great book 10 million property portfolio in 10 years. decided to read it as others were pushing it heavily..
have definatley learnt a lot from it. the only section that worries me is the chapter about the valuer being the most important person in the process of wealth creation….little bit too henry kaye for me……..i know theres nothing illegal – but theres lots of nods and shakes and long lunches….that chapter requires you to read bwteen the lines nudge nudge!!
i also know that this has been a reality of the system – ie good evaluation means more equity wch means more access to finance…..
the problem is its not based on anything tangible. ie – its not the sales price! and we know how subjective valuations can be??
so people are controlling and building huge property protfolios with nothing more than book values…………
my question is are we building a house of cards???
equity mate!!!good book though.
AussieRogue,
Good point. I’m reading Spann’s book right now and haven’t got to that chapter but I get what you’re saying anyway.
I guess it only becomes a house of cards if it comes crashing down. And for that to happen you would have had to over extend yourself. I think good valuations allow you to free equity for further investments, but if you don’t apply the basic principles when choosing those investments then you create risk.
I guess, so long as the bank buys the argument that its worth that much then that’s all I need to become wealthy. If, however, you intend to sell properties then the market realisable value becomes important. If you’re not selling then valuation (equity), yield (servicability) and potential CG (growth) are the factors you should worry about.
But I’m just a newbie [biggrin], I’ll let a guru answer this one.
Cheers,
Michael.aussierogue,
I just finished reading the book the other week and agree with you totally! The thing that worried me is, sure this approach can get your more equity hence more finance. But what if for some unforseen reason you need to sell one of these properties?? You may then be in a position where your borrowings are greater than the sale price. In my opinion this could be risky.
I think Spann assumes here that the property will always increase in value and that he will never ever sell. In that case, this would work a treat.
Regards,
oziI enjoyed the Book and believe in that strategy v the ve+ one.
I am not worried about a house of cards. It depends on the risk tolerance of the individual. I have plenty of equity (currently 70%) and plenty of bank finance to buy if I wish.
However, in this present cycle I dont really see any upside in values and I want to sleep at night. I dont want to renovate just to find my property is worth the same as it was when I bought it. I also dont want to over extend my finances.
If there is a house of cards waiting to happen, then hopefully I will be close to buy a few properties.
I do believe in doing your homework and ensuring you have evidence to support your paper valuations. I dont believe all valuers do a good job in making valuations when most do a drive by and only look at past sales (previous 2-3 yrs). If you have evidence, these valuers will be more likely to accept your estimates.
So where am I in the Peter Spann picture. I have heaps of equity but servicibility is my issue. So I am consolidating and waiting for yields to be more attractive. Its only a matter of a few years in my opinion. I have a full time job and only renovate on the side. So time is on my side.
I think Spann’s book works so well because he’s personable – much like Robert Kyosaki. I enjoyed all of the Kyosaki’s and the Spann but in the end I think it all comes down to your personal circumstances as to which path you choose.
What I liked about both Spann’s and McKnight’s books was that they were tailored to the Australian market – if anyone has ever read Kyosaki’s success stories – the numbers at the end for the Aussies don’t always include stamp duty – there isn’t any in the U.S.P
I think Spann’s book is a good one, the only problem I have with it is he is to a degree pushing high growth. The problem wih high growth strategies is that they don’t tend to work when there is no growth… And right now I’m guessing there isn’t going to be that much growth…
Rgds.
Lucifer_auI’ve read Peter Spann’s book. Didn’t learn a thing!
Nice reading,I did enjoy the book. BUT,I had a problem with one of his pupil’s stories on page thirty two(32)..Read it and see what you think.
When I mentioned this to Peter Spann, he said all these letters had been verified.
I’ll give you my opinion later,I don’t want to corrupt your mind with my way of thinking(thoughts).
The book only works when property values are going up.
If that was the case and you could buy multiple
properties without using the equity in your home then I would give it a go.waprincess,Rich Dad,Poor Dad is a fairy tale.
There is no such person as “Rich Dad”.It’s just been made up to make his story telling more readable.bruham.
The story on page 32. I know what you are questioning, she says she is a “stay at home” mom, not a single mom though. Looks to me like she fails to mention her husband/partner at all in the story, and it would be his income that is being used to service the loans.
I have been told if you are married that the house wife can show the husbands income on her loan app and get the loan in her own name only, because they are married his income is her income. This may also depend on the policy of the bank.
Slum Lord
G’day SlumLord,
My disbelief is,she borrows $140k in a line of credit.Then goes on a spending spree.
Buys house no.1 $276k.Plus reno.of $25k.
Buys house no.2 $265k.Plus reno.of $25k.
Buys house no.3 $310k.Plus reno.of $12k.
That’s a total spending of $913k.
Not bad for a loan of $140k.
Twenty percent deposits would total the LOC loan
at $182,600.00.So she’s up for mortgage insurance.
It doesn’t matter what the new values are,as valuing the houses is meanless exercise for her.
It’s the loan repayments that will be the killer.
She then rents them on low rent, she’s not greedy.
This ensures that they’re all tenanted.
Low rent returns and large repayments. Not good.
And of course,poor hubby has too bend his back even further to support this new loan.That’s why she can go for low rent returns.The old man is working himself to death keeping up with the payments.While the little “love” sits at home,doing nothing.Well a little bit of home “duties” perhaps!
No wonder blokes die years before the women.bruham.[angry2]
i noticed in sopme of the calculations he doesnt use ‘Purchase price’ but rather ‘loan amount’. some of the calc dont mention purchase price at all. i dont have the book in front of me so i cant tell you wch pages..
the other things i noticed about the book
– the essense of the book could have been written in one chapter….
– his wealthy friend isnt a very original idea – i wonder if rich dad is suing??
– most of the stories talk about strategies and clever little tit bits but when you look at the calcs the overidding reason a deal becomes a winner is due to capital growth. ie we bought a place for 200k with 4 month settlement. when we cam to settle the house was laready worth 240k…….and then blah blah blah….also the success of alot of the deals mentioned depending almost soley on one of spanns convenient ‘Valuations’. hardly any were based on actual sales.
so from the man himself we know that his valuations are on the high side of reality………so we need to be careful…
all up the book was a good read but it lacks the overall rigour, integrity of Steve McKnights books…..regardless of where you sit in the cashlow vs capital gains debate…
I like Peter Spanns approach to creating equity. I haven’t read any of his other books, but I assume, from what I have read that he uses residential property largely to get access to money at low rates, and uses this both to bye more of the same and to invest elsewhere. This makes a lot of sense, as the interest rates and leding ratios on resedential property are so favourable.
After reading his approach to valuers I had my PPOR revalued, and after bombarding the valuer with information and opinions managed to get a very favourable result, more than $20,000 above her origonal estimate.
g’day aperry – you hit the nail on the head. spanns strategy is he ‘uses residentiual property largely to get access to money at low rates and then he leapfrogs……..’
my point is that this technically is not property investing. its more about how to source cheap money. the book should be called ‘sourcing cheap money by manipulating valuations in order to grow your wealth’.
sounds like smoke and mirrors..
AussieRogue said –
“my point is that this technically is not property investing. its more about how to source cheap money. the book should be called ‘sourcing cheap money by manipulating valuations in order to grow your wealth’.”
I disagree. He is a property investor. As he wants growth properties he needs to supplement his income to support those. Thats where he does invest in shares and commerical property trusts. I supplement my properties with my full time job.
But where he makes his most money is in doing renovations and gets them revalued so he can buy his next property (leapfrog) without finding a deposit. It works very well in a growth cycle but in a downward cycle things are slower.
In my opinion its a sound strategy.
i think we need to define house of cards!!!
if you think there is nothing wrong with a system whereby millions of dollars of assets can be purchased based on a subjective and manipluated notion of ‘valuation’ then i suggest you think again
the idea that you can by 10 properties on the back of your first property getting a generous valuation
– without anymoney down is very dangerous..this i think is the essense of a bubble. for smart people this doesnt make sense. i know people do it – but it doesnt makes sense nor should it make sense…
remmeber the dot.com bubble. that didnt make sense either – ask warren buffet…
i think if the market does drop another 15-30 pct then you are alot better off having cashflow type asstes rather than capital gains ones
if you arent worried you should be! i think alot of people here are trying to convince themselves that there own POSITIONS are the correct postions..
good luck
Originally posted by aussierogue:
i think if the market does drop another 15-30 pct then you are alot better off having cashflow type asstes rather than capital gains onesHi Aussie,
May I ask, as you saying “another 15-30%” on top of the drop already or in total??? Because if you expect another 15-30% on what may in some areas already be by as much as 30% that would make see them down by a whopping 45-60% and I think this scenario is highly improbable. [eh]
Cheers,
Jo
All,
For me its quite simple, cash flow equals servicability and capital gain equals profit. A mix of +ve and -ve such that you’re pretty neutral sounds like a good mix. So, nicely leveraged as highly as your comfortable and make your money on capital gain.
If you’re +ve geared then that’s more tax to pay, if you’re -ve geared then that’s less tax to pay. I’m in the top bracket with more than half my salary so servicing is not an issue and leverage is king.
But that’s me. As always, this is a question of horses for courses. But, my vote goes with Yack on this one.
Deck of cards only becomes an issue if you can’t service the loans and have to sell, otherwise its all just paper profit/loss and we all know that in the long term the market rises, so leverage away!!
Cheers,
Michael.hi jo – yeh that wld be too much. i reckon 30 pct from the highs…
michael – you had me until the last 3 lines. ENRON is a good lesson..
imagine if we as investors thought we could never lose…..ie the market always rises, so leverage away……
i am a trader by vocation. i take multi million dollar poisitons on a daily basis. i never underestimate debt and never underestimate the market. in a bull market if i have counterparty i check there financials becuase i want them to be able to pay when the market inevitable comes off…
the inability to not service loans and have to sell at a huge discount is a very real and possible sceneario…
you can protect yourself and your interest using trusts and the like but the bottom line is that the market is false….
doesnt mean dont invest – i just think you need to be careful relying to much on equity, too much on debt rather than cashflow and something thats real and liquid.
cash is king in downturns – remember that chestnut. while your holding on for the market to upswing – all those with cash and nice income are buying on the cheap – being proactive…
Aussierogue,
Good points. There is obviously a lot of risk in a highly leveraged position. And to be honest, I’m holding off for now until I feel the market dynamics are more in my favour so my leverage can realise real growth. Then I am in a strong position with real equity when I ride the cycle and have a fallback position of consolidating my investments. If you’re leveraged to the hilt with little or no prospect of growth then that is a VERY risky position to take and one I wouldn’t advocate.
I think I left the point of “timing” out of my post and emphasized too much the “time in” positive aspect of leverage.
Cheers,
Michael.I think another thing that people are not getting from Peter Spann’s strategy is that he does not plan on his properties being -ve cash flow in definately. His states in his book that his properties usually reach cash flow positive within about 3 years, and often immediately (in terms of after tax earnings) because of depreciation.
His idea is that if you are going to buy properties in areas that are likely to outperform over the longer term, in terms of capital growth, they are unlikely to attract rents in excess of repayments from day 1.
It should also be noted that he publishes a book on share investing, so I do think that other types of investment are central to his success, as well as resedential property. But he makes a very big point on the power of resedential property in terms of gaing access to large amounts of money at low rates and without margin calls.
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