Maturity has more to do with your Life Experience and what you have learned “in the trenches”… than simply the number of birthdays you have celebrated.

Consider the following…

• If wisdom comes with hindsight… why does history keep repeating itself?
• Why is it that we are always better prepared for an event… after it’s over?
• How come most parents master the art of raising children… after they have finished raising their children?
• Why during the last property boom did so many people wish they had invested in property while the market had been quiet; yet now that it’s quiet again they seem to have “forgotten the lesson” and find themselves in a “holding position”… deferring any decision to invest in property until they see the market take off again?
• How come we already know what those people will be saying to their friends a year from now? You guessed it… if only?
• Why do the parents of babies learning to walk constantly encourage their little toddler to “get up and have another go” each time they fall… yet many times those same parents live life by a “once bitten twice shy” attitude that fails to get up and have another go when they get knocked down by a new Life Experience?
• Why is it that those who are most afraid of failing, tend to guarantee failure… by never trying?

The list goes on and on, but some things never change…

• Failure is part of the winners journey
• Fear (unbridled) paralyses
• The herd mentality will always exist; accept it
• To be successful in life, you usually have to go in the opposite direction to the masses (swim against the tide)

Expanding that last bullet point…

Walt Disney recognised that as long as his ideas lined up with popular opinion… he would always be average!

Walt Disney was known to surround himself with a dozen advisers. He would present all new ideas to this team and then only run with those ideas that had thumbs up from no more than two of the twelve.

Today Walt Disney is universally known… because he dared to be different (and average is certainly not how anybody remembers him). He knew that success would never be his if his thinking and his actions mirrored the masses (there’s a real gem right there, if you have ears to hear).

The mrd business has grown from systemising and teaching what I do as an investor myself. I teach from my own experience ; not a theory I heard that sounded good.

I’m actually really proud of the team I have around me; I know that each of them are 100% committed to a right and responsible approach to property investing. Of the eight of us, six are active investors… one has contracted to buy his first investment property and the other is going through the process of making application for funding to get started!

So why are the staff at mrd not holding back any investment property purchase decisions until after things stabilise in the economy?

• Because our combined personal and professional experience has provided us with the right knowledge
• The Right knowledge leads to decisions that are both considered and sober
• The absence of fear, hype, confusion and sensationalism means mistakes are less likely
• Besides… the greatest opportunities in life are usually only discovered while swimming against the tide of popular thinking
• Most people are indirectly taking financial counsel from the media, friends… and the tide of popular opinion in general…WARNING!!! This will lead to mediocrity!!! My strong suggestion is “Don’t go there”!!!

You may have no desire to emulate the successes of Walt Disney, Richard Branson or Donald Trump. Nevertheless, we can still learn to think the way they do and propel ourselves further forward than we otherwise would.

• Simply learning from our own Life Experience is the slow way… learn from the successes and failures of others who have gone before you
• Leverage off their experiences and avoid making unnecessary costly mistakes yourself

Think about it!

• Walt Disney thought differently
• To prove he did he consulted with 12 others
• He scrapped any idea that 3 or more of his 12 advisers liked
• Who are you listening to?
• Who is speaking into (or prophesying over) your life… and what affect is it having?
• Don’t simply “shrink back”; find a mentor who will help you navigate your way through these more turbulent times

Would you see value in having a property mentor with (property investing) Life Experience assist you in the pursuit of your goals? If so, I invite you to make contact with us. In time you will discover that we are different! Different in our general outlook and different in the way we treat you.

Today’s decisions, followed through on, will determine your tomorrow!

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

Australia experiences high population growth: Australian Bureau of Statistics (ABS)

Australia is continuing to record high population growth, according to figures released today by the ABS.

A total population growth rate of 1.8% was recorded for the year ending September 2008, up from the 1.2% recorded five years ago. The last time Australia experienced higher growth rates was in the 50’s and 60’s (above 2%) as a result of post war migration and high birth rates.

As at 30 September 2008, Australia’s population had grown to 21,542,000 an increase of 389,000 people over the previous year. Australia’s net overseas migration contributed to more than half of this growth at 61% or 235,900 people. Natural increase (the excess of births over deaths) contributed 153,400 (39%).

In the same period, Western Australia continues to record the fastest population growth at 2.9%, followed by Queensland (2.5%), the Northern Territory (2.2%), Victoria (1.8%), the Australian Capital Territory (1.4%), New South Wales (1.3%), South Australia (1.1%) and Tasmania (0.9%).

Queensland and Western Australia received the most people from net interstate migration, gaining 22,700 and 5,600 people respectively from the other states and territories. The states that lost the most people to interstate migration include New South Wales (down 22,400), South Australia (down 4,700) and Victoria (down 2,400).

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

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

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

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

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

IMPORTANT Reality Check!!!

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

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

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

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

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

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

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

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

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

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

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

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

- The stock market is far too volatile.

- My obvious choice is property; as you know.

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

- Our niche is buy and hold. Why?

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

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

- Our niche is residential. Why?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Happy Investing,

Nick Lockhart

mrd customer care program… because investing is personal

In 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

Cairns is the major city for Far North Queensland region situated on a natural harbor with a backdrop of rugged mountains and tropical rainforests. The state capital Brisbane is approximately 1800 kilometers by road and 2 hours flying time away. Cairns International Airport (link) is 7.5 hours from Tokyo and 6.5 hours from Singapore.

Economic Viability

• A vibrant centre of commerce with a diverse range of industries including tourism, agriculture, mining, fishing and manufacturing
• Cairns is the agricultural gateway for the Atherton Tablelands and the entire Cape York region – two of the main production areas in Australia.
• Cairns is the central hub in an extensive transport infrastructure including rail, road, air and sea. This is critical for any region to grow and develop.
• Almost $1.0Billion worth of new investment is planned or already under construction in Cairns
• According to Colliers Research, Cairns has the highest growth in individual income between six of the Qld and NSW regional capitals from Wollongong to Townsville
• The prospects for medium to long term growth in Cairns, based on on-going economic strength and solid population growth remain sound. The expectation is that even though growth in the tourism sector has slowed, business and economic conditions will continue to show slow to steady growth patterns in 2008-2009 and these conditions will continue to underpin the local property market. (HTW –The Month in Review, Oct 2008)

Population

• Population in Cairns Statistical District is estimated in August 2008 at 152,000 and at a future growth rate of 2.5% p.a. the population will reach 165,000 in 2012
• Outside of South-East Queensland, the Far North Queensland Statistical Division is predicted to experience the second-largest population growth in Queensland over the next two decades
• About 60,000 more residents are expected to move to the region by 2036

Property Market

• Critically finite land supply
• Median house price for June quarter 2008 $370,000
• 17% median growth rate for the year to September 2007

Renting in Cairns

• Vacancy rates have been “tight” at 2.2% – an increase in recent months of properties has brought the vacancy rate to a “balanced market”
• Rental yields currently between 4.5% and 5.5% and strengthening
• The median house rent in June quarter 2008 is $330/week

Overview of its strength as a place to invest

• Cairns is strikingly beautiful on many levels. It has a typically inviting tropical climate; it is one of the greenest and aesthetically appealing cities in the world.
• Cairns has all the Government services and larger corporate infrastructure that is expected in a modern and progressive city.
• And last but by no means least, investing in Cairns is simply good value. Cairns is still affordable to buy land and there is strong demand for rental properties.
• No problem with water shortages

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

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

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

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

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

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

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

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

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

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

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

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

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

Around the State

Sydney Property Market:

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

Melbourne:

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

Brisbane:

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

Adelaide:

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

Perth:

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

Canberra:

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

Darwin:

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

NOTE:

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

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