Why Getting a Pre-Approved Auto Loan Is a Smart Decision?

The traditional process of buying a car is a familiar procedure. Keeping a rough idea of the car in mind, you set out to look for the dealerships that offer the models that interest you. Prior to making a selection, you carry out research pertaining to the car and finally come to the stage of filling out the paperwork. This chain of activities is known. However, investing in automobiles is a crucial decision and getting your loan pre-approved is one of the smartest steps that you can undertake to ensure a solid backup of financing.What is a Pre-Approved Auto Loan?Typically, a pre-approved auto loan means that you have already found yourself an auto lender who is willing to finance the money for your car that you wish to purchase. The money that is sanctioned for the auto loan is at your disposal for you to buy the car. It is helpful as you can buy a car that is of a lesser amount than the pre-approved loan amount and invest the remainder of the money elsewhere.Why is it a Smart Decision to get a Pre-approved Auto Loan?· It helps you to stay on your BudgetMany a times, people get swayed and are pressurized into making an undesirable car purchase that is higher than the cost of the car that they had originally set out to purchase. However, with such auto loan, you can exactly map out the amount of finance that you require and focus on the cost of the car. It is ideal as you can stick to your car buying budget and also keep yourself from succumbing to sales tactics that pressurize you into buying a car that exceeds your budget.· You are able to identify the Best Interest RateSurely, shopping around car dealerships is a convenient method for purchasing a car. However, getting such auto loan can protect you from falling for high interest rates. Also, it will enable you in finding out accurate interest rates at the same time. Therefore, by getting pre-approved, you can be sure that you have secured yourself the best interest rate for your auto loan.· Check your Credit ReportOne of the great aspects of getting a pre-approved auto loan is that a credit report is required by your auto lender before you can start car shopping. Essentially, a credit report can be a great means of checking if you have been behind on any payments. Also, a credit report can help you to fix your credit score before you purchase your new car. It comes of great help as a good credit score ensures a good bargain for a lower interest rate. Hence, by applying for a pre-approved auto loan, you can fix your previous bad credit rating and improve your credit report.A pre-approved auto loan will not only back you up with sound financing, but also help you get the best deal for your car. Thus, before you set out to purchase your dream car, a pre-approval may be one the smartest options for you out there.

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How to Find Great Commercial Properties on the Internet

Whether you are new to the field of commercial real estate or you have been involved in the field for some time, you probably are always looking for great ways to make the whole process much easier. At times it can be a bit difficult to find commercial properties that are for sale; however, technology has now made it easier than ever to find excellent commercial properties quickly. The internet is an excellent way to find commercial properties that are suitable for you without having to do a great deal of foot work on your own. One of the easiest ways to use the internet to find great commercial properties is to take advantage of the commercial real estate databases that are available for your use.Commercial Real Estate DatabasesA commercial real estate database is basically a compilation of various real estate listings, and most of the feature listings all over the country, although some are a bit more local specific. These databases allow you to search for the type of properties that you are looking for. Databases make it much easier when you are looking for commercial properties online because they take listings and put them in one convenient place. This saves you from having to scour the web for listings that are various different local pages. While there are many real estate agent webpages that list commercial listings as well, it could get very tedious to have to go through so may webpages and never find what you are looking for. With the help of the database, you have access to thousands of listings and only the relevant ones will be shown when you do a search.What Information Will I Find?There is a great deal of information that you can find at a commercial real estate database. First of all, you will, of course, find great commercial property listings. Not only will you be able to search commercial properties for sale, but you can also search through commercial properties that are for lease as well. If you are interested in finding a broker, most commercial real estate databases also can provide you with information on various brokers in your area. You can also find information on commercial loans at these sites and various breaking news stories in the area of real estate in general. If you are selling commercial real estate, there are often wanted boards as well, with posts from people who are looking for a specific type of property. Once you start using a real estate database, you will be able to benefit from far more than just the commercial real estate listings.How Can I Use a DatabaseIf you are new to the internet, or even new to using an online database, you may be wondering how you can use a commercial real estate database for your benefit. First of all you will need to know what kind of property you are looking for. If you are looking for commercial real estate for sale, then you will want to choose the option to search these listings. In order to do a simple search, you can just enter the state that you are looking in, and the type of commercial real estate that you are looking for. In some cases you may be able to designate a specific part of the state as well. When you hit the “search” button, you will be presented with listings that match your search results. If you find that your results are too broad, then you may want to choose an advanced search, which will allow you to narrow the search parameters. This type of a search will ask for more than just your location and use for the property. You will able to specify the acreage or square feet of the property, and you can also narrow the search by your price range as well. This will enable to get even more specific search results.A Few Helpful Databases to ConsiderYou may find yourself wondering where to get started when it comes to online commercial real estate databases. There are several databases for you to choose from, and you may like one more than the others, or you may decide to use them all. One great database to consider is LoopNet. You can find this database at loopnet.com and it considered to be the largest commercial real estate database on the web. Another very excellent database that is worth trying out is CityFeet. At cityfeet.com you will find a huge amount of commercial real estate listings, and this site provides a variety of helpful tools for those who are involved in the commercial real estate market as well. A few other great commercial databases to check out include commrex.com, land.net, cimls.com, and realestatejournal.com.While you can try using search engines or even local real estate pages online, one of the very best ways to find great commercial real estate listings quickly is to use the available online databases. As a busy professional, you may not have time to be chasing wild leads, but using these online databases can help you find great properties that are worth checking into further. You will already know that the fit the price and the basic parameters of what you are looking for, so you will find yourself one step ahead of the game. Start making the most of your time and consider using these great online databases as a part of your commercial real estate business.

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Investing Smart

Successful investing is smart investing. Investment is all about making the right choices, so that not only are you able to satisfy your immediate needs and requirements, but are also able to ensure the same for the medium and long term future. Just as no two individuals can be exactly the same, the financial needs and investment patterns vary from person to person. However one can follow certain definite markers to ensure that the path taken is the right one.Understand Your Needs: Investment goals come with different time frames and different objectives. One may invest for a short term goal like buying a car or even a holiday abroad. On the other hand, one could consider a long term investment plan to cater for the period when one has retired from work. How much one is able to commit to investment is dependent entirely upon one’s risk taking ability.When it comes to risk taking there is some truth in the adage that greater the risk, more the reward. That does not however mean that one should be reckless. Everyone possesses a risk threshold that they will not consider crossing. Factors like the level of a person’s income, one’s net worth, one’s ability to understand the investment scenario and the objectives behind investing drive how and how much a person invests.Early Bird Catches The Worm: The younger that one embarks on one’s investment journey, the better are the gains. The compound interest that you will make as a young man would fetch quite impressive gains by the time you started getting along in years. For instance if one started investing $93 every two weeks starting age 25 one would reach an amount of $500,000 when one hits sixty.This is a painless and easy way of building up a fine retirement fund. At age 25 if you are not married; you would hardly have any major expenses to worry about, and could afford to put away some money. As the years go by your responsibilities and expenses will increase, but so will your income, and you will not feel the pinch of the regular installment you committed to paying when you were so much younger.Invest Regularly: This definitely makes a lot of sense for most people considering that it is far easier to invest small sums regularly than investing a large sum at one go. Firstly one might not be able to afford the latter and secondly one does need money for things other than investment, which will get tied up in large investments. Also it gets you used to the idea of setting aside a certain sum of money regularly. Monthly and quarterly investment options, where a certain fixed sum gets debited from one’s account regularly is a fine approach to take.Spread your investment: That you don’t put all your eggs in one basket, applies to investment more than it applies anywhere else. Taking care to spread one’s investments over a diverse range of options will both reduce your exposure to risks and optimize your long term returns. You will be better inured against downturns in any specific sectors. So even if a part of your investments takes a temporary hit, there will be the other part still working well for you.Track your investments: Your investments come out of your hard earned money, and you should therefore track them with a hawk’s eye. An annual appraisal, either with the help of a finance industry professional or on one’s own is very much in order to see that one’s investment objectives remain on track. There is nothing that stops you from recasting your goals in light of the changes one goes through in life over a period of time. These may be on account of personal milestones like marriage, children’s education, impending retirements or even the prevailing market situation. The idea is to guard one’s money zealously and make every penny count.Make the right kind of investment: One needs to make different kinds of investments for the short term and the long term. Short term investments need to be less risk averse and easily encashable. The latter type of investment on the other hand need be of the late maturing growth oriented type.Sound investment may not be rocket science, but one would be amazed at how often people, who should know better make a hash of things. The above steps can be used as basic template for sound investment. As one goes along the path of planned and systematic investment one is better able to understand the finer nuances and nitty gritty of the process and obtain optimal results.

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A New Way to Invest in Property

The two most frequently asked questions by investors are:What investment should I buy?
Is now the right time to buy it?Most people want to know how to spot the right investment at the right time, because they believe that is the key to successful investing. Let me tell you that is far from the truth: even if you could get the answers to those questions right, you would only have a 50% chance to make your investment successful. Let me explain.There are two key influencers that can lead to the success or failure of any investment:External factors: these are the markets and investment performance in general. For example:
The likely performance of that particular investment over time;
Whether that market will go up or down, and when it will change from one direction to another.
Internal factors: these are the investor’s own preference, experience and capacity. For example:
Which investment you have more affinity with and have a track record of making good money in;
What capacity you have to hold on to an investment during bad times;
What tax advantages do you have which can help manage cash flow;
What level of risk you can tolerate without tending to make panic decisions.When we are looking at any particular investment, we can’t simply look at the charts or research reports to decide what to invest and when to invest, we need to look at ourselves and find out what works for us as an individual.Let’s look at a few examples to demonstrate my viewpoint here. These can show you why investment theories often don’t work in real life because they are an analysis of the external factors, and investors can usually make or break these theories themselves due to their individual differences (i.e. internal factors).Example 1: Pick the best investment at the time.Most investment advisors I have seen make an assumption that if the investment performs well, then any investor can definitely make good money out of it. In other words, the external factors alone determine the return.I beg to differ. Consider these for example:Have you ever heard of an instance where two property investors bought identical properties side by side in the same street at the same time? One makes good money in rent with a good tenant and sells it at a good profit later; the other has much lower rent with a bad tenant and sells it at a loss later. They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same advice from the same investment advisor.
You may have also seen share investors who bought the same shares at the same time, one is forced to sell theirs at a loss due to personal circumstances and the other sells them for a profit at a better time.
I have even seen the same builder building 5 identical houses side by side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures whereas others are doing much better financially.What is the sole difference in the above cases? The investors themselves (i.e. the internal factors).Over the years I have reviewed the financial positions of a few thousand investors personally. When people ask me what investment they should get into at any particular moment, they expect me to compare shares, properties, and other asset classes to advise them how to allocate their money.My answer to them is to always ask them to go back over their track record first. I would ask them to list down all the investments they have ever made: cash, shares, options, futures, properties, property development, property renovation, etc. and ask them to tell me which one made them the most money and which one didn’t. Then I suggest to them to stick to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any money in the past (assuming their money will get a 5% return per year sitting in the bank, they need to at least beat that when doing the comparison).If you take time to do that exercise for yourself, you will very quickly discover your favourite investment to invest in, so that you can concentrate your resources on getting the best return rather than allocating any of them to the losers.You may ask for my rationale in choosing investments this way rather than looking at the theories of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it is not smart to go against the law of nature.For example, have you ever noticed that sardines swim together in the ocean? And similarly so do the sharks. In a natural forest, similar trees grow together too. This is the idea that similar things attract each other as they have affinity with each other.You can look around at the people you know. The people you like to spend more time with are probably people who are in some ways similar to you.It seems that there is a law of affinity at work that says that similar things beget similar things; whether they are animals, trees, rocks or humans. Why do you think there would be any difference between an investor and their investments?So in my opinion, the question is not necessarily about which investment works. Rather it is about which investment works for you.If you have affinity with properties, properties are likely to be attracted to you. If you have affinity with shares, shares are likely to be attracted to you. If you have affinity with good cash flow, good cash flow is likely to be attracted to you. If you have affinity with good capital gain, good capital growth is likely to be attracted to you (but not necessary good cash flow ).You can improve your affinity with anything to a degree by spending more time and effort on it, but there are things that you naturally have affinity with. These are the things you should go with as they are effortless for you. Can you imagine the effort required for a shark to work on himself to become sardine-like or vice versa?One of the reasons why our company has spent a lot of time lately to work on our client’s cash flow management, is because if our clients have low affinity with their own family cash flow, they are unlikely to have good cash flow with their investment properties. Remember, it is a natural law that similar things beget similar things. Investors who have poor cash flow management at home, usually end up with investments (or businesses) with poor cash flow.Have you ever wondered why the world’s greatest investors, such as Warren Buffet, tend only to invest in a few very concentrated areas they have great affinity with? While he has more money than most of us and could afford to diversify into many different things, he sticks to only the few things that he has successfully made his money from in the past and cut off the ones which didn’t (such as the airline business).What if you haven’t done any investing and you have no track record to go by? In this case I would suggest you first look at your parents’ track record in investing. The chances are you are somehow similar to your parents (even when you don’t like to admit it ). If you think your parents never invested in anything successfully, then look at whether they have done well with their family home. Alternatively you will need to do your own testing to find out what works for you.Obviously there will be exceptions to this rule. Ultimately your results will be the only judge for what investment works for you.Example 2: Picking the bottom of the market to invest.When the news in any market is not positive, many investors automatically go into a “waiting mode”. What are they waiting for? The market to bottom out! This is because they believe investing is about buying low and selling high – pretty simple right? But why do most people fail to do even that?Here are a few reasons:When investors have the money to invest safely in a market, that market may not be at its bottom yet, so they choose to wait. By the time the market hits the bottom; their money has already been taken up by other things, as money rarely sits still. If it is not going to some sort of investment, it will tend to go to expenses or other silly things such as get-rich-quick scheme, repairs and other “life dramas”.
Investors who are used to waiting for when the market is not very positive before they act are usually driven either by a fear of losing money or the greed of gaining more. Let’s look at the impact of each of them:
If their behaviour was due to the fear of losing money, they are less likely to get into the market when it hits rock bottom as you can imagine how bad the news would be then. If they couldn’t act when the news was less negative, how do you expect them to have the courage to act when it is really negative? So usually they miss out on the bottom anyway.
If their behaviour was driven by the greed of hoping to make more money on the way up when it reaches the bottom, they are more likely to find other “get-rich-quick schemes” to put their money in before the market hits the bottom, by the time the market hits the bottom, their money won’t be around to invest. Hence you would notice that the get-rich-quick schemes are usually heavily promoted during a time of negative market sentiment as they can easily capture money from this type of investor.
Very often, something negative begets something else negative. People who are fearful to get into the market when their capacity allows them to do so, will spend most of their time looking at all the bad news to confirm their decision. Not only they will miss the bottom, but they are likely to also miss the opportunities on the way up as well, because they see any market upward movement as a preparation for a further and bigger dive the next day.Hence it is my observation that most people who are too fearful or too greedy to get into the market during a slow market have rarely been able to benefit financially from waiting. They usually end up getting into the market after it has had its bull run for far too long when there is very little negative news left. But that is actually often the time when things are over-valued, so they get into the market then, and get slaughtered on the way down.So my advice to our clients is to first start from your internal factors, check your own track records and financial viability to invest. Decide whether you are in a position to invest safely, regardless of the external factors (i.e. the market):If the answer is yes, then go to the market and find the best value you can find at that time;
If the answer is no, then wait.Unfortunately, most investors do it the other way around. They tend to let the market (an external factor) decide what they should do, regardless of their own situation, and they end up wasting time and resources within their capacity.I hope, from the above 2 examples, that you can see that investing is not necessarily about picking the right investment and the right market timing, but it is more about picking the investment that works for you and sticking to your own investment timetable, within your own capacity.A new way to invest in propertiesDuring a consultation last month with a client who has been with us for 6 years, I suddenly realised they didn’t know anything about our Property Advisory Service which has been around since April 2010. I thought I’d better fix this oversight and explain what it is and why it is unique and unprecedented in Australia.But before I do, I would like to give you some data you simply don’t get from investment books and seminars, so you can see where I am coming from.Over the last 10 years of running a mortgage business for property investors:We have executed more than 7,000 individual investment mortgages with around 60 different lenders;
Myself and our mortgage team have reviewed the financial positions of approximately 6,000 individual property investors and developers;
I have enjoyed privileged access to vital data including the original purchase price, value of property improvements and the current valuation of close to 30,000 individual investment properties all around Australia from our considerable client base.When you have such a large sample size to do your research on and make observations, you are bound to discover something unknown to most people.I have discovered many things that may surprise you as much as they surprised me, some of which are against conventional wisdom:Paying more tax can be financially good for you.This one took me years to swallow, but I can’t deny the facts. The clients who have managed to get into a positive cashflow position have paid a lot of tax and will continue to pay a lot of tax, whether it is capital gains, income tax or stamp duty. They don’t have an issue with the tax man making some money as long as they continue to make more themselves! They regularly cash in the profits from their properties and reduce their debt, but always continue to invest and park their money where the return is best. In fact, I can almost say that the only people who enjoy positive cashflow from their investment properties are the people who have little concern about paying taxes as they treat them as the cost of doing business.Just about every property strategy works. It just depends on who does it, how it is done, when it is done and where it is done.When I first started investing, I went and read many property investment books and attended many investment educational seminars. Just about every one of them was convincing and this confused the hell out of me. Just when I was about to form an opinion against a particular property strategy, someone would show up in one of my client consultations and prove that it worked for them!After testing many of these strategies myself, I came to realise that it is not about the strategy,(which is only a tool) but rather it is about whether the person is using the tool appropriately at the right time, in the right place and in the right way.There is no such thing as the best suburb to invest in, forever.If you randomly pick a particular property in what you think is the best suburb over a 30 year window, you will find that there are periods during which this property will outperform the market average, and there are periods when this property will underperform the market average.Many property investors find themselves jumping into historically high growth suburbs at the end of the period when it is outperforming the average, and then stay there for 5-7 years during the underperforming period. (Naturally this can taint their view of property investing as a whole!)There is no such thing as the worst suburb to invest in, forever.If you pick a property in the worst suburb you can think of from 40 years ago, and pitch that against the best suburb you can think of over the same period of time, you will find they both grew at about 7-9% a year on average over the long-term.Hence in the 1960s, a median house in Melbourne and Sydney was valued at $10k. The worst property around that time may have been 30% of the median price for then, which was say about $3k. Today, the median house price in these cities is about $600k. The worst suburb you can find is still around 30% of that price which is say $200k a house. If you believe a bad suburb will never grow, then show me where you can find a house today in these cities, that is still worth around $3k.Median Price growth is very misleading.Many beginner property investors look at median price growth as the guidance for suburb selection. A few points worth mentioning on median price are:We understand the way median price is calculated as the middle price point based on the number of sales during a period. We can talk about the median price for a particular suburb on a particular day, week, month, year, or even longer. So an influx of new stocks or low sales volume can severely distort the median price.In an older suburb, median price growth tends to be higher than it really is. This is because it does not reflect the large sum of money people put into renovating their properties nor does it reflect the subdivision of large blocks of land into multiple dwellings which can be a substantial percentage of the entire suburb.In a newer suburb, median price growth tend to be lower than it really is. This is because it does not reflect the fact that the land and buildings are both getting smaller. For example, you could buy a block of land of 650 square metres for $120k in 2006 in a newer suburb of Melbourne, but 5 years later, half the size block (i.e.325 square metres) will cost you $260k. That’s a whopping 34% annual growth rate per year for 5 years, but median price growth will never reflect that, as median prices today are calculated on much smaller properties.Median price growth takes away people’s focus from looking at the cost of carrying the property. When you have a net 2-3% rental yield against interest rates of 7-8%, you are out-of-pocket by 5% a year. This is not including the money you have to put in to fix and maintain your property from time to time.Buying and holding the same property forever doesn’t give you the best returns on your money.The longer you hold a property, the more likely you will achieve an average growth of 7-9%. But you will be bound to hit periods where your property outperforms the 7-9% growth and periods where it under performs the 7-9% growth.The longer you hold a property, if its growth is at or above average, the lower its rental yields will become.The longer you hold a property, the higher the capital gains tax you will need to pay when you sell, and the less likely you will be able to sell it.The longer you hold a property, the more likely there will be a need for an expensive upgrade of the property.The longer you hold a property, the more likely you will forget which part of the equity actually belongs to the tax man, AND the more likely you will be to try to leverage the equity that doesn’t belong to you. This can get you into a negative equity position with a negative cashflow forever, unless you have proper financial guidance.

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There is an excessive amount of traffic coming from your Region.

#EANF#

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There is an excessive amount of traffic coming from your Region.

#EANF#

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A New Way to Invest in Property

The two most frequently asked questions by investors are:What investment should I buy?
Is now the right time to buy it?Most people want to know how to spot the right investment at the right time, because they believe that is the key to successful investing. Let me tell you that is far from the truth: even if you could get the answers to those questions right, you would only have a 50% chance to make your investment successful. Let me explain.There are two key influencers that can lead to the success or failure of any investment:External factors: these are the markets and investment performance in general. For example:
The likely performance of that particular investment over time;
Whether that market will go up or down, and when it will change from one direction to another.
Internal factors: these are the investor’s own preference, experience and capacity. For example:
Which investment you have more affinity with and have a track record of making good money in;
What capacity you have to hold on to an investment during bad times;
What tax advantages do you have which can help manage cash flow;
What level of risk you can tolerate without tending to make panic decisions.When we are looking at any particular investment, we can’t simply look at the charts or research reports to decide what to invest and when to invest, we need to look at ourselves and find out what works for us as an individual.Let’s look at a few examples to demonstrate my viewpoint here. These can show you why investment theories often don’t work in real life because they are an analysis of the external factors, and investors can usually make or break these theories themselves due to their individual differences (i.e. internal factors).Example 1: Pick the best investment at the time.Most investment advisors I have seen make an assumption that if the investment performs well, then any investor can definitely make good money out of it. In other words, the external factors alone determine the return.I beg to differ. Consider these for example:Have you ever heard of an instance where two property investors bought identical properties side by side in the same street at the same time? One makes good money in rent with a good tenant and sells it at a good profit later; the other has much lower rent with a bad tenant and sells it at a loss later. They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same advice from the same investment advisor.
You may have also seen share investors who bought the same shares at the same time, one is forced to sell theirs at a loss due to personal circumstances and the other sells them for a profit at a better time.
I have even seen the same builder building 5 identical houses side by side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures whereas others are doing much better financially.What is the sole difference in the above cases? The investors themselves (i.e. the internal factors).Over the years I have reviewed the financial positions of a few thousand investors personally. When people ask me what investment they should get into at any particular moment, they expect me to compare shares, properties, and other asset classes to advise them how to allocate their money.My answer to them is to always ask them to go back over their track record first. I would ask them to list down all the investments they have ever made: cash, shares, options, futures, properties, property development, property renovation, etc. and ask them to tell me which one made them the most money and which one didn’t. Then I suggest to them to stick to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any money in the past (assuming their money will get a 5% return per year sitting in the bank, they need to at least beat that when doing the comparison).If you take time to do that exercise for yourself, you will very quickly discover your favourite investment to invest in, so that you can concentrate your resources on getting the best return rather than allocating any of them to the losers.You may ask for my rationale in choosing investments this way rather than looking at the theories of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it is not smart to go against the law of nature.For example, have you ever noticed that sardines swim together in the ocean? And similarly so do the sharks. In a natural forest, similar trees grow together too. This is the idea that similar things attract each other as they have affinity with each other.You can look around at the people you know. The people you like to spend more time with are probably people who are in some ways similar to you.It seems that there is a law of affinity at work that says that similar things beget similar things; whether they are animals, trees, rocks or humans. Why do you think there would be any difference between an investor and their investments?So in my opinion, the question is not necessarily about which investment works. Rather it is about which investment works for you.If you have affinity with properties, properties are likely to be attracted to you. If you have affinity with shares, shares are likely to be attracted to you. If you have affinity with good cash flow, good cash flow is likely to be attracted to you. If you have affinity with good capital gain, good capital growth is likely to be attracted to you (but not necessary good cash flow ).You can improve your affinity with anything to a degree by spending more time and effort on it, but there are things that you naturally have affinity with. These are the things you should go with as they are effortless for you. Can you imagine the effort required for a shark to work on himself to become sardine-like or vice versa?One of the reasons why our company has spent a lot of time lately to work on our client’s cash flow management, is because if our clients have low affinity with their own family cash flow, they are unlikely to have good cash flow with their investment properties. Remember, it is a natural law that similar things beget similar things. Investors who have poor cash flow management at home, usually end up with investments (or businesses) with poor cash flow.Have you ever wondered why the world’s greatest investors, such as Warren Buffet, tend only to invest in a few very concentrated areas they have great affinity with? While he has more money than most of us and could afford to diversify into many different things, he sticks to only the few things that he has successfully made his money from in the past and cut off the ones which didn’t (such as the airline business).What if you haven’t done any investing and you have no track record to go by? In this case I would suggest you first look at your parents’ track record in investing. The chances are you are somehow similar to your parents (even when you don’t like to admit it ). If you think your parents never invested in anything successfully, then look at whether they have done well with their family home. Alternatively you will need to do your own testing to find out what works for you.Obviously there will be exceptions to this rule. Ultimately your results will be the only judge for what investment works for you.Example 2: Picking the bottom of the market to invest.When the news in any market is not positive, many investors automatically go into a “waiting mode”. What are they waiting for? The market to bottom out! This is because they believe investing is about buying low and selling high – pretty simple right? But why do most people fail to do even that?Here are a few reasons:When investors have the money to invest safely in a market, that market may not be at its bottom yet, so they choose to wait. By the time the market hits the bottom; their money has already been taken up by other things, as money rarely sits still. If it is not going to some sort of investment, it will tend to go to expenses or other silly things such as get-rich-quick scheme, repairs and other “life dramas”.
Investors who are used to waiting for when the market is not very positive before they act are usually driven either by a fear of losing money or the greed of gaining more. Let’s look at the impact of each of them:
If their behaviour was due to the fear of losing money, they are less likely to get into the market when it hits rock bottom as you can imagine how bad the news would be then. If they couldn’t act when the news was less negative, how do you expect them to have the courage to act when it is really negative? So usually they miss out on the bottom anyway.
If their behaviour was driven by the greed of hoping to make more money on the way up when it reaches the bottom, they are more likely to find other “get-rich-quick schemes” to put their money in before the market hits the bottom, by the time the market hits the bottom, their money won’t be around to invest. Hence you would notice that the get-rich-quick schemes are usually heavily promoted during a time of negative market sentiment as they can easily capture money from this type of investor.
Very often, something negative begets something else negative. People who are fearful to get into the market when their capacity allows them to do so, will spend most of their time looking at all the bad news to confirm their decision. Not only they will miss the bottom, but they are likely to also miss the opportunities on the way up as well, because they see any market upward movement as a preparation for a further and bigger dive the next day.Hence it is my observation that most people who are too fearful or too greedy to get into the market during a slow market have rarely been able to benefit financially from waiting. They usually end up getting into the market after it has had its bull run for far too long when there is very little negative news left. But that is actually often the time when things are over-valued, so they get into the market then, and get slaughtered on the way down.So my advice to our clients is to first start from your internal factors, check your own track records and financial viability to invest. Decide whether you are in a position to invest safely, regardless of the external factors (i.e. the market):If the answer is yes, then go to the market and find the best value you can find at that time;
If the answer is no, then wait.Unfortunately, most investors do it the other way around. They tend to let the market (an external factor) decide what they should do, regardless of their own situation, and they end up wasting time and resources within their capacity.I hope, from the above 2 examples, that you can see that investing is not necessarily about picking the right investment and the right market timing, but it is more about picking the investment that works for you and sticking to your own investment timetable, within your own capacity.A new way to invest in propertiesDuring a consultation last month with a client who has been with us for 6 years, I suddenly realised they didn’t know anything about our Property Advisory Service which has been around since April 2010. I thought I’d better fix this oversight and explain what it is and why it is unique and unprecedented in Australia.But before I do, I would like to give you some data you simply don’t get from investment books and seminars, so you can see where I am coming from.Over the last 10 years of running a mortgage business for property investors:We have executed more than 7,000 individual investment mortgages with around 60 different lenders;
Myself and our mortgage team have reviewed the financial positions of approximately 6,000 individual property investors and developers;
I have enjoyed privileged access to vital data including the original purchase price, value of property improvements and the current valuation of close to 30,000 individual investment properties all around Australia from our considerable client base.When you have such a large sample size to do your research on and make observations, you are bound to discover something unknown to most people.I have discovered many things that may surprise you as much as they surprised me, some of which are against conventional wisdom:Paying more tax can be financially good for you.This one took me years to swallow, but I can’t deny the facts. The clients who have managed to get into a positive cashflow position have paid a lot of tax and will continue to pay a lot of tax, whether it is capital gains, income tax or stamp duty. They don’t have an issue with the tax man making some money as long as they continue to make more themselves! They regularly cash in the profits from their properties and reduce their debt, but always continue to invest and park their money where the return is best. In fact, I can almost say that the only people who enjoy positive cashflow from their investment properties are the people who have little concern about paying taxes as they treat them as the cost of doing business.Just about every property strategy works. It just depends on who does it, how it is done, when it is done and where it is done.When I first started investing, I went and read many property investment books and attended many investment educational seminars. Just about every one of them was convincing and this confused the hell out of me. Just when I was about to form an opinion against a particular property strategy, someone would show up in one of my client consultations and prove that it worked for them!After testing many of these strategies myself, I came to realise that it is not about the strategy,(which is only a tool) but rather it is about whether the person is using the tool appropriately at the right time, in the right place and in the right way.There is no such thing as the best suburb to invest in, forever.If you randomly pick a particular property in what you think is the best suburb over a 30 year window, you will find that there are periods during which this property will outperform the market average, and there are periods when this property will underperform the market average.Many property investors find themselves jumping into historically high growth suburbs at the end of the period when it is outperforming the average, and then stay there for 5-7 years during the underperforming period. (Naturally this can taint their view of property investing as a whole!)There is no such thing as the worst suburb to invest in, forever.If you pick a property in the worst suburb you can think of from 40 years ago, and pitch that against the best suburb you can think of over the same period of time, you will find they both grew at about 7-9% a year on average over the long-term.Hence in the 1960s, a median house in Melbourne and Sydney was valued at $10k. The worst property around that time may have been 30% of the median price for then, which was say about $3k. Today, the median house price in these cities is about $600k. The worst suburb you can find is still around 30% of that price which is say $200k a house. If you believe a bad suburb will never grow, then show me where you can find a house today in these cities, that is still worth around $3k.Median Price growth is very misleading.Many beginner property investors look at median price growth as the guidance for suburb selection. A few points worth mentioning on median price are:We understand the way median price is calculated as the middle price point based on the number of sales during a period. We can talk about the median price for a particular suburb on a particular day, week, month, year, or even longer. So an influx of new stocks or low sales volume can severely distort the median price.In an older suburb, median price growth tends to be higher than it really is. This is because it does not reflect the large sum of money people put into renovating their properties nor does it reflect the subdivision of large blocks of land into multiple dwellings which can be a substantial percentage of the entire suburb.In a newer suburb, median price growth tend to be lower than it really is. This is because it does not reflect the fact that the land and buildings are both getting smaller. For example, you could buy a block of land of 650 square metres for $120k in 2006 in a newer suburb of Melbourne, but 5 years later, half the size block (i.e.325 square metres) will cost you $260k. That’s a whopping 34% annual growth rate per year for 5 years, but median price growth will never reflect that, as median prices today are calculated on much smaller properties.Median price growth takes away people’s focus from looking at the cost of carrying the property. When you have a net 2-3% rental yield against interest rates of 7-8%, you are out-of-pocket by 5% a year. This is not including the money you have to put in to fix and maintain your property from time to time.Buying and holding the same property forever doesn’t give you the best returns on your money.The longer you hold a property, the more likely you will achieve an average growth of 7-9%. But you will be bound to hit periods where your property outperforms the 7-9% growth and periods where it under performs the 7-9% growth.The longer you hold a property, if its growth is at or above average, the lower its rental yields will become.The longer you hold a property, the higher the capital gains tax you will need to pay when you sell, and the less likely you will be able to sell it.The longer you hold a property, the more likely there will be a need for an expensive upgrade of the property.The longer you hold a property, the more likely you will forget which part of the equity actually belongs to the tax man, AND the more likely you will be to try to leverage the equity that doesn’t belong to you. This can get you into a negative equity position with a negative cashflow forever, unless you have proper financial guidance.

Posted in Uncategorized | Tagged , , , , , | Comments Off

A New Way to Invest in Property

The two most frequently asked questions by investors are:What investment should I buy?
Is now the right time to buy it?Most people want to know how to spot the right investment at the right time, because they believe that is the key to successful investing. Let me tell you that is far from the truth: even if you could get the answers to those questions right, you would only have a 50% chance to make your investment successful. Let me explain.There are two key influencers that can lead to the success or failure of any investment:External factors: these are the markets and investment performance in general. For example:
The likely performance of that particular investment over time;
Whether that market will go up or down, and when it will change from one direction to another.
Internal factors: these are the investor’s own preference, experience and capacity. For example:
Which investment you have more affinity with and have a track record of making good money in;
What capacity you have to hold on to an investment during bad times;
What tax advantages do you have which can help manage cash flow;
What level of risk you can tolerate without tending to make panic decisions.When we are looking at any particular investment, we can’t simply look at the charts or research reports to decide what to invest and when to invest, we need to look at ourselves and find out what works for us as an individual.Let’s look at a few examples to demonstrate my viewpoint here. These can show you why investment theories often don’t work in real life because they are an analysis of the external factors, and investors can usually make or break these theories themselves due to their individual differences (i.e. internal factors).Example 1: Pick the best investment at the time.Most investment advisors I have seen make an assumption that if the investment performs well, then any investor can definitely make good money out of it. In other words, the external factors alone determine the return.I beg to differ. Consider these for example:Have you ever heard of an instance where two property investors bought identical properties side by side in the same street at the same time? One makes good money in rent with a good tenant and sells it at a good profit later; the other has much lower rent with a bad tenant and sells it at a loss later. They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same advice from the same investment advisor.
You may have also seen share investors who bought the same shares at the same time, one is forced to sell theirs at a loss due to personal circumstances and the other sells them for a profit at a better time.
I have even seen the same builder building 5 identical houses side by side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures whereas others are doing much better financially.What is the sole difference in the above cases? The investors themselves (i.e. the internal factors).Over the years I have reviewed the financial positions of a few thousand investors personally. When people ask me what investment they should get into at any particular moment, they expect me to compare shares, properties, and other asset classes to advise them how to allocate their money.My answer to them is to always ask them to go back over their track record first. I would ask them to list down all the investments they have ever made: cash, shares, options, futures, properties, property development, property renovation, etc. and ask them to tell me which one made them the most money and which one didn’t. Then I suggest to them to stick to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any money in the past (assuming their money will get a 5% return per year sitting in the bank, they need to at least beat that when doing the comparison).If you take time to do that exercise for yourself, you will very quickly discover your favourite investment to invest in, so that you can concentrate your resources on getting the best return rather than allocating any of them to the losers.You may ask for my rationale in choosing investments this way rather than looking at the theories of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it is not smart to go against the law of nature.For example, have you ever noticed that sardines swim together in the ocean? And similarly so do the sharks. In a natural forest, similar trees grow together too. This is the idea that similar things attract each other as they have affinity with each other.You can look around at the people you know. The people you like to spend more time with are probably people who are in some ways similar to you.It seems that there is a law of affinity at work that says that similar things beget similar things; whether they are animals, trees, rocks or humans. Why do you think there would be any difference between an investor and their investments?So in my opinion, the question is not necessarily about which investment works. Rather it is about which investment works for you.If you have affinity with properties, properties are likely to be attracted to you. If you have affinity with shares, shares are likely to be attracted to you. If you have affinity with good cash flow, good cash flow is likely to be attracted to you. If you have affinity with good capital gain, good capital growth is likely to be attracted to you (but not necessary good cash flow ).You can improve your affinity with anything to a degree by spending more time and effort on it, but there are things that you naturally have affinity with. These are the things you should go with as they are effortless for you. Can you imagine the effort required for a shark to work on himself to become sardine-like or vice versa?One of the reasons why our company has spent a lot of time lately to work on our client’s cash flow management, is because if our clients have low affinity with their own family cash flow, they are unlikely to have good cash flow with their investment properties. Remember, it is a natural law that similar things beget similar things. Investors who have poor cash flow management at home, usually end up with investments (or businesses) with poor cash flow.Have you ever wondered why the world’s greatest investors, such as Warren Buffet, tend only to invest in a few very concentrated areas they have great affinity with? While he has more money than most of us and could afford to diversify into many different things, he sticks to only the few things that he has successfully made his money from in the past and cut off the ones which didn’t (such as the airline business).What if you haven’t done any investing and you have no track record to go by? In this case I would suggest you first look at your parents’ track record in investing. The chances are you are somehow similar to your parents (even when you don’t like to admit it ). If you think your parents never invested in anything successfully, then look at whether they have done well with their family home. Alternatively you will need to do your own testing to find out what works for you.Obviously there will be exceptions to this rule. Ultimately your results will be the only judge for what investment works for you.Example 2: Picking the bottom of the market to invest.When the news in any market is not positive, many investors automatically go into a “waiting mode”. What are they waiting for? The market to bottom out! This is because they believe investing is about buying low and selling high – pretty simple right? But why do most people fail to do even that?Here are a few reasons:When investors have the money to invest safely in a market, that market may not be at its bottom yet, so they choose to wait. By the time the market hits the bottom; their money has already been taken up by other things, as money rarely sits still. If it is not going to some sort of investment, it will tend to go to expenses or other silly things such as get-rich-quick scheme, repairs and other “life dramas”.
Investors who are used to waiting for when the market is not very positive before they act are usually driven either by a fear of losing money or the greed of gaining more. Let’s look at the impact of each of them:
If their behaviour was due to the fear of losing money, they are less likely to get into the market when it hits rock bottom as you can imagine how bad the news would be then. If they couldn’t act when the news was less negative, how do you expect them to have the courage to act when it is really negative? So usually they miss out on the bottom anyway.
If their behaviour was driven by the greed of hoping to make more money on the way up when it reaches the bottom, they are more likely to find other “get-rich-quick schemes” to put their money in before the market hits the bottom, by the time the market hits the bottom, their money won’t be around to invest. Hence you would notice that the get-rich-quick schemes are usually heavily promoted during a time of negative market sentiment as they can easily capture money from this type of investor.
Very often, something negative begets something else negative. People who are fearful to get into the market when their capacity allows them to do so, will spend most of their time looking at all the bad news to confirm their decision. Not only they will miss the bottom, but they are likely to also miss the opportunities on the way up as well, because they see any market upward movement as a preparation for a further and bigger dive the next day.Hence it is my observation that most people who are too fearful or too greedy to get into the market during a slow market have rarely been able to benefit financially from waiting. They usually end up getting into the market after it has had its bull run for far too long when there is very little negative news left. But that is actually often the time when things are over-valued, so they get into the market then, and get slaughtered on the way down.So my advice to our clients is to first start from your internal factors, check your own track records and financial viability to invest. Decide whether you are in a position to invest safely, regardless of the external factors (i.e. the market):If the answer is yes, then go to the market and find the best value you can find at that time;
If the answer is no, then wait.Unfortunately, most investors do it the other way around. They tend to let the market (an external factor) decide what they should do, regardless of their own situation, and they end up wasting time and resources within their capacity.I hope, from the above 2 examples, that you can see that investing is not necessarily about picking the right investment and the right market timing, but it is more about picking the investment that works for you and sticking to your own investment timetable, within your own capacity.A new way to invest in propertiesDuring a consultation last month with a client who has been with us for 6 years, I suddenly realised they didn’t know anything about our Property Advisory Service which has been around since April 2010. I thought I’d better fix this oversight and explain what it is and why it is unique and unprecedented in Australia.But before I do, I would like to give you some data you simply don’t get from investment books and seminars, so you can see where I am coming from.Over the last 10 years of running a mortgage business for property investors:We have executed more than 7,000 individual investment mortgages with around 60 different lenders;
Myself and our mortgage team have reviewed the financial positions of approximately 6,000 individual property investors and developers;
I have enjoyed privileged access to vital data including the original purchase price, value of property improvements and the current valuation of close to 30,000 individual investment properties all around Australia from our considerable client base.When you have such a large sample size to do your research on and make observations, you are bound to discover something unknown to most people.I have discovered many things that may surprise you as much as they surprised me, some of which are against conventional wisdom:Paying more tax can be financially good for you.This one took me years to swallow, but I can’t deny the facts. The clients who have managed to get into a positive cashflow position have paid a lot of tax and will continue to pay a lot of tax, whether it is capital gains, income tax or stamp duty. They don’t have an issue with the tax man making some money as long as they continue to make more themselves! They regularly cash in the profits from their properties and reduce their debt, but always continue to invest and park their money where the return is best. In fact, I can almost say that the only people who enjoy positive cashflow from their investment properties are the people who have little concern about paying taxes as they treat them as the cost of doing business.Just about every property strategy works. It just depends on who does it, how it is done, when it is done and where it is done.When I first started investing, I went and read many property investment books and attended many investment educational seminars. Just about every one of them was convincing and this confused the hell out of me. Just when I was about to form an opinion against a particular property strategy, someone would show up in one of my client consultations and prove that it worked for them!After testing many of these strategies myself, I came to realise that it is not about the strategy,(which is only a tool) but rather it is about whether the person is using the tool appropriately at the right time, in the right place and in the right way.There is no such thing as the best suburb to invest in, forever.If you randomly pick a particular property in what you think is the best suburb over a 30 year window, you will find that there are periods during which this property will outperform the market average, and there are periods when this property will underperform the market average.Many property investors find themselves jumping into historically high growth suburbs at the end of the period when it is outperforming the average, and then stay there for 5-7 years during the underperforming period. (Naturally this can taint their view of property investing as a whole!)There is no such thing as the worst suburb to invest in, forever.If you pick a property in the worst suburb you can think of from 40 years ago, and pitch that against the best suburb you can think of over the same period of time, you will find they both grew at about 7-9% a year on average over the long-term.Hence in the 1960s, a median house in Melbourne and Sydney was valued at $10k. The worst property around that time may have been 30% of the median price for then, which was say about $3k. Today, the median house price in these cities is about $600k. The worst suburb you can find is still around 30% of that price which is say $200k a house. If you believe a bad suburb will never grow, then show me where you can find a house today in these cities, that is still worth around $3k.Median Price growth is very misleading.Many beginner property investors look at median price growth as the guidance for suburb selection. A few points worth mentioning on median price are:We understand the way median price is calculated as the middle price point based on the number of sales during a period. We can talk about the median price for a particular suburb on a particular day, week, month, year, or even longer. So an influx of new stocks or low sales volume can severely distort the median price.In an older suburb, median price growth tends to be higher than it really is. This is because it does not reflect the large sum of money people put into renovating their properties nor does it reflect the subdivision of large blocks of land into multiple dwellings which can be a substantial percentage of the entire suburb.In a newer suburb, median price growth tend to be lower than it really is. This is because it does not reflect the fact that the land and buildings are both getting smaller. For example, you could buy a block of land of 650 square metres for $120k in 2006 in a newer suburb of Melbourne, but 5 years later, half the size block (i.e.325 square metres) will cost you $260k. That’s a whopping 34% annual growth rate per year for 5 years, but median price growth will never reflect that, as median prices today are calculated on much smaller properties.Median price growth takes away people’s focus from looking at the cost of carrying the property. When you have a net 2-3% rental yield against interest rates of 7-8%, you are out-of-pocket by 5% a year. This is not including the money you have to put in to fix and maintain your property from time to time.Buying and holding the same property forever doesn’t give you the best returns on your money.The longer you hold a property, the more likely you will achieve an average growth of 7-9%. But you will be bound to hit periods where your property outperforms the 7-9% growth and periods where it under performs the 7-9% growth.The longer you hold a property, if its growth is at or above average, the lower its rental yields will become.The longer you hold a property, the higher the capital gains tax you will need to pay when you sell, and the less likely you will be able to sell it.The longer you hold a property, the more likely there will be a need for an expensive upgrade of the property.The longer you hold a property, the more likely you will forget which part of the equity actually belongs to the tax man, AND the more likely you will be to try to leverage the equity that doesn’t belong to you. This can get you into a negative equity position with a negative cashflow forever, unless you have proper financial guidance.

Posted in Uncategorized | Comments Off

A New Way to Invest in Property

The two most frequently asked questions by investors are:What investment should I buy?
Is now the right time to buy it?Most people want to know how to spot the right investment at the right time, because they believe that is the key to successful investing. Let me tell you that is far from the truth: even if you could get the answers to those questions right, you would only have a 50% chance to make your investment successful. Let me explain.There are two key influencers that can lead to the success or failure of any investment:External factors: these are the markets and investment performance in general. For example:
The likely performance of that particular investment over time;
Whether that market will go up or down, and when it will change from one direction to another.
Internal factors: these are the investor’s own preference, experience and capacity. For example:
Which investment you have more affinity with and have a track record of making good money in;
What capacity you have to hold on to an investment during bad times;
What tax advantages do you have which can help manage cash flow;
What level of risk you can tolerate without tending to make panic decisions.When we are looking at any particular investment, we can’t simply look at the charts or research reports to decide what to invest and when to invest, we need to look at ourselves and find out what works for us as an individual.Let’s look at a few examples to demonstrate my viewpoint here. These can show you why investment theories often don’t work in real life because they are an analysis of the external factors, and investors can usually make or break these theories themselves due to their individual differences (i.e. internal factors).Example 1: Pick the best investment at the time.Most investment advisors I have seen make an assumption that if the investment performs well, then any investor can definitely make good money out of it. In other words, the external factors alone determine the return.I beg to differ. Consider these for example:Have you ever heard of an instance where two property investors bought identical properties side by side in the same street at the same time? One makes good money in rent with a good tenant and sells it at a good profit later; the other has much lower rent with a bad tenant and sells it at a loss later. They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same advice from the same investment advisor.
You may have also seen share investors who bought the same shares at the same time, one is forced to sell theirs at a loss due to personal circumstances and the other sells them for a profit at a better time.
I have even seen the same builder building 5 identical houses side by side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures whereas others are doing much better financially.What is the sole difference in the above cases? The investors themselves (i.e. the internal factors).Over the years I have reviewed the financial positions of a few thousand investors personally. When people ask me what investment they should get into at any particular moment, they expect me to compare shares, properties, and other asset classes to advise them how to allocate their money.My answer to them is to always ask them to go back over their track record first. I would ask them to list down all the investments they have ever made: cash, shares, options, futures, properties, property development, property renovation, etc. and ask them to tell me which one made them the most money and which one didn’t. Then I suggest to them to stick to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any money in the past (assuming their money will get a 5% return per year sitting in the bank, they need to at least beat that when doing the comparison).If you take time to do that exercise for yourself, you will very quickly discover your favourite investment to invest in, so that you can concentrate your resources on getting the best return rather than allocating any of them to the losers.You may ask for my rationale in choosing investments this way rather than looking at the theories of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it is not smart to go against the law of nature.For example, have you ever noticed that sardines swim together in the ocean? And similarly so do the sharks. In a natural forest, similar trees grow together too. This is the idea that similar things attract each other as they have affinity with each other.You can look around at the people you know. The people you like to spend more time with are probably people who are in some ways similar to you.It seems that there is a law of affinity at work that says that similar things beget similar things; whether they are animals, trees, rocks or humans. Why do you think there would be any difference between an investor and their investments?So in my opinion, the question is not necessarily about which investment works. Rather it is about which investment works for you.If you have affinity with properties, properties are likely to be attracted to you. If you have affinity with shares, shares are likely to be attracted to you. If you have affinity with good cash flow, good cash flow is likely to be attracted to you. If you have affinity with good capital gain, good capital growth is likely to be attracted to you (but not necessary good cash flow ).You can improve your affinity with anything to a degree by spending more time and effort on it, but there are things that you naturally have affinity with. These are the things you should go with as they are effortless for you. Can you imagine the effort required for a shark to work on himself to become sardine-like or vice versa?One of the reasons why our company has spent a lot of time lately to work on our client’s cash flow management, is because if our clients have low affinity with their own family cash flow, they are unlikely to have good cash flow with their investment properties. Remember, it is a natural law that similar things beget similar things. Investors who have poor cash flow management at home, usually end up with investments (or businesses) with poor cash flow.Have you ever wondered why the world’s greatest investors, such as Warren Buffet, tend only to invest in a few very concentrated areas they have great affinity with? While he has more money than most of us and could afford to diversify into many different things, he sticks to only the few things that he has successfully made his money from in the past and cut off the ones which didn’t (such as the airline business).What if you haven’t done any investing and you have no track record to go by? In this case I would suggest you first look at your parents’ track record in investing. The chances are you are somehow similar to your parents (even when you don’t like to admit it ). If you think your parents never invested in anything successfully, then look at whether they have done well with their family home. Alternatively you will need to do your own testing to find out what works for you.Obviously there will be exceptions to this rule. Ultimately your results will be the only judge for what investment works for you.Example 2: Picking the bottom of the market to invest.When the news in any market is not positive, many investors automatically go into a “waiting mode”. What are they waiting for? The market to bottom out! This is because they believe investing is about buying low and selling high – pretty simple right? But why do most people fail to do even that?Here are a few reasons:When investors have the money to invest safely in a market, that market may not be at its bottom yet, so they choose to wait. By the time the market hits the bottom; their money has already been taken up by other things, as money rarely sits still. If it is not going to some sort of investment, it will tend to go to expenses or other silly things such as get-rich-quick scheme, repairs and other “life dramas”.
Investors who are used to waiting for when the market is not very positive before they act are usually driven either by a fear of losing money or the greed of gaining more. Let’s look at the impact of each of them:
If their behaviour was due to the fear of losing money, they are less likely to get into the market when it hits rock bottom as you can imagine how bad the news would be then. If they couldn’t act when the news was less negative, how do you expect them to have the courage to act when it is really negative? So usually they miss out on the bottom anyway.
If their behaviour was driven by the greed of hoping to make more money on the way up when it reaches the bottom, they are more likely to find other “get-rich-quick schemes” to put their money in before the market hits the bottom, by the time the market hits the bottom, their money won’t be around to invest. Hence you would notice that the get-rich-quick schemes are usually heavily promoted during a time of negative market sentiment as they can easily capture money from this type of investor.
Very often, something negative begets something else negative. People who are fearful to get into the market when their capacity allows them to do so, will spend most of their time looking at all the bad news to confirm their decision. Not only they will miss the bottom, but they are likely to also miss the opportunities on the way up as well, because they see any market upward movement as a preparation for a further and bigger dive the next day.Hence it is my observation that most people who are too fearful or too greedy to get into the market during a slow market have rarely been able to benefit financially from waiting. They usually end up getting into the market after it has had its bull run for far too long when there is very little negative news left. But that is actually often the time when things are over-valued, so they get into the market then, and get slaughtered on the way down.So my advice to our clients is to first start from your internal factors, check your own track records and financial viability to invest. Decide whether you are in a position to invest safely, regardless of the external factors (i.e. the market):If the answer is yes, then go to the market and find the best value you can find at that time;
If the answer is no, then wait.Unfortunately, most investors do it the other way around. They tend to let the market (an external factor) decide what they should do, regardless of their own situation, and they end up wasting time and resources within their capacity.I hope, from the above 2 examples, that you can see that investing is not necessarily about picking the right investment and the right market timing, but it is more about picking the investment that works for you and sticking to your own investment timetable, within your own capacity.A new way to invest in propertiesDuring a consultation last month with a client who has been with us for 6 years, I suddenly realised they didn’t know anything about our Property Advisory Service which has been around since April 2010. I thought I’d better fix this oversight and explain what it is and why it is unique and unprecedented in Australia.But before I do, I would like to give you some data you simply don’t get from investment books and seminars, so you can see where I am coming from.Over the last 10 years of running a mortgage business for property investors:We have executed more than 7,000 individual investment mortgages with around 60 different lenders;
Myself and our mortgage team have reviewed the financial positions of approximately 6,000 individual property investors and developers;
I have enjoyed privileged access to vital data including the original purchase price, value of property improvements and the current valuation of close to 30,000 individual investment properties all around Australia from our considerable client base.When you have such a large sample size to do your research on and make observations, you are bound to discover something unknown to most people.I have discovered many things that may surprise you as much as they surprised me, some of which are against conventional wisdom:Paying more tax can be financially good for you.This one took me years to swallow, but I can’t deny the facts. The clients who have managed to get into a positive cashflow position have paid a lot of tax and will continue to pay a lot of tax, whether it is capital gains, income tax or stamp duty. They don’t have an issue with the tax man making some money as long as they continue to make more themselves! They regularly cash in the profits from their properties and reduce their debt, but always continue to invest and park their money where the return is best. In fact, I can almost say that the only people who enjoy positive cashflow from their investment properties are the people who have little concern about paying taxes as they treat them as the cost of doing business.Just about every property strategy works. It just depends on who does it, how it is done, when it is done and where it is done.When I first started investing, I went and read many property investment books and attended many investment educational seminars. Just about every one of them was convincing and this confused the hell out of me. Just when I was about to form an opinion against a particular property strategy, someone would show up in one of my client consultations and prove that it worked for them!After testing many of these strategies myself, I came to realise that it is not about the strategy,(which is only a tool) but rather it is about whether the person is using the tool appropriately at the right time, in the right place and in the right way.There is no such thing as the best suburb to invest in, forever.If you randomly pick a particular property in what you think is the best suburb over a 30 year window, you will find that there are periods during which this property will outperform the market average, and there are periods when this property will underperform the market average.Many property investors find themselves jumping into historically high growth suburbs at the end of the period when it is outperforming the average, and then stay there for 5-7 years during the underperforming period. (Naturally this can taint their view of property investing as a whole!)There is no such thing as the worst suburb to invest in, forever.If you pick a property in the worst suburb you can think of from 40 years ago, and pitch that against the best suburb you can think of over the same period of time, you will find they both grew at about 7-9% a year on average over the long-term.Hence in the 1960s, a median house in Melbourne and Sydney was valued at $10k. The worst property around that time may have been 30% of the median price for then, which was say about $3k. Today, the median house price in these cities is about $600k. The worst suburb you can find is still around 30% of that price which is say $200k a house. If you believe a bad suburb will never grow, then show me where you can find a house today in these cities, that is still worth around $3k.Median Price growth is very misleading.Many beginner property investors look at median price growth as the guidance for suburb selection. A few points worth mentioning on median price are:We understand the way median price is calculated as the middle price point based on the number of sales during a period. We can talk about the median price for a particular suburb on a particular day, week, month, year, or even longer. So an influx of new stocks or low sales volume can severely distort the median price.In an older suburb, median price growth tends to be higher than it really is. This is because it does not reflect the large sum of money people put into renovating their properties nor does it reflect the subdivision of large blocks of land into multiple dwellings which can be a substantial percentage of the entire suburb.In a newer suburb, median price growth tend to be lower than it really is. This is because it does not reflect the fact that the land and buildings are both getting smaller. For example, you could buy a block of land of 650 square metres for $120k in 2006 in a newer suburb of Melbourne, but 5 years later, half the size block (i.e.325 square metres) will cost you $260k. That’s a whopping 34% annual growth rate per year for 5 years, but median price growth will never reflect that, as median prices today are calculated on much smaller properties.Median price growth takes away people’s focus from looking at the cost of carrying the property. When you have a net 2-3% rental yield against interest rates of 7-8%, you are out-of-pocket by 5% a year. This is not including the money you have to put in to fix and maintain your property from time to time.Buying and holding the same property forever doesn’t give you the best returns on your money.The longer you hold a property, the more likely you will achieve an average growth of 7-9%. But you will be bound to hit periods where your property outperforms the 7-9% growth and periods where it under performs the 7-9% growth.The longer you hold a property, if its growth is at or above average, the lower its rental yields will become.The longer you hold a property, the higher the capital gains tax you will need to pay when you sell, and the less likely you will be able to sell it.The longer you hold a property, the more likely there will be a need for an expensive upgrade of the property.The longer you hold a property, the more likely you will forget which part of the equity actually belongs to the tax man, AND the more likely you will be to try to leverage the equity that doesn’t belong to you. This can get you into a negative equity position with a negative cashflow forever, unless you have proper financial guidance.

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A New Way to Invest in Property

The two most frequently asked questions by investors are:What investment should I buy?
Is now the right time to buy it?Most people want to know how to spot the right investment at the right time, because they believe that is the key to successful investing. Let me tell you that is far from the truth: even if you could get the answers to those questions right, you would only have a 50% chance to make your investment successful. Let me explain.There are two key influencers that can lead to the success or failure of any investment:External factors: these are the markets and investment performance in general. For example:
The likely performance of that particular investment over time;
Whether that market will go up or down, and when it will change from one direction to another.
Internal factors: these are the investor’s own preference, experience and capacity. For example:
Which investment you have more affinity with and have a track record of making good money in;
What capacity you have to hold on to an investment during bad times;
What tax advantages do you have which can help manage cash flow;
What level of risk you can tolerate without tending to make panic decisions.When we are looking at any particular investment, we can’t simply look at the charts or research reports to decide what to invest and when to invest, we need to look at ourselves and find out what works for us as an individual.Let’s look at a few examples to demonstrate my viewpoint here. These can show you why investment theories often don’t work in real life because they are an analysis of the external factors, and investors can usually make or break these theories themselves due to their individual differences (i.e. internal factors).Example 1: Pick the best investment at the time.Most investment advisors I have seen make an assumption that if the investment performs well, then any investor can definitely make good money out of it. In other words, the external factors alone determine the return.I beg to differ. Consider these for example:Have you ever heard of an instance where two property investors bought identical properties side by side in the same street at the same time? One makes good money in rent with a good tenant and sells it at a good profit later; the other has much lower rent with a bad tenant and sells it at a loss later. They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same advice from the same investment advisor.
You may have also seen share investors who bought the same shares at the same time, one is forced to sell theirs at a loss due to personal circumstances and the other sells them for a profit at a better time.
I have even seen the same builder building 5 identical houses side by side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures whereas others are doing much better financially.What is the sole difference in the above cases? The investors themselves (i.e. the internal factors).Over the years I have reviewed the financial positions of a few thousand investors personally. When people ask me what investment they should get into at any particular moment, they expect me to compare shares, properties, and other asset classes to advise them how to allocate their money.My answer to them is to always ask them to go back over their track record first. I would ask them to list down all the investments they have ever made: cash, shares, options, futures, properties, property development, property renovation, etc. and ask them to tell me which one made them the most money and which one didn’t. Then I suggest to them to stick to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any money in the past (assuming their money will get a 5% return per year sitting in the bank, they need to at least beat that when doing the comparison).If you take time to do that exercise for yourself, you will very quickly discover your favourite investment to invest in, so that you can concentrate your resources on getting the best return rather than allocating any of them to the losers.You may ask for my rationale in choosing investments this way rather than looking at the theories of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it is not smart to go against the law of nature.For example, have you ever noticed that sardines swim together in the ocean? And similarly so do the sharks. In a natural forest, similar trees grow together too. This is the idea that similar things attract each other as they have affinity with each other.You can look around at the people you know. The people you like to spend more time with are probably people who are in some ways similar to you.It seems that there is a law of affinity at work that says that similar things beget similar things; whether they are animals, trees, rocks or humans. Why do you think there would be any difference between an investor and their investments?So in my opinion, the question is not necessarily about which investment works. Rather it is about which investment works for you.If you have affinity with properties, properties are likely to be attracted to you. If you have affinity with shares, shares are likely to be attracted to you. If you have affinity with good cash flow, good cash flow is likely to be attracted to you. If you have affinity with good capital gain, good capital growth is likely to be attracted to you (but not necessary good cash flow ).You can improve your affinity with anything to a degree by spending more time and effort on it, but there are things that you naturally have affinity with. These are the things you should go with as they are effortless for you. Can you imagine the effort required for a shark to work on himself to become sardine-like or vice versa?One of the reasons why our company has spent a lot of time lately to work on our client’s cash flow management, is because if our clients have low affinity with their own family cash flow, they are unlikely to have good cash flow with their investment properties. Remember, it is a natural law that similar things beget similar things. Investors who have poor cash flow management at home, usually end up with investments (or businesses) with poor cash flow.Have you ever wondered why the world’s greatest investors, such as Warren Buffet, tend only to invest in a few very concentrated areas they have great affinity with? While he has more money than most of us and could afford to diversify into many different things, he sticks to only the few things that he has successfully made his money from in the past and cut off the ones which didn’t (such as the airline business).What if you haven’t done any investing and you have no track record to go by? In this case I would suggest you first look at your parents’ track record in investing. The chances are you are somehow similar to your parents (even when you don’t like to admit it ). If you think your parents never invested in anything successfully, then look at whether they have done well with their family home. Alternatively you will need to do your own testing to find out what works for you.Obviously there will be exceptions to this rule. Ultimately your results will be the only judge for what investment works for you.Example 2: Picking the bottom of the market to invest.When the news in any market is not positive, many investors automatically go into a “waiting mode”. What are they waiting for? The market to bottom out! This is because they believe investing is about buying low and selling high – pretty simple right? But why do most people fail to do even that?Here are a few reasons:When investors have the money to invest safely in a market, that market may not be at its bottom yet, so they choose to wait. By the time the market hits the bottom; their money has already been taken up by other things, as money rarely sits still. If it is not going to some sort of investment, it will tend to go to expenses or other silly things such as get-rich-quick scheme, repairs and other “life dramas”.
Investors who are used to waiting for when the market is not very positive before they act are usually driven either by a fear of losing money or the greed of gaining more. Let’s look at the impact of each of them:
If their behaviour was due to the fear of losing money, they are less likely to get into the market when it hits rock bottom as you can imagine how bad the news would be then. If they couldn’t act when the news was less negative, how do you expect them to have the courage to act when it is really negative? So usually they miss out on the bottom anyway.
If their behaviour was driven by the greed of hoping to make more money on the way up when it reaches the bottom, they are more likely to find other “get-rich-quick schemes” to put their money in before the market hits the bottom, by the time the market hits the bottom, their money won’t be around to invest. Hence you would notice that the get-rich-quick schemes are usually heavily promoted during a time of negative market sentiment as they can easily capture money from this type of investor.
Very often, something negative begets something else negative. People who are fearful to get into the market when their capacity allows them to do so, will spend most of their time looking at all the bad news to confirm their decision. Not only they will miss the bottom, but they are likely to also miss the opportunities on the way up as well, because they see any market upward movement as a preparation for a further and bigger dive the next day.Hence it is my observation that most people who are too fearful or too greedy to get into the market during a slow market have rarely been able to benefit financially from waiting. They usually end up getting into the market after it has had its bull run for far too long when there is very little negative news left. But that is actually often the time when things are over-valued, so they get into the market then, and get slaughtered on the way down.So my advice to our clients is to first start from your internal factors, check your own track records and financial viability to invest. Decide whether you are in a position to invest safely, regardless of the external factors (i.e. the market):If the answer is yes, then go to the market and find the best value you can find at that time;
If the answer is no, then wait.Unfortunately, most investors do it the other way around. They tend to let the market (an external factor) decide what they should do, regardless of their own situation, and they end up wasting time and resources within their capacity.I hope, from the above 2 examples, that you can see that investing is not necessarily about picking the right investment and the right market timing, but it is more about picking the investment that works for you and sticking to your own investment timetable, within your own capacity.A new way to invest in propertiesDuring a consultation last month with a client who has been with us for 6 years, I suddenly realised they didn’t know anything about our Property Advisory Service which has been around since April 2010. I thought I’d better fix this oversight and explain what it is and why it is unique and unprecedented in Australia.But before I do, I would like to give you some data you simply don’t get from investment books and seminars, so you can see where I am coming from.Over the last 10 years of running a mortgage business for property investors:We have executed more than 7,000 individual investment mortgages with around 60 different lenders;
Myself and our mortgage team have reviewed the financial positions of approximately 6,000 individual property investors and developers;
I have enjoyed privileged access to vital data including the original purchase price, value of property improvements and the current valuation of close to 30,000 individual investment properties all around Australia from our considerable client base.When you have such a large sample size to do your research on and make observations, you are bound to discover something unknown to most people.I have discovered many things that may surprise you as much as they surprised me, some of which are against conventional wisdom:Paying more tax can be financially good for you.This one took me years to swallow, but I can’t deny the facts. The clients who have managed to get into a positive cashflow position have paid a lot of tax and will continue to pay a lot of tax, whether it is capital gains, income tax or stamp duty. They don’t have an issue with the tax man making some money as long as they continue to make more themselves! They regularly cash in the profits from their properties and reduce their debt, but always continue to invest and park their money where the return is best. In fact, I can almost say that the only people who enjoy positive cashflow from their investment properties are the people who have little concern about paying taxes as they treat them as the cost of doing business.Just about every property strategy works. It just depends on who does it, how it is done, when it is done and where it is done.When I first started investing, I went and read many property investment books and attended many investment educational seminars. Just about every one of them was convincing and this confused the hell out of me. Just when I was about to form an opinion against a particular property strategy, someone would show up in one of my client consultations and prove that it worked for them!After testing many of these strategies myself, I came to realise that it is not about the strategy,(which is only a tool) but rather it is about whether the person is using the tool appropriately at the right time, in the right place and in the right way.There is no such thing as the best suburb to invest in, forever.If you randomly pick a particular property in what you think is the best suburb over a 30 year window, you will find that there are periods during which this property will outperform the market average, and there are periods when this property will underperform the market average.Many property investors find themselves jumping into historically high growth suburbs at the end of the period when it is outperforming the average, and then stay there for 5-7 years during the underperforming period. (Naturally this can taint their view of property investing as a whole!)There is no such thing as the worst suburb to invest in, forever.If you pick a property in the worst suburb you can think of from 40 years ago, and pitch that against the best suburb you can think of over the same period of time, you will find they both grew at about 7-9% a year on average over the long-term.Hence in the 1960s, a median house in Melbourne and Sydney was valued at $10k. The worst property around that time may have been 30% of the median price for then, which was say about $3k. Today, the median house price in these cities is about $600k. The worst suburb you can find is still around 30% of that price which is say $200k a house. If you believe a bad suburb will never grow, then show me where you can find a house today in these cities, that is still worth around $3k.Median Price growth is very misleading.Many beginner property investors look at median price growth as the guidance for suburb selection. A few points worth mentioning on median price are:We understand the way median price is calculated as the middle price point based on the number of sales during a period. We can talk about the median price for a particular suburb on a particular day, week, month, year, or even longer. So an influx of new stocks or low sales volume can severely distort the median price.In an older suburb, median price growth tends to be higher than it really is. This is because it does not reflect the large sum of money people put into renovating their properties nor does it reflect the subdivision of large blocks of land into multiple dwellings which can be a substantial percentage of the entire suburb.In a newer suburb, median price growth tend to be lower than it really is. This is because it does not reflect the fact that the land and buildings are both getting smaller. For example, you could buy a block of land of 650 square metres for $120k in 2006 in a newer suburb of Melbourne, but 5 years later, half the size block (i.e.325 square metres) will cost you $260k. That’s a whopping 34% annual growth rate per year for 5 years, but median price growth will never reflect that, as median prices today are calculated on much smaller properties.Median price growth takes away people’s focus from looking at the cost of carrying the property. When you have a net 2-3% rental yield against interest rates of 7-8%, you are out-of-pocket by 5% a year. This is not including the money you have to put in to fix and maintain your property from time to time.Buying and holding the same property forever doesn’t give you the best returns on your money.The longer you hold a property, the more likely you will achieve an average growth of 7-9%. But you will be bound to hit periods where your property outperforms the 7-9% growth and periods where it under performs the 7-9% growth.The longer you hold a property, if its growth is at or above average, the lower its rental yields will become.The longer you hold a property, the higher the capital gains tax you will need to pay when you sell, and the less likely you will be able to sell it.The longer you hold a property, the more likely there will be a need for an expensive upgrade of the property.The longer you hold a property, the more likely you will forget which part of the equity actually belongs to the tax man, AND the more likely you will be to try to leverage the equity that doesn’t belong to you. This can get you into a negative equity position with a negative cashflow forever, unless you have proper financial guidance.

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