Hi Lioudmila,

Thanks for your post and I hope you are enjoying the book. Nice to know I was under an Xmas tree []

Welcome to the community and thanks for posting. I moved your post to the PropertyPlus area as that is a better spot for it.

I’ve read your situation with interest. Once I went to the bank for finance and they said that they would lend me $X provided I had the equivalent in cash in a savings account.

How much interest will you give me on my deposit… 4% How much interest do I pay on my loan…8% Er, why would I have this arrangement?

I think the same holds true for you. You might find that these days you can find a good cash mngt account that offers higher interest as term deposits are becoming a thing of the past as the financial market matures.

Now, the first thing we need to do is differentiate b/w your home and your IP. One is lifestyle the other is investing.

In terms of your IP, by paying cash you have no leverage which makes your CoCR very low. Still, at least you’ll have +ve cashflow as you have no interest. Nevertheless, your money can work harder for you than what is presently the case.

Some suggestions:

*Take a mortgage against your existing property and then place a large slab of your TD as a 100% mortgage interest account. It will be at call and will allow you to expand similar to a LOC without the need for cash security.

*Once you borrow against your IP and use the cash for elsewhere your property will become -vely geared. As such your property will become a growth asset which means you’ll need to consider your investing strategy moving forwartd. Decide on this b4 you buy anything else and also set your benchmark rate of return against which you can evaluate various investments.

You’re in a good position, but the key will be to maximise your returns from hereonin.

Well, that’s my 2c worth.

Have a great day,

Steve McKnight

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

Happy New Year Back…

Well, call me a cynic, but let’s say that you have a property with a maket value of $1m.

I come to you and say “Here’s what I’ll do… I’ll pay you $10 for the right to buy the property for $1.5m, open for the next six months.”

What would you probably say to a boffin wanting to pay 150% of market value? Yep – done!

Then what I do is run a seminar and sell the property I’ve secured the right to buy for $10 on the basis that it will be 5 new A-Grade apartments.

My budget profit, even after paying the inflated price, is substantial – provided I can find the people to buy from me after value-adding. When demand drops what do I do, maybe run some more seminars…???…

The bottom line – I have tied up $1.5m worth of property (after all, if I paid that for it it must be worth at least that) for just $10.

If I can’t sell the concept then all I lose is $10.

Starting to get the picture?

Cheers,

Steve McKnight

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

Back after lunch…

I’m not a big fan of hybrid trusts. The main advantage is that a hybrid allows you to have a fixed and floating entitlement, yet for most investors all that’s required is a properly set up family trust (fully floating).

In other words, a family trust allows you to share profits however you like and you can just keep the distribution equal or otherwise. That is… what’s the benefit of locking in?

Invariably hybrid trusts are more complicated and thus require more accounting fees to keep compliance under control.

Perhaps the only point of difference is when you are pooling funds from many investors across various families and the idea of setting up partnerships of family trusts is not appealing from a risk perspective.

The product you mention (WealthGuardian) does not venture into into realm of hybrid trusts as I deemed it too complicated and something better kept to professional advice in the right circumstances.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

I’ve moved your post to this forum…

I started by reading and attending Kiyosaki events, and then read and studied more broadly.

Seminars

Travelled the world to see:

R. Kiyosaki*
J. Burley*
R. LeGrand*
D. Campbell*
R. Aaron*
D. Kennedy*
R. Allen*

Books

Read a lot (one day I’ll compile a list), but for starters:

George Clason : Richest Man in Bablyon is the best place to start.

For those new to wealth creation, J. Burley’s book “Money Secrets of the Rich” is great value.

These days I’m more into biographys.. such as Packer’s, Lowy’s, Bond’s etc. to try and learn from people who have done it big.

General Comments

I’ll not pull any punches… personally I don’t value the ethics / morals of some of the people I’ve listed above. Others have unashamably ripped me off and thrown daggers at my back. Still, I’m more interested in finding ideas that I can make owrk within my own ethical/moral framework.

I recommend that you spend a lot of money on educating yourself… BUT, and only but, you recoup the cost by taking immediate action.

An academic investor isn’t much use.

Cheers,

Steve McKnight

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

HK came unstuck in a big way because, after an ASIC investigation that didn’t come up with any dirt, he advertised that he was “ASIC Approved” to try and get more people to his seminar.

This, of course, was a stupid play on words and in fact was the ammunition ASIC needed to bring him unstuck. He was made to refund people who attended (or signed up to attend) his courses on the basis of it being ASIC approved.

Indeed, what then happened was a stack of bad press so anyone who had a change of mind about forking out a stack of cash relied on the ASIC refund demand.

Alas for HK, he presumably was running a show that paid for today’s expenses out of tomorrow’s income (seminar in advance revenue) and when people wanted refunds, the white elephant finally died after a death of 1,000 cuts.

It goes just to show that you can’t fool all of the people all of the time.

Cheers,

Steve McKnight

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Remember that success comes from doing things differently.
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Hi,

What I should also say is that most businesses fail because they have supply but no demand and need to use debt to fund losses.

What I try to do is let demand drive supply.

In your context, you need to have orders before going down the track and outlaying too much $$$.

As Richmond says, you’ll need a prototype, but sell the concept rather than the product and get some money in to cover R&D costs.

Richmond – mate, that seems like a good client base. Not sure about the wraps dvd though as that is more educational than it is sales related. There would need to be a new angle and I’m not sure the cost warrants the product given the limited demand.

Cheers,

Steve McKnight

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

Happy New Year mate!

Drats… I was hoping I wouldn’t be asked that. Sadly, there is no easy or definitive answer (like buy and sell XX properties and you’re a trader).

It’s a matter that needs to be discussed with your tax adviser to determine if you are in the business of buying and selling property.

quote:

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So how do We Distinguish a “Business” from None Business? The Australian Tax Office does not require that a business is making a profit to be a “business” – or that something making a profit is a “business”. It has the following critera for it to be more likely to be “business” if:-

(1)large scale operation and/or
(2)involves employees and/or
(3)frequent acts/transactions and/or
(4)conducted with a view to profit and/or
(5)profitable and/or
(6)conducted over a long period and/or
(7)conducted continuously and systematically and/or
(8)in commercial premises and/or
(9)involves items typically dealt with commercially and/or
(10involves exercise of specialized knowledge and/or
(11)significant capital investment and/or
(12)business records kept and/or
(13)full-time and/or
(14)market research done and/or
(15)associated with other commercial activities of taxpayer and/or
(16)existence of business organization, registered business name and/or
(17)advertising and/or
(18)active –

---

Source:http://www.goldcoastcroquet.com.au/business/Busines1.htm

As you can see… it is not ‘cut and dry’.

Cheers,

Steve McKnight

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

Thanks for your post… welcome to the community and I’m delighted that you are enjoying the book.

I’ve moved your post to property plus as it is more appropriate there.

Sure – I could find 1000 reasons why it won’t work… but the key for any new business is to focus on reasons why it will work.

I think you would be offering a product for a niche market. For example, you may find that you could find great demand in offshore investors who can’t get here to inspect property but would like to have CDs.

My preference is for you to provide the technology direct to real estate agents rather than having to market the CDs too.

It’s always a good idea to value-add, so what else could you do to the property analysis to help the investor? Eg. provide demographics info, median house price data, financial analysis etc.

Be careful to include disclaimers etc. too.

Give it a try and see what happens.

Cheers,

Steve McKnight

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

Stagefright hey… lol []

Anyway, Simon is right. The cost(s) of selling the property (including legals, agent commission, advertising etc) is all deducted from your ‘profit’ with the balance most likely being taxed as a capital gain.

The only exception is if you are in the business of buying and selling property, in which case there is no CGT as such, it is all taxed as ordinary income. In this case the costs of selling are treated as a normal tax deduction.

In case you are confused, let’s flesh out an example.

Parameters

Property bought for $100,000 (after all costs) and sold 24 months later for $180,000. Sale costs (legals etc.) come to $5,000. Taxpayer is an individual.

Example One – Investor

Sale price: $180,000
Net purchase price: ($100,000)
Profit: $80,000
Reduction in cost base – sale costs: ($5,000)
Adj Profit: $75,000
CG Discount (50%): ($37,500)
Profit to be shown in ITR as Cap Gain: $37,500

This will be taxed at the taxpayers appropriate marginal rate

Example Two – Property Trader

Sale price: $180,000
Net purchase price: ($100,000)
Profit: $80,000
Tax deductions – sale costs: ($5,000)
Profit to be shown in ITR as ordinary income: $75,000

As to whether a taxpayer is an investor or a trader, there is a substance over form approach and several tests that the ATO applies. In the majority of cases though, unless you are regularly buying and selling property, most investment property taxpayers will not be traders.

Hope this has helped.

Happy New Year!

Steve McKnight

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Remember that success comes from doing things differently.
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