“Every time I interview Australia’s academic bear – Associate Professor Steve Keen from the University of Western Sydney (he predicted a 40% slump in real estate prices in Australia) I always need a positive booster to remind me that the Australian economy is an out-performer and looks poised to beat the global worst case scenarios put forward by other bearish or negative economists.”

The Good News

Expanding Economy

The best news was that our economy expanded by 0.4% in the March quarter after contracting by a revised 0.6% in the December quarter, and it meant we dodged an official recession. This was a real confidence booster for consumers and business owners who were wondering when the worst of this economic downturn would hit.

After this reading, CommSec came out and predicted the economy would probably grow by only 0.6% this financial year, but 2.1% growth for 2009-10 and then a big 4.1% growth for 2010-11.

Retail Sales

The month of May kept the merriment coming with retail sales rising by 1% after going up 0.3% in April. In annual terms retail sales were up 7.1% on a year ago and this is the biggest annual increase since December 2007.

Housing Prices

On the real estate front, the RP Data-Rismark Hedonic Australian Home Value Index rose by 0.9% in May and by 1.6% over the year. In the first five months of 2009, Australian dwelling prices were up 3.9%, translating to a 9.4% annual rate

Business Confidence

The NAB measure posted its biggest monthly gain in eight years. It was helped by a positive global share market and promises of big infrastructure spending.

The monthly business survey showed business confidence rose 12 index points in May to minus-2 index points, the largest one-month jump since May of 2001. The index went to the highest level since February of 2008.

Consumer Confidence

The Westpac-Melbourne Institute consumer sentiment index recording the biggest back to back gain since records started 36 years ago. The index rose by 9.3% in July, which is a 19-month high.

Our Biggest Trading Partner

In China retail sales in May rose to an annual rate of 15.2% annual rate and industrial production expanded at 8.9%. Chinese banks lent a record 5.83 trillion Yuan in the first five months of 2009 more than the minimum yearly target of 5 trillion. And finally, CommSec reports that China’s urban fixed asset investment for spending on roads, power plants, etc. grew at annual rate of 32.9% in the first five months of the year. This was the largest increase recorded in the last five years.

The Bad News

As Peter Switzer says “Regrettably, I have run out of room for the bad news, so that will have to wait for another day. I will try to remember to do that, not!”

http://au.biz.yahoo.com/switzer/finance/15072009/note_good_news.html

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/

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

Now things could happen over the next few days to change that. For example, the Federal Government announcement concerning the next round of stimulus to be announced. Factors such as this cannot be properly considered at the time I am writing this.

Initial evidence suggests the Federal Government’s cash handouts in December ’08 fell short of having the desired effect. It needs to be noted, however, that official reporting on Christmas spending last month has not yet been released.

Assuming the cash rate will move down by another 1.25% (to 3%) by early March… I see two options before the RBA when they meet next Tuesday:

1. Move rates down by just 0.5% in February while waiting for official figures to indicate exactly how much impact the 1st stimulus package had on Christmas spending. This option would also allow the RBA time to digest the detail of the 2nd stimulus package and assess its likely impact. NB: 2nd stimulus package will be announced soon… possibly this week end.
2. Move rates down by a full 1.0% in February and not risk losing another month whereby the economy could be further stimulated. If they take this option and risk “over cutting” rates next Tuesday they can then put the brakes on a little and do less the following month.

Of course there could be any number of other options and the net effect is that the next two months could see the official cash rate fall below 3%; that is certainly not out of the question.

Personally I suspect the RBA will view their responsibility of overseeing monetary policy with much caution next week and attempt to make a significant contribution to boosting both business and consumer confidence quickly.

At this time our economy is quite fragile and to ‘play it safe’ would seem the most responsible course of action the RBA could take. Managing inflation is no longer of primary concern. Even so, inflation has been taken care of anyway. Falling commodity and labour prices has rectified any inflation problems we were considered to have a year ago… adding to the argument for lowering interest rates.

Have you heard it said that “in every adversity lies the seeds of a bigger and better opportunity”?

This is not just a string of nice words, but a profound truth. The bigger the adversity, the bigger the opportunity. Assuming we understand that influences of “supply & demand” and “herd mentality” on values (even though in the short term aberrations may occur); we will be better positioned to SEE the bigger and better opportunities available now.

• I believe there are more pessimists than optimists; it’s easier to be negative just as it’s easier to grow weeds than flowers
• When it comes to matters of finances, more people are more influenced by their emotions than facts
• If “everyone else” is doing it… so will we
• In Australia we have a growing demand for housing continuing, with a very limited supply
• Confidence is at an all time low; albeit without justification in many instances
• Some developers have gone out of business, others have put the brakes on until they see the property market pick up… many of the rest would still construct if they could find a bank to lend to them
• If the source of this supply problem was fixed overnight, it would take years before the solution worked through the system resulting in sufficient numbers of additional completed housing
• Those who hold property today can look forward to the benefits of significant capital gain… resulting from the next up-cycle
• Up-cycles follow seasons where housing is considered affordable
• With interest rates quickly falling (and to levels most Australians have never seen in their lifetime) and rents being forced up by the growing demand (with lack of supply for years to come) housing will soon be considered VERY affordable

The numbers look really good now and are only going to get better. This gives me confidence that broadly appealing residential property, in sought after locations… will, over the next few years, grow significantly in value. The doomsayers and their followers will have about as much credibility as a cult leader and his key disciples.

My Suggestion:

Assuming you have had an analysis run on your personal situation and understand the associated costs and responsibilities of both buying and holding real estate… now is a fantastic time to buy – i.e. for those who subscribe to the mrd buy/hold strategy (if you’re a property speculator, trader and/or renovator – “good luck & may the force be with you” – ha, ha)

My property portfolio is just about always adding to my wealth. Either my property values are increasing; and adding to the amount of equity I have to work with… or the rents are increasing; and adding to my income base. Remembering that to acquire more property we must demonstrate to our lender sufficient equity and income… I am always winning with real estate.

Safety In Numbers:

People feel safer in numbers; that’s why the herd mentality is so prevalent… but recent history has shown that if you followed what was popular you may have lost half your super or shares etc. I believe real opportunity (like risk) comes from our knowledge (or lack thereof) and our willingness to “swim against the tide” of popular opinion.

Interest Rates & Holding Costs:

Currently the CBA offers the lowest professional package interest rate; just 6.04%. If I am right and rates come down by another 1.25% (or more) over the next 5 weeks… and even if it were not all passed on, we would be looking at being able to borrow for about 5%!

That means the total interest bill on a property that cost $400,000 (assuming you borrowed 100%) would be more than covered by a weekly rent of $385. Now I know that there are council rates, body corporate and rental management fees etc to come from this… but so too there are tax deductions and the strong likelihood of more rent than $385 a week. Watch how, when the numbers change so much in such little time, even the herd will see the opportunity! And when they do… we will have our next up-cycle.

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

Forty per cent of respondents said their priority in 2009 is to buy property, an online survey by mortgage broker Loan Market Group revealed.

>>>> Property a safe haven compared to shares in 2009 | The Daily Telegraph.

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

Last month there was talk that the RBA would drop official interest rates by 50 basis points or 0.5%. I believed there was justification for them dropping rates by a full 100 basis points; or 1%. I kept my opinion to myself and as history has shown, they did…

The majority of the talk from economists, journalists and commentators is that this afternoon the RBA will reduce rates by another 0.5% (50 basis points). A few economists disagree and say that with inflation still high and the impact of the Australian Government’s stimulus package yet to kick in (in about a month they unleash $10.4b on the economy) there will be no rate cut… or perhaps just 0.25% (25 basis points).

I disagree. Personally I believe there is justification for a rate cut of at least 0.75% and perhaps another full 1%.

Yes we have higher inflation, but the job of the RBA is to keep it between 2% and 3% over the cycle and right now the need to avoid recession is paramount. With the exception of Qld & WA (the resource rich states) the rest of Australia – especially NSW – is doing it very tough. Our biggest threat is that unemployment will rise out of control, further fuelling a drop in both business and consumer confidence; already pushed lower than has been economically justified, by irresponsible negative journalism and those ‘painful pessimists’ being given way too much air play.

I can no more pick what the RBA will do than I can a Melbourne Cup winner… but I can offer Nick’s opinion that the announcement of just a 0.5% rate cut this afternoon will only be “tinkering at the edges”. Personally I half expect the Reserve to go further. Regardless, today’s announcement means a happy day for Katrina and me. Who needs to pick a winner on the horses; we are guaranteed a BIG win?

Christmas is just around the corner, presenting the RBA with a natural stimulus OPPORTUNITY before we hit December and many businesses start to wind down. As mentioned the government’s $10.4b stimulus package will kick in in a month and yes that will help. Leaving a rate cut above 0.5% until December (or worse; early 2009) will miss a window of opportunity to give the Australian economy a serious inoculation against very low business and consumer confidence.

I think Melbourne Cup Day 2008 could see a lot of Australian’s and Australian business owners celebrating a great win when the RBA makes it’s announcement this afternoon. If so, don’t be overly surprised. Globally speaking our interest rates are still high and the RBA is mindful of the many businesses contemplating letting staff go prior to Christmas. I believe that some better than expected news is just what is needed.

The government’s stimulus package will go a long way towards getting consumers spending. This will create jobs and lift business profits. My justification for suggesting the RBA could go even further than economists expect is more about confidence and employment than it is about spending, however.

Do you read my articles in our Friday newsletters? I hope you do… in which case you would already know that I have my considered views on many subjects economical. I am not on the RBA board and have no say in what they do to interest rates. So regardless of how far they may move this afternoon, I believe there remains an argument for a cut of at least 0.75%; with more to follow in the months ahead!

CELEBRATE because whether or not you bet on horse races… every mortgage holder will this afternoon celebrate some sort of a financial windfall!

Happy Investing,

Nick Lockhart

PS: Have you been “freaked out” lately thinking house prices in Australia are about to crash by up to 40%? IMPORTANT!!! Before you act on fear, emotion, the counsel from media and/or those pessimists (who are W.R.O.N.G. by the way), why not get the facts? You can register for FREE to participate in one of two web seminars I am hosting – tomorrow evening and next Wednesday evening. I will clearly articulate FACTS and you will go away encouraged!!!

Click here to register for our FREE web seminar now

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

Many average people all over Australia would have gone to bed last night gripped with fear. Sections of the media are loving this. Parasite is the best word to describe those who feed off others. This sort of irresponsible journalism (and 60 Minutes are not the only guilty culprits) was akin to the paparazzi attempting to take photos of the misfortunes of a well known figure with complete disregard for the impact their actions may have on “their victims”.

The attitude of “the end justifies the means” does not wash with me… sadly it does in many segments of the media, however.

Here’s what Katrina had to say about what she saw… She’s so fired up I think she’s going to send it in to the 60 Minutes mailbag:

That would have to be the most irresponsible journalism I have ever seen.  Tabloid journalism!  You began with “so what’s behind this crisis”.  Had you actually researched what was behind the crisis and the very fundamental differences between the US and Australia instead of using the worst case scenario victims and the most pessimistic economist to paint a picture for all Australians, people may have the opportunity to “think” for themselves instead of being railroaded with emotion and fear.  Confidence is a critical factor in the economy but you successfully managed to remove any hope of that for the average Australian watching your show.  The government is attempting to bring some confidence back into the market but the media continually undermine that.  The media have a lot to be accountable for in this current economic climate.

Did you read Part 2 of my current DEBT series writings? I called it DON’T PANIC. Click here

Happy investing,

Nick Lockhart

As an ‘aggressive’ property investor and someone leading others, I am very mindful of my responsibility to be sober and considered in my views.

Successful people swim against the tide of popular opinion. They carefully consider facts before making decisions of far reaching consequence. As the events in America bring on a feeding frenzy for those with an opinion (and often an agenda); the need for sobriety is needed now more than ever.

My Considered Opinion:

Recent global events in the credit market haven’t altered my long standing confidence in selective residential real estate. I expect my investment strategy will ultimately defy some of the broad-brushed statements being tossed about by a few pessimistic economists; who ironically have had most of the recent television and radio airplay.

Many hours have gone into penning this article… I trust the few minutes it’ll take you to read will deliver real benefit.

Let me start with some background to put into context my thoughts…

I don’t like exaggeration, manipulation or dealing with people in business who lack a conscience. If I really thought the sky was going to fall in… I would close my business and go and do something else; but I am incredibly optimistic about the future. Katrina and I are looking forward to the settlement of our next investment property; about April next year, after the three we have settled since November ’07.

I listen, read and engage. Some follow cricket; I closely follow politics & economics with focused attention on monetary and fiscal policy. I consider the opinions of political leaders, economists, analysts, journalists, commentators and so on. I like to get inside their head-space in an attempt to understand the “why” behind their logic. It’s fair to say I am influenced by the many voices… but my conclusions will come back to basic fundamentals; and so should yours.

Over supply and lack of demand undid the property market in the USA… and the lack of investor confidence has undone many other investment markets. My investment exposure is limited to a market dominated by owner occupiers (i.e. the housing market). It will continue to perform on the basis that everybody needs a roof over their head (and I am really selective in where I buy).

Those who cannot afford to buy… rent. Australia has an existing housing shortage, a growing population and increasing (record) immigration numbers. The supply side of the equation has been hit hard by interest rates in recent years, so unlike America where homes were built to satisfy greed rather than need; my attitude is “DON’T PANIC” (as famously quoted in “The Hitchhiker’s Guide to the Galaxy”).

BEWARE of irresponsible borrowings! There are three types of debt and it’s vitally important to understand their differences:

First there is what can only be described as HORRIBLE DEBT

Horrible debt refers to debt used to purchase consumables, or things that depreciate… bought with after tax dollars (that is no tax deductions). Cars, furniture, televisions and all general credit card debt best describe this category. Clear what horrible debt you have as soon as you can and quit taking on any more. The interest free deals at Harvey Norman are not a good idea; unless you have the cash and temporarily park it in an offset account against your home loan until the interest free period expires.

Then there is TOLERABLE DEBT

Tolerable debt refers to the type of debt we incur when purchasing an item (such as the family home or a valuable piece of art) that appreciates in value, but offers no tax relief.

The “Great Australian Dream” ought not to be mortgaged and in debt struggling for 30 years, just so you can say “we have a home”. In my opinion, the great Australian dream is being a self funded retiree, while you are still young enough to enjoy it. To this end it may make more financial sense to accumulate property that others rent from you… while you go and rent something to live in. It’s horses for courses and no, one size does not fit all. That’s why our decisions need to be sober and considered, but only after we have defined our desired outcomes and we have the knowledge necessary to make such decisions.

Finally there is the good kind of debt that I like to call PRODUCTIVE DEBT

Because productive debt works for me, it’s the type that I want as much of as I can responsibly get my hands on! Productive debt is used to buy items that appreciate in value… And it also ATTRACTS TAX RELIEF. Borrowing to invest into property falls into this category and, done responsibly, is still the gateway to your financial freedom!

The danger we face is that we throw the baby out with the bath water, stick our heads in the sand and see opportunity pass us by again… for another season of our lives.

DEBT & RESPONSIBILITY

Sadly, I see too much evidence of people embracing one of two extremities with the following results:

1. Financially destitute people; due to their investments going bad
2. Financially destitute people; due to them failing to plan and take action for their “financial tomorrow”

Please don’t wake up one morning and find yourself in either camp; it’s completely avoidable. I believe that these difficult times serve to reaffirm the urgency of:

• Taking responsibility
• Being rational and considered in making financial decisions
• Blocking out the noise, hype and sensationalising of current events
• Not being dictated to by fear; which is generally ill-founded anyway
• Accumulate assets (albeit with conservative discrimination)

It’s always been provocative, however, my opinion is that safety comes by discriminating against those asset classes that investors predominately drive; anything other than residential real estate.

I “preach” fiscal responsibility. That does not necessarily mean do nothing so as to protect what you have; but subject to your debt levels and ability to service that debt… it may! We need to also consider opportunity cost, because time and inflation ensures standing still is really a backward step.

We need some sober balance to counter all the misguided, broad-brush, simplistic hysteria being screamed at us. Yes, some pretty scary stuff has been going down lately. Yes, many people will sadly see their nest eggs disappearing. Personally I am not convinced that the stock market will recover in a hurry and I think there is a justifiable reason for some concern surrounding the property market. However, those with well located, residential real estate… in areas of growing demand and limited supply; closely positioned to infrastructure and essential services… that offers lifestyle and employment options AND priced in the median bracket for such an area… should dig out an old copy of “The Hitchhikers Guide to the Galaxy” and take advice from the front cover “DON’T PANIC”!

You would be so forgiven for tuning out right now and saying “you’re only saying that because mrd deals in just residential real estate”… EXCEPT that I am on record everywhere for over 6 years as saying the opposite! Namely, mrd only deals in residential real estate because what I have outlined above is what I have believed and promoted; even when stocks were flying high!

We live in a society (world) that is debt propelled… so I am going to continue this theme of debt for at least a few more weeks. Please click the link above the top of this newsletter to pass this article/blog onto others who you believe would benefit from a sober & considered voice on the topic of responsible debt. I have attached a couple of relevant PDF articles that I encourage you to download and read… as well as some commentary snippets from others that I believe have a more considered view on the future of residential real estate, than some commentators getting much of the current airplay.

Happy Investing,

Nick Lockhart

No Rent Relief in Sight as Demand Remains High; say experts:

RP Data state research director Tim Lawless said demand for rental properties – far outstripping vacancies – had driven rents up sharply. He said while the Federal Government’s boost to the first homeowner’s grant would probably deliver a “minimal” increase in rental vacancies, in the long term it would not be enough to match demand. “We have such a dramatic undersupply (of properties) I really can’t see rents falling,” he said.

Download “This is Australia – Not the USA” – RP DATA Property Pulse

ANZ Property Outlook September 2008:

With evidence of a slowing economy, a series of interest rates rises to digest and falling house prices in overseas markets, the question needs to be asked: are house prices going to fall in Australia? We think not. Australian established house prices rose almost 8% in the year to June 2008 and are up nearly 10% per annum over the past decade. Following a brief respite in 2004, triggered by two interest rate rises in late 2003, house prices re-accelerated for a few years before softening into 2008, again in response to interest rate rises.

Download “ANZ Property Outlook September 2008“

Boost to the First Home Owners Grant:

In response to the Rudd Government’s announcement this week to boost the First Home Owners Grant, Opposition Finance Spokesman Joe Hockey warned the housing package could backfire. “There is a danger that this initiative could push up house prices,” he said. “It might be another way to help out the banks because it pushes up the value of bank securities against existing mortgages”.

Link To: Property Market Results Defy Doom & Gloom Merchants