1. real estate
2. buying and selling homes

YOUR PROPERTY SUCCESS HOME OWNERS COURSE
COURSE MANUAL
www.yourpropertysuccess.com.au
Page 1
Disclaimer: The information in these courses and the accompanying materials is based on the personal opinions and
own personal experience of property investing by Jane Slack-Smith. Jane is not a real estate agent, nor is Jane a
financial planner, lawyer or accountant. All information provided by Your Property Success Pty Ltd is not intended to
be specific to your circumstances rather it is one of many tools to assist you with your quest for information so that
you can work with your own professionals to build your own investing strategy. After you have finished your own
research, it is your decision how you want to invest and if indeed you do want to. Any information provided is not
meant as investment advice. Jane Slack-Smith and her associated companies including Your Property Success Pty Ltd
are not liable for any loss, damage or misunderstanding caused by reliance on any information provided or inferred.
During the education process Jane Slack-Smith will introduce other companies, websites and third party information
to you which Jane is not associated with. You need to do your own research and investigation of the information and
services they provide. Jane Slack-Smith and her associated companies including Your Property Success Pty Ltd are
not liable for any loss, damage or misunderstanding caused by mismanagement of any information provided or
inferred by those companies affiliated or referred to in the course material or associated website.
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The Materials are not intended to replace professional independent advice. You are advised to seek advice from
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The Materials are of a general nature and are intended to assist the reader’s comprehension of issues relating to
buying property. It is not intended to provide specific advice to specific persons’ financial or property interests. Please
consult your financial or property professional advisor when seeking to apply the materials.
In some cases Your Property Success Pty Limited (the Company) is invited to be an affiliate to property purchasing
and related products and services. If you buy through the Company’s links then the Company may be paid a
commission. These payments do not influence the Company’s introductions to services or products, you need to
decide that for yourself. Absolute transparency is vital and hence this disclosure. Every effort has been made to
source these products and services that will add to your experience, based on their quality, and are not influenced by
the prospect of any revenue derived from them. The primary reason for these resources is to benefit the property
purchaser.
Copyright © Your Property Success Pty Ltd September 2011
The information in these courses, the accompanying materials, and all third party materials (the “Materials”),
supplied by Your Property Success Pty Ltd (the “Author”), is copyright. Apart from any use as permitted under the
Copyright Act 1968 (Australia), no part may be reproduced by any person or by any process without prior written
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including the right to reproduce, publish, store and retrieve, record, communicate to the public, adapt, or perform in
whole or in part, in any form or by any means including: electronic, mechanical, written or otherwise, without prior
written permission of the Author. Enquiries can be directed to the Author at [email protected]
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It is all about Your Property Success
The Your Property Success course was designed to take investors step by step through the
decision making steps they needed to consider when considering buying an investment
property. However it became particularly apparent that those buying their home would
benefit by the way successful investors locate properties, hence this course.
It is important that you consider your home as an investment in your future. In fact if you
do, you have the opportunity to make your retirement a whole lot sooner and more
comfortable.
Let’s face it who can even think far enough ahead to imagine retirement? The reality is that
with a few fundamental rules applied to your home purchase you won’t have to be hanging
out till your 70 to put your feet up. In fact there is a great Australian crime going on
unpunished – people are working 40 hrs a week for 40 years to retire on 40% of their
income – and that is just when they have all that extra time to do the things they have been
putting off. Then more than even they need more money. So don’t fall victim, start thinking
strategically now about this purchase. A well thought out strategy will allow you to escape
the injustice and create your own wealth to give you the lifestyle you want. Creating a
property portfolio or even strategically buying and selling one home at a time can allow you
to make money while you sleep.
There is a lot of books and seminars about how to locate and buy an investment property
the reality is that some lessons are just as relevant to home owners. Getting the
fundamentals of that property purchase right could mean the difference between retiring at
50 or 70.
Purchasing a property can be daunting and exciting at the same time. The property selection
process will dictate whether the buyer will be able to grow their wealth through judicious
purchases or value adding activity such as a renovation or use the home as a base to access
equity to grow their portfolio to a second, third, or fourth investment property. The whole
course is about how you need to start with goal setting and knowing what you are doing.
The property selection process is the first and most crucial step to securing a property that
will achieve a high level of capital growth and return on investment. In-depth research is
imperative to gaining a compressive understanding of the property market, in order to
identify out-performing suburbs and homes. Home buyers should consider properties that
have proven historical capital growth patterns.
The question of timing is always top of mind for buyers; the truth is: any time is a good time
to buy particularly if you apply the principles of this course. For sure, sometimes there are
more sellers than buyers and this makes it more negotiable; but sound principles can be
applied at any time no matter what the market conditions are. It does help however to have
sellers keen to attract buyers’ interest, providing buyers with the opportunity to negotiate a
price that will deliver a good return on their investment. However the chances are that if
you are buying a home you are also selling one. So an advantage being a seller in a hot
market could also make it difficult for your to buy the property you want due to
competition.
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Throughout this course there will be references to you as an investor, because you are.
Using the lessons in this course will get you to your lifestyle and financial goals quicker, if
you use investor thinking when buying your home.
Getting Started with the course
This course is a morsel of the five full courses that Your Property Success offers which is
geared towards property investors. It has been prepared to give you a good starting point in
thinking strategically when buying your home whilst sharing some of the investor thinking
from the larger course. Although you are buying your home; if you want even more in-depth
information on how to think like an investor then you might consider taking the next step
and look at the in-depth courses later after you are comfortably settled into your home.
For those who want to take the next step and drill down, there are five in-depth courses
each delivered through six online modules. These go into a whole lot more detail and
targeted exercises. Throughout the Your Property Success Home Buyers course you might
find reference to these other five courses, just so you know where to go and what to look
for if you require additional assistance. The seven modules in this course will definitely give
you all you need to get going; the in-depth courses are mentioned in case you feel you need
more.
So don’t be surprised if you see these courses referenced, at the end of this introduction
you can see the specifics of each of these five courses broken into the 30 modules. These
courses can be accessed at http://yourpropertysuccess.com.au/
Introduction
Although property is one of the best and safest investments; in order to achieve wealth you
need to work at your investments to get the best outcomes. This is regardless of whether
you are buying a home and or an investment property because if you think strategically
when buying your home it has the potential to become your greatest investment asset. You
just need to think a bit differently when considering the purchase of your own home.
If you intend to be wealthy; to have a genuine ability to build income outside of your wage
or salary then residential property can be the foundation of your wealth. When you consider
any purchase of residential property you may or may not sell it but it will certainly be the
cornerstone of building your wealth.
This seven-module course will guide you through the steps and strategies necessary to not
just buy your home but build your property investment portfolio. Each stage of the journey
opens up opportunities to add value, to create income; to generate passive income; to build
wealth.
One of the great aspects of property investing is that the principles behind successful
property investing can be applied anywhere and across a variety of property types from
basic home ownership to renovation for profit, to building a multi-million dollar portfolio
with enough passive income to never have to work again.
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Some people may say that the early 1990s was the right time to buy property because land
was “cheap” then, compared with the property buyer situation of 2009. The truth is the
same principles apply to buying no matter what decade we are living in – provided you
apply sound investment principles – all of which you can learn through this program.
There’s a lot of common sense that can be applied to property purchasing. There is in fact a
step by step approach that you should know.
Our core philosophy is that residential property should be the cornerstone of any wealth
plan. This is not a shocking statement as most Australian’s have done just that by buying a
home. It is based on the premise that the residential property market is – despite the
vastness of Australia – a scarce commodity. This is fundamental to our wealth building
strategies presented in the courses. Available land and buildings are simply not meeting
demand. That’s not universally true across every urban location, but we will be
demonstrating techniques for locating the right property in the right location so that
fundamentals can be at work.
The Your Property Success course is an overview of what you need to know to get going.
This course is designed so that you can move through the modules at your own pace.
Participants will receive access to all seven modules right from the start (for those high
achievers who like to work at a cracking pace) but the course is structured so that
participants receive regular notification via email to encourage progression to the next
module.
For your convenience, the course is also available in iPad and Kindle compatible format. If
you are reading on an iPad then you could download the iBooks app to read the pdf if you
are having any difficulties. Bonus’ and Extra Resources are available through the content
online and not in these versions. So keep your log on information handy.
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Your Property Success Course
TABLE OF CONTENTS
1. Setting your Goals and the timeframes to achieve those goals and reviewing your
budget, can you actually afford an investment now or is a savings plan needed?
2. Develop your Property Investing Strategy and Buying Criteria, once you have these
you can easily assess any property in minutes so you know if it suits or not
3. Understanding where the money will come from for your purchase, this is critical
you need to be prepared for the costs of the purchase and your ongoing costs
4. The checks and balances for a successful loan application and how to prepare
yourself so that your request for finance is approved faster
5. How to locate a property against your buying criteria so that it outperforms the
market, only now once you have the Foundations laid do you look at properties, this
is where most people start and hence why less than 2% of the population have more
than one investment property
6. The process from signing the contract through to settlement and all the extras you
need to know about, you cannot drop the ball once you have the property now is the
time to bring it all together get all your professionals on side to make this an
investment that will continue to deliver
7. How to take the next step to get you to your financial future, this module addresses
what to do after your purchase, how to protect yourself going forward, how to
develop the mindset and how to access your equity to start again.
Your Property Success is achievable one step at a time.
The Instructions
Each section of the course is categorised by an icon, so if you want to jump to a particular
section then look for one of the following icons.
Exercises
Bonus Material
Extra Resources
Course Outcomes
Tips
You will need to download the workbook so that you can transfer your personal learning
and newly acquired knowledge. This will become your personal property investing blueprint.
You will refer back to it frequently as you go about finding and selecting your property and
building your portfolio.
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The workbook for this course can also be found in the introduction section.
This course has been designed for anyone who wants to develop a home or the beginnings
of a property-investment portfolio. Remember your home is usually your first property
investment and when you purchase strategically, following the basic foundations of
property investing it can become the cornerstone to your future portfolio. Yes, you should
think of your home as an investment and the lessons provided in this course will be just as
relevant to you as to those buying a property specifically as an investment. If you truly want
to start thinking with the end in mind then you need to rethink what you are buying and
how it will contribute to your end goals.
The course consists of seven easy to follow modules; each containing content on the specific
topic plus relevant exercises to help keep you on track and solidify the learning presented.
Each module should take you approximately an hour to complete. In some instances there
is additional bonus material. Depending on the topic, this may take the form of an ‘Ask the
Expert’ e-book, a ‘Success Guide’, useful websites, spread sheets, checklists and other
practical resources. Where appropriate I will also refer you to additional information so you
can extend your knowledge if you think you need more.
If you have any technical issues please contact [email protected]
So let’s get started on the journey to Your Property Success.
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The full Your Property Success course is a full five-course, 30 module program, filled with
everything you need to take you through the entire process of building your investment
property portfolio. In case you are interested in taking the next step and learning more here
is a breakdown of each of the courses. As past students you also get a 10% discount.
Course 1 The Foundations
Module 1
Setting your goals
Module 2
Facts about Figures
Module 3
Understanding Your Property Investing Strategy
Module 4
Understanding how to minimise the Risk for your Strategy
Module 5
Establishing your Buying Criteria
Module 6
Wrapping it up and Taking the Next Step
Course 2 Know Your Numbers
Module 1
Improving Your Borrowing Capacity
Module 2
Protecting Your Credit Reputation
Module 3
Where do the dollars come from
Module 4
How much do you actually need
Module 5
Knowing your loan requirements
Module 6
Who pays for the property
Course 3 Locating a Property
Module 1
The Fundamentals of a successful purchase
Module 2
Understanding Median and lowering your risk
Module 3
Getting to Know your Suburbs
Module 4
Resources to get the Research done
Module 5
Hit the Streets
Module 6
Final Evaluation
Course 4 Signing to Settlement
Module 1
Preparing your Letter of Offer
Module 2
Know the buying process
Module 3
Inspections and Checks
Module 4
Selecting your Property Manager
Module 5
Don’t forget Landlords Insurance and your Depreciation Schedule
Module 6
Organising a quick renovation
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Course 5 After You Buy
Module 1
Protect Yourself
Module 2
Monitoring your Property
Module 3
Keep Your Portfolio Working
Module 4
Review, Repair, Repent and Replicate formerly known as Cookie Cut it
Module 5
The Next Opportunity and how to move forward
Module 6
Developing your Mindset
For more information check out the website www.yourpropertysuccess.com.au
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MODULE
1
YOUR PROPERTY SUCCESS HOME OWNERS COURSE
MODULE 1 GOALS AND BUDGETING
COURSE MANUAL
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Module
1
Module 1 | Goals and Budgetting
Your home is your castle
We have all heard the saying and in truth we
instinctively know what it means. You want to be
proud of your home; after all; it says something
about what and who you are, it has a workable
function i.e. it satisfies a physical requirement.
Your physical need has a few requirements
essentially it might mean in needs to have four
bedrooms but also it needs to be within 45mins
from work.
When looking to upgrade, downgrade, sidegrade then you need to consider these
requirements however that is usually where most stop and that is the extent of the future
planning. The reality is that the biggest purchase most will ever make is that of their home.
They are also making that purchase with the longest timeframe requirement in that they are
likely to make a commitment for a 25 or even 30 year mortgage.
Here is the simple fact: most people buy a home without realising that on average they will
only really be there for seven years. You can buy now with concerns of satisfying your
current requirements which as we saw above are usually just a physical need; or you can
buy and realise that you can buy yourself wealth. Those seven years is important and key to
where your future is and even how much of an upgrade your next home ends up like.
You probably have heard that property investors need to consider capital growth, rental
yields, demographics etc but how can that all relate to you? The fact is as a home buyer you
have the opportunity to apply some of that investor thinking to your home purchase and
not only satisfy your physical requirements but also with an eye to your future wealth
building goals.
What do you want?
You do need to articulate what you are going for, what is your future wealth accumulation
goal? What lifestyle do you want to achieve for your family by when. If you consider your
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home as your biggest asset then the reality is that you can buy a home that has the
opportunity of getting you to those lifestyle goals sooner.
This is literally, the first step - don’t even think about spending every Saturday looking at
properties, because you’ll only be running around wasting time and getting confused. It’s a
valuable first step and one that will be consolidated through relevant exercises that will
assimilate the learning.
So what are you working for?
Exercise:
So what is the income you want?
1. Grab your workbook and write down what income you want to achieve
2. Then write down when you want to have that income, yes an actual date
Next we need to work out how you can achieve that equity from your home. Sure you are
buying a home but over time that home will provide equity for you; which, in turn can help
you buy upgrade to a better home sooner or even buy an investment property. The first
step is to work out the size of your assets generating that income. Your income producing
assets could be many things for instance shares, cash in the bank or in this case your home.
Once we know how much you want to live off and we apply a conservative earning then we
can work out the size of the assets needed for you to achieve this – i.e. how much money in
the bank.
Once it is in the bank, to be conservative, we will use a return of 5% and that is your income.
Keep in mind that equity in your home can be used as a source for investing. We will look at
this later in the courses.
The average Australian family can have
this!
In fact there are only a few ground rules to observe:

Start at the end. First have an idea of what you want;
keeping focussed on your own sense of what kind of passive
income you need to live your dreams. Your concept may be
clear, or it may be simply a rough draft. Either will work well
as a starting point.
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
Specific. The more specific the better

Measurable. A goal should have quantitative and qualitative qualities

Agreed. If your goals are family oriented or involve a partner, then they need to be
agreed with others

Realistic. Goals need to be anchored in reality So, "I want to have a passive income
from my property portfolio” needs to be anchored by an achievable plan

Time. Goals need to have a timeframe and deadline; we say 15 years is a good long term
goal time frame. Is that yours? Time framing is critical to the investment process.
Are you aiming too high or too low? Now you know what you're shooting for, can you get
there? Apart from inheritance, the only options available to you to achieve your financial
goals are to make the money through a program that has realistic budgetary guidelines
combined with smart investment.
The magic rule of 72
Some people may like to do some of their own sums like “how long will it take me to double
my money?” It can be useful to have an idea of the set time frames needed to do this.
Compounding multiplies the value of a dollar over time. It is a mathematical curiosity that
money doubles according to the Rule of 72, which is a formula you can use to roughly
estimate the time it will take for your investment to double. Mind you, investors must
consider any results from the Rule of 72 as a broad guideline and not as an investment tool.
The formula does not take into account our changing economy, the potential pitfalls of
investment risks, and a myriad of other considerations.
Still, it is interesting to observe how this simple equation can be applied. Why "72?" Nobody
really knows. But here's how it works:
First consider the growth of an investment. In Australia is has been reported that the
average capital growth throughout the entire Australian property market over the last one
hundred years is 7% pa. I.e. some years it is higher some years lower but on average a 7% pa
return.
So to calculate how many years it will take you to double your assets value divide the annual
return into 72 i.e.:
72/average annual total return = Number of years to double your money.
If you assume a 10% average annual total return), then you might expect your money to
double in about 7.2 years (72 / 10). If you want to invest in something more conservative,
say with a 5% average annual total return, it would theoretically take twice the amount of
time (14.4 years or so) for your money to double. Or, if you manage to achieve 15 percent
returns, the money will double in 4.8 years.
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Now that you know the amount of time you need to double your money for the investment,
how does this fit with the goals you recorded in the goal setting exercise above?
In the full version of this e-course, Course 1 - the Foundations we cover in more depth how
property investing can get you to your goals and how you would work out the number of
properties and their value to assist you in achieving this goal. This course has been designed
for those developing a property investing portfolio. Remember your home is usually your
first property investment and if purchased following the foundations of property investing
strategies this can become the cornerstone to your portfolio. Yes you should think of your
home as an investment and hence the learning’s provided in this course should be just as
relevant to you as those buying a property specifically as an investment. You can think of
your home from a strategic point of view and use it as a stepping stone to building equity to
get you additional property or simply to build equity over time by upgrading continuously
and strategically.
In this module we have defined your goals and their timeframes and started you thinking of
the assets you need to get to that goal. If you are interested in taking this further then go to
the website www.yourpropertysuccess.com.au to find out more about the full version of the
Your Property Success e-course.
Knowing your figures
Now that you’ve defined your goals it’s time to
work out your figures. This means managing your
cash flow and to do this you need to have a
budget and understand it.
Rather than looking at budgeting as being
restrictive you just need to consider it as a step in
achieving your goals. Budgeting or “cash flow
management” if you don’t like the word ‘budget’,
is going to help you avoid what 80% of the
population does...retire on less than $50,000pa. Yes, that’s right, and did you know that in
2011 the government pension for a couple is just $27,000pa... now that’s not financial
freedom in any terms!
Many experts suggest you allocate funds to your goals first, then your needs, and finally
your wants. Some suggest you pay yourself first, i.e. funds to achieve your goals; this might
be $100 per week to save towards a deposit of a property. You obviously have to put funds
aside for the necessities i.e. the rent, food etc, then there are your ‘nice-to-haves’ egg
takeaway once a week or funds for the weekend away – this is the discretionary spending
you should assess first as it is often where the biggest cuts can be made. However don’t be
mean to yourself if you enjoy reading the latest releases then order them at the library it
may cost a few dollars to request, but if you get in early you could be the first on the list – so
it’s just like your own book. Think laterally...you can still enjoy the things you want and it
may not have to cost you.
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It’s also important that you understand the difference between good debt and bad debt so
that at least you can make investment decisions from a position of understanding. Some
examples of bad debt are a car loan, a loan for a holiday, and other items that might give
you instant gratification but are not directly income producing and hence the interest on
this debt is not tax deductible. More importantly these things don’t contribute to your longterm financial goals. Good debt is debt that is actively helping you achieve your goals. This is
usually a loan that you take out to buy an investment be it shares, property etc. When you
appreciate the difference between bad debt and good debt it’s easier to make more
informed choices about your spending and investment. Sometimes the fear of going into
debt (any debt) will be underpinning a fear that you “can’t afford it”.
So now you have set your goals and determined what passive income you want to achieve
and when, now we can move on to learning about, we use this terminology; knowing that
you may be using your home as the vehicle to build equity and wealth. Here we will look at
the strategies you might consider and we establish your individual buying criteria. So we
move onto the second step in our 7 steps to ensure the successful purchase.
Exercise:
1. Know your spending. Find a notebook you can carry with you and for the next
week write down everything you spend – yes everything! This is a challenge but
it’s worth it. In fact after the first week, see if you can keep it up for a month,
then you’ll really start getting a picture of your financial situation and even some
patterns as to why and when you are most likely to spend.
2. Know your cash flow. If you haven’t yet created a cash-flow spreadsheet, then sit
down and do one. Download Module 1 Cashflow Tracker and fill it out. Based on
the spending habits you identified above you’ll have started to see where you can
save. When you develop your budget its important you include all your expenses
even the small daily ones such as lunch or coffee. Record what you can save in
your workbook.
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Module Outcomes
You have defined your goals, the measures you are going to use to track and review
them and the timeframes in which you need to achieve them. This seems such a
simple concept but it truly differentiates those who are successful and those who
lose focus and wander about in different directions without knowing where they
want to end up. You also have an appreciation for where your money is going and
what.
Bonus:
1. Download the Module 1 Cashflow Tracker to assist your cash-flow management
2. Try the web-based goal setting software and personal success journal at
http://gogoalsgo.com. This is a great resource to assist you in recording your goals,
developing the steps to achieve them and setting up milestones for celebration. It
will even send you daily email reminders if you need a little extra motivation.
Extra Resources:
FIVIBE WEALTH BUILDING SOFTWARE
FiVibe is the only wealth building software of its kind. If you are looking for a simple
web based program that allows you to quickly set your goals, track them, create
dream boards, improve your income and net worth by hitting your financial targets
then I encourage you to check this out. You can access this software here
www.fivibe.com.au
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MODULE
2
YOUR PROPERTY SUCCESS HOME OWNERS COURSE
MODULE 2 DETERMINING YOUR BUYING CRITERIA
COURSE MANUAL
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Module
2
Module 2 | Determining Buying
Criteria: The Checklist
In boom periods, making money out of property is relatively
easy – for the majority of Australians who lived in major
urban centres during the period 2000-2006, most made
significant capital gains from their home and investment
properties. This boom period ended around 2006 in most
states.
The fact is; property buying is a dynamic activity: as a home
owner your property is both your place of residence as well
as your investment in terms of it growing the equity in your
home; but over time the value of your investment is going
up.
Growth. City property prices have tended to outstrip nonurban prices in terms of capital appreciation; (due to the
high purchase price) but demonstrate strong capital growth
(historically), whilst country properties but demonstrate lower capital growth. The thing
that bucked these assumptions in the late 2000’s was the regional areas that have had a
significant increase in capital growth predominately due to the mining industry boom.
Home Buying Strategy
There is little doubt that wealth from property ownership is created from capital gains. Even
a modest 7% per cent capital growth a year will double your total investment in less than 10
years (remember the rule of 72 from Module 1) and when measured against the capital you
have invested, the returns are far, far greater.
What is important to know is that well-designed strategies can provide the opportunity to
build wealth from property at any point in the property cycle – not just during boom
conditions. As a home owner looking to buy a property it is useful to look at some
investment strategies i.e. using your home to assist you in growing your wealth. Thus you
can start your buying criteria giving some consideration to growing your wealth as an
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investor does. Decisions taken early in your home ownership journey can offer you manifold
investment opportunities later. So let us look as some property buying strategies that are
relevant to home owners and investors.
Buy and Hold
Owning a home is essentially a ‘buy and hold’ strategy. The assumption is that you buy in a
good area which will be worth more when you sell than when you purchased and therefore
will make you some money. Real estate is a long term proposition for most home owners.
For most home owners the traditional route to wealth building in property is to buy well
(the right property at the right price) and hold for long term capital appreciation.
The buy and hold strategy therefore demands extensive research.
It will be a case of doing the extensive research we have been discussing here in this
program and analysing all the factors that you have researched and making sure that you
are in a position to hold for a period of time. Buy and hold strategies can be particularly
powerful when they are held through a full property cycle, which could be anywhere from 7
to years or more in some cases Often values can double or at least increase more
throughout a cycle, validating the buy and hold strategy.
As a home owner, with a buy/hold strategy you
are searching for suburbs that have outperformed relative to the overall market in the
longer term. Past performances are often the
best indicator for future performance.
The point is that in a buy/hold strategy, strong
gains can open up opportunity, for example if
you buy a $400,000 house in 10% growth area
after 7 years it’s worth $800,000. If you started
with 20% deposit and then upgrading to a property say 25% higher in price then you have
more money to contribute and a lower mortgage then if you have 5% pa growth.
Could
Renovation
This strategy is about buying a property and then adding value through renovation. The
renovating for profit strategy is a highly appealing strategy for many property investors and
has become popularised by a number of reality TV shows over the past five years, some of
which have attracted audiences of millions for an episode. The strategy is just as relevant to
home owners. Remember most people move every few years so look at a potential
purchase and the opportunities that might arise from it.
If you think your home needs a bit more than a cosmetic clean-up but you are worried
about the time requirements of structural changes you could engage an architect to work
with you on how to deliver what you want for your home environment without the need for
external structural changes, i.e. no waiting six months to over a year for development
approval.
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A well planned, budgeted and executed renovation can significantly add much more value
than the cash you initially started with. The key is to create perceived value higher than the
actual cost of the renovation. There are low-cost renovations such as a general clean up and
replacing a few broken items and then there are high-end renovations that involve council
approval and major structural change.
At its core, this strategy of buying at or below the market value, renovating and holding a
property in a high capital growth area that will grow your equity in the property; is one that
builds equity in two ways, some from buying at a discount and some from the new postrenovation value. The intent of the course is to focus on the question ‘will it get you to your
goals within the timeframe you want; whilst creating a home that is liveable for you and
your family now.’
The key to success with this one is finding a good area; with good growth. How to do this is
fully explained in the full e-course version, Course 3: Locating a Property.
Caveat
It is incumbent on you to think strategically at all times; that is the role of wealth building as
a strategy; that is why you are reading this: it should be clearly noted, if you are renovating
to do a simple upgrade, such as adding a room you should look at the costs of adding that
room versus buying a property that has the additional room already. The simple fact is that
due to stamp duty and selling costs it is easier to do a renovation. It may well be the right
strategic investment move to sell and buy and upgrade – location and other quality factors
being equal – but they are, quite simply NOT equal
Bottom line is: renovating a home should be considered an opportunity to improve one’s
standard of living and to in the long term, build your equity. But don’t believe that it’s quick
riches: it isn’t. However it is a method to increase your equity in your home.
Upgrader Strategy
Although there are nearly 2 million property investors in Australia you may not want to
venture into property investment. You just want to remain a home owner. However you
might find that at the moment you can’t quite afford where you want to live, or even the
type of home you want. Part of your long term strategy could be the sequential upgrade
strategy – i.e. buy where you can afford now in an area that will deliver excellent capital
growth and even utilise renovation to add even more value (investors call this equity) and
upgrade to the next home in a better area or a bigger home when you can afford it – till you
get to where you want to be. Thinking like an investor and buying based on buying criteria
that an investor would consider with some amendments to match your families
requirements is a very clever strategy. Combining investor thinking with renovation can help
you get you to your dream home sooner.
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What are the risks?
There are risks associated with your purchase and indeed, to any property purchase.
Broadly the risks can be categorised rather than those that affect all of your strategies.
1. Your personal risk
This is essentially you not being able to afford the property, losing your job. For now I want
you to know that your personal circumstances carry a risk to you not being able to and you
need to consider what they might be and how you can protect yourself. The concept of a
buffer, i.e. keeping some money in reserve, is probably the most common way to protect
yourself from life’s little blips and bumps.
2. Economic risks
There are many things that affect the general health of the economy and the confidence
measures. This could be the flow on effects of recessions, i.e. lack of money in the economy
due to less workers spending money (i.e. higher unemployment) or the effect of natural
disasters etc. Let’s face it even the economist can’t agree if interest rates will go up or down
on the whole and with this in mind you might want to start reading reports and listening to
the market commentary.
Strategies to help minimise risk
Some – a relatively small percentage – of people will lose money on their property.
According to the RPData Home Equity report for June qtr 2011 released in Sept 2011, 3.7%
of home owner’s properties were less than there purchase price. This is usually because
they bought without a framework and plan and were forced to sell. Often those who buy
emotionally are disappointed with their purchase from the wealth creation aspect. It is said
that you make your money in property at the buying stage – not at the selling and one way
of minimising the risk of losing money is – critically - to select property in suburbs that will
outperform the average, i.e. not grow at just a mediocre 4% pa but at least 7% pa. During
property downturns, most vendors choose not to sell and hang on to their property and
wait for the market to improve.
This puts a “floor” under property prices i.e. residential property is typically far more
resilient to financial shocks than share market investing especially where leverage is used.
During the Global Financial Crisis (GFC) in 2007 to 2008, the average capital city house price
decline from peak to trough was only around 3.8% (a far cry from the 30% to 40% drops that
some share prices suffered).
Understand the risks associated with your buying criteria and work through risk
minimisation strategies to develop a low-risk approach to your purchase.
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Establishing Your Buying Criteria.
You need to define the specific criteria you will use to find your property so that you are
able to quickly determine whether a property is right for you and fits with your needs
Note that your lenders are risk averse. Essentially the banks look at any property
investment, be it a home, an investment property or a commercial property through risk
goggles. They are asking the hard questions that you should be asking, for example if this
person defaults on the loan how hard will it be to sell this property?
There are three types of criteria to look at when determining your buying criteria, these
include:
1.
Criteria that fit your personal strategy;
2.
Criteria that fits your property type
3.
Criteria that relates to the characteristics the property needs to have to suit the resale market.
Determining the specifics of each of these is a very large exercise and critical for you to be
able to quickly assess a property and its suitability. If you want a step by step blow by blow
process in doing this please check out the full Course 1 The Foundations. For now you
should consider the essentials for each of the 3 criteria above.
1. Your Personal Criteria
Criteria that fit your personal strategy; this is all about you, what you can afford,
what funds you have to contribute to the purchase and requirements for the
property to get you to your goals.
Some examples of your personal criteria might include:
a) Median purchase price of $350,000
b) Areas needs to have a predicted capital growth above the average of 7%
2. Your Property Criteria
This could include the fact that you are looking for a 2 bedroom unit or a 3 bedroom
house. You may want to be more specific for instance a 3 bedroom house that fits
your current needs, however which can be converted to a 4 bedroom house with a
renovation as your family requirements expand. You may even decide you want to
do an immediate renovation and hence you might set a specific budget requirement
of $250,000 to complete the renovation. Or you may recognise that this is part of
your upgrader strategy and you set the time frame of how long you will live in this
property. Ie I require a 2 bedroom unit for the next 3 years before I buy a 3 bedroom
house.
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As you can see there are different property criteria depending on your requirements.
You just need to know what they are for your chosen strategy.
3. Property Characteristics
These criteria relate to the characteristics the property needs to have to suit your
needs. This is where you get specific. This minimises the risks associated with buying
in a bad area or where people may not want to live. Ie if you had a choice of 2
properties and you liked them both and one was in an area that was growing and
thriving and another in an area that would not experience much capital growth or
improvement then when you come to sell the risk of not being able to sell would be
higher with the later. This is why choosing the specific characteristics of a property
are important, so start thinking like an investor when buying. Examples include:
a) The property is 10mins drive from the local schools
b) The property has a large shopping centre within 10 mins drive
c) The property is within an area that represents the catchment of the highly
ranked high schools
d) It is in a block of no more than 12 units and does not have a lift (and the
associated high strata fees)
e) It is within 10 minutes from a major freeway entrance or train station
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Exercise:
1. Write down your criteria in your workbook.
2. Do they look like long lists? To be honest, that’s just the start; we need a list that
is very specific so that you can easily and quickly assess your property against
this checklist. Remember if you need to see 100 properties to end up with one
then a quick process is a good process.
In Course 3 Locating a Property we will get into the absolute specifics on how to find
a property to suit your criteria – we will look at a list of free websites and resources
that will get you to the areas you need to be considering and then finally we’ll get
down to finding the actual property.
3. Download Module 2 - Criteria Checklist, fill in the first column and save it. This is
now your personal checklist against which you will assess all properties you
consider. From now on, for every property you look at pull out the list and fill in
column two, then list down in column three if the property is a good fit. I suggest
you file the information, you never know when it may come in handy again.
After a while you will find this checklist becomes imprinted on your brain and
you will rely less on your paper copy.
“A Stitch in Time…”
Building equity through property is not all that common. It takes time, effort and hard work
to build a successful property portfolio. Most importantly, it takes you knowing what you
want from the onset and designing the optimal path to get there.
You not only understand how many different strategies are out there but you now also
understand the risks involved for each strategy and how to best minimize those risks. You
have also established your personal risk tolerance and the home buying strategy that best
meets your own personal needs.
You will also have determined your buying criteria. This is the result of all the research you
have done about your chosen strategy. This is your blueprint, with your buying criteria in
hand 90% of your research can be done from home on your computer. Although you will
need time to do the research, you can actually save time by using your buying criteria to
quickly assess potential properties.
Remember with all the ‘noise’ out there in the property market (once you register your
name at open-for-inspections) you WILL be contacted by agents regularly. Some will be
properties that do not stack up against your buying criteria so you can simply discard them.
On the surface they may look like bargains, but just because a property is $20,000 below
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market price is no reason to persist with buying it. If the property does not have the
potential to assist you in achieving your long term goal there had better be another very
good reason to buy it. You need to look closely at why you are straying from your chosen
path and determine if this is a legitimate reason.
Exit Strategies
Before each purchase – be it your own home or an investment property – you need to have
a definitive exit strategy. This does seem a little like overkill but it’s just one way that you
can greatly reduce your risk. For instance, if your strategy is to use renovation then you
might consider renovating to a standard just above the median value for the area. However
this also gives you an emergency exit strategy as well. Consider that your suffer a financial
set back and you need cash fast. Then you may need to sell the property and rent yourself. If
your property is a bit better than others on the market then in theory you should be able to
sell your property quickly, especially if you are prepared to accept the median price for the
property.
A long term exit strategy is something that
you should also consider and prepare for.
Many people have a plan for releasing
equity later in their lives to help fund their
retirement or to build a property portfolio;
eventually selling up all their properties
and paying off their loans and then living
off the remaining funds.
Buy where people want
to live
Let’s assume that you stop with this course and do not invest in the other courses in this
series. Armed with your property buying options and your budget you go out to buy a home.
What if you don’t know how to setup your finances correctly and you don’t know how to
pick the upcoming growth areas and you end up with a property that is not getting you
closer to your long term goals? There is something you can do to minimise this risk before
you buy the property. The secret is to buy where people need to live in the future,
essentially in capital cities or growing multi-industry regional towns.
Let’s be clear on this, while we can’t predict what will happen in the future what we can
look to for guidance is what has happened in the past. It is often quoted that over the last
one hundred years properties have gone up by 7% per year on average – i.e. some years
more and some years less. That 7% pa is an average for all of Australia; the reality is that in
capital cities it has been more like 10%. Think of your recent memory, if you bought a
property in 1980 in any capital city, it would be worth more today. Does this mean that you
can always count on property prices to continue to go up? The answer is no: between 2008
and 2010 the property prices went down in many cities.
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Return on your property
Capital growth is the increase that your property experiences based on economic and
market forces. This is difficult to realise; e.g. you can’t just go down to your house and pull
out $50 for a night out, arguably shares can be sold quickly if you need money for the
weekend and hence are more liquid. The funds built up through capital growth are able to
be accessed when you sell your property or when you get it re-valued by your lender and
request those new funds for use elsewhere. This later technique is very tricky to get
structured right and we will cover this in Module 7.
Good growth and a potentially high yield is ideal, i.e. your property is going up in value so
that when you sell it as part of your exit strategy it is worth more than you bought it for,
even after inflation allowances ($1 now is worth more than $1 in the future). Looking at
rental yield is important as well. This means having a property that is attractive to tenants
and one you can charge a good rent for. Although most home owners don’t consider this
when buying the point here is that if you choose in the future to make this new home a
rental property, when you move out, you have that already considered. This is also a clever
consideration for those who will sell this new property before buying their next. If your
property is attractive to property investor’s you increase the market in which you could a
sell too. This would work well as an exit strategy as well. Now we can move onto the hard
work. Before you actually start looking at properties it’s essential that you know the
numbers behind your Purchase in Module 3 we will go into detail looking at where the funds
are coming from for the purchase and your ongoing costs.
What does your home look like?
You have done some really hard work in this module thinking like investors and assessing
the considerations that you could apply when assessing a property for purchase. However at
the end of the day this will be your home so there are some characteristics that you just
want. So let’s look at those and determine what you want.
The exercise below is particularly relevant if you are buying with another person ie your
husband, wife, boyfriend, girlfriend and kids. You need to decide what features you want
and what you can live without. Complete the next exercise to get clear on what you are
looking for – this will save hours of wasted inspections of properties that can be ignored
straight away.
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Exercise:
Download the Buying a Home spread sheet. The first page allows you to identify
what you like about your current home, what you can’t do without and what are
the Top 3 things each person wants. Then in the subsequent pages, one for
houses one for units, write down your specifics and what you could compromise
on.
Module Outcomes
At this stage of the program you have considered your property investing strategy; you know
what you are going to focus on and what type of property you want to buy. This applies
equally to buying a home and purchasing an investment property. Knowing how to select a
property to suit not just your short term requirements but also your long term goals is going
to get you to your goals sooner regardless of why you are buying the property.
Bonus:
You now have your Buying Criteria checklist that you can use when visiting properties
so you can quickly determine if a property suits your requirements. This alone will
save hours and weeks of useless unfocussed searches.
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Extra Resources:
One way you can reduce the risk of your property investing strategy is to do
extensive research into the suburbs you are considering so that you know them
intimately. More on this in Course 3 Locating a Property, however in the mean time
here is a couple of resources from Residex that I think you might find useful.
1. The Residex Report. This report is an amazing source of residential real estate
information, data, commentary, and statistics that is available to the market. You
simply choose the State of interest to generate a report with over 100 pages of
information. The report covers topics such as the economic drivers, climate, factors
affecting property growth and a break-down of each suburb which looks at past
growth, yield and other valuable information you need to help you start locating your
property. This information, when used in conjunction with the information in this
course, will help you identify a suburb that is about to take off and could be a good
match for your chosen property investing strategy. These reports can be bought as a
one off or an annual subscription. http://ow.ly/7NLEl
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MODULE
3
YOUR PROPERTY SUCCESS HOME OWNERS COURSE
MODULE 3 WHERE IS THE MONEY COMING FROM
AND HOW MUCH DO YOU NEED?
COURSE MANUAL
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Module
3
Module 3 | Where is the money
coming from and how much do you
need?
Until fairly recently, it was common for people getting into the property market for the first
time to spend many years saving a deposit to buy their own home. For some the first property
purchase would be their only foray into the market, while for others it would be the first step
towards building a property portfolio.
To buy a property you need to be prepared. That might mean a few more months of saving,
reducing your credit card limits or just delaying that move to a new job. The worst thing that
could happen is you find the ideal property that suits all your needs but then can’t buy it
because you can’t get the finance.
Essentially you need to have some money to purchase a property and that will come from
one of three places:
1. Your Savings
2. Someone else
3. Your Equity
4. However we assume as you are not a first home buyer that you are going to depend
on the sale of your property to fund the next purchase
The Savings Model
This is the traditional way that most people bought their first home. They saved like mad for
a deposit and the associated costs and when they had enough, they applied for a loan. You
either know you have the funds for a purchase or you do not. Most people are encouraged
to have a 20% deposit to contribute to a purchase. This may take years to save and in fact
the property market may move so much in that time that you feel you are fighting a losing
battle. The reality is that you can start with as little as 5% of the property purchase price
plus funds to cover your lawyer and stamp duty. So just because you do not have a huge
deposit does not mean you are back to square one. Just be aware that the lender will see
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you as a bigger risk if you have a smaller deposit and they will take out insurance to protect
them in case you default – this is called lenders mortgage insurance – guess what they
charge you for their once off premium!
If you don’t have these funds in your account then there are other models including:
The Equity model
This model allows a borrower who already has their own home or investment property to
use equity in that property (commonly your own home is often referred to as your principal
place of residence PPOR) by unlocking this money or ‘equity’. Equity in your PPOR is the
easiest way to buy your first investment property or your next home. This might be
something you have not thought of for your next home. In reality you might want to
consider keeping your current home and converting it into an investment property. You can
get support here from a mortgage broker.
A mortgage broker can assess if you can afford to keep your home and convert it to an
investment and be able to buy the next property you want to live in. This assessment is not
just a function of your serviceability but also the tax considerations. Here you need to work
out if there is a benefit in keeping your current property.
Many home owners believe that they need to pay off their home before they buy an
investment property. This is one of the “Top 3” property investing myths. See the short
video in the Bonus section on this myth and whether you may be limiting your future wealth
building options. http://yourpropertysuccessnow.com/myth1
An alternative to accessing equity from your home is accessing it from an existing
investment property. It doesn’t have to be your PPOR. Usually, depending on what you can
afford and service (make repayments on), lenders will allow you to utilise the unused equity.
But you need to know how to calculate this.
You may well be in a position to take some equity out of the home. This is one pathway
chosen by thousands of home owners. In essence, the strategy is to keep home and convert
it into an investment property and using equity from new home.
In such a strategy, you could borrow on interest only in order to keep the repayments as low
as possible with the intention of having the rental income pay as much of the loan as you
can structure. Do understand however, that, so one way around this is by fixing some of the
loan (say 50% for instance). There are several structuring options and the basics ones above
may not suit your individual circumstances. You need to work with an experienced
mortgage broker who can take you through these options and set your financial strategy to
give you flexibility and allow you to achieve your financial goals.
Releasing equity from your home in a structured way allows you to keep your savings in the
bank. Most investors want to combine the benefits of not using their own savings with tax
minimisation advantages when buying an investment property. So keep in mind you should
be working through this with your experienced mortgage broker to get it right and allow you
to keep investing, if you so choose to.
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The more exposure you have to a growing market (ie by having two properties, your home
and an investment property) the more opportunity to build equity and in the long term the
more equity you have to help you fulfil your goals.
Here is an example:
You purchased a property for $200,000. Using a 20% deposit of $40,000 you took out a loan
of $160,000 (Loan to value ratio i.e. LVR of 80%). The market value of the property is now
$300,000. Your original loan of $160,000 has been reduced to $100,000 giving you an LVR of
33%. ( ie $100,000/$300,000)
To calculate the equity available in the property, you need to decide how much equity to
leave in the property. For this example let’s assume that the LVR will be returned to 80%,
(thereby not incurring lenders’ mortgage insurance, (LMI). The available equity is calculated
like this: $300,000 x 0.8 = $240,000. However, there remains a $100,000 debt against the
property so the equity available for use from this property is: $240,000 - $100,000 =
$140,000.
So we now know where your funds are coming from i.e. proceeds sale plus savings,
proceeds sale plus larger loan or you decide to keep home as an investment. Do note
however, that the interest payable on the loan is not tax deductible for the home that you
live in:



Savings
Guarantee
Equity
Exercises
Work out how much equity you might have in your home ie your PPOR using the
following formula:
Total Equity = current property value minus outstanding loan amount
Available Equity = total equity x 0.8 ie leaving 20% equity untouched as a buffer
Now, if you are happy to incur lenders’ mortgage insurance work out how much
equity you could tap into if you took a 90% loan. (Hint: just substitute 0.9 for 0.8 in
the above equation).
So now you have the some of the contribution for purchase available but you also need to
borrow the rest and that is where the banks come in. Your borrowing capacity and your
ability to borrow is significantly different from lender to lender in fact that is why over 40%
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of the Australian population use a mortgage broker. Most people only get a mortgage once
every 5-7 years so it makes sense getting the assistance of someone who deals with lenders
every day giving you the benefit of their insider knowledge and advice. There are some
simple things you can do now though to improve your borrowing capacity which we will
cover in the next module.
Regardless of how much the lenders will lend you, you also need to know what costs you
will be up for. There are essentially two types of costs you need to factor in:

Those you need to cover as part of the purchase

Those you need to cover ongoing
Determining costs of purchase
This involves detailing the various elements associated with buying a property which gives
you an accurate handle on the funds you’ll require to cover the purchase and include:

Stamp duty land transfer associated with the purchase

Stamp duty associated with the mortgage, if applicable

Legal fees and disbursements including mortgage transfer fee, land transfer and
registration fee

Application fees

A renovation or improvements allocation of funds

Incidentals (we cover this in more detail in Module 6 - Signing to Settlement which
includes strata searches, pest and building reports, and renovation. etc.
Ongoing property costs
There are many costs here you need to be aware of. Purchasing the property is just the first
step you now need to make interest payments, cover council rates, etc. Essentially you need
to know how much per week the property is
going to cost you so you can keep the property
and watch it grow in value.
Basic costs
First we need to consider the day-to-day costs
associated with a property. These come all at
once so you need to prepared:
LOAN REPAYMENT: This is likely to be your largest cost. To work out if you can really afford
a loan, factor interest rates at 1.5%-2% higher than they currently are
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LAND TAX: Is payable if you go over the threshold set by each individual state
INSURANCE: We will cover all the different insurance types in Module 6 – from Signing to
Settlement, for now, are aware that you need to include building insurance as an absolute
minimum. A lender will usually require that you have taken out an insurance policy at the
time of settlement.
RATES: Council rates are a government charge, and depending on the state and type of
property you might also have to pay the water rates.
REPAIRS AND MAINTENANCE: You need to factor this in, there’s no way around it. How
much you need to estimate will be determined by the age of the property and whether
there are any foreseeable large expenses which may have been identified in the building
inspection report or strata report.
The subject of your numbers and finance alone is huge, in fact in Course 2 Knowing Your
Numbers the manual alone is 70 pages long. Although the larger courses are geared to
investors a majority of the information in this course is relevant to the home owner and
would be really beneficially for you to consider. There is so much to consider and so many
variables we are only going to touch on some of them here. The lenders assess borrowing
capacity using a range of criteria, which, by the way, is subject to change from time to time.
In fact, keeping up with these changes is a full-time job, which is why more than 40% of
Australians use a professional mortgage broker.
The broker will not only help you get the best mortgage deal for your needs but will help
you prepare for credit checks. It is vital to ensure that you maintain a healthy credit record
otherwise you may not be able to borrow. Not only do they save you time, their daily job is
to keep up to date so they can recommend products that will be suitable to your
requirements. The main issue is you really only get one chance to set it up right, if not then
the Australian Tax Office rulings can make your seemingly innocent finance structure one
that will not deliver the total benefits you require to be able to afford your property costs.
Knowing your finances is crucial. There are certainly some reality checks to go through. You
may find that you cannot afford your dream home right now and unless you have saved
diligently for many years – or received substantial financial help from family members –
your first property purchase is not likely to be your dream home. If your dream is not within
reach for your first purchase then a smart alternative is to invest in what you can afford now
and concentrate on good capital gain and income generation.
This can provide you with a solid base from which to continue building the equity in your
property, and later, even building a property portfolio, or give you the means to build up the
equity required to purchase your dream home. If you have equity in an existing property
then you may also be working towards your dream home and using property investing or
incremental home upgrading (which is still investing in property) to get you to that
outcome.
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Module Outcomes
You have started to think about your finances and look at all the costs involved in purchasing a
property. Essentially you have determined where the funds will come from to purchase your
property and estimated how much this will be. You have also started thinking about the cost of
keeping the property and the concept of having a buffer and cash-flow management.
Bonus:
1. One of the Top 3 property investing myths is that you need to pay off your home
before they buy an investment property. Thee short video explains why this is not
the case. http://yourpropertysuccessnow.com/myth1
2. As part of the bonus’ that are available in the full course there is a series of e-books
in the Ask the Experts series. These have been prepared with well know Australian
experts. Here is one of those in the series by Sharni Clarke who looks at the subject
of on Negative Gearing, a great read for all. Click here to download.
Extra Resources:
One of the best pieces of software that I have used to quickly ascertain the cost to my
bottom line after tax variations is the Somersoft PIA software. If you have not read Jan
Somers books then you should. I first read her books over 10 years ago and was inspired by
her encouragement that average Australians could replicate her processes. Somersoft has
developed this marvellous software; I use it myself and can fully recommend its value. Please
check out the sales page for more details.
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MODULE
4
YOUR PROPERTY SUCCESS HOME OWNERS COURSE
MODULE 4 THE CHECKS AND BALANCES FOR A
SUCCESSFUL LOAN APPLICATION
COURSE MANUAL
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Module
4
Module 4 | The checks and balances
for a successful loan application
Background
Lenders are constantly changing the ways they do business. This manifests itself in a number
of ways: it could be through tighter lending policies, targeting specific types of clients,
changing how much of a deposit you require to take out a loan or how much savings you
need, etc, etc. Since the ‘global financial crisis’ lenders have became very rigid on how and
to whom they will lend. Basically, the pool of money they had available to lend got smaller
and smaller and they needed to be more discerning as to whom they lent that money to.
During this period no-document and low-documentation loans became virtually nonexistent; 95% and 100% LVR lending
become very difficult to find and
lenders started to focus more on to
how they could better assess the level
of risk an applicant would bring to their
business.
The convulsions throughout the
western world created a climate of fear
amongst banks lending not just too
ordinary folk but to other banks.
Meanwhile, Australian banks, while
regarded as amongst the safest in the world were caught up in maelstrom whereby lending
between banks and international credit markets dried up. This led to a restriction of lending
on the more risky properties (such as developments and business spending) and has
resulted in a much more restrictive lending environment where the criterion for lending to
property buyers has been tightened.
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In Jan 2011 the National Consumer Credit Protection legislation was introduced putting
more onus on those assessing someone’s credit worthiness. At the same time it was obvious
that one section of the market was more affected than others. This has been particularly
noticeable amongst first home buyers; the loss of the extra Bonus did not assist them either.
In fact between 2008-2011 the level of activity fell by more than 50%. Actually over that
same timeframe certain types of loans which were liberally available previously became
heavily vetted.
Those included here are:

Loans above 90% LVR (Loan to valuation Ratio)

Loans to self employed people

Loan to credit impaired people.
These types of loans are available but all the “dots need to be connected”. This has led to a
mortgage broker not just being part of the process but vital for many in getting their
application approved. An experienced mortgage broker on your side who can help you
“connect the dots” to ensure that you are considered credit worthy by the lender is a
valuable professional to know.
When you know how lenders will rate you as a risk you can do the pre-work required to
position yourself as an attractive client. This might mean waiting until you save 5% or more
of your purchase price, or taking some time to get your finances in order. It might also mean
cleaning up your past indiscretions. Knowing what lenders want to know about you is the
key to getting the funding you require and getting closer to your long term financial goals, in
the timeframe you want.
Credit worthiness
What does the term mean? It is a great paradox that getting money is so easy for some and
remains so difficult for others. If you have a high regular income and have equity in your
home then lenders will trip over themselves to lend you money. If, however, you are a first
time property borrower or just starting out in business you may find a very different
attitude on the part of lender. If you have no home equity and irregular or un-documented
income then banks will require you to jump through some hoops.
Interest rates go and up and they go down and depending on the environment different
lenders will also offer amazing deals to build business – but only if you are considered a
good risk. The good news is that bankers are pretty consistent in their approach to their
customers and there are guidelines that knowledgeable mortgage brokers will provide for
you.
Your credit history is one of the most valuable assets you have, so it’s essential that it
reflects an accurate picture of your financial situation.
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What is your credit file?
Doesn’t risk a hit on your credit file, only get a preapproval when you are ready to act. If you
are using a mortgage broker they can work with you to determine your borrowing capacity
with different lenders, advise how each will assess you and then give you an idea of your
maximum purchase price before you submit a pre approval. They will then have all your
information on file, so once you narrow down your search and get close to finding a
property, a preapproval will be relatively straightforward. Unless of course your personal
circumstances have changed, so do keep your broker up to date with any changes.
Preapprovals usually only last for 3 months so check with your mortgage broker and get
your borrowing capacity assessed, then start looking for a property.
Your credit file is the record that is kept on all the enquiries you have made for finance, be it
your mobile phone account or previous mortgages. If you have not done this already, before
starting the next module go to http://www.mycreditfile.com.au and order your credit file,
you can pay to have it delivered straight to your inbox or get it for free – this could take up
to 10 days.
Exercise:
When you are reviewing your credit file; look for the following:
1. Number of credit applications
2. Number of address changes
3. Payment defaults
It’s important to ensure all the information on your credit file is correct. Any listing that is
inconsistent with your records may be an error or it could be fraudulent activity
So here are some tips:
1. You should check your credit history to make sure there are no credit defaults – such
as late or defaulted payments on credit cards, phone bills, rent etc – and no
unnecessary requests for credit on your file.
2. It is important to wait until you think you are close to finding a property before you
apply for a loan. This is because every time you seek credit (for anything) a record of
this enquiry goes on your credit file. When banks assess your application they check
your credit file and based on their own individual system they score you, if you have
too many applications on your file they might score you badly and decline your
application.
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If you are able to secure the finance without clearing your credit file first, it might be from a
lender who is only willing to take you on as a risk on the basis that you pay a higher interest
rate.
Financiers (i.e. both banks and non bank lenders) come back to what the old bankers call the
three Cs, capacity, collateral and character.

Capacity to repay is the most critical of the three factors. The financier will want to see
that fall within the acceptable limits of loan serviceability.

Collateral is the property to be purchased or additional property. A bank will also
consider other personal assets such as superannuation, investments (e.g.: share
portfolios), business interests and the like. They will not, generally consider normal
household items such as furniture or motor vehicles.

Character is a much-bandied-about term. In the context of loan applications it is
measured by the credit records of the borrower. This can be a complex area as it may
take into account an assessment of how many times you have applied for credit in the
past. This is problematic in the case for example of a person applying for a property loan
and being denied credit a number of times in relatively quick succession. This needs to
be carefully navigated with the assistance of an experienced mortgage broker who can
guide you through this process
Carefully prepared loan applications lend a lot of credibility to a loan request. An
unprepared loan applicant, on the other hand, immediately places in the banker’s mind a
question as to whether this applicant is worth backing.
In short:

Character: refers to how a person has handled past debt obligations: From the credit
history and personal background, honesty
and reliability of the borrower to pay
credit debts is determined. This is also a
function of how many assets they have for
their age

Capacity: refers to how much debt a
borrower can comfortably handle. Income
streams are analysed and any legal
financial obligations (such as guarantees)
looked into, which could interfere in
repayment.

Capital: refers to current available assets of the borrower, such as real estate, savings or
investment that could be used to repay debt if income should be unavailable.
Aside from your credit history, it’s important you understand how lenders give you what’s
called a ‘credit score’. Some lenders have an automated system and although they keep the
criteria they use to calculate your score top secret, we know some of the things they
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consider. Each lender is different, as is the way mortgage insurers calculate your riskiness to
them.
Some of the criteria lenders will consider include:
Your asset position for your age: – lenders use a specific measure to produce a benchmark
about you that will indicate how much money you should have saved or invested over the
number of years you have been employed. If you don’t fit their profile they’ll wonder why.
So that overseas trip or the fancy new car could actually be setting you back financially by
years.
How often you change address: If you move regularly, they’ll wonder why. Is it because you
can’t hold down a job nor are you escaping a credit default?
Previous requests for credit: If you have multiple or repeat applications for credit the lender
may believe you weren’t successful with the first application therefore they will assume you
must be a credit risk. Although they can’t find any reason to prove you are, they will assume
the previous lender was vigilant and identified you as a risk. This is why getting preapprovals
that you don’t go ahead with can actually count against you. Make sure you are ready to
buy when you get a preapproval.
Customer status: are you an existing customer? If you are then the lender will already have
some understanding of your financial history and risk level. Yes, they will check you out in
their system.
It is important to know that some lenders have a completely automated assessment system.
If your credit score does not fit with the criteria for their client base then they will
automatically decline your application. If this happens it is likely that you will not be able to
overturn that decision. This is why having a mortgage broker on your side is beneficial they
can anticipate how each lender will assess you and position you in the best light with the
lender where your application has the most opportunity for success.
Lenders will decide your living costs
Lenders will consider a range of factors before approving a loan application and this includes
examining your credit file but also determining independently from your personal financials,
an estimation of your living costs. While each lender has their own formula for calculating
how much it costs you to live; this is their policy and it’s not negotiable. The Henderson
Poverty Index – developed by Professor R.F. Henderson in the 1970s – calculates the
amount of money people need to cover their basic living costs and maintain a minimum
standard of living, otherwise known as “the poverty line”.
However the lender will request that you specify your actual expenses in order to determine
whether or not you can afford the loan based on your current standard of living. Therefore,
expenses such as private school fees, gym memberships, etc need to be included in your
outgoings. Your bank will be conservative so you should be transparent. Once again, an
experienced mortgage broker will guide you through this process.
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Credit cards are also a major factor that lenders consider in their assessment of your
financial position. Every $5,000 worth of credit limit (not balance) on your card, means on
average $20,000 less that you will be able to borrow. For example, if your circumstances
mean you would normally be eligible to borrow $200,000 and you have a credit card with a
zero balance but a limit of $10,000 this could reduce your borrowing capacity to $160,000.
Those of you who keep a credit card for the ‘just-in-case’ situation should review how high a
limit you really need. Your lender will know when you apply for a credit card, and the limit
applied for because it is listed in your credit file.
Are you at risk? The debt spiral
Sinking into bad debt begins slowly, but it quickly can
result in serious consequences.
The problem usually starts when a person falls behind in
monthly payments, or when he or she manages to make
the minimum payment due on a credit card but isn’t able
to pay anything toward the principal on the loan or bill.
The consequences of bad debt begin to take their toll:
Anxiety, worry and intimidation become part of every-day
life. The debtor avoids taking calls or answering the letters
of demands – a behaviour that only compounds the
problems and the debtor’s psychological condition.
Perhaps you are already ignoring some important signs that may alert you to a situation where
your debt is causing ill health - financially speaking. Are you in a position where you don't know
how much you owe until your bills arrive? Are you always late in paying your bills? Are you
having difficulty making minimum payments on your credit card statements? Are you paying
bills in 60 to 90 days that you used to pay in 30 days? Are you drawing on cash advances on your
credit card to pay bills? Do you find yourself juggling payment of bills? Are you delaying visits to
dentists or physicians because you can't afford them? Are you being denied credit?
Any one of these is an indicator that you are having some problems with managing debt. More
than one and you are probably not in control of your finances - a very unhealthy position to be in!
At the extreme and within a couple of months the bills are handed over to a collection
agency and the debtor's name is forwarded to the Credit Reference Bureau. If the account
has been defined as "delinquent", the debtor will find themselves in the very serious
position of not being able to raise credit again for a period of time. This could have
disastrous consequences when applying for a home loan.
Even if the would-be borrower manages to get approval for a new loan, a bad credit record
means he or she will probably pay higher interest rates on the loan obtained. Instead of
working put payment plans with creditors, drastically scaling back living habits, trying to
increase income or a combination of these tactics, the debtor borrows more money to pay
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off the old bills. Suddenly credit cards which used to be a discretionary expense, become a
vicious drain on basic income if card balances are never paid down.
You should hit those credit card balances before getting into mortgage debt.
Generally, people are committing an increasing percentage of their take-home pay on
housing and housing related costs, which include insurance and property taxes. This figure
can vary according to individual circumstances, and for sure, some investors go much higher
than home owners because of the rents they receive.
For many, going through the mortgage process is the first time they realise the importance
of shaping a budget along certain percentage guidelines. When you apply for a mortgage, a
lender will estimate your mortgage payment and then add your existing monthly debt
payments - car loans, credit cards, student loans, and other obligations - to figure out how
much debt you're carrying in relation to your income. If the figure is significantly above 36%-the standard threshold that many mortgage brokers deem a comfortable debt-to-income
ratio - a lender may either reject your application or increase your interest rate. We will deal
with this issue a little later. The fact of the matter is that in most capital cities loan
repayments on houses are actually over 55% of the take home income for the average
household, so the rule of thumb is really an old school offering.
The above banker's rule is a just a reference point but the most sensible position to be in, in
terms of a healthy mortgage position is to be, in the first place, completely free of the bad
debt that is represented by consumer loans.
Calculating your housing debt ratio
Your borrowing capacity will diminish as interest rates rise.
To test this, consider the following maths:
Take home pay:
$5,340
Monthly Interest only repayments ($400,000 @ 7%):
$2,333
Percentage of income going into debt servicing:
43.7%
This is a steep repayment ratio and one that may and would potentially be jeopardised by
excessive personal (bad) debts. You can see from the following chart, why banks carefully
examine applications
The cost of paying a 25-year variable rate mortgage on the average first home loan has risen
from 45% of average weekly earnings (AWE) in 1991 to 63% in mid 2011 – and it peaked at
74% of AWE before the 'unexpected' global financial crisis forced the RBA to drastically cut
rates in 2008.
It now takes 2/3rds of the average wage to become a First Home Buyer and if you are an
investor, the figure can vary widely, but is usually less than this.
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(Source: www.debtdeflation.com/blogs)
Eliminating (bad) debts: a fold down plan
As we all know the Australian dream doesn’t come cheap, that explains why if you’re a
typical consumer you’re carrying more than $5,000 in credit card debt and probably at least
that much in some other form of loan that is not in the category of good debt. These will
count against you in the loan application. Sure, debt is a natural consequence of modern
life, so the challenge is managing the debt you have, and learning what debt you can hold
and what not to hold. And speaking of hold, why not hit that credit card debt hard using
what we call here “the fold-down plan: should you hold it or fold it?”
The basic idea behind any debt clearance plan is to accelerate the repayments in some
planned fashion.
The fold-down plan of debt elimination involves paying off one debt and then applying
(folding down) that payment to another debt in a cumulative progression. The first step in
this plan is to pay off one of your debts, perhaps by using your tax refund or any savings you
may have, squeezing that budget for extra cash.
Once the first debt is paid off, the money that has been allocated to making those payments
can now be applied to paying off a second debt. When the second debt is paid off, the
payments for that debt and the first debt are folded down into paying a third debt, and so
on until all of the debts are paid off. It is critical to your freedom plan that all extra money
goes toward paying off the principle of your debts.
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In brief, the steps you need to tick off in order to settle your debt situation include:
Step 1: Attack the highest rate loans first. Any plan to eliminate debt needs to address the
highest rates loan firsts – for most people this is the credit card, for others it could be the
personal loan. There is an alternative to this and this is the quick win approach. If you need
some encouragement then work on the smallest balance first – get yourself something to
celebrate then move onto the next card/debt.
Don’t fall into the minimum trap. As we read earlier the bank reduces your borrowing
capacity by the amounts it considers are necessary to service existing loans and credit cards.
Step 2: Make a chart listing all your
creditors in one column. Or the
corresponding balances for each creditor
in the column next to that. List the
minimum monthly payment each
creditor requires in the third column.
Determine how many months are left to
pay off the balance and put that in the
fourth column.
Then rank each bill in ascending order starting with the lowest balance first.
Creditor
Balance
Payment
Months*
Rank
MasterCard
$1,200
$20
90
1
Store Card
$1,500
$30
80
2
VISA
$4,800
$60
120
3
Car loan
$18,000
$300
60
4
*(assuming average interest rates)
If you follow this debt elimination plan you will pay off the loans in the order of ranking. If
you hit the repayments hard, say $800 a month, you will have the 3 credit and store cards
paid down within 8 months, thereby increasing your borrowing capacity by $15,000. If you
feel you need a short term boost then target the lowest balance so you can cut that card up
ASAP! Then concentrate on the higher interest cards. You may even be able to move your
cards to a 3 – 6 month no interest period – do not be complacent during this time pay them
down.
You begin to accelerate your repayments by first ranking them and then finding the extra
cash through budgeting for it. You’ll need to establish this as a priority item in any budget or
spending plan that you set up in planning your property purchase.
There is the tremendous bonus that comes at the end of the debt purge: you will have an
extra $800 a month to plough into your savings.
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If however your income is sufficient for a lender to lend you the amount you need but your
savings are lacking, you need to boost your savings first so you can get the loan and
potentially just pay the minimum repayment. There is no point in taking 2 years to pay off
all your credit cards and have no savings as it might then take another 2 years to save for a
property purchase. Hence you need to be aware of the tipping point for you, is it savings or
debt that is preventing your loan application from being approved.
Cash flow and investment returns and how they affect
your affordability
Remember, there are significant after-purchase costs, including ongoing maintenance and
finance costs as well as landlord’s insurance. We looked at some of these in Module 3.
In Module 5 Locating a Property we will address some of the location factors that
determine good property buying but here we note that managing the cash flow from an
investment property depends on sound personal financial management which accounts for
deprecation benefits as well as the normal outgoings. In the full e-course Course 2 Knowing
Your Numbers we cover the important area of adjusting our personal tax obligations and
optimising our take home pay by applying for a variation to tax to assist you in your cash
flow management. This is a relatively straightforward process but you do need to have the
numbers sorted and this may require some help from external advisers such as accountants
and /or mortgage brokers as well as deprecation assessments obtained from quantity
surveyors.
Affordability and gearing
If you are buying a home or trading up to a bigger home or better suburb, you can do so
without paying any capital gains tax. If you are buying an additional property to rent then
you, typically, your property will be either positively geared or negatively geared. Negative
gearing is defined by the Australian Tax Office (ATO) as borrowing money to make an
investment, where the interest and allowable deductions exceed the investment income
and can be claimed as a deduction against other types of income.
If you are going to be an investor, as distinct from a owner-occupier, this basically means
that your borrowing costs exceed your investment income, which gives you tax benefits
because Australian law allows you to deduct your borrowing costs from your total taxable
income, provided that your investments are genuine. However, you are only eligible for a
tax benefit if you earn taxable income in the first place.
Essentially a property is positively geared when all the costs are lower than the rental
income provided by the property before any tax concessions are taken into account.
Again, as an investor you would consider a property to be positive cash flow if, when you
add up the rental income plus your personal annual income and deduct the holding costs
(including depreciation) and the tax benefits you receive on the property it moves from
being negatively geared to positively geared . That is, the property is not classified as
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positive cash flow until the tax benefits are taken into account. However, ‘positively geared’
property does not need the tax benefits to make it positive to hold.
If you are for the time being, focussing on building equity by trading up or buying
strategically, the CGT free benefit means you are building equity. These are all important
considerations in your overall assessment of what you can afford. For future planning, as an
investor, it would be very important to distinguish between an investment property’s net
yield after tax and its cash costs after allowing for any tax variation. Some lenders will take
into account your negative gearing exposure when assessing your affordability thus it is
something which needs to be carefully assessed. Otherwise as a home owner/buyer you will
be assessed purely and simply on your capacity to repay the mortgage out of personal
income or non property-related income (business, dividends, interest).
So how much can you borrow?
As you can see above there are many things that will affect the way a lender will assess your
loan application. In fact there are many loan features that you also need to know about as
an investor that you need to be aware of that will affect how fast and how far you can grow
your property portfolio.
When it comes to determining your borrowing capacity there are a few basic points you
need to know. We assume what you earn minus what you owe minus your expenses = what
you can afford to contribute towards loan repayments.
However lenders have many other factors they consider:

Future interest rate hikes that will increase your monthly repayments, most lenders will
factor in a 1.5-2% higher interest rate

They look at what other funds you have available that can be contributed to the
purchase and where those funds are coming from and how long they have been in your
account
Your personal circumstances have a big impact, e.g. do you have any other regular
payments or considerations that lenders would not normally include when looking at your
servicing capacity, such as high child care costs or gym memberships? If so, make sure you
factor these into your monthly cost budget so that you can be sure you can afford the loan
repayments. To help you determine your monthly costs refer back to the cash flow tracking
spreadsheet from Module 1.
Each lender has its own policies on self-employed people, bonuses, car allowances,
overtime, commissions; required genuine savings even the interest rate at which they assess
your current and future debts.
These days most lenders have a simple online ‘borrowing capacity’ calculator available on
their websites, so it’s easy for you to get a rough guide as to how much you may be able to
borrow. However these are usually more of a marketing tool in reality they are not showing
a true reflection of what you would be able to borrow.
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Remember, lenders also have different policies and different products (with similar
sounding names). Don’t risk it! Get your professional mortgage broker to help you work out
how the lenders will assesses you specifically and what your actual borrowing capacity is.
Only then with any confidence will you be able to start looking for a property. Some lenders
might overlook your credit card limits in servicing if you pay it off in full each month, other
lenders will not. Your borrowing capacity can differ by hundreds of thousands of dollars just
based on the way a lender looks at you. This alone is not the most critical aspect.
If you start with the wrong loan or the wrong loan structure it can literally put your property
portfolio back years. Remember in Module 1 you set the timeframe you wanted to achieve
your goals in and how much you need in assets to do that – you don’t have time to waste
with the wrong finance structure or negatively affecting your credit file. Save yourself the
pain (and time!) and get your mortgage broker onto the job they do every day.
Module Outcomes
In this module you have gained valuable knowledge about how lenders will assess you and how
you can present yourself in the best light. Remember it is one thing to work out a generic
borrowing capacity. It is quite another to assess how much a lender will actually lend you and
the make sure that you have the right finance structure in place to achieve your goals in the
timeframe that suits you.
Bonus:
1. This short 2 minute video goes into a bit more detail on understanding Your Credit
Score
2. This short 4 minute video is an excerpt from the Sky Business program – Your Money
Your Call. It goes into a bit more detail on how you can improve your borrowing
capacity.
Extra Resources:
Perhaps you require some help in getting that pay-rise at work. The techniques in “How to
Get a Pay rise”, written by Merryl Naughton and Medine Simmons, will give you the insight
on how to go about having that conversation. If you would like to purchase the book How to
Get A Pay rise, please click here http://www.howtogetapayrise.com/
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MODULE
5
YOUR PROPERTY SUCCESS HOME OWNERS COURSE
MODULE 5 LOCATING YOUR PROPERTY
COURSE MANUAL
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Module
5
Module 5 | Locating Your Property
Background
At this stage in the course you know what
you need to achieve, what you are buying
and how much you can afford, now it is
time to find the property!
This is the fun part but also where the most
work is required. You need to understand
the fundamentals of what drives the
property market and the fundamentals that
affect capital growth. The focus here is on
finding the area and then the property that
will fit your buying criteria. This will allow
you to exercise your property buying
options and get you to your long term goals
in the timeframe you want. Just think, for less than the cost of a coffee a day you are now
taking action to secure yourself a rewarding financial future.
Just in case you are also planning to upgrade your home at some point, I encourage you to
think like an investor. Check out the example below. Here if they had done research and
found Pentridge prison closing then would know that the $3k difference in 1997 was $4175k
in 2007 as the area was gentrified.
1997
2007
Growth 97 - 07 %
% pa
growth
COBURG EAST
$
122,250
$
623,000
295
14.7
$ 18,875
-$
97,000
COBURG
NORTH
$
119,500
$
450,000
205
11.8
$ 2,750
$
173,000
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If you had the choice of living in one of three suburbs and in one of these suburbs your
home would double in value in 7 years compared to 12 years needed in the other two
suburbs, would you like to be able to identify the suburb that will double in 7 years? Of
course you would! Then you need to think like an investor. After your entire home is
probably going to be the biggest asset you will ever own.
Do you make money when you buy?
Often we hear this statement bandied around – but what does it mean? Essentially there
are predominately just two reasons people buy property
1. To house themselves i.e. their home
2. To house someone else and build wealth i.e. an investment property
In fact if you are a clever home buyer you will combine 1 and 2 and buy your home with the
eye of an investor.
Regardless of why you are buying, when you buy you get just one chance to create instant
equity. Imagine this, there is a property on the market for $400,000, and your research tells
you this is the true market value. You pay that amount and the property is now yours.
Alternatively you hear that the owner needs to sell quickly as they have bought elsewhere
and they will consider any reasonable offers. So you offer $350,000, they say no but they
will take $375,000, you agree on the price. In theory the property is still worth $400,000. So
if you were to put it on the market tomorrow and be willing to wait longer than the other
vendors you could in theory sell for $400,000 – hence you have acquired an additional
$25,000 in equity. (You would not actually make this money if you sold as per this example
as you need to factor in buying and selling costs and tax implications)
Alternatively, you could wait for capital growth to play its part. If the growth rate was
6.25%pa then it would take a year for your property to grow by that same $25,000. Or you
could go in and do a quick $12,500 renovation: recarpet, repaint, update the kitchen, polish
the floorboards, clean up the place etc, this would take maybe 4 weeks to do. That is 4
weeks of lost rent, 4 weeks of stress, co-coordinating trades people, maybe even sacrificing
your own time to paint etc. But at the end of these 4 weeks the property value might be
worth an additional $25,000, if you have done a great job.
In each instance you have created $25,000 worth of equity in your property in three
different ways
1. By a few hours of questioning the agent and negotiating – bingo! $25,000 of new
equity
2. Waiting a year and hoping that all your research on capital growth was right and
your property has grown by $25,000
3. Spending $12,500 and putting in your own time, sweat (and tears) to create $25,000
within 4 weeks, i.e. really only being ahead $12,500
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Thus, each has the same outcome – the first though, when you are buying, gets you the
result immediately.
So, when you hear people say “you make money when you buy” – now you know you can! It
all comes down to knowing what the right questions are to ask the agent and how to
negotiate. Thus, here is the secret, why not do all three? I.e. buy below the market, do a
quick cosmetic renovation and buy in an area with capital growth.
Locating a property that is going to give you every opportunity to gain an equity advantage
is central to the Locating a Property Course. These modules and the comprehensive courses
will give you a running start on your journey to building equity. Equity is the cornerstone of
building a sustainable property portfolio.
Locating a Property
You’ll need to remember to avoid buying with emotion; investing is about the numbers and
the research. Don’t fall prey to the “bargain” down the street. Avoid supposed “hot spots.”
Here’s a helpful hint – by the time you read about ‘hot spots’ in the paper or overhear talk
about the most recent bargain property, the opportunity has probably expired. Information
you get, at least as a new investor, is probably three to six months old already. Go ahead
and take a peek if you must, but avoid wasting your time on “sure things” or “golden
opportunities.” Let’s be serious; if it sounds too good to be true, it probably is.
You need to focus on three things...

Why you are buying

Where to buy

How to buy
Everything else is secondary; and, by focusing on these factors you will be the one finding
the hot spots!
Research for a Home
Real estate is a long term proposition for most. Sure there are opportunities for immediate
profit, but for most property buyers the traditional route to wealth building in property is to
buy well (the right property at the right price) and hold for long term capital appreciation.
Buy and hold, i.e. essentially what we do with our home, is about investing long term and
therefore demands extensive research. If you were buying as a home owner you should be
concentrating on capital growth as well as the property’s fit to your needs.
It will be a case of doing the extensive research and analysing all the factors that you have
researched and making sure that you are in a position to hold for a period of time. Buy and
hold can be particularly powerful when they are held through a full property cycle (as we
learned in Module 2). Often values can double or more through a cycle, validating the buy
and hold approach.
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With a buy/hold strategy you are searching for suburbs that have out-performed relative to
the overall market in the longer term. Past performances are often the best indicator for
future performance.
Choose an area, say, consisting of a few suburbs that has…
1. Demonstrated strong capital growth over time.
2. Strong predicted growth
3. Low rental vacancies.
4. High rental demand
5. A median price that is not more than 20% above the city’s current median price.
This is where an investor can gain traction and a genuine ‘competitive advantage’: they can
get to understand the nuances of a particular market and intuitively will understand value.
There are so many things to consider when buying a property. The full online course Course 3 Locating a Property - has over 50 pages explaining the nitty gritty, obviously this
module can only cover the highlights. If you want more information please consider the
Course 3 Locating a Property Course. As a home buyer it is important that you understand how
investors buy and use some of those criteria to make your purchase the right one to suit
your needs both short term but your long term wealth building needs.
The My School Factor
Some smart buyers are using the new MySchool website as a guide to locating a home. For
example one couple were moving to a bigger home and were researching. They noticed that
Mathew Pearce Pubic School in Baulkham Hills (Sydney) would be considered a good school.
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The school in fact happens to be one of the best academically in the state according to the
federal government’s MySchool website. They soon discovered that people wanted to live in
the immediate catchment area of the school. Go one block down to another catchment and
they’re not interested. Such is the demand for these houses that a well-maintained three-or
four-bedroom bungalow in a good street can fetch up to $50,000 more than a similar one
outside the boundary.
All across Sydney, buyers are choosing where to live based o which school they want their
children to attend and in many cases paying a premium for the privilege
Become an expert on your territory!
Select areas where there is a reasonable turnover of property. A suburb or town where
there are fewer than say 10-12 sales a month is not going to yield any meaningful
comparison date. Thus, if there is not much activity, why would you consider trying to buy
there? Therefore, the higher the number of sales, the better. If you would like to explore
this further, you could divide the number of houses in an area by the number of sales in the
quarter and then get an idea comparably as to how the smaller & bigger suburbs really
relate – i.e. comparing apples with apples. This strategy can be exploited in any urban
market in Australia, particularly in the major cities.
To effectively narrow your criteria, you’ll need to get to know the suburbs you’ve selected
and test if they are a good fit for your Once you know your strategy, your borrowing
capacity, your passive income or equity (wealth) goals and the timeframe needed to achieve
them, you will be able to narrow down your buying criteria and how many properties you
will need to buy in order to achieve this.
We have already looked at your buying criteria in Module 2. It may be that you need to buy
below $400,000, in an area with 8% pa predicted long term capital growth. By elimination,
the 12,000 suburbs in Australia are now reduced to perhaps 100 to choose from. Then you
would decide on what State you want to buy in. This can greatly affect your land tax
exposure, stamp duty, buying costs and your rental yield so choose wisely.
Assuming you have 8-10 suburbs, for instance, we now want to get to know them intimately
and narrow them down to the best of the bunch.
You’ll want to narrow your search to no more than
three to five suburbs. Any more than that is overkill for
now. Using research, narrow your areas. The best part
of this is that 90% of the research can be done online.
For example you might also add another criterion - a
‘walkability’ score which can be researched on:
• www.myboot.com.au
• www.walkscore.com.au
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Although you won’t be sure until you physically begin to walk through an area and its
representative properties, you’ll get a pretty good idea, with a small margin for error, by
doing thorough research first.
There are a few basic facts and figures we need to cover, but you also need to make sure
that you look into what the good and bad about each suburb:

Has it a high percentage of renters? (As a resale value you are in a high demand area
for renters and investors will also consider your home when you sell opening you to
a bigger market)

Has it a university or hospital nearby which might drive investors looking at
guaranteed renters into the area and hence drive up property prices?

Is the area located next to a highway? Good infrastructure that reduces commuting
times has led to an explosion in property prices for outer ring suburbs in the past –
however you don’t want your property on a highway

Was the suburb voted best for growing families? This is a good consideration for
resale

Has the suburb recently experienced a rise in crime? Obviously this is not good.
See where we’re going with this? In short: Research, research, research! In the Bonus
section you will find a Special Australian Property Investor report detailing some of the
additional things you may need to consider.
What to Look for:

Predicted strong capital growth. Why? Because the experts
have been looking at population changes, council plans,
infrastructure announcements and have made an
assessment. So use their figures.

In an area with positive population growth, you need demand and people moving to
an area create this. You need to make sure that new population growth
fundamentals exist. After all, if growth is being lead by a baby boom, there won’t be
as many new houses needed by the new babies than if the growth is due to a new
industry in town.

Buying within the median price range and median type of property, which makes it
easier to sell and rent, remember it is all about minimising your risk. So if 80% of the
population in the area live in a 3 bedroom house then buying a 1 bedroom unit is a
risky option.

Past evidence of strong capital growth. We cannot, with certainty, use figures from
the past to help us work out the future but they give us a good idea of how popular
and area has been.
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
High rental demand. A function of population demand. If a new area is having its
capital growth being driven up just based on new owner occupiers moving to an area
(i.e. new developments), there may be, in fact, a low demand for rental
accommodation.

Limited supply of properties in the area to ensure demand remains strong. Councils
who have strict rulings on many new high rise unit developments are assisting you
with the demand for the older-style unit and artificially limiting supply.

Property that fits with the area and the demographics. It’s important to know who
your demographic is and make sure your property suits them.

Low maintenance property – well built and free from defects equals fewer out-ofpocket expenses for you.

An opportunity to create equity in the short, middle, and long term; i.e., renovation,
or developing, subdividing. Or buying below the actual value.
Agents are useful sources of information. Apart from your own online reading of reports
agents will have information that is crucial to your investment decision-making. They are the
ones who are ‘on the ground’ and a good, trustworthy agent can be a valuable source of
information as well as a ‘lead generator’ of properties coming on to the market.
Many investors develop good relationships with a number of agents and use them as a
source of identifying good property.
One of the key attributes of a successful investor is the ability to identify opportunities to
buy equity. That is, the capacity to buy below the market value. The so-called ‘bargain of a
lifetime’ does arise in real estate. But you need to be looking and searching in order to spot
it. An agent is in the box seat to inform you for example of the motivation behind the
vendor who is selling the property. Is there a distressed situation? Is there a family break
up? Is there an estate coming on to the market? However, these are genuine opportunities
for an investor to buy well and often buy value.
First you need to be organised!
Prepare a file – one for each suburb that you are researching. Break the file into sections so
that you can locate information quickly. It doesn’t matter what the sections are so long as
they make sense to you.
One section should be ‘Agent questions’. Prepare a page at the front of your file where you
could list all the selling agents and agencies in the area so you don’t have to keep re writing
them with each phone call.
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You should use a template that is helpful in keeping you focused on getting the answers you
want, see the Bonus for a checklist you can use for accessing properties. Recording accurate
information is vital when coming to decide which property to make an offer on. Keeping
information is also a good way of keeping track of movement in the area. You could be
looking through the paper a few months later and find the same property back on the
market with a different agent…this would suggest a motivated vendor and good news for
you!
Pointers:
1. Buy where people want to live.
Let’s think of where people aspire to live. Think of the ‘good’ areas in your home
town or city. What characteristics do they have? Usually, these areas are suburbs
with a nice feel, close to shopping, maybe a café culture, neighbours who are likeminded or who you aspire to be like, good schools, close to the CBD, i.e., work, nice
area and streetscapes, etc. The issue is, these areas are usually outside your price
range, and they may have already been through their growth phase.
So how do you find an area that you can afford and an area where people want to
live? Essentially, if you apply the same
criteria you may find that suburbs
may not have all the characteristics
you’re looking for in an ideal home--yet. However, your job is to do the
research and find the areas whilst
they are affordable and before
everyone else finds them then hold on
while you ride the capital growth
wave.
The most promising properties are usually located in suburbs that are part of the
ripple effect, i.e., the surrounding suburbs have the works but the surrounding areas
have not taken off yet. Or, they are suburbs where some degree of gentrification or
council and local business initiatives are improving the area. You can find the
property with all the features that you want as a home (or renters want ). You might
just have to wait a few years whilst it increases in value, but in the meantime you are
growing your overall net worth.
2. Increased and Sustained Population Growth.
This is usually driven by one thing that has occurred. This could be new legislation,
infrastructure changes, re-zoning or the X-factor. For example, you might find that
lower priced areas within commutable distances from the CBD shot up in value when
the Australian Government announced the First Home Buyers Grant additional
bonus i.e. $14,000, or the substantial change in population growth in Mt Barker SA
shown between the 2001 and 2006 census’ due to that area becoming commutable
due to new roads connecting the area to the city, or an area being rezoned
residential.
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Now the X-factor you have to be watching to catch these, in recent years we had the
publishing of the http://www.myschool.edu.au/ website rating schools. Those high
schools performing the best generally only take students from their catchment areas
– guess which suburbs went up in value. As another example, in New Zealand a
tertiary institute in Invercargill got rid of fees in order to generate more enrolments,
which greatly increased the numbers of students in the area.
Also watch where the big companies are opening new stores. You can bet if Coles
thinks that there is enough people to open a store then they must know something
about the population demands. Finally, and maybe one of the bigger growth and
rental yield opportunities, in 2009 the NSW planning changes allowed a 60m2 granny
flat to be built on land sizes over 450m2 without a lot of paper work for approval.
This is creating growth in areas where properties lend themselves to this strategy.
Exercise:
Start considering potential suburbs for new home as if you are buying an investment
property. This will assist you in the type of thinking and considerations investors use and may
assist you in locating your new home from a different perspective. Create suburb profiles,
and begin filling in information on areas you might consider on your spreadsheet– areas that
fit your criteria. Remember to record where you source your data come from.
Your profile should specifically include, median property values, days on the market, rental
yield, vacancy rates and past capital growth. If you can, try also to find predicted capital
growth and record this as well. This data is available in the back of property investing
magazines: Australian Property Investor, Your Investment Property and Smart Investor
Magazine. Write these down in your workbook
1. Supply and Demand It’s all very well to look at population growth but you need to
compare this with supply of housing. It is simply not factual to say that this is a supply
shortage everywhere. Some areas will have excess supply and this will keep a lid on price
growth; IRRESPECTIVE OF POPUALTION GROWTH. John Edwards of Residex writes this:
“Supply in most states of Australia is currently in excess to need. The surplus
situation hasn’t been recognised by many people and most of the population has a
widely accepted view that there is a significant shortage of stock. The fallacy has
been generated by the tendency to add past shortages to the current year’s figures
and the constant press about reducing development activity. Continually adding past
shortages where there is no affordability issue is probably a reasonable thing to do.
However, in a situation as we are now in where there is limited affordability, people
have a tendency to simply increase people density per dwelling which makes this
approach, more likely than not, incorrect.
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In the table ‘State Immigration and Supply Position’ we present our current calculations as
to the current supply situation in each state market.
State Immigration and Supply Position
State
Net Change in Immigration, Last Quarter*
Calculated Supply Situation**
Queensland
5.09%
2,000 to 6,000
New South Wales
-8.55%
3,000 to 7,000
Australian Capital Territory
20.31%
-5,000 to -1,000
Victoria
-4.58%
-27,000 to -23,000
Tasmania
5.08%
-4,000 to 0
-12.75%
-7,000 to -3,000
0.94%
-3,000 to 1,000
South Australia
Western Australia
*The current quarterly immigration change when compared to the median quarterly change over last 5 years.
**Surplus or shortage of housing stock being developed – A negative number indicates surplus; positive number; shortage.
Source: Residex.
Obtaining the research
There are many ways to find the information that you need to narrow down on your
suburb/towns for further investigation. We gave you some sources earlier; here are some
additional sources:

You can buy the information – for instance Residex sell statistics in many forms and this
is very reliable and up to date.

You can search on real estate selling websites – there is a wealth of info for free on
these sites.

You can ask your trusted advisors for their input and that includes your mortgage
broker, your select group of real estate agents, buyer’s agent and mentor (if you have
one!)

You can research property investing and information websites.
Here are some websites you might find handy:

http://www.somersoft.com.au/ This is an excellent forum where you can ask questions
and benefit from the experience of other seasoned investors
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
www.investsmart.com.au/property Provides suburb and demographic information

http://www.domain.com.au Demographics

http://www.abs.gov.au/ the raw census information is an excellent resource for your
research

www.sqmresearch.com.au This will give you rental vacancy rates by postcode

http://www.suburbview.com/ Lists all sales and rentals as listed on internet sites

www.htw.com.au Herron Todd White are valuer’s, you should not miss their monthly
newsletter
So now you have the top 7 websites where you can access free information you can start
narrowing down your areas. However do not forget the buyer’s criteria checklist we
developed in Module 2. So once you have determined the areas where you want to
buy/invest in, pull out the criteria checklist and start looking at actual properties. This is
where many investors fall down they start getting overwhelmed with information, they get
frustrated and just want it all over with and so they settle on a place that may not check
everything or worse anything on your list.
Ever wondered why 1.6 million Australian’s have investment properties but only 400,000
have more than one? The full online course Course 3 Locating a Property has a lot more
websites and more information on research tools, however armed with the information
above and the websites you are well positioned to find your area for your search to
continue, which brings us to the next step.
Hit the Streets
Finally! It’s time to hit the streets and pound the pavement. It’s time to actually visit some
of the properties you’ve selected. Make sure that you have a good list of properties in your
selected suburbs and map out your route. Check out showing dates and times. Make sure
that you’re not going from one suburb to another if you can avoid it. You don’t have to do
this all in one day! But, then again, don’t drag it out too long. If you don’t act fast, the
properties you’re interested in may sell.
Keep your head together and remember where to buy, and why you are buying. Within a
few weeks, 90% of your choices will be weeded out before you even inspect and you will
know within 5 minutes at the inspection if the property is for you. Within 2 months and with
a hundred inspections under your belt, you will be able to spot a bargain a mile away. Here
is a ‘secret’:– once you are so honed on what you want and where you want to buy it, you
will find a bargain every week, because you know what you are looking for.
Every town, suburb and city has information related to property prices and movement.
Remember to work with a small area only; 3-5 suburbs or towns are sufficient!!
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
Start looking at the whole city for trends (heat maps are great for this as they are colour
coded to display average median prices) and areas in your price range. You can find
these in information provider reports such as Residex.

Now look for more detail in the statistics information for your chosen area, using the
websites mentioned above

Then chose the final 2-3 suburbs that fit the criteria rules.

Now drive through those suburbs regularly to get a feel for what is going on

Go to as many home opens as you can in your territory and speak to agents all the time.

By applying your checklist and your research tools you will be able to find the property
that suits your needs.
The next module is going to take you through the buying process and the extras you need to
consider in the period between signing the contract and actual settlement when you pick up
the keys.
Exercise:
Go out and get to work! As a bonus there are two spreadsheets that are in the Bonus
section that you can customise to your own buying criteria that are most important to you.
One spreadsheet is for those buying a unit and the other for those buying a house. You will
notice that there is a section on each that you can complete that allows you to assess a cost
of a renovation. You might want to start with the existing spread sheets and build upon
them as you get more adept at looking at properties. Take your time at each property; you
don’t want to miss something and have to come back. However, let’s be realistic, if you are
doing this right you may be trying to see as many as ten properties in a Saturday, so time is
of the essence. It’s not possible to remember everything, so take photos, staple the
brochure to your checklist and move on to the next one. Tip: Keep a few bananas and Red
Bulls in the car – someone is going to get stressed (usually the driver) and a sugar hit will be
needed.
When you finish your inspections, go over each spreadsheet and rank each property on a
scale of one to ten. Write the rank in the upper right-hand corner. You can put each
property on an even scale by giving each one an overall rank. Then sort your properties by
rank, ten being the best properties and one being the worst. This will be helpful for a quick
reference.
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Module Outcomes
You’ve done a lot of work during this course! You’ve looked at key characteristics needed
when locating a property and the website tools to help your research. You have checklists to
assist you when you are actually inspecting properties. You will soon have a selection of
properties that will fit your personal investment goals.
Bonus:
1. Download the checklist for assessing houses and units when you inspect them
2. In 2010 The Australian Property Investor magazine published a free e-book covering
all the different measures an investor should take into account when buying a
property. Imagine my surprise when I discovered that I was not the only one tracking
all this information. If you are interested in more detail, you might consider
downloading the e-book from the Bonus section.
Extra Resources:
1. Real Estate Investar compiles the information from websites together in one place.
They charge a monthly fee to access not just all the information but specifics on
properties for sale and a very thorough search engine that allows you to actually
enter your own criteria, i.e. rental yield greater than 7%, population greater than
30,000 people, average long term growth, more than 10% pa etc., etc. This can save
you time and money. Click here to learn more.
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Module
6
YOUR PROPERTY SUCCESS HOME OWNERS COURSE
MODULE 6 SIGNING TO SETTLEMENT AND EXTRAS
COURSE MANUAL
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Module
6
Module 6 | Signing to settlement
and extras
It is said that “the devil is in the detail”. No truer words could be spoken for the property
buyer. So far you have:
1.
Assessed your goals
2.
Studied the various investment strategies, and
3.
Decided on your own path and established your buying criteria i.e. your checklist to
purchase the property.
These three things form the foundation to a long and successful property portfolio. Next
came your assessment of your funds and how much the property would cost you and finally
the ‘fun’ part is digging for the diamond; locating the property that will be perfect for your
needs. The job does not stop here in fact the period between you deciding to put in an offer
on the property and the actual settlement, which is usually 6 weeks later, is just as crucial.
The pathway to settlement
For all property strategies, there is a pathway from signing to settlement. Most people are
confronted by the sheer weight of the responsibility in signing the actual contract through
to taking ownership at the time of settlement: it’s exacting work, requiring forensic detail.
The good news is we will cover all bases.
Now you need to add a few more experts to
your list of professionals, you will have already
gathered around you the experts you need to
see you through so far: your real estate agent,
your mortgage broker, you may even have a
buyers’ agent who will often assist you through
the next steps. You need to engage a solicitor
or property conveyancing expert, a building
and pest inspector, and maybe even a valuer.
So fear not: you have all you need to sail through the detail.
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There is a range of issues to deal with in the timeframe from when you sign the contract of
sale through to actually settling on the property and picking up the keys to your new
property.
Now that you have done all the work getting to this point, don’t drop the ball! It is really
important that you setup the property right in the beginning so you won’t have ongoing
issues. It is time to put your plans in place.

What do you need to consider in your letter of offer?

Have you considered all your negotiating options?

Have you organised a building inspection?

Are there tax benefits to be gained in the purchase and if so what are the steps to
activate those

Are you considering a quick renovation? If so don’t wait until you get the keys start
working on that now!

Who is going to arrange your property inspections?

Is your property adequately protected?
Banks are much more cautious since the 2009-2010 global financial crises and all paper work
needs to be in perfect order. Even if you have a preapproval, when you actually find a
property they will want updates of your payslips and savings accounts i.e. your proof of
deposit and funds before they will move forward and do a quick reassessment of your
financial position and then start evaluating the property.
A letter of offer
Ideally, your mortgage broker would have submitted your loan application to the lender by
now. Remember you don’t want to submit an application to soon as most have an expiry
time limit of 3 months and if you are not even ready to search then you have an
unnecessary enquiry on your credit file. Your broker will recommend a lender who will suit
your requirements, not just in terms of the loan features but a lender who will accept the
property you are purchasing. Hence when you select an area and really get to know the area
and properties that are fitting your buying criteria then get your broker to submit your
application. Your broker previously would have let you know how much you can borrow and
hence how much you can spend.
Once an application is processed, a bank will often indicate its willingness to lend by way of
an indicative approval, or may in fact give conditional approval. The condition that lenders
usually have in their conditional (or pre-approval) is that the selected property meets the
banks assessment of its value against the offer price, i.e. the valuer says it is worth what you
want to pay for it. This is their check that you are not paying too much. This is important as
the lender will only lend against the lower of either the purchase price or the valuation. and
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hence if you do default they do not end up with a property that is worth less than the loan
they have against it.
You need to know what to do when you have found a property. In terms of preparing
financially for the investment it would be prudent to allow for about 6% of the purchase
price for set up costs.
Firstly, a property maybe going to auction, on the market or going to tender. The latter is
usually left to very expensive properties so let’s leave that out for now. You are able to
make an offer before an auction. Usually an agent will give you a range – you need to know
your agent is familiar with the area and you now know how to do all the research
necessary to determine what that property is really worth – so don’t take their word for it.
Case Study:
One of the reasons it is important to define your buying criteria is so that you can
check that the lender will lend based on the property type/ area you are buying. Let’s
assume you see that Bank X is heavily advertising a cheap interest rate and so
without any planning you go into the branch and they organise a preapproval for you.
You have a vague idea that you want to buy a unit in your local area.
You go to auction, confident that your pre-approval borrowing limit is above what
you require because you got a bargain. On Monday you rock up to the branch with
the signed contract of sale and ask to have the pre-approval formally assessed as you
have bought a property. The loans assistant asks for latest payslips and bank
statement as it has been 2 months since your pre-approval so you come back a few
days later with those. They send everything off to the head office for a formal
assessment. The following Monday you get a call to say that Bank X does not lend to
units that have an internal area less than 50m2, or that that lender did not realise
you were buying in an area with a population less than 20,000 and the mortgage
insurer will not lend in that postcode or that the property is company title and hence
you need a 40% deposit not 10% as you were planning.
So now you are 5 weeks away from settlement – no problem you go to the lender
next door. This loans assistant assures you that Bank A can lend to you to buy that
specific property – you rush off to get last week’s payslip and this lender also requires
a letter from your employer about your car allowance so you rush around and get
everything and resubmit your application.
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Case Study cont:
The following Monday you get a call to say although you did meet all the banks
requirements they see on your credit file an enquiry from Bank A why was that? You
explain they did not unearth any unpleasantness that prevented them from lending
to you they just would not lend to that postcode. However with only two mortgage
insurers in Australia it turns out that Bank A also uses the same mortgage insurer and
they still have an issue with the postcode. Now you have 4 weeks left – which is not
an impossible timeframe to secure finance in but you now have a number of
enquiries on your credit file. So you go to the next lender, you check they don’t use
the same mortgage insurer because you know that is now an issue. All is fine until
Bank W, comes up with a low credit score for you based on the amount of enquiries
on your file and declines the loan. Don’t laugh this seemingly small issue is not that
uncommon.
There are two lessons from this. Firstly if you had your buying criteria and property
investment strategy defined, you could tell the lender that you were looking to buy a
property in a town with less than 20,000 and could they check that would not be an
issue before you submitted any application. The second is if you engaged a mortgage
broker who dealt with this kind of thing every day, they could tell you which lenders
would lend to that area, what the mortgage insurers extra conditions may be and
your application could be converted from pre-approved to a formal approval within
the week of purchase and you get to sit back for the next 5 weeks.
If you have the time and desire to up skill yourself with individual lenders policies and
requirements then by all means do the research yourself but make sure that if your
buying criteria changes that you go back and recheck that you are still able to lend
with them.
Essentials in the offer
There are some things you need to include in any offer; the most important thing is the
price, the duration of the offer and then the extras. The extras can be long and convoluted
or simple and straight forward. There is one that is just mandatory – and that is the subject
to finance clause. The point of this clause is to give the bank’s valuer time to get out and
value the property and inform you and the lender that in terms of the security (i.e. the
property) and the price and any risk associated that it is acceptable to them and they will
lend you the money. Different lenders assess risk differently.
Some consider anything under a 50m2 size for a unit or a rural 2 acre house and land block
to be risky. Thus make sure you tell your mortgage broker the type of property you are
considering so they can make sure they place you with a lender who will accept this. The last
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thing you want when you find the ideal property is to then find out the lender you have the
preapproval with will not accept that property and you need to quickly find another lender
and waste a week in getting your application re-assessed. This could mean the difference
between being the new owner or, being beaten to the post by someone else. (See Case
Study)
It is not necessary to write a letter of offer. You can make a formal offer by submitting a
completed and signed Contract of Sale of Real Estate. However if you want to add any
conditions then it is best to get them all in writing. You would be advised to obtain legal
advice prior to signing the contract.
The solicitor/conveyancer is used to seeing contracts so anything that is unusual or stands
out is quickly picked up by them. You need to know if the Roads Authority, for example, can
compulsorily acquire your property, or whether there is a right of way through your
property just for an example. In fact there is a recent reported example of a contract for a
unit which included a note to say that at any time the sewerage access point could be
opened to complete checks - it was under the lounge room hence it was possible in this case
that the purchaser could end up with a whole in their lounge room – obviously you need to
know about something like this.
You can put down a small deposit or the one stipulated in the contract - usually 10% (most
agents accept 5% however this is up to you as a condition you may offer $500). This would
in most cases take the property off the market. You might decide not to put down a deposit
knowing that you might be at risk of being gazumped. If you do put the money down, and in
most instances sign the contract, then be prepared that should you not go ahead with the
purchase you could get left with a penalty of 0.25% of the price of the property. This is the
case for NSW; although each State and Territory will have its own statutes in this regard.
During the five-day cooling off period you will
need to complete everything including pest
and building inspections and attaining formal
loan approval from your lender. Achieving all
of this in five days is usually difficult. The
reason for this is that the bank valuer and the
building and pest inspectors need to organise
access to the property. Delays in getting this
access are sometimes experienced, especially
when the house or unit is rented out (as
opposed to being owner occupied). For this
reason it is recommended that you negotiate
an extension of the cooling off period before signing the contract. This could be 7 or 10
WORKING days.
What you need is a walk away deal breaker and terms that are possible to negotiate. For
instance you might release the deposit to the vendor in return for a lower offer than the
asking price, or a longer settlement time. Releasing the deposit however is risky. If the
contract does fall over then getting the funds back whilst they are enjoying their first holiday
in 10 years overseas may be more difficult than you thought.
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Conditions you might consider in the offer
You would make an offer subject to any or all of the following:
1)
Building and pest inspections.
2)
Approvals
3)
Items in good working order
4)
Vacant possession, obviously as you are moving into the property as a home
Each of the above would be noted in the letter of offer. Remember others may want to buy
this property so the more conditions you include the less attractive it may be for the vendor.
So stick to the conditions you really want and be prepared to acknowledge what will be a
deal breaker and what you will accept. For instance you might like the Grecian urn out the
front or the chandelier so you ask for that to be included but you will not walk away if it is
not. However if you require an extended settlement or you need to have 7 days for the
valuation to be done and that is not negotiable then so be it.
In the full course Course 4 Signing to Settlement this section is fully explored. It covers many
more inclusions you need to consider, for now here are the main ones that should be
included.
Offer subject to building and pest inspection
A pre-purchase building inspection can save you thousands.
There is no such thing as a perfect house. A professional and independent property
inspection should be mandatory in each and every real estate transaction, including new
homes. Only licensed and registered inspectors should be used.
Every home stands in silence just waiting for a professional, experienced inspector to
uncover and reveal its secrets. Property defects come in all shapes and sizes from minor
wear and tear to significant and costly structural defects. And a pre-purchase building
inspection carried out before you buy a property will arm you with information that is
literally worth its weight in gold.
The report will identify significant building defects or problems and sometimes even provide
repair costs for the defects found. When most people think property inspection they think
timber decay or termite damage and the like. But that’s merely scratching the surface. The
condition of the building and how it may impinge on the value can play a crucial role in what
is undoubtedly the most important purchase or sale you will ever make.
Even brand new homes hide secrets that are only obvious to the expert eye of an
experienced property inspector. Property faults and defects are often not obvious or may be
intentionally hidden and remain undisclosed during the marketing period. An experienced
inspector knows what to look for. These could even include legal requirements for instance
new requirements on electrical switch boards or fire alarms etc.
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Defects and problems can be readily visible to everyone but often appear only cosmetic in
nature. Consider for example seemingly minor symptoms such as a sticking door or
window. This might reveal major structural movement of the foundation system of the
building when inspected yet escape the attention of the average home buyer who would
simply note the door needs a little shaving off the top.
All homes regardless of age or condition will harbour a list of defects. Learning just how
severe these are, and how long the list is will have a direct bearing on your purchase
decision. It can determine whether you accept these and are happy and satisfied with your
well-informed decision to purchase, or whether you become overwhelmed, angry and
frustrated when the magnitude of unknown or previously undiscovered or undisclosed
defects become apparent after settlement. At that point it’s too late.
Definitions
A buyer’s first line of defence against such losses is known by many different names and
varies from state to state. Terms such as a home inspection, a pre-purchase inspection, a
building inspection, a defects report, a property inspection, or a condition report.
As a buyer you need to do due diligence. This is the best way of protecting yourself from any
problems that may not be obvious on a first or even second inspection of a property. You
will have looked at the legal clauses that are necessary to protect your interest in the
transactional side of buying, but there are the physical aspects that need due diligence too.
Be assured that a building and pest inspection should be considered as mandatory. Indeed
some states are considering making this a mandatory condition. An inspection report will
give you an idea of any expenses you are likely to be in for in the case of maintenance or
repair, and could be used as a bargaining tool to lower the purchase price of the property.
Look for the major faults and don't let the minor faults trouble you too much. For example,
poor guttering is much less of a concern than poor foundations. Importantly, deal with the
issues of independent advice when it comes to Inspections and Checks: real estate agents
are NOT independent and don’t use an inspector they recommend; remember the real
estate agent has the vendor’s best interests in mind.
Offer “subject to”. Let’s be clear here: you will be dealing with a vendor’s agent; they have a
contract with the owner to make best endeavours to get best price for the owner – not to
save you money or necessarily go to any trouble to protect your interest. This is in no way
suggesting that real estate agents do not act in an ethical manner; it is simply putting
common sense into the equation: the agent may say one thing but it is necessary for you to
do your own due diligence.
Allow yourself enough time to get the information you require and make it a priority from
the time you sign the letter of offer– it is your responsibility! Now, all of the following may
not be conditions in your letter of offer but they are things you need to do in the time you
have requested. So your offer would read: “I am making an offer of $x00, 000 that expires
on (date) and (time) and is subject to the following conditions”:
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1. A deposit $xxx or 5% payable after (x) days of exchange of contract with balance
at settlement
2. Subject to my satisfactory Building Inspection within (-) days
3. Subject to my satisfactory Pesticide Inspection within (-) days
4. Subject to my finance that is acceptable to me within (-) days (note try to
negotiate 10 working days to allow for valuer delays etc)
These points are just an example of the minimum, you can add a lot more if you wish – the
key is the ‘acceptable to me finance clause’ otherwise the vendor for instance could turn
around and give you finance at an interest rate of 20% - an over the top example but the
reasoning is true – this is your offer so you need to stay in charge.
Offer subject to ‘good working order’
This is an important clause and one which can save you hundreds of dollars to rectify after
settlement. You will need to conduct a pre settlement inspection, which is after offer
accepted and the day of settlement or the day before you check the property to make sure
everything is okay.
The notion of ‘good working order’
should take into account all electrical
and plumbing. You can list every item
on the offer…all swimming pool
equipment, reticulation, bore, and air
conditioner etc where applicable.
As the buyer it is in your interest to
test all the equipment or bring in an
expert to test for you in the case of
for example, a swimming pool or air
conditioner.
These conditions apply to home units, town houses; semi detached house as well as freestanding houses. In the case of a unit or a dwelling governed by company or strata title laws
(that is, where there is an owners’ corporate responsible for the building) it is necessary to
check all buildings, including units.
They should be adequately examined physically and there should be conditions in the
contract which point out defects or deficiencies. For example, one client was troubled by a
neighbour’s spa which was not showing on any plans and which did not have any formal
approval from the body corporate or the neighbours in relation to the machinery operating
outside of the premises which could present noise or vibration problems. Such structures
may require a particular statement or condition in the Offer. You might decide that you will
check out the body corporate minutes and notes to see if there is any indication of pests
and building issues before you decide to commit the money for the searches. Be prepared
that these checks could cost up to $500 each.
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Many a new owner has turned up to find the Miele dishwasher having been replaced with a
Dishlex or the old tenant still in resident and refusing to move – you need to know this
before settlement.
As noted earlier, to be prepared to give yourself enough time to get all the checks done you
should be asking for a longer cooling off period then is in the contract. Many buyers need
more time for settlement; this should be inserted into the contract and the charges (usually
negotiated by the agent or the solicitors of the buyer and vendor). This should be stated and
the formula for ‘rent’ or interest payment noted. Just as an interesting note, there is a new
insurance premium widely offered in the US that is just starting to appear in Australia. It
covers the appliances in the property for 12 months after purchase of a property, just one
less thing to worry about.
Exercise:
Go to your workbook and complete the conditions that you might want to have included in
your letter of offer.
The conveyancing process
The conveyancing process ensures that you as the buyer of the land should get a clear and
marketable title to the land. Conveyancing is the transfer of legal title of property from
seller to buyer. Thus conveyancing is designed to ensure that the buyer gets all the rights to
the land he purchases. Equitable title is passed on first followed by legal title. Equitable title
allows use of property while legal title means ownership. Conveyancing has three main
stages:

Before contract

before completion and

After completion.
The various states and territories of Australia have different legislation regarding property
and regarding title. Legislation of every state is based on Torrens principle. There is a central
register of land records identifying the owner of land.
Information to be included in contract for sale:

Zoning – whether the property is designated as residential or for other purposes

Easements – Any other person is holding limited rights to the property in the form of
right to pass across the property or right to build a road across the property or right to
construct a pipeline under or a power line over the property.
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
Mortgage – if there is a mortgage on the title of the property or any other debt affecting
the property (like a caveat)?

A sewer diagram: showing where the sewer is situated and where it can be accessed
from the property.

Real estate agent will be provided with a copy of the contract form. Prospective buyers
may suggest any changes to the terms of contract.

Contract comes to existence when seller and buyer each sign an identical copy of the
contract. These copies are exchanged between the parties’ solicitor and conveyancer.
Now the parties are legally bound to complete the contract. In the case of an auction
sale, the agents exchange the contracts.
The search
A solicitor or conveyancer will conduct searches including:

Title Search

A Plan of Survey search to identify the property that you are purchasing.

Land Tax Search to reveal if there is any land tax outstanding

Main roads search to reveal if there are any requirements that main roads may have
with respect to your property.

A Council search to reveal if there are any rates or other outstanding matters with
respect to the property.
Exchange of contracts
Although it is best to have finance in place first it is not always the case. However don’t sign
anything without getting your conveyancer or solicitor to examine the contract. You would
be advised to have a solicitor go through this because they would need to look for the
existence of mortgages and caveats, easements and other legal instruments which create
encumbrances on the land and prevent you from getting clear title.
Why spend money on legal
expenses?
The point of spending money on legal
expenses is to protect you from any issues
which affect your purchase. Your solicitor will
advise you of any changes that may, in his or
her opinion be necessary before purchasing.
They are experienced at looking for
inconsistencies and determining whether
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special clauses are warranted or may be oppressive to buyers who may buy without
considering the consequences.
After this due diligence, which should lead to a final version of the contract, the contracts
will be exchanged via your legal representative. This is a formal and standard process where
the parties accept each other’s version of the contract and agree to be bound by the terms
of both sides of the contract. This is the point where the contract becomes binding.
Buying at auction
Auctions can be both exciting and intimidating events for a buyer especially if the property
is going to be a home rather than an investment. Having said that, the auction is also a place
where a new investor needs to be prepared. In the private sale process, the heat of the
auction is not present; thus affording the buyer the opportunity to prepare at a more
leisurely pace.
If a property is going to auction but a buyer wants to put in a bid beforehand, that buyer
needs to understand whether he or she is paying too much. This understanding can only
come through doing the research as outlined in Module 5 Locating a property.
That knowledge will be equally important if you are the highest bidder at auction but are yet
to reach the vendor’s reserve price and start entering into negotiations. Stand your ground
about what you are prepared – and can afford – to pay.
Remember at all times that this is an investment; be guided by your head, not your heart. If
you can’t get your price, then aim to get the vendor to agree on your conditions. These can
be powerful bargaining chips in the negotiating round. We have mentioned some of the
usual conditions above, but you may want to consider things like the length of settlement,
inclusions (such as electrical appliances and furniture), an early release of the deposit
and/or offering to rent the property to the vendor after settlement if they haven’t yet
bought a new home. The vendor will, after all, be a good tenant and is likely to keep the
property in good condition.
Auctions can be a nerve wracking event – even for experienced property buyers. If you are a
declared bidder, the agents will hassle you – a lot! So be mentally as well as physically
prepared. And, if you can, have someone with you who is calm under such circumstances (in
case you lose your cool!)
As previously mentioned, you can put in an offer before the auction date. Some people get
sick of endless weeks of strangers trampling through their house, however making an offer
before the auction works best if the offer is made a few weeks out from auction. An offer
made the day before the auction would have to be very, very good for a vendor to pull the
property out of the auction, and you would not have a lot of scope to include conditions in
your offer other than the price and maybe some really attractive terms i.e. early settlement.
There is essentially no condition that you can add after you have been successful at auction.
So if you only have a 5% deposit and the contract says 10% you need to have your
solicitor/conveyance get the vendors solicitor/conveyance to accept that if you are the
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highest bidder that you can present only a 5% cheque on the day of auction, (note you need
to take your cheque book to the auction). Likewise, for any other conditions.

If you are worried that the bank will not consider the property price as acceptable if you
buy at auction then you may want to consider investing in an independent valuation
prior to auction. Tell the valuer that the valuation will be used for a bank loan, although
in theory this does not affect the valuation if the valuers are more conservative for
lending valuations then you need to know that up front.

To participate in a sale by auction it is compulsory that your identity, i.e: name and
residential address, is recorded. So make sure you take not just your cheque book and
have 10% of the purchase price in the account but also your ID with you when you go to
auction.
Exercise:
Record in your workbook the things you need to know in your State or Territory when you are
purchasing. Ie
1. Write down what conditions you need to remember that you want to include in your
letter of offer
2. What is the standard cooling off period?
3. Who facilitates the contract of sale process (some States will only allow solicitors to do
this)
4. If you make an offer and put down a holding deposit what is the percentage penalty in
your State if you do not proceed?
Strata title property
Far from being low risk, strata buildings or those where units are controlled by a body
corporate, present a potential risk for investors seeking to invest in a unit or town house.
The risk lies in the fact that buildings are managed by a body corporate or company board of
directors and as such you as a unit holder only have the power of your vote. You could in
effect be inheriting a bucket load of problems that are presented as financial costs or costs
associated with noise, unkempt buildings or disputes between neighbours or even worse a
builder not fixing problems that should be fixed under their warranty insurance.
Obtaining the Strata Report
This cannot be stressed enough – if buying a unit, apartment, townhouse or the like that has
a body corporate you would be wise to get a strata report. When buying a property you are
not buying just a specific unit but a development that is maintained, controlled and
managed by the corporation of owners’ (body) corporation. Yu should thoroughly check
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whether the entity managing the building is in good financial health and is managed
properly. It is important that you examine the records and look forensically at the financial
factors. Look at the admin fund which holds levies that provide for ongoing expenses such
as building insurance and building maintenance. Then look at the sinking fund, this is the
proportion of levies that goes into reserve for future maintenance of the building, such as
painting or the ongoing maintenance or replacement of facilities like lifts and swimming
pools etc.
You would also be particularly interested in defects that may need attention, such as
concrete cancer, mould, termites, infestation. You can get all this information and more by
getting a strata report:

The strata plan

The levies that should be paid to the corporation of owners (Including the special levies
which the corporation levied in the past)

The respective unit entitlements of the owners

The by-laws which the residents should abide.

Insurance policies which are taken out by the corporation of owners

Any legal proceedings that involves the corporation of the owners

An expense list of the corporation of owners

An expenditure of past and future projects including any major repair work

A list of significant repair works that have taken place earlier.

Complaints list of the owners and records of disputes between the owners that have
occurred previously
There are many examples of strata reports that have come back with evidence of a huge
spend required to fix significant repairs. One of the worst was a $2.1million rectification of
concrete cancer roof issues that needed to be raised by a special levy to the 21 unit holders
within 6 months. No wonder the vendor was willing to accept an offer $100,000 below
asking price – he had to front with $100,000 in 6 months. Your solicitor or conveyancer can
organise this search for you, it usually costs approximately $500. However you can make an
appointment with the strata manager and view the reports yourself. Make sure you look at
the last 10 years and take particular note of any upcoming building works that might require
additional funds from you.
Just a quick reno
Your strategy may not be to renovate your property but in reality often properties need a
quick face lift. This section runs through what you might need to consider. You might have
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done all your research and found the property – this is no time to pop your feet up, it can
take the 6 weeks you have until settlement to organise your renovation.
Indeed, some people include in their letter of offer a clause that allows them to have access
to do renovations during the signing to settlement timeframe. Some might consider this
risky and maybe it is a deal breaker for the vendor, as an alternative you might request
‘reasonable access’ to get trades to quote so you can get them working as soon as you settle
and get the keys, rather than waiting 3 weeks to complete the quoting process.
How to organise a quick reno before you move in
There is some preparation required for the renovation: you do not get to the point of
signing a contract for a property that you are preparing to renovate without all ready
knowing the following:
1.
What needs to be done
2.
How long it will take
3.
How much it will cost
4.
How much of a buffer you will need for the unexpected
Note you are wearing an investor’s hat and it is therefore not a time to get emotional or fall
in love with the property. Don’t let your heart rule your head. This is business.
There is plenty of number crunching and milestone planning that needs to be done for even
the smallest renovation job.

Plan ahead. If you know exactly what you need to do and how you’ll need to go about it,
it will reduce your chances of the project going off the rails and taking longer and costing
more than intended.

Economise on materials. Shop around and you may be able to find discounts on what
you need. Where possible, aim for materials that a supplier currently has in stock,
preferably in surplus, as there is a far smaller chance of getting a discount where
material needs to be ordered in. Only do this for tasks that you’re confident you’ll be
able to do yourself, as some tradespeople won’t use materials that they can’t guarantee
the quality of.

Go for quality where it shows. It’s worth investing in decent quality finishing products
such as paint and fittings, as these will be on display and take the brunt of the property’s
wear and tear. Save money in the long run by reducing the need for future touch-ups.

Get at least two or three quotes. When looking for professional help, get more quotes
than you think you’ll need in order to give yourself a large enough sample to make an
informed selection.
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Managing a quick renovation can be a bit of a headache; in fact you might even decide to
outsource this to a project manager. This might be someone who actually has a company
with all the trades in house or even a builder who will manage your trades for you. They can
charge from 10%-25% of the work. If you choose to go this way then I encourage you to visit
their past jobs and seek recommendations from those happy with their work. There is an
entire course on renovation at Your Property Success but for now we have covered off the
main points in completing a quick clean up or cosmetic renovation.
The Next Step
You are almost there, once the property has settled it is up to you to keep your portfolio
working and be prepared for anything that the economy, your health or your work throws at
you. We cover this in the next and final Module. More importantly we cover off how to access
equity using the right financial structure in order to move forward and build a property
portfolio and get you closer to achieving your financial goals.
Exercise:
Are you planning on organising a quick renovation? Then grab the local newspaper and start
recording the phone number and details of three tradespeople for each trade you need. Get
your list ready now so that you have the numbers handy when you need to start. Remember
tradies are known for not turning up to quote, or turning up and then not providing a quote, or
providing a quote that is high if they don’t want the job. So you should have 3 quotes to
compare, this may mean that you need to have a list of 6 tradies.
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Module Outcomes
Now you have an appreciation for all the additional work required after you actually find your
property. It is important to know what to include in your letter of offer and the various sales
processes and requirements. These do differ in each State and Territory. Once you have
agreement with the vendor to purchase the property then you take the next step. One of these
is obviously a pest and building inspection. Finally we covered off on a quick renovation or tidy
up of the property, things you need to consider and the steps you need to take.
Bonus:
1. Are you having trouble finding trades? Then check out this website
www.seekingservices.com.au. Go on line and tell them what you want and they tender
the work out and get the tradies to contact you. Almost sounds too good to be true.
Here is a testimonial of one happy client who heard about Seeking Services from one
of my face to face courses: Bathroom makeover. Did I mention it is a free service to
you?
Extra Resources:
Archicentre provide pest and building inspections. They have over 300 members across
Australia and can assist you in getting all the searches done. They can even give you an
assessment of costs of renovations and works.
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Module
7
YOUR PROPERTY SUCCESS HOME OWNERS COURSE
MODULE 7 AFTER YOU BUY, THE NEXT STEP
COURSE MANUAL
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Module
7
Module 7 | After You Buy, the Next Step
So now what?
You have been through the last 6 modules and now you are
in the position to relax, or so you thought. Once the dust has
settled on your purchase and you start finding you have time
on your hands again (and let’s face it you have probably been
at this for months now), it is important that you now put in
place the next steps for you and your property.
You alone know how much time and effort you have put into
getting to where you are and by now you also know what
return in the future this property will have for you and how it
fits into helping you achieve your long term goals.
Moving forward you need to know what to expect and the
new things you need to consider. So now you want to access the equity you have created,
be it by buying below the market, in the next hot spot or due to renovation. The key is
knowing how to do this to move forward.
Developing your goals is one thing, now you have to step up and deliver. Yes you have
bought a property or properties but actually maintaining focus on your end goal is the key.
Many home owners will go on to own other property as investments. Of the nearly 1.7 mill
Australians that own an investment property only 465,000 have more than one, only 14,000
have more than 6. Why? Maybe they inherited it, maybe they are lazy, maybe it did not
perform or they did not know what to do next. If you truly believe that property investment
will assist you in retiring early or help you achieve your financial goals sooner then you need
to keep going towards that goal. There might be years between your home ownership and
property investment but you need to be vigilant and know when to act.
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Protect Yourself
What distinguished those home owners who go on to become property investors and who
build a successful property portfolio, that is going to see them through to financial freedom
is that they carefully assess their capacity to withstand the setbacks, unexpected events and
life changes that inevitably occur.
Even if you only own your own home now that you a buying a new property and potentially
your net worth is growing, you need to protect yourself and your income. There are many
stories that tell of hardships when the main breadwinner loses their job or worse still their
life. Millions of Australians are under insured.
Many home buyers don’t think about risk; they believe that if something happens they can
just sell their property and rent. The fact is it may not be the best time in the market to sell.
If you have lost your job due to economic conditions, chances are others have too. We have
discussed the need to build an emergency exit plan and a buffer into your overall buying
strategy, insurance is another important factor you also need to consider.
Most Australians believe they are covered by life insurance in their superannuation.
However:
One in two industry super fund members are underinsured by $100,000 or more1:
-
50% are underinsured by $100,000 for life insurance
-
74% are underinsured by $100,000 for Total Permanent Disability

It’s estimated that life insurance cover within super is on average only 20% of what is
needed. The average insurance amount payable from super is $70,0002 – for those
who take the default level of cover

If you were to get sick or injured and not be able to work, Centrelink pays a
maximum disability pension of $658.40 per fortnight for singles and $496.30 (each)
for couples3
The fact is that you should be looking at discussing with a professional your goals, investing
strategies and exit strategies so that you can implement a total fully rounded wealth
creation plan. This will include not just insurance but estate planning, holding entities for
your investments and properties, your superannuation and any business succession
planning you might require. In essence you need a complete financial plan.
Your Financial Plan
According to the Financial Planning Association website: No two financial plans are the
same, especially if you are at different stages in your life. A person in their 30s will need
different advice from a person in their 60s. Take a closer look:
_____________________________
1
2008 survey by Australian Institute of Superannuation Trustees (AIST) and Industry Funds Forum (IFF) - AIST Media Release, 3rd June 2008
Rice Walker Actuaries, Analysis of Insurance Needs, May 2005
3
Centrelink website. Rates are a guide only and are effective from 1st January 2011
2
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1. Young adult
You’ll be starting out in your career, maybe with a HECS
loan to repay. Start good habits early and begin to put
money aside and plan for your future. The earlier you
start saving, the more likely you will be to reach your
savings goal. You should also consider protecting your
income if you couldn’t work due to illness or injury.
2. During your career
You’re well on your career path with some cash to put away for the future. It’s important
not to lose sight of the long-term and to start to plan now. You’ll want to avoid any excess
tax and maximise any benefits available to you. If you have started a family, make sure they
are protected by taking care of life, health and income protection insurance.
3. Later years and retirement
With 20 years or more of retirement ahead of you, you will need to keep up your quality of
life once your salary or other employment income stops. If you have savings and
investments, you will need to generate enough income from them to meet your expenses.
You’ll want to pay as little tax as possible once you retire so you have more to spend or
save.
Regardless you need to think about your new and growing portfolio and how to protect it
and also yourself.
Insurance coverage
One of the mistakes that many home buyers make is that they incorrectly assume that
Lenders Mortgage Insurance (LMI) protects them and their family in a situation where they
are unable to meet mortgage repayments and default. The issue becomes important as one
prepares borrows against equity in their home for further investment be it a property,
shares or even personal use a renovation or holiday.
You might even consider property investing. Long this path, that is, moving from home
ownership to investing, the need for protection heightened by its very nature, borrowing
money potentially increases one’s exposure to risk. Let’s take note that LMI protects lenders
against borrower credit related default on residential property loans. It covers losses
sustained by a lender to a borrower for residential mortgages. The LMI covers the net loss
incurred in the event that the lender forecloses on the borrower. The lender – a bank or
nonbank – is the insured and the premium is paid by the borrower at the time the loan is
drawn down.
When it comes time for you to expand your property holdings beyond your home, it is
highly likely that in the course of building an investment portfolio your lender will require
you to take out LMI particularly if you draw on the equity of one property to use as a
deposit for the purchase of another property. This concept is explored in greater detail in
the full course Course 2 Know Your Numbers.
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Income protection insurance
This is often the most difficult decision for a
home buyer, upgrader or investor to make;
how to protect the family in the case of
accident or permanent incapacity arising from
an accident or a health-related event (e.g.:
stroke, illness). If an investor is the principle
income earner in a family and is embarking on
a long term plan to create wealth and financial
freedom for themselves and their family the
onus is on them to consider what would happen if they could no long work either
permanently or for a significant period of time. If you are a property investor, you need to
consider protecting your continued ownership of that asset with income protection
insurance.
As noted earlier, income protection insurance should not be confused with LMI, which is
required by most lenders where the loan value exceeds a certain percentage (usually 80%)
of the property value. LMI only protects the lender in the event that you default on the loan.
Income protection insurance protects you, the investment property owner, by providing a
benefit in the form of regular payments in the event that you are unable to earn the income
that you were previously earning due to sickness or injury.
As a rough guide, annual income protection premiums generally cost between one and
three per cent of your gross annual income, and, are generally tax deductible. In assessing
the annual income, you would take into account earnings as well as rental income.
Remember too that when you are assessing net income you do not need to take into
account any depreciation (this was covered in Module - 6 signing to Settlement) as the
insurance is intended to cover your family’s cash needs.
Are we there yet?
You do not want to end up like this couple who went to see a financial professional at the
age of 60. They had been purchasing properties for many years, doing it tough but keeping
the end goal in mind, knowing that a few sacrifices would make it all worthwhile. The
husband wanted to know how many more properties he could buy. The professional asked
the wife what would you like to do? To which she replied, we have scrimped and saved for
20 years, I just want a holiday. In this case, it turns out they were so focused on securing a
financial nest egg and future they did not realise it when they had achieved this goal. They
had not engaged a financial professional to take an impartial overview of their plan and
make recommendations along the way, that is, not just keep them on track to achieving
their goals but to also give unemotional perspective. The financial professional who can
assist you with your investing journey is a financial planner.
Your Financial Planner and Estate Planning
This is a whole topic in itself. You need to work with a qualified financial planner and
someone who specilialises in what you need and want from your investments. In late 2011
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the Future of Financial Advice (F0FA) legislation was introduced. Essentially this is the first
time Financial Planners have the remit to include direct property investment advice and
recommendations in their approved product list. Now that a planner can look at your entire
investment portfolio and make recommendations is a welcomed change, however keep in
mind that this is new for financial planners so you may have to really do your homework to
find one who will be able to work with you.
Once you have a financial plan usually the financial planner will offer to monitor this going
forward. With the changes we face in our lives every day it is important to review your
property investing strategy at least annually and make sure it still fits with your
requirements.
Exercise:
1. You need to now find out what your current insurance position is. Check out what
insurance you have in your Superannuation.
2. Find out any other insurance you might have for death or disability outside of your
Superannuation
3. Now find out if you have income protection insurance and if so for how much and
what are the conditions. Usually the premium is reduced depending on how long you
wait to claim
4. If you don’t have income protection insurance get a quote, so you know what it will
cost, how you can minimise the payments (ie accepting a longer wait period) and even
check with your accountant re the tax deductibility.
Equity the secret key to building your portfolio
Now it’s time to establish and consolidate long term goals; looking at property investing to
help achieve that and using resources at hand; for example the importance of the role of a
mortgage broker in doing this. That role, together with your accumulated knowledge gained
from this course is integral to moving forward. We will talk more about your ‘team” later.
For now, it is vital to use a mortgage expert:

To assess your borrowing capacity

To structure the best loan for your long term goals

To help structure the loan to avoid tax and collateralisation issues
As we noted earlier, equity is the dollar value of what you own in a property after deducting
the mortgage from the market value of the property. When you buy a property the equity
amount you own in that property is your deposit. As time goes by your property will grow in
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value and hence the equity in the property increases. If you are building a portfolio, you will
want to access this equity in order to raise the deposit for your next purchase.
Thus, if your property has increased in value by 25% in say 3 years and you purchased this
property for $400,000 with 20% deposit, then your “equity” is now $180,000; that is the
original $80,000 deposit (equity) plus the increase in value of $100,000. In theory you
should be able to access up to 80% of this increase in value as equity, i.e. $80,000. The
banks will only lend up to 80% (LVR) of the value of the property because they want you to
leave some equity in there as a buffer in case prices go down. So in theory there the
property value would have to go down by 20% before the value of the property and the loan
is the same.
The motivation behind an investment portfolio is to buy something that will grow in value
and make you an income. In the case of an investment property income is the rent obtained
from the properties. Sure there are going to be costs such as interest costs but there will
also be some handy tax deductions like the ones we learnt about Module 6 - Signing to
Settlement.
It’s important to keep your eye on the prize and focus always on building your wealth
sustainably. When you are ready and you feel your budget can afford it then it’s time to
move on to the next opportunity. Your main concern is the bottom line: how much will the
purchase cost you and what is the assessment of future returns in both rent and capital
growth. Savvy investors don't buy a property around the corner and hope it brings good
returns. They do their research and buy where the potential is greatest, they also use
leverage to great effect. Leverage means putting a bit of your money in, borrowing money
and the investment growing in value. In other words, for a small amount of your money you
get to control a much bigger asset. In the words of another: a poor man talks about how
much he owes; a rich man, however, talks about how much he controls – in fact they could
both “own” and “owe” the same amount.
Accessing equity
We touched on this earlier: here we deal with the concept of
using equity in the home to build wealth through managed
leverage. If you want to create wealth, you need leverage.
There are three parts to leverage, one is the cost of the
investment, another is how much you are able to borrow and
continue to service (i.e. pay for outgoings) and the third is the
equity you have available to you. By now you understand
leverage when applied to real estate. If you put 10 per cent
down as a deposit on a $400,000 home that goes up in value by 15 per cent in two years,
the property is worth $460,000. You get the leverage not only on your $40,000 deposit but
on the remaining $360,000 that you have borrowed. Your $40,000 has earned you $60,000.
That’s a 150 per cent return on your money – in two years! Some may be an optimistic
scenario but it does demonstrate the leverage principles.
When you’re able to buy real estate and it goes up in value, you have created a return on
leveraged capital. That “capital” is where you now have an opportunity to access equity.
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In the space of 10 years it is possible to turn $100k of equity into a million dollar portfolio
using equity ‘created’ to buy additional properties. The original properties are not sold,
because they will continue to grow (over the long term). Finance is used to release equity
gained. This is usually done through finance structuring products such as lines of credit.
However you need to know what you are doing as you only get one chance at this.
In the full course Course 2 Knowing Your Numbers there is a lot of detail on the different
loan types and structures available. This is no replacement for your mortgage broker who
will guide you on this journey, however it will give you the information you need to know
what questions to ask your broker or lender. If you are planning to build a property
portfolio in the future, be clear that in the eyes of the Australian Taxation Office you only
get one chance to set your finance up correctly to allow for deductibility on your investment
properties, if you get that wrong you could either stall your plans for property investing in
the future or you might have to pay the stamp duty on the entire property portfolio again to
move it into the right structure.
Can you really make money out of thin air?
We understand that if we add value to a property by a smart renovation we can create
equity. If you have bought well, that is, under a valuer’s valuation, you have already created
equity. If you have a home in which you have equity, you will be able, within certain
conditions, to secure some of this equity, and this is usually done by setting up a line of
credit on this property. A line of credit is a loan facility that allows you to draw out some
money from the property. It functions like a big credit card and you need obtain approval
from your lender for the total amount you wish to access. Interest is only paid on the
amount you draw out of the line of credit account.
This creation of money out of thin air is not to be taken lightly. After all, a line of credit is
still debt and all the rules of good debt management apply. As a low-risk strategy you might
consider only drawing down about a maximum of say 80 per cent of the line of credit in
order to leave a buffer in case of
emergencies. It is also best to only draw
funds for investing. You might look at the
equity available and decide there is not
enough for to purchase a property, so maybe
you could use the funds for the renovation of
an existing investment property. Even
$10,000 could provide an investor with
momentum in an investment strategy very
quickly. For example a renovation that adds
more in value to the property than the cost.
Although in no way assured, it is possible to spend $10,000 smartly and achieve a $50,000
increase in value, but also increases the rental return.
Literally millions of Australians have made money in real estate especially over the past 1012 years. Many more people in the future will make even more money. Many will not have
had spare cash lying around; most of them have made their money by leveraging equity. If
the value of an investment property goes up, and the mortgage on it stays constant, your
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equity – or ‘net worth’ – increases. Basically, the high degree of leverage on residential
property allows you to build wealth by using just a little of your own money – and quite a lot
of other people’s money!
Despite the credit squeeze that the banks applied to the mortgage lending market since the
Global Financial Crisis, banks continued lending to investors. The banks’ confidence in
residential property allows you to use your increased equity as security but there is some
work to be done before the bank offers you the additional line of credit.
Home equity loans —thanks to increasingly strict credit standards— can be difficult to
secure and the thought of paying interest on a new loan and adding yet another bill to the
stack keeps most homeowners from utilising their home’s equity. In fact, with home
ownership at 60% in Australia, one of the highest in the world, there is billions of dollars in
untapped equity in properties.
In Sept 2011 RP Data published a report that showed: of those who owned their homes
more than 45% of those homes had doubled in value from the purchase price. This is
another reason why Australia did not have the property market meltdown that so many
other countries around the world experienced during the Global Financial Crisis. The reality
is that many home owners believe the myth that they need to pay their home off first
before they can invest; when in fact they don’t. Paying down non-deductible debt i.e. debt
on your home that is personal debt, is a good idea, however it doesn’t need to stop you
from investing in a property portfolio.
Through the Your Property Success courses we emphasis risk management rather than risk
aversion. There are ways to access home equity, and ensure that you are worry-free; that’s
what we have been working towards here.
Create value where there was none
There is an expression in property investing: “A rising tide hides all the detritus”. In other
words all property gets carried up (in value terms) when a market is rising; some more than
others of course. But markets do not always move up and certainly they don’t move evenly.
The ability to create value that you can convert into cash or equity can mean the difference
between someone who has a few properties and someone who has a lot of properties.
Leapfrogging – using one property to buy another is how you build your property portfolio.
-
By creating equity through a well-considered strategy, you have the potential to
access equity and put it towards the purchase of another property. And the beauty is
that anyone with some training can do it: it is a myth that you need to be handy or
have design flair. You can call on experts to do all parts of a renovation for profit
strategy: what you have to do is plan and be well organised in order to maximise
profits.
-
If you think your home needs a bit more than a cosmetic clean-up but you are
worried about the time requirements of structural changes you could engage an
architect to work with you on how to deliver what you want for your home
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environment without the need for external structural changes, i.e. no waiting 6
months to over a year for development approval.
Your objective is to maximise return whether you are holding or selling.
How you access equity
This was covered in Module 3 – Where the money is coming from. However it is relevant to
revisit this so you can see how you can now use the equity created in your recent
investment property to purchase again. Let’s assume you
have a property that you have owned for three years. You
purchased it with 20 percent deposit and you paid
$500,000 for it. You bought well; given that you purchased
in a suburb that has been going through some
‘gentrification’ – and continues to do so. Rental demand is
high and auction clearance rates in the suburb are higher
than averages in the greater area. You ask your local agent
to assess the value of the property with a view for
“potential” sale. His ‘opinion’ is that it is worth $660,000,
that’s a handy 33% rise in three years.
You do need to take into account the improvements you
made and after allowing for acquisition costs let’s say you
have a profit of $110,000. Does this all translate to equity;
yes. But can you use this equity? It all depends.
It depends on how effectively you work with a valuer.
In most cases when it comes to accessing equity your lender will use an independent valuer
or do a “drive by” valuation. Your job (so to speak) is to not loose site of the goal. You need
to influence the valuer for the property value you want or believe the property is worth.
These guys are professionals and will have done their work before they turn up. They will
have looked at the price you paid for the property and recent comparable sales in the area.
You need to be active and get involved with the valuation. There are a few techniques
outlined in the full course Course 5 - After You Buy that show you how to assist the valuer
with determining the true value of your property. Getting the best valuation you can will
also allow you to take the next step.
Let’s assume with the previous example that the valuation was returned at the agent’s
valuation of $660,000. Your equity (profit) would be $110,000, so at an LVR of 80%, you
have accessible equity of $88,000 available, i.e. your available equity.
This represents quite a healthy potential deposit. In fact, once you have a 15-20% increase
in value, you can use the extra equity to ‘fuel’ the purchase of a second property – and so
on, using exactly the same formula. Also, if you are a smart renovator you could, in the right
market conditions, enhance the value of your property by 100% of the cost of the
renovations.
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In order to make this work, without draining your personal resources, you need income
from the property, to service the debt. If you follow the ideas presented in Module 6 Signing to Settlement where you can maximise the tax deductions available to you, you can
better manage your cash flow; that is your net rental income less mortgage costs, PLUS
depreciation benefits. You do need to do your numbers carefully and in the full course
Course 4 - Signing to Settlement we present a lot of resources to help you with this.
The Steps
After you have refinanced to tap into this new equity and setup a new loan against the first
property (i.e. this is a line of credit and is a separate loan your mortgage broker will look at
the most appropriate product for you), you can then look at purchasing a property. Note
that it is best to set up a new loan to make it easier to attribute interest to the right
property for taxation purposes.
If you find a property worth $300,000 you can use the new loan to provide a 20% deposit for
the new property, e.g. $60,000. (You could put down a lower deposit, i.e. %5 or 10% etc
remember this will incur lenders mortgage insurance)
Now, assuming you will need $15,000 for stamp duty and costs, you have spent $75,000 of
the $88,000 available leaving you with a buffer of $13,000, that is, just under a 15% buffer.
A little lower than you might like, but you have been able to get into a property and into the
market sooner than if you were saving a deposit. That $13,000 covers 8 months of loan
repayments at a 7.5% interest rate on the $240,000 loan, assuming that the property has no
tenant. If the property had a tenant and earned a 4.5% rental yield obviously this buffer
would cover the difference for over a year. Alternatively you could decide that you don’t
need a buffer and you do a renovation. Remember you should have some buffer for those
just in case scenarios.
Accessing equity is a core strategy in building a portfolio but there are caveats and traps,
such as ‘cross collaterisation’, which you really need to be aware of because this can greatly
restrict your property investing portfolio. This is a must have conversation with your
mortgage broker.
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Exercise:
Now it is time to calculate the anticipated equity in your new property at some point in the
future. When you bought the property you did your research and you know the future
predicted growth rates per annum. So pull that out now.
You can also do this exercise for any existing properties in your portfolio to see if you have
equity available.
Work out how much equity you might have using the following formula:
Purchase Price of the Property $___________
Loan for the Property $________________
Annual expected capital growth for the property ___%pa ( let’s call this x%) so 10% is 0.1, 7% is
0.07
Value of the property in 5 years time: ie property value * 1.x*1.x*1.x*1.x*1.x
(ie if the house was $300,000 and expected 5yr growth was 8% then =
300000*1.08*1.08*1.08*1.08*1.08 = $440,798) there is a fancy formula for this but this will
suffice for now
Equity in 5 years time: is new property value $440,798 * 0.8 ie 80% $_____________
Total Equity Available = $
amount outstanding)
Available Equity = $
(current property value minus original loan
(total equity x 0.8)
Now, if you are happy to incur lenders’ mortgage insurance work out how much equity you could
tap into if you took a 90% loan. (Hint: just substitute 0.9 for 0.8 in the above equation).
Equity at 90% loan = $
(total equity * 0.9)
Cash flow management
The beauty of this leap-frogging approach (that is; using the first property as a building block
for the next; and so in) to build equity is that it works if you have a long term view. The
crunch point is cash flow management.
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It is all about personal finances and the good management of them! That is, understanding
your expenses, your income and the difference here is really important. There are other
costs you can claim on your tax as well these costs and borrowing costs are usually
deductible over a period of 5 years.
For an investment property purchase, if you add up the expenses directly incurred in taking
out a loan such as mortgage stamp duty; mortgage protection insurance; loan application
fees; title searches; and legal and valuation fees and divide these by five, that is, the amount
you can claim each year over the next five years. Unlike most other allowable deductions,
borrowing costs must be claimed over five years or when the finance contract comes to an
end (e.g. when the property is sold, refinanced or the loan is paid off) whichever comes
first.
For future reference, from an investor’s perspective, depreciation, which covers the decline
in value of buildings and assets and which can be deducted for example on items such as
light fittings, carpets, hot water systems etc; and building, can be a benefit to you, the
investor.
Depreciation can provide cash flow by reducing your taxable income for an investor but NOT
an owner occupier. This is where the value of a quantity surveyor comes in. They will
identify all the deductions relating to your property, whether it is a house, a semi or a unit.
Depreciation is a specialised area requiring extensive knowledge of asset values and tax
laws. You would be surprised to discover that even 40-year old buildings may have
depreciation benefits lurking within.
It’s one of the real “thin air” benefits that can flow from the equity in your property: as an
investor one of the key benefits of depreciation is that it’s a non-cash expense in the sense
that you haven’t had to write a cheque or dip into your pocket to pay for it.
When all of this is wrapped up into an investment strategy, it can result in a truly powerful
‘combo’ to enable you to access equity and grow your portfolio. But you do need to do the
numbers carefully so that you are not left short of cash. Use the resources available to you
and that includes your team of experts – accountant, quantity surveyor, mortgage broker
etc. You can even get help from the tax office through a tax variation and have less tax
deducted from your wage or salary and you can find out more about this is on our other
programs.
Cash flow is essential and you need to remember it, in fact you might be in a position to tap
into equity because your property has gone up in value but you don’t have the cash flow to
service any new debt. Remember you have to be able to put food on the table, so balancing
these two, accessing equity and cash flow, is essential.
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Bringing it all together: The time and money
conundrum
What is all this work for? To compensate us for the effort we put in to create some wealth
for ourselves? Maybe, but it should not be simply paper wealth – just sitting there
accumulating. You should aim to be in a position of not worrying about interest rates
(despite all the noise in the media about interest rates!), property prices, inflation, and your
day job: all of this should be about creating a mindset that is free of worry: that of genuine
financial freedom- with FREEDOM being the operative word.
Are you better off than you were one year ago? If not, things will not improve by
themselves. Nine to five for your working lifetime of 40-50 years is a long, long time if the
rescue doesn’t come. About 500 months of work in fact.
The truth is that ‘poor’ wage and professional people prefer to be paid a steady salary or
hourly wage. They need the ‘security’ of knowing exactly the same amount of money is
coming in at exactly the same time, month in, month out. What many don’t realise is that
this security comes at a price, and the cost is wealth.
Wealthy people prefer to be paid based on the results they produce, if not totally, then at
least partially. Wealthy people usually own a business or are successful property investors
(how many multi millionaire economists or journalists do you know?). The wealthy make
income from their profits and this income are not wholly dependent on the number of
hours they put in. Wealthy people choose profit share or option deals in lieu of high salaries.
Notice there are no guarantees with any of the above.
People, who avoid quitting their jobs or seeking
income elsewhere, entertain the thought that
their situation will improve with time or increase
in income. But do you really believe it will
improve or is it wishful thinking and an excuse
for inaction? If you were confident in
improvement, would you really be questioning
things so? Generally not. This is the fear of the
unknown disguised as excessive optimism.
Actually, you don’t have to quit your job; but
you do have to invest time and money.
Look at it another way. In the investment and
business world, we say there is a cost of NOT
taking a certain action. This is referred to as
‘opportunity cost’. In other words, don’t only
evaluate the potential downside of action. It’s
equally important to measure the very high cost
of inaction. If you don’t pursue those things that excite you, where will you be in one year,
five years, and ten years? If you look forward 10 years and know with 100% certainty that it
is full of disappointment and regret, then inaction is the greatest risk of all.
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Think of my 40*40*40 theory. Are you willing to work 40hrs a week for 40 years to retire on
40% of your salary? Actually just when you have all that time on your hands you want more
income to enjoy it! It is scary and it may seem risky to use the equity that has grown in your
property or your nest egg i.e. your savings to invest in property. The very point is that you
should be able to take the risk out of investing with risk minimisation. To do this you need to
know what you want to achieve i.e. your goals, when you want to achieve them, your
property investing strategy, your risk tolerance, your buying criteria and how to find a
property that suits all those needs. This is how you reduce the risk and secure one or two
investment properties that get you where you want to be and to the future you want to live.
Mindset
There’s another piece in the property investing puzzle: it’s called mindset. Why is it that
most Australians do not make it? After all, the World Bank once considered Australia to be
the wealthiest nation on the planet. Unfortunately, now the standard of living for many
Australians is dropping rapidly, despite our politicians trying to convince us otherwise. With
all the wealth that still exists, why is it that so few Australians get to share in it? What is
going on that limits us to sharing in only a fraction of this country’s wealth, and what can we
do about it?
Self doubt is the usual culprit. Is there a part of you running around inside your mind setting
booby traps to slow you down? Leaving land mines, setting ambushes, blowing up your own
bridges, flattening your own tyres, emptying your own
bank accounts?
Do you have the mindset to achieve wealth? Of course
everyone says that they want more wealth but this belies
the inner voice which may say “but I don’t deserve it” or
“I don’t have the knowledge” or “I was born on the
wrong side of the fence so I can never be wealthy” or “I
am just too fearful to ever take those sort of risks that
wealthy people take.” Don’t believe me? Think for a
moment about another question: how many people do
you meet in life who says they want to travel overseas
and yet don’t even have a passport? If you really, really
wanted to travel overseas, you would plan a trip,
visualise and then research the place you want to go to;
see yourself in the picture; get your passport, open up a
savings account and get going. Otherwise it’s an elusive
dream.
The same applies to wealth building. For sure, you may dream of being wealthy but do you
see yourself actually owning the house with its beautifully renovated interiors and your
investment properties scattered around the country? Maybe you do. But do you actually
believe you’re up for the journey to get there? Are you doing anything different to change
the usual outcomes? The inner thoughts often carry much more weight than a simple,
unarticulated wish to be wealthy.
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How do we set (or reset!) our mindset, our inner thoughts? Do you really want to be
financially independent of the vagaries of a 9 to 5 job? Do you want the freedom of choice
about how you work and what you do and do you want to future proof your income so
there is a time you no longer could or have to work? Investing will be an afterhours ‘hobby’
until you get to the point where you do have that freedom of choice. What a wonderful
hobby and creative outlet to motivate you to get up every morning and, earn the income to
allow you to create your future wealth.
Creating and building a property portfolio is richly rewarding. Your mindset needs to be in
perfect harmony with the outcome you want; so you make each and every move act to
support the vision. Vision is the first base to goal setting and you will, in the course, have
ample opportunity to put vision into words and actions.
People struggle financially because they act as if wealth is something outside of themselves
over which they have no power. This is wholly a mindset issue. The main reason most
Australians don’t achieve financial independence is because 95% of Australian’s just don’t
have the appropriate mindset.
Wealthy people create passive income streams. This is the result of them realising their
goals; built on a clear mindset of achievement; of action. They have streams of residual
income - passive income - coming into their lives. One way to achieve this residual income is
to buy well-located investment properties that are going to increase in value over the years.
These modules encourage big picture thinking but with an eye for detail. Too hard?
Unrealistic? No way. We encourage detailed research and investigation. Sure, have an eye
for the cash flow but don’t focus on the net cash flow from investments focus on it from the
capital growth, the increasing equity of the property an investment, which is as good as, if
not better than cash flow. You have learnt that you can borrow against this increase in
equity. In fact these funds can be used in just the same way you would use money earned in
other ways, for example as a deposit for further investments (even non-property
investments) or even to live off.
A common characteristic that wealthy, successful people have is that they recognise that
they can’t do it alone. They know how to mobilise resources. That’s why they surround
themselves with people that know more than they do when it comes to tax matters,
valuation matters, legal matters, building matters and so on. These people are the real
resources; they have knowledge not just ideas. Successful investors put in place people – a
team if you will – around them.
This team includes:
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The mortgage broker
The real estate agent
The accountant
The financial planner
The solicitor/conveyancer
Pest and building contractor
The quantity surveyor
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
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Renovation project managers
Others?
And the team can be extended to include social groups. Of course friends are friends, but
time spent attending courses, going to networking groups, and generally hanging around
people who are positive, and who look for ways to make things happen rather than reasons
why things won’t happen and who can help push you beyond your comfort zone – is time
well spent. Don’t you wish more people would say “that is a great idea, when are you going
to start? Why don’t you call so and so and she can help you mobilise some more resources.”
Most really successful investors have mentors. Mentors (or coaches) create awareness in
your mindset about things you can’t see.
Mentors help you break through barriers to realise your potential. Successful property
investors have a team of people around them to help and guide them and help break
through barriers to find their potential.
If you want to become a wealth creator, you are going to have to learn to think differently
to the majority of people, you are going to have to learn to move outside your comfort
zone. In fact, come to think of it, isn’t that just what you have been doing in this course! Yes
you now have the tools and knowledge to take the steps towards creating the life you
deserve and want. You also have resources you can use and go back to, your blueprint that
you should review regularly and if you require additional information you know there is 5
more in depth courses, each with a workbook containing over 50 pages to assist you further.
However, now you have the fundamentals to take action and start the journey to Your
Property Success!
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Exercise:
Write it down – this is your time – this is your future. Take a few minutes and imagine
achieving the goals you set in Module 1. What will it feel like and look like to live that life?
Write it down, after all, this is why you have put in all the hard work; to live the life you want,
not just for you and your family but your success will influence your future generations. How
powerful will it be that you can now be the role model, the mentor and the guide to releasing
the wealth potential of your family and friends?
Module Outcomes
This module addressed how to take the next step to get you to your financial goals, what to
do after your purchase, how to protect yourself going forward, how to develop the right
mindset for investing and how to access your equity to start again.
Bonus:
1. Download the short presentation in the BONUS section on how you can access equity
Extra Resources:
Remember this 7 module course is a snapshot, ie the essentials of what you need to
know to make a start. It showcases some of the 30 modules of the 5 full Your
Property Success courses, in a shortened version so you can get started. Once you
identify where you need more information you can start drilling down into the
specific course you need or invest in the lifetime access to the entire package.
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Congratulations! You are well on the way to
making a long term difference in your life. This
difference will extend to your family’s lives and
also to your future generations. You have started
the ripple effect.
Download your Blueprint. This summary from the workbook is not only your
action plan but the key information you need to realise your property
success, and review it regularly.
Course Outcomes
So let’s look at what you have achieved. This 7 module course has taken you all the way
from your initial future planning all the way through to how to buy your next home, and
how to take into account some of the considerations an investor might make when buying a
home.
You have now articulated your goals and the timeframe in which you would like to achieve
them. If you do nothing else, this step alone will separate you from the norm. It takes time,
effort and hard work to find the right home and if you choose, to build a successful property
portfolio. Most importantly, it takes knowing what you want from the onset and designing
the optimal path to get there.
Secondly, you have determined the disposable income you have available in your budget
and how you will source the funds to make your property purchase.
Thirdly, you not only are aware of different strategies you might consider and which of
these may be relevant to your home ownership consideration. You have also established
your personal risk tolerance and the property investing strategy that best meets your own
personal needs.
Then you have determined your buying criteria. This is the result of all the research you
have done about your chosen strategy. This is an important part of your blueprint, with your
buying criteria in hand 90 percent of your research can be done from home on your
computer. Although you will need time to do the research, you can actually save time by
using your buying criteria to quickly assess potential properties.
If you find a property that does not stack up against your buying criteria you simply discard
it. On the surface it may look like a bargain, but just because it is $20,000 below market
price is no reason to persist with buying it. If the property does not have the potential to
assist you in achieving your long term goal there had better be another very good reason to
buy it. You need to look closely at why you are straying from your chosen path and
determine if this is a legitimate reason.
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Next you have sourced some great resources that will assist you in locating the property and
then you have sealed the deal by learning exactly what you need to do throughout the
process of actually making an offer to when you get the keys on settlement day.
Finally we looked at the next steps needed to build your property portfolio and get you to
the lifestyle you want. This includes not only protecting yourself and your investments, but
also how to start thinking with an abundant mindset and start strategically thinking about
property investing as an option.
You have covered all the aspects required for making your own property success story. Well
Done! Many will not have completed the course and only a few will go on to learn more and
solidify their knowledge. However you have enough knowledge now to start taking action so
you can get on with living the life you want to live!
Continue your journey towards achieving your goals
Continue your journey towards your property investing goals today! As a graduate of Your
Property Success you are entitled to a special 10% discount on subsequent courses. Enter
VIPDISCOUNT at checkout and the discount will be applied automatically. This coupon
voucher is applicable for individual courses or the entire 5 pack of courses (at a discount).
The main program offering of Your Property Success is a range of more in-depth online
delivered e-courses specifically for property investors. Each will provide detailed
information plus exercises or tasks to help you get the learning ‘from mind to muscle’. The
courses are designed to always over-deliver through the actual content, exercises and free
bonuses, so you have no gaps left, you will not be wanting for more. So if you feel that there
is one section of the 7 module course that you need to further explore then I encourage you
to just take on the relevant course. If you do want to dive deeper on all aspects covered
here shown in the 7 module summary of the full 30 modules, from the combined courses,
then you can. Not only do you get lifetime membership to the courses, if you choose to
purchase all 5 courses all at once, in addition to your 10% discount on the combined 5
course pack it has already been reduced by 30%.
Students who sign up for the 5 courses all at once under the special package deal will
receive access to all 30 modules, plus over $500 worth of DVD’s, right from the start (for
those high achievers who like to work at a cracking pace). For students who prefer to work
with one e-course at a time, that is also possible. In addition each week you will receive a
gentle reminder to encourage you with your studies.
So if you are ready to start drilling down into the specific course you need or invest in the
lifetime access to the entire package. Click here to access the next step in your journey or go
to http://yourpropertysuccess.com.au/your-property-success-products/
All the best with your property success.
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YOUR PROPERTY SUCCESS HOME OWNERS COURSE
COURSE MANUAL
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