A real life example of how investing has worked for us and can for you too…

Here is the HOW:

It is important to look at property investing, or investing of any sort for that matter, as a business. If you treat it as a hobby you will get hobby results.

An investment property is a stand alone, self managed business. Every business has overheads but before you or I enter into a business we would want to be confident that the returns from that business were considerably greater than the overheads.

I will give you an example of one of our previous property investment to demonstrate what we also expect to achieve from these latest two properties in the Robina area.

In 2003, at the height of the last boom, we looked at purchasing a property at Burleigh on the Gold Coast. If we had had a short investment timeframe in mind it would not have been a particularly good time to purchase property, as it was a strong sellers market and competition was fierce. Having a long term mindset, however, we went ahead and attempted to secure the necessary funding… but the bank said NO!!! We were short on equity.

Fortunately, my brother came to our aid and allowed us to borrow some of his equity to secure the loan; thus the banks were happy. 18 months later, even though the media said the boom had ended, valuations had grown enough to allow us to release his equity… and the property stood alone supporting the entire $415,000 we borrowed!

We had paid $395,000 (not our money) plus purchase costs, making a total of $412,000. We borrowed $415,000, which left us with a $3,000 slush fund to offset some of the initial ongoing shortfall (our only real cost). Generally I would like to have had more reserve than that but my knowledge and skills underpinned my confidence, allowing us to sleep at night (Set ‘n’ Forget).

Here is the WHY:

Today that property is worth $650,000 and is permanently rented at $505 a week. All up, our costs to hold this investment are about $30,000 a year. With over $26,000 in rental income and tax savings through depreciation, it is now virtually a neutral cash flow investment. Of course we are very happy with what we have achieved so far… but we are really excited about the next doubling cycle. Let me explain…

In the next doubling cycle the property value will grow to $1,300,000 ($650,000 x 2). That will leave us with almost $900,000 in unused equity! It gets better, when rents double we will be paid $1,000/wk (or $52,000 a year), leaving us with $20,000 net cash flow available to fund lifestyle, property maintenance or anything my wife chooses!

Back To Our Latest Two Purchases:

So we initially supported our investment property because looking long term it will never stop supporting us. We are very confident of all our investments and have seen the same as above on numerous occasions. We believe our latest two Robina properties have the potential to outperform all the others… and we now have enough equity to draw against to meet their negative cashflow. You see, Katrina and I no longer need to worry about finding cashflow to meet the shortfall on our new property purchases because we now have the equity to draw upon (created “out of thin air” because of our earlier purchases); i.e. we capitalise the shortfall. This allows us to continue to sleep well… or “Set ‘n’ Forget”.

The Key – Research, research, research!

The worth of a thing today and into the future always comes down to supply and demand.

Land for houses is gone and Robina only has capacity for about 900 to 1,000 residential apartments, which will be constructed over the next 5 yrs – then they are all gone too!

Robina Land Corporation (RLC) alone is building over 100,000 sq metres of commercial floor space over the next 5 yrs

Queensland Investment Commission, who owns the Robina Town Centre (and only build commercial) is currently spending $350m expanding the Town Centre (already underway) and has plans to develop a brand new $200m business park in Robina; that’s just what we know of

Local & State Governments are also making noises of moves into Robina, bringing thousands of new jobs

Myer have announced they will be a part of the Robina Town Centre expansion (alongside David Jones who are already there)

15 to 20 square meters of new commercial office space equates to one new job; therefore just with RLC commercial development alone, there are between 5,000 to 7,000 new jobs being created over next 5 yrs.

These 5,000 – 7,000 plus new jobs represent families who will need to live and shop within the local area… yet there is only room for 900 to 1,000 more apartments

Well in excess of $1.03 Billion of private and government infrastructure is being built or planned (new hospital, rail extension, Bus interchange, Titans football stadium, etc, etc)

This infrastructure development will reinforce Robina as the business centre of the Gold Coast

If you stand back and look at it, it is obvious to me that there are many thousands of people being drawn to this relatively small area yet there is a very limited supply of land for them to reside, shop, work and socialise. Although I cannot predict the future I can clearly see that the supply and demand equation is weighted heavily in my favour.

This all looks great; however, before Katrina and I leapt into these latest two new investments we needed to know that I could still sleep at night. I needed to know that I not only had the equity and serviceability to purchase these properties but also the ability to hold the properties long term.

The strategy is so great I need to say it again…

WE DO NOT PAY OUR PROPERTY SHORTFALL FROM MY CASHFLOW… IF WE HAD TO DO SO, THERE WOULD BE NO WAY WE WOULD BE ABLE TO HANG ONTO THEM; and we would miss out on the huge capital growth we are expecting them to deliver (soon). It is still “Set ‘n’ Forget” and we still have no trouble sleeping at night; yes… even in the midst of such negative press and economic uncertainty!

Our strategy of using a portion of our available equity to manage our ongoing weekly shortfall allows us to not (personally) support these properties. Initially this was not an option but our portfolio is quite capable of looking after itself now. It is building equity many times faster than the small amounts needed to maintain the property cash flows.

IMPORTANT DISCLAIMER:

Please do not take our story or our example as financial advice; I am not able to do that in an open forum. I have written this as an actual example of how the we employ a “Set ‘n’ Forget” strategy that has worked for us. My goal is to challenge the mindsets and paradigms that traditionally keep the masses broke. In my opinion, it’s not a lack of opportunity but a lack of knowledge that stands between people and their goals.

If you would like to discuss any aspect of our strategy with me one on one (which I am fully qualified to do), of course I am happy to speak with you (phone or email).

Happy Investing,

Nick Lockhart

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