Articles - Graeme Fowler

[orion]

Thanks Tom

[Midlife investor]

Hi Orion

I find your posts very interesting and unique, you have a very strong mindset and I relate to your post on many levels. I am new to property investing but I enjoy it and I look forward to more houses in my future.

[orion]

Thanks Midlife Investor, glad you enjoyed them.
Will have another one done in the next few days.

[Midlife investor]

Great I look forward to reading it. I am very determined to achieve financial stability with my investment properties although I work I enjoy it still and it makes me happy to work and grow my properties as a result. I do not need them to provide cashflow currently so they only need to cover P&I mortgage and expenses, which overall they do. I am super keen to learn from the experts in this industry and I love to gain as much knowledge as I can especially in building up strong solid foundation. However I know what feels right and what doesn't so I use my gut feeling to when seeking information. I often find that people tend to follow others because everyone is doing it that way or investing in that area instead of it sticking to what their overall plan is, or referring back to their rules. Easy to fall into this mindset thou and often easier path. That way when it doesn't work out they can blame the industry, tenants or banks, instead of themselves, and finding the learning/s. Investing to me is a lifestyle and I enjoy it, this allows it to be easy and down stream and rarely stressful.

[orion]

Great I look forward to reading it. I am very determined to achieve financial stability with my investment properties although I work I enjoy it still and it makes me happy to work and grow my properties as a result. I do not need them to provide cashflow currently so they only need to cover P&I mortgage and expenses, which overall they do. I am super keen to learn from the experts in this industry and I love to gain as much knowledge as I can especially in building up strong solid foundation. However I know what feels right and what doesn't so I use my gut feeling to when seeking information. I often find that people tend to follow others because everyone is doing it that way or investing in that area instead of it sticking to what their overall plan is, or referring back to their rules. Easy to fall into this mindset thou and often easier path. That way when it doesn't work out they can blame the industry, tenants or banks, instead of themselves, and finding the learning/s. Investing to me is a lifestyle and I enjoy it, this allows it to be easy and down stream and rarely stressful.

Great to hear, well said - especially the down-stream part
When you say you use your gut instinct, often I've found it not so reliable (as it is more of a fear thing) as intuition which is from a different place - more of a knowing.

[Midlife investor]

Yes, I can see that fear would interfere with gut feeling but I come from a different platform whereby I know to listen to what feels right, its about trusting your guidance system (which we all have).

[orion]

Yes, I can see that fear would interfere with gut feeling but I come from a different platform whereby I know to listen to what feels right, its about trusting your guidance system (which we all have).

Sounds like to you listen to Abraham too

[Midlife investor]

Sounds like to you listen to Abraham too

I have heard of Abraham yes.

[orion]

How To Have More Luck With Your Property Investing.

People will often say to me, you were lucky that you got in at a good time when you started your investing, you couldn’t do that now. Or, it was lucky you found some good agents to help you find properties when you started, there’s too much competition from other investors now.

Roger Hamilton uses a word analogy with the word ‘Luck’, mostly with operating a business and comparing it to a game of soccer (football).
I’ve used it below in a similar way to show you how it works if you are a property investor and want to become luckier!

Location.
In the game of football, you may think someone like Christian Ronaldo or Lionel Messi is lucky in the way the ball is passed to them, and all they have to do is kick it past the goal keeper to get a goal. And they get paid millions of dollars each year to do that. You might think, well I could kick the ball past them too, it looks so easy - why not me?
The first letter stands for location which means being in the right place at the right time.
The same applies in real estate – where are you located when all the deals are happening? Are you out working in a job or a business, or are you doing work around your properties because you think you’re saving money?
So location is very important. You need to be in a location and available to act quickly when you need to.

Understanding.
With football, the players must understand why they are there. What is their purpose, or intention for being in the right location? They need to understand that their purpose is to get as many goals as they can.
In real estate, you also need to have an understanding of what you want to achieve. What are your financial goals, what plan are you following and what are your rules for investment? You need to have a good understanding of what you are doing, and why you are doing it.

Connections.
You can be standing in the right place and also understand why you are there in the game of soccer, but you might turn around and nobody is there, or wonder why nobody is passing you the ball. That is where connections are very important. You need to have a good team of people around you that will pass you the ball so that you can score the goals.
You must have good connections in real estate investing too, a good team of people you can rely on in many areas. These people will let you know about the potential deals, whether its real estate sales people or other investors passing you deals. You may also have various trades-people available to do maintenance on your properties that need doing from time to time. This would include plumbers, builders, painters, electricians, carpet/lino layers etc. If you don’t manage your own properties, you will need to have good property managers to find you tenants, do inspections, and make sure the rent gets paid on time. You will also have people to handle the legal side of things for you when buying and selling properties, also an accountant to do your accounts at the end of each financial year.
All of these are very important people who you will form part of your team, or your connections.

Knowledge.
This is where you must know the rules of the game. In soccer you must know what you can and can’t do to stay on the field of play. You must have an in-depth knowledge of the game itself.
In real estate, you must also have knowledge in many areas.
Firstly, the city you are investing in. What streets should you avoid buying in, are there any suburbs you should stay away from?
You’ll also need to know what the market-value of properties are in your area, properties that are similar to ones you want to buy. If you don’t have an in-depth knowledge of the market, how will you know if you are getting a good deal or not?
Do you know how to negotiate well as a buyer and a seller?
How do you structure your offers when buying property, what do you do if you are bidding at an auction?
There are other things you should be knowledgeable about as well, things like what are your banks’ lending criteria, what yield do you need from your rental properties when buying, what are the current bank interest rates for borrowing, keeping good records for your accountant, what it will cost if you need to do maintenance or renovations on a property when buying, all sorts of things you will need to have good knowledge of.

You.
You may have all of the above and yet still not succeed. In the game of football, if nobody on your team likes or respects you, they may not even want you to score any goals, so will keep the ball to themself.
You will need to be a good team player and know that most of the time - you need them more than they need you.
Investing in real estate can be the same, how do other people see you?
Do you have a good reputation in the eyes of these people?
Why should they do business with you?
Your reputation and integrity are very important and can be the make or break of your success.
When you say you’re going to do something, do you do it? Or do you have a reason or excuse why you didn’t follow through? Some people think - saying you’re going to do something, then not doing it, plus a good excuse - is the same as actually doing it.
You need to be able to relate to others, and they relate to you.
Are you approachable when people ask something of you, or do you not have any time for anybody apart from yourself?
Do you get easily distracted from your goals or your plan?
Can you stick within your rules for investing, or break them because things seem boring to you?
Will you keep going when the going gets tough and it would be so much easier to quit?
Do you have good money management skills?
Can you oversee your entire operation to make sure everything is operating and performing as it should be?
Think of yourself as a stock on the share-market.
Would other people invest in you if you were a stock they could buy?
Would they see value in you, and see the long term prospects?
Or would they want to buy now and then sell again in a short space of time because they see too much long term risk in you?
All of these are important things to look at for yourself.
If you look at each of these – ‘Location’, ‘Understanding’, ‘Connections’, ‘Knowledge’ and ‘You’, the ‘You’ is the most important, and brings it all together.
You could be perfect in all other areas and get this wrong – and it could cost you everything you’ve worked for.
So it’s important to make sure you’re someone that people want to do business with and can relate to.

If you take a look at each of these five things in detail, then rate yourself honestly from 1 to10 for each.
You may give yourself a low rating in some and a high rating in others. By doing this, you will immediately see what you need to do in order to improve your own rating in each area.

When you can honestly say to yourself that you are 9 or above in each of the L.U.C.K.Y. areas, then you will find that you do indeed become luckier in the eyes of not only others, but yourself as well.

However luck really had nothing to do with it at all

[Keenfisho]

That's puts things into a bit of perspective....

[orion]

That's puts things into a bit of perspective....

Good to hear.

What rating do you give yourself for each one?

[orion]

Building a Solid Foundation in Real Estate (Part 2, 2015).

The first article I did on building a foundation was an outline of why it’s so important if you are serious about your investing, and want it to be one of if not your main source of wealth and income long term. If property investing is more of a hobby than a passion, then it is not so important.

So if you are wanting to be more actively involved and reliant on property investing for an income in the future, here are some things that will make your overall foundation stronger and also some things that will make your foundation weaker.

All these will make it stronger.
1) Buying any property below market value
2) Paying a deposit of 20% - 30% when purchasing
3) Not refinancing existing properties at any time
4) Increase in market prices of your properties (outside your control)
5) Having good tenants and or property managers
6) Keeping up with any maintenance that needs doing
7) Using P & I loans to gradually pay down your mortgages
If loans are fixed at a higher interest rate than current rates, pay down up to 5% p.a. on outstanding balance on as many loans as you can
9) Increase your equity in your portfolio every year
10) Buying more properties and repeating the above


All these will make it weaker.
1) Paying market price or above (not knowing the market well enough)
2) Putting in low or no deposits when buying properties
3) Using high registered valuations and then refinancing, or refinancing if prices go up. In other words – revaluing your portfolio and borrowing on increased equity
4) Property prices falling
5) Using interest only loans
6) Not doing maintenance on properties when required and so getting lower rents
7) Not reducing your debt/equity ratio every year
Selling properties because you think they are not performing (going up in value)
9) Increasing debt with every purchase i.e. debt to equity ratio may stay the same but when buying new properties, overall debt always increases
10) Buying more properties and repeating the above.


Many people come to me or e-mail me having already been doing a lot of the things mentioned above which make their foundation weaker, not stronger.
As time goes by, more and more properties are purchased and then refinanced (people will also often do this on their own homes).
Then they are often refinanced again to a high debt level again if prices go up. This is usually using unrealistic registered valuations which aren’t worth the paper they are written on.
Now instead of building a strong and solid foundation, they are in fact building a negative foundation. It would look kind of like an upside down pyramid. A foundation that gets easier and easier to fall over and be destroyed with any unexpected circumstances that can arrive at any time. Things such as a change in tax or government policy, loss of income from a job, a separation, interest rate increases, changes in LVR rules, property prices falling etc.
Lots of investors lost everything who were investing in Auckland around 2007 – 2008 with only a 5% or so decrease in prices. If their foundation was strong to begin with, this would not have happened.

The safest of all ways, and to have the most solid foundation in property investing would be to have no debt at all. To me that is the end goal, i.e. when you feel you have enough income from your properties, and are not buying any more to hold long term.
That way if interest rates went up very high, or market prices say halved in value, then it would have no affect on you.

This is not practical when starting out, so you do want to use leverage, but use it responsibly.
By using it responsibly, this would be as mentioned above using a 20 – 30% deposit on properties purchased and not refinancing them. By doing this, you are using a small portion of your own money and borrowing a larger part from the bank to buy properties. This is called leverage - or doing more with less.

With any form of leverage there are risks associated.
In this case of buying properties with a small deposit, the main risks are:-
1. The banks want their money back at short notice
2. Interest rates increase to a point where you are having to top up the mortgages
3. Prices decrease and you lose your equity

The other leverage which you are using with P & I loans is the leverage of other peoples’ time and money. This to me is what a true ‘investment’ is – i.e. something that somebody else pays you to own.

With P & I loans, the rent received goes towards your mortgage and slowly pays the loan off that you have with your bank.
At the start of the loan, you are paying almost all interest and very little principal. As time goes on, you pay more and more principal and less and less interest.
To start with, it seems almost pointless paying off such a little amount of principal, and you may think why even bother?
But by using this method (as opposed to interest only where nobody is paying off the loan) you do start to see results and moreso if you have several properties.

It may be that you only pay off $200 - $300 a month off the principal part of the loan early on, but if you had 10 properties like this, it would be $2,000 - $3,000 a month.
This increases slightly each and every month as I mentioned, until at the end of the loans you will be paying almost no interest, and almost all principal.

For me at the moment, about $6,250 a week or $27,000 a month gets paid off principal. That’s over $300,000 a year and this will keep increasing until all the loans are paid off in full. If market prices of my properties go up, go down or stay the same, it doesn’t matter at all because it’s not only - not important, but irrelevant to my overall picture or plan.

You may have heard of the example of taking 1c at the start of the month and doubling it every day for one month (31 days) and being surprised at how much it grows to.
At day one, it would be 1c, day two it will be 2 cents, day three 4 cents and so on.
After 10 days, it’s still only $5.00 which is about 1/3 of the way through the month.
Day 15 is $164, so still not a lot considering its already half way through the month.
At day 20 it would have grown to just over $5,000 so looking a bit healthier.
Day 25 it’s now $168,000, day 26 is $335,000, day 27 is $671,000 and at day 28 finally a million is reached with $1.34 million.
Then another 3 days later at day 31 being the end of the month it has now grown to an amazing $10,737,000!
That is the power of compounding.

When you use the power of leverage combined with the power of compounding, you can achieve what seemed like the impossible in a relatively short period of time.

Doing this sensibly in a way that you strengthen your foundation with each and every property purchase with leverage, and the power of compounding, you will be well on your way to achieving great financial success.

[Kirwee]

Thanks for putting this post up Graeme.

Your excellent example easily demonstrates how powerful compounding is.

You doubled your money every day to get that last $10 mil figure and without using the power of compound interest on top.

The Rule of 72 used over a longer period of time demonstrates the wonderful power of compound interest.

Where: 72 divided by the interest rate equals the number of years your money would take to double.

Cheers,
Brian

[AlFa]

If loans are fixed at a higher interest rate than current rates, pay down up to 5% p.a. on outstanding balance on as many loans as you can

Hi Graeme, could you please explain this? I didn't get it unfortunately

[orion]

Hi Graeme, could you please explain this? I didn't get it unfortunately

Any loans that are fixed at a higher rate than the current rates, you can pay off 5% of the balance outstanding per year without penalty.

For example, say you have a loan of $200k fixed at 5.99% for 2 years and current rates are 4.35%
You can pay 5% of the $200k or $10,000 off the loan reducing it to $190k without penalty.
You can do that each year.

When the rates were around 9% a few years ago, I had about 20 loans fixed for 4 years and rates had dropped down to about 6%.
Each year I paid down 5% of the total outstanding and refixed this amount at the lower rate (about 6%) over a 5 year term.