Not only do we have one of the highest home ownership rates in the world but we also have one of the highest investment rates in the world.

Last year, more than 1.4 million people claimed rental deductions against their tax returns, and 200,000 firsttime property investors are expected to swell that number to 1.6 million this year.

While negative gearing, claiming your losses and cutting your costs are all allowed under our tax system, there are still a high number of mistakes made every year when it comes to property returns. The Australian Taxation Office says more than $25 billion was claimed in deductions on rental properties last year, making real estate one of the largest sources of claims.

Frank Brass, a director of tax company H&R Block, says one of the biggest expenses and often the area where the most mistakes are made is claiming interest paid on borrowings. “If you use some of the money for private expenses, then the interest amount has to be worked out pro-rata – a very expensive process to get your tax agent to do,” he says.

http://www.news.com.au/business/money/story/0,25197,25806877-14327,00.html

Martin comments – I have learnt over the past few years that having a great property is only part of a successful investment. We have seen many people with good properties “in trouble” because they did not set up their accounts and loans properly. Mixing private and investment expenses on the same account , as mentioned above, is one of the common mistakes made. As experienced investors we can show you how we manage those issues for ourselves.

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

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

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

The Federal Government has relaxed rules over foreign investment and it should benefit more than 7500 overseas buyers.

Market flexibility will be enhanced, while compliance costs for temporary residents and the construction industry will be reduced, Assistant Treasurer Chris Bowen said.

The definition of temporary residents will also be aligned with contemporary visa categories.

Under the present structure, all temporary residents and non-residents, including foreign businesses, must notify the Federal Government if they wish to buy a property.

They must also comply with post-purchase conditions, including rules surrounding its use, development and resale.

Residential real estate makes up more than 92 per cent of applications received by the Foreign Investment Review Board.

The changes, to be implemented early 2009, will update regulations that are almost two decades old.

>>> Buying Australian property to be made easier for foreigners | The Courier-Mail.

Figures released by the Residential Tenancies Authority to mX today show it now costs an average $330 a week to rent a two-bedroom home in Brisbane after 10 per cent-plus increases almost across the board since this time last year.

The biggest proportionate price rises are in the outer southern and inner northwestern suburbs.

But the pain is widespread, with rents in only a few suburbs going backwards.

>>>>> Brisbane rents have risen by up to 55% in one year | The Courier-Mail.

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

This month I considered the arguments and reasoning put forward by economists, journalists and commentators; who mostly said that rates were likely to drop by 0.5% (although some argued a case for just 0.24% and others no rate cut). I concluded that the likely rate cut would be 0.75% (or possibly more)…

On Tuesday morning (Melbourne Cup Day), I decided to send out a mid week newsletter to that effect. Our email was delivered to mail boxes about 8 minutes BEFORE the RBA made their announcement. I was not the slightest bit surprised by them moving to cut official interest rates by .075%, but I was completely surprised when I watched the news 7:30 Report, Agenda & Lateline etc to hear how “everybody  had been caught unaware”. “The RBA surprised everyone”; was the opening line on one programme.

It’s important to undertake solid objective research that enables you to conclude a carefully considered position. In these times of uncertainty, where fear is being peddled, like a commodity, this is even more important.

I am not an economist and I am not offering financial advice. I do believe, however, that most people would do well not to quickly dismiss what I write because someone on television said something different or because you think I may have an agenda.

I am not interested in turning my newsletter into one of political and/or economics; however, I am going to offer a few more of my (rambling) thoughts on Interest rates (now & moving forward into the early part of next year)… and on the Federal Governments introduction of a carbon trading scheme; by 2010. If I turn out to be wrong, maybe I will qualify to be called an economist

INTEREST RATES:

• Official Interest Rates will continue downwards and will be just 4% by April 2009
• I expect that the banks that have held off on passing on all of of Tuesday’s 0.75% rate cut will before this month is out

Q: So why did Commonwealth Bank announce that they will only pass on 0.58%?

PROFIT: The longer they hold off passing the full cuts on… the better for their bottom line. Then when they finally do pass on the difference they can grab another round of positive headlines.

POSTURE: Because they can!  After the years of bank bashing in Australia, the banks now feel vindicated for the way they have managed their affairs. After all, look at the rest of the world envying our banking system. They have some ‘poetic licence’ to ignore the external pressures being applied to them and take the attitude: “So are you suggesting we are not doing a 1st class job managing the banking system in Australia”?

Q: Why do I expect that they will pass on the remainder of this rate cut?

They may not, for my two reasons above. Anybody representing Government or a business or consumer lobby group who pressures them to do so can be ignored. After all, our banks are like “modern day hero’s” that have protected us from suffering the same fate the rest of the world has and is enduring.

HOWEVER, I do expect them to pass the full rate cuts on for the following reasons:

1. They have an obligation (moral responsibility perhaps?) on them, having been the beneficiaries of the recent Government deposit guarantee. We the tax payers are the underwriters of this guarantee; which has enabled them access to more funds and has LOWERED their borrowing costs
2. I agree that last month there was a ‘YES’ but this month it’s a ‘NO’ to the argument that the RBA factored in something for banks to hold back on. No, the RBA lowered rates by the full 0.75% for the benefit of consumers
3. Throughout this global liquidity crisis, Australian banks have managed to maintain near record profits. There is massive political, social and moral pressure to “ease the squeeze on working families”
4. Globally speaking, our banks have great strength and are positioned to grow. Lots of opportunity exists right now for strong healthy banks to gobble up some that may be a little “punch-drunk” right now. As an example, the Commonwealth Bank has just acquired Bank West from the Bank of Scotland in a “fire sale”. That just shows how a set of circumstances can means DISASTER for one… but OPPORTUNITY for another (PS: I have chosen my side).

In my opinion, there are so many, many reasons for property owners, investors (& would be investors) to remain optimistic about the opportunities going forward.

While we will experience a significant slowdown and rising unemployment; I don’t believe Australia will enter into a recession. In part because of the underlying health of our economy… but also because Kevin Rudd has way too much ego to even contemplate allowing history to label him as economically questionable. He knows only too well that the legacy of Paul Keating contains a lot of positive and progressive policies… that are simply lost on the memory that he delivered the “Recession we had to have”. At election time, Governments can be undone by those simple (yet often unfair) one liners.

The current global challenges are not of Kevin Rudd’s making. Yet he has been charged in no uncertain term to keep Australia out of recession. Maybe you and I have not charged him with this responsibility… but I believe he has charged himself and will therefore do whatever he has to to keep us growing.

If he can stand before the Australian public in 2010 as a leader who steered Australia through her most challenging time in recent memory… and if we as a nation avoided a recession, he is almost assured of another term.

CARBON TRADING:

The Opposition, Business groups and many others argue the merits of delaying the introduction of a Cap and Trade Carbon Trading (Emissions Reduction) Scheme… for a year until 2011. It is a HUGE effort for the government to meet this election promise and many would agree that a delay would be in our national interest given:

• Financial Crisis
• Growth slowing
• Unemployment rising
• Financial pressure on families and businesses

The Opposition are probably already scripting their “We told you so speeches” for when the “perceived inevitable” happens… i.e. the Rudd Government announces a back down. However, my personal opinion is that Rudd won’t have a bar of it. He will push his Ministers & staff and commit to doing whatever it takes to go into the next election with his head held high. He’ll want to say to the Australian public:

“They said it couldn’t be done before the full impact of the global credit crisis was understood… well we did it DESPITE the global credit crisis!

Again, this may be as much about ego as it is about going to the next election having fulfilled what was promised before the last… DESPITE all the hurdles that have since appeared. That’s OK, however, because those of you who were growing up in the 1970’s (such as Kevin Rudd) will remember the Skyhook song “Ego, It’s Not A Dirty Word”.

I reiterate again that I am not an economist and the future is one of those things better understood from a position of hindsight. So with regards to:

• The banks passing on the rest of this week’s rate cut… ask me in a month
• Official interest rates falling to 4% by April 2009… ask me in 6 months
• Rudd getting (at least in part) his emissions trading scheme up and running by 2010… ask me in 2011

Happy Investing,

Nick Lockhart

PS: If you Google “reserve bank australia interest rate cut 0.75%” the front page will bring up 10 results. 9 tell the history of the 0.75% rate cut and 1 predicts it (mrd in position @ today, anyway.

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