Property Investment Different Strategy

[orion]

Hi Graeme,

As a newbie to property investing this thread has done wonders for my knowledge - thanks. I haven't yet purchased my first investment property but am reading as many books and absorbing as much info as possible. Interestingly, all of the pre-2007 books (apart from some investors in your book and Anita Bell's book) suggest heavy re-financing, sticking to I/O loans and banking on capital gains. This approach has never sat well with me as it seemed damn risky, but every successful PI seemed to be doing it! That's why it's great to hear your story about this experiment and your article 'building a solid foundation' which I find have a lot more finesse as a sustainable investment strategy than loading up on debt.

A few things.
1. You've mentioned a couple of times in the thread that you wouldn't advise this strategy for someone starting out. Is that largely due to the inexperience from the newbie investor? In that case, what investment strategy would you recommend for someone starting out?

2. Millionaire Kevin Green says he used the strategy "buy three houses, sell one" in order to kept debt at safe levels and get the deposit money for further properties (assuming he has made a profit on the property he sells). It sounds as though you've been doing a similar thing to this (even without realising it) with your occasional trades. Do you think this would be a wise strategy for someone starting out, or do you think it would be better to build a solid portfolio, gain a bit of experience, and then start implementing it?

3. Are you going to bring out a post-GFC edition of your book, to see how everyone got on through the dark times and how/if their strategies have changed? I'd buy that book!

Cheers, and keep on with the updates

Hi, just on way out of \nz until after \easter and using another computer.
\will reply when \i get back, thanks.\
\graeme

[elguapo]

Kevin Green runs a business built entirely upon UK housing allowances paid directly to him by the government. The buy 3/sell one strategy would have serious tax implications here too.

[Damap]

Yes you would taint everything, good point El.

[rocket]

I am new to the property world & have never read a book. never joined a forum, never been to a lecture & have no mentor. I rely on some business basics & believe that to begin is half done.
I agree with damap that akl is the real playing field. I bought a property in grey lynn for 1.25 in nov14, rented at $1000/wk. One house down the same street sold for 1.8 last month (same size etc , I just got a good deal). I think it's a good buy & to be kept long term. But I would like experts from this forum to comment please.
I also bought a section in Flatbush for 485k & traded it in 12 months for 75k gross profit. Is this achievable elsewhere. ??
Critical comments please.

[Davo36]

Rocket... well:

1) Kinda lowish yield on the Grey Lynn property... do you have income elsewhere to cover the mortgage?
2) Kinda large first buy too at $1.25m. You must be quite well off I think?
3) Tax implications for the land buy/sell? Have you set up your structures so that you don't pay tax on these sorts of activities?

[rocket]

Davo, from reading all the posts before I do realise that the hard core investors would have bought about 3-4 properties in Akl in the same price(1.25M) in todays market. They would have also yielded $1500-1600 realistically. But I wanted to buy prime gold as my first investment. Totally different and for some people - absurd or foolish strategy!!
My strategy is to invest,trade & develop all at the same time. Yes I do have a trust & a company set up for my real estate.
I am also doing a 2 new house development in Otahuhu( wish me luck!!) and expecting to make 200k+ by dec.

I do acknowledge that I have an upper edge in the sense that I can easily service my loans being a well paid professional. But I am so new to real estate.

End of the day we all want to make hard cash & I want to make it today(with a few free holds for my retirement; I am 33 now). Paying tax etc doesnt bother me if I make a good gross profit.

But hey!! I may change the game all together if things didnt click or you guys really shrug me & put me on the right track.

I would like the critics to scrutinize my strategy with out bias.

[flyernzl]

Join APIA. Learn heaps.

http://www.apia.org.nz/

[BigDreamer]

I am new to the property world & have never read a book. never joined a forum, never been to a lecture & have no mentor. I rely on some business basics & believe that to begin is half done.
I agree with damap that akl is the real playing field. I bought a property in grey lynn for 1.25 in nov14, rented at $1000/wk. One house down the same street sold for 1.8 last month (same size etc , I just got a good deal). I think it's a good buy & to be kept long term. But I would like experts from this forum to comment please.
I also bought a section in Flatbush for 485k & traded it in 12 months for 75k gross profit. Is this achievable elsewhere. ??
Critical comments please.

Your strategy is based on assuming values will always go up. If that is the only thing you are considering (as is evident in your posts) then good luck with keeping with strategy working in the long term.

[rocket]

Thanks for the wishes BigDreamer.
I am an immigrant and have done well for myself in worst of the situations but have learned few things. "Luck & fortune favours the brave" and also "make hay while sunshines".

You misinterpreted the strategy a bit. The idea is to surf the wave when its really big( as the market is today and to trade the maximum possible) but when its really calm just sit on the beach & sunbath ( hold on to your properties & be an investor).

[Wayne]

The idea is to surf the wave when its really big( as the market is today and to trade the maximum possible) but when its really calm just sit on the beach & sunbath ( hold on to your properties & be an investor).

Watch a beach - waves do this crashy thing on the shore.
You have to be careful when surfing that you don't crash into the beach.

[rocket]

Ha ha ha! Gud one wayne...
n off the topic - I can't surf & am too brown for a sunbath..hehe!!

[heisenberg]

Keep us updated with your progress rocket.
Personally I think I'll just wait for the swell to die down a bit.

[orion]

Hi Graeme,

As a newbie to property investing this thread has done wonders for my knowledge - thanks. I haven't yet purchased my first investment property but am reading as many books and absorbing as much info as possible. Interestingly, all of the pre-2007 books (apart from some investors in your book and Anita Bell's book) suggest heavy re-financing, sticking to I/O loans and banking on capital gains. This approach has never sat well with me as it seemed damn risky, but every successful PI seemed to be doing it! That's why it's great to hear your story about this experiment and your article 'building a solid foundation' which I find have a lot more finesse as a sustainable investment strategy than loading up on debt.

A few things.
1. You've mentioned a couple of times in the thread that you wouldn't advise this strategy for someone starting out. Is that largely due to the inexperience from the newbie investor? In that case, what investment strategy would you recommend for someone starting out?

2. Millionaire Kevin Green says he used the strategy "buy three houses, sell one" in order to kept debt at safe levels and get the deposit money for further properties (assuming he has made a profit on the property he sells). It sounds as though you've been doing a similar thing to this (even without realising it) with your occasional trades. Do you think this would be a wise strategy for someone starting out, or do you think it would be better to build a solid portfolio, gain a bit of experience, and then start implementing it?

3. Are you going to bring out a post-GFC edition of your book, to see how everyone got on through the dark times and how/if their strategies have changed? I'd buy that book!

Cheers, and keep on with the updates

Hi Heisenberg,

Yes as you say most books, and also most people teaching or mentoring about property will say to keep refinancing, use I/O and look for areas they think will go up in value. I would think that at least 95% on this PT forum would also be of the same mindset. That strategy can work, but it relies on properties always going up and that just doesn’t happen. People get caught up in the hype and think things will go on forever and it seems like this time is even moreso. If you are using that strategy, you need to keep your debt levels below about 70% to be fairly safe, otherwise eventually you are most likely to lose the lot as I have seen with so many others in the last 10 years or so.

I have my rules and strategies set so that it works in all markets, including when the market goes down. If you have your rules based around properties only going up in value, it is very risky and again most people doing this will lose out big time, especially in Auckland where the majority of investors do this. It’s all based on hype and thinking someone will pay more in a few months or a year down the track. It just can’t sustain the level at which people think it will.

Starting out I still think the safest way is have a 20% deposit and still buy well, but make sure the loan is P & I and no longer than 25 years. To get new deposits, either do so from trading, a good paying job or your own business that is profitable.

Kevin’s strategy is good too, I don’t know him, but know of him.

No plans at this stage of any new books.

What I will do here though is put in an article I wrote on goal setting a few months ago. And I will also put one here on mindset which I wrote 6 months or so ago. Mindset is a huge key to it.
I’ve been helping a group of about 80 investors in HB since mid last year for free with lots of seminars for them on all sorts of topics and we also have a closed Facebook group where people can ask whatever questions they like. So, the mindset one I wrote was in response to a question that came from the group one evening. The guy who asked it actually has a big article in the latest property magazine (April 2015).

The Pitfalls and Stress of Goal Setting/ Planning
How many times have you been told you need to set goals and plan for your future?
One of the most common methods of goal-setting is the SMART goals – Specific, Measurable, Achievable, Realistic and Time based, i.e. the goals are to be achieved in a certain time-frame. Brian Tracy was another one that had all these specific ways and methods he would teach that would help people achieve their goals.
For me, I used to be very focused on goals, working hard to achieve them, and then setting new goals. One overseas seminar I did over 10 years ago was 3 days just on goal-setting and cost over $10,000 to attend. During the next year or two I did achieve the goals I had set at the time, however I started thinking – why wasn’t I happy when I achieved a goal, or if I was – why was it so short-lived? The answer I thought was to either set a new bigger goal or do it in a faster time. I remember being at the course and one of the goals was to own a red Ferrari 355 and also a midnight blue Porsche 911 turbo within the next 12 months. That would make me very happy I thought as I’d always loved fast cars, especially the fast European ones. Within 3 months I had already bought both of these cars, and while I loved the process of buying them and putting them in my garage at home, something was still missing. A Lamborghini I thought? I always wanted one of them as well, so set a new goal to buy a yellow Lamborghini Murceilago and another few months later I owned one of them as well. I was very excited picking it up and driving back to Havelock North however although I was happy initially within a day or so I was my normal self and really started to wonder about this whole goal setting trap.
It wasn’t until maybe a couple of years later that I was listening to a CD and it was saying ‘you can’t arrive happily at your destination by travelling an unhappy journey.’ In other words, if you are striving, struggling, working hard to achieve all these goals, there will be no satisfaction at all when you reach them. The answer people think is to set bigger goals, but instead the actual answer is to enjoy the ‘now’ or the ‘process’ on the way to your goals. Once I understood that, it all started to make sense.
So, in the last few years of ‘allowing’ goals rather than ‘achieving’ them, it’s almost the opposite of what I used to do and what most others tend to do.
Think of it in this way: - if you are looking at a stream or a river and you put a canoe in the water, it will naturally go downstream at the speed of the river. If you try to row upstream it is very hard work, and unnatural. This is how traditional goal setting very often is. A goal is set which you think may or may not be achievable, and if it is to be achieved, you will have to work very hard for it. Also a time is set by when you want to have the goal achieved by. It’s like rowing upstream in a river, with the current wanting to take you down-stream. For example if you say ‘my goal is to earn another $100,000 within the next two months by investing in property.’ This is an upstream thought (unless you are making that much already) and does not make you feel good because there is unnecessary pressure put upon yourself - to achieve it in a given time-frame. On the other hand, if you were to say ‘I would like to earn an additional $100,000 and it will come to me in its own good time. Or ‘wouldn't it be nice if I had an extra $100,000 cash in my bank account, and it doesn't have to arrive all once, although it can, and it will come to me in its own time’, these are all downstream thoughts. There is no struggle or striving to achieve them, they are very easy, effortless and relaxed.
Just recently I remembered something I had written down along these lines in 2009 which I read each day for a few months at that time, and then totally forgot about it. It went like this: -
The heading was “Property Trading, Equity in New properties, Renovations” and then underneath that it said – “It would be nice to earn $2 million by using all of these money making streams above. I know it will happen, and it will happen in its own good time. Money flows effortlessly to me in so many different ways, and it is nice to see that every day the $2 million is getting that much closer to me. I'm in full alignment with allowing the $2 million to come to me in its own time, in its own way, and through all the various ways that money flows to me. Every day I enjoy what I'm doing, I love what I'm doing, and this too helps me get closer and closer to allowing all of the $2 million to come to me”
I realised a couple of months ago that just in this year (2014) what I was doing with a new property investing strategy, it was already done!
It’s almost like having a knowing that it’s already done when you put it out there - what you actually want, and then carry on with life. Another way of saying it is if you are watching say the All Blacks play Australia live in a rugby test match and it is a close game, there will be highs and lows during the 80 minutes of the game. You may not know the actual result until the full 80 minutes is up so it can be very tense watching the game. But if you knew the result and were watching it on replay, now the emotions, the worry, the frustrations don’t come into it - as you know how it ends up. It’s the same with goals, having the knowing that it all works out well in the end. You don’t worry when things that don’t work out as you think they should along the way, because you know how it ends. Watching a movie for the 2nd or 3rd time is the same, you don’t have all the highs and lows wondering how it all turns out, because you know how it finishes.
So, rather than forcing yourself to go look at properties because you think you need to do this in order to achieve your goals, do it only when you feel the inspiration to do so. Not because you think you have to, or you will fail or look bad to others if you don’t do it. People often say procrastination is a bad thing, but I don’t think it is bad at all. If you are not inspired to get off the couch and go look at properties, or go to the bank to ask for finance etc, then just wait until you have the inspiration to do so. It will be a far more enjoyable process. The answer is to have a happy journey on the way to what you want, enjoying the process. Then when you get there you will also be happy with the end result/goal. The other important thing too is that, over time your goals may change to something else, and some you may either decide not to do, or not go for what you originally wanted. By enjoying the process on the way, you will be a lot happier - no matter what the eventual outcome is.
This is about as specific as I would get now on setting any goals:
Write down this about what you want:-
*When – 0% (achieved by when)
*What - 8% (specifics of income, # of properties, cashflow etc)
*How - 2% (how you are going to do it)
*Why - 90% (why you want it)

I have rated what I think the importance of each of these 4 things are.

As you can see I don’t rate a time (the When) to achieve goals as of any importance at all, the ‘How’ is also very low in importance. The ‘What’ you want is more important, but the most important in all of this is your ‘Why’.
Without a big enough ‘Why’, the chances of getting what you want are very slim. This is another big key to it all, and without a big ‘Why’ you will find excuses and reasons along the way that will keep you exactly where you are.
For me, my big ‘Why’ back when I started was that I didn’t want to work for someone for 40 years or more, and end up with nothing at age 65.
I wanted to learn about finance and investing so I didn’t end up broke at the end of my life. The freedom to do what I wanted to and go on holiday when I felt like it was a big part of my ‘Why’ as well, not having to answer to a boss or ask permission to take time off for just a few weeks each year.

Graeme Fowler
P.S. Graeme can be contacted by e-mail on [email protected]


Question on Mindset
This is following on from what we talked about last week at the renovations seminar after Tammy finished, on mind set. Graeme Eagle asked a question about mind set and how it relates to property investing, and basically how to get things to flow more easily.

I mentioned that all the radio stations in Hawkes Bay were playing in the room at that moment. Even though we couldn’t hear any of them, it was because we weren’t tuned into the frequency of any of those stations. If we were to tune into any of them, we could listen to what was broadcast on each station, but only one station at a time. Then we talked about limiting beliefs and being tuned into those beliefs is kind of like being tuned into a radio station being broadcast.
You’ve all had a week or so to think about all that (or not) and will have certain beliefs about that now as well J

Now to expand on it in more depth and the practicalities of it, think of it like this: - think of yourself as being the radio station being broadcast to the world. Realise now that only what matches your frequency that you are emitting – can be attracted to you. In other words, what you are putting out there can only attract what matches your output, your frequency, your thoughts, your ideas and your beliefs.

For me, when I’m in a hurry to get somewhere, I usually get stuck behind some slow driver going 30 – 40km/h or get all red lights etc, and it ends up taking me longer than usual to get to where I’m going. That’s because what I am putting out there I’m bringing back or attracting to me. Similarly if I was in no rush to get where I was going, it would be a nice peaceful trip, most likely all green lights, people being courteous in traffic, all the things that I attract now because I am in a peaceful and relaxed state of mind, and the time is not an issue.
You may have a belief that people are out to get you, or take advantage of you, or you don’t trust what others say to you, all sorts of beliefs about everything. And whatever they are – it must match what you believe - until the belief is changed.

So as a long term belief, if you have the thought and belief that it’s hard to get my debt/equity ratio below 80% (as Graeme E was saying), then only what matches that belief can be attracted to you. It must match. It will stay like this until you can change that belief to a more empowering one. All a belief is this:- it’s a thought that you keep thinking over and over and over and over again until it becomes a belief and your truth. It is the same with any limiting belief, until you realise that the belief is what’s holding you back, you will stay where you are. A new set of beliefs is what is needed to get you moving again and on your way to where you want to go.

How do you change your beliefs? Some I’ve used in the past are affirmations or visualisations which can work well, but do take time. You also have to realise that all of your beliefs, whether it’s about yourself, other people, work colleagues, your boss, sales people, lawyers, accountants, religion, politics, relationships, health, money, losing weight, anything at all – it is only your point of view and not necessarily the truth. However because we’ve had the thoughts so often that end up creating our beliefs, we then attract everything that matches what we broadcast out there (our beliefs), and so we get more and more evidence to prove to us that our beliefs are actually true!

There was a quote I wrote in my book that went like this “Many plane accidents occur because pilots’ perceptions filter out and discard reality. An aircraft may be heading towards the ground, yet if the plane is level, he will ignore his instrumentation with a rationalisation that it is wrong. Similarly, juries are known to have made up their mind about a case usually by the end of the second day of a trial. What then happens is they filter out any new information that does not agree with their perceptions, and concentrate only on that which agrees with their biases. Individuals act as filters for all information they receive; each fact is measured against a set of personal, social, cultural or religious biases and then incorporated into an individual’s consciousness. Everything we do is coloured by our perceptions and expectations. Information is always distorted, and if it doesn’t fit our beliefs – it is discarded.”

Below I will use some statements about real estate investing, however you could use similar points of views/beliefs around money, health, relationships etc etc. The top of the list goes from an equivalent emotion of appreciation and empowerment down to the bottom of the list to an emotion of despair, depression and fear etc.

1. Joy/Knowledge/Empowerment/Freedom/Love/Appreciation
Money is abundant, I am appreciative that money always flows to me. Real estate is fun, easy, effortless and there are so many ways I can make money whenever I want to.

2. Passion
I love doing what I’m doing, this is really what I want to do doing with my time.

3. Enthusiasm/Eagerness/Happiness
I am enjoying the learning, learning is fun and I love doing this.

4. Positive Expectation/Belief
I love doing what I’m doing, I am really expecting things to work out for me.

5. Optimism
I am confident I’m moving in the right direction for me, things are going along well for me right now.

6. Hopefulness
I am hopeful that what I am learning will give me the information to succeed at this.

7. Contentment
Right now, even though I would like more - if nothing changes for me, then I am happy exactly where I am

8. Boredom
I’m not getting much out of all this, in fact I find it a bit of a nuisance learning new things.

9. Pessimism
It’s alright for him, and for others, I don’t have their confidence and I really don’t think I could ever be like that, or do the things to be successful. It may work for others, but probably not me.

10. Frustration/Irritation/Impatience
This is way too frustrating for me, I want things to happen now! Why can’t I get the same sort of deals when I want them, it’s really annoying to me.

11. Overwhelment
This is all to much to take in, so many things I am supposed to learn, I don’t think it’s worth it.

12. Disappointment
I missed out on several deals, the banks have said no to me. I feel stuck right now.

13. Doubt
I’m doubting all this now, it sounds good in theory however I don’t think it actually is true.

14. Worry
Even if I do okay at this, I don’t like debt and would be afraid of losing it all. There are so many things I keep worrying about, it is very stressful for me.

15. Blame
My parents were poor and taught me having money was bad. They are the reason I’m where I am today.

16. Discouragement
Nothing I do seems to work out, I try really hard and never seem to get anywhere, what’s the point of it?

17. Anger
I’m upset that some people have success and others don’t through no fault of their own, it angers me that some people have to work so hard and get very little for what they do.

18. Revenge
I wish I was in government I would sort out those rich people and take all their money away, see how they like it. They should be taxed at a higher rate and give it to the less deserving like me. Why should they have it all and I have nothing?

19. Hatred/Rage
It really angers me this whole money concept, it’s impossible to get ahead, the whole system is corrupt, the poor keep getting poorer while the rich get richer, it sucks big time.


20. Jealousy
It’s alright for him and all these others. I wish I had that too but know I never will, it’s just not fair.

21. Insecurity/Guilt/Unworthiness
My parents told me money is evil and they were right. I buy lotto tickets and hope one day I will win, and if I did I would give it all away to people who have nothing. Money only creates arguments, I would rather have nothing and be happy.

22. Fear/Grief/Depression/Despair/Powerlessness
There is no point me doing anything, I feel powerless, resigned and tired. All I want to do is sleep all day and forget about the rest of the world. It’s an evil world out there and I wish I could just go to sleep and never wake up.

Now, whatever statement or statements are close to what your current beliefs are is where you are, there’s no right or wrong about it, just what is. What you want to ask yourself though is; this belief or reality I currently have – is it getting me to where I want to get, or is it limiting me in some way or holding me where I am?
Once you can identify that and be okay with that, and accept it, you can then start moving up the scale to where you would like to be.
Also when you get to each new level, what then becomes your new belief patterns, this will attract more of the same to you that matches that.

Writing the above made me remember about this too;
You cannot get sick enough to help one person become well.
You also cannot get depressed enough to make one person happy.
Likewise, you cannot become so unsuccessful that one person will now become successful.
Your success has the potential to help many people - but your failure will help no one.

[OneStepCloser]

Hi Graeme,

It is always interesting to read your comments. I have also started to read your book and have a question. You mentioned that you lost $50K in your first investment property, which is heavily positively geared ($180 each unit = $360 total for a $128K property). Even after the rent reduced to $120 per unit, it is still giving a very good return. Could you elaborate how you make a loss and why you decided to sell? Was the bad tenants the only reason? Looking back, would you have make some money or recovered the loss if you hold onto it for another say 5-10 years?

Thanks.

[orion]

Hi Graeme,

It is always interesting to read your comments. I have also started to read your book and have a question. You mentioned that you lost $50K in your first investment property, which is heavily positively geared ($180 each unit = $360 total for a $128K property). Even after the rent reduced to $120 per unit, it is still giving a very good return. Could you elaborate how you make a loss and why you decided to sell? Was the bad tenants the only reason? Looking back, would you have make some money or recovered the loss if you hold onto it for another say 5-10 years?


Thanks.

It was about a $35k loss if you compare the buying price to the selling price minus real estate fees. Some was paid off principle too after the 7 years but still a big loss.
A few reasons for selling it mainly being I was very inexperienced still and in hindsight would have been better to hold onto it.
I was managing it myself and because it wasn't a great area, it attracted not so good tenants and was often difficult to rent being what it was.
If I'd held onto it for another few years, yes it would have been worth a lot more than what I originally paid for it.
My price when I bought it was $128k in about 1989 and sold last in 2006 for $280,000