mrd

• How And Why Do Valuations Vary?
• What makes you different from other real estate companies?
• I’d like to invest in a property, but I don’t have a deposit. What can I do?
• With no spare cash, how can I afford the cost of getting an investment property up and running?
• It’s important to understand that there are different types of debt
• Why is it so important to get the finance structuring right?
• What if interest rates rise?
• What if negative gearing is abolished?
• What are the risks of tenants damaging my property?
• Can I still make money in property?
• Do property prices ever fall?
• Do you offer ongoing mentoring and support?
• If the service is free to clients, how do you earn your money?

How And Why Do Valuations Vary?

Property Point Dexter answers some regularly asked questions on valuations. How and why do valuations vary?

For example, a bank’s valuation versus the figure an independent valuer gives the same property? Valuation is not an exact science, it is an opinion based on information available and market conditions as at a particular date in time. By way of example, a property has a value within a price range and depending on the valuers opinion. Generally they will assess its value somewhere within that range with rationale for same, so it is not surprising that you will get differences of opinion, typically, these differences should be around 10 per cent.

>>> Property Point Dexter – Oct 20, 2009.

What makes you different from other real estate companies?

So many things, but here are four clear positive differences:

• We’re not in the business of selling properties.  Property is simply the vehicle we use to help our clients increase their personal wealth.
• We believe in sharing valuable insight, enabling people to make their own, informed decisions, even if they decide not to buy through mrd.
• We select specific developments which have the best potential to maximise rental return and capital growth.  We turn down many, many more developments than we include on our stocklist.
• We put our own money into the investments we recommend.

I’d like to invest in a property, but I don’t have a deposit. What can I do?

If you have equity in your own home, you can use this instead of cash, as a temporary deposit.  As the value of your investment increases, the need for your other equity is diminished.

With no spare cash, how can I afford the cost of getting an investment property up and running?

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.  As your mentor, I can show you how to manage any cash-flow shortfall so that it has no impact on your current disposable income.
Isn’t debt a bad thing?

It’s important to understand that there are different types of debt

Three types of Debt:

• Bad debt is a loan used to purchase things that depreciate such as cars, furniture, white goods, and which incur no tax deductions.
• Tolerable debt refers to the type of debt we incur when purchasing an item that appreciates in value but offers no tax relief.  The family home falls into this category.
• Productive 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 used wisely, debt is a powerful tool that can create wealth.

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

Structuring the way you borrow is only marginally less important than buying the right investment property.  Let me give you an example.  One of my clients has bought three investment properties from me, but decided to look after the loan process through the bank they had used in the past.  The bank manager didn’t understand how to structure their finances to cater for multiple investments, so now they will have to pay thousands of dollars in penalties to free themselves to buy further properties.

What if interest rates rise?

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, in this case, your tenant.  Alternatively, you can fix the interest rates to ensure you can budget successfully and insulate yourself against any possible rises.

What if negative gearing is abolished?

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 will 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.

What are the risks of tenants damaging my property?

I can safely say that it has never happened to me, nor to my knowledge to any mrd client, but this is how you can cover yourself:

• Take out landlords’ protection insurance, which is usually less than $250 per year (it’s low cost because there are so few bad tenants).
• Select your tenants wisely.

With very few exceptions, I only get involved with brand new property (to maximise the depreciation benefits), in suburbs that attract quality tenants.

Can I still make money in property?

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

• Can you imagine people preferring to sleep in tents or without a roof over their heads?
• Can you imagine technology producing a ‘new invention’ to allow us to manufacture unlimited amounts of cheap, vacant land near busy metropolitan areas?
• 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.  The key to success is sticking around long enough to see the rewards.

Do property prices ever fall?

Property prices go up and down depending on supply and demand.  If property owners need to sell quickly, prices drop.  If everybody wants to buy in a particular area, prices rise.  The good news is the property market is not as fragile as some other markets and you can minimise the effect of a downturn by investing for the long term.  Other safeguards:

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

Do you offer ongoing mentoring and support?

You are more than welcome to call us on (07) 5580 8888 at any time, and with any questions. We can also put you in touch with professional advisers.

If the service is free to clients, how do you earn your money?

I’ve created a three-way win-win system:

• I provide you with free information.
• 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.
• 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 so it goes round.