When I saw Dominique Grubisa's asset protection product I ran it past our lawyer and his feedback was just the same as Terry's: not gonna work. At best it might mildly discourage a creditor because they have to jump through an extra hoop, but if they want their money it will be easy enough to past it. He also referred to "uncommercial transaction" and "scheme designed to defeat creditors" etc.

It's surprising to see Stuart Zadel promoting a product like this when expert opinion is so clear that it won't work.

Nope, this is arms-length lending. The bank does care about the property being financed: generally they want to stick to Phoenix only, good quality stuff where the valuation stacks up and in most cases only properties worth $100k or more.

Cheers,
Ken

Although I am not familiar with these guys, $3k is a reasonably typical sourcing fee per property, I have seen figures as high as $5500.

In our case we charge a membership fee of $6k which includes sourcing for the first 2 properties.

IMHO one key thing to watch is your end buy price on the properties. How well has the company bought when they acquired them? How much markup have they then put on top of their costs before selling them to you?

Sometimes a lower sourcing fee may be more than absorbed through a very steep markup on property prices, hence the need to be careful about that.

Hope that helps.

Regards,
Ken

Hi Brent,

One of our members who came on the tour to Phoenix last week is also a real estate agent from Perth, though some years older than you. He bought his first couple of US properties on the tour and has said he’s planning to buy another 10 or so this year. Given your interest in that city I can introduce you to him if you like?

Cheers,
Ken

I think this is a great point and I strongly agree.

I just got back from taking a tour group to Phoenix for a week. For various reasons we surprised our local sourcing partner with late notice that we had a much bigger group coming than they expected. This was only 2 weeks out from year end (which is also financial year end in the US) and they’d been letting their inventory run down for tax reasons, so we wouldn’t have had enough properties available for our members.

Although the short notice was entirely our fault (long story), the owners of our sourcing partner added about 15 properties from their personal portfolios to the inventory offered to our group – which really helped us out of a jam. These were properties that they’d rented out and been holding for 12 to 18 months, which is reassuring for an Australian thinking of buying them. And they set the sell prices at their usual cost + standard percentage margin, even though the market has moved up in the last year, so some of our members got especially good deals!

As you say: good to see the people doing the sourcing participating in the market themselves.

Cheers,
Ken

Hi Richard,

Ok, I want to be wary of drilling into this too far because at the end of the day it’s Phil’s strategy and he is the expert rather than me. I’ll answer as best I can and will go to Phil for more info if required.

Phil has a specific formula which he likes to stick to very closely. He wants his model to be repeatable and low risk for his group members, and also not require a lot of time commitment on their part. Hence he will only present a development to the members after he’s reached the end of a long process and checklist of requirements – if it doesn’t stack up in any area then that development is discarded and the members will never hear about it.

His system is built around “affordable” new standalone single family homes (you want the land component for capital growth, as you point out), at the moment typically priced around $300k to $400k, in strong growth areas with multiple “legs” to the local economy (mining towns are usually ruled out for this reason) and in neighbourhoods/larger developments with no more than 20% of the properties used for rental (i.e. at least 80% owner occupiers). Those type of properties should have minimum vacancies and strong rental growth over time.

Apart from depreciation, one reason why he goes with new houses is because he will tell the developer that he wants the properties built with certain specific floorings, appliances, fittings etc to make it optimal for renting rather than for an owner occupier. This will have an extra cost which the developer must absorb. He will also ask the developer to pay the buyer’s interest on the loan during construction, so that the investor only incurs interest costs once they are able to put a tenant in and offset the cost with rental income.

A couple of other requirements are that the developer must pay the investor a rebate on settlement out of his budget for marketing & sales for that property, since he will avoid many of those costs if it’s sold through Phil’s group. The purchase price must also be below a valuation of the property from a completely independent, bank approved valuer.

If your question is directed to us (i.e. Universal Events) then we receive no commission on property sales. We make our revenue from enrolment sales in Phil’s advanced training courses and membership fees for his group.

If you were asking about Phil, then his group receives a few thousand dollars per property from the developer. He says, “much less than a real estate agent’s commission on the same property would be, but I make it up in volume”.

Regards,
Ken