Robert Kiyosaki in his book ‘The Cashflow Quadrant’ says a Business Owner has developed systems that ensure revenue is not limited to the owner’s personal exertion. Where such systems have not been established, an owner is generally tied to the business. A more accurate title for these people is ‘Self Employed’… not business owner. A plumber working for himself is not that different to the plumber who works for someone else. He must get up each morning and put in a day’s work to receive a day’s pay. Begin now to see Property Investing As A Home Based Business, rather than an adjunct to your job or a second job.

We go into business to make a profit; hopefully anyway. My wife tells the story of when her mum & step father sold up and left Sydney and headed north to Boonah (in Queensland) and purchased a dairy farm. Their motivation was their love for animals. They made emotional rather than sound commercial decisions when buying equipment or caring for sick animals etc. The result was that they sold their farm within the space of a short time… but not before losing a lot of money.

We have developed a system around how we build and manage a property portfolio … more. It is this system that we teach and call “Set ‘n’ Forget”… for busy people™…more. Our belief is that property investing ought to be a vehicle that will allow you to achieve your financial goals, without suffering any significant negative impact on your time or money. Some common sense and logic will need to be employed, however.

There are numerous steps, checks and balances we suggest; none are hard to understand or implement.

The forces working against investors, that seem to have the strongest hold over them are:

• Lack of understanding
• Fear & emotions

To help people through these (legitimate) concerns, we provide ongoing education; this is part of our Customer Care Program. To this end we have close to 400 property related articles available for you to read on the mrd website. Within these you should find most of what’s needed to get started and stay on track with Property Investing As A Home Based Business.

Today, I am not going to repeat myself by touching on any of the many areas that have previously been addressed; for example:

• Having the Borrowing Capacity … more
• Having the Holding Capacity
• Having the Mental Toughness Capacity
• Undertaking a Finance Structure & Cash Flow Health Check … more
• Ensuring Your Finances Are Set Up Correctly …more
• Understanding the Process of Valuations …more
• The Importance of Research … more
• Where to Buy …more
• Etc

Rather; in driving home the message that as a property investor you are in fact establishing your own home based business, today I am just going to touch on the importance of location and expose a common mistake people make when researching where their next investment purchase should be.

“Set ‘n’ Forget”… for busy people™

When we talk about the mrd “Set ‘n’ Forget”… for busy people™ system of wealth creation, we speak of that which is a core foundational principal… not just a clever slogan. It’s “Set ‘n’ Forget”…for busy people™; not “Set ‘n’ Fiddle”, “Set ‘n’ Sell” or “Set ‘n’ Tinker”. Being able to ‘forget’ about your investment… and get on with life, stacks the odds of great success in your favour. It’s unlikely that you will ever be able to ‘forget’ about your investment if you neglected “the basics” at the outset.

Supply and demand drive capital growth… now and in the future. Are the factors driving demand likely to remain? Is there a chance of oversupply? While logic says everyone wants a property portfolio that’s predictable, stable and delivers results in as trouble free a manner as is possible. Experience tells me, many people are inadvertently setting themselves up for the opposite.

Supply & Demand

Get this one down and you are much of the way there! I look for evidence of:

• A strong inflow of population (demand) to an area
• A limited supply of available land
• Strong infrastructure investment; providing amenities and employment

From time to time we are asked our opinion on the merits (or otherwise) of investing into one town or another. This normally comes about because someone heard a rumour or read somewhere that something special was going to be happening in that place. As an example, I have successfully discouraged some from investing into mining towns. At the time such an investment looked like the most sensible thing a person could do. Growing work force, housing shortage, no end in sight to the mining boom, great cashflow, etc. I would be very concerned to have the strength of my investment underpinned by the board of directors of a mining company. The current global economic slowdown makes my job of “selling” this argument so much easier than it was for me two years ago. But even if there was no slowdown, poor management, poor workplace health & safety practices, a new mine opening elsewhere or the loss of a big contract; for example to name but a few possible “interruptions to an otherwise great business”… you can see that there are many possible triggers for seeing demand drop “overnight” and a situation of undersupply becoming one of oversupply very quickly.

We promote permanently tenanted residential property because regardless of what else may be going on within the economy… everybody needs a roof over their head. Housing in a mining town does not fit that category, however, as most of the workers are only there while they have a job… and if they lose that they are gone quick smart! I call that speculating rather than investing. Great rental returns (questionable long term capital growth) but highly speculative.

“The returns were remarkable but I have continuously warned investors that mining towns are highly volatile and highly cyclical markets. When it goes bad, it goes very, very bad.” Louis Christopher – SQM Research

Horsham | Victoria | 2006

One of our Property Mentors, Doug, visited Horsham in Victoria in 2006. At the time the town was booming, local businesses were thriving and house prices were soaring. Many people were drawn into the town as they secured jobs working on a local infrastructure project; replacing the open canal irrigation with underground pipes. This was a great boost for the local economy.

As you can imagine there were many investors snapping up properties in Horsham, in an attempt to ride this “prosperity wave”. The only thing was that the pipeline project had a limited life; to the end of that year only… after which the many extra workers drawn into the town would leave again. When this happened the dynamics changed overnight and so did the ratio of supply to demand. Horsham survived due to its strong and diverse agricultural industry; nevertheless the boom ended and many investors were left holding houses that they could not find tenants for, nor sell to realise their investment back.

The Horsham situation was actually predictable in advance! There are many towns depending heavily on one particular industry, one particular infrastructure project or worse… one particular company. These towns that lack industry diversity could be accused of having their future prosperity resting on the success or failure of that single industry or company. Think about it, a board room decision could potentially wipe out your investment… as could a change in world markets or government legislation. The same could be said for towns built on other industries as well; such as fishing, shipping, motor vehicle manufacturing and so on.

The majority of mrd clients are mum and dad families with school age children. We aim to make property investing as simple and predictable for them, and us. Such speculating would put their future wealth at risk.

Ravensthorpe | West Australia

Ravensthorpe, in Western Australia, is the town that inspired this article. The local BHP Billiton nickel mine was the fuel that drove this small regional centre into a bustling mining town. A shift in the world price of Nickel saw this town virtually close down overnight. Those who rode this wave by investing into the town were dumped… and many wiped out.

BIS Shrapnel residential property analyst Angie Zigomanis said in a recent Australian Property Investor magazine article: “Most employment growth occurs during the construction phase of mines. With commodity prices down sharply, existing projects will be completed but new ones are unlikely. It might take 1000 people to build and 20 to operate it (a new mine).”

Stay focused on the big picture. In my opinion you need to build a portfolio of new (or near new) properties in areas with a growing population and a limited land supply. You want those areas to have planned infrastructure spending and a diversity of local industry. That’s the starting point… from where we “drill down” into those areas to find those properties that will best fit the mrd “Set ‘n’ Forget”… for busy people™ approach property investing (& wealth creation). The mistake many make is being too short sighted in their research; rather than considering medium to long term demographic changes or trends.

You might be scratching your head, wondering why I am connecting Property Investing with Home Based Businesses. Because it is… and if you approach it with sound judgement; applying care as you would when kicking off any business, you will give yourself the greatest chance of success.

“Nick, I would like mrd to undertake a complimentary, no obligation Financial Structure & Cash Flow Health Check for me” …more

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

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