Under the Scheme, the Commonwealth will provide private investors with tax credits of $6,000 a year for ten years for new properties that are rented at 20 per cent below the prevailing market level.

States and Territories have agreed to provide $2,000 per home either through cash payments or in kind, such as via the provision of cut price land or concessions on stamp duty.

The initiative would mean, for example, that rent on a new average three bedroom unit would fall for $350 a week to $280 a week – a $70 saving.

It was announced in Brisbane today that if the previous target of 50,000 is reached by 2011-12, the program will expand if market demand by both renters and investors is strong to allow for the construction of 100,000 properties from 2012 onwards.

Industry forecasts suggest that the deficiency of housing stock will not be eliminated by 2011-12.

Source: Prime Minister of Australia website  – www.pm.gov.au

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]]> http://propertyinvestmentsydney.wordpress.com/2009/03/25/mortgage-watchdog-save-money/feed/ 0 Admin mortgage-watchdog1 Learn More About Mortgage Watchdog, Click Here. http://propertyinvestmentsydney.wordpress.com/2009/03/06/fast-track-property-strategies/ http://propertyinvestmentsydney.wordpress.com/2009/03/06/fast-track-property-strategies/#comments Fri, 06 Mar 2009 00:09:26 +0000 propertyinvestmentsydney http://propertyinvestmentsydney.wordpress.com/?p=21 ]]>

(An excerpt from “What I Didn’t Learn From School But Wish I Had”)

Why invest in real estate?

One reason is because many people have made money out of real estate and I expect many more people to make even more money in the years to come. It is an easily accessible market that has many favourable advantages. If you are using real estate, make sure that you do your homework properly. Like any investment area, there are both sensible and risky ways of investing in real estate. Depending on your experience, determination and skill you can just as easily lose money as make money in real estate.

Millionaires from real estate

The intelligent use of real estate can enable ordinary Australians to become millionaires in about 10 years or less. Despite the ‘concept’ of property belonging to the ‘rich’, most Australian property investors earn below the average wage (which is currently around $50,000). So property is clearly not just for the super wealthy; it is for anyone who wishes to increase their net worth in a steady, appreciating environment.

Bear in mind that if you wish to be one of the ‘wealthy’ people in the future you should probably be using property to your advantage. Statistics show us that home ownership is increasing in Australia. As property prices keep rising, less and less people are able to afford their ‘dream home’. It is expected by the year 2010 that only 40 percent of Australians will own their dream home. This is down from 73 percent in 1980. Thus there is a definite trend of many people side-stepping real estate. This means that these people are going to be ‘renters’ for their entire lives.

Personally, I like to buy property with no money down because I do not like to tie up cash in property if I can avoid it. I have learnt how to buy property virtually no money down. Many years ago I purchased several properties in Brisbane; $600,000 worth of property which I purchased at around $40,000 below bank valuation and my only cash outlay was around $2,400. That means an instant profit of $40,000 and I do not have to pay for these properties for over a year. In a year those properties were worth close to $800,000 with an outlay of virtually nothing.

In the meantime the cash saved by not out laying a 10 percent deposit on these properties is tied up generating returns from share renting strategies, rather than putting the 10 percent deposit into a trust account with a real estate agent with zero returns. You can see how investing is not a bad hobby especially when you get to a point where you do not need the money. It is fun and you can do a lot of things with it.

A lot of statisticians say that on average across the board, property has doubled on average every 7 to 10 years in the last 150 years in Australia. Not all property though. Some people have properties that double in value in 5 years, while some properties may take 20 years to double in value; it obviously depends on the location and quality of the property and the price you pay for it.

For instance, John and Sally are earning $50,000 a year and they want to replace their income. I am going to suggest that just by buying two investment properties they could achieve this. Let us look at how they can buy two investment properties to allow them to retire. $50,000 a year is approximately $35,000 a year after tax. So would you be committed to buying two properties in the next decade if you could retire from them?

In year one of the plan we are going to buy one property. The properties I tend to buy are often around $300,000 that we will use for this strategy. The second year we do not buy any property and in the third year we buy our second property. You do not have to buy 100 properties and become a property guru to make this work. In 10 years time these properties could be worth $600,000 each. That is 10 years after you buy them, especially if you are buying them with good criteria and they are good quality properties. A tip —always make your plans conservative as it could take 10 years or longer.

I generally buy properties in capital cities because these properties will continue to grow. I have some properties outside capital cities that have made phenomenal returns but I prefer capital cities; you have to decide your own criteria.

The strategy is not going to work in a small country town because the property will not double in 10 years or even 100 years and could even go the other way. Imagine Broken Hill; property does not double every 10 years in Broken Hill. You can buy a property for as little as $1,300 in Broken Hill; because of the downturn in mine related work people are leaving town and your property will just sit there.

If the property doubles in 10 years (ideally 7 years, but 10 to be conservative), this is $300,000 in extra money we have made over 10 years on each property, a total gain of $600,000. You probably purchased these properties with a 10 percent deposit (unless you have learnt to buy with virtually no money down) and borrowed the difference. Now your properties are worth $600,000 each and you have earned $600,000 from capital growth.

John and Sally need $35,000 a year net to replace their current incomes. They are probably thinking that if they buy the property they will have to work harder. If they buy and sell to make a profit, they generally have to pay capital gains tax. In this strategy we are going to buy a good property and ideally keep it forever. It is worth $600,000. They need $35,000 net cash to replace their income. Where can John and Sally obtain that money from?

What about a line of credit?

A line of credit allows us to draw equity/cash out of property by setting up a bank account from which to draw this down. John and Sally can draw out $35,000 in the first year. Is there any law saying they cannot spend that money? The banks do not care where John and Sally spend the money as long as they meet their commitments. In year 2 John and Sally can do the same thing and draw out another $35,000 and draw another $35,000 in year 3.

Are they spending money they worked hard for or are they spending money they made out of thin air while they slept? John and Sally do not want take any more money out of that property even though they could. Remember, John and Sally have waited 10 years before the commenced drawing this money down.

In years 4, 5 and 6 they could take say $35,000 out of the second property. The money is just sitting there so why not use it? If they do not use it when they die someone else will get it, so they might as well use the money they have made.

Six years after the first property is worth more than $600,000, being in a capital city, a good growth area, it may be worth $900,000 to $1 million. That is if it has doubled in 10 years to $600,000, six years later it could be in excess of $900,000. We will use that as an example. That gives John and Sally another $300,000 which is sitting there available to be used. John and Sally have not finished using the first $300,000 and they now have another $300,000; and the property keeps increasing in value whether they like it or not.

Now if John and Sally are not careful, they could get into a cycle of making more money than they spend, which can mean they have more money than they need for retirement. Do John and Sally have to pay income tax on the $35,000 per year that they are drawing out? The answer is no, because it is not income. John and Sally are spending thin air and there is no tax on thin air as yet! That money is legally tax-free. The ATO will let you do that because it is borrowings; also if you do not invest and buy properties to house Australians the government will have to.

Do you have to pay back this debt or do you simply have to meet the interest payments? The answer is you never actually have to pay this debt back unless you choose. This is what insurance companies are for; they take your money to insure your debt. When you die, your debt and your life insurance will pay out the properties. If you want to pay this debt you can, as critics may say this is a debt-ridden strategy.

However let us consider what a real debt strategy is. Most people work hard to try to pay off their property. Is that really smart? No, because they have been taught to work hard for money and they have to get out of this way of thinking, out of this mind set. The banks do not work hard for money.

Have you noticed that the banks own the biggest buildings in the cities? Do you think the banks are working hard to pay off these buildings? The banks know that they are increasing in value. Do you think that the banks are not pulling that money out and using it?

McDonalds makes more from its real estate than its hamburgers because they use that real estate as equity to reinvest. A lot of wealthy people understand this and that is why they are wealthy. Gerry Harvey for instance of Harvey Norman fame creates a lot of his wealth from the properties he develops for his franchised Harvey Norman stores.

If we wanted to pay off the debt with this strategy and live off the rent, we could now sell the second property and use this money to pay off the first property, thus wiping out our debt without having to work hard to pay the debt. This is another example of working smart versus working hard — a different way of looking at money.

I have illustrated this as a concept only. Obviously in reality there

are obstacles that may have to be overcome, such as qualifying for finance, getting good valuations and being comfortable spending equity (thin air) rather than just leaving it to go to waste and dying with it unspent. Or what if the property market goes flat?

Then you may have to adjust your plan to a 15-year plan rather than 10 years, or 5 years as it has been in recent times. Is this still preferable to no plan or the pension plan? I would say, most definitely!

However if you understand the concept you are 80 percent there.

In the past I had asked the same question and it was always answered in the same, seemingly intelligent but not that helpful, kind of way; “Do your research”.

But what does “do your research” mean? I mean what exactly are you expected to research?

Well here are some tips that, if followed correctly, will mean you will never be fooled into buying overpriced property and that will give you the ability to spot a bargain a mile away.

Know What You Want
Smart investors always know what they are looking for with precise accuracy and strict criteria.How do you work this out? Well for starters you should know your budget. Find out your borrowing capacity before you start looking for your investment property. Get together details of your income, your assets, liabilities and expenses and go and see a financier, they may want to know what you’re borrowing for, but just tell them you’re still looking and you just want a pre-approval to find out your borrowing capacity.

Once you know how much you can spend you can set a limit, there is no use looking at property well above your budget. Set a limit 10 to 20% above your budget to allow for the fact that many real estate agents will over value a property to secure a listing from the vendor and then “condition” the vendor to accept lower offers over time (now that’s a different story altogether, keep and eye out for a post about agents tricks coming soon).

Now you have set a limit on price, it’s time to define all the other criteria. Such as:

• Suburb
• Type (house, unit, villa, apartment)
• Construction (brick, timber, fibro)
• Land size
• Bedrooms
• Bathrooms
• Garage

Specify as many things as you can. Ok I know, there are specific things that are expected to be considered better investments than others, eg brick versus fibro and 3 bedrooms versus 2 or 1, and even some suburbs versus others, but the idea here is to be specific within your budget, if it’s your first investment property and you can only afford a 2 bedroom unit or a 2 bedroom fibro house that’s fine, just decide, what is it going to be, A 2 bedroom unit or a 2 bedroom house?

Why Be So Specific?
Ok the key is, if you chose one type of property and one type only, anything you look at will be accurately comparable to everything else you choose to look at. What I mean to say is, if you look at a 2 bedroom apartment one day and a 3 bedroom brick house in another suburb the next, there is no possible way you are going to be able to compare the prices of those two properties, and therefore you will be no closer to knowing if either of them were priced well or not. On the other hand if you look at two 3 bedroom houses in the same suburb, on roughly the same sized, flat corner block of land and they both have 1 bathroom and a single lock up garage but one is 15k cheaper, than your ears are going to prick up and you will instantly recognize the variation in value. Am I right?

Don’t Stop There…
Right, now you have the concept, don’t just rush out and buy the 2^nd house you see just because it was 15k cheaper than the other. Remember, this is “research”. What you’ll want to do next is find as many properties that fit your criteria as possible.

Tip:Did you know property websites like www.domain.com.au and www.realestate.com.au have a function where you can set your criteria and have only properties that fit your criteria emailed to you automatically?

At this point you want to call the agents and book in to view as many properties as you can as soon as you can. I’m talking 10, 20 ,30, 40 properties all that fit the criteria. Hang on a minute, are you telling me to spend all weekend every weekend for the next 3 or 4 weeks scanning my emails looking at properties and talking to agents?? Well, no. you don’t have to do any of this, I’m just suggesting that if you were to do this “research” its possible to save up to 10 to 20% off your next investment property and have up to 40% instant equity and maybe save as much as $10,000 to $40,000. Let me ask you this, how long did it take you to earn your last $40,000??

So, when you go to view the property, take a clipboard / notepad with you. Take heaps of notes.

• What’s its condition?
• How are the carpets?
• Dose it have air conditioning?
• What’s the buildings age?
• Is it on a main road?
• Is it under power lines?

Tip: Open houses are great, they are advertised in advance, often with the name of the agent and what time they are on. This helps you save time by being able to plan your day. You can even ring the agent in advance and ask questions saving you more time on site and even eliminating unsuitable properties.

Keep a small file on each suitable property to refer back to. You can usually select “Print Brochure” from the website where the property is advertised and put this with all your notes.

The Big Brother Trick
You can cheat a little too.

Tip: Did you know that there are websites that can give you past sales data on recently sold properties? Sites like www.domain.com.au will provide you with recent sales prices and the date of sale of properties in your search area for a small fee.

Collect as many past sales details of recently sold properties in your selected area as possible. How far back you go is up to you, it all depends on the market at the time. If the market has been fairly stable then you could consider sales from up to 6 to 12 months ago, but just keep in mind things may have changed in value a little since then. It’s a good idea to take a drive around and have a look at the properties that you have past sales data on and once again take a note pad and even a camera to collect more details on the property and keep it all in your little file for each property.

Tip: You can get a quick idea of the property, including a view of the property from the street and its location using www.googlemaps.com simply enter the address in the search bar. This could save you time going to check out properties that have obviously had major renovations or redevelopment since their last sale and therefore are no longer comparable.

Now that you have looked at a large number of COMPARABLE properties you should go back over all the property files that you have been compiling, consider any of the variations between them and start to gauge the true value of the property you are looking for. By now you should have a very good handle on what represents good value and I would be surprised if you didn’t know a lot more about the particular type of property that fits into your criteria than any real estate agent you speak to.

If you do your research properly, you will become the guru of property value in your particular niche and you will know when it’s a good price, be able to spot a bargain a mile away and you will never be fooled into buying an overpriced property.

Happy Researching

Lance Jenkins
Education For Wealth

For more investment property & wealth creation strategies, feel free to order our FREE e-book with bonus FREE DVD.

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When I was 22 years of age, and Jo (my now wife) was 21 we bought our first investment property. By the time I was 25, and Jo was 24, we owned 8 investment properties. Our parents were very proud and if I may say so myself, so was I…….

Since then many of our friends and associates have asked us for tips and help with there own real estate investing, and I’m going to tell you what I tell them. There is nothing that I know about property that I haven’t learn t from somewhere or someone else. Thats why I’m going to share with you 7 property investing tips that will stack the odds in your favor when you buy your next investment. I discovered these tips and many more in a book called “What I Didn’t Learn at School but Wish I Had” I hope you find them useful.

• Select properties within the $250,000 to $500,000 price range. Properties priced below $250,000 will either be too small, not have the desired quality finishings or not be in the best possible area.

If the property is priced over $500,000 in most cases it will cease to be affordable to the vast majority of tenants. Most tenants will not be able to afford rental payments in excess of $550 per week.

It will also be difficult to obtain a 90% LVR (loan to value ratio) finance from most institutions.

• Select properties in suburbs with proven capital growth over the past 5 years.

• Select properties in suburbs that have high rental demand.

First phone, then visit the ‘top’ agents in the area and check their rental lists to assess the rental demand; e.g. check how many properties are listed on their For Lease list.

Talk to the agents rental manager in regard to rental growth in the area.

• Select properties that are close to water; e.g beaches, oceans, rivers.

• Select properties that have land content.

The general rule is that land appreciates in value and buildings depreciate.

In certain circumstance, specific high-rise apartments might be worth more than houses in the same area, because they provide their occupants with fabulous water, city or mountain views.

• Select a property where the price of the property offers at least a 4% gross rental return based on the ‘long term’ rental guarantee the real estate agent is prepared to provide.

Ask the agent to provide you with a rental price that they are absolutely sure is achievable in the worst-case scenario.

If the promised and agreed rental is not achieved by the rental agent after two weeks of trying to lease the property, the agent will receive no marketing money and will have to make up the difference between the rental guarantee and the actual rental price of the property.

• Select properties that have 3 bedrooms to increase rental income.

You must only purchase properties that contain 3 bedrooms or a minimum of 2 bed rooms.

One of you goals should always be to increase the rental price of your property every year as much as possible.

Achieving the highest possible rental return is far easier with a 3 bedroom property; 4 bedrooms is an overkill, as you are unlikely to get tenants requiring 4 bedrooms inconsistently renting the same property at the same time.

One of the only reasons to overlook the criteria above is if the property is sold at an extremely low price.

The only legitimate reason this could happen is as result of dealing with a desperate vendor.

Well I honestly hope you found that useful. If you would like to learn more about real estate and discover many more property investing tips, feel free to order your own, instantly down loadable, free copy of “What I Didn’t Learn at School but Wish I Had” or the more recent “What I Didn’t Learn From My Real Estate Agent But Wish I Had” by clicking the link below.

Kind Regards

Lance Jenkins