1. How good will your portfolio be if we have another world war?
2. How good will your portfolio be if we have a worldwide recession or depression?

Well, with regards to Q 1, I still have no concrete answer for, and hopefully never will. With respect to Q 2, however, I can now (i.e. only now) say from experience… “It’s all ok”!

My portfolio now numbers 13 properties. When interest rates were 9% plus it was of some concern. We would have remained OK for a couple of years at those high rates because the equity we have built up provided us with a buffer (safety net).

Now every 1%  rate cut puts an additional $35,000 a year in my pocket. We’ve had 4% slashed from our rates in recent months (less what the banks failed to pass on) and the season of low interest seems set to continue for some time.

I use a separate line of credit for my property expenses (i.e. rates, body corp and so on); only paying interest charges from my cashflow. Interest rates are falling and rents are rising so cashflow is looking better and better. I don’t have to work, so while the world “financial crisis” works its way through the system; affecting us all, I remain content and comfortable holding a large property portfolio.

Increasing Population + Shortage of Rental Properties
= Low Vacancy Rates = Rental Increases

OK; ‘so far so good’. With cashflow under control, there’s no stress in us holding a portfolio of 13 properties. BUT, what about growth and the lenders?

Certainly, growth has been flat over recent months but prices have not dropped in most areas. An article in The Australian last month said:

“In fact, the latest RP Data-Rismark Index results show that Australian house prices declined by just 0.8 per cent in the 12 months to October this year, and increased during the most recent three months”.

They are talking about the country as a whole (the good, the bad & the ugly); whereas certain areas have outperformed others. As an investor I discriminate against much property and only accept that which I believe will perform better for me.

I have always accepted that property values travel through cycles. I have every confidence that the short supply of property will mean that the growth in prices will/must kick in again. NB: We were about 80,000 dwellings short for 2008 and the Australian Bureau of Statistics  expect around 100,000 too few to be built this year; with the undersupply continuing around those annual figures till 2018 at least.

The mrd set ‘n’ forget, for busy people TM system that Nick promotes has worked for me personally; in good times and in bad and I have no reason to believe my ongoing confidence will be met with any disappointment! Why? Because I believe the fundamental law of “supply and demand” will ensure any outcome other than that which I expect, will be nothing more than a short term aberration.

For the benefit of those who have not spoken with me, let me explain a little of my personal strategy. It revolves around drawing on equity from my portfolio. For those of us in “retirement”, that means using low-doc or no-doc loans; not easy to secure with competitive rate at the moment.

What next?

My plan; or perhaps “flukish luck” (ha, ha) when Marion and I contracted to buy our 13th investment property; included an “ulterior motive”. We bought a top floor, 3 bedroom apartment adjacent to the Robina Town Centre. We thought we may eventually like to downsize and move into this ourselves.

We are now very close to having a number of our properties revalued so as to clear the security from our owner occupier. This is to allow us to then change the security supporting some of my loans away from my own home onto some of my earlier investment properties. With our own home unencumbered (and debt free), we will sell up, pocket the lot and move into the 3 bedroom apartment.

I accept new valuations at this point in time will not be great; but that’s fine, our goal is to simply clear the security from our owner occupier so when we sell we remain in control of all the cash we receive. We will do this without having to qualify for any new loans. No need to be concerned about the availability of a low-doc or no-doc offers – we won’t need either!

I already have an offset account set up for our 3 bedroom apartment. Therefore, after selling we will have $550,000 clear (conservatively) to put into an offset account that sits against (what will be) our new principal place of residence. NB: Selling is something we encourage you rarely ever do. In this instance, it allows us to fund the retirement we want. Because it has been our principal place of residence there will be no capital gain tax. A tailored solution that works for us, even in the face of the global credit crisis!

Some may ask: “Why don’t you simply pay out the loan on your new apartment instead of keeping the debt and putting what funds you get from the sale into an offset account”?

Good question! “Because to do so would mean that I would immediately lose control of the $550,000. If I wanted to get at any of the equity created in the new unit (by paying it off), I would have to go through the exercise of making a fresh loan application; and risk being knocked back etc, etc.

My strategy to have the existing debt on the unit 100% offset still ensures we have a $ZERO (non tax deductible) interest bill, while still allowing us the freedom to draw on the $550,000 as I need it over the next “however many years”; without the need to prove serviceability! Now when you add to that the two hundred plus thousand dollars we currently have available in other lines of credit, one can begin to see that no matter how tight credit for a retiree may become, we will be pretty much set for a number of years to come.

The “crisis” will pass, however, in the meantime a clever strategy and proper financial structuring will allow us to avert any interruption our retirement plans may have otherwise suffered. Then, when things get back to normal and my property portfolio  AND RENTS double in value again we will revalue the lot, increase our credit lines and continue to enjoy our retirement (with growing asset & income base). I am a month off 59 now. When Marion & I started on this journey I was about to turn 50 and I have been self-funded now for 3 years.

7 years + 13 Properties + A Financial Crisis = Never Work Again!

I can hear the voices screaming from all around cyber space “It’s ok for you! You have a significant property portfolio”. Compared to most maybe, compared to others… I’m crawling! Guess how you get hold of a large property portfolio yourself?

Start with a small one… but START!

Now is a good time to do it. Did I say “good”? I see the current “Perfect Storm” as being a ‘once-in-a-lifetime’ opportunity. Interest rates the lowest in 45 years (and falling); with property prices very affordable AND a rental crisis that’s only going to get worse.

My message to anybody who over the past years, didn’t get started because of their “WHAT IF” questions is: This works; so get started!

If your “WHAT IFS” are still plaguing you then maybe you should do nothing but sit tight for a few years and ask me again. I suspect, however, that I will have the same answer for you then.

* Please note: I am not a financial advisor, accountant or a finance broker – I’m just a very comfortable self funded retiree. The examples and opinions above are a compilation based on my own personal experiences, both in creating a $4.5mil property portfolio, starting with only $50k equity and also in helping a large number of people achieve similar goals of million dollar property portfolios. If unsure then consult your own accountant; hopefully one with some property experience and a personal retirement plan that is working. Financial advisors, in my opinion, rarely understand or recommend property, as their commissions come from other investment products. It should be a case of “don’t believe what people say, believe what they do!”

To ask me any questions or arrange a chat regarding how my chosen retirement plan may work for you, click here

Would you like me to guide you through an mrd complimentary & no obligation “Finance Structure & Cashflow Health Check”? Then simply complete the online secure form and I’ll be in touch with you next week; click here

Happy Investing,

Martin Bell
mrd Customer Care Program… because investing is personal

How times have changed.

To demonstrate how the changes in interest rates affect your holding costs I will use the properties at Endeavour Gardens as an example…

When rates peaked, the property would have cost you about $210 a week to hold after tax, based on a 30% tax rate. For the majority of people that is a significant amount to find each week. Holding a property such as this was difficult and fewer people were able or willing to get involved and wait for the capital growth to repay their holding costs.

With more advanced financing strategies such as the capitalising of most property expenses you may have been able to bring the holding costs down to a little over $100 a week. Even at these higher rates it was still a very good investment as the expected capital growth would have dwarfed the holding costs but few people would have been able to see that.

What is the holding cost now?

That initial $210 a week to hold after tax has dropped to a tiny $32 a week.

Using the mrd advanced financing strategies the property actually becomes cash flow positive by $75 a week.

The Hidden Bonus is that not only is the property now not dependent on a contribution from your hard earned wages but it is actually paying you back, contributing to your weekly savings, helping you pay down your own home loan and creating wealth for you through capital growth.

What is rarely understood is that by using these same mrd advanced finance strategies it may be possible to have the tax man contribute to paying off your home loan by changing home mortgage debt into tax deductible investment debt.  For more information about how this may work for you please ask one of our team.

You can now have a property that pays you every week. In addition, it generates huge equity pools for future investments or lifestyle choices. As an example, if this Endeavour Gardens property grows by an average of 9% a year (8 year doubling cycle) then in that 8 years it will average $805 a week in equity growth for very little time and effort.

This complies with our “set ‘n’ forget” for busy people ™ strategy.

It is only a matter of time before the masses realise what a bargain this property is.

My question to you is… are you going to be ahead of the herd or following in its wake?

So if in the midst of financial turmoil, negative media and confusion you are wondering what actions will best serve your medium to long term interests; I challenge you to test us.

You can make one of two choices:

• Take us up on our offer for a no obligation, complimentary “Financial Structure & Cashflow Health Check” click here to email us.
  
• Find out what your Borrowing Capacity is now that rates have dropped so quickly. Click here to submit your form today.

Regards,

Doug Wroe
mrd customer care program… because investing is personal

It was said recently that (when the chips are down) there is ‘no greater motivator than winds of disaster blowing up your butt’.

It may be a little descriptive… yet nevertheless so true! You see, it’s not what happens to us in life that determines our future, but rather how we respond (not react) to that which happens. Of course each of us are affected in some way by circumstances, but how we respond is our own choice! We should never allow ‘circumstances’ to control us… or deter us from our focus in life!

Consider the story of Colonel (Harland) Sanders…

He became world-renowned for his famous “finger lickin’ good” Kentucky Fried Chicken and is also credited with having built one of the largest fast food corporations in the world. KFC is now served daily throughout the United States and more than eighty other countries… not bad for a retired 65 year old sent broke by the building of a new highway.

You might ask ‘What makes the story of Colonel Sanders so amazing’? One of the most remarkable aspects of his life is that when he reached the age of sixty-five years, after running a restaurant for several years, Harland Sanders found himself penniless. He retired and received his first social security payment; which was for one hundred and five dollars. That was just the beginning of his international fame and financial success story…

Born in September of 1890, Harland Sanders was the oldest of five children. Up until his premature death, his father toiled in the coal mines of Kentucky. When his father passed away, Sanders… who was just six, began caring for his younger brother and sister while his mother worked in a shirt factory to support the family. Harland tended to things at home and learned to cook the meals by his mother’s teachings. She taught him how to cook many foods, including fried chicken.

Over the next several years, Harland Sanders worked at a variety of jobs… farm hand, streetcar conductor, fireman on the railroad… and finally ended up running a service station. Once again, he used his cooking skills that were learned from his mother to provide meals for travellers who stopped at his service station. As his cooking became more famous, and his food business grew, Sanders moved into an actual restaurant nearby. His specialty was, of course, fried chicken… seasoned with his original blend of eleven herbs and spices.

In 1935… a few years later, Governor Ruby Laffoon made Sanders (who was now forty-five years old) a Kentucky Colonel; because of his delectable cooking skills.

Progress is not always for the good of everyone, and in the 1950′s, Colonel Harland Sanders was given news of plans for a new highway which was soon to be constructed. The highway would divert the majority of traffic away from the town and, with the beginning of the highway; Colonel Sanders saw his successful business coming to an end. He closed the restaurant and retired to a social security benefit of just one hundred and five dollars a month. When he received his first month’s pension, he decided that he wasn’t going to sit in a rocking chair and rely on the government. So, he convinced others to invest in his delicious fried chicken recipe, and Kentucky Fried Chicken was born.

Colonel Harland Sanders eventually retired from the business when he was eighty years old, and stricken with illness.

The negative ‘stuff’ that happens in all our lives will either make us bitter… or better. In the case of a 65 year old man who had just been deprived of his livelihood… Colonel Harland Sanders got better and allowed the winds of disaster to be the catalyst to what went on to become an incredibly successful turn of events.

While we are unable to control many of the circumstances that affect our lives on a daily basis, we can control our attitudes and responses. Regardless of any global economic woes… you can chose to make this year a great success… chose not to participate in any recession; they’re optional… not mandatory! Create a workable plan… then with focus and commitment… work that plan. As mentors, we’re here to help with this.

Click here to take us up on our complimentary, no obligation offer of an mrd “Finance Structure & Cash Flow Health Check”.

Happy Investing,

Nick Lockhart

mrd customer care program… because investing is personal

‘How old are you?’ ‘I’m four and a half!’ You’re never thirty-six and a half. You’re four and a half, going on five! That’s the key

You get into your teens, now they can’t hold you back. You jump to the next number, or even a few ahead.

‘How old are you?’ ‘I’m gonna be 16!’ You could be 13, but hey, you’re gonna be 16! And then the greatest day of your life…. You become 21. Even the words sound like a ceremony YOU BECOME 21. YESSSS!!!

But then you turn 30. Oooohh, what happened there? Makes you sound like bad milk! He TURNED; we had to throw him out. There’s no fun now, you’re Just a sour-dumpling. What’s wrong? What’s changed?

You BECOME 21, you TURN 30, then you’re PUSHING 40. Whoa! Put on the brakes, it’s all slipping away. Before you know it, you REACH 50 and your dreams are gone.

But wait!!! You MAKE it to 60. You didn’t think you would!

So you BECOME 21, TURN 30, PUSH 40, REACH 50 and MAKE it to 60.

You’ve built up so much speed that you HIT 70! After that it’s a day-by-day thing; you HIT Wednesday!

You get into your 80′s and every day is a complete cycle; you HIT lunch; you TURN 4:30; you REACH bedtime. And it doesn’t end there. Into the 90s, you start going backwards; ‘I Was JUST 92.’

Then a strange thing happens. If you make it over 100, you become a little kid again. ‘I’m 100 and a half!’

May you all make it to a healthy 100 and a half!!

HOW TO STAY YOUNG

1. Throw out nonessential numbers. This includes age, weight and height. Let the doctors worry about them. That is why you pay ‘them’
2. Keep only cheerful friends. The grouches pull you down
3. Keep learning. Learn more about the computer, crafts, gardening, whatever. Never let the brain idle. ‘An idle mind is the devil’s workshop.’ And the devil’s name is Alzheimer’s
4. Enjoy the simple things
5. Laugh often, long and loud. Laugh until you gasp for breath
6. The tears happen. Endure, grieve, and move on. The only person, who is with us our entire life, is ourselves. Be ALIVE while you are alive
7. Surround yourself with what you love, whether it’s family, pets, keepsakes, music, plants, hobbies or whatever. Your home is your refuge
8. Cherish your health: If it is good, preserve it. If it is unstable, improve it. If it is beyond what you can improve, get help
9. Don’t take guilt trips. Take a trip to the mall, even to the next county; to a foreign country but NOT to where the guilt is
10. Tell the people you love that you love them, at every opportunity

AND ALWAYS REMEMBER:
Life is not measured by the number of breaths we take, but by the moments that take our breath away.

Parents expect (or at least hope) their teenagers would listen to and act on their advice. When they don’t, they allow time and experience be the child’s tutor and settle the matter.

Driving to inspect a property the other day, a friend lamented: “The frustrating thing is that you warn your kids against making unwise decisions. They ignore your advice and when everything comes apart, you are left bailing them out”.

From time to time I experience this same frustration in my role as a Property Mentor; except I don’t have to bail anyone out afterwards. I set out to steer individuals away from potential (and sometimes certain) financial peril, to a life of prosperity, possibility and options. BUT when people are not open to hearing anything that differs from that which they have already concluded… sadly, and all too often, I have no option but to stand back and watch the results of their poor decisions unfold.

IMPORTANT Reality Check!!!

As tempting as they may be, “I told you so” are unproductive and unnecessary words. That aside, I’d be lying if I said I haven’t been tempted to use them more than once.

We are currently in a global downturn and while fear and ignorance drive most people to react… my very strong suggestion is that you do not react, but rather respond! How you respond… especially during these uncertain times, will have a major bearing on your quality of life… five, ten and twenty years from now!!!

Over many years, involved with thousands of investors and would-be investors alike, I have heard just about every rational and irrational argument for why a person disagrees with the mrd set ‘n’ forget model for creating wealth.

• My repeated warning that “When (not if) America sneezes the world will catch a cold” and your need to “Do Something!”; has often been met with indifference
• My repeated warning that “superannuation would fail to deliver all it promises”; fell on deaf ears as Peter Costello offered generous tax incentives for people to put up to $1m into their super prior to 30th June 2007
• Promoting medium density property in built out areas close to infrastructure, employment and services… and explaining that the appeal for house and land out in the suburbs would soon become a thing of yesterday; was many times dismissed on the basis of the books and seminars being peddled by so called property gurus
• Suggesting that commercial, industrial, retail, holiday let and serviced apartments etc were speculative investments and best to be avoided given they were very much subject to prevailing economic conditions; was misinterpreted by some as me simply being narrow minded
• Pointing out that well researched, very selective residential property was predictable and safe; was often ignored because the out of pocket expenses were higher than alternative purchase options
• I could go on and while it’s tempting I won’t. Check out an Information Session I held in May 2006… long before the words Subprime, Credit Crunch, Freddie Mac or Fannie Mae were known to most. The warnings were clear and in hindsight I suspect you’ll agree. Check it out online [click here]

I am not saying any of this as a “I told you so”; far from it! I am addressing this because I am concerned that history is repeating itself. Many people made unwise decisions and failed to navigate through the good times. I now see many of those same people making emotive and reactionary decisions in an attempt to navigate through these tough and uncertain times. In my opinion, they are likely to live in regret… not long from now.

Not for a minute do I suggest irresponsibility when it comes to investing; either in good times or bad. For many, right now is a great time to invest… for others it is definitely not. The challenge is to understand which group you are in. Irresponsibility can be as much about not acting on opportunity as it is about acting under ignorance, fear or emotion.

Whatever you decide to do or not to do, please don’t take your advice from people’s opinions, the media or any person who does not have the runs on the board (yourself included). A great carpenter can offer great advice on your renovation but he cannot give you any worthwhile medical opinion. A great accountant can record your financial transactions from last year and prepare a tax return, but unless he has successful experience as an investor his university qualifications will be of little assistance to you when it comes to making sound investment decisions.

Neither our strategy nor message has changed over the past 18 months; it hasn’t needed to. “If it aint broke don’t fix it”!

There are many ways to make money from investing. You need to learn enough about the different asset classes to make a decision about which strategy is right for you, then learn all you can about your chosen niche.

- There are basically three asset classes; shares, property or cash.  Managed funds direct investment dollars into these same three asset classes on your behalf.

- There are various different ways to invest within each asset class.

- In my experience, cash has not historically given returns that I would be happy with.

- The stock market is far too volatile.

- My obvious choice is property; as you know.

- Within the asset class of property there are various ways to invest.  You can trade, speculate, use options, renovations and/or buy and hold.

- Our niche is buy and hold. Why?

- Safety, reliability, proven consistent performance as well as “set ‘n’ forget; for busy people”

- If you choose buy and hold… what type of property; commercial, industrial, agricultural, retail or residential?

- Our niche is residential. Why?

- Safety, reliability, proven consistent performance as well as “set ‘n’ forget; for busy people”

- If you choose residential, what type of residential?  Holiday let, serviced apartments, retirement or over 55′s villages, units, townhouses or houses?

- Our niche is permanent let residential, units, townhouses or houses. Why?

- Safety, reliability, proven consistent performance as well as “set ‘n’ forget; for busy people”

- If you choose this same niche how are you going to acquire them; second hand, new or off the plan?

- Our niche is new or near new. Completed or more commonly, off the plan. Why?

- Safety, reliability, proven consistent performance as well as “set ‘n’ forget; for busy people”

- Once you build a portfolio what are you going to do with it?  There are probably as many ways to use a property portfolio as there are ways to build it.

- Our niche is buy and hold long term – seldom sell. Why?

- Safety, reliability, proven consistent performance as well as “set ‘n’ forget; for busy people”

- NB: Each time I gave in to temptation and deviated from this niche, I lost money! So, some years back I stopped, no matter how tempting the distractions have been.

My sincere hope is that 12 months from now, when kicking off 2010, you will look back on 2009 and identify measurable progress towards your goals. Yes, it will take some guts… yes, it will take faith and yes, it may even take some swimming against the tide (of popular opinion). But what is the alternative?

Be real with where you are at now, be responsible with your decisions going forward and draw on the knowledge and experience of a team you trust, who have the “runs on the board” and who have YOUR best interests at heart.

• Quit putting your retirement plans into the “too-hard” basket; or retirement living may be just that… “too hard”!
• Don’t put your head in the sand and do nothing; you will get run over
• Remember, if you are not pressing forward; by default you are slipping backwards; there is no standing still

Of course I passionately believe we @ mrd are best positioned to help you; for many reasons including:

• Investing is personal
• Our Customer Care Program is unique and will work for you; as it does for people from different situations, incomes, commitments and so on
• Our system is low risk and designed to help you reach your destination without “crashing” along the way
• Our efforts are underpinned by solid research
• We teach you the how to and why to; but leave you to buy… not us to sell

So if in the midst of financial turmoil, negative media and confusion you are wondering what actions will best serve your medium to long term interests; I challenge you to test us. Why not take us up on our offer for a no obligation, complimentary “Financial Structure & Cashflow Health Check” [click here]?

Pigs don’t know that pigs stink and you don’t know what you don’t know. When it comes to your family’s financial future, don’t be like a teenager who knows it all and refuses to listen to the right people. Learn to navigate through 2009 and beyond… and prosper.

Happy Investing,

Nick Lockhart

mrd customer care program… because investing is personal

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

In last weeks fa@mrd we looked at HORRIBLE DEBT. This week, we will continue our debt series by looking at the 2nd types of debt…

TOLERABLE DEBT

We have now established that HORRIBLE DEBT describes the type of debt that does NOT attract any tax deduction… and is used to purchase things that go down in value; typically consumer… or credit card debt.

TOLERABLE DEBT as the name implies, is not all bad… but neither is it all good! Put simply, TOLERABLE describes that type of debt that (as with Horrible) will NOT attract any tax relief, but is used to purchase appreciating assets… things that go UP in value.

Typically, tolerable debt is used to buy the family home (appreciating art could also fall into this category). Most of our industry peers and analysts tend to put all debt into one of two categories… good debt and bad debt; where the family home is considered bad debt. WE STRONLY DISAGREE WITH THIS VIEW… and while acknowledging that the family home is not good debt… neither do we believe it’s fair to put it into the same category as credit card debt for that new plasma screen television. The family home will at least go up in value (historically well located residential real estate close to services & infrastructure doubles in value each 7 year, on average). Even without any taxation advantages that is still not to be sneezed at… and while you may have not made a real profit after allowing for repayments and overheads, you would have had to pay for a roof over your head anyway.

Ironically, Australians continue their ‘love affair’ with debt… completely about face!

We embrace and commit to far too much Horrible debt…

then have a tendency to take on a little too much Tolerable debt…

then fearfully shun or at least embrace far too little Productive Debt… the only sort of debt that qualifies to be called a ‘friend’.

Next week, our friday afternoon @ mrd will focus on the sort debt that we (personally) want more of, not less…

…this is the type of debt that is essential to somebody looking to create wealth… as indispensable as a paintbrush is to a painter…Yes… PRODUCTIVE DEBT!!

Happy Investing,

Nick Lockhart

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

A well know finance industry figure recently launched a series of seminars. After reading the professionally crafted sales email, designed to invoke fear and panic and have me rushing to attend his paid event, I decided to address what appears to be a case of insincere opportunism.

Studying the world of global finance since last year is his authority for making such predictions. He proposed failure within our financial system is so systemic it is irreversible;  concluding our property market would soon crash.

A man (or a woman) with an experience is never at the mercy of a man with an opinion.

I lose respect for those who prey on the unsuspecting; profiting from their fear. My criticism is not isolated to this example; there are numerous other ‘self appointed experts’ seducing the vulnerable. Fear of the possible fallout from the global credit crisis has provided a perfect vehicle for some to sell seminars, newsletter subscriptions and various services… such as finance broking in this instance.

Let me quote a line from the robot on the TV show Lost In Space:

“Warning, Warning; Danger Approaching”

Step 1 of this sales process: You’re at work when an email arrives. Negative from start to finish, it leaves you feeling “sick” with fear and despair. Having watched 60 Minutes last week… and listening to the guy who works next to you, your emotions were already frail. Now confusion reigns, you wonder if your security might collapse about you. “Why not”, you say to yourself; and in a scared moment you whip out your credit card and register for this event. After all, times are tough and you don’t want to live a life of regret.

Step 2 of this sales process: You take your seat after having spoken with no less than 8 other concerned investors. You’re glad you made the effort to attend; those who didn’t must be in denial, you think to yourself. The meeting starts and soon come the charts, the graphs and lots of complicated information. You don’t really understand all this stuff about Australia’s debt to savings level and income and productivity, etc; but the guy speaking seems to know what he’s talking about!

At work the next day you discuss everything best you can with the guy next to you. He’s happy that you are coming round to his way of thinking… after all misery loves company. You believe that you need to have your properties refinanced NOW before their values drop. The guy from the seminar will handle it for you.

Follow The Timeline:

• Fear and uncertainty has prevailed for some weeks now
• You receive an email, written by a paid professional, that left you feeling that you should to attend his paid seminar
• Once there you’re convinced your greatest chance of surviving the impending property crash is to refinance your properties now
• You are given new lines of credit against the increased value of your properties
• You are encouraged to draw down all you can from those new lines of credit and deposit the money safely into an offset account against your loans. Why? To protect you from a so called margin call from your lender; after property values drop. NB: A broker is not paid a commission until a loan is drawn down

When consumer sentiment is low and people are fearful, this will perhaps sound like wise rationale! Caution is recommended, however, whenever someone offers to rewrite existing loans. The benefits to you should always outweigh the costs you will incur.

NB: These seminars are in the future so I may be completely wrong; but if it smells like a duck, waddles like a duck and quacks like a duck… chances are… it’s a duck!

Don’t be unwise when it comes to the buying or selling of assets. Prudently managed, DEBT can be your best friend. Get on the wrong side of it and it’ll whip you.

If I am wrong and just being overly optimistic, why has the Reserve Bank, the Federal Government & the Treasury Department not made a huge “song and dance” and sounded the same warnings as I read in the seminar invitation? Are they avoiding a panic, asleep at the wheel… or is someone being opportunistic right now?

If we had not had a change of government almost 11 months ago you could be forgiven thinking it was in the government’s interest to hide any damage caused by years of financial mismanagement. The political hype over who are the better economic managers and an eternal desire for politicians to score political points puts that theory to rest, however.

If the dire predictions of this individual selling his seminar were accurate:

1. The new Government would be busy warning us of the “problem left to them by the previous government”. There is just 2 years until the next federal election
2. The treasury department would be warning the government. They are employed public servants, they don’t have to face the electorate… but would be blamed if they failed to sound a clear warning and things went really bad
3. The Reserve Bank would say so and adjust monetary policy to prepare the economy. Again, they do not have to face the electorate every 3 years. Putting up interest rates during last year’s federal election is pretty compelling evidence that the decisions they make are outside of politics

I don’t take financial counsel from someone with an opinion. To me these seminars are an opportunistic way of capitalising on genuine concern and fear in the marketplace.

If the merchants of doom we have heard in recent weeks are correct; then I am wrong; but so are:

• Michael Matusik: A long standing, respected, property industry analyst who is selling his reputation and his analysis, not a product or seminar.
• The numerous respected economic forecasters; such as at the ANZ bank. Our banks are sound, secure & profitable at a time when the global industry around them is not.
• Warren Buffett: One of the richest men in the world. He says “Be Fearful When Others Are Greedy  And Greedy When Others Are Fearful”.
• Glenn Stephens: Governor of the Reserve Bank
• Ken Henry: Secretary of the Treasury Department
• Wayne Swan: Treasurer
• Lindsay Tanner: Finance Minister
• Kevin Rudd: Prime Minister
• Malcolm Turnbull: Opposition Leader (and multi millionaire former businessman & merchant banker
• Julie Bishop: Shadow Treasurer
• Etc, etc

There will be many people with many opinions in times of uncertainty. Just remember that not all of them have your best interests at heart; so let the decisions you make be informed and considered.

Happy Investing,

Nick Lockhart