Dear friends,

Is it just me or is the year flying by?!

It’s May already and high time for Newsletter Number Two. This one is a BIG READ… packed full of great information to challenge and inspire your property development efforts. What I’m covering this month:

There’s a lot of meat there, so let’s get straight into it…

Upcoming Property Development Workshops

Just a reminder about our upcoming Property Development Workshops. They’re as popular as ever and I’m always working hard to keep the material fresh with examples from my current projects. So even if you’ve been to a workshop before, if you’ve lost the zeal or just need to brush up on things, you know where to find me…And as always, folks who’ve previously attended a workshop can come again at a greatly reduced rate. Email me if you’re interested. Plus, if you’re sending a friend to one of our workshops, let me know that too - I’ll look out for them and make sure they’re well looked after.Just a warning, that there are only two weeks left to the Brisbane workshop, so act fast if you’d like to come!

2007 Property Development Workshops:

Click here to view upcoming workshops.

How to Get Started in Property Development

“How do I begin to become a property developer?” It is a question often asked but rarely answered properly. There are several ways and some will be more applicable to you than others, depending on your goals, skills, finances and aspirations. But whatever situation you are in, property development is possible.First-time property developers are often frozen into inaction by fear of the unknown and uncertainty about issues they are preparing to encounter.

Let’s assume you have enough cash for a property deposit or sufficient equity in your home to enable you to make a purchase. But what type of property should I buy?

There is no one-size-fits-all answer, but each solution has one major component. To succeed in property development you must buy properties to which you can add value.

It might be an old, solid house in a valuable location that needs a cosmetic renovation to greatly increase its value. This is the classic case of the “worst house in the best street”.

Or it might be a well-located house that is positioned on a block in such a way that it is suitable for an extension. Or a property in an area of scarce off-street parking that has space for a new carport or garage to be built.

Or the property you buy might be set well forward on the block, enabling a second dwelling to be built at the rear before being subdivided into two separate titles and therefore multiplying the value of the original asset.

In each of these examples the focus has been the same – to increase the value of the property. By adding value we create opportunities to sell the property for a profit or leverage against it and borrow to buy another.

If you are not in a position to do any of these things, there are other ways.

Young adults are increasingly making arrangements with their parents to allow the younger generation to use equity in their parents’ house to take the first step on to the property ladder. Many have gone on the repay their parents and develop a substantial property portfolio.

Others are continuing to live rent-free at home longer with support from parents who are encouraging them to put the money they would otherwise have spent on board towards a property deposit.

And siblings and friends are pooling their resources to get started in property development. Like they always say, two heads are better than one.

The methods are many and varied and I cannot hope to explain them in detail here. Suffice to say, these are some of the ways in which I started my property development career 19 years ago. And I still follow the same principles today.

Counting the Cost - First Home Owner Investor
By Tony Rindfleisch, Property Editor, Sunday Herald Sun.Like many teenagers, Scott Terry had dreams of buying a shiny car, which would be his pride and joy. The apprentice glazier planned to spend up to $35,000 on a vehicle that would make heads turn. But then Scott realised a major disadvantage with his idea and abandoned it in favour of what he believed was a better long-term strategy.”I didn’t want to throw my money away,” Scott said. “Cars go down in value and houses go up.” With this simple analysis, Scott bought his first investment property when he was 18 and earning an after-tax pay of only $280 a week. He is part of a large and growing sector of first-home investors in the real estate market. Many young adults such as Scott are putting their money into property while they continue to live at home with their parents.They use their tenants to help pay for the property and save what they are not spending on board or rent to reduce their loan, buy more properties or enjoy a vibrant lifestyle.Scott, now 19, saved $26,000 for a deposit during his apprenticeship and bought a three-bedroom townhouse in the Gold Coast suburb of Tugun for $235,000 last year. “The tenant pays more than half (the loan repayments) and it’s not hard to pay for it every week,” Scott said. “If I can do it, so can anyone else, so long as you can save and are not going to back out of it.”

Scott, who has organised his loan through Wizard Home Loans in Dandenong, has set his sights on a second property, or perhaps a better car, now that his investment strategy has been established.Chartered accountant Melanie Cassy, of Hawthorn, said there were major advantages for people who could collect rental income without having to pay rent. And there were sound reasons for first-home investors to buy property, especially if it was selected for its ability to grow in value, Ms.Cassy said.

Investors gained tax deductions and rental income to offset the loss of $10,000 first-home buyers’ grants (which were not available if they did not live in the property) and the liability for capital gains tax, Ms Cassy said.Data prepared by Ms Cassy (see details) shows that a first-home investor can be almost $50,000 better off than a person who lives in their first home over five years.

DETAILS OF MELANIE CASSY’S EXAMPLE

Purchase Price $300,000

Stamp Duty, Legal Fees etc. 15,000

1st Home Owners Grant (10,000)

TOTAL COST $315,000

Rental Income P.A Nil 11,400

Rates/Insurance/Repairs (2000) (2000)

Agents Commission Nil (800)

Interest (18,000) (18,000)

TOTAL COSTS P.A ($20,000) ($9400)

Tax Refund @ 30% Nil 2820

NET AFTER TAX COST P.A ($20,000) ($6580)

Net Proceeds on Sale 367,000 367,000

Cost of Acquisition (305,000) (315,000)

Capital Gain 62,000 52,000

Capital Gains Tax Nil (7800)

NET AFTER TAX GAIN $62,000 $44,200

Holding Cost for 5 years (100,000) (32,900)

SURPLUS/(DEFICIT) ($38,000) $11,300

ASSUMPTIONS

Purchase Price: $300,000

Borrow: $240,000 LVR 80%

Loan: 7.5% Interest only for 5 years

Average Growth P.A: 5%

Property Value after 5 years: $382,884

Marginal Tax Rate of Purchaser: 30%

Investor lives at home rent-free

“If they do the smart thing and put away the money they would have spent on rent or board and save or invest it, then they will really get ahead,” Ms Cassy said. She said investors did not need to earn high incomes, but those on high incomes gained the best tax advantages. What investors needed was disposable income and a solid savings capacity.
Ms Cassy has clients aged only 23 and earning $27,000 who own investment properties. Others at 25 have three properties. “I’m very impressed at the initiative of these people. Often they are not qualified in financial areas,” Ms Cassy said.

Independent property adviser Monique Wakelin said first-home investors tended to buy one-bedroom flats for about $260,000 or small inner-city houses for less than $500,000. They were financially literate, well researched and highly aspirational aged in their 20s and 30s, she said. `Their savings ability is enormous,” Ms Wakelin said. “They are keenly aware that they must provide for themselves because there won’t be a government pension for them. “If they invest early they can harness the power of time and gain the ability to control equity through capital growth.”

Chairman John Hopkins of the Property Investment Association of Australia said a property buyer who invested early gained the advantage of compounding. For example, an investor who spent $250,000 on a property today that grew in value to $450,000 over 10 years was $200,000 ahead of a buyer who spent the same amount 10 years later. And the early buyer had their $450,000 working for them in the future, Mr Hopkins said. `The earlier you start is very important,” Mr Hopkins continued. “Do it now, don’t wait, subject to over commitment. “Do what you can afford and what is right for your circumstances. “There is no point doing it if you have to sell in four years.” For first-home investors, buying property was a form of enforced saving that might act as a stepping stone to a future permanent home, Mr Hopkins said. “It is not difficult for an investor who starts in their 20s to accumulate five properties during their life.” Many people delayed buying property until they settled into a relationship or career, but they need not wait that long, he said. Mr Hopkins, who runs a property investment and a financial services company in Melbourne, said a client in his late 20s, who bought his first property for $39,000 in Prahran at age 17 now owns four properties.

A survey for Wizard Home Loans this year found that 61,000 Australians planned to buy an investment property before a house to live in. “Young Australians are choosing an alternative road to home ownership for a range of financial and lifestyle reasons,” said Wizard chairman Mark Bouris. He said first-home investors live mostly in the eastern states where prices are highest. Mr Bouris said 45 per cent of those surveyed planned to buy an investment property because they could not afford a house where they wanted to live. Another 45 per cent said they intended to travel so buying an investment property made more sense than buying a house to live in. “Young people are taking up smarter strategies to get into the market,” Mr Bouris said “Two-thirds said property investment was the first step to achieving their home ownership goals and a quarter were worried they’d never be able to afford their own home unless they got into the market now by investing.” About 5 per cent said they planned to build a portfolio of investment properties.

[Tony Rindfleisch can be reached at 9292 1746. Article courtesy of the Sunday Herald Sun.]

Peter’s comments…

Scott and Melanie’s story ring true. I have been advocating that first time property purchaser’s look into investing first. I want to thank Tony for making this article available, if it challenges you, take action, or if you feel it may assist a young person you know who may be contemplating a property purchase, send a copy to them.

Of course, Tony Rindfleisch agrees with me about the massive value add techniques I have been teaching. He has become an action taker himself as well as previously writing on the subject. Look out for his articles every Sunday in the Herald Sun.

Property Development affords numerous value add strategies that can fast track those who commence investing in property. Just imagine starting young AND using property development strategies to fast track yourself. Where could you be in 5 years? In 10 years? who knows?

Subdivide and Profit

It’s a fundamental principle of all my development work that I secure a good profit. And I and others have proven over and again that subdivision can be a very effective way to make a handsome profit from a project that doesn’t expose you to any unnecessary risk.

And wouldn’t you know it?! Bronwyn Davis over at Australian Property Investor (API) Magazine has written on just this topic… and I’m even interviewed in the article, too.

Because of the length of the article and the fact that it does look rather nice in its original published form, I’m providing a link here to an Acrobat (PDF) version on my website. Do make sure you print it out and read it at your leasure.It contains a number of case studies and lots of good information for anyone weighting up subdivision as a property development strategy.

I commend this article to you, and it is offered here with permission from API Magazine.

Click here to view the API article

Essential Qualities of Multi-Millionaire Property Investors

Ever wondered why some investors achieve extraordinary success, while others struggle to make the grade? Why some investors attract an abundance of great opportunities, while others are still out there looking? A new book titled Secrets of Property Millionaires Exposed! takes people up-close and personal with eleven of the country’s most successful property investors, including John Fitzgerald, Hans Jakobi, Peter Comben, Ed Chan, Dymphna Boholt, Rick Otton, Craig Turnbull and others. In a surprisingly candid way each contributor shares their own unique wealth strategy and dozens of hints and tips from years of experience.

The following ten (10) points are the authors’ perspective of those personal qualities and attributes that all multi-millionaire property investors have in common.

1. A Strong Desire – Successful investors have a strong desire to achieve their goals. They are not willing to compromise on their dreams and tend to be people that won’t settle for a mediocre life. They understand the importance of building wealth, not for the sake of having more money, but for the lifestyle, time and choices it brings. For example, one of the people in the book, Dymphna Boholt, was at a low point in her life where she’d just gone through a divorce and had two hungry mouths to feed. Her wish to spend time with her kids and provide them with a good upbringing fuelled her desire and drove her to achieve great heights.
2. Think Abundance – Every one of the people that was interviewed in the book had an abundance mindset. They are of the belief that opportunities are always there and if they remain positive and optimistic, life will attract to them what they need. In fact, a number of them commented on their belief that the deal of a lifetime comes around once a week. So if you miss an opportunity, keep your chin up, because another deal is waiting just around the corner.
3. Be Committed to a Strategy – Many of the millionaires commented that the biggest mistake they see new investors make is that they try to execute too many strategies at once. As a result of chopping and changing, they lose focus, have fewer results and at worst withdraw from property investing entirely. So take the time to devise a well thought out plan and then stick with it long enough to see it bear fruit.
4. Great Communication Skills – Multi-millionaire property investors understand the fact that real estate is ultimately a people business! While the properties themselves may be inanimate objects, the people that own them, and the people around them are real people with feelings and emotions. That is why it’s important to treat people with respect and listen to their needs. News travels fast in property and your reputation is key.
5. Action Orientated – This is where the rubber hits the road. High achievers understand there is time for setting goals and developing plans, but then it’s time for action. They know that when all is said and done, most talk but few do. High achievers take deliberate daily actions to ensure that they’re continually moving forward and if an obstacle comes up they are quick to make a decision. It is a fact that anything worthwhile in life does not happen by accident. You must go after it and make it happen.
6. Take Responsibility – People who make a real success of property investing take responsibility for everything that happens to them. They resist the urge of blaming others for their circumstances. For example if one of their properties becomes vacant for two months, they take the responsibility, rather than blaming the property manager, and become proactive about finding a tenant.
7. Focused on the Team – Highly successful investors have all come to the realisation that you can’t do everything on your own. That’s why they’re committed to finding and keeping the best people to work with.
8. Have an Ability to Bounce Back – Challenges and obstacles are part of any worthwhile journey. Successful investors understand this and have developed a special ability to express resilience when times are tough. There’s a Japanese proverb which says, ‘fall down seven times, get up eight’.
9. Committed to Continual Growth – The only certainty in property is that things will never stay the same. That’s why each of the people interviewed for the book are committed to broadening their knowledge base. They advocate the importance of knowing what’s happening in the market and being aware of new issues that might affect them now or in the future.
10. Celebrate Your Success – There is one more quality of successful property millionaires, and that is they celebrate their successes and reward themselves for their achievements. There are a lot of people who are not happy because they haven’t mastered this particular quality. So go on, get out there and enjoy the journey!!

Peter’s comments…

You may recall I promoted this brand new book in my last newsletter. I’ve had a great response and there are just a handful of books left. So if you need a great gift for a good friend, or need some more quality reading material to get you motivated, I’m delighted to offer you this brand new title — with me on the cover! — for the low price of $28.00 (inc. GST, inc. P/H). Get in quick, because I’ve nearly run out!

Click here to order the book.

Well, that’s it for another newsletter. As I said in my last newsletter, if there is anything related to development you’d be keen to have me address in a newsletter (or blog posts) why not drop me a line or leave a comment on this blog post?

Warmly,

Peter

Peter Comben
Smart Property Development
www.smartpropertydevelopment.com.au

This entry was posted on Friday, January 12th, 2007 at 12:25 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.