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Property Myths Exposed - By Helen Collier-Kogtevs
 

Property Myths Exposed - By Helen Collier-Kogtevs

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This e-book explains, Why Hot Spotting can cost you big bucks and other property myths exposed by Helen Collier Kogtevs who presents independent strategies, tips and market updates for property ...

This e-book explains, Why Hot Spotting can cost you big bucks and other property myths exposed by Helen Collier Kogtevs who presents independent strategies, tips and market updates for property investors on the fast track to real wealth. Helen is an successful property investor, educator and author to many books.

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    Property Myths Exposed - By Helen Collier-Kogtevs Property Myths Exposed - By Helen Collier-Kogtevs Document Transcript

    • PROPERTY MYTHS EXPOSED 2013 6 Common Myths Revealed by Helen Collier-Kogtevs It’s time to make better investing decisions that suit your personal situation… rather than buying into the fears that could just prevent you from creating real wealth for your future.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 1 Property Myths Exposed 6 Common Myths Disproved A N O T E F R O M H E L E N In my line of work, I meet and interact with dozens of property investors each and every week – and in recent times, I’ve noticed a really worrying trend. I am constantly meeting new people at conferences, seminars and other events and this week, I realised something. I’ve been hearing the same negative sentiments and ridiculous comments over and over… And the thing is, these comments aren’t only coming from new investors and people who are just learning about property. I’m hearing all sorts of foolish investing theories and philosophies from experienced investors, people who should know better – and I’m really starting to get fed up. Seriously, guys… It’s not that hard! In this day and age, with so much information available to investors and so many opportunities to educate yourself, I’m completely baffled as to why some people choose to accept sensational media headlines as fact, without verifying the truth for themselves.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 2 The secret to property success is really no secret at all. The information and education you need to make smart, profitable decisions to create long-term wealth is within your reach… that is, provided you’re willing to put a little effort into learning, researching and doing extensive due diligence. Some of the claims I’ve heard people make recently have been downright untrue, but it got me thinking. If the people that I’m meeting honestly believe these fallacies about real estate investing, then how many other investors are under the same mistaken beliefs? How many other hard-working Australians are missing out on their opportunity to invest in property, grow their wealth and set themselves up for a financially comfortable future – simply because they don’t know all of the facts? The truth is, there are always risks involved when you invest in property. But when you educate yourself, create a customised investment strategy, do your due diligence and structure your finances properly, those risks are significantly diminished. If investors are being held back from building up profitable property portfolios, simply because they’re believing the wrong information – well, that’s not right in my view. I’ve decided: enough is enough. Considering that my entire wealth creation philosophy and business model is focused on the importance of education, I’ve put this new, free report together to help counteract some of the myths that are out there.
    • © Real Wealth Australia Pty Ltd At the very least, I hope the information contained in these pages encourages you to question and think about your views on real estate and w can make better investing decisions that suit your personal situation… rather than following the pack and buying into the fears that could just prevent you from creating real wealth for your future. Happy investing! Helen Collier-Kogtevs Property Myths Exposed www.realwealthaustralia.com.au At the very least, I hope the information contained in these pages encourages you to question and think about your views on real estate and wealth creation, so you can make better investing decisions that suit your personal situation… rather than following the pack and buying into the fears that could just prevent you from creating real wealth for your future. Property Myths Exposed Page 3 At the very least, I hope the information contained in these pages encourages you ealth creation, so you can make better investing decisions that suit your personal situation… rather than following the pack and buying into the fears that could just prevent you from
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 4 Property fallacy #1: Property hotspots can help you build your wealth Journalists and eager investors ask me all the time, “Helen, what are the property ‘hotspots’ you would recommend right now?” Regardless of what’s going on in the market, my response is generally the same: polite but firm. I explain to them what I’m explaining to you now – that I’m not into hotspotting because I believe it promotes a ‘one size fits all’ approach to investing in real estate. My property philosophy couldn’t be further from that! In fact, I encourage each investor to do their own due diligence, on their own short-listed locations, based on their own strategy and risk profile. It’s a very personalised approach and it means the best investment for one person could be completely different to the best investment for their neighbour or friend. I know it’s not the answer most people want to hear! But, it’s the truth – hotspotting or following the suburbs mentioned in the magazines or media can be dangerous for us investors, because we could be following the crowd in betting on the wrong horse. This is for these 4 important reasons: 1. More often than not, hotspotting involves short-term speculation about an area, which leads to short-term investing outcomes.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 5 This approach is extremely risky in my view. Think about it: property investing is a medium to long-term strategy if you’re in it to create wealth. So, the long-term performance of a property is therefore much more important than the immediate performance that an area experiences as the hotspot ‘flavour of the month’. 2. Hotspotting advice is usually based on someone’s personal opinion or biased recommendation. How do you know that the person promoting the latest hotspot has undertaken the necessary due diligence to provide meaningful advice? They are just giving their opinion and they certainly won’t be around to pick up your bills if their opinion is wrong! That’s why I train my mentoring students to do a 45-page due diligence report on an area before they even consider investing there. Without this level of research, the hotspotters are really just providing ‘guestimates’. Worse still, they may be pushing an area because they have a commercial interest in it. There are plenty of property ‘experts’ out there who are just in the game to feather their own pocket! Do you really want to run the risk of betting your hard earned cash – and your family’s financial future – on a guess or a biased recommendation? 3. Hotspotting advice may not be appropriate for your circumstances. We all have different strategies and budgets, which means one person’s ‘hotspot’ is another person’s ‘not spot’! For instance, what if your goal is to find a positive cash flow property to replace your income or balance out your portfolio? The latest hotspot being touted could be all about capital growth, meaning investing there is no good for you right now.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 6 That’s why it’s important to learn the important art of due diligence, so you can find the properties that are perfect for your financial situation and investment strategy – not just the ones the hotspotter of the moment is leading the masses to. 4. Hotspotting can artificially create a buying frenzy in an area, which can lead to prices being temporarily artificially inflated Consider this scenario: a well-connected property spruiker is promoting the hell of Cashtown, NSW, to the point where he has more than 50 investors interested in buying there. Suddenly, all 50 investors are competing against each other to secure their piece of the pie – which starts to drive up property prices. “You beauty!” the investors think. “Prices are already on the up, it’s a good thing we got in when we did!” The reality? It’s an artificial price swell. Prices are only increasing because there’s increased competition from a rash of new investors. It could be the case that the suburb is booming on it’s own – provided the area has the solid growth fundamentals in place for long-term growth. If not, once the dust on the buying frenzy settles, you could be stuck with a lemon of an investment. Obviously, I am not saying the hotspotters are never right or that you should never listen to them. What I am saying is that you should do your own due diligence so you can find your own hotspots that are in your price range and that suit your investment strategy. This is the way we do it and it’s certainly what we train our mentoring clients to do, with great success. They consistently discover ‘gem’ properties with impressive returns – both capital growth and positive cash flow – in areas that the hot spotters never even mention!
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 7 Property fallacy #2: Positively geared properties are hard to find This comment is usually quickly followed by the statement, “And I don’t want to go to mining towns!” – as if resource investments represent the only opportunity to locate a positively geared property in today’s market. This statement is so perplexing to me, because I don’t just think the opposite to be true – I know it! I personally own many, many positively geared properties. And more to the point, I work with clients every single day who are successfully buying and/or creating positively geared properties in various markets throughout Australia. Yes, mining towns generally do offer plenty of opportunities for investors to generate positive returns. But if this type of property doesn’t suit your investment strategy or your risk profile, then there are many other options available to you. For instance, you could create a solid income stream by developing. I had a client recently who came to me asking for guidance, as she wanted to add a cash flow investment to her portfolio. When I reviewed the properties she already owned, I realised she owned a house on an 800m2 block. Better still, she’d owned it for 10 years, so she had accrued some decent equity in the property.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 8 When we crunched the numbers, we worked out that she could demolish the existing home – which was around 25 years old – and build a duplex or triple block of townhouses on the land. She could fund the whole project using the equity in the existing property and she’d end up with two or three cash flow properties, each attracting high depreciation benefits, delivering the positively geared investment she was chasing. Talk about sitting on a goldmine without even realising it! Alternatively, if she didn’t have the appetite to take on a full-scale demolish and develop project, she could have used a little of her equity to build a granny flat on the back of the block. This would generate a positive cash flow and create two income streams from one property – another win-win in anyone’s books! You don’t need to own an existing property for this strategy to work: savvy investors can seek out properties that are situated on large blocks of land suitable for subdividing or developing. But if developing doesn’t appeal to you right now, that’s fine too. These are just a couple of the options available to investors who are seeking out positive cash flow investments. In my mentoring program, I explore several other strategies that investors can use to generate positive returns from their property investments – in any market. To learn more, call 1300 85 88 96 or visit www.realwealthaustralia.com.au/10in10MentoringProgram.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 9 Property fallacy #3: “Blue chip investments are the only way to go” This is an interesting investment philosophy to me as I believe that when it comes to property, the term “blue chip” is becoming increasingly more difficult to define. Twelve years ago, when I first began investing in property, it was a different story. When investors talked about “blue chip property”, everyone knew that it referred to those dwellings located within 2-10km of the CBD. But over the years, the demographics and infrastructure of our cities has changed. Urban sprawl is literally changing the face of our nation’s capital cities at a rate that we can barely keep up with. That built- up core at the centre of town that everyone so desperately covets is spreading out… and out… and out. Thanks to improving public transport and road networks, the area that we consider to be central is growing bigger. This means that the location of a blue chip suburb may be within a 15km radius of the CBD, or even a 20km radius. It also means that those homes located really close to the city, within a few kilometres, are becoming really unaffordable to every day mum and dad investors. My other problem with this line of thinking is that it promotes a “one size fits all” approach to property investing. There is no tailored strategy, no consideration given to the investor’s personal finances or circumstances… just an assumption that blue chip properties always make the best property investments.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 10 I find this hard to swallow, when a basic three-bedroom home near the centre of Sydney or Melbourne is listed for around the $1 million mark. It is certainly blue chip – but does that make it a good investment? For some people, sure. But most mum and dad investors (assuming they have $1 million in borrowing power!) would be much better off buying elsewhere. There are many good quality capital growth and cash flow properties located in outer areas of capital cities, or within major towns, which would often make much more sense. It may also be beneficial to invest in two $500,000 properties (or even three $330,000 properties), rather than sinking all of your financial eggs into one very expensive basket. To be a successful property investor, you need to consider many different factors: your borrowing power, income level, lifestyle, buying rules, your short and long term wealth creation strategy… But making the decision to invest in a certain area simply because it meets the criteria of being “blue chip”? That’s just plain reckless in my view. Be practical. Do your own research. Look for areas that are experiencing population growth, where there are plenty of tenants and where local infrastructure is strong and improving. And then, make your investment decisions based on the criteria I’ve outlined above – not some arbitrary “rule” about buying blue chip property. Many of my students studying through the Real Wealth Australia mentoring program are following the 10 in 10 strategy, which is the exact opposite of this kind of “one size fits all” investing philosophy. In our mentoring program, we show
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 11 you how to create a tailored, customised investing road map that will help you to build wealth in a measured, low-risk way. You won’t get rich overnight, but you will learn how to build long-term, sustainable wealth to secure to your financial future. To learn more about our proven 10 in 10 wealth creation strategy, or for more information on our popular mentoring program, visit www.realwealthaustralia.com.au/10in10mentoringprogram. Property fallacy #4: “Land banking is the best way to make money in this market” So, let me get this straight. You want to invest in property to create wealth for your future, so you decide to buy a block of land. You then hand over a $40,000 deposit to secure your investment. Depending on who’s advice you’re following, you might have intentions to hold the land for up to 10 years while you wait for it to increase in value. If you’re using an option agreement, you may have even secured the deal using only your initial $40,000 deposit, without having to get a bank loan. So what happens next? When people tell me that they’ve made deals like this, I have to stop myself from asking them, “Am I missing something here?”
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 12 If you want to create wealth and build a profitable portfolio, how does land banking make sense? To begin with, it’s impossible to rent out land, so you’re earning no income from your investment. This means you’re plunging your hard earned cash into a block of land (and paying a monthly mortgage interest bill, if you borrowed against equity to fund the deposit) and you’re getting no return. That goes completely against my philosophy that you don’t have to live off baked beans while trying to get rich. A flow on effect from this can be the tax implications. In order for your property investment to be tax deductible, the Australian Tax Office requires it to be an income-producing asset – and a vacant block of land is clearly not. So, depending on how the purchase is structured, you could be missing out on valuable tax deductions. People try to counteract this by saying, “Helen, you’re forgetting the capital growth!” I understand the underlying intention of this strategy is to make eventual profits through price appreciation, but the reality is, capital growth is not money in the bank. You can’t pay your bills with it and you can’t always rely on consistent growth patterns, which makes land banking all the more risky. In saying all of this, I should clarify that I don’t believe investing in land is always a bad decision. If you’re buying land with the intentions of doing something with it down the track, then by all means go ahead.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 13 Or if you’re financially well off and set up in such a way that buying and holding land for the long term doesn’t impact your bottom line, then go ahead and do it every day of the week. However, don’t forget to weigh up the other side of the equation. This strategy has the ability to limit your potential to grow your portfolio down the track. You have to weigh up the opportunity cost of tying up your funds, because if you invest $40,000 in a block of land, it means you have $40,000 less at your disposal for alternative investments. What opportunities are you missing out on as a result? Property fallacy #5: “The wealth is in the land, not the property” This old chestnut has been around for years and years, probably because to some degree, it’s true. But the situation is not as so simplistic at it seems. Twenty years ago, this assumption was correct. The ultimate goal was to own a family home on a big block with a white picket fence and as the population increased, so too did the value of the land under each property. At the same time, the value of an actual structure – its walls, windows, floors and foundations – actually decreased with age. This is not just a theory but legal fact, as the tax office allows investors to claim depreciation on property assets, to make up for its declining worth.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 14 But here’s the thing. Due to urbanisation and evolving family lifestyles, households are changing. There are more and more single-person homes, one-child families, single-parent families and urban professional couples without kids – and they don’t want to mow the lawns on a big house in the ‘burbs’. Case in point: an investor friend of mine recently bought an off-the-plan apartment in a prestigious new development in Sydney. He paid $1.75 million for the one-bedroom home and upon settlement, the bank re-valued it at $2.1m. In the space of 15 months, he made $325,000 and he was able to settle the purchase with no money down. Do you still think land value is the most crucial element of the deal? A quick glance at ABS figures shows us that between 1911 and 2006, household sizes have changed dramatically, from 4.5 people per house in 1911 to 2.6 people in 2006. If this trend continues, there will be increasing demand for units and apartment- style living, which will encourage capital growth for these dwelling types. If you don’t believe me, it’s already happening: a recent report by RP Data confirmed that in the five years to December 2012, unit prices increased an average of 2.9% per annum, while houses across the same period only grew by 1.8%. That’s not to say that apartments are the best and only investment choice going forward – and I’m not suggesting that bricks and mortar are more valuable than land. What I am saying is that there is much more involved in a property’s value than simply pegging its entire worth and investment potential to its land size.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 15 I go into this concept in more detail in my mentoring program. In the past, my program was run as a series of workshops out of Melbourne, but I kept hearing from investors who wanted to attend but, for one reason or another, simply couldn’t make it in person. That’s why I’ve decided to restructure my mentoring program, so that more people can get the step-by-step education needed to succeed in property from the comfort of their own home while enjoying all the benefits of accessing my team via phone, email or Skype. To learn more about how our course could help put you on the path to financial freedom, visit www.realwealthaustralia.com.au/10in10mentoringprogram. Property fallacy #6: “Negative gearing is the ideal way to invest” I received a phone call from a client recently that made me seriously grumpy. This investor, a young woman, told me she wanted my help to secure her next investment property. “All I know is that it should be negatively geared,” she said, “because my accountant told me I’m paying too much tax.” This got my attention right away, because if you’ve ever read my blogs or picked up any of my books, you’ll know that I really dislike the idea of investing in property simply for tax reasons.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 16 Think about it: what is your main goal as a property investor? Do you invest in a huge asset worth hundreds of thousands of dollars to save tax? Or do you invest to create wealth for your future? I sure hope you’re nodding along to the second option! Because the way I see it, the whole point of investing in real estate is to create wealth – any tax bonuses should be viewed as just that, a bonus! I mean, what happens if your situation changes and you lose your job, therefore the tax benefits no longer apply to you? Your investment is far less attractive and you may have a financial mess on your hands… But, back to the story. So my client had been advised to invest in a negatively geared property to reduce her tax. I asked what her income was, expecting a high figure and she told me she earned… $80,000. She also told me her partner wasn’t working, so they were scratching to make ends meet. And somehow, her accountant thought it was a good idea to add another expense to her monthly budget! Frankly, sometimes I am just gobsmacked by the stupidity of the advice that supposedly “experienced professionals” hand out these days. On a salary of $80,000, my client’s tax rate isn’t very high – certainly not high enough to justify a negatively geared investment purely for tax-saving purposes. In her situation, it made much more sense to buy a positively geared property as her first investment.
    • Property Myths Exposed © Real Wealth Australia Pty Ltd www.realwealthaustralia.com.au Page 17 For more information on how you can grow your wealth through property, go to www.realwealthaustralia.com.au/report and download your free copy of How to Retire Financially Free with 10 Properties in 10 Years. Sure, she’d be required to pay a little extra tax on her cash flow profits – but she would also have some additional income to help pay the bills and make ends meet every month! Investing in negatively geared property certainly has its place in many investors’ portfolios, but it’s not the only way to go. When you’re planning your next property investment, you need to know your goals and work out exactly what you want to achieve… Not based on advice from other people that doesn’t make sense… Not based on following the same steps that your neighbour or brother followed… Not based on the ‘latest and greatest’ hotspot location that is being touted in the media… But based on your own personal situation, your financial position, your own risk profile and your own goals for the future. That is the only way to make smart financial decisions that will set you up for a profitable retirement, funded through investing in real estate.