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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Hi,

Interesting post – thanks for making it.

It raises the issue about what is the best way to create money, through a job or other means.

Personally, I see taking a job as the easy way out as it trades time for money. Yes, the reality is that we all need money to live and have to trade some time for money, but the key is to try and think to create wealth rather than working to create wealth.

For example, time is an investors most precious asset, and if you want to be a property investor but are too tired after working two jobs then you may have more money but not have the time or energy to achieve your goals.

Also, the pizza delivery job – that’s great for Uni goers, but if you work out the true cost of driving around (wear and tear on your car) and then calculate how much per hour your time is worth… there has to be a better way.

Still, it’s a personal decision and as such there is no right or wrong answer.

Nevertheless, success comes from doing things differently so I’d be encouraging you to look for other investing ways to create wealth rather than trading time for money.

Good luck with your decision.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

Sorry guys. No plans for a repeat Perth Masterclass any time soon, and I doubt there will be one in 2006 either.

You best bet would be to use the discount code in the back of the second book to reduce the price to $495 and then use the savings to pay for the airfare cost.

Otherwise, I am now scoping out a formal mentoring program which should be due for release later on in the year. I don’t have much information about it as yet, so stay tuned to the newsletters for more information. This would be a pay-for-service arrangement though rather than a second MAP.

Regards,

– Steve McKnight

P.S. If you did want to get over for the Melbourne MasterClass then be quick as there is only about 8 seats left.

Hi,

A free seminar can be an excellent way to start your property investing as the information is usually okay but it’s the bending of the facts to suit a sales purpose that is questionable.

You can protect yourself against this by identifying the key assumption(s) in the financial model presented and then asking yourself how likely is it that those assumptions will be achieved.

For example, assumptions are normally made in respect to:

1. Your ability to borrow and usually at 100% (i.e. you have equity to secure against)
2. Interest rates may be low as the finance can be arranged via a back door. Watch out for this as there may be a commission paid back to the developer. That is, you may be able to get a better deal shopping around.
3. Certain rents can be achieved (usually best case scenario)
4. Low rental vacancy periods
5. The strength of a rental guarantee
6. Capital gains forecasts (about property doubling every X or Y years)
7. Depreciation expectations
8. Tax savings based on highest tax rate, which now kicks in at a much higher level.

That’s a start anyway. Good luck with it.

Bye,

Steve McKnight

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

Thanks for your post. I have quickly run your details into Investment Detective on the following basis:

Purchase Price: $200k
Closing Costs: $10k
Loan: $21k @ 7% P&I over 30 years
Rent: $290 p/week (no vacancy)
Rental management: 8%
Rates: $1k
Insurance: $300
Repairs: $500

On these assumptions, the software has come back with:

> A gross return of 7.18%
> Budgeted cashflow loss of $4,691.96 p.a.

Therefore, this property is better placed for a growth focus rather than a cashflow return. This is particularly true given you are doing 100% financing.

Interesting, if you put down a 20% cash deposit then the negative cashflow remains, but it falls to a shade under $1,500 per annum. Changing the repayment basis to interest only will result in a positive cashflow outcome.

The great power of Investment Detective is that it took me less than 5 mins to do these calcs and what-ifs. Beats mucking around with a financial caluclator. It doesn’t factor in your personal tax situation though.

Have a great day!

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

That’s a lot of !!!!!… you must need some serious help [biggrin]

The decision to keep vs. sell is always hard, but here are some issues to think through.

1. Personal vs. Investment?

How emotionally attached to your Ballarat apartment are you? That is, do you plan to move back there on day, or, at the other extreme, is it only about what return you can achieve?

For example, you may like to keep the apartment if you have a child who may like to live there while studying…???…

2. What can you do with the money?

It is a relatively emotionless exercise to work through what is the best financial decision as you can compare the result of one outcome against another. For example, you may find that you earn a good return using your after-tax investment profits to pay down your personal mortgage on your Melbourne apartment due to the impact of pre-tax and after tax dollars.

Seek the help of a professional accountant if you aren’t sure what to do.

3. Tax consequences

There could be some reasonably complicated tax issues associated with selling a home that has been previously rented out, so, before you enter this realm, it would be wise to seek some advance-tax planning advise about your options.

Well, that’s a few points to note to get you started. Does anyone else have words of wisdom to add?

Thanks for your post and have a great day.

Bye,

Steve McKnight

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

Sorry – today has been a busy one for me.

When evaluating the numbers I work through four questions:

1. How much down
2. How much back
3. How much risk
4. For how long

As many people know, I am not so much a capital gains investor as I am a cashflow investor. Nevertheless, by working through these numbers you can work out how much you need each year in capital gains to make your invetsment profitable.

Let’s take a look at the numbers then (Qns 1 & 2 of the 4 above).

How much down

Purchase Price: $80k
Deposit (say 20%): $16k
Closing Costs (say 5%): $4k

Cash Needed: $20k

How Much Back

Rent: $6,500
Interest (assume 7% IO): ($4,480)
Rates: ($!,100)
Management: ?
Body Corporate: ?
Repairs: ?
Insurance: ?
Other: ?

Cashback: ?

I can’t tell based on your info, but it is likely to be negative cashflow.

Growth Prospects

You mention that the prospects for capital growth are minimal based on location so I’ll take your word. But you need to look at what is unique about this property as poorly located deals can still appreciate in value if there is an element of scarcity about some of the features.

Also, you need to consider the opportunity cost of what your $20k would earn (i.e. deposit and closing costs) should you just leave it in the bank. If we assume 5%, then the positive cashflow (or capital gains) would have to be more than $1,000 per annum for the investment to make sense.

I hope this has helped but by all means ask questions.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

Even with some softening of the property market, it is still very hard to buy positive cashflow residential property in a major regional or metro area of Australia.

Therefore, the name of the game is to think value-add. For example, buying a property, sub-dividing the back and then selling it and using the profits to pay down the front dwelling making it positive cashflow.

Of course, there are many thoughtful ways of creating the outcome that you desire. Scan the forums here as there have been some great ideas over the recent months.

Just be careful about properties that are +ve cashflow because of tax/depreciation adjustments. Be extra cautious to properly crunch the numbers to ensure you know what you are getting yourself in for. The danger is that you buy a property that requires that you earn an income to soak up the tax losses which therefore requires you to work harder.

Thanks for your post.

Best wishes,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

A $2 company is one with little capital (i.e. $2). It is done this way so that there is very few assets to sue for in the event of legal action.

That’s why trustee companies are usually asset-bare, as accountants use this ploy to maximise asset protection.

Dave, you may like to look at a video I recorded yesterday which gives some more information about structuring. You can view it for free at: http://www.propertyinvesting.com/resources/11.html

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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