frequently asked questions

Answer: A very important question!

Many of my clients have initially told me the exact same thing. Do you know what they are telling me now?  They are telling me that the more debt they go into… the more money they make!

But… I hear you saying… that doesn’t make any sense!

… until you understand the difference between Horrible, Tolerable and Productive debt.

HORRIBLE DEBT refers to debt used to purchase things that depreciate... with after tax dollars (that is no tax deductions).  Cars, furniture, televisions and all general credit card debt best describe this category.

TOLERABLE DEBT refers to the type of debt we incur when purchasing an item (such as the family home) that appreciates in value… but offers no tax relief.

PRODUCTIVE DEBT is the type of debt that I want as much of as I can get my hands on.  This type of debt is used to buy appreciating items (ones that are worth more in time) that also attract TAX RELIEF.  Investment properties fall into this category.

If understood and correctly used, debt should be considered a powerful tool that is used to create wealth rather than act as a burden. Unfortunately no one bothered to make this point to our parents as they were conditioned to believe that ALL debt is bad and you should pay cash for everything! Times have changed.

Question: I don’t have any spare money at the moment. I can’t afford a property!

Answer: You must understand this: There is a big difference between the cost of a family home and an investment property.

With the family home, there is generally only one person who pays the bills and that's YOU! However, an investment property is different because the tenant and the taxman pay most (and eventually all) of your bills; including interest and insurances.  Your contribution is made only after they have contributed their share.

If you are in the higher tax brackets, you may be surprised to learn that your contribution could in fact be NIL.

Based on the above, the idea that you cannot invest in property may be more of a perceived problem rather than being an actual problem.

There is also provision within the Taxation Act which allows you to complete a standard ATO form (Form 15-15) allowing you to boost your cash flow through reduced PAYG tax instalments. This means you don't have to wait until the end of the tax year to receive your refund.

Subject to your current equity position, I can show you how to manage any (and all) cashflow shortfall so that the negative cashflow impact on your take home pay could (literally) be zero!

Question: I’d love to invest in a property, but I don’t have a deposit. Is there anything I can do?

Answer: If you currently have equity in an existing property, this answer could change your financial future forever.

Here’s why: A deposit is generally considered to be a cash payment made to the vendor of a property until settlement and signifies your equity in the property to a lender.

However, a cash deposit is not necessary if you have sufficient equity in your own home. You can temporarily use the equity in your home for the deposit on an investment property (and even the borrowing costs). As the value of your investment increases, the need for your other equity is diminished.

NB: Another person’s equity may possibly be utilized to assist you leverage into an investment property.  The most likely examples of this type of situation would be when a parent wants to help a child get a head start; or there is a joint venture arrangement between two non-related investors.

Question: What if interest rates rise?

Answer: The important point to consider here is that your tax refund in part buffers any increase in interest rates. Like any business, if your costs increase you will pass them on to your customer, which with investment property is your tenant.

Generally speaking, The Reserve Bank of Australia increases interest rates in response to increasing inflation in the economy. In an inflationary period, your rents tend to increase which reduces the negative impact on your cash flow. What’s more, you can fix the interest rates to ensure you can budget successfully and insulate yourself against any possible rises.

Question: What if negative gearing is abolished?

This mistake has been made before! The Hawke Government in the mid 1980's abolished the right to claim losses from rental property against other income. But they didn't abolish the right to negative gear.

However, this undesirable situation meant that investors left the market in droves and placed the burden of housing the rental population to the government - and they simply can't provide for everyone!

Given the extreme shortage of rental accommodation that resulted, the government was forced to repeal the legislation in 1987. It is considered unlikely that the government would make the same mistake twice. But should it happen it is doubtful that the change would be retrospective and negative gearing would still be possible by matching your rent to your outgoings.

Question: I’ve heard some real ‘horror stories’ about tenants damaging rental properties. What are the risks of this?

Yes. I’m familiar with these stories as well. But I can safely say that they have never happened to me… or to my knowledge - any mrd client.

But hey… it does happen; so here’s what I’d recommend you do to cover yourself:

•    Get landlord’s protection insurance, which is usually less than $250 per year and...

•    Select your tenants wisely.

You’ll notice that the insurance premium is quite low. Trust me… it’s not because the insurance company is doing us any favours. It’s simply because the incidence of bad tenants is minimal.

Plus… bad tenants are usually attracted to specific areas. With very few exceptions, I only get involved with brand new property (so you can collect maximum depreciation benefits) and in suburbs that attract quality tenants. You will find these properties will be in the median purchase & median rental price range of the local area.  Market demand tapers off at each end (i.e. executive and lower socio-economic) but will be stronger in the middle range.

So the odds are on your side because:

1.    Insurance premiums prove that there’s a low risk of attracting bad tenants.
2.    You’ll have a property in a good area that attracts quality tennants.
3.    You’ll have a brand new property that everyone wants to live in… so you’ll be able to choose your tennants more selectively.

And of course, once you get a good tenant into your property… you need to make it your mission to treat them like your best asset.

Question: Can you guarantee I’ll make money?

No, and I can’t produce a rabbit out of a hat either. But as William Barnett II, author of “Are you dumb enough to be rich” declared…

“No other investment strategy has created more millionaires than investing in real estate”

Obviously, based on history, property has been a stable asset in this country. The saying “Safe as houses” doesn’t come from nowhere.

On average; medium priced housing in most states in Australia has doubled every 7-10 years.

So I’d like to think that with the added research in choosing the right areas, I should be able to… at worst… deliver the average price rise over the last 100 years.

Question: What makes you different to other companies selling real estate?

Are you confused about where and what to buy in order to get the best deal?  Well… who isn’t?

When I established my business… the last thing I saw a need for was yet another company promoting real estate.

So what do I do differently?

1.    Mentoring:  By now, you would have noticed that I certainly take the time to educate you about the opportunities and pitfalls that one faces when investing in property. I believe in Free Education… so that you can make your own decisions… even if you decide not to buy through me.

2.    Research: There are a number of large companies in the marketplace that will build a development and then sell off hundreds and hundreds of units or townhouses.

Obviously, they have a vested interest because they need to sell their properties in order to make a profit.

Being a boutique company… I’m able to do things a little differently.

How?

By selecting the specific developments I feel are in the right areas for you to get the maximum rental return and capital growth from your investment.

And I can tell you right now… that I turn back many, many, many more developments than I take on. And clearly, I couldn’t do if I didn’t…

3.    Walk the talk: I am an investor myself; not a self proclaimed guru… rather a pretty regular guy following a well worn, tried and proven path that my mentors have laid before me. Believe me…

If I can do it, anyone can!!!

And I follow diligently what I preach. My wife and I have a goal to buy one investment property each year (or as quickly as we can convince the lenders to allow us).  Currently we have 5 investment properties (and yesterday Friday 23rd February 2007) called for contracts on two more. We settled our first in August, 2001.

Question: Why does almost everyone selling property come out of Queensland?

I was born and grew up in Sydney in a suburb called Killara. My parents, 3 brothers and sister (and their families) all still live in Sydney.
So I certainly wasn’t born in Queensland… but became a ‘statistic – someone who loves the lifestyle in this part of the country.
I do what I do today as a direct result of spending some years as a property researcher.  Through my research I had concluded that the Gold Coast and selected coastal areas of Northern Queensland were the best regions for property growth. My mum and dad and 3 brothers & their wives between them now have 6 investment properties in the Gold Coast. Together with my wife, Katrina, I have a rapidly growing portfolio of properties which also embraces selected Northern Queensland hotspots.
Here’s why I came to this conclusion:

Queensland
The ABS figures show population grew by 76,000 in the Sunshine State in the 12 months to June 2006… 25,800 from interstate, 21,400 from overseas and 29,200 natural increase.
In her Budget Review in February 2007, Acting Premier Anna Bligh revealed Queensland was growing at nearly double the 2.5% rate of the rest of the nation at 4.75%!
The latest figures from the ABS show that Brisbane and the Gold Coast recorded the country's top two population increases for 2005-06, with almost 1000 people moving to the southeast every week!
The early part of 2007 has been marked by a frenzied rush by renters in Brisbane, the Gold Cost and several regional hotspots with queues outside properties and agencies at dawn…  with some people prepared to pay a years rent in advance just to secure  a rental property!

Brisbane…  Suburban Brisbane is showing great potential for investors. BIS Shrapnel senior analyst Jason Anderson comments… ‘We expect Brisbane will lead the housing recovery over the next two years.’… ‘Brisbane is where rental growth has been strongest, it's where pressures are greatest and I think that's showing up in this price growth.’ (February 2007 )

The Gold Coast… according to the Midwood Report and a recent study by the Gold Coast City Council, the population of the Gold Coast is increasing by 13,000 people per year; and they are all looking for an immediate home! No other city in Australia can boast a population growth of 3.6 per annum. Despite frenetic building activity there is nowhere near enough rental property stock; nor is their likely to be in the foreseeable future.

North Queensland hotspots…
Cairns… one of Australia’s fastest growing tourism destinations and also expects a 2.2% population growth in 2007. According to the ABS, The city experienced the fourth largest growth in the state behind Brisbane, Gold Coast and Ipswich. The unit vacancy rate has hit a 10 year low at 2% and a rental crisis is predicted.

Townsville… Population growth in Townsville is projected to continue at 3%. Herron Todd White's Queensland Property Market Report (January 2007) commented that Townsville rental vacancies shows an increasing shortage.. They express the opinion that Townsville is in the rising market stage of the property cycle.

Hervey Bay… has become the focus of major development over recent years Population is expected grow by 73% over the next 20 years and, according to PRD Research, will show an average annual rise of 2.6%. It has great investment potential.

And that, my friend… is why I believe that the best place in Australia to invest in property is the Gold Coast and Northern Queensland hotspots.

Reality Check
One of the secrets of property investing is not to buy into up-market or highly expensive developments. Medium priced projects offer much greater potential for stable tenancies and percentage capital gains.
I am convinced that the Gold Coast has exceptional potential and still looks cheap. Some clients do find the Gold Coast a little above budget, so we have spent time sourcing some wonderful opportunities further north.
I do not believe in investing into many of the popular regional areas… these are often popular just on the basis of attractive cash flow but I have unearthed some fantastic opportunities in Northern Queensland… Cairns, Townsville & Hervey Bay… all with affordable prices and very generous rental yields!  Among other attractions… these opportunities exist near some of the best beaches in the world… I believe they will deliver what we are all looking for – namely, great capital growth!

Question: Why is it so important to get the finance structuring right?

Answer: Structuring the way you borrow is just marginally less important than buying the right investment property.

Let me give you an example…

One of my clients has bought 3 investment properties from me, but decided to look after the loan process through the bank they had used in the past.

They came across the following problem: The bank manager didn’t understand how to structure their finances to invest in multiple properties.

Now they are in a position where they will have to pay thousands of dollars in penalties to get out of the structure they are currently in.

A bank manager or mortgage broker who does not work with property investors, may not comprehend how to structure your affairs… to work most effectively for you

Question: Is the real estate game over? Can I still make money in property?

Here are a few questions that may help you answer this question for yourself:

1.    Can you imagine people preferring to start sleeping in tents, by the fire… or without a roof over their heads?
2.    Can you imagine technology producing a ‘new invention’ to allow us to manufacture unlimited amounts of cheap, vacant land near busy metropolitan areas?
3.    Can you imagine a time when people stop having children?

Think about it. Do you really think people will ever stop investing in real estate? Do you think there will ever come a time when people won’t desire financial independence? Of course not.

Sure… the market may fluctuate over the years. But real estate is more stable than any other form of investment (consider the share market, going into business, etc).

The key to success is sticking around long enough to see the rewards. Too many people invest in one property only to sell it in under 7 years (about 50%).

Historically, real estate (in the areas I am involved in) grows at 10% to 11% a year (on average); which means it doubles every 6 or 7 years. The bottom line is your success comes down to…

Not picking the right time – but staying in it for a long time

Question: Do you offer ongoing mentoring and support?

I certainly do. You are more than welcome to call me on (07) 5580 8888 or 0414 694 337 at any time, and with any questions. If you need help with anything from financing to managing the cashflow to accounting and legal structures I have the a network of people that I can provide you contact information for. Alternatively, you are more than welcome to use your own contacts.

Question: Do property prices ever fall?

Defninetely! Beware of anybody who tells you they don’t because they don’t know what they’re on about. Property prices go up and down and are based on the same law that all investments are based upon:

Supply and Demand

For instance, when there is a strong desire for property owners to sell quickly… obviously prices will drop.

And when everybody wants to buy in a particular area… then property prices will rise.

The good news is the property market is not as fragile as some other markets. Yes… sometimes the prices will drop a little for a short time… but they often tend to stabilise quite fast.

And if you are in it for the long term, then it won’t have much of an effect on you.

There’s 2 things you need to be aware of:

1. Every property that I recommend is an average property in an average area. This means your property will appeal to the maximum amount of tenants.

2. You need to make sure you don’t invest in oversupplied areas. For instance, there was a large development in Melbourne where hundreds of units were sold to investors. All of a sudden a flood of investment properties hit the market. More investment properties, in fact, than there were tenants. This means a tenant can name their own price.

When I recommend a development, it is because I have already completed the essential research to ensure the property is in an area in high demand with limited supply.

Question: Does it cost anything to use mrd services? How do you get paid? And if everything you do makes so much money, why would you bother to show anyone?

Australia has become all too familiar with the ‘wealth creation property seminars’ of recent years… where you could end up shelling out 2, 3, 5, 10 or up to $15 thousand dollars for a weekend seminar. It’s ridiculous, because in many cases…

The person selling the mining tools makes more money than the person doing the mining

My commitment is to keep education FREE. That’s right; it doesn’t cost you a cent to be mentored by me!

Obviously, I’ve got to earn a living and to do this I’ve created a 3 way win-win system:

1.    I provide you with free information.

2.    As a result of this free information, you may decide it’s a good idea to invest in the properties I have researched and approved. This creates a volume of sales for the developer.

3.    Consequently, the developer has money in their budget to reward mrd for any successful settlements. mrd collects a success fee.

That’s how I pay for overheads and earn an income to show the bank I earn enough money to invest in more property. This allows me to continue building my portfolio and… walking the talk.

Call Me Now On or (07) 5580 8888 with any further questions
or to get started on your road to wealth through property investment