But Did The RBA Get It Wrong?

It will be interesting to watch what they do with interest rates in the months ahead. Their actions will be an indication of whether this months decision to leave rates on hold was the right one or not.

At the beginning of 2008 the RBA put interest rates up twice. At the time the opposition argued that the decision to do so was wrong and a reaction to Kevin Rudd & Wayne Swan talking up inflation; citing it as the # 1 enemy to go after. What they failed to recognise was that the negative economic impact coming out of the USA had already begun to work its way through the system and here in Australia the economic slowdown was just about to bite.

The numerous interest rate cuts later in the year is clear evidence that monetary policy in the early part of 2008 was wrong.

As it turns out, 2008 was not a year where inflation was our major concern. In fact, before the year was out the global slowdown put an end to inflation as global demand for goods and services fell away and prices began collapsing.

Nick’s Opinion

Personally I think:

• Our economy still lacks the overall business and consumer confidence needed to see things turn around
• Banks are still being very difficult to deal with when it comes to businesses wanting to borrow money etc
• That the next round of federal government handouts (the stimulus package) will not have as potent a short term impact as expected or needed
• Unemployment continues to be the worrying issue and unless small business gets some relief the negative employment trend will not be arrested

It’s just an opinion and I may be wrong, but for reasons including those above, I expect we will see further cuts to interest rates. I also see justification for the extent of further rate cuts to go further than most economists are currently predicting.

The question: “Did the Reserve Bank get it wrong in March when they left interest rates on hold” draws a divided response; and only time will tell.

The RBA’s decision to leave interest rates on hold this month was either (1) A positive vote of confidence in the Australian economy, or (2) A mistake… that will be corrected in the months to come.

Outlook For Property Investors

Current conditions are actually ideal for investors… regardless of whether or not the RBA moves on rates further.

• Property can be purchased at fantastic prices; most, if not all, developers could be classed as “motivated vendors” right now
• Interest rates are the lowest they have been in our lifetime
• Australia is in the midst of a massive housing shortfall

For anyone with a job, the current climate should be as easy as it is likely to ever get… when it comes to creating wealth! Don’t let this open door close before you act!

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

Finance Structure & Cash Flow Health Check

Prevention is better than cure. A complimentary, no obligation Finance Structure & Cash Flow Health Check may save you (literally) tens of thousands of dollars, see the mortgage on your home cleared quicker and open up opportunities that would otherwise have passed you by.

Yes please! Follow the link below to securely send us the information we need to complete this on your behalf:

https://www.investmentmentor.com.au/bca.php

Case studies of other mrd clients that have undertaken a financial health check:

http://investmentmentor.com.au/2009/02/20/property-investor-crash-victims/

Some people are simply confused right now. They have heard so many mixed messages in the past 18 months that they are unsure if now is a good time to step out and invest… or hold back and minimise their commitments.

If that’s you, don’t stay confused. It’s only when we have the right information that we can make fully informed decisions.

• Keep asking questions
• “Lash out” and have us prepare a Finance Structure & Cash Flow Health Check (there’s no cost anyway)
• Explore your retirement possibilities; not based on what you have done to date but what is possible in the next 7 to 10 years

To have us assist you, click here

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

• Save you (literally) tens of thousands of dollars
• See the mortgage on your home cleared quicker
• Open up opportunities that would otherwise have passed you by

Yes please!

Follow the link below to securely send us the information required to prepare this for you.

https://www.investmentmentor.com.au/bca.php

To view case studies of other mrd clients that have undertaken a financial health check with us, see below.

http://investmentmentor.com.au/2009/02/20/property-investor-crash-victims/

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

Marion and I started buying in a 90/10 split because my income was $42k and hers was $18k. Later we ran our own business and income split so property purchases then were made at 50/50. It is important and can save you thousands of dollars a year.

Understand that the term “joint tenants” automatically means 50/50 or equal ownership between purchasers whereas “tenants in common” can be any percentage split.  As joint tenants (50/50) the death of one means the property reverts to the other partner. If tenants in common the death of one means their share is disposed of as dictated by their will (check with your accountant on this). Unfortunately once a property settles the ownership is fixed and mistakes cannot be easily undone, without huge costs in stamp duty.

Let’s look at a fairly typical example of a couple (call them Gary & Jane) buying two Investment Property Purchases; one then the other. Gary’s taxable income is $55k p.a. and Jane’s is $20k p.a.

PURCHASE # 1

After settling purchase number one, “The Wharf” in Robina for $459,000, and assuming you capitalise your expenses (if you are not sure what that means; please ask me to explain – it’s important), the results are as follows:-

50/50 Split

• $20 weekly holding costs
• Taxable incomes now reduced to $40,000 and $10,000

90/10 Split

• $40 a week POSITIVE cashflow and a $60 a week difference to the bottom line!
• Taxable incomes now reduced to $32,000 and $18,000

PURCHASE # 2

After the second settlement; this time using a $335,000 apartment @ “The Beaches” in Cairns as an example. Using Gary & Jane’s NEW reduced taxable incomes to calculate their cashflow position after the second purchase, and again capitalising the expenses.

With a 50/50 Split and using the new taxable incomes of $40k and $10k p.a. Gary & Jane are $53 a week positive cashflow better off!

If they had opted for a 90/10 Split on the first purchase I would then use incomes of $32,000 and $18,000 respectively to calculate the cashflow result after a second investment. Again assuming Gary & Jane purchase as tenants in common and split the ownership 90/10, the positive cashflow outcome improves and becomes $57 a week.

In your circumstances, as you purchase more property you may need to alter the split to favour one person or the other to get maximum tax benefits. We would never suggest you “push the envelope” with the tax office, nor do we offer any of these personal thoughts and experiences as investment advice; just food for thought. It is important that you understand your entitlements and take action to benefit from them.

Happy Investing,

Martin Bell

mrd Customer Care Program… because investing is personal

What Benefits Are There In A Financial Health Check?

Read case studies…

http://investmentmentor.com.au/2009/02/20/property-investor-crash-victims/

Yes please…

I would appreciate a complimentary Financial Health Check

http://www.investmentmentor.com.au/contact.htm

We have the software to prepare a complete financial analysis of the investment properties you have purchased through mrd to reveal what  the shortfall or surplus is each week; that is… what is it costing you to hold the property or how much is being put back into your pocket each week?

The changes in interest rates have changed most peoples cash flow situation significantly.  Many are now positively geared.

We will also give you an indication of what we believe your property is currently worth.

In order to complete this accurately for you we will need you to supply the following information:

• Taxable incomes before deductions allowed by your properties (this would be your gross taxable from your wages income or business distribution, after any salary sacrificing but before any property deductions.)
• Ownership percentages
• Loan amounts used for each property and the interest rates
• Property Purchase Cost
• Estimate of Current Value
• Body Corporate
• Rates
• Weekly rental
• Depreciation estimates (these are available from your depreciation schedule)

If you are an existing mrd property purchaser and would like to take advantage of our offer to prepare for you an up to date “Cash Flow Analysis Report” on your existing investment property; please click here.

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

SYDNEY (AFP) – Australia’s parliament narrowly passed a 42 billion dollar (28 billion US) stimulus package Friday in a bid to stave off recession in the face of the global economic crisis.

The parliamentary approval leaves the government free to immediately implement its spending plans, with Prime Minister Kevin Rudd stressing the need for swift action throughout protracted negotiations during the bill’s passage.

Rudd was jubilant after parliament backed the plan, saying the package was in the national interest and would help Australia’s centre-left Labor government fight the global economic recession.

“The most irresponsible thing to do today, with the worst global economic recession since the 1930s staring us in the face, would be to do nothing,” he told parliament.

The package includes spending of 28.8 billion Australian dollars on schools, housing and roads over four years, tax breaks for small businesses and cash handouts of 12.7 billion dollars to eligible workers, farmers and students.

Rudd said the Treasury estimated the plan would boost economic growth by 0.5 percentage points in 2008-09 and 0.75-1.0 points in 2009-10, supporting up to 90,000 jobs.

“Without parliament’s support for this plan, growth would be slower and unemployment would be higher,” he%2

>>>>  Finance, Business and Company News – Yahoo!7.

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

Non Capitalised Example:

Weekly holding cost is $32.

Link to full non-capitalised report: Click Here PDF (24kb)

No weekly cost – positive cashflow, $75 per week.

Link to full capitalised report: Click Here PDF (24kb)

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