Real Estate

Now that you're Earning, what are you going to do with all that money?

It was with real estate that enabled Carlos Slim Helú to build an empire that has made him the richest man on Earth with 67 billion dollars to his account. His father, a Lebanese born businessman who emigrated to Mexico, had the foresight and understanding that property creates wealth, when he cheaply bought up large parts of Mexico City after the revolution.

As the Earths population increases, so will the demand for housing in the form of either owner occupied or rental properties. Currently the Earths population lies about 6,5 billion persons. In the next few years, that number will reach nearly 9 billion as populations grow exponentially.

What does this mean for anyone that earns a solid income?

I'm NOT an expert, nor are you, unless you already have a portfolio of fifty properties or more. Funnily enough though, anyone who has bought one property or sold one or maybe has one or two properties suddenly becomes an expert in their own eyes.

There are experts who deal in property every day. They make it their business to be well informed about market trends, growth areas, prices, developers and city planning.

To purchase property ad hoc is OK. Depending on what you decide to purchase, it will usually grow in value if you keep it long enough. The problem is that people love to speculate in the hope of making huge returns. Now that is risky business.

My colleagues and I cringe every time we speak to someone seeking finance to renovate homes for the sole purpose of reselling for a 'profit'(unadmittedly, usually a loss or breaking even). This is what I call a hobby speculator who does not value their time nor energy. If their passion is spending endless hours of hard labour and all their hard earned cash on renovating old houses then let it be. Some hobbies are expensive.

Then there's the hobby developer who wants to sub-divide their own property and build a second home for 'profits'. I've seen it time and time again. if they're lucky they'll complete the project and have the home usually sold. In doing this the value of there property just plummeted. Values are based on land value - not the house that's built on it - unless it's Buckingham Palace.

More than often, the sale price is very close to the cost of doing the sub-division, build, time spent, head works and marketing- what for? If problems develop with the builders, or the inspectors halt the build due to errors or shortcuts- yes shortcuts - builders love to save money, then there are problems.

Every single day of delay costs money. I've seen disputes between builders and 'hobby developers' that go on for years. The 'developer' usually can't afford to keep paying the interest on loans outstanding and the bank ends up completing the project and taking everything. What a headache.

Another great example of time and effort wasted speculating are those that live in specific types of houses, say Victorian style cottages. Often, all they can see is the value in their own property and feel compelled to seek out similar properties to buy with the intention of renovating them for lease. Unfortunately, little do they realize, that with purchasing million dollar properties, unless they're highly cashed up and have their current mortgage paid off, that the cost of acquisition will most probably break them financially and leave them clamouring for a fire sale to save grace. Not ideal.

The ego is the worst enemy

I could go on with thousands of examples where I've been called in as a 'rescue service' for Do It Yourself developers and hobby speculators. Nine times out of ten I'm able to salvage the situation and leave the client with a grazed chin and their egos bruised.

It's normally after the DIY crowd fall on their faces that they begin to listen to the hard facts on how to create long term wealth using real estate. It's a bit unfortunate, that when the client has reached this stage that they also have such cold feet that it's almost impossible to talk any sense to them - almost like a Post Traumatic Disorder.

Why bruise your ego? Begin to value your time. Move away from the physical excitement of the discovery of renovations and start using that noggin' God blessed you with.

Real Estate investment is done on paper. Forget driving by, touching and feeling. That's emotional and ego bruising material. The first step is to get your calculator out and see if you can afford to invest. I can't and you won't know if you can afford to invest unless you do one of two things:

See a financial planner or if you're still really stuck in the DIY mindset, purchase the Property Investment Analysis Software and see for yourself whether you can afford to purchase or not.

Surprisingly enough, most people earning top wages don't understand the power of leveraging using real estate and are literally giving away tens to hundreds of thousands of dollars in potential leveraged earnings simply through fear or conservative ignorance. The PIA Software is great for enlightening those dark corridors and oiling those creaky synapses of complacency.

Real Estate is a loooong term investment.

Do as the successful do. Work with the top advisers when it comes to making decisions. The wealthy know that they can't be experts in every field. That's why they surround themselves with other successful people and top advisers and experts.

The wealthy possessors of real estate portfolios in Australia understand this all too well. They know that, not only can they leverage off their tenants, the government also gives attractive tax incentives to support low cost housing. Those "in the know" understand and use the immense power of leveraging in order to amass and create phenomenal wealth.

The only way to create wealth is to set accurate goals. Setting goals requires making a plan. You need clarity of mind. One way of getting clarity of mind is by consulting a wealth strategist and making a PLAN. The strategist or Financial Planner will give you a Statement of Advice (SoA) based on the information you supply.

The "VAULT" is the ultimate, state of the art technology available for setting long term goals. The "VAULT" will "get your affairs in order" and facilitate the decision making process for you and your wealth strategist in accessing all the necessary information to putting you on to the right path to wealth creation.

If real estate does become part of your wealth creation strategy, you'll need to employ leveraging in its purest mathematical form in order to create long term wealth.

You will need to rely on proper experts in the field, to conduct the necessary due diligence on development projects to ensure you are secure in your decision. You may support your decision by getting verification of the experts advice by going to Population and Dwelling forecast - informed decisions. 'id' is a company of demographers, housing analysts and census data experts who have developed information products specifically for the Australian Local Government market.

Now that you're in the right mindset to start using the power of leveraging and making smart, NOT emotionally ego-bound decisions, you can tread the secure path to financial freedom with real estate.

Remember, time is an important concept that people often get confused with when dealing with investment properties. Knowing the following is integral in your decision making: "It's NOT in the timing (speculative), it's TIME in the market(investment)". As a general 'rule of thumb', real estate in high growth areas doubles in value in as little as six years. You will require expert advice to recognize where the growth areas are in major cities.

The Earth's population is growing exponentially. There is a high demand for rental properties and this is driving the real estate market. E.g. there is currently a general shortage of housing and living space in cities like Melbourne and Brisbane. Unless there is a major catastrophe , this trend will continue to grow.

Due Diligence

Due diligence is the key to any decision making process. Before making a decision on any purchase of real estate, make sure you are well informed in regards to ALL variables affecting the project. These can affect you both positively or negatively. You'll also want to obtain a pre-approval on the finance for the investment through your broker to be 100% certain that the lending institutions are going to play ball with your intentions and wealth creation strategy. There are always risks! Your broker will be the first to pick up on these.

I work with some of the best people in the country when it comes to real estate investment. We pride ourselves in supplying clients with the right kind of information so that you can do your due diligence before making a decision. If you're interested in the due diligence process used when determining which areas, properties and developers are worthwhile, check out the list below.

Due Diligence on New Projects

Development Name - This gives the project character

Development Address - Check Volume and Folio Numbers. Conduct a title search and cross check Plan of Subdivision numbers.

Development Type - Investigate whether the council is encouraging further development of similar product in the area.

DA Approval / Date - Projects won't be sold without Council Development Approval.

Construction Commence - Ensure the Vendor has settled on the real estate or has an unconditional contract and the ability to commence the project.

% Construction Complete - Check other projects the Developer has completed previously to ensure that they complete near to the estimated completion date.

Sunset Clause (specify) - This confirms the time-frame required for the Developer to complete before the Vendor and/or the purchaser has the right to exit from the contract.

Sunset Clause (specify) - Check to ensure that this time-frame is fair and reasonable for all parties concerned.

Inclusions (list) - Closely study the quality of the specifications and ensure that the investors requirements are met. i.e. Air conditioning and Blinds.

Price Range - Ensure that the price range is affordable for the majority of Investors. Compare this to our regular focus group results.

Municipality - Investigate any immediate building, construction and infrastructure change that the council may be encouraging or contributing to in the area that may positively or adversely effect the value of the Project/Property.

Zoning - Check that the zoning is that which the banks will look at favorably to lend against.

Stamp Duty - Request immediate land values for stamp duty calculations and furthermore, continual updates for stamp duty calculation purposes.

Section 32's - Ensure that the relevant Title and Plan of Subdivision searches are done to be sure that we are dealing with the relevant Directors and Vendors.

Management Groups - Study and research any Management Groups that may be involved in a Project as they effect the future rentability of each property.

Communal Facilities - Investigate the extent of the communal facilities and how they effect the body corporate rates.

Depreciation Schedules - Request Indicative Depreciation Schedules so that we can examine the quality of the property and the Division 40 and 43 Allowances.

Valuation - Require a recent copy of a valuation from a reputable valuer and our sale prices are set at or below this valuation price.

Developer Reputation - Request references from all new Developers from a number of Purchasers that have bought from them previously.

Past Projects - Inspect previous Projects that the Developer has built. Investigate whether they completed their projects on time.

Directors - Conduct a Director search to ensure that the persons we are dealing with are the actual and correct Vendors. Check the company's history.

Corporate Profile - Investigate how long the developer has built for and their reputation within the industry.

This type of due diligence makes your 'Off The Plan' purchase a sure investment.

If you feel that you have the time and energy to complete this process for every project you may be interested in, then if YOUR time is worth the arduous task in completing this then, please do.

If you'd prefer to rely on expert advice from leaders in their field and utilize your time for more pleasurable activities feeling assured that you're in good hands then please fill in the form below and I'll have a Release and Consent form e-mailed to you so that you can talk directly to the AFG exclusively licenced real estate partners I'm proud to refer my clients on to.

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