase price of the property subject to the property type. There are no limits imposed by legislation on the ratio of the loan amount to the value of the underlying asset acquired. However, bank lenders will typically impose lower loan to value ratios (LVRs), or charge significantly higher interest rates. Another great benefit of the C structure is that it also lets you pay less tax on your loan principal repayments. Apart from having your employer make their 9% compulsory contributions to your SMSF, you could also salary sacrifice additional amounts into your SMSF to pay off the loan quicker. This way you are only paying 15% tax on the principal loan repayments instead of the 31.5% to 46.5% at your marginal tax rates if the investment was in your personal name. You may also consider some of the following arrangements where this property borrowing strategy might be beneficial: Your business no longer wants to rent or wishes to upgrade their existing premises. People looking to buy a property where they will retire at in the years to come. Residential or commercial property investors. Commercial property is held outside of super (you can transfer the property into a SMSF). As you can see a SMSF is a tax efficient investment vehicle.
super may borrow money or maintain a borrowing of money, providing the arrangement entered into satisfies each of the following conditions:
Beneficial Owner
Security Trustee
Legal Owner
Asset
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b o o k r e v i e ws
Book in your
success
Books are an important educational tool. For the serious property investor and wealth creator, they can inspire, build knowledge and give critical information required for successful investment strategies. Not every book here is specifically property related, but each and every one will put you on the path to property investment wealth and a winning mindset.
101 Ways to Sell More of Anything to Anyone
by Andrew Griffiths financial balance sheet was strong but my spiritual one paled in comparison. Robert Kiyosaki is one of the greatest property investors in the world and a bestselling author many times over. His most recent work is Rich Brother Rich Sister; a more spiritual book than his previous works and deals with his reconnection with his sister Emi Kiyosaki (Venerable Tenzin Kacho).
Whether you are in real estate or any other business, youre in sales. Andrew Griffiths is one of Australias top small business experts and has written his 101 Ways series on the elements of successful businesses. In 101 Ways to Sell More of Anything to Anyone, Andrew shows that you need to work on who you are and what you want before you go out and sell. The book is full of the expected topics, including how to prepare presentations and how to handle specific sales situations. His ideas for selling to large companies include filling out a dossier on the company, which takes time and fewer calls, but greater benefits because of the preparation that has been achieved. This is just one of many relevant points and is a must read for anyone in the sales game.
...This book will inspire you along your own lifes journey as you search for your own truths, purpose and path to wealth both financial and spiritual...
In this book, Robert explains how even though he was strong financially, he had lost sight of his spirituality and what the true search for a spiritual life really meant. In 1962, the United States detonated an atomic bomb 10 miles off the coast of Christmas Island in the South Pacific. From that moment, two people, born of the same parents into the same household with the same childhood experiences, found themselves on distinctively different paths towards God, money and happiness. Robert became a world-famous entrepreneur, author and teacher of all things financial. Emi became a highly devout Buddhist nun, author and teacher of all things spiritual.
In reconnecting with Tenzin, I realised that a rich life has two balance sheetsa financial one and a spiritual one. My
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lifestyle
Their lives take them from the Big Island of Hawaii to Cam Ranh Bay in Vietnam, to the hippie communes in Haight-Ashbury and to a monastery in India, to private encounters with Dr. R. Buckminster Fuller, to a seat at the foot of His Holiness the Dalai Lama, and ultimately back together again. Rich Brother Rich Sister is about living the lives they were meant to live. Something we should all take stock of. This book will inspire you along your own lifes journey as you search for your own truths, purpose and path to wealth both financial and spiritual.
behaviour and make smart choices, like property investment. The Psychology of Wealth helps any investor better understand his or her relationship with wealth and debt, then apply this newfound insight to develop personal responsibility and combat feelings of desperation to achieve financial goals. Richards combines his expertise as a clinical psychologist and psychotherapist with those of experts in the fields of economics and finance The author has trained and coached executives from GM, IBM, Motorola, Qualcomm, Sony, Apple, Honda and other companies; he speaks several times a month to Fortune 100 companies. This is a great book if you are looking to overcome the fear of investing and be at peace with your own mind.
Joseph Chou was born in Beijing in 1962 and in his formative years was driven by a strong desire to break the shackles of a closed mindset. Armed with self belief, an absolute focus on outcomes, dogged determination and $4,000 in his pocket he began his new journey in Australia. His first job was delivering pizzas for $7 per hour. Today, Joseph is CEO of a dynamic property investment brand. From Bicycles to Bentleys is the inspirational story of Joseph Chou, whose journey, so far, has taken him from an old bicycle in a mountain town outside Beijing to a brand new Bentley in metropolitan Sydney. This is not just a migrants story; it is a story everyone can draw inspiration from and proves that determination and a little knowledge will push you a long way to achieving your dreams and goals. The Honourable Philip Ruddock, MP, Former Minister for Immigration and Multicultural Affairs further observed: Josephs book exemplifies the story of many people coming to Australia to seek a better life. As former Immigration Minister, I witnessed and heard of many such stories time and time again but few as moving and intricate as Josephs. If you believe you have what it takes, but need an extra push, From Bicycles to Bentleys should indeed motivate you to do so.
Our increased awareness of the cost of debt has been a benefit of the Global Financial Crisis. Simple awareness, though, doesnt fix the problem thats where Ashley Ormonds book steps in. First, collect all the information about your debts size, interest rates, fees, etc., so you really know your finances. From there, Ormond leads you to a wealth of tips to deal with the major types of debts: mortgages, credit cards, personal loans, investment loans and small business debts. Finally, learn how to stay out of debt. While easy-to-read, the ideas are harder to implement we are talking about ingrained money habits so start with changes you feel comfortable making, and as you get results, make harder changes. The most useful tip I got from the book are the calendars for tracking your monthly balance targets, so if you get off track, you have feedback to see why. Whatever kind of debt you have, heres the help to get out of debt.
The Psychology of Wealth: Understand Your Relationship with Money and Achieve Prosperity
By Charles Richards
This book is a clinical psychologists groundbreaking insight into building financial self esteem to curb destructive financial
Those of us who read the first edition of this book will profit from two tools this time around: s upport from a website and clear action steps. Burley shows us how to think about money, in terms of levels of investors. Thus you see why youre where you dont want to be, and get a clear look at how to head to where you need to be. A section looks at how to save money and keep your standard of living. The final section shows us what a life of financial freedom looks like. As I got the green stuff in order I was able to attract a chance to make a 200% return on my money. If you havent already hit the financial freedom mark, this book is what you need. pi
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OZ li fes t y le
tree change
lifestyle
f you are considering investing outside of the city and its surrounding suburbs, then regional centres offer great value. In particular, Bendigo offers a lifestyle choice that is unsurpassed. Beautiful gardens, dining, wining (right next door to the famed Heathcote region), and if you choose to live there, this centre has the infrastructure to support you and your growing family. The following is snapshot of the Bendigo lifestyle. Even if you dont want to buy property there, its worth a day trip or a small getaway. Gracious buildings, sweeping boulevards and a rich network of laneways, Bendigo is a thriving dining and shopping scene. The region is steeped in a rich culture and history that dates back to the goldfields and those who came with their pans seeking fortune. The place has changed a lot since those heady days; today Bendigo is a fashion haven and a treasure trove for antiques, artisans, art, books and collectables. The cafe culture is very reminiscent of Melbourne: there are foodie haunts where fresh local produce meets gourmet finesse and charming pubs firmly steeped in the regions essence. The region is also dotted with distinctive precincts and landmarks each with their own character and energy.
Rosalind Park sits to one side, a creek runs alongside and Alexandra Fountain cant be missed. An unofficial book trail highlights this strip, with three or more to be explored. Lola Montez, Dame Nellie Melba and Lady Diana Spencer each famously visited the historic Hotel Shamrock. This grand ole sits in pole position along Pall Mall. Once known as Dispensary Lane, Pall Mall was famous for its creation of remedies and medications. Youll be attracted to the aroma of coffee and wine medicines in themselves and then enjoy another remedy: Bendigos long standing iconic hair, skin and beauty houses.
Bull St
No bull here. This is Bendigos place to be night and day. But first, check out the Town Hall; this historic building stood in the time of the gold rush in the 1800s. It depicts the wealth of this era. After dark, stylish bars, live music and a thriving night scene keep Bull Street pulsing along into the wee hours. Being a university city, theres a youth culture brimming with creative energy and a zest for life.
Mitchell St
The Chinese had an extraordinary influence during the gold rush and it is no more evident than in Mitchell St where one of Australias oldest Chinese restaurants sits. It was established when Bendigos gold rush attracted many thousands of Chinese, bringing the Chinese population in Bendigo to 20% at its peak. As you can see there is a lot to like about Bendigo; the lifestyle, the ambience and the drawcards of this historical city make a compelling argument for investment. Not only could you attract students, but there are also the tree-changers and those looking for a holiday destination with a little culture. Bendigo possesses a bustling ambience with a passion for art and culture. In fact, the region has become a thriving arts
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Bath Lane
It was once a place to take a bath, now its a place where youll want to soak up the lively ambience. Sidewalk seating flows from the bustling cafs and as you stroll along the lane youll discover tailormade chocolates, jewellery, specialty breads and more. Families can let their kids imagination run wild at a childrens art studio while parents explore the precinct.
Pall Mall
This is not the mall made famous by Monopoly, but if a new Australian version were to be made, this mall would have to be in contention for a board berth. It was in fact named for its famous namesake and is a grand historic boulevard.
OZ li fes t y le
precinct. Bendigo Art Gallery is one of Australias best regional galleries, with the edge on contemporary Australian art and a track record for rolling out big international exhibitions. Next door is The Capital Bendigos Performing Arts Centre and other galleries. Then of course there is the historical significance of the gold rush. Big profits were made from the goldfields and they came out as perfectly formed gold bullions. A row of historically significant gold smelter chimneys that used to melt the raw gold, still line the back of bank buildings. These bank buildings now form a haven of eclectic boutiques, wine bars and restaurants. Finally, this is the place for wine buffs.
Ancient Cambrian soils put the wine on the map and the township has since emerged as a beacon for creativity and beauty. The region has developed a reputation for producing some of the finest Shiraz in the world. Visit a restaurant or cellar door to share some tales and taste the goods. A previous article in this issue espouses the economic virtues of Bendigo; the population growth, the need for new buildings, the thriving economy; but there is more to Bendigo than economics and it is a driving force that is attracting people to the region. In short, Bendigo is one of the most beautiful cities in the world and that makes it a great place to live. pi
One of Bendigos significant citizens was Sir John Quick a lawyer and politician who was instrumental in the formation of the Federation of Australia. The German architect Carl Wilhelm Vahland designed a large number of Bendigos majestic town centre buildings. The Chicko Roll was invented in Bendigo. The first ever Myer store was established in Bendigo. Living in Bendigo is easier on your pocket and on your stress levels. The average trip to work takes 10 minutes and the average three-bedroom house costs around $280,000. Rent is also affordable, with the average rental price around $280 per week.
< The old post office (now the visitor centre) in Bendigo. 70
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U S A li fes t y le
things
L
ets forget about property investment for just one minute and look at why Phoenix has become such an attractive place to live, when it was so horribly pilloried no more than 10 years ago. Lets start with the sunshine. If youre a sun lover, the region offers 300 days of sunshine a year. Yes, it can get hot and the eight inches of rain a year can be welcome, but sunshine means outdoor activity, no cabin fever and better frames of mind, particularly now the economy is picking up. Even their famous football team, Phoenix Suns was named after... the sun. This climate should give you plenty of opportunity to enjoy the 160 kilometres of hiking trails up and down the myriad mountains, mesas and buttes surrounding the city. There are also over 200 golf courses in the area so don the silly pants and hit the little white ball. In fact, if you enjoy being outdoors, Arizona offers some of the finest views and most unique landscapes in the world. From saguaro cacti to spectacular sunsets, Arizona is certain to amaze you with its natural beauty. Those 300 days of sunshine and a growing economy means the Valley of the Sun has become one of the nations best places to live and work.
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lifestyle
...Phoenix is perfect all year round with an average temperature of 22 degrees Celsius. It is also one of the sporting capitals of the world, with every major US sport represented in a big way...
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U S A li fes t y le
There is no reason to suffer from seasonal affective disorder, theres plenty to do, plenty of work and plenty of fun to be had. And Phoenix is located just a few hours away from countless top vacation destinations, making weekend getaways to places like Sedona, San Diego and Mexico a reality.
and consistently provide a world-class experience. This is haute cuisine at its best. Menus are cutting edge, using only the finest ingredients available. A matre d leads an expert service staff that exceeds guest expectations by attending to every detail in an effortless and unobtrusive manner, writes critic Judy Hedding. Restaurants to enjoy include: Different Pointe of View at Pointe Hilton Tapatio Cliffs. Tuscany at JW Marriott Desert Ridge. T. Cooks at Royal Palms. Wrights at The Biltmore.
Location,
location,
location
Phoenix is easy to get to and close to just about everything. About two dozen airlines use Phoenix as a destination, carrying about 35 million passengers per year. The unspoiled terrain and cacti, including those tall prickly ones with arms, called saguaros (pronounced kind of like swaro). Drive two hours to the north and you are snow skiing in Flagstaff. Stop at the Grand Canyon for the awe-inspiring views, but drive further to Bryce Canyon or up to the Four Corners to imbibe in true unblemished majesty. Head to Karchner Caverns and try to remember the difference between stalactites and stalagmites. Get mystical and experience the vortices of Sedona, or root your feet in the ground by re-living the harsh realities of mining communities like Jerome. Phoenix has had its problems recently, but the dark days seem to be over and the region is experiencing incredible growth in infrastructure, investment and population. So why not go? It is close to the snow fields, a small drive away from one of the Seven Wonders of the World and possesses some of the finest sunsets and sunrises you could ever see. Its restaurants are world renown and its golf courses spectacular. If you do consider buying property in Phoenix, you are not only buying real estate, but a lifestyle choice as well. pi
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au s pr o pe r t y s h owcas e
No matter whether you purchase property for somewhere to live or for investment purposes, buying a home, unit or block of units is always a personal choice. While it is possible (and recommended) to take the heart out of an investment purchase, you will more than likely still purchase a property that appeals to you. Throughout this magazine, weve spoken about local and international investment and weve talked with people who have invested for their own reasons. So now you know all about strategy and what you should be looking out for, its time to consider a purchase. Following are examples of properties that would render great returns. Its just a matter of putting some due diligence together to find like properties that would appeal to you.
This development is extremely well located in a highly respected and most sought after part of Melbourne, within very close proximity to all services and facilities, including shopping and restaurants in cosmopolitan Acland and Carlisle streets, schools, transport and the beach. The apartment has great appeal with quality fixtures and fittings throughout and offers comfortable
accommodation with two bedrooms, a balcony and undercover parking. The current rental value is in the vicinity of $360 to $650 per week. Such properties are in high demand.
No of Apartments One Bedroom Two Bedroom Price Range Rental Price Range Rental Yield Vancancy Rate Build Time Stamp Duty Area Capital Growth
27 8 19 $450K - $750K $360pw to $650pw 4.25% 0.8% 18 months Less than $8,500 12% p.a. (RP Data)
The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
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Contact the team at 21st Century Property Direct for the latest property listings.
au s pr o pe r t y s h owca s e
Bentleigh East is one area that will continue to rise in value. The median house price in Bentleigh East to December 2011 is $702,000 with a long-term trend of 9.46%; the median unit price is $529,000 with a long-term trend of 7.16%. The most impressive figure is the auction clearance rates were still sitting at 73% in spite of a downward trend in more popular places. Bentleigh East has a lot going for it. It is only 25 minutes to the city. There are several train stations within five minutes drive and there is a vibrant
caf vibe in neighbouring suburbs Bentleigh, Oakleigh and Carnegie. The apartments here are extremely modern. As an example of size, apartment 1 is 75 square metres with a courtyard of 160 square metres. The courtyards and apartments vary in size. The smallest apartment is 50 square metres. There are 29 apartments in the block and they range in price between $400,000 and $570,000.
No of Apartments One Bedroom Two Bedroom Price Range Rental Price Range Rental Yield Vancancy Rate Build Time Stamp Duty Area Capital Growth
29 11 18 $400K to $570K $330pw to $500pw 4.25% 0.7% 14 months Less than $8,500 9.46% p.a. (RP Data)
No of Apartments One Bedroom Two Bedroom Price Range Rental Price Range Rental Yield Vancancy Rate Build Time Stamp Duty Area Capital Growth
11 1 10 $370K to $575K $430pw to $540pw 4.5% >1% 12 months >$10,000 10% p.a.
The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century Property Direct for the latest property listings.
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au s pr o pe r t y s h owcas e
No of Townhouses Bedrooms Price Range Rental Price Range Rental Yield Vancancy Rate Build Time Stamp Duty Area Capital Growth
No of Townhouses Two Bedroom Price Range Rental Price Range Rental Yield Vancancy Rate Build Time Stamp Duty Area Capital Growth
The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
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Contact the team at 21st Century Property Direct for the latest property listings.
u s a pr o pe r t y s h owca s e
East Chicago is a city in Lake County, Indiana, with a population of 29,698. The city is rated highly for parks and recreation, entertainment and nightlife, public transportation and community involvement. East Chicago is home to the following business and industry: ArcelorMittals Indiana Harbor Works, the largest steel mill in the US. Indiana Harbor Works comprises East mill, originally Inland Steel, and West mill, owned for most of its life by Youngstown Sheet and Tube. The Indiana Harbor and Ship Canal complex. There are also areas in which to play; the main focus is the harbour. Located on beautiful Lake Michigan, the East
Previous Price Non-Member Member Monthly Rental Annual Taxes (2011) Gross Yield Net Yield Annual Revenue Annual Expense Stamp Duty 26.90% 20.64% $15,600 $3,630 NIL $63,000 $58,000 $1,300
The City of Riverdale is located in the Southern Crescent, of Clayton County, approximately 16 kilometres south of Atlanta. The City is only eight kilometres south of Atlantas Hartsfield-Jackson International Airport, one the nations busiest airports. Riverdale has a population of over 14,000 and is the second largest city (population) in the Clayton County. Clayton County has a rich history and is in fact the home of the famous film Gone With the Wind. There is no shortage of schools in the area and the city had been slated to develop a new town centre since 2007. The plans to construct this
Previous Price Non-Member Member Monthly Rental Annual Taxes (2011) Gross Yield Net Yield Annual Revenue Annual Expense Stamp Duty
$127,000 $68,800 $63,800 $895 $416 16.83% 14.04% $10,740 $1,781 NIL
The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century US Property for the latest property listings.
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u s a pr o pe r t y s h owcas e
W. Columbine, Glendale, AZ
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northwest part of the city. Glendale also is home to Midwestern University, metropolitan Phoenixs first medical school, as well as a major postgraduate international business school: the Thunderbird School of Global Management. There are infrastructure projects on the go with the extension of METRO light rail service planned to serve the city, opening in 2026. There is a gallery of historical structures, a raft of schools to send the kids to and the city is also notable for its Chocolate Festival and Jazz and Blues Festival. The property being showcased would attract a monthly rental of $1155, with a gross yield of 13.72%.
Glendale is a city located in Maricopa County, Arizona, about 14 kilometres northwest from downtown Phoenix. According to 2010 Census Bureau, the population of the city is 226,721. The city has a rich sporting history and is home to the NHLs Phoenix Coyotes and NLLs Arizona Sting. Also in Glendale is the new University of Phoenix Stadium, home of the NFLs Arizona Cardinals and the Tostitos Fiesta Bowl, which opened in August 2006 in Sportsmans Park. Glendale bills itself as Arizonas Antique Capital, with support for its claim from both Sunset magazine (2004) and a 1998 article in USA Today. Glendale is home to the popular Arrowhead Towne Center mall in the
Previous Price Non-Member Member Monthly Rental Annual Taxes (2010) Gross Yield Net Yield Annual Revenue Annual Expense Stamp Duty
$286,000 $106,000 $101,000 $1,155 $1,426 13,72% 10.39% $13,860 $3,362 NIL
Previous Price Non-Member Member Monthly Rental Annual Taxes (2011) Gross Yield Net Yield Annual Revenue Annual Expense Stamp Duty
$73,000 $54,500 $49,500 $825 $284 20.00% 16.21% $9,900 $1,874 NIL
The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
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Contact the team at 21st Century US Property for the latest property listings.
u s a pr o pe r t y s h owca s e
Kansas is the largest city in the State of Missouri and is considered the States anchor city. The population is approximately 460,000 with a metro area of 2.1 million. Kansas City has a rich history and was founded in 1838. It is famous for several battles during the Civil War, including the Battle of Westport. The city is also famous for less angry pastimes such as jazz and blues as well as cuisine, notably Kansas City-style barbecue. In March 2012, Downtown Kansas City was selected as one of Americas best downtowns by Forbes magazine for its rich culture in arts, numerous fountains, upscale shopping and various local cuisines. There is a rich multicultural society and the State is headquarters to
Previous Price Non-Member Member Monthly Rental Annual Taxes (2011) Gross Yield Net Yield Annual Revenue Annual Expense Stamp Duty
$65,000 $49,500 $44,500 $800 $276 21.57% 17.57% $9,600 $1,836 NIL
W 34th Indianapolis, In
4 2
Indianapolis is one of the worlds most thriving communities. Not only famous for the 500 and a famous man with the Jones surname, the city possesses celebrated golf courses, exceptional breweries, vibrant shopping, music venues, walk, run and bike tracks and exceptional cuisine. As of the 2010 United States Census, the citys population is 829,718. It is Indianas largest city and the 12th largest city in the US and the second most populous State capital (after Phoenix, Arizona). Indianapolis is also one of the fastest growing regions in the United States.
Industry, particularly manufacturing is thriving. Indianapolis has a diversified economy, contributing to the fields of education, health care, and finance. Tourism is also a vital part of the economy of Indianapolis, and the city plays host to numerous conventions and sporting events. Education, infrastructure (including parks) and economy are thriving in Indianapolis and this is a region that will continue to grow and attract people. The four bedroom showcase home here will attract a monthly rental of $1300 and a gross yield of 23.64%.
Previous Price Non-Member Member Monthly Rental Annual Taxes (2011) Gross Yield Net Yield Annual Revenue Annual Expense Stamp Duty
$76,000 $71,000 $66,000 $1,300 $1,200 23.64% 18.55% $15,600 $3,360 NIL
The properties featured in this showcase section were on sale at the time of print. Property availability is subject to change.
Contact the team at 21st Century US Property for the latest property listings.
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t h e l as t wo r d
e have spoken a lot about depressed markets in this magazine. While we dont wish the hardship that some people are facing on anybody, there are positives to come out of those problems. For those who face foreclosure, an investor can keep a roof over their heads. For the investors there are solid profits to be made.
the real estate market. Property values decline and home sales are often limited to foreclosures and short sales. Ensure you have a viable line of credit set up in order to start investing at the most opportune moment. Savvy investors with a solid credit history can become a real estate dealer or retailer, simply dealing in a contract rather than the actual property. The key is to be ready to jump on opportunities as they become available.
bargains. Hunt for property in the most affluent neighbourhoods or highest-rated commercial zones. Chances are you can pick up property for a fraction of its true value. This is an investment that will pay off handsomely in the future. Stay away from the cheapest pieces of real estate in traditionally depressed areas of the locale. If they were not worth much during a high real estate market, they wont likely be worth much in the very near future. Consider becoming a landlord until the property can be sold at a substantial profit. Yes there are risks in renting the real estate, but this is a great way to increase cash flow.
...With a bit of working capital, you can find some spectacular real estate bargains...
If you think the time is wrong to invest in real estate, you could be missing out on the opportunity to create a great return on your investments. pi
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