Equity Magic

INCOME AND BORROWING LEVELS

There's not enough info in the image to make sensible conclusions. For example, do the loan repayments include all loan repayments or only mortgage repayments?

There used to be a rule of thumb qualifier that you would pass a loan application if you had no more than 25% of income committed to mortgage repayments plus another 10% on all other loan repayments, a total commitment level of 35%. On that basis, only NSW and VIC look over committed.

Official Interest rates on hold again at 1.5%

LAND AGENT - FRIEND OR FOE?

Most people when thinking of selling their house usually have one decision to make – which land agent will I choose? They then contact a few agents and choose the one they think will get them the best results.

But is the Land Agent your friend or your worst nightmare?

My personal view, drawn from decades of experience in property transactions, is that you will probably be screwed over in one or more ways as follows. Here’s why.

The process of listing and selling a property goes like this:

Land Agent shows you “recent sales history” for your area.
You accept the suggested listing price.
You sign a "Sole Agency Agreement", usually for 3 months.
Land Agent proceeds to market house, conducts inspections.
Land Agent gets offers by way of signed contracts from purchasers..
Land Agent gets you to agree to offer and sign the contract.
Land Agent hands documents to Conveyancer for completion.
Everyone celebrates with a nice bottle of Pinot Noir.

…. And then you wake up and realise it was just a dream. Here’s what really happens:

FIRST PROBLEM – GETTING THE LOWEST PRICE

The Land Agent gives you “recent sales history” but only carefully selected properties which have the LOWEST selling prices for your area to try and persuade you to list your property at the LOWEST possible price so that a quick and easy sale and commission can be achieved. A recent “Sales History Report” for my area given to me by an agent OMITTED a dozen properties listed within ONE KILOMETERE of our property and, surprise, surprise, that were all HIGHER than those on the Agent’s data report.

PRICE RANGE STRATEGY

Many Agents use price ranges, say from 290K to 330K. They offer many reason why they do this including the ability to attract more buyers to inspect your property. They would suggest a person thinking 280K might be interested in that above range. The truth is, who would actually offer the higher figure? I would want to offer lower than the range.

AGENT SALES AGREEMENT – A PIECE OF DOG-SH*T

The Agency Agreement is mostly concerned with the interests and protection of the Agent and, if you can manage to get through and understand all of the fine print, lists all of the ways the Agent can screw you over. The fee schedule is a dog’s dinner in that it is vague and highly confusing – an honest oversight by the Real Institute industry no doubt. :)

Surely sellers only need to know two things – how much will they pay if they sell and how much if they DON’T sell? In many cases it is these accumulated marketing and other kinds of administrative fees that force the seller to sell at any sh*tty price because there is often no other way for the the seller to pay them. They have you by the short and curly's..

Some Agents offer “No Sale No Charge” agreements. Perhaps all of them should.

NEWSPAPER ADVERTISING MOSTLY PROMOTES THE AGENT

The seller pays for the Agent’s advertising but the prime beneficiary of that advertising is the Agent. You only need to look at the newspaper advertisements to see the huge Agent banners and a whole page full of “Sold” properties. Nothing wrong with that except YOU are the one paying for it because your listing is buried in there somewhere. Most people these days use the internet to search for properties, right? Yes, because you can search on specific fields such as suburb, price, number of bedrooms, type of property, and etc.

THE "DUMBING DOWN" PROCESS

Once your Agent has your listing and agreement they believe the sale is “in the bag”. Why?

They knows you will probably need to sell to cover those huge aforementioned accumulated marketing costs that you didn't notice when you signed the dog-sh*t contract.

They will conduct open inspections, allowing random strangers and thieves to wander through your house. A few of them will be genuine buyers. The agent might present you with comments from buyers saying that your house is over-priced, wrong colour, wrong style, facing the wrong way and has dodgy neighbors who look like ISIS terrorists, drug dealers,politicians or the aforementioned pretend buyer thieves all of which escaped the Agent’s attention when they were researching and seeking to list your property and telling you what a truly magnificent property you had. .

If you are lucky you will not have anything stolen from your property or your security prejudiced in any way after allowing a few dozen total strangers wander through your house without any supervision at all or any validation or verification of ID except for a false mobile phone number given when the agent requested one from them.. Many sellers have paid a big price for this absurd and reckless lapse of security.

The Agents of course cannot be forced to pay you compensation because that piece of dog-sh*t agency agreement you signed indemnifies them from any liability you incur at an open inspection or any other “oversight” the Agent makes.

YOUR AGENT IS ALSO A BUYER'S AGENT

Does the Land Agent act for you or the buyer? The crazy answer is: both !! The Agent needs to work on both the buyer and seller to arrive at a matching agreeable price.

But many Agents who contact you actually are buyers' Agents, acting for buyers and who will try to get you to list at a very low price and get paid double commissions - one from you and one from the buyer, over or under the table.

Logic tells you that your Land Agent cannot, at the same time and on the same property, get the lowest price for the buyer and the highest price for the seller, right?

WHAT’S THE ANSWER?

I would suggest the following:

Private sale is a good way to go if you feel confident enough to do it. There is plenty of support. In any case, once you have an interested buyer, a Conveyancer will do all of the paperwork (Contract and Notices) for a fraction of the fee you would pay an Agent to complete those documents.

If you still want to use an Agent:

Do your own research on property values (current and sold) in your area. You can do this by spending some time on Realestate.com.au and inspecting other properties for sale in your area. (But don’t rifle through the owner’s belongings or take any souvenirs).

Find an agent who knows the meaning of good communication skills and one you feel you have a good rapport with.
Demand a fixed single marketing price for your property – not a range.

Demand a “No Sale No Fee” agreement. Otherwise demand a clear written statement of the fees to be paid by you if the property is sold OR if the property is NOT sold.

Never allow open inspections. Insist that all prospective purchasers are identified and inspect your property only by individual appointments.

Don’t be “dumbed down” by negative feedback (or alleged negative feedback) by prospective buyers. Your property will not suit many prospective buyers for many reasons. Your goal, your agent’s goal, is to find the prospective buyer who likes your property enough to make you a genuine reasonable offer.

Still want to use an Agent? Be careful.

DEBT - YOUR FRIEND OR ENEMY?

That will depend on whether the debt ADDS to your wealth (good debt) or ROBS your wealth (bad debt).

Basically, borrowing money to buy income producing assets is good debt because the cost of the debt (interest) is LESS than the rewards from the investment.

Most of us could not buy a business or property without a loan from a bank or lender.

Buying a property that will double in value in 10 years is a good investment, even if you still owe the same amount you borrowed over that time.

Borrowing for holidays, cars and luxury additions is bad debt and will drive you both crazy and broke.

Most rich people use debt (OPM, Other People's Money) to build wealth.

So no, debt is not stealing MY treasure - debt is the doorway that helps me accumulate treasure.

Ask me about it !!

As expected, RBA Cash Rates kept on hold again today.

Earning income from sub-division.

Buy this block for $250K, split it into three and sell the three divided blocks for around $150K each.

After sub-division costs and tax still an easy minimum $100 - 150K profit to pay a few bills.

Any person can do this.

Sssshhhh !!
It's a big secret. The doubling thing.
Only a few will get it.

BEWARE THE CAVEAT

This article is a good example of doing your research before you sign away your rights and BEFORE your rights under the contract to "cool off" expire.

It seems that everyone missed the Caveat on this contract - a debt that had to be settled before the title could be transferred or as a condition of settlement.

In this case, the buyer was caught cold and the Vendors are laughing. And we thought the Hanson's were nice people :(

Pauline Hanson's Gold Coast unit sale leaves 'disappointed' buyer with surprise legal bill Wendy Carrafa has been left with a bad taste in the her mouth and a outstanding $550 legal bill following her purchase of the Gold Coast apartment owned by One Nation leader Pauline Hanson and her son

TENANT SECURITY

There has been plenty said "Tenant Security" over the past week with calls for greater protection and security for tenants. But tenancies are a "two way street".

Personally, I see rental agreements the same way I view marriages. It takes two parties each committed to doing their share of the work and meeting obligations in a win-win situation.

Long "marriages" work better for both parties with each needing the other's total cooperation and commitment to the project.

A contented tenant, like a contented wife, is surely a great thing.

Fear and loathing in the rental market Tenants are also putting up with poor-quality housing and feel they lack the power to demand standard property maintenance, according to researchers.

From Student To Nurse To Multi-million Dollar Property Investor

Can you identify the key principles in Jennifer Duke’s story of Nurse Eric Wu who started with nothing and became a millionaire in a little more than a decade?

We keep saying it – any person from any background can achieve financial security through medium term property investment if they follow well established key simple principles.

Here is Eric’s story:

When Eric Wu came to Australia from China in 2002 as an international student he “didn’t have much” after tuition fees and living costs.

Now he is 43 and, with his wife, has a portfolio of nine properties worth $4.82 million. If he sold his portfolio today, including his home, he’d walk away with more than $1.5 million after paying out his loans.

He started with $80,000, which they saved over five years. These funds became a deposit on their first home – a $387,000 three-bedroom apartment in Hornsby they bought in 2007.

“We were looking at 30 years of paying off a mortgage [and thinking] there must be a better way to do it,” he says.

When their home grew in value by 30 per cent in three years it was “the spark” that made them realise investing in real estate could be worthwhile. Today his Hornsby purchase is worth $800,000.

After reading books about property and researching strategies, Eric looked for areas near major cities, with solid infrastructure, tight supply and high rental yields.

At the time the suburb that fitted his brief was Marayong, in Sydney’s west. Using equity from his home to cover the deposit and costs, he bought an investment property in the area in 2010.

A year later he added a house in Blacktown to the portfolio, noticing it had the same growth fundamentals, including a major train station, shops and affordable prices.

Then in 2012 they upgraded to a townhouse in Marsfield and moved in – turning their Hornsby residence into an investment property for $540 a week rent.

Eric describes their strategy as predominantly “buy and hold”, with little intention of selling any of the properties in the near future. His logic behind holding for the long-term is simple but proving effective.

“Australia has a stable political system and a good economy compared to other countries with a small population and you see loads of overseas migrants coming here for a better lifestyle,” he says.

“So the population grows, but there’s not much land that can be released [and not much] new housing supply … so what happens next? Prices go up.

“The principles [of property investing] are very simple, but there are lots of variations.”

But looking for houses and older apartments with “good bones” in markets yet to see growth meant Sydney prices were rising too fast for his strategy as the property boom raged in 2014.

“Lots of people stop at three or four properties. They get complacent or it’s fear,” Eric says. He was determined not to be one of those people.

Instead of giving up, he looked further up the coast to Brisbane, where price growth was slow since 2008 and there were still affordable properties near the city.

Between mid-2014 and the end of 2015 he bought five Queensland properties, spanning Harlaxton, Wynnum West, Cleveland and Birkdale. Some of these have done better than others, but he says “time will tell” if they’re all successful.

Being able to buy this quickly has largely been due to the fast growth of his earliest purchases, including some cosmetic renovations prior to valuations. This has allowed the couple to pull the equity back out of the portfolio, rather than rely on saving up.

And by using Interest-only loans across the portfolio he has been able to keep the margin between repayments and rental income relatively low..

After additional expenses, such as maintenance, his portfolio is negatively geared by a slim margin.

To manage the risk of holding so many properties, and millions of dollars in debt, he has landlord’s and building insurance across the portfolio, property managers, a financial “buffer” for any vacancies or repairs, different lenders for his loans and fixed rates where necessary.

But his goals haven’t become any less bullish, despite his risk mitigation.

Working as a nurse, and now having started a business as a mortgage broker, by 2022 he plans to have doubled the size of the portfolio.

The ultimate goal is to provide for his family, with two young children, and to make going to work in the morning a choice and not a necessity.

“As long as you get the fundamentals right, time will heal the small mistakes,” Eric says.

It's a matter of perspective :)

2017 – A NEW YEAR, A NEW BEGINNING

A new year is as good a time as any to update goals and programs. For most, it’s the ONLY time of the year when goals and ideals are set down on paper and some attempt to make our lives better is made.

So many things are NOT taught in formal education, especially two important cornerstones - Financial Wisdom and Personal Development.

Indeed, I believe that the majority of those who have discovered Personal Development have done so by joining multi-level marketing companies such as Amway and Herbalife where members are strongly encouraged to read Personal Development books and listen to and watch inspirational videos and audios.

But what about the rest of us? Where do we get the “extra” education and know-how to make more out of life than just an existence?

I would certainly encourage all my friends and clients to read as many Personal Development and Financial Wisdom books as possible throughout each year.

I love my book collection and regard it as my most valuable asset for in the pages of those hundreds of books are the precious diamonds of wisdom that have both rescued and inspired me to try and achieve something beyond average and to hopefully leave behind the gift of that knowledge to others – those few who will listen to the wisdom.

So, what will you do in 2017? And what will you read?

I have a few suggestions for you, a few of my all-time personal favourites, as pictured.

My single all-time favourite would have to be The Richest Man In Babylon. I would gladly send you an e-copy if you want one. Just read something that feeds your soul.

Happy reading, happy growing, happy new year !!
Kev