To understand the financial numbers that follow, wrap your head around equity. The equity in the investments are calculated by taking fair market value and subtracting the outstanding mortgage amount.

Taking an investment property for AU$200,000 with a AU$180000 mortgage.

In a nutshell, $180k is controlling $200k investment. The arrangement has a LVR (loan-to-value ratio) of 90% which is possible and reasonably common. A year later in keeping with trends, the $200k is property valuation will be around $210k or more. After another year the valuation will be $220k or thereabouts and so forth.

With this simple example, equity has grown initially from $20k ($200-$180=$20k) to $30k then onto $40k ($220 – $180 = $40k).

Studying numbers above, you’ll notice the mortgage has stayed fixed at $180k.

A fundamental mental adjustment to wrap your head around is that you don’t want to pay off the property mortgage. Real property investors use interest only mortgage payments. Paying off the principle – reducing the $180k mortgage, hurts your cash flow.

Here in Australia there are also tax implications surrounding principle payments ;-(

If you’ve done your homework – research the investment (more than just location, location, location…) – the property is rented at around 5% of valuation or more.

Initially, 5% of $180k has a rental of $9000 per year and at $220k a rental of $11000. Notice how the increase in property valuation has a corresponding increase in rental.

Here in Brisbane Australia, rentals generally increase every 6 months. I hate rental increases, but such is life – my lot ;-(

But we have a mortgage payments, I hear you say!

Mortgage interest on $180k at 7% (average current rate) is $12600 pa.

No worries

There are two schools of thought here in Australia. Positively geared and negatively geared property.

Positively geared means the rental income pays all expenses – mortgage, rates, insurances etc.

Negatively geared the rental income does not meet all the expenses. Whilst this might appear stupid, there are significant tax benefits if choose this path.

How often do you hear tax and benefit used together in one sentence?

The expenses not met by the rental income decrease your 8 to 5 daily grind taxable income. There is also depreciation (visit Depro for a property schedule). Here in Australia, you can also lodge a PAYG income tax withholding variation (ITWV) with the ATO. This reduces your weekly or fortnightly tax giving you the funds required to meet the expenses not met by the rental income.

The current example property will turn cash positive in the sixth – seventh year.

But you don’t want that situation. As a positive income approaches, it should be invested into the next property investment. Acquiring finance – mortgage – for the second, third property etc becomes easier. The banks understand that you are on a mission to acquire multiple properties, so the banks are generally there help so that they get their monthly interest cut.

Once you have acquired couple properties, the mortgage payments rental income positive differential will be sufficient to fund a line of credit (LIC).

The funds that you as investor extract from this LIC (Equity Loan) becomes your tax-free income replacement for the 8 to 5 daily grind. The amount that you can extract or want as an income replacement is determined by the number of investment properties that you’ve accumulated.

Property investment mission accomplished

One day when you decide to clock-out, kick the bucket and die, your family can sell a property or two to settle the investment mortgages or continue with process as described in this posting.

Become a property investor, use NLP to fix mental childhood your issues – broken thought patterns etc, then take your first property investment step – loose your virginity

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Entrance gate to Brassall Place

This recently finished development is absolutely awesome – offers a great lifestyle advantage. Most new real estate developments have the residences sitting uncomfortably close to one another.

Brassall Place is definitely different – you can breath easily and are highly unlikely to hear your neighbor fart or orgasm

Pool - just add 36-32-34

Road between the Brassall units

Neighbor to the right of Unit 29

So Sunday afternoon turned into an in depth property investigation. Not wanting to be disturbed, I choose unit 29 of the complex. This lovely two bedroom with SLUG, face brick and backyard, unit is located far away from the gated entry. Students would love this – guaranteed quiet helps studies. I was student once upon a time ;-(

Entrance to the 2 bedroom Unit 29

The complex is conveniently located close to shopping centers, transport and enjoys a wealth of park areas. Being not too far from Brisbane is great plus, especially when one considers the cost of realestate.

The 2 bedroom unit kitchen at Brassall Place

In the Brisbane CBD, you’ll be lucky to find an investment property for less than AU$500,000. Moving further out towards the suburbs, the cost of properties does come down but there is a lack of real lifestyle value.

Probably the biggest advantage of this property development in my opinion is the open space arrangement of the 68 units. This was clearly illustrated in the earlier photo. Whilst this is always very nice, it’s the bottom line that counts.

The table below gives the property breakdown.

All above is within walking distance of the shops, schools and transport. For us blokes (and if you love fishing), the Bremer river is on your doorstep.

I’m not sure on whether or not there are still any units available for sale / investment – best to check that with No Limit, but rental opportunities are still being advertised on www.realestate.com.au or contact Jim, the onsite manager.

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Property prices are determined by what somebody is prepared to pay. So if a couple – who really want to stay in a particular area – are prepared to pay a ridiculous amount for a Queenslander, this purchase pushes up the valuations for the entire area !!!

Later, the next sale in the area expects the same and more and so the vicious circle of real estate is born ;-(

Now add an auction to the mix – with a little emotion on side – and the property prices skyrocket even further !!

But wait that’s not all.

Rates are tied the property’s land valuation. This last week, the rates in Brisbane increased between 9 to 60 percent depending on the land valuation. After a week of criticism by owners, Lord Mayor Campbell Newman defended the rate rise as needed to fund the Brisbane city capital works programs.

This increase also affected residential owner occupiers and property investors differently.

Obviously, investors will push up the rental to cover the increase in rates. This will put even more pressure on tenants who’ve already had to bear two interest rate hikes and their effect on the weekly rental.

Property prices keep going up. Interest rates and property rates go up.

When will this madness end?

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The reserve is the buy purchase price!!!

The building industry exploits this reserve. The bank property valuators use these sales figures during the mortgage application process. The developer will always add a little extra onto the sale price which means the buyer will not get a 100% mortgage and will have to fund the difference!

The images that follow are for a typical wooden Queenslander for sale in Morningside. This suburb is about 15 minutes away from the Brisbane CBD. Typical middle class area, nothing special.

According to the South East Property Price Guide, there have been 6 comparative Morningside sales now in November in the $500-599k range.

Five minutes away from the CBD in West End, you can get a 65 sqm bachelor unit for $400k, $1300 rates and $2500-2700 in body corporate fees.

Still, would you buy this 3 bedroom, 1 bath, no garage, wooden Queenslander property at the expected bargain auction reserve of $560,000+?

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Property, real estate, wealth creation

• Your net worth will never exceed your level of education / personal development
• Can easily be asset rich but cash flow poor
• Fear and doubt lead to procrastination – nothing changes.
• Control is more important than ownership
• Property grows within a tax free environment
• Always ask for help
• Be patient
• Negotiate terms not price
• Remember that debt is good if it goes up in value
• Partner or perish – make more in a group
• Financial education is what makes you wealthy
• It doesn’t take money to make money but experience
• If money isn’t in your head, it’ll never stick to your hand
• A depression is when money is transferred from the financially illiterate to the financially educated
• Don’t give money to the poor, teach them to fish but better yet, sell the fish!

As I’ve said in previous postings, real estate in Australia is really expensive! The cost of housing has appeared in numerous election debates in recent months. Both the Opposition (John Howard) and Labour (Kevin Rudd) acknowledge that most Australians cannot afford to buy their home and are thus forced into the rental market.

And specifically when buying an investment property…,

• A good real estate agent is also an investor
• Believe nothing and check everything
• Tell the agent nothing of importance – just ask questions
• Know the true value
• Never bid until the property reaches reserve
• Always go for variable interest rate loans – banks wouldn’t offer fixed rate loans if they though they weren’t going make money!
• Always try to buy with a view
• Always obtain a copy of the banks valuation of the property

Personal development

This isn’t really my scene, but the presenters – like Tony Robbins or Christopher Howard – ask some interesting questions that in force you to question your own perceptions and attitudes towards life.

• The most valuable piece of real estate is the 6 inches between your ears – some people have less
• Result is determined by a behavior
• Behavior is caused by an action
• An action stems from a decision
• Decisions are made to either to avoid pain or gain pleasure
• Whenever presented with two options, choose the third
• If keep doing what you’ve always done, you’ll always be where you’ve always been
• Fully manured adults
• Until you see yourself as prosperous, prosperity will elude you
• Life is a risky business – we all succumb to the risk
• You can only change the future in the present
• If you know yourself and how you work, it makes it easier to know other people
• Customer service – offering every possible service short of real help
• Most live in fear – fear is projected onto others with the advice we give
• Life is reflected by the decisions you make
• The only difference between being stuck in a rut and the grave is time
• Eating healthfully shows self-respect
• GUTS – Genuine Urge To Succeed
• Unforgiveness is the poison you drink
• Education is not expensive – ignorance is
• Circumstance does not make the man but reveals the man
• Nobody is a real loser until they start blaming somebody else
• The wise man is the master of his mind, but the fool is slave to his mind
• And Benjamin Franklin said, “Empty you purse to fill your mind and your mind will fill your purse”

Share trading / share market

The big trend in most of the share trading seminars has been Contracts For Difference (CFD) and E-Minis (index trading). These seminars are also an excellent opportunity to see the share trading software in action and hear the commentary about the advantages and disadvantages various software packages.

• Always have a stop loss in place
• FEAR – “Fuck Everything And Run” or “False Evidence Appearing Real”
• Exploit opportunity through leverage
• Let the market do the work
• Every additional share reduces potential earnings
• Remember, you can never be half pregnant
• The stock market gives to you, so a loss in the market is a donation to the market

If you’re ever confused as to what is a bull or bear market means, just remember the bulls take the stairs (market increase) whilst the bears jump out the window (market falling).

When you’re living or working in Brisbane and have some spare time, grab the a copy of the “Brisbane News” or MX and you will definitely find a freebie seminar on some topic that will perk your interest – and sometimes, you’ll even get a free lunch

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