Hi,

I’m most worried about the following issues:

1. Negative Savings

As nations, Aust and the US (incl. our governments) spend more than they earn. At a household level, this is only sustainable once the credit card has gas and then, once maxed out, life becomes a lot harder.

We have been inching closer to our credit limit for a while now and I fear that we are using one credit card to pay off the other rather than solving the spending problem through controlling our desires.

2. Retained Wealth

Following on, it seems to me that the recent property boom changed the mix in the way that households held their wealth from ‘realised’ to ‘unrealised’ means.

That is, previously households had wealth in the form of cash or ‘real’ equity in the form of homes with low debt.

Now however, after a property boom, a lot of wealth is tied up in unrealised property appreciation that is underpinned by high equity redraws where the funds have been used for consumption.

This is again not sustainable given falling property values will expose over borrowings and result in a net asset deficit situation.

In summary, instead of owning ‘real’ wealth, people have ‘perceived’ wealth held in a notional sense.

I don’t know if a crash will occur, but the conditions are such that our available credit won’t last forever.

What should we do then:

1. Try to change the way we structure our portfolios away from a highly leveraged position into a more moderate position (well under 80% LVR)

2. Monitor world events very closely

3. Avoid enmasse long-term buy and hold positions in property given the uncertain times.

My final comment is that it is okay to predict doom and gloom, but you must also try to assist people to find safety.

Oh, and very finally, it won’t be an event that causes a crash, it will be the panic reaction to the event that causes widespread financial losses.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi there,

The mortgage of $96k comes from:

1a. Value of house one: $80,000
1b. Loan (80%) = $64,000

**Note $40,000 house increased in value to $80,000**

2a. Value of house two: $40,000
2b. Loan (80%) = $32,000

**Purchased by refinancing equity of house 1 back up to 80% of $80,000**

Total Loan: $96,000

Hope this helps.

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

I think you’ll find it’s “Ko Huna Beach Resort”.

In fact – that’s where I had my wedding reception [rolleyes] and where all the Melbourne guests stayed and had one heck of a three-day party.

As for it as an investment – I’d be doing my numbers very carefully. Generally speaking this sort of managed investment can be loaded with fees, fees, fees.

Also, I stayed there a few months back and two things caught my eye:

1. The vacancies; and
2. The mozzies (as big as coconuts they were!)

There’s no doubt that Mackay is going through a huge property boom, but that hasn’t seemed to have hit the holiday market just yet.

Having said that, if I was a location investor then Ko Huna is right on the beach and i must say the pool is one of the best I’ve swum in anywhere in the world.

Still, $120k sounds cheap even if you did pay cash for it out of your Super Fund. Can you go up for a holiday? If you can, then late Spetember would have to be the best time of the year in my book.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

Well, if there are no funds available then there is insufficient security to underpin the loan.

This doesn’t mean that the debt ceases to exist, it’s just that there was insufficient collateral to repay it.

The 2nd mortgage holder would then seek to have the money repaid by other means through perhaps a debt collection agency.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi there ozsparky,

First up, if you’d like us to shorten your UserName then please send an email to [email protected] and we’ll see what we can do.

As for the personal tax issues – I accept that, in some cases, this would be very useful however we sidestepped this issue on the basis that it would have added a lot more cost which took us away from our original vision.

Our goal was to focus on the outcome of the property as an investment, and thereby distinguishing between the value of the property as an investment and the value of the property as a tax tool.

True enough though that sometimes one runs into the other, however, there are other software packages that offer this feature at a much higher price.

Thanks for your feedback though.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi there,

Thanks for your post!

I agree with the Great Gat in that it is better to ‘fix’ the problem that resulted in you being in debt rather than trading your way out of it.

However, I don’t necessarily agree that ‘woking in a job’ is always the best option to fix a past wrong. Back in my first book I outlined the importance of identifying the path of least resitance. This being the case, if your existing property is holding you back from achieving your goals then I’d be seriously weighing up the pros and cons of retaining it.

Now for the wisdom in book #2… Action -> Reaction -> Momentum. If you want something to change then first something must change! From my experience, thinking about change is nearly as effective as doing something that’s different.

So, why not go back to your accountant and tell him/her what your goals are and ask (not for financial advice) but the accounting ramifications of keeping vs. selling from the perspective of what is going to get you to your goal the quickest.

Hope this has helped.

Have a lovely night.

Steve McKnight

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Remember that success comes from doing things differently.
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Hi!

Welcome back to the forums. This is a timely way to make my 1,500th post.

Yes, I think there is still opportunity in real estate, but the nature of that opportunity has changed significantly in the last few years.

For example, during a boom market a good strategy is to leverage up and buy as much as possible on as little down as possible. However, that strategy in the current climate is likely to send you broke.

The idea behind the mentor program is NOT to do the deals for you, but rather to be available to help you beat fear and doubt and to get you to see investing from a different perspective outside the usual buy and hold.

Don’t think it won’t be a lot of hard work though… it will be. You are right to say that the r/e climate has changed and as a result we must change too as what worked well yesterday may no longer be effective.

So, to answer your question… is it still doable? For sure, but you can’t just repeat what has been done in the current market as times have changed.

It’s great to see you back on the forums and thanks for your contribution. Did you enjoy the newsletter?

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

Here’s what I would do:

1. Agree to the council coming to have a look but request 28 days to ensure the tenant has time to clean up and is okay with the whole issue.

2. Approach council to see what is needed to obtain a certificate of occupancy for such a dwelling.

3. Conduct an audit on what is missing asap and then get busy in the 28 days to rectify the issues.

4. When the council comes be totally honest, plead ignorance and then ask them for a recommendation for “what needs to happen for this to be approved as a separate dwelling.”

I don’t like the idea of selling or passing on the responsibility to someone else. You have done will to think creatively, just see it through as all part of the learning process.

Have a wonderful night.

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi Hugu5282,

Thanks for your post.

There is certainly opportunity in every market, but every investor sees things differently.

For example, Dave and I just sold our Traralgon flats and my Dad just bought a Morwell commercial property (that will be +ve cashflow to a nice extent).

See, goes to show you that every coin needs a ‘head’ and a ‘tail’.

Watch out for closed minded comments though. Youcan’t see much while your back is turned and your eyes are shut.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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