There was an interesting item on a “current affairs” show recently. ASIC and a Consumer Organisation sent a number of genuine, financial hardship cases to 219 different and fully qualified financial planners. The results were that only ONE IN FIFTY of the financial plans reflected the needs of the clients, the rest reflected the financial planners commissions. This just highlights how valuable the genuine educational workshops and e-books are. This article is based on a workshop and E-book by Ray Jamieson and first presented at The Executive Mastamind Programme Workshop.
The purpose of all these workshops and e-books is to educate. Not to advise, or tell you where or how to invest, or suggest one strategy over another. Simply to educate. This is the same in that respect. T
This article and the associated e-book are on the fundamentals of creating wealth through Real Estate. The e-book, through virtue of the unlimited space criteria, goes into much more depth and can be found on www.atozebooks.com. There is nothing new in this concept, people have been buying and selling real estate since trading and commerce first began. However, one would think that with something that has been around for so long, more people would understand it!
One of the things I believe about Real Estate is that if you make a good buy which is making you good money, you hang onto it, unless some mug offers you an absolute fortune for it. Now, I DID buy real estate and it WAS a good buy, but you aren’t getting it, you have to go find your own. However, I will give you some tips on buying, which might make yours as great an investment as mine!
This article and e-book is about some things that many people will find are a secret. Sadly, there are many vested interests that would rather you didn’t know what you will learn here.
In this article and e-book, we will discover WHY you need to consider buying real estate without using your own money for a deposit. It actually makes a lot of financial sense to NOT use YOUR money! That's where we start. Why, because we, as a society, have been conditioned into thinking we have to conform to the rules that the banks and financiers want us to conform to. And whom do you think those rules benefit? The consumer? NOT LIKELY! The Golden Rule states that them that makes the rules gets the gold from the rules! OK, it was a little different when I first heard it too, but the principle is chillingly accurate!
We will also learn of 6 different strategies to buy a house without a deposit, the criteria you need to fulfil before you choose a property for the exercise, vendor profiles, some warnings to observe and more. By the end of the session, you might have a whole new way of looking at property purchasing, whether you are a vendor or buyer! You might discover a few other little tricky things you need to be aware of when buying any house. You need to come out a winner, as well as the vendor. Remember, this has to work for everyone involved!
DISCLAIMER: When we look at the 6 different methods of purchasing property without you putting money into a deposit, I will not give you advice; rather, I will encourage you to look at different ways of investing into Real Estate for a better outcome. At all times, you need to have your solicitor and purchasing team on board to guide you into the specifics. Please remember, this is an educational article and e-book only, for advice on anything I say here pertaining to your particular situation, you need to consult your own solicitor and accountant. They will be able to advise you on your own situation, and the legal and financial criteria and regulations pertaining to your own jurisdiction, regardless of the country or state. These factors will vary from country to country and from state to state within different countries, but the principles will always apply.
Everything here is legal, ethical, moral and above board. It is also standard real estate practice, but vested interests in the game would sometimes rather you didn’t know these things, as they have their own agenda and formula they work to. Once you get “outside the box” they think you belong in, it makes them uncomfortable and they lose control of the deal. That’s not good for them.
Just a point on being in control: If someone else is controlling the deal, to whose advantage do you think they structure it to?
Themselves, of course! However, it is possible to have a win/win/win situation. These are 6 ways you can do that.
Firstly, let’s set a yield guideline to follow as we work through. If you were a property owner, residential or commercial property, what is a reasonable return on investment that you would expect? At the end of the year, your accountant says you made X% yield last year from your real estate investments, what was that percentage return for you? ……………%
If someone NETTS 7% they are doing very well. Some properties do more, most do less, and rely on eventual capital gains to realise a profit. But let’s be generous. Let’s allow that someone might be making 7% from their property after costs. Is that OK?
(We had one person in a seminar in Brisbane claim to be making 10% nett on his investments, but he went home and did the calculations and rang to apologise. One was in fact yielding 10% but two others were dragging his yield overall down to a poor negative result! It pays to keep track of things like that!)
With residential property values peaking in Australia as they have in the last year or two, the returns as a percentage yield are very low right now on most properties. Rents do not increase as fast as values and therefore, as values increase, yields fall. With high borrowings, some are now impossible to gear positively. However, there are properties and strategies that do work for you. We will show you how to go looking for them.
Now, why do it this way? WHY NOT PUT DOWN A DEPOSIT?
A question for you: Is it possible to earn 6% to 10% per month on an investment portfolio? Yes, and it doesn’t take a lot of money or knowledge to do it! Many of the sharemarket trading programs, options, futures, arbitrage, currency, etc, do this regularly and consistently - if you have the ability to operate them and have the discipline and education to do it.
6.8% per month is approximately 100% pa. Think about it! GREAT opportunity money! Putting it to use where it will do some good, rather than sitting dead in a trust account! Doubling it!
For example, if you had a share portfolio making 6-10% per month, would you like to take that money out and leave it sit in a solicitor’s trust account for 6 months earning NO INTEREST while a deal went through? Of course not!
And by the time the
deal WAS ready to settle, you might find that what you have done under the conditions of the contract was enough to ensure you don’t need the money anyway – the value had increased enough to give you the equity without a deposit.
By working this way, you don’t forfeit the “opportunity cost” of not having access to your money for other opportunities that come up. Letting it sit idle in a trust account doesn’t help you at all!
Lets look at the RETURN ON INVESTMENT.
How important is it for you on a ROI basis to not put down a deposit? (ROI = Return On Investment)
1.EG, You buy a $100,000 property for cash. What is the ROI on it, if increases by $10,000 over 12 months? 10%
2.What if you only put down $10,000 and it increased by $10,000? 100%
3.What if you put NOTHING down and it increased by $10,000? Infinity. An infinite return on investment. Truly, something for nothing!
The same property – but we used 3 different ways to buy it. And remember, your $10,000 was earning perhaps 6% - 10% PER MONTH in a share portfolio while you didn’t need it. What is the opportunity cost, to miss out on it?
So now that we have established that it IS worthwhile to buy real estate without a deposit, is it possible? Absolutely. I will list 6 methods now that are eminently suitable, although there are more. However, as we are limited by space here, full details and the critical warnings are fully outlined in the associated e-book on the www.atozebooks.com website.
1Full Vendor finance 2Part Vendor finance 3100% bank finance 4Long Term Unconditional Contract 5Long Term Conditional Contract 6Deposit Bonds
Important point - not every method is suitable for every property. Not every method is suitable for every vendor. The methods CAN be combined to make their application simpler and better for everyone. Each has a small minefield attached for the unwary, so please again ensure you have your legal and real estate buying team ready to support and advise you BEFORE yo make a move.
Each of these methods has been around for quite some time and are not new to the industry. However, what is not generally known by the people you would regularly go to for advice is the list of pitfalls associated with each of them and how, where and with whom they are applicable and relevant. More importantly, where they should not be used!
The potential problems arise from the fundamental fact that if you use these strategies, you need to understand the implications of being 100% geared. That's right, in one form or another, you have borrowed 100% of the purchase price. There is NO LEEWAY for mistakes and if anything goes wrong, you can kiss your butt goodbye and often some of your other securities as well.
The buying price of the property, when purchased at your leisure, is MUCH HIGHER than the selling price if you have to unload it in a hurry. You need to follow the guidelines for property purchase outlined in the e-book to ensure you get it right. Follow the formula and you will generally be fine. Step outside and it's like walking around on a rope ladder - you are very close to the edge at all times. Having said that, I have NEVER bought property the traditional ways because these ways offer so much opportunity and profit potential!
In simple terms, the property has to pay for itself. If it doesn't, you are going backwards from the start. It cannot be a sound investment, whether you live in it or rent it out, if it costs you to own it! OK, I hear the negative gearing gallery screaming. Yes, in some cases there are tax advantages with interest etc on some negative gearing situations.
Just remember, A LOSS IS STILL A LOSS, NO MATTER HOW YOU DRESS IT UP!
The first thing to remember is that the property must be capable of making a profit for you.
Second point, it must also be capable of growing into something better. The "worst house on the best street" is a phrase that comes to mind.
Finally, you need to be able to offload it instantly for a profit if the worst does happen and you need to sell it in a fire sale situation. By using a combination of the above strategies, which I fully detail in the e-book, you are almost assured of that.
Who can you buy from? Who can you not buy from?
By definition, the vendors need the flexibility to negotiate and that means they need equity in their property or outright ownership. They need to be free of commitments on the property and be making their own decisions, rather than doing as their financiers tell them.
The people you cannot negotiate with are distressed property owners who urgently need to sell at any price to get out! They are no longer the owners of their property; they are virtually acting on behalf of the banks!
WARNINGS: Yes, there are a few to look out for. Banks don't like you taking control of your finances and do all sorts of things to tie you up in a deal. For example, you may already have an investment property, purchased with the equity in your residence. About 95% of people would have those properties tied together with a clause in the mortgage that says the bank controls both properties under either loan arrangement. In other words, if you want to sell one, they decide where the proceeds of the sale go and can decide to apply the funds to whatever part of your loan portfolio they deem appropriate! Now, who did you say was in charge of your investments?
Keep your investment loans separate - rule number 1.
Keep equity available - rule number 2.
Stay away from Interest Only Loans - rule number 3.
I again hear the "professional" investors screaming that this is what they have been taught! Except for ONE situation, which I outline in the e-book, I NEVER use Interest Only loans. They maintain your debt at artificially high levels and greatly hinder your ability to increase your property portfolio.
What if you could reduce your debt and increase your portfolio, with more flexibility and growth, for the same repayment level? You would never go back to Interest Only loans again and you would see the peddlers of them for what they are. You can do so much better!
For more information and a greatly expanded explanation of all the above headings, please visit the e-book on the website www.atozebooks.com. DO NOT INVEST without studying this in depth and with your advisors.
About the Author
Ray Jamieson runs a goalsetting program, which requires him to be the font of knowledge and resources for the participants. Each is there to achieve their dreams and goals - he must have their answers and solutions! Ray is at www.executivemastermind.com for the goalsetting program and www.atozebooks.com for a series of e-books taken from his workshops.
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