I want to shake people’s thinking… to see past the “noise” of contradiction.

I want to impress simply and clearly that winds of change ARE blowing.

These winds WILL have a huge impact on you.

Whether for better or worse… is up to you!

You Need To Know

Firstly, you need to understand exactly what’s going on and then… how to responsibly act on that knowledge.

Let’s get into it…

Are You Confused?

• Why are we hearing opposing messages from the Board of the Reserve Bank of Australia (RBA)?

“House prices will be boosted by increased population growth and immigration”- Ric Battellino, RBA Deputy Governor

“The property market is what people should be most worried about at present” – Glenn Stevens, RBA Governor

• Where are interest rates headed?
• What should Australia’s immigration policy be?
• Why is the debate surrounding population growth so intense?
• Why did Kevin Rudd appoint a Population Minister?
• Will housing affordability improve or worsen; can the government really do anything about it?
• How are these issues likely to effect YOUR financial security

This will result in a dramatic increase to the financial burden on this country.

What’s The Solution

The only realistic solution is to increase the number of participants in the workforce.

Doing so will address both the growing skills shortage and the (otherwise lost) government tax revenue… required to meet the growing pressure an ageing society places on budgets.

Not increasing workforce participation would mean increasing the tax burden unreasonably on an ever shrinking workforce.

No government can do this and stay in power.

That financial burden an aging population will impose on us must be spread across a broader workforce than we could arrive at without massive immigration intake.

Like it or not…

Our population is set to explode; it has to!

However…

With massive population growth comes many social, environmental and political challenges.

Road congestion, water shortages, environmental damage, social and cultural tension, pollution, housing, infrastructure… including public transport, hospitals, schools, shopping centres and so on.

Housing Affordability

Some will rent and others will buy… but everybody needs a roof over their head!

The global financial Crisis (GFC) has had a seriously negative effect on the supply of new residential property. While our net overseas migration numbers last year ballooned to 300,000, very little new construction took place. The demand for housing is on the up, up, up… yet the supply of new property is on the down, down, down.

So in my opinion one of the greatest challenges our nation will face into the future will remain housing and housing affordability.

Therefore, I believe the value of a property portfolio you hold today will be revalued significantly higher as these effects take hold. This increased value will represent new wealth… created while you breath.

NB: I qualify that statement by saying well researched residential real estate in areas of limited supply where demand is increasing… close to infrastructure and services (I have covered this topic many times before).

Only with a clear understanding of how the winds of change will blow can you set your sails.

Every year those who compete in the Sydney to Hobart Yacht race leave Sydney harbour and sail to Hobart… even though the wind blows from a different direction from one year to the next… even from one hour to the next.

It is not waiting for a certain wind from a certain direction that determines the success of the journey, rather it is understanding how to set your sails to ride any wind.

Interest Rates

Interest rates changes are like wind changes. When they are going up I benefit and when they are going down I also benefit. I ride all winds. You see, interest rate rises result in more people renting and less properties coming onto the market. That means I get rent rises and the value of my property portfolio goes up too. Then when rates fall my ability to service new loans increases… while my rents stay where they were (NB: There was an exception to this rule last year when the government stimulus included incentives for first home owners to go and buy their own properties; but this was not part of what I would call a normal cyclical pattern).

Before I go further let me again go on the record saying that @ mrd we believe any consideration of debt and investment should ONLY be made in a prudent and responsible way.

Just because something is a good idea… it does not necessarily mean it is a good idea for you. We treat every individual as an individual and dissuade anyone from “biting off more than they can chew”.

The mrd Customer Care Program recognises that… investing is personal!

Consider This

• The winds of change are blowing.
• You cannot remain unaffected by such change.
• Setting your sail will determine whether the wind propels you to your desired destination… or drives you shipwrecked against the rocks.
• Firstly, you need to understand exactly what’s going on and then… how to responsibly act on that knowledge.

How Can mrd Help

We provide quality, considered, well researched information at no cost to you. Our education and mentoring extends way beyond property and locations. My interests and skill sets have given me a keen eye for politics, business and economics. This, along with our Customer Care Program; which recognises that investing is personal allows you to learn in a safe environment with the absolute confidence that we will never interpret your desire to learn as a license to sell you something… that’s just simply not in our DNA.

I strongly urge you to do two things:

1. Register for one of my upcoming Live Events where I will clearly explain “How To Prosper In The Slipstream Of Population Growth” and…
2. Take us up on our offer to participate in a Personalised Retirement Options Plan (PROP)… if you are not one of the two hundred odd that have already requested this.

Don’t Miss Out! With the Perth & Sydney events now behind me, I will be speaking in Melbourne four times next week. From there I move onto Adelaide, Darwin, Canberra, Brisbane, Gold Coast, Hobart & Launceston.

1. For Details Of And Registration To My Live Events – Follow This Link

2. For Details of and Requests For A Personalised Retirement Options Plan (PROP) – Follow This Link

These are my first round of Live Events in almost two years. The information I will be sharing is new, current, compelling and relevant to you – even though right now you may not think so.

Here’s What Others Have Said:

GREG & MARY ANNE D. (Perth, WA) – Third time mrd purchasers:

QUESTION: What was the value you got from attending Nick’s recent Live Event in Perth/Sydney?

ANSWER: For me and Mary Anne is was our 3rd meeting so we had a current background knowledge of mrd and how good their product delivery is. Wanted to know if there is something new and also to reinforce what we had learned before. The ROYE and PROP was new, something we hadn’t had a chance to see before.

QUESTION: On your feedback form you rated the quality of the information as a 8 out of 10. Why?

ANSWER: Not being pushed down our throats. Relaxed, informative. Primary aim was not on sales

QUESTION: Did you come away from Nick’s Live Event with:

• Less than you had hoped/expected
• About what you had hoped/expected
• More than what you had hoped/expected

ANSWER: More than we expected

QUESTION: Given we are all busy and this event was held on a week night; how easy would it have been for you to have had the best intentions to attend but then not bothered on the night?

ANSWER: It depends on your priorities. This is a high priority for us so it would need something major for us to not attend. It is part of our long term plan.

QUESTION: What was the # 1 thing that made you feel attending the event was worthwhile?

ANSWER: Seeing the PROP and the ROYE demonstrated. We hadn’t seen that before.

QUESTION: What would you say to someone who was in two minds as to whether to attend Nick’s Live “Slipstream” Event… or not?

ANSWER: Go along, you have nothing to lose. If you don’t like it that’s fine but you may start thinking about things like this which is what we did the first time. We didn’t get involved until after the 2nd time we had heard it and had asked a lot of questions and had them answered.

QUESTION: If Nick was to reproduce this event as a webinar, would you tell others about it and suggest they sit in and listen?

ANSWER: Yes, definitely. The web is more convenient but we would much prefer to attend live.

1. For Details And Registrations Of My Live Events – Follow This Link

2. For Details of and Requests For A Personalised Retirement Options Plan (PROP) – Follow This Link

MICK S. (Perth, WA) – Recently referred to mrd by a family member that has purchased through mrd

QUESTION: Was Nick’s Live (Slipstream) Event what you expected?

ANSWER: Knew a little bit before I went. Now understand it all. It hit the bull on the nose! It explains how it all works live in front of you. A logical process and I could relate it to my situation. I was delighted with the information.

QUESTION: What made you go to the meeting when we all have busy lives?

ANSWER: I needed to understand more (recommended by my brother)

QUESTION: What would you say to anyone thinking of going?

ANSWER: Would promote anyone to go. Explains it in a simple manner. How it works. You just don’t understand reading documents. Now comfortable with mrd and the process.

1. For Details And Registrations Of My Live Events – Follow This Link

2. For Details of and Requests For A Personalised Retirement Options Plan (PROP) – Follow This Link

MIKE & MEG C. (Perth, WA) – Multiple property purchasers with mrd

QUESTION: Why did you decide to use the services offered by MRD?

ANSWER: Simple, I knew I wanted to do more to secure my financial future but had been paralysed into inaction for too long. I heard that Nick had set up MRD and what was going on. Having known Nick and Katrina previously, I had a high level of trust and respect for his principals and ethics. The rest seemed easy, we just worked with MRD who to date have executed exactly what they said they would do.

QUESTION: How, specifically, did MRD change the way you thought about your financial future?

ANSWER: MRD taught me how to use productive debt, how to leverage existing equity and balanced with solid research and knowledge I knew we could make significant change for the long term. It also meant I did not have to learn from my mistakes as those stakes were too high.

QUESTION: How would you rate the “Personalised Retirement Options Plan” (PROP) out of ten, based on the benefit gained through doing it?

ANSWER: 9 – 10 suggests no improvement could be found. 9 in the context that gains were high!

QUESTION: What did you like most about the PROP and the services offered by MRD?

ANSWER: I liked the fact that MRD actually did it for me. Totally tailored to my situation with the capacity to see outcomes based on many variables. I also found it valuable to see the nothing was left out of any equations, way to complex for me to analyse without this tool.

QUESTION: How has the PROP helped you in setting a goal for your retirement?

ANSWER: Yes. It has provided proof of income potential and identified all components applicable. There is no crystal ball but PROP attempts to capture the known variables and quantifies predicted financial outcomes. I’ve not seen this capability with shares or Super. Prop provided a snapshot that I could not have mapped otherwise.

QUESTION: Do you believe that the 60 minutes spent doing the PROP with the mentor was time well spent?

ANSWER: Yes it was. Doug Wroe made it so.

QUESTION: Would you recommend MRD to other people interested in making a plan for their financial future?

ANSWER: Yes I would and have done so on several occasions.

QUESTION: What would you say to a friend who was considering using MRD to help them with their financial goals.

ANSWER: I’d simply say “This works!” I have known Nick and MRD for several years and at all times their service, advice and direction has been exactly what they said it would be. Lets go one step further by saying the business model adopted by MRD will only succeed if they genuinely help other people. I wish I had more MRD modeled suppliers who think and act like they do. I would be honoured to offer my recommendation to all of my friends and acquaintances. For the skeptics, if you really want to engage, ask them, analyse them, scrutinise them – its your future!

1. For Details And Registrations Of My Live Events – Follow This Link

2. For Details of and Requests For A Personalised Retirement Options Plan (PROP) – Follow This Link

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

DON’T worry, be optimistic and get ready to buy in early 2009 is the advice from a real estate expert.

Ray White Surfers Paradise Group chief executive officer Andrew Bell yesterday dubbed 2009 ‘The Year of Optimism’ during the presentation of his annual Gold Coast property report and forecast.

Mr Bell said there were positive signs in all five key drivers of the market — the economy, interest rates, population growth, employment and housing affordability.

“The fundamentals are there and the property market ‘planets’ are in alignment,” he said.

>>> Buying property is fine in ‘09 – Local News – Gold Coast, QLD, Australia.

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

The national end of month property indices report released today by RP Data & Rismark International confirms that the supply and demand imbalance currently being experienced in the Australian property market has placed a floor under housing prices, resulting in minimal value falls.

Based on the analysis in the report, this is most evident in the metropolitan areas around the country where record population growth has not been accompanied by new dwellings to satisfy the housing demand.

According to RP Data National Research Director Tim Lawless the property market has proven to be remarkably resilient with national dwelling values remaining positive over the 12 months ending August 2008. Over the three months to August 2008 there was a modest decline with property values down by just 0.96 per cent over this period.

Mr Lawless said the recent figures should put to rest claims that Australia’s property market is headed for a crash. “In fact, values are holding relatively firm particularly when compared to the benchmark equities S&P/ASX 200 Index which dropped by 19 per cent between January and August,” he said.

The only capital city to record a material decline in property values was Perth where this market fell by 5.69 per cent over the August 2008 period. While this fall in values has caused some distress for home owners, Mr Lawless reminds owners that the results need to be placed into context where values increased by 13.9 per cent annually over the past five years..

One of the most interesting findings in the indices release today was the convergence of the capital city market dynamics over the past six months which revealed that all capital cities recorded slightly negative growth; no particular city was significantly out of step with the others.

According to Rismark International’s Dr Mathew Hardman “Clearly, the observable phenomenon of the two-tiered markets in Sydney and then in Melbourne and to a lesser extent in Brisbane and Perth has disappeared ”

“Market movements are now similar across all metro areas rather than value falls being isolated within the mortgage belts. This balancing can be attributed to the squeeze the more affluent markets are experiencing due to the turbulence in the financial and equities sector.

“Looking towards the next six months, strong excess demand in most capital cities is creating a floor under property values, making large falls unlikely,” Dr Hardman said.

According to RP Data, with population growth projected to remain high and interest rates falling, the demand/supply imbalance is expected to protect the market from any major falls in property values.

Rismark International’s Dr Hardman believes that unemployment is not a major factor driving property prices; affordability, excess demand and market momentum are far more significant he said.

“Although unemployment is rising, unless it grows rapidly to significantly greater levels, eg 6 or 7 per cent over the next couple of years, excess demand will eventually outweigh affordability constraints and begin to push property markets upwards again, probably by the second half of 2009.”

“Over the long term, home unit values tend to track GDP growth, while house prices exceed it by approximately 2 per cent. In Sydney, house and unit values relative to GDP have returned to their pre 2000 levels so affordability is slowly returning to the Sydney market,” Dr Hardman said.

Around the State

Sydney Property Market:

In 2005 – 07, we observed a two-tiered market in Sydney: the separate dynamics of the north, east and Sutherland shire rising or steady versus the west and south west falling. In 2008, this distinction has largely disappeared. The Sydney market as a whole has fallen by about 2 per cent over the past few months and this is true across all areas. We don’t believe large falls in any particular region are likely, but neither are rises. The market will likely show some volatility from quarter to quarter, but little overall direction for the rest of 2008 and into early 2009. Sydney house values are still the most expensive in the nation with a median value of $565,180. With rental rates increasing and property values showing a modest fall, rental yields have continued to improve. Houses are returning an average gross yield of 4.57 per cent and units are returning an average gross yield of 5.71 per cent.

Melbourne:

Melbourne is also down about 2 per cent over the last few months and again, the falls are generally consistent across the entire city, with the outer eastern and south eastern suburbs falling on average by a little more (3 – 5 per cent). Melbourne house values have fallen by 0.14 per cent over the August quarter and are now recording a median value of $448,271. Unit values have increased by 0.68per cent over the three months to August to reach $362,771.

Brisbane:

Brisbane has actually fallen more than Sydney & Melbourne over autumn & winter: on average by 3 – 5 per cent. The median house value is now $455,146 and the median unit value is now $326,606.
South East Queensland continues to be the strongest population growth region in Australia. Such strong demand for dwellings will continue to place upwards pressure on values over the medium to long term.

Adelaide:

Adelaide has also lost about 2 per cent over the past quarter, with the southern and eastern suburbs falling by slightly more than average: up to 4 or 5 per cent in some cases. On an annual basis Adelaide is still well in the black with property values up by 10.28 per cent over the twelve months to August.

Perth:

Perth has been remarkably resilient, considering the combined influences of the stock market decline and the rapid property price rises of 2003 – 07 and their effect on affordability. On average, the market is only down about 2 per cent over autumn and winter. The August indicative figures showing 5 – 6 per cent falls should be read with caution as they are based on a small sample of sales.

Canberra:

The Canberra market has also recently trended down: houses by approx 2 per cent and units by 5 per cent.

Darwin:

The Darwin market has trended down about 1 – 2 per cent over the past few months; however market confidence is expected to rise along with increased demand on the back of large investments such as the Inpex gas deal.

NOTE:

*RP Data and Rismark recommends that caution be used when interpreting property indices results as these results can vary depending on the methodology used and sample size.

In all RP Data and Rismark published indices, methodology is clearly indicated. More information on the RP Data‐Rismark indices can be found here: http://www.rpdata.net.au/indices/

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
- Warren Buffett

So how do you interpret the headlines and the media commentary on our property markets as an investor?

Let’s look at some other recent headlines:

Tough times puts halt on new homes – Gold Coast.com
NEW home building is set to slump and will not pick up again for three years. That’s the bad news from the Housing Industry Association, which says the Gold Coast will be hard hit by the slide in housing starts and mortgages. A big drop in new home building starts is expected to lead to a shortage of nearly 11,000 homes in this financial year alone, said HIA executive director (Queensland) Warwick Temby. He said the poor showing for new housing came at the wrong time for a state experiencing record population growth and new lows in rental vacancies.

New home building to fall by 20% in December quarter – Courier Mail
NEW home building in Queensland will fall by nearly 20 per cent in the December quarter, according to a just-released report on the residential market. “We have a relatively inelastic supply side, so no immediate bounce is expected and this is bad news particularly for those searching for affordable rental housing,” Mr Temby said.

House prices set to slide in capital cities
Credit growth braked to a 15-year low, while retail sales went into recession. As a property forecaster predicted that housing prices will fall 10% in the year ahead, fears are increasing for the economy, especially in the south-east. The markets, which until recently predicted another rate rise, tip the Reserve Bank to cut rates later this year – assuming the slide in the economy and the markets continues.

Three very strong and potentially frightening articles that would leave most people fearful contain gems that will leave the astute investor with a sparkle in his eye.

Over Sunday morning breakfast, I was listening to a radio interview with Tim Lawless; head of RP Data (a company that maintains records of house sales and similar data, right across Australia). RP Data is not a real estate agency. It is highly unlikely they would have any “vested” interest in whether the market moves one way or another. My belief is that Tim, more than most of us, has his “finger on the property pulse”.

Tim commented on the above report (House prices set to slide in Capital Cities) saying that it was “either very brave or very silly” and labelled it “sensationalist”. He said that while Perth had experienced some drop in house prices, the fundamentals of supply and demand still apply. That with 176,000 migrants entering the country we are building far too few dwellings (see other numerous mrd blog postings on this subject) and while the consumer demand may seem low at the moment, primarily because of the interest rates, he saw any drop of prices to that degree as very unlikely.

Supply and demand is still the determining factor of a product’s worth from banana’s to houses. Regardless of what else may be happening in other sectors of the Australian economy, everybody needs a roof over their head and they will either buy or rent and “water will eventually find its’ own level”.

If I invest in ‘liveable property’ in those places where the long term demand exceeds the available supply; then over the medium to long term I should see capital gains. Any short-term softening in the market will be short lived and, given that I follow a buy & hold strategy, not affect me personally.

Drops in new home building starts with the ongoing population boom leading to a shortage of nearly 11,000 homes this financial year alone rings of opportunity to an investor.  Lack of supply and greater demand will not only ultimately increase the capital return but the rental return as well, leading to a greater capacity to hold the property.  Housing affordability issues for first home buyers means more people renting, and more people renting means less rental properties available, pushing up rents again.

So are these articles positive or negative reports for property investors?  If you believe as I do that long term capital growth relies on limited supply and increasing demand then these are very favourable articles indeed. There are of course, no “guarantees” in property investment, other than the guarantee that if you never invest in property then you will never make any money in property.

Martin Bell

Property Strategist

She encourages her readers to ‘please consider long and hard how much extra money, maintenance, management and effort will be needed to operate an investment property… and then see if I can change your mind about getting into the whole mess before you have to find out the hard way that you are not suited to it.’

So with that introduction I propose that before you get involved in the world of investment property that you should enter the world of investment property ownership with both eyes wide open, so that you are better prepared to make wise decisions that will secure your financial future.

Firstly, here are three great reasons why you should consider owning property.

1. Simple to understand. For all the many ways that you can invest your money, property would have to be the easiest to understand. For one thing, you can touch it and you can feel it. It’s real. All of us live in  some form of residential property and many of us work either in a commercial or industrial setting. And when it comes to shopping you generally do that within the precincts of a retail property. And when it comes to holidays you generally end up either in a hotel, a motel or a caravan park. To sum it up, it’s all property.
2. Passive Income. Probably not for the first few years, but property will add to your bank balance. Historical records confirm that property has outperformed both cash and bonds, time and time again.When it comes to holding on to property for the long term the returns have always been well above the inflation level. Income, derived from the rent, will provide surplus cashflow over time. NB: Over time, rental incomes will grow beyond what is required to service borrowings.
3. Long Term Wealth Creation. Property generates capital growth. Time and time again property has proven itself to be a creator of capital gain, over the medium to long term. It is no wonder that banks are a lot more ready to lend money when it comes to property than they are when it comes to lending for shares. In fact in risk adjusted terms, residential real estate has consistently outperformed all other asset classes.

And now for three reasons why property is maybe not so great.

1. Affordability. The entry levels for property investment can at times be prohibitive. To own a property outright will require a lot more money than most people have. To be able to enter the market an investor will usually have to borrow most of the money required from the bank. The average lay person lacks the financial intelligence necessary required to purchase shopping complexes, office towers or golf courses. While all these things are very possible… that possibility is generally nullified by insurmountable obstacles.
2. Not a liquid asset. Traditional thinking says that property does not allow for the quick acquisition of ready cash. I say ‘traditional thinking’ as this limitation is more a reflection of an inflexible finance structure, rather than an inflexible asset class.Most home owners have equity in their home that could be used for other purposes… if it had been made available. The challenge is that the equity in a person’s home is normally locked away and inaccessible. When money in needed in a hurry and your assets are purely property; unless your finances were structured the way most astute investors do… you may be stuck. Many believe that they would have to sell a property before they were able to realise the untapped equity/wealth in it; but this is not the case. In fact, selling ought to be a last resort and will attract many costs such as agent’s commission, legal fees, stamp duty and capital gains tax (where the property was an investment).NB: If you do sell a property, in most cases, you cannot sell part of it. The lot must go, even if your cash requirement is only for a portion of the whole value of the property. Again, with the right finance structure… this is a non issue.
   
3. High Maintenance. Property may require high maintenance which can prove to be a lot of trouble. Once you have gone to the trouble of finding the right property, in the right position, there will be ongoing costs for maintenance, real estate agents, tenants, lack of tenants and so much more.

It is important to note that most of the issues that would otherwise present property in a bad light are able to be managed; we just need to know that we are receiving the right professional advice from the outset.

The reason someone may have ended up with ‘the tenant from hell’, or termites in their property (e.g.) is more than likely because they failed to first gain the necessary understanding of a successful property investor. Did they put into place the necessary exit strategies that will prepare them to deal with any challenges that arise along the way.

A quick tip that may save a lot of heartache. Be sure to have the necessary insurances in place from the day your property settles, or a tenant moves in… whichever is the earlier! This is to ensure you are covered for theft, damage and/or loss of rent.

Happy Investing,

Nick Lockhart

The picture is far better when considered over the long term, with REIV data showing apartments experienced a five-year (2002-2007) price growth of 33.6%, compared to 26.9% for houses. The reason, agents and analysts say, is simple: affordability. Even with this level of price growth, apartments remain a comparatively cheap entry point into the housing market, arguably one of the last bastions of affordability for first-home buyers and middle-class Australians.

“It’s a market that is largely driven by prices, with apartments for some people simply the only option to get into the market as an owner-occupier, particularly in the inner suburbs,” said buyers’ advocate Chris Koren, of Morrell & Koren. “This comes back to apartments being an affordable entry point for buyers who can’t consider a house a realistic option,” said Hocking Stuart director Scott McElroy. “Some investors have also found that a new two-bedroom apartment, which will cost less than a house in the same area, will command close to the same or even more rent, making it a smarter purchase.” For most people, the Australian dream of home-ownership naturally means ownership of a house, but this perception has been slowly changing over the past 10 to 20 years, partly due to generational and demographic shifts and partly from cold, hard economic realities.

“We’re starting to feel the influence of generation Y coming of age and the impact of Australia’s record levels of migration, with both of these groups showing a clear preference for living close to city centres,” said Craig James, chief equities economist with CommSec. “The traditional focus on the quarter-acre block is being overtaken by a preference for ease of access to work and lifestyle amenities, which are the hallmarks of the apartment market.”

Then there is the issue of Australia’s rapidly growing cost of living – petrol hitting $1.70 a litre and rising utility bills – coupled with a traditional housing market that is so pricey it has pushed many people right out of the game. “This is increasingly the choice, and it’s very in black and white,” said KPMG demographer Bernard Salt. “You can buy a house that you can’t really afford in an area that you don’t really want to be, or you can choose to go smaller, accept and adapt to apartment living – and be right in the heart of the action. “It’s a choice that previous generations would find inconceivable – unacceptable even – but it’s increasingly becoming the preferred choice rather than the choice of last resort.”

Source: Domain.com.au

Whether to choose an investment property that will deliver a higher capital gain or better rental return is a difficult decision for many investors and would-be-investors alike. However, equally as important is the selection of whom or what entity should be nominated on title as purchaser of the property.

I see many clients who have spoken to their ‘mates’ who advise them that the family trust structure should be the only purchaser of property. Given that everyone’s circumstances are different, there are a number of questions that should first be asked before any decision of ownership is made.

In the current climate, the negative gearing characteristics of a property are larger than ever. Namely, increasing interest rates have impacted on a persons out of pocket requirement to service their commitments. This being the case most people need the tax saving on these additional out of pocket expenses to alleviate some of the short fall.

Holding the property in the individuals name with the highest taxable income would benefit this type of investor. If, however, a property similar to my example was purchased in a Trust, there may not be any tax saving to assist with the affordability of holding the asset.

Losses in Trusts are quarantined. This means the negative gearing characteristics cannot be used to reduce tax on your personal income. Yes, the losses can be carried forward to offset future gains but most of the time; investors need their tax deduction now. Trust Deeds are complicated and individually drawn up; they are not generic. Going down this path will require you to seek professional advice; which will add to your costs.

Other factors that I believe one should carefully considered before purchasing investment property in a Trust include:

Land Tax: Depending on the number of properties owned, land tax may be chargeable. In Victoria, land held in Trusts can realise up to double the cost of land tax compared to if the property was held individually.

Pioneering Precedent: In recent times there has emerged specialist Property Trusts. In these instances an individual borrows the money to buy the property in his/her own name and then loans the Trust the money to buy the investment property. The theory is that because the loan was in the individuals own name, interest is a tax deduction. The obvious problem with this type of structure is, however, that they are largely untried with the ATO. Where there is no precedent tried in the courts someone who embraces such a structure is what I call a pioneer.

Lenders: Another ‘minor issue’ with those specialist Property Trusts is that aside from maybe one or two lenders, it is virtually impossible to borrow the money necessary to buy property in such a structure.

Cost: One must account for the set up costs associated with a Family Trust (or Property Trust); which could be in the vicinity of $1,000. Add to this the annual fees surrounding compliance. Annual accounts and minutes are required before preparing an income tax return.

Asset Protection: Although Trusts are looked upon as a form of asset protection and can be the case in certain circumstances, insurance can have a similar effect. While I acknowledge that there are certain individuals who are what I call “litigation targets”; the over emphasis on asset protection for ‘Joe Average’ when a costs/benefits/risks scenario is run is undeniable.

Leveraging: Once there has been a significant equity gain in the property held in Trust; leveraging against it to so as to secure another asset can be very difficult.

The reason I am writing this article is for potential property investors to think carefully as to who should acquire their investment property. Search for advice and look at the up-front advantages verses long term disadvantages and visa versa.

This article is for information purposes and should not be relied upon solely in your decision making process.

Good luck with your investment strategy,

Darren Baker-West

Darren Baker-West (accountant for mrd and Nick & Katrina Lockhart) is the senior partner of GFM Accountants; trusted advisors in Accounting, Taxation, Finance and Business Services for over 40 years. Darren, who takes the time to get to know his clients and what makes their business tick, has the knowledge and experience needed to help take you to the next level. Darren can be contacted via: darren@gfmandassociates.com.au or (03) 9374-2422.

The number of houses currently being built falls well short of this, and according to the HIA, there’ll be a shortfall of at least 175,000 houses if current building rates continue.

The outlook is even bleaker if household sizes keep shrinking – ie more people choose to live alone – this could blow-out to a 240,000 shortfall.

“Supply must increase rapidly to meet expected demand,” said the Housing Industry Association’s chief executive of policy, Chris Lamont.

“Without a substantial increase in production there will almost certainly be a growth in the number of homeless and further affordability woes.”

He said the increased demand for new housing was driven by two main factors: rising immigration, and more people choosing to live alone.

Australia’s population grew by 332,000, or 1.6 per cent last year.

Source: news.com.au

Clifton Views is progressing quickly now with stage 1 due for completion in September 2008 and stage 2 due January 2009.

There is some great stuff happening in Cairns as a copy of an article from the Sunday Mail below explains.

When researching an area in which to invest, the fundamentals that support its long term capacity to grow; and by grow I mean double in value every 7 – 10 years at least, is vital when making a well informed low risk investment decision.

Population growth is one of those factors that underlie and sustain an area’s price growth potential. Supply and demand will always be the major determining factor for price movement. So what we want to see is a place people want to live and are moving in droves creating a problem for councils and governments! New planning needs to take place, infrastructure spending is required and managing the growth in relation to urban development, transport, environment etc. is critical.

This is the case for Cairns!

An article released in the Sunday Mail, 18 May 2008, speaks of State Government plans to accommodate up to a 70% of the projected 100,000 new residents moving to North Queensland in the next 20 years, in Cairns.

This huge growth would be a 46.7% increase over the current population of approximately 150,000 people. That’s an extra 3,500 people per year moving into the city.

Following is the article from the Sunday Mail. Below that is your Clifton Views Construction Update and photos.

FAR NORTH TO BOOM
Cairns braces for thousands of new residents

NORTH Queensland will have to find room for 100,000 new residents in the next 20 years, according to the latest population forecasts.

Cairns will accommodate up to 70 per cent of the population growth, according to State Government plans for the region.

The Department of Infrastructure and Planning is drafting the Far North Queensland Regional Plan to guide development up to 2025.

It will focus on transport, water management, infrastructure, economic and urban development, natural resources and the environment.

A department official said most growth would be west of the Bruce Highway, in the southern corridor between Edmonton and Gordonvale.

Growth would also be accommodated in existing urban areas of Cairns.

The bulk of growth outside Cairns was expected to occur in Mareeba, Atherton, Innisfail and, to a lesser extent, Tully and Mossman; with Mareeba, Atherton and Innisfail expected to experience population growth of up to 50 per cent.

According to the draft regional plan, Mareeba will be a major centre for the Tableland by 2025.

However the DIP admitted major changes needed to be made to the planning process that governs growth and development.

The Housing Industry Association of Queensland welcomed the admission and has called for housing affordability and land availability to be addressed in the draft plan.

Executive director Warwick Temby said the HIAQ wanted the Government to take steps to speed up the development approval process and to invest more in infrastructure.

He said investment would reduce developer costs and, in turn, reduce costs for home buyers.

The regional plan takes in Cairns, the Atherton Tableland and the Cassowary Coast council areas, as well as the Wujal Wujal and Yarrabah communities.

A finalised plan for the region is expected to be released by the end of the year.

The department encouraged submissions to the draft plan during the public consultation period. Community meetings will be held across north Queensland from tomorrow.

Source: Sunday Mail – Hannah Martin (May 18, 2008)

Clifton Views Investor Update

Stage 1

Building 25

• Internal tiling 90%
• electrical & plumbing fit off 70%

Building 24

• Internal tiling 70%
• electrical & plumbing fit off 40%

Building 23

• External painting 90%
• internal wall linings 95%
• Pool works in stage 1 are 60%

Estimated completion date for Stage 1 is September 2008.

Stage 2

Building 22

• Trusses 95%

Building 21

• Roof tiling 95%
• external painting 70%

Building 20

• Roof tiling 90%
• external rendering 70%

Building 19

• External painting 90%
• window installation 95%

Building 18

• Roof tiling 80%

Building 17

• Roof tiling 70%

Building 16

• Trusses 100%
• fascia & gutter 90%

Estimated completion date for Stage 2 is January 2009.

Stage 3

Building 15, 14 & 13

• Earthworks 70%

Stage 4

Building 12

• Roof trusses 95%

Building 11

• Top level core fill complete

Building 10, 9 & 6

• Roof level block work complete
• Core fill to follow

Building 8

• 1st floor suspended slab poured 26/06/2008
• Block work to follow

Building 7

• 1st floor block work complete
• Core fill to follow