Do you remember when the GST was introduced into Australia? It was July 2000. Since then, most working singles and couples could have managed to secure (at least) half a dozen well researched residential investment properties. If you did this; congratulations! No doubt, with falling interest rates and a seriously growing housing shortage… the global slowdown would be delivering you more benefits than challenges right now!

Reaction is all too common! Why wait for drastic times to push us to those “drastic measures” that the politicians keep spruiking?

Doesn’t it make more sense to conduct our financial affairs during the good times in preparation for those drastic times… that always find us sooner or later?

Now while we can’t change the past, it is unwise… perhaps irresponsible… not to learn from it!

• Wealth gives financial options… to work or not; full time or part time
• Wealth allows a family to capitalise their expenses through the leaner times, should that be necessary
• Wealth allows you the luxury to assist an aged parent or take your children travelling and broaden their horizons in life
• Put simply, wealth will allow the construction of a “force field” around your family so that when (not if) financial pressures come your way, they are found to be impotent and ineffective… as far as you and your family are concerned anyway
• Wealth allows you to take advantage of opportunities when they present

No!!! It is not drastic times that call for drastic measures; but life itself!

Sooner or later, LIFE calls for drastic measures. Therefore, until you have created your security and made provision to “pay for the rest of what your life will cost”… you should (1) have a workable plan and (2) be working that plan. So let me ask… are you?

You Have A Duty Of Care!

We get up each day and go through our routine, join the “rat race” and head to work! Why? To earn a living! Let’s not deceive ourselves… earning a living will never on its own deliver us lifestyle.

Unless you are doing something on the side; i.e. separate to your job… like kicking off your part time business, writing the songs that will form your first CD, working on securing a patent for your invention before taking it to market… or perhaps leveraging off what you already have to increase your asset base… you are derelict in your financial “duty of care”… and it is certain that lifestyle with cashflow (as opposed to debt) will never be your experience.

Yes!!! We first need to earn a living, but if that is all we are doing… if we are not simultaneously creating tomorrow’s lifestyle… we (absolutely) will be disappointed! It’s not a matter of if, rather when! Some people’s neglect catches up with them sooner, while others later. Either way, sooner or later our neglect will catch up with us. Hopefully when it does, there will still be time to do something about it.

While we have no choice but to endure pain at some time, we do have a say in which pain we will endure. Which have you decided upon?

1. The pain of discipline now, for a season
2. The pain of regret later, for the remainder of your life

Each and every day; in both the good times and bad… we should be doing something to take us a step closer to the realisation of our dreams and goals.

Don’t wait for ‘your ship to come in’. You began constructing it long ago already, piece by piece… and right beneath your feet. Truly talented musicians and sportspeople endured the pain of discipline for years and years before there ever was a hint that success was heading their way. Day in and day out, little by little… they did “something” to take them closer to their goal. Remember that it takes years to create an “overnight success”.

In an interview, one Australian Olympic swimmer said he never missed a training session. This was so that when he stepped up on the starting block he would know that he had done everything absolutely possible to be the best athlete that he could be. Whether tired or full of energy, whether the water was cold or warm or whether or not he felt like it… he did something towards his goals every day.

Constant and Unrelenting Action

Any worthwhile endeavour will require constant and unrelenting action. Taking great financial care of your family is not all they need from you… but is very, very necessary all the same. Let’s face it… the alternative is not worth considering.

Subprime, Fannie Mae, Freddie Mac, Global Credit Crisis, Recession, unemployment and so on and on! These words are not valid excuses for taking time off. Like the swimmer… rain, hail or shine… he swam. Making forward progress is sometimes quite easy and other times it’s really, really hard… but it’s always necessary.

There are times when it is prudent to conserve your financial resources while you seek out new opportunities… there are times when it is most prudent to step out and take action. For some it is now a time to consolidate. For others it is a time to move forward. Whatever choices we make on a daily basis, they ought to be carefully and responsibly considered responses to both our goals and circumstances… not a reaction to fear, uncertainty and confusion.

The important thing is to constantly do something towards your goals.

• Clearly define your goals
• Be real! If you are not prepared to fight for a goal… it isn’t really one at all
• Know your income(s) and expenditure
• Know where your money is being spent
• Identify wasteful and unnecessary leakage
• Get a financial health check
• Fine tune your cash flow structure
• Have your finances assessed to see what resources you currently have
• Learn all you can about your chosen strategy [did you catch that one?]
• Look for ways to overcome your next hurdle
• Remain focused and don’t get distracted

Remember, the financial “ship” that will keep your family afloat is being built piece by piece beneath you… and by you!

Regardless of where you are on your journey; just getting started or well on your way… discipline yourself daily to make some forward progress.

Walking the Talk

Each of the 8 members of the mrd team are doing just this. Our youngest team member’s daily activity includes learning and saving for a first deposit. Now is not the best time for him to buy, but he is doing something! Every admin person, including our part time bookkeeper has either settled an investment property with mrd or is unconditionally contracted to do so. All are looking beyond their next purchase and planning more.

Then there is Martin’s example. Martin set a goal to become a property multi-millionaire when he was 50. On a daily basis he then steadily progressed towards that end and at 58 years of age he retired (sort of like an Olympic achievement… considering how little he had in his favour at the age of 50). Today Martin works as an mrd Property Mentor on a part time basis… and by choice. He does not need the income as much as the involvement in helping others do likewise. If you have not spoken with Martin and had him tell you of his journey, maybe you should. Doing so would constitute as “doing something“… and cost you nothing.

If small doable, daily actions become a part of your routine… what now appears as a hopeful horizon may soon become your experienced reality! That’s when you will start to hear over and over again… people telling you how “lucky” you are.

Our Customer Care Program will work for you… because investing is personal. Don’t be afraid to ask for our help… thinking it will somehow be taken as a license to sell you something. That is so far from the mrd DNA, it’s laughable. We will assist you on your journey from where you are to where you want to go. We will do so respectfully and responsibly and at all times empowering you to make your own fully informed decisions. Personally, I think you should have a chat with Martin and ask him to assist you with an mrd “Finance Structure and Cashflow Health Check”. This is Step 1; the diagnosis phase… from where changes can be made to possibly assist you to:

• Pay off your mortgage sooner
• Eliminate horrible debt faster
• Legitimately reduce the amount of tax you are paying
• Do away with unnecessary property record keeping
• Keep your accountant’s charges to a minimum
• Set real (and achievable) goals
• Define a track to run on… so you are not derailed along the way

To take advantage of this no obligation, complimentary offer from mrd you will need to complete a Borrowing Capacity Assessment form. NB: While you may not be looking to borrow money at this time, the information gathered on this form is nevertheless essential before we can conduct a “Finance Structure and Cashflow Health Check”.

• To complete the BCA form, please click here
• To send a message to Martin, along with your details to have him contact you, please click here

CONGRATULATIONS; you have now finished reading this article; what next piece of your “ship” are you now going away to construct?

Happy Investing,

Nick Lockhart

mrd customer care program… because investing is personal

The best thing we can do with a problem is rename it! It’s not a problem, it’s a “challenge”… and with every challenge comes an opportunity to grow!

“Those who remain flexible rarely get bent out of shape”!

When Katrina and I settled our last property purchase we were without a tenant for almost 4 weeks! Given the housing shortage, we were very surprised.

So why did it take that long for us to secure a tenant?

Probably a combination of:

• Just an aberration at that time
• A result of the global economic downturn
• Reaction to the frenzy the media has whipped up by those who can move back home with mum & dad… or share accommodation when they would normally live separately

Whatever the reason, it doesn’t really matter.

Those few weeks seemed to go on forever. Looking back, they actually passed quickly and the “challenge” we faced was nothing more than a glitch in yet another successful attempt to convince a bank to let us leverage into another appreciating asset; using their money rather than ours!

Finding A Tenant

So what did we do to ensure we secured a tenant?

We did what any self respecting new vendor would do when he/she did not secure a tenant quickly… we dropped the rent! Twice!

You what???

We dropped the rent we were asking twice! If we are going to make a success of our financial position over time… then it is a given that we are going to have to stay fluid… or remain flexible. It is imperative that we meet the market where it is.

OK, I admit that the events of the past 18 or so months have seen real estate prices and rents soften a little in many places… but the overwhelming reality over many decades has been and will continue to be that prices rise. Property prices and rents will double again over the next property cycle… so why sweat the small stuff?

Six months before we settled the rental market would have paid more to lease our new purchase. However by the time we settled, not only did we have to accept less weekly rent, we had to absorb a few weeks of no rent.

Was I worried?

Like anyone who has just settled a property I wanted a tenant ASAP; but no I wasn’t worried. I saw my empty property as a challenge that needed addressing, so we did and “problem” fixed.

Had we secured a tenant from day 1 and for the higher/expected rental figure and had interest rates still been where they were six months earlier, we would have been (significantly) worse off  anyway. The saving we made with greatly reduced interest rates has left us a lot better off.

Don’t freak out if your tenant moves out and you property manager suggests you may need to reduce the rent to “meet the market”. While it is not common; sometimes prices move down temporarily… even though they are trending up. This is all part of normal cycles and adds argument to why we promote a set ‘n’ forget… for busy people approach to property investing. With the ‘buy & hold’ strategy a dip in values will only affect my ability to borrow as much again, in the short term. It will not impact on me, however, in any significant way at all.

So, Am I Better Off Now Than I Was 6 Months Ago… Even Though I Am Collecting Less Rent Now Than I Was Then?

Absolutely! An investor with a $350,000 mortgage pays $215 a week less in interest payments than they did six months ago… so even if they take $20 or $30 a week less in rent they are still ahead by a country mile! In our case we paid a lot more than $350,000, so our savings are even greater!

Add to that the expected capital growth over time.  If a property worth $350,000 doubles in 8 years for example, it will average $840 a week in growth.

Why would I be concerned about losing $20 or $30 a week for 6 or 12 months?

I guess my message here is to say that in the process of wealth creation:

• Don’t sweat the small stuff
• Remain flexible (and don’t get bent out of shape if something doesn’t go exactlty to plan)
• Meet the market where it is
• Understand the BIG picture
• Buy to hold
• Don’t be alarmed if your properties attract marginally less rent for a season. The savings you have had in interest more than compensate for this many times over!

Send us your property investment questions (and or requests) by replying to this article (blog), below.

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

In the RBA’s Statement on Monetary Policy released today, the RBA concluded (p33): “After falling modestly in 2008, nationwide housing prices were little changed in early 2009, although there is some variation in the range of available measures that use different techniques to control for changes in the composition of property transactions (Table 10).”

In Table 10, the RBA shows five different measures of house price changes in the March 2009 quarter.

Four of those measures – from APM, which uses a stratified median price index, and my company, RP Data-Rismark, which uses an hedonic regression technique – were positive or flat across Australia while one, the ABS’s stratified median price index (the one that the media has focused on), was down strongly.

The ABS’s index data does not sit well with the RBA’s conclusion that “nationwide housing prices were little changed in early 2009”.

>>> Business Spectator – The RBA’s view on house prices – Blog – Christopher Joye.

High levels of immigration are fuelling record population growth.  

Australia’s headcount increased by almost 400,000 last year to 21.5 million, fresh data from the Australian Bureau of Statistics (ABS) shows. More than half of the new arrivals, or just over 230,000 people, were immigrants. The rest were babies born in Australia. The federal government this week moved to reduce immigration, cutting the skilled migrant intake by 14 per cent in response to the economic crisis.  

The rate at which the population is growing has surged 50 per cent over the last five years. It is now growing at just under two per cent a year. “The last time Australia experienced higher growth rates was in the 50s and 60s as a result of post war migration and high birth rates,” the ABS said in a statement.  

Western Australia and Queensland attracted the most new people in the year to September 2008. Tasmania was spurned.

For people moving within Australia, Queensland was the mecca, while people from NSW appeared keen to leave their state.

Cathy Alexander, Sydney Morning Herald

March 18, 2009

Australia experiences high population growth: Australian Bureau of Statistics (ABS)

Australia is continuing to record high population growth, according to figures released today by the ABS.

A total population growth rate of 1.8% was recorded for the year ending September 2008, up from the 1.2% recorded five years ago. The last time Australia experienced higher growth rates was in the 50’s and 60’s (above 2%) as a result of post war migration and high birth rates.

As at 30 September 2008, Australia’s population had grown to 21,542,000 an increase of 389,000 people over the previous year. Australia’s net overseas migration contributed to more than half of this growth at 61% or 235,900 people. Natural increase (the excess of births over deaths) contributed 153,400 (39%).

In the same period, Western Australia continues to record the fastest population growth at 2.9%, followed by Queensland (2.5%), the Northern Territory (2.2%), Victoria (1.8%), the Australian Capital Territory (1.4%), New South Wales (1.3%), South Australia (1.1%) and Tasmania (0.9%).

Queensland and Western Australia received the most people from net interstate migration, gaining 22,700 and 5,600 people respectively from the other states and territories. The states that lost the most people to interstate migration include New South Wales (down 22,400), South Australia (down 4,700) and Victoria (down 2,400).

In ancient Greece Socrates (469 – 399 BC) was widely lauded for his wisdom.  One day the great philosopher came upon an acquaintance who ran up to him excitedly and said, “Socrates, do you know what I just heard about Plato, one of your students?”

“Wait a moment,” Socrates replied.  “Before you tell me I’d like you to pass a little test.  It’s called the Triple Filter Test.”

“Triple filter?”

“That’s right,” Socrates continued.  “Before you talk to me about my student let’s take a moment to filter what you’re going to say.  The first filter is Truth.  Have you made absolutely sure that what you are about to tell me is true?”

“No,” the man said, “actually I just heard about it and…”

“All right,” said Socrates.  “So you don’t really know if it’s true or not.  Now let’s try the second filter, the filter of Goodness.  Is what you are about to tell me about my student something good?”

“No, on the contrary…”

“So,” Socrates continued, “you want to tell me something bad about him, even though you’re not certain it’s true?”

The man shrugged, a little embarrassed.

Socrates continued.  “You may still pass the test though, because there is a third filter – the filter of Usefulness.  Is what you want to tell me about my student going to be useful to me?”

“No, not really”

Well,” concluded Socrates, “if what you want to tell me is neither True nor Good nor even Useful, why tell it to me at all?”

The man was defeated and ashamed. This is the reason Socrates was a great philosopher and held in such high esteem.

In the current round of Web Seminars we are offering, I highlight four key factors that are a MUST… if you expect to draw any credible conclusions.

1.    Record Population Growth
2.    Investors Have Fled The Market
3.    Home Ownership Unattractive
4.    New Construction Has Stalled Badly

1. RECORD POPULATION GROWTH

Australia is currently experiencing the fastest population growth in 200 years. Our population is predicted to grow by 350,000 this year for the first time in over 200 years. That represents approximately the combined total population of Geelong, Cairns & Bunbury; or the whole of Canberra.

The 1850’s Gold Rush years, Post World War 1 (1919 onwards) and post World War 2 (1946 onwards) saw our 3 previous population explosions. Today we see a similar pattern emerging; i.e. rapid and prolonged growth, too few workers and pro-immigration government policies.

Record population growth means a significantly stronger demand for new housing! Given our record numbers of new migrants will generally rent for a season, demand for rental properties will continue to strengthen.

2. INVESTORS HAVE FLED THE MARKET

Rising interest rates in recent years have squeezed rental yields making property look unaffordable. Add to the mix a booming stock market (averaged over 20% per year between 2004 and 2007) and one can see why property has not been the preferred investment vehicle of recent years.

Since becoming familiar with the term “subprime”, seeing the global credit crisis unfold… and hearing of property values in the US & UK falling by 30 & 40%, many would-be-investors have opted to stay on “strike”. It’s fair to say that since the highs of mid 2004 only the ‘brave’ have continued to invest in property.

Investor demand accounts for about 50% of all new housing starts and about 70% of unit starts. Therefore, that investors have fled the market means significant negative impact on the supply of new housing and increased demand on existing rental accommodation.

3. HOME OWNERSHIP HAS BEEN UNATTRACTIVE

As with investors. the housing affordability barrier, rising interest rates (& general living costs) and of course the US initiated subprime crisis has left many would-be home owners lacking the confidence to purchase.

Scared, priced out of the market, unable to secure funding or unable to service a loan? regardless of the reason why new home ownership has been unattractive; the result has been that many renters in recent years have simply continued to rent. This has placed further pressure on existing rental housing stock

4. NEW CONSTRUCTION HAS STALLED BADLY

Since 2005 the absolute number of completed residential properties has fallen and they are forecast to continue falling in 2009. The US subprime crisis cemented this downward trend in demand for new properties. Add to that, in recent years we have seen the high profile bankruptcy of some large developers along with massive financial pressure on many smaller developers. The cost of finance has skyrocketed for developers… i.e. if they can find a lender who will back them. Understandably, developers are very nervous… many have simply shelved their new projects until such time as they see clear evidence that investors have returned to the market.

Developers going broke, developers shelving projects and/or developers unable to secure funding means new construction has stalled badly and as a result greatly reduced the supply of new property further adding to pressures on existing housing stocks.

DISSECTING THE EVIDENCE

• FACT: We are experiencing the greatest housing shortage in 200 years
• FACT: Because of the new Federal Government’s immigration policy, we are experiencing the strongest population growth in 200 years
• FACT: Since about mid 2004, broadly speaking investors have fled the market
• FACT: Since about mid 2004, broadly speaking home ownership has remained unattractive and renters have continued renting
• FACT: Since about mid 2004 the construction of new dwellings has stalled badly
• FACT: In mid 2004, national rental vacancy levels were about 3.5%. This level is considered a balanced market. Rental vacancy levels have dropped to below 1.5% now and are expected to continue to drop to historical lows of between 0.5% and 1% in 2009. These levels represent a stressed market
• FACT: When the demand for rental housing grows at a faster pace than supply, increased demand can be offset by diminishing vacancy levels
• FACT: When vacancy levels reach just 1% it is said that we have NO VACANCY, as the 1% represents the few days between tenants moving and carpets being cleaned etc… prior to a new tenant moving in
• FACT: Therefore, once vacancy levels fall to 1%… there is no room left to offset increasing demand by diminishing vacancy levels
• FACT: When demand increases and supply decreases and vacancy levels are already stressed; i.e. no vacancy… market forces mean rents have to go up… and significantly where population growth is significant
• FACT: Interest rates are the lowest they have been in years and are expected to reach (near) record lows by mid 2009

Now you have the FACTS, rather than simply “opinions”; may I suggest you draw your own conclusions as to what might happen with Australian property in mid to late 2009?

• With the cost of renting about to soar and the cost of ownership dropping significantly (i.e. rental incomes up and interest charges down), what do you expect the market will do?
• With stock market volatility and uncertainty and interest earned on cash deposited dropping away, what do you expect the market will do?
• With serious increases to the first home owners grant, what do you expect this group to do?
• Given rental properties vacated by first home owners will not produce a glut… because vacancy levels are at an all time low (stressed market) and the population is growing by the size of Canberra each year, what do you think the market will do?

Can I go out on a limb and tell you what I think; I may be wrong, but I don’t think I am?

1. I expect rents to soar in 2009
2. I expect interest rates to continue to drop next month and in 2009
3. I expect confidence to come back to the market, drawing back owners and renters alike
4. Given there is a lag of a few years from when developers decide to build again and new stock being ready to live in… I see no relief for the poor tenant for at least a few years
5. I also believe that the combination of all that I have just outlined will result in the next property price surge

So, in summary…

Those who have been building a property portfolio as their preferred vehicle for funding their retirements (NB: assuming they bought the right residential property in the right areas) are soon going to experience the property investors trifecta:

1. Rising incomes (rents)
2. Falling costs (interest)
3. Increasing equity (values)

I would love to address the subject “We are not the USA” and compare the FACTS relating to how we are different and why what happened there will not happen here; but I will save that for another day.

May I invite you to register your interest for either our next FREE Web Seminar this Wednesday evening… or if you let us know what other time(s) best work for you, we will run them according to demand CLICK HERE.

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

Over the past year, average weekly rents in many capital cities have increased by more than 10% and this trend is likely to continue due to this decline in property investment. “Investment in property has declined due to the growing economic uncertainty being caused by the global financial crisis. However, the good news for existing property investors is that they should receive rising rents while at the same time mortgage repayments will decline due to falling interest rates.”

Have you ever wondered why the things that evoke the most passion or emotion in us… are usually known by four-letter words? Some of these include love, hate, fear, work and of course… Golf! Another emotion-charged four-lettered word that causes most of us to break into a sweat… is DEBT!!!

Mostly, we are conditioned to fear debt and avoid it at all cost. So why does debt propel one family to great riches… and another to poverty? How come the majority of wealthy people quite adequately manage large amounts of debt? Can debt be a positive thing to help us get ahead… or is it always a negative thing to be avoided? Before we can accurately answer this, we need to clarify our definition of debt!

The same single word… debt, can be used to describe three very different borrowing strategies.

Over the next three Fridays, let’s look these three different types of debt… and once and for all dispel any confusion surrounding this subject.

HORRIBLE DEBT (Type 1 of 3)

Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Charles Dickens (Wilkins Micawber in David Copperfield. Chap. xii.)

HORRIBLE DEBT is the type of debt we enter into to buy things that depreciate (go down in value) and attract no tax deduction for having made the purchase.

This is the type of debt that we should ‘run and hide’ from! Horrible Debt, typically credit card or consumer debt is what the masses enter into every day… usually without a second thought! It was Horrible Debt that kept Wilkins Micawber in poverty… at least until he finally came to his senses!

Of course we must spend money to buy clothes, food, petrol, children’s education and so on… but just maybe… we should consider delaying the purchase of that wide screen plasma television, or the new lounge suite that we so desperately need (want)… until we can pay cash!

HORRIBLE DEBT is habit forming. If you are susceptible to this sort of debt… look back over your spending habits and notice the expenditure pattern and debt levels on your credit card. There is often a level people will continue to reach because they are comfortable with it… it’s all part of the Horrible Debt habit!

There are a lot of people who only clean up their credit cards when they get a bonus or maybe from the proceeds of selling something, like the family home. Because they have a debt habit it won’t be very long before the old levels are reached again!

HORRIBLE DEBT is debt that will keep people poor! Ask Mr. Micawber! The least amount of Horrible Debt we take on… the better!!

Over the next two weeks let’s dispel the myth that all debt is bad… and discover how if properly managed; debt is a vital part of most people’s journey towards financial security and independence.

Happy Investing,

Nick Lockhart

Time used unwisely and spent without thought will make you a pauper and leave you with naught, but time that’s well spent will stitch upon stitch weave memories and dreams that will make your life rich.

Time is money, as they say. But yet many whittle away the hours without thinking of the value that has been cast away with every second. This does not mean that we should work each and every hour of the day. There needs to be an investment of time in leisure, fitness, relationships, further education and at times in doing absolutely nothing. Learn to say ‘no’ to the good in order to say ‘yes’ to the best. Invest in what is best for you and your life. Take time to smell the roses at times. When you work, work with all your heart and when you play, play with all your soul.

Happy Investing,

Nick Lockhart