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**orion** · 20-09-2015, 12:12 PM

Article ‘Getting Into Line’ by Graeme Fowler written in 2004.

“Get into a line that you will find to be a deep personal interest, something that you really enjoy spending 12 - 15 hours a day working at, and the rest of the time thinking about.” Earl Nightingale.

Above is one of the quotes I have used in my book. I think for the people starting out in real estate, in business, or any profession for that matter, it’s important to really understand this quote. Too many people are looking for a quick fix, or the one answer or idea that is going to be the secret to making them rich. While this can happen, it is rare and your chances of winning Lotto may be a better bet.

Think of it this way: – let’s say you’re standing in line at a lunch bar with a big line of people standing there waiting to be fed. It’s the only lunch bar in town with all the types of food that you want to eat at. You join the line at the back of the queue where everyone else joins, and the queue seems to go on and on for as far as you can see, and you’re hungry. While you’re standing there, it seems as if the queue has stopped and you’re getting nowhere, but eventually it moves for a short time, before it once again comes to a complete stop. All this time you’re waiting in line, you’re not eating and you’re getting more and more frustrated, upset and hungry. If you get tired of waiting and decide to jump out of line for a break, you’ll then need to join once again at the back of the queue, and start all over again. When you re-join the line, there may even be more people in line than there was before. By trying to jump in front of other people or push in, you are only going to upset the others around you and be told to join the queue at the end of the line once more. Only by staying in line for the amount of time you need to, will you ever get the food, and of course be able to eat.

Think of the food at the end of the line as being the money you want to earn in real estate or in business. Something that you are passionate about doing in your life, something that may be a tremendous challenge for you to achieve. For example, you may decide you want to be a successful long-term buy and hold real estate investor with a passive income of $1000 a week within the next 20 - 25 years. But within a short while of beginning, if you go off on another tangent to pursue something else, you are jumping out of line. You might have the thought that lease-options are now the way to go instead, or that building spec houses, relocating houses, or investing in the share market or even commercial property is a better and more exciting way for you now. So you decide to sell your rental properties, and give up your place in line. Only by staying in line long enough will you get to reach your goals and be able to eat. By jumping out of line constantly, in other words, getting side-tracked and going off in other directions and doing something else, you will lose your place in line, and never reach the front of the line to get fed.

It is similar with your team of professionals you work with; – such as real estate sales-people, lawyers, accountants, banks, tradespeople and even mentors. You may have to stand in line for quite some time, getting more and more upset, annoyed and frustrated, and seemingly getting nowhere with the people you are currently associated with or working with, before eventually the right people show up that can help you speed up the process, understand what you are wanting to achieve, and make the journey more pleasant and comfortable. It took me five years or so to get the best people in each of these areas that I was happy working with. But I had to stay in line waiting for these people to show up.

So in summary, learn how to stay in line for the amount of time that’s necessary in order to be fed. Once you make up your mind about the goals you want to achieve in life and written them down, stay with it, stay with it, stay with it, especially when the going gets tough. Make perseverance, patience and vision the words that you hang on the wall where you can see them every day.
Others may also be finding it hard going, and be willing to give up their place in line for you.

**orion** · 20-09-2015, 12:13 PM

Who Benefits - 2004.

Both of the quotes below are from a couple of newspapers during the week as posted on the PT forum. One says you should buy now because prices are not going to fall. The other one predicts that house prices will fall by the end of this year. Who's correct? Are either of them correct? Who knows for sure? I have said this many, many times to property investors before, that no one really knows what will happen in the market from one day to the next. I often get people ask me what I think prices will do, it can sometimes sounds like a broken record. Naturally, I don't know any more than the next person does. But people assume because of my involvement in property that I must also be able to predict future market trends and prices - which obviously I cannot do, much to their amazement. Although many people claim to be able to do this with an array of often confusing & baffling data, historic statistics and other jargon, I am yet to meet anyone that can consistently predict market trends accurately. Even if there was such an enlightened individual, it would not be a given that their predictions would continue to be accurate anytime in the future. One thing to keep in mind is that whenever you hear any advice, opinions or see any articles written like, or similar to the ones below - always, always keep this in mind, and ask yourself: - "WHO BENEFITS???"

“Real Estate Institute president Graeme Woodley said people should buy now because prices were not going to fall. All indicators pointed toward the continuing strength of the market, with continued positive migration, a healthy economy and low unemployment.”

And this one: -

"Such a rapid rate of building in the face of slowing demand is a recipe for an oversupplied housing market and, consequently, falling house prices. While house prices are likely to climb further over the next six months, Infometrics predicts that property values will begin to fall before the end of this year.”

An agent that wants to sell more houses may tell their buyers that house prices are going to “keep going through the roof” and if you don't buy now, you are an imbecile and will miss out on all those capital gains. “You would be crazy not to buy now.” He may also tell his vendors that now is a great time to sell because you can lock in all those capital gains that you have achieved since buying your home. “If you hold on too long, you could lose all what you've gained.” A mortgage broker may also tell their investor clients to buy more investment properties because prices will continue to rise, with the appropriate evidence to back it up. An insurance person may on the other hand tell prospective clients that the market is about to turn bad and this could also affect businesses and no doubt employment (with solid evidence to support it) and hence want to sell their clients income protection insurance - after all, they could be made redundant. Investors themselves may even tell others and endeavour to spread the word that property prices will soon become stagnant or even come down, in the hope that what they are saying will have an effect in some small way. This would help them to buy properties once again at cheaper more affordable prices. It may seem odd to say or even think this, but if no one really knows for sure what the future holds, ask yourself – why would they be telling me this? Do they have their own agenda attached to what they are saying in any way? Other people may use their predictions and assumptions to sell their books, seminars, magazines, website services, publications, subscriptions or other information they have available, or even for simply the sake of being 'right' - as many economists will do. In another local newspaper I saw on the same day as the two excerpts above, 5 economists predicted the official cash rate would rise in January, 7 said it would rise in March, and 1 said it wouldn't be raised now until June.

It is obviously not always the case that the person or organisation behind these type of market predictions has their own best interests at heart. Simply ask yourself before you take it as gospel that what they are saying is based on sound logic, reasoning, and a likelihood of being true; - is this information or advice in any way benefiting the author(s) of the material, and therefore the theories and opinions behind the information biased in any way? Is what they are telling me endeavouring to convince me to buy something from them, or change the ways I currently act or do things? Who benefits the most if I act upon what they are saying? What do they get out of it if I believe them, or if their predictions come true?
Always ask yourself - who benefits the most if they persuade me to believe them??

Good Investing

Graeme Fowler

**orion** · 20-09-2015, 12:14 PM

Article ‘What’s the Property Market Doing, and Should it
Really Matter?’ by Graeme Fowler written in March 2005.

Perhaps the most common question I get asked as a property investor is ‘what do you think the market is going to do?’ I will usually answer with something like ‘I have no idea what will happen, and I really don’t care.’ A couple of months ago I was invited along to a free two hour seminar put on by one of the major banks on property investment. The guy that was speaking had one property himself which he was now selling as he thought it was a good time to sell. The rest of the time was spent going through a whole range of meaningless graphs, charts, facts and figures explaining to us all what he thought might happen to property prices over the next few years. Of course he really had no idea and admitted that many things could affect what he thought might possibly happen anyway. It’s extremely tiresome to me hearing about, or reading about peoples’ opinions in newspapers or magazine articles, about what they think property prices will do. The fact is, nobody really ever knows what will happen, and more importantly – why should it matter anyway?! It matters very little to me whether prices rise, fall or even stay the same for the next 20 years or more. By having investing rules that work whatever happens to property prices is one of the keys to successful investing.

P&I vs Interest Only
Most investors use the traditional ‘buy and hold’ as their main strategy which is fine.
There are also those investors that use buy and hold as one strategy, and also use one or a number of other methods including; – trading, renovating and reselling, lease-options, developing, or building. I use the ‘buy and hold’, ‘renovations’, and the ‘trading’ strategies. Now, if you have an investor that just uses the ‘buy and hold’ strategy and has been investing for a few years, should it matter if the market price of their properties goes up or down in value from time to time over the next 20 - 40 years? The answer of course is no. But what makes it matter to them is when they decide to use ‘interest only’ loans, as opposed to P & I loans. Now they are forever hoping, maybe even praying – for ever increasing prices.

New investors will often ask ‘is now a good time to buy, or do you think I should wait until the market goes down a bit (or crashes)?’ One of the biggest problems I see with property investment is that people go into it for the wrong reasons, or with their own assumptions – and not even knowing they are assumptions.
The biggest assumption of all is that ‘property will always go up in value’. The majority of investors rely on future capital gains before they make any real money. Starting with the assumption that prices will forever keep going up, many people decide to finance their properties using an interest only loan as opposed to a P & I loan. With an interest only loan, you do get a few dollars extra a week in cash flow, but the property never gets paid off unless you pay for it from somewhere else. The investor relies on their rental property going up in value perpetually, thereby gaining more equity in the property, which they often take out by refinancing, and then buying further properties. This now takes them back up to a similar debt/equity ratio as when they first bought the property. This can go on as long as they continue to invest in property, forever refinancing when prices go up and always being heavily geared. To me, this is such a dangerous strategy and one I’m personally heavily against. If they truly are a ‘buy and hold’ investor for the long term, I will often ask these investors if they think there is any possibility of prices dropping by 15 - 20% anytime over the next 30 or so years? Of course the answer is that it is possible and it’s already happened in many other countries in the past including the U.S. and Japan. So, if there is always this possibility, why would they risk all they own on it not happening? All that would need to happen is that you are geared at 80 - 90% over your entire property portfolio say in 10 or 15 years time, and the property market then suddenly slumps 20% within a year. This could happen for any number of reasons including interest rate rises, a change in government policy, war, world-wide share market crash, an outbreak of foot and mouth disease in NZ, baby boomers retiring etc, etc. Now, because of the reduced equity in your property portfolio, your bank manager wants you to come up with at least $200,000 by the end of the month, as he considers you are too highly geared and too much of a risk for their bank. You can’t even sell these properties now for what the mortgage is on them, so you’re forced into bankruptcy unless you can come up with the necessary cash to reduce your debt/equity exposure.

Property investment can be so simple, and I think because it is so simple, most people want to complicate it, and end up losing money long term. With investment in property, business or shares, the majority of investors lose long term. Any investor can make money, or think they are doing well in a rising market, but will their rules and strategies work equally as well in a down-trending market? Most of the time, the answer is no.

Are You Creating Wealth, or Protecting it?
I think before getting into property investment at all, people need to ask themselves the question; – do I want to do this for ‘wealth creation’, or do I want to do it for ‘wealth retention?’
The ‘buy and hold’ strategy is used mainly for ‘wealth retention’ and I think where a lot of investors go wrong is they try to use it for their ‘wealth creation’ vehicle. A business owner or an employee with a reasonable income could use his/her savings for deposits on rental properties, even if it’s just one or two a year over the next 10 years. The tenants end up paying off the loans on these properties over the following 20 - 25 years (N.B. the investor of course needs as one of his/her rules a gross yield that is acceptable before purchasing any rental property). This also acts as very slow ‘wealth creation’, as the tenants eventually pay the loans off (on P & I) in full, but it’s actually a ‘wealth retention’ method. A trader, renovator or developer has the intention of making quick cash profits which is a ‘wealth creation’ method, or strategy. They may then use the income from this to park into property, which then turns it into ‘wealth retention’. Where the thinking goes wrong with many investors is they try to use a ‘buy and hold’ (wealth retention) strategy with their properties as a ‘wealth creation’ vehicle. Often these property investors will talk about wanting a small positive cash flow from a huge number of properties in order to replace their current income from a job, or to enable them to sell their business. They want to use a ‘wealth retention’ method for the purpose of ‘wealth creation.’ This one distinction if not fully understood, could well lead to the downfall of many property investors over the next ten to fifteen years.

Do You Have a Passion For Property?
From the nearly 20 years of experience I’ve had in real estate investing, I’ve noticed that the investors who have a passion for property investing will often use other strategies in real estate such as property trading, renovations, lease-options, writing books, doing seminars, or mentoring others, to help with their own ‘wealth creation.’ Therefore, these investors can have multiple streams of income from one solid base, which is property. And those investors that have property as more of an interest to them, rather than it being a passion to them, use property as a ‘wealth retention’ tool. The problem as mentioned is when many of these investors try to use the ‘buy and hold’ strategy as a ‘wealth creation’ vehicle (instead of ‘wealth retention’) to replace their income from a job or a business they don’t enjoy being at. I think a lot of this way of thinking has been created after people have read books like ‘RichDad PoorDad’ or ‘Cashflow Quadrant’, and then thinking they must be in the ‘ratrace’. They also want to be a ‘Business Owner’ or an ‘Investor’, not just an ‘Employee’ or a ‘Self Employed’. The point to realise is that the wealthiest people in the world today still go to work, even though they don’t have to – because they have a passion for what they do. They love their work, they don’t want to be doing anything else! And at the end of the day they are still an ‘Employee’ as well as a ‘Business Owner’ or ‘Investor’.

Summary
So, what are my answers to the previous questions – ‘what do you think the market is going to do?’ and ‘is now a good time to buy, or do you think I should wait until the market goes down?’ My answer is simple – ‘start asking better questions!’

**orion** · 20-09-2015, 12:15 PM

Building a solid foundation in real estate 2011.

With a large number of well known property investors in NZ going bankrupt, this may be a good time to take a look at your own property portfolio or investment strategies. Many of these investors were also promoters and charged thousands of dollars (at times tens of thousands) to mentor the unwary or naive beginning investor, and often charged for their investing seminars and related materials. If they were so successful and could teach others how to invest and some even tell investors which way the market was going to go (up or down and by how much!) by using various indicators, why have most of these so called experts gone bankrupt themselves - or very close to it? A few of them in my opinion were always out for themselves, in other words deliberately sold or promoted dodgy investments, or had strategies which were just never going to work. Even though a few of us warned other investors about several of these so called and self professed property gurus, they still had a lot of followers that went along with everything they said, as if they were some sort of Messiah or similar. They could do no wrong in their eyes and believed every word they said. Surely you would think with the amount they charged for their mentoring services, seminars, subscriptions, blogs and other products and materials, they would have huge sums of money to invest with and invest it wisely, i.e. with low risk strategies. You would think they would still be very well off today.

I believe it's because none of them had built a solid foundation to begin with. When you build a home, the most important part and the part that takes the longest to build, is the foundation. In property investing, one of the attributes that goes into building a good solid foundation is buying rental properties that the average family will want to rent, e.g. a 2, 3 or 4brm home, in a reasonable location and in tidy order.
Other not so obvious building blocks for your solid foundation include putting down a 20% deposit on each property you buy (as opposed to borrowing against equity gained on any other properties owned), having sufficient cash flow to cover all your expenses with each property, preferably a 20 year or less P & I loan (25year loan possibly if the cash flow is tight, but never 30 years), and buying below market value by knowing your market well. Following this you will build equity each year in your property portfolio (that is with a static or rising market - on a market where property prices drop over the year, it will depend on how much you pay off principal compared to the drop in property prices whether you build any equity or not).
If you use the interest only approach as so many investors still do, and the method usually taught by the promoters mentioned above amongst others, you are only building equity when the property market is rising. You lose equity when the property prices are going down. Out of all the hundreds and hundreds of investors that I’ve met, less than a handful has used the ‘interest only’ strategy well. Each of these investors have either sufficient cash flow from elsewhere (other property strategies or a business etc), a low debt to equity ratio, or they specialise in commercial type multi-unit properties often worth in the millions of dollars to purchase. For the average investor using I/O, I do not know of anyone trying to build a good solid property portfolio (apart from these few people) that I would say has a good, rock solid foundation. There may be a few people out there, but I have never met them!

This is what I would class as a solid foundation in which to build from: -
1) Using P & I loans –
(i) never borrow more than 80% of the purchase price (not the property value) when buying
(ii) take out a loan of 25 years and preferably less
(iii) buy the next investment property only when another 20% is saved (not from refinancing existing properties)
(iv) cash flow to cover all the outgoings - including rates and insurance.

By doing this, I believe by the time you have 8 – 10 properties, you will have a good sound foundation on which to build from. I would not borrow against any increased equity at any stage to buy further rental properties - even if they have doubled in value, or your borrowing is below 50% on any of the properties.

2) Using Interest only loans –
(i) never borrow more than 70% of the purchase price (not the property value) when buying
(ii) purchasing the next property only when another 30% is saved (not from refinancing existing rentals as mentioned above)
(iii) cash flow to cover all the outgoings - including rates and insurance.

I would also add that until you get to a level where your portfolio (using I/O) reaches 20 - 25 rental properties, a debt level of 60% or less (by paying off more debt when you are able to) and a positive cash flow after all expenses of a minimum of $5,000 per month, you haven’t got a good foundation. Anything less than this using I/O is in my opinion a time bomb waiting to go off, and any unforeseen circumstances that come along could wipe out everything you’ve worked for. It’s just way too risky, and not worth gambling everything on.

You may have heard the difference between good debt and bad debt and to a certain point I agree with what others say about this. It is very beneficial to use good debt (debt that somebody else pays you to own) to help you leverage your money while you are in the building stage of your property portfolio. However there comes a time when you will hopefully say to yourself – “this is a level I’m comfortable with, and now rather than buying any more properties, I will focus more on directing any excess savings into paying down debt on my rental properties at a faster rate than what I have been doing.” Paying all of your debt off, therefore being totally debt free is what the ultimate goal (in my opinion) should be.
In my property portfolio, I have 9 existing loans at the moment (out of 40 properties) with loans of less than $65,000 on each, one of them being a mortgage of only $38,000 on a property with a market value of approx $200,000.

Assumptions
If you have the assumption (even now!!) that property prices consistently go up in value over time, that very thought could cost you everything you want to achieve with your real estate investing (more so if you use interest only).

Here are a few other assumptions that have caught people out in the last few years.
1) I’m good at buying properties below market price - therefore I am a good investor
2) I am good investor, therefore I am also a good property trader
3) I am good at business and have made lots of money by running a successful business, therefore I will also be good at real estate investing
4) I am a good property investor, therefore I am also good at speculating with design and builds, buying sections and sub-dividing properties
5) That person is well known and speaks so smoothly and with confidence on stage, I will be able to learn a lot from him/her
6) The person speaking on stage is very enthusiastic about what they are selling. It must be amazing what they are selling, plus so many other people agree with what he’s saying - it has to be genuine
7) I would never buy outside Wellington, Auckland or Christchurch - the smaller towns just don’t have any capital gain{(i)if you rely on any capital gain, to me you are not an investor but more of a speculator, (ii) over the last 50 years or so in NZ, cities with 100,000 or more population have had an average % per annum growth rate within approx 1% compared to the other cities in NZ)}
8 ) This person has written a book on property investing, I will follow their plan and therefore will also be successful
9) This person knows exactly which locations will go up in value as opposed to other areas, I will therefore follow their advice on where to buy and when to sell
10) I’ve heard that tax liens are the way to go, there is so much money to be made in them, I’m going over to the U.S. to invest for myself
11) These people on this property chat forum have written well over 1,000 posts telling other investors how to do it, they must know what they’re talking about (for every one of these posters on property forums that does know something about investing, another 4 or 5 know very little about it, and spoil it for the new people wanting to learn)
12) Property is the best investment you can ever make, you will never lose money by investing in property

So these are some of the assumptions that people have made about property investing - more so in the last 10 years or so. When you assume anything like what is mentioned above, you stop thinking for yourself. When you stop thinking for yourself and follow others blindly, you are not taking responsibility and you also have an excuse to blame others if things go wrong for you, in other words – it’s not your fault. So take responsibility, don’t follow the crowd, think for yourself, and if something sounds too good to be true - 99% of the time it is.

For me, I’ve had two major threats to my property investment portfolio, and without a good solid foundation when these events happened, either one of them would have wiped me out as well.
The most recent (18 months ago) was a separation with my partner of 16 years which cost me a lot of money and is something I would not want to go through again!
The other threat or event that happened was about 6 years ago. It’s a long story which was written about in my updated book in 2008 (“NZ Real Estate Investors’ Secrets” - available through Good Returns), with me losing approx $1.5 million over the 12 months from the end of 2005 to the end of 2006. It all stemmed from me being in hospital with peritonitis (burst appendix) and coming out of hospital 10 days later on such a high with all the drugs, etc. I bought about 5 million dollars worth of property and cars over the following two months, breaking most of my own investing rules - and it nearly cost me everything. For a long time my cash flow was approx $70,000 a month negative. So going backwards by $70,000 each and every month, selling these properties and cars I had just bought at huge discounts, as well as selling around 20 properties from my existing rental portfolio (I had about 65 properties at the time) was the only way I could save it all. But without the solid foundation that I’d built up over the previous years, I would have been left bankrupt - like a lot of other investors have ended up today.

So in summary, take a look at your own property portfolio, or if you are just beginning - look at various potential threats or dangers and create a plan that is as safe as you can possibly make it. Build a solid foundation, there is no rush. Build it solid enough that it can withstand any potential threats you think could happen one day. A lot of the time we have assumptions, not realising they are just assumptions and are not based on any facts. Read books, talk to other successful people that also invest, but always think for yourself.
Have fun along the way and celebrate your successes, safe investing.

Graeme Fowler

**orion** · 20-09-2015, 12:17 PM

Local Paper Article - 2014

Graeme Fowler is a well known and successful property investor from Havelock North. His name might be familiar from his best selling book “NZ Real Estate Investors’ Secrets” which has sold over 12,000 copies in NZ.

His book talks about how he realised at a young age that working 8 til 5 as a mechanic wasn’t going to leave him with much at the end of his working life. So with very little financial knowledge but a lot of passion, he pursued his strong interest in real estate, and bought his first property at age 24. His book not only talks about his mistakes and learnings, but also shares stories from 9 other successful property investors around New Zealand.

By starting with nothing, Graeme was a millionaire by age 36 and has continued to grow his wealth, knowledge and property portfolio even to this day. Just in the last 12 months Graeme has bought 21 properties, some to keep and some to renovate and sell on again. If you ask Graeme the best and fastest way to property wealth – his answer would be “what do you want from your property investing?”

Property investment is all about a plan and the time you put into it – there is no “one best way”. It’s extremely flexible in that it can provide you with anything you want from it. However, your time might best be spent in the early days gaining what Graeme calls financial intelligence.
Most people will say it takes money to make money, or you need money to make money. However when your financial intelligence increases, it often takes very little money to make money, and sometimes even no money to make a lot of money. So how do you increase your financial intelligence? By reading books, talking to experts in the areas you want to learn about, seminars and experience. Experience can also mean making mistakes, which often stops many people from even starting.

With this in mind (that it takes very little money to make money) Graeme made a decision at the beginning of this year to try a new idea with property investment. He wanted to use just one initial deposit of 20% on a house and turn that into 10 houses! If this worked out how he was sure it would, his plan would be to teach his son Ryan (now age 9) how to do the same thing in 10 years time, when Ryan is 19.

So Graeme set up a new trust, separate from his other 40 rental properties. He made a plan to have 10 houses within the next 3 years, still using the initial deposit of 20% on the first property. And once the 10th house was purchased and then revalued, he would also get back his original deposit. The end result being he would have put in no money of his own, and still have 10 properties. How is this possible?

Firstly the rent from each property has to cover four things: Rates, insurance, mortgage and property management, based on a 20 year mortgage (paying both principle and interest) at 6.5% p.a.
Then he would have to buy them well enough below market value, or be able to add value to them, so that he could refinance each one in order to get back the deposit to do the next one.
Sometimes people need to sell in a hurry, or the property needs a lot of work and the owner either doesn’t have the money to do it up or just can’t be bothered doing it, so may sell at a cheaper price. Also mortgagee sales are often a good place to buy properties at a discount, as long as you know what you are doing.
The properties also had to be in reasonable locations for renting to people, so that if they do become vacant, they are easy to find a new tenant for.

To date Graeme has managed to buy 10 properties in this way in less than 8 months. Two of the properties are in Whakatane and the other 8 are all in Hawkes Bay. The total time taken to negotiate, buy, finance and organise to have these 10 properties managed would be around 30 - 40 hours or so of Graeme’s time this year. Now, he doesn’t have to do anything with them and it has cost him no money to do all this.
By buying well, he has immediate equity of over $300,000 (what the properties were bought for compared to new registered valuations) and each month almost $3,000 gets paid off the principle on the 10 loans ($300 off each loan).
After 10 years the equity will be $750,000 (through each loan getting paid down). And although Graeme never relies on any capital gains, even a 2-3% increase in house prices each year (around the rate of inflation) there would be $1 million equity over the 10 properties. That means if he sold them after 10 years, he would have $1 million after paying back the remainder on the 10 loans. Also, by keeping them for a further 10 years (20 years in total) all mortgages will now be paid off, and the equity - assuming no increase in value at all, would be $1.5 million. He would also still have the rental income (in today’s dollars) of close to $10,000 a month - after all expenses. Graeme says “an investment is something that someone else pays you to own”.

As Graeme says, it all starts by increasing your financial intelligence. Also treating what you do as a business, and having a great team of people that you can work with. The team would include bankers, lawyers, accountants, real estate agents, property managers, and trades-people.

**orion** · 20-09-2015, 12:17 PM

The Pitfalls and Stress of Goal Setting/ Planning 2015.

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.

**orion** · 20-09-2015, 12:18 PM

Mindset 2015.

What do you think would be the biggest blocks to someone’s success in real estate investing?
Some may say their lack of experience, or funding issues, possibly not having enough agents to find them good properties, and others may say it’s the market itself - not doing what they want it to. All sorts of reasons as to what’s stopping them from getting what they want.
These all sound like they could be valid reasons they believe are holding them back, but personally I think it all comes down to just one thing – their own mindset.
I believe someone’s mindset and beliefs about certain things will either help them succeed, or prevent them from succeeding. When you have your mind set in a way that helps you rather than hinders you, everything seems to flow easily and effortlessly.

To give you an example of how this works, think of all the radio stations in Hawkes Bay that are now playing in the room, your car, work etc, wherever you may be right now. Even though you may not be able to hear any of them, it doesn’t mean they are not playing - or transmitting. The reason why you can’t hear them is because you aren’t tuned into the frequency of any of those stations. If you were to tune into any of them, you could listen to whatever is being broadcast on each station, but only one station at a time. Now think of what you know to be true about you and the real estate market. This is your belief or set of beliefs, and the station you are tuned into.

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 transmission, your frequency, your output, 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’m 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’m 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.

For example, if you have the belief that it’s hard to get finance to purchase more properties - only what matches that belief can be attracted to you. Or you may have the belief that – all the good properties always go to someone else before I get them. It must be true for you, or match your belief. 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’s 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 these 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 really 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 (beliefs) about real estate investing and the emotions (frequency) that correspond to each belief. You could also use similar points of views/beliefs around money, health, relationships etc etc.
The top of the list goes from an equivalent emotion (frequency) 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.

So, whatever statement or statements are close to what your current beliefs are is where you are, there’s no right or wrong about it, it’s 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 stuck where I am?
Once you can identify that and be okay with it, accept it 100%, you can then start moving up the scale to where you would like to be.
As you get to each higher level, your new belief patterns will of course be different.
This in turn will attract to you whatever matches that new belief.

**orion** · 20-09-2015, 12:19 PM

What Could You Do with $60,000 cash? 2015.

This question was asked to 5 of us for the NZ Property Investors’ magazine for an article.
Below is my answer to it, however it was only supposed to be 400 words, so here it is in full:-

With $60,000 in cash, there’s quite a lot you could do without too much risk.
However it does depend a lot though on your strategy, your plan, your own financial intelligence, and how risky you are as an investor.
Lots of people use risky strategies that will most likely cost them everything in the long run. They try to pick which area to invest in, in other words - what locations they think will go up in value. They invest with assumptions, hopes and wishful thinking, not with logic and common sense.
It doesn’t even come into my thinking as to what I think will happen with prices, as it has no relevance to me. It only has any relevance if you want, expect, or hope that prices will go up, i.e. strategies that rely on that happening for your plan to work.
I don’t ever know what’s going to happen, and neither does anybody else know. Also I don’t care if property prices go up, down or stay the same for the next 20 years. My strategy and plan will work in all markets.

Last year I bought 20 rentals effectively using no money and they were still cashflow positive on 20 year P & I mortgages. So with $60,000 cash there are safe options to use if you have the experience.

What I would do is look for properties that were suitable as rentals, with yields of 10% or so in locations such as Hawkes Bay, possibly Rotorua, Wainuiomata and maybe Feilding. I know you can get good quality, good location and easy to rent properties in Hawkes Bay with those yields, and I’m pretty sure with some looking around I could find them in those other areas as well. I would rule out Auckland, not because of the 30% deposit rule and the fact you could only buy something up to $300k there if you could still use a 20% deposit, but because the yields are way too low. It doesn’t make sense to buy there and the only reason people do accept such minimal yields, is they think that prices will keep going up. That may or may not happen and I never base investing decisions on what could be. To do so would be very risky, plus you would have to top up the mortgages as well.
Knowing Hawkes Bay so well, I would look for something I could buy below market value and either, add value to it, or rent as it is. For example, let’s say a property was worth $170k and I bought it for $150k. I would initially borrow $120k (80% of the purchase price). This would use half of the $60k cash ($150k - $120k = $30k). This property would easily rent for $300p.w. and the mortgage on a 20 year P & I loan would be about $180 a week. Rates, insurance and property management would be another $70 a week or so, leaving it cashflow positive by $50 a week (not including any maintenance).
So, you could use the other $30k to do the same and you would have 2 properties being paid off in full by the tenants in 20 years. You would have a cashflow of about $100 a week, which should more than cover any maintenance.
What I would do is look for another one asap and do the same. And, because I bought so well, I would look to refinance them as quickly as I could to give me back as much of the initial deposit as I could. As I said last year, I did this on 20 properties and because they were bought so well, I ended up not using any equity at all.
In this case though, let’s say the first property valued up to $170k. The bank after 3 – 6 months should allow you (or immediately after any renovations etc) to refinance your original loan, providing you get a registered valuation from a valuer that the bank has on their approved list. If it values to say $170k, the bank will let you borrow 80% of that - which is now $136,000. This would cost another $20 or so a week in mortgage payments, but you would still be cashflow positive. You have now used effectively only $14k of your original $60k. ($30k minus the $16k given back by refinancing: - $136k - $120k).
Using this with the same figures you could buy 4 properties (4 x $14k = $56k). You will now see by buying even better, or having the valuation work more in your favour (valuations can vary hugely!) you may need a lot less equity per property than even this. I would be looking to buy at 20% below what I know I could get them to value to, which would mean I’m not using any of the $60k cash at all, after they are refinanced. You need to allow some for maintenance though, so I think you could comfortably buy 10 properties this way (end result of $6k equity used per property) and be okay.
With the 20 properties I bought last year, so far the maintenance on these works out to be an average of about $1,000 a month total over the 20 properties.

To show how it would look using $6k equity each time, it would be something like this: -
Purchase price $145,000.
Initial deposit (20%) $29,000.
Revalue several months later to $174,000.
Bank will lend 80% of that which is $139k.
In effect, $6,000 equity used ($145k - $139k).

One important thing to me is if you do refinance like this, don’t ever refinance them again after that! Let them just sit there with all the mortgages reducing over time until all of them are paid off in full. A common mistake a lot of people make is refinancing their investment properties (and often their own home!) when the market goes up. They use the extra equity to buy more, sometimes refinancing several times and never bringing their debt to equity ratio down. This is a recipe for disaster which has already cost hundreds of investors in New Zealand everything they’ve worked for and built up, by thinking the market always goes up. It doesn’t 

So in summary, let’s say I ended up buying the 10 rental properties using $6k equity for each, and they all had a market value of say $150k. That would be $1.5 million (10 x $150k properties) worth of property purchased using the initial $60k of equity. The tenants will have paid off all the mortgages after 20 years.
At that stage any upward movement in prices would have been a bonus - if you did want to sell any of the properties, otherwise you would have around $10k a month in rent after all expenses coming in from 10 freehold rental properties.
Another way to look at it is this - the original $60,000 cash has been used as leverage using other people’s money and other people’s time to create wealth for you. That’s something you wouldn’t have been able to do if you had to pay off all of the10 properties by yourself, using your own wages/income.
So, after all the mortgages have been paid off, you’d be getting your original $60,000 you invested back in rent every 6 months, and still have 10 properties!

**orion** · 20-09-2015, 12:19 PM

Property Values 2015.

There are many different ways people use to determine what they think a property may be worth.
Here are some of them below:-

Purchase Price

RV, CV or GV

E-Value

Registered Valuation

Market Value

Looking at each of them, we can understand a little better what each is used for.

1) Purchase Price – this is the price you pay for a property when buying, and it may actually be worth more, or less, than what you are paying for it.
Sometimes you may be in a multi-offer situation where you end up paying more than you originally intended to, or because you really like the property. Other times, it may be in need of work, or the owner wants to sell it quickly, so you may buy it for less than what it is really worth.
2) Rateable Value, Capital Value or Government Value – this is used for rating purposes and is a very rough guide to approximately what a property may be worth. In some locations, properties may overall sell on average around the GV, and in other locations they may sell for approximately 20% or more above the GVs. In some instances, especially in Auckland recently the CV can be at least $100,000 less than what a property will sell for. Also, you may buy a property that’s run down and needs a lot of money spent on it, and then do a big renovation on it and it’s now worth a lot more. The CV will still be exactly the same. The property is in most cases not viewed by the GV assessors, so is not something to be taken as a useful guide to establishing a properties true value.
3) E-Value – or desktop valuations are taken from an online system that calculates the values based on recent sales in the area. These can also be very inaccurate. It is generally used by banks as a guide for them to use, to determine approximately what a property is worth. These values can vary a lot depending on what the property last sold for, and other data that is collected.
4) Registered Valuation – This is a valuation that you pay for, and is written up in a detailed report giving you comparable sales in the area. The banks will often use this to determine what amount of money they will lend you. Usually for rental properties it will be 80% of a registered valuation, and for a home you are buying to live in, they may lend you up to 90% of the valuation.
Registered valuations can also vary depending on whether the valuation is for the vendor, or for the buyer. They can also vary a lot depending on the valuer. Some valuers will be conservative and use comparable sales to give a lower figure as a valuation, and others will be more generous, comparing the one being valued to higher sales in the area. I’ve seen valuations vary by 50% on the same property in the same week!
5) Market Value – This is the true value, or price that you would be able to sell the property on for again, if you had to sell it. This would be a willing buyer, willing seller in today’s market. The market value changes over time, sometimes quickly, sometimes slowly. There is no exact market value for any property as it depends on how willing the buyer is and how keen the owner is to sell. It can also come down to who negotiates a better deal, whether it is a private sale or sold through an agent. The agent’s expertise in negotiating also comes into it, so several factors. However with a willing buyer, willing seller and each getting a fair deal, the market value would normally sit within a 3-5% range. For example, let’s say a property is sold for $200,000 under normal circumstances – the market value may be around $195,000 - $205,000.
Generally knowing the market value only comes from lots of experience, knowing the market very well, knowing other recent sales, and being totally immersed in what’s going on in your area.

To give you an example of a couple of properties I purchased last year as buy and holds, here are the various values on each of them.

Property 1: -

a) Purchase price (including reno) $110,000
b) RV, GV, CV $122,000
c) E-Value $140,000
d) Registered Valuation $175,000
e) Market Value $150,000 - $155,000

Property 2:-
a) Purchase price $134,500
b) RV, GV, CV $114,000
c) E – Value $107,000
d) Registered Valuation $160,000
e) Market Value $145,000 - $150,000

The first property varies from a purchase price of $110,000 (including reno) up to a registered valuation of $175,000.
The second property varies from an E-Value of $107,000 up to a registered valuation of $160,000.

You can see by looking at all of these numbers above why a lot of people get so confused.
They all have a purpose. Whether the value is for the banks use to determine how much they will lend you, the council’s purpose for charging rates on the property, or knowing for yourself what a property is really worth, by understanding and knowing market values.

**Jerk** · 20-09-2015, 02:08 PM

Fantastic info Graeme. Have been following your other thread keenly and it has definitely opened my eyes to another perspective.

**orion** · 21-09-2015, 09:29 AM

Originally posted by Jerk View Post

Fantastic info Graeme. Have been following your other thread keenly and it has definitely opened my eyes to another perspective.

I won't say thanks Jerk as it wouldn't sound that great - so thanks

**Kirwee** · 21-09-2015, 02:34 PM

Really enjoyed these posts Graeme.

I still have a lot to learn and these have been really informative.

Cheers,
Brian

**orion** · 21-09-2015, 03:32 PM

Originally posted by Kirwee View Post

Really enjoyed these posts Graeme.

I still have a lot to learn and these have been really informative.

Cheers,
Brian

Thanks Brian,
I've cleared the messages again if you still want to PM me, thanks.

**Tom** · 21-09-2015, 05:06 PM

Hi Graeme,

Thanks for taking the time to write and provide these articles. They've been of help and I always look forward to your posts.

Best,

Tom

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