EPI 121 | Property Investing Q&A – with Kaz Young and Lisa Parker

What’s news

Property Zest - Buyer's agent and property investing mentoring
  • Kaz – Property Zest‘s new office on the Sunshine Coast!
  • Lisa – Home buyers are out and about! Negotiating after a property is passed in at auction

 

Feature – Listeners’ Property Investing Questions

Property Investing Questions
  • I have a unit that we’ve had for ages, it yields ok but I don’t think it’s grown much over the past few years and there’s lots of talk about unit oversupply so may not grow for the next few. Should I sell it and buy something else?
  • I have $700k to spend, should I buy one property in a blue chip area or two lower budget properties?
  • Is Winter a bad time to buy, should I wait until Spring?
  • I have a small deposit for a property, should I get something now or save up till I have a better deposit so can get a better property?

Quick tip and action

EPI 102 | Getting your location right – with Jane Slack-Smith

What’s news

mentoring wordcloud
  • Jo –  look for a mentoring program with ‘one on one’ focus
  • Kaz – looking for a mentoring program with a creative
    development and joint venture focus

Feature – Getting your location right – with Jane Slack-Smith

  • Selecting an investment location
  • Dot Mapping – capital growth mapping
  • Suburb selection spreadsheets
  • Demographic information
  • Pin maps – Sales history mapping
  • The Ultimate Guide to Renovation course

Quick tip and action

assets vs liabilities
  • Take stock on your current financial status – create your own financial status overview diagram or spreadsheet
  • Write down all of your assets and liabilities.  For properties include purchase entity, estimated value, mortgage details (bank, account details, loan value).  Include Super Fund, Shares, Companies and entities (ABN, ACN, trustees, registered office, ATO or ASIC relevant information)

Assessing Paid Online Property Investing Resources—Webinar with Matt Jones

 

Due diligence is one of the important stages in property investing. Before doing some leg work, preliminary assessment of potential deals is an important process that take a big chunk of any property investor’s time. Good thing, online resources abound.

But with so many resources available online, how do you determine which ones are worth your time (and money!)?

In this webinar we talk with Matt Jones from Property Resource Shop as we discuss three paid online property resources and weigh the value of subscribing to these resources: 1) Real Estate Investar, 2) RP Data, and 3) PriceFinder.

Assessing Paid Online Property Investing Resources

 

 

 

Things We Talked About

Three paid online resources

Real Estate Investar

  • 03:19 — cost of subscription
  • 04:00—searching properties using different parameters
  • 10:08—Valuer Report tool (desktop valuation of a property)

RP Data

  • 18:01—ability to customise  dashboard
  • 20:00—advertising history feature
  • 23:42—RP Map

Price Finder

  • 30:00—Features
  • 40:10—Cost
  • 44:00—Property Deal Finder offer

Cost of subscription
Value For Money

SPECIAL OFFER TO EPI COMMUNITY

Property Deal Finder Toolkit

Check Out This Exclusive Offer to Everyday Property Investing Community

prop-deal-finder_package***Get Matt’s Property Deal Finder Toolkit using the link below and you will get:

  • One-year access to PriceFinder
  • One-year access to monthly deal finder webinars
  • 6 months access to Property Resource Shop membership site
  • Audio recording: 15 Things You Need To Know Before Quitting Your Job
Check Out This Exclusive Offer to Everyday Property Investing Community

Everyday Property Mastermind is back!

 

 

About 18 months ago we ran the first series of our Everyday Property MastermindGroups and it was a great success!  We had many people purchase their first property during or not long after the Mastermind course and we had many people really take their knowledge and confidence in property investing to the next level.

At long last, I’m excited to say that Mastermind is back! Once again we’ll be running just a few small groups so that we can ensure you get the attention you need and get your questions answered.

The format of Mastermind this time around will be slightly different and I’ll be putting out a video in the next few days that will give you the ins and outs of what Mastermind is and how it will run.  If you’re interested in Mastermind, then send me an email and let me know, I’ll add you to the early notification list – I anticipate to open up the courses within the next week or two.

 

Getting your strategy right – 2. Positive Cashflow

 

This is the second post in our ‘Getting your strategy right’ section of the Everyday Property Foundations series and I’m sure it will be a popular one.  After all, who doesn’t want to own property that actually makes you money?  Our post today will look at positive gearing and positive cashflow property, including what these terms mean, the pros and cons and where or how these properties can fit into your investing strategy.

What is Positive Gearing

We’ve previously looked at negative gearing and we determined that a negatively geared property is one where the rental income is less than the expenses and interest on borrowings.  A negatively geared property is one that makes a loss and this loss is then able to be offset against your taxable income.

A positively geared property is pretty much the opposite of this.  It is a property where the rental income exceeds the expenses and bank interest payable and therefore the property is making a profit.  The profit from a positively geared property must be declared as part of your taxable income and therefore you will pay tax on this profit.

So basically, it comes down to this:

  • You buy a property
  • The income from the property exceeds the expenses (including interest) from the property
  • You are making a profit
  • This profit is included as your taxable income for the year

 

Positive Cashflow

This is where the waters can get a little muddy  in terms of definitions and terminology.  Many investors will recognise a distinction between a positively geared property and a positive cashflow property and so we’ll define a positive cashflow property here.

Sometimes when an investment property is negatively geared but the investor is able to claim a lot of on-paper tax deductions for a property, then these deductions can be enough to see the investor receive a taxation benefit that actually exceeds the cost of the property.  This means the overall effect is that the property generates a positive cashflow, putting money into your pocket!

So basically, it comes down to this:

  • You buy a property
  • The expenses and interest from the property exceed the rental income
  • There is a loss on the property
  • You are able to claim on-paper deductions for the property
  • The tax saving to you is greater than the loss made on the property
  • You receive cash back as a result; hence it is positive cashflow

Additionally, you can elect to receive this cash back throughout the year by varying your PAYG withholding via the Australian Taxation Office.  So rather than wait until the end of the tax year to receive your tax benefit, you can elect to forecast what this taxation effects of your investment will be and reduce the amount of tax in your regular PAYG income, effectively giving you more money in your pocket each payday.

In both cases, positively geared property or positive cashflow property, the overall effect is a positive cashflow to you, the investor, so from here in, we’ll simply refer to ‘positive cashflow’ to cover both of these terms.

The Advantages of Positive Cashflow

Well you don’t have to think too hard to come up with the major benefit of a positive cashflow investment.  It’s err…well…positive cashflow.  This is, of course, a great thing because not only are you making a profit but it means that you are still able to maintain and potentially even improve your borrowing potential.  When you think of negative gearing property, you can see that at some point your borrowing capacity will be limited by your ability to support the expense of owning the property. But with positive cashflow property, this limit on borrowing capacity is not an issue.   You may use the profits of your positive cashflow properties to live off or to reinvest.  And of course, if your investment location is well chosen and/or you have a bit of luck on your side then you may also experience capital gain on your property— now there’s a win-win for you.

 

The Disadvantages of Positive Cashflow

At this point you may be thinking, well, “What on earth could be the ‘downside’ of a positive cashflow property?”, as making money is what it’s all about, isn’t it?

Positive cashflow properties can be harder to find than negatively geared properties.  There was a time (well before my investing career, that’s for sure) when positive cashflow properties were abundant in some areas, but that time has well passed.  Nowadays you have to look harder or think smarter.  You may need to think creatively in order to manufacture a positive cashflow situation.

Traditionally when people have looked for and thought of positive cashflow properties then these properties have often been in regional locations rather than the capital city locations.  The issue there may be that these regional locations may experience slower capital growth.  Of course this is not always the case; however, it’s worth looking closely at capital growth history and potential for future capital growth before jumping on that high yielding property in the middle of nowhere!  If going for purely cashflow positive properties is your aim, you need to think about how you plan to make your money in property— if the plan is to build enough passive income on which you can retire, then you really need to have properties that are substantially positive or you’ll need to own a lot of properties.

The other ‘con’ that people often mention is that you’ll need to pay tax on your profit.  Personally, I don’t have a problem with paying tax on my profit.  It means I’m making money…surely, that’s a good thing!

Why would you use positive cashflow in your portfolio?

Balance.  Owning several negatively geared properties can be a difficult thing to sustain— it is a drain on your income and depending on what that income is, this can really impact upon your lifestyle.  Being able to balance out your portfolio with a mix of negatively geared and positively geared property can be a sensible course of action.

Passive Income. Some investors elect to only include positive cashflow properties in their portfolio and can even look to creating sufficient passive income on which they can retire from their ‘job’.

Growth. Whether the properties you buy are negatively geared or positive cashflow you should always be making educated and intelligent choices about the locations in which you choose to invest and the properties you choose to own.  These choices should be about maximising the potential for capital growth.  It is the leverage obtained from capital growth that can really build your wealth.

Summary

Positively gearing is where the income related to your rental property exceed the expenses, including interest, so you are making a profit.  Another means of generating a positive cashflow property is where a property may have sufficient on-paper tax deductions to provide a taxation saving so that, when coupled with the rental income of the property, the overall effect is a property that provides a positive cashflow for the investor.

Pro

  • You are making a profit each month
  • Doesn’t limit your borrowing capacity, can continue to service more properties
  • Can live off or invest the profits
  • Can experience capital growth in addition to the income from the property

Cons

  • Harder to find than negatively geared property
  • You may need to be creative to generate a positive cashflow situation
  • Can be in areas of slower capital growth
  • You pay tax on your profits

What do I think?

Positive cashflow property…hmm…let me see…yes, please!  I love this concept; however, I also think that it’s very important to think about your strategy when you say you are looking for positive cashflow property.  Holding a few properties that earn you $10 a week in areas with limited capital growth isn’t what you want to aim for, so you need to think about whether your plan is to build your portfolio for growth or your  to build passive income on which to retire.  The timeframe in which you want to achieve these goals is also a big consideration and will drive the strategy and types of deals which you will need to do.

Positive cashflow property can really make the difference for many investors between stalling their portfolio at 2 or 3 properties and really going on to create their ‘empire’!  Of course, no matter what your strategy is, you can always look at the properties you own or wish to buy and think creatively  how you can increase the yield on those properties to generate the optimal cashflow situation.

EPI 052 | Making informed property decisions with David from Property Planning Australia

Things we talk about:

  • Mastermind Jo’s NZ trip
  • Learnings from our recent sale: contract clauses and building inspections
  • David Johnston of Property Planning Australia on making intelligent and informed property decisions

Quick Tip & Action

  • Go to your state-based real estate institute website and download a copy of a standard contract and review it so that you are familiar with the content of contracts.

Kaz’s Sample Email 

This is an extract taken from an email I sent back to the real estate agent after reviewing the contract that had been prepared. Don’t be afraid to ask for changes like this – but be sure to consult your professional team!  I’m not a lawyer or a conveyancer and I’m simply sharing things from my experiences – you must consult your own professional team members.

Thanks for sending this sample contract and vendor statement through for review. 

Just a couple of things:

Special Condition 1- Building Clause

Can you please change the second sentence from:

“If the report shows a structural defect, the Purchaser may end This contract, but only if the Purchaser serves written notice on the Vendor Together with a copy of the report by 21/03/2011.”

to

“If the report is not to the satisfaction of the Purchaser, the Purchaser may end this contract, but only if the Purchaser serves written notice on the Vendor together with a copy of the report by 21/03/2011.”

Special Condition 2 – Pest Clause

Can you please change the second sentence from:

“If the report shows past or present pest or termite infestation the Purchaser may end this contract but only if the Purchaser serves written notice on the Vendor together with a copy of the report by 21/03/2011.”

to

“If the report is not to the satisfaction of the Purchaser the Purchaser may end this contract but only if the Purchaser serves written notice on the Vendor together with a copy of the report by 21/03/2011.”

 

Getting your head right – 1.Why invest in property?

Everyday Property Foundations

This series of articles is for the beginner investor. It’s designed as a set of articles that will cover the basics of getting started in investing. It’s also appropriate for those who may wish to revisit their overall goals and investing strategy, after all, many of us have started out as the ‘accidental investor’ and developed our knowledge and strategy along the way.

In part 1 of the series we’ll be covering ‘Getting your head right’ – which looks at why you want to invest, the successful mindset of the property investor, your risk profile and setting your property investing goals.  Today’s post specifically look at why you would invest in property.

Let’s get cracking!

Why invest in property?

People invest for a variety of reasons, using a variety of investment vehicles and in a variety of ways! For most people investing is about accumulating wealth and even though when you ask people why they want to accumulate wealth you may get a bunch of different answers, for the most part, it comes down to being able to buy the things you want to buy and, more importantly, do the things you want to do.

For me, investing in property is about buying back my time. It means not having to work in a job that I may not want to be in just because I need to pay the bills, it means building up enough income producing assets to be ‘financially free’ which means instead of working for a living, I can spend my time doing the things I want to do.

We’ll take a closer look at your motivations a little bit later, but firstly, let’s talk about why people invest in property as a primary investment vehicle.

There are a many different ways to build wealth through various forms of investments. There are savings accounts and term deposits, shares and managed funds, business investments and of course, there is property.

Savings Accounts and Term Deposits

The main advantage of these items are that they are very low risk and keep your money safe and accessible. Of course, the main trade off for a low risk investment is a relatively low return, however, for many people this suits them and the concept of low risk is more important.

Shares and Managed Funds

Shares are often considered a fairly risky investment. This is because although they can offer high returns, their volatility means that they can also drop in value quite quickly and you can lose money. Investing in shares yourself means that you must take the time to educate yourself about shares and share trading or investment strategies or you can pay for that service from someone else. Managed funds are a way to handover all of the choice on which shares to buy, how many to buy and when to sell, to a third party fund manager. You also pay fees to a managed fund for this service. Many people invest in shares through their superannuation fund and until recent years, shares were really one of the only types of investments that a superannuation fund could make.

Business Investments

Many people build or invest in business to build wealth. Many people build a business without really thinking of this as investing, but in reality, building a business is also investing and businesses can, like other investments, produce cashflow and capital growth. Building a business, of course, is a big undertaking and is also relatively high risk.

Property

Property has a lot of advantages as an investment class.

  • Easy to understand – sometimes, getting your head around shares can be difficult and learning to invest in shares requires a lot of knowledge. Investing in property also requires knowledge but property is, for most people, easy to understand and deal with.
  • It’s real – you can touch it, see it, paint it, photograph it! Many investors, like myself, like the idea of having something tangible for their money.
  • You can improve the value of it – unlike other investments where you really are just a passive observer, with property you can take the ‘bull by the horns’ and manufacture your own capital growth, through renovating, developing or even thinking of creative ways to use the property. This is a really exciting part of investing in property.
  • Property is forgiving – the volatility of the share market can be scary for many and thankfully, changes in property values are not as dramatic or fast as you see in the share market. Of course when share pricing are rising sharply it can be very exciting, however, when they drop quickly it can be heartbreaking. With property growth is often far more gradual and although decreases in value do occur they are not as great.

Why do YOU want to invest in property?

So now that we’ve looked at property as an investment class, let’s look closer at why YOU want to invest in property, what is your motivation? You see, at the end of the day, owning 5, or 20 properties is usually not what it’s all about and when things get tough, like you’re trying to save for a deposit, or you have to cut back on your budget or you have some dodgy tenants that are giving you grief, then thinking about how many properties you can have or how much money you can accumulate is not something that will drive you. To understand your real motivations you need to go a little bit deeper than that and think about what your real motivation is. The things that drive me are:

  • Not having to work for an employer
  • Being able to spend my days doing things that I enjoy
  •  Being able to spend my time with my young children
  • Being able to enjoy holidays and time at the beach house

Having property to me is just the means to the end. I want to be financially free of my job and be in control of my time and my financial future. That motivates me.

How about you?

Before you get started, have a think about what your primary motivation is.

  • What is important to you?
  • What would change if you didn’t have to go to work to pay the bills?

These are the things that will really motivate you.

In the next section of this series, we’ll be looking at the success mindset and why this is important to you!

EPI 040 – Investing in US property with an expert – Interview with Trish Davies

In this weeks episode Kaz is very excited to speak to the wonderfully knowledgeable Trish Davies.  Trish is an expert in property investing in the US and was very kind to spend her time walking Kaz through the process of investing in the US –  and all this at a time when the media and property experts are either talking it up or talking it down!

Things we talk about:us-realestate-investing

Action:

  • Send us any questions you have about self managed super funds – we’ll be interviewing an expert in SMSFs very soon!

EPI 039 | Property Investment Finances Made Easy

In this weeks episode we tackle some topical banking related issues – including interest rate cuts and interest rate hikes, the reserve bank of Australia, fixing interest rates and investing in a difficult economic climate.

Things we talk about:

  • Property Investing
  • Investing in US property
  • Reserve Bank of Australia
  • Interest rate changes
  • Big banks and other lenders
  • Fixed versus variable interest rates
  • Exit clauses for property investment loans
  • Investing in a difficult economic climate
  • Positive cashflow property

Action:

  • Assess three different loans
  • Look at any existing loans that you have and understand your exit fees if there are any

Build a solid foundation with affordable property investing education

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