ResidentialPropertyInvestorsClub.com

Words of wisdom from the greatest millionaire maker, Napoleon Hill. Author of the ultimate book on achievement and success “Think and Grow Rich”.

Rental yield is a properties yearly rental income divided by the purchase costs, and multiplied by 100. The total is expressed as a percentage, for example: If you receive $300 per week rent, which equates to $15,600 per year, and the total purchase price of the property was $350,000, the rental yield would be determined as follows: 15,600 / 350,000 x 100 = 4.45% rental yield. With interest rates at their current low levels many properties are leaning towards positive cash flow and achieving more in rent than what is spent on outgoings (interest payments, rates, repairs etc.).  As property prices rise in value over time your rental yields will also increase on your portfolio.

Capital growth is the improved value of a property minus all costs, including purchase price, purchase costs, selling costs and renovations or improvements. In Australia capital gains is taxed on this amount after the sale of an investment property, but not on your principle place of residence (ppor). Currently if you own an investment property for more than a year and then sell you are eligible for a 50% discount on CGT.  

Equity is the current value of a property minus what you owe to your lender. It can be used instead of a deposit as security to a lender to leverage you into another property purchase. Equity can also be used as security to borrow funds for just for renovations or to fund shortfalls in living expenses. Over the past few years leveraging property equity has enabled myself and many other property investors to live well off a property portfolio without the need to sell. Currently lenders are tightening their policies on low documentation borrowing and this strategy is not currently looked upon very favourably with lenders mortgage insurers during the current financial climate. But who is to say whether this strategy may once again be viable when the financial markets correct themselves.

 With housing affordability at its current levels people are finding that the old way of saving a deposit to enter the market will no longer work for them. By the time you have saved that large deposit, house prices can again move up and out of your reach. The longer that you are out of the market, the longer it will be til you get rich. Joint Ventures, commonly referred to as JV’s are a great way to enter the market sooner, and purchase better quality properties than you might otherwise have been able to afford. A JV involves two or more people teaming up to purchase a property usually with the purpose of using a value adding strategy like renovating or developing it and then on selling the said property for profit. The best JV’s involve members who can bring different skills or strengths to the table, such as a cash rich, time poor person partnering up with a time rich, highly skilled person. JV’s are also an excellent way for parents to help their kids enter the market by using the end profits to enable them to purchase their very own property down the track. A vital key to achieving a successful joint venture is attitude, focus on abundance not lack, as the name of the game is to make enough profit to happily share around. After all, would you rather have half of something or none of nothing?

Once the secret document wielded by big time developers, the option contract is suddenly the new black. Featured currently in high priced seminars across Australia that claim you can make millions in a couple of weeks. What is an option contract and how exactly can it make me millions? 

An option contract is a legal document drawn up to grant the holder control of a property for a predetermined amount of time. The person who controls the option has the right to on sell the contract to another party, namely a developer. The option holder also has the right not to exercise the option, for example they apply for a development application which is denied by council, the holder can cut his losses and walk away from the contract without any repercussions. At no time whilst the contract is valid can the owner of the property sell it to anyone else. Options work best with properties which are not listed publicly on the market, and when you approach a property owner directly. 

The people who make the big bucks from this strategy are able to identify properties that are zoned for development that the public are not aware of. By finding properties that can be developed the contract holder can often offer the owner an above “unimproved market price” for the option of the property, conduct a development application, and then on sell it to a developer for a tasty profit. The developer pays the owner the price negotiated in the option contract and the holder keeps the icing on top. 

Not bad for a little bit of research, negotiation and paperwork.

The Reserve Bank is finally cutting interest rates again, and fast. The cash rate in Australia has not been this low since 2003 and has dropped 2 per cent in three consecutive meetings. But how low can they go? All signs point to another large cut of anywhere up to one full per cent when the RBA meets again in December which could bring the cash rate down to the lows of December 2001 when it sat at 4.25%. Borrowing this cheap was major fuel fror the ”Great Boom” of 02/03. Although we would all like the banks to pass on more of the cuts to borrowers, this could still see home loan interest rates sitting in the low 6 per cent range. 

So variable or fixed? There are many pros and cons with both and it also depends largely on what type of investor you are. The more aggressive, fast portfolio builder generaly will go variable whereas the more conservative or risk adverse investor will lean towards fixed interest. What most people don’t know is that there are certain features of variable loans that benefit real estate investors, namely flexibility. Low interest rates are great, but having fixed low and then needing to refinance with heavy break fees will cancel out that benefit. Often investors will outgrow the bank they are with and need to refinance in order to continue building their portfolios and this is where most fixed products are designed to hold you to that lender or incur a penalty. Having said that many people would prefer the comfort of knowing exactly what their loan repayments are for the next few years. 

If you are still going to fix you may want to consider waiting at least until December or you could miss out on another reduction of around 0.5 per cent on your repayments which is  a saving of $1,500 per year on a $300,000 loan. Do not hold off property purchases however, for the hope of more rates cuts as many did in 2002. They missed the boat because of “well meaning advice” from ill informed friends, family and financial advisers.

Putting your money in the hands of someone who’s commission comes from recommending certain products and expecting them make you a fortune is insanity. This is the reason why so many are in dire financial trouble today.

The recent happenings in the world of finance are speaking loud and clear. Are you listening? You must take control of your own destiny, educate yourself, learn strategies and find mentors who genuinely want to see you succeed. 

The personal development revolution will make many great fortunes over the next few years, and I am not just speaking about those who promote and teach these principles. If YOU find the right information, the right mentors and follow the path that is right for you, whether it be real estate, business or whatever YOU LOVE DOING, wealth will follow.

Find what you love to do and do and surround youself with like minded people. Within your passion lies your wealth. 

What is your passion? 

What are your goals?

Use them to find your path to abundance.

By far the most surefire way to begin building wealth quickly through residential property investment is to buy ugly but structurally sound properties and quickly turn them into beautiful swans. The aim then is to have the property valued, therfore creating more net wealth, and to then rent it out for top dollar to assist with the holding costs. You can then repeat the process over and over to build quite a large and very valuable portfolio.

Tenants will pay a lot more to live in a home they are proud to show off to their family and friends, and will usually care for that home much better than they would living in a more dated or run down dwelling. Recently I increased the rental of one house in my portfolio from $275 to $450 per week, and the value was increased by $155,000 by outlaying $34,767, thats $120,233 net profit for an average Queensland house purchased for $360,000.

The two most important factors worth considering when undertaking a renovation are time and money. The longer you take to finish a project the more money you will waste as your holding costs are way more significant without rental income. If you spend too much money on the reno you will run the risk of over capatalizing, which means spending more than the increased value achieved. 

The best time to renovate a property is when you first purchase it. Spend the money where it will have the most effect and do not fall in love with the most expensive fitouts. Always keep in mind the name of he game, and that is to create wealth, it is not to provide your tenants with that crystal chandelier or gold leaf trims that you always wanted. When a valuer walks through it doesn’t matter as much to him what you have spent, but what does matter is how fresh, clean, and spacious the property feels. With these considerations in mind you will have a greater chance of achieving a larger return on the dollars that you spend.

In upcoming articles I will be taking you through the procedures and giving tips on:

- how to conduct a profitable renovation.

- dealing with, lining up and finding the right tradies.

- value adding do it yourself projects.

- and how to get the best possible valuations so so the bank will let you do it all again.

Sub prime meltdown, stock market crash, superannuation dives. The global financial crisis looms over us and it seems every time you look in the papers or turn on the television there seems to be more bad news and reasons why you cannot prosper, but you can. In 2001/02 Australia had its biggest ever property boom. Some say the parties over, I say they are wrong.

Back in 01/02 the doubling and in some cases trebling of many residential property prices is attributed to a couple of major factors. Firstly a lowering in interest rates made borrowing cheaper. Secondly the then government introduced the $7,000 first home owners grant. Once again interest rates are falling and the government has just announced the doubling of the first home owners grant on existing dwellings to $14,000 and $21,000 on new dwellings. Right now there are other factors which I believe will push property prices even higher. The share market is predicted to be in trouble for some time to come. Investors however do not just stop investing, and you can bet they will not be parking their funds in the banks for low interest and highly taxed returns.

In the year ending June 2008 Australia built 43,000 fewer dwellings than required. If this trend continues Australia will start experiencing a major undersupply. Well located residential properties are now experiencing low vacancy rates which in turn is putting upward pressure on rents, coupled with some excellent tax incentives for investors. Right now the more well informed and sophisticated investors are snapping up these great opportunities.

Using the old adage, “buy at the bottom” has always been a great wealth builder as you beat the herd before they jump on the bandwagon and once again push property prices up. No I do not have a crystal ball so all we can go on are the facts and in my mind all signs point to right now being one of the best opportunities that most of us will ever see to build significant wealth through Australian residential property.

This is an excerpt from my new mini ebook “Million Dollar Strategies For Residential Property Investing In Australia” To claim your free copy please fill in your name and email in the form provided at the top right of this page and you will recieve an email directing you to the pdf version.