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It’s that time of the month again when I hope to encourage and inspire you to get out there and enjoy your life, be successful in the areas that matter to you and remember that the journey IS the destination.

Setting our Buying Rules

So you’ve done your goals and decided which strategies are possible for you. Now we need to set our buying rules.  This is quite a challenge to discuss generically here but I’ll do my best.

The purpose of our rules is to narrow down the possible properties we explore. There are thousands of properties for sale all the time so we need to know which ones we definitely would NOT look at and that helps us be effective with our time.

There are 5 main things you need to establish to complete your buying rules. You may need to contact an experienced investor or mentoring service to fine tune yours.  Don’t be afraid of investing in some professional assistance if you need it.

1. Location
   Simple but essential. There is no “right or wrong” answer.  You have to decide where you are happy to buy property.  Generally investors fall into one of two camps.  You want all your properties within easy driving distance or conversely you’ll buy anywhere in the country or planet.

   This is a decision for you to make, not for me to tell you.  My advice?  Over the next year or 2 avoid small towns.  Read Kierans article here as to why, it says it all.  Secondly stick to a small geographical area close to where you live until you are experienced at hunting, see my article HERE.
   Having said that I have students with property all over the country and they think it’s great.  So these are your rules, not mine, OK?

2. Specific styles and construction
   I find this one of the most helpful aspects of having rules.  By limiting the types of properties I look at, I don’t waste my time looking at so many prospects.  My current rules in this area are brick houses only and if multiple incomes they must be free standing.  In other words I don’t generally look at units, upstairs/downstairs granny flats, or anything not made out of brick.
   If you are flipping or trading or doing reno’s you may not care about this at all but for buy and holds it is very useful.

   Your rules may include things like only aluminium joinery and no open fires. Again there is no right or wrong about it.  It is about deciding what works for you.

3. Strategies
   I covered most of the possible strategies last month.  So now you have to decide which of those strategies you are going to start or continue with.  Be clear on this, are you doing reno’s or not?  If not then never waste your time looking at do ups.  Get it?
4. The numbers
   This is the most critical thing to focus on.  Items 1 through 3 help you narrow down what you won’t look at.  Now we need to decide what numbers work for us so we know what we WOULD buy.

   RENO’S.  Now for renos or do ups I have a rule that I recommend for new investors to ensure you don’t get into trouble.  I set this rule because I have met too many investors who have lost money on reno’s because they buy deals that are too skinny.  So my rule for renos is….

   Purchase price plus reno costs must equal no more than 80% of potential sale price after reno AND total reno costs must not exceed more than 10% of purchase price.  If you run out of money halfway through the reno, you stop and put it back on the market.  If you don’t know what you are doing with reno’s then I suggest these rules are a good starter.  I would also add cosmetic do ups only, nothing structural.

   Now for those more experienced in this arena you set rules that work for you.  If you are comfortable doing a reno on a 500K property knowing you’ll pull 50K out of it at the end, great, do it.  But know what your rules are.

   TRADES.  For trades I also have rules that I stick to.  Basically the purchase price must be absolute minimum 15% below likely sale price or on larger deals minimum of 50 grand gross margin.  Any potential trade that is skinnier than this I would try and assign before going unconditional and if I couldn’t find it a home I would not buy it.  You set what will work for you.

   BUY AND HOLD.  For hold properties you will probably need some help setting rules if you are new to the game.  You need to know what your minimum acceptable yield is and what your minimum equity gain is.  On both counts, the bigger the better is always true but some of you starting with little reserves may need to focus on high yield.  Those of you in differrent financial positions may be more focused on equity and growth.  Impossible to document it all here.  Get some help to set this if you need it.  It can only be done 1 on 1 with an experienced investor/mentor.

5. Buying process
   Lastly it helps to document the buying process as part of your buying rules.  By this I mean you decide what steps you will go through to decide whether to purchase a property.  A typical list of things to consider as part of your buying process would include…

   Building inspection, yes/no.  Prior to unconditional date, yes/no.
   Online valuation prior to written offer, yes/no.
   Registered valuation prior to unconditional date, yes/no.
   Physical inspection of property envelope at council, yes/no.
   Title search and LIM by solicitor, yes/no.
   If anything turns up in envelope or solicitors info do you renegotiate or walk??
   Rental assessment in writing prior to unconditional, yes/no.  If existing tenancies how do you assess the accuracy of the information being provided by current property managers.  A good rule may be to ALWAYS ask for vacant possession and then negotiate new tenancy with existing tenants.
   Likely sale price in writing from agent for do ups.  Which agents and how many assessments do you get?

   I could go on but I trust that you get the picture.  Set clear rules!!

Learning to Like Yourself

Strange title for an article in a property investment newsletter I know but people who dislike themselves do not function well and therefore rarely succeed in life.

We have all done things to others and/or been on the receiving end of events and situations that wound us.  This is life and unavoidable.  However we are designed to have a certain “centredness”, a feeling of life being a good thing, an adventure.  Dr Stephen Covey refers to this as knowing where “True North” is within ourselves.  So how do we start to align our lives with our True North so that we can both enjoy our lives more and succeed??

Well no email newsletter is going to answer all those question but here are some things to get you thinking. You will need to take some action, maybe with counsellors or God to sort these things out.

1. Guilt and shame  Just like gravity exists whether we like it or not, there are principles that exist whether we like it or not.  We are designed to live our lives in safety, to feel loved and protected.  We are designed to operate with integrity in all areas of our lives.When we are not loved and protected and kept safe shame has an opportunity to invade our hearts and minds.  Whether it is being called stupid or ugly or something more invasive like sexual abuse, the absence of consistent love and protection leaves us feeling like damaged goods and worthless, often.  Failed marriages, divorce, premature death, loneliness, alcohol abuse, the list goes on.  They ALL leave marks that if not dealt with cause shame.  You will not function correctly if shame is invading your life.  You will operate from a base of low self esteem and perpetually sabotage your life and often your loved ones.  If you want to leave a meaningful legacy to your life then face your shame and get some help to get free of it.  God can set you free from shame.  Good counsellors can help you work through the issues.  But work through them you must, if you want to ever be really free.

   Guilt is the flip side.  We have all done things we wish we hadn’t done.  If you are somewhere now that is quiet, close your eyes and think for a second of the worst thing you have ever done.  As you think of it allow the emotions attached to that memory to surface briefly.  If major feelings of guilt are surfacing you need to deal with this.  You need to deal with the guilt and find forgiveness for yourself.  If you don’t you will spend your life hating yourself instead of dealing with the event for what it was, a historical mistake.  If you leave it festering it will not only control you emotionally but can manifest physically as disease.  In fact the word describes it well.  Shame and guilt create dis-ease.  A lack of peace and well being.

2. Self violation  You cannot find true north and live with integrity unless you stop doing the things that violate your conscience.  The psychiatrist who pioneered “integrity therapy” did so after finding himself unable to treat himself for manic depression.  One day he decided that he needed to deal with ceertain things in his life so he went and ended his long running affair with his mistress.  He then visited his wife and confessed.  He said “the feeling of peace that flooded me was unbelievable”.  He never suffered with mental illness again.What are you doing that violates your soul.  Are you stealing from your boss?, falsifying tax returns?, watching porn? binge eating?  It’s your life, you can exist or you can really live.  You have to stop devaluing yourself by violating your own integrity.  Now if you are unable to stop then you know you have a destructive issue in your life that is out of control.  GET HELP!!

   Interestingly I was talking to a new friend of mine this week whose job involves putting together teams of soldiers to protect people and property in war zones.  He said during our converstaion that the 3 things he looked for in the CV’s of soldiers looking to work for him were not their military training or letters after their name, but integrity, humility and character.
   These were the things that made a good soldier.  My friend is not a Christian or even religious but he knows that people who live by their “true north” are the best people to work with.

3. Comparisons Lastly for this month, do you live your life comparing yourself with others.  Every woman is prettier than you, every guy is smarter, richer.  This is a sure indicator of low self esteem.  You were created unique.  No one can be a better you than you.  You’re the only one.  Your life should be the pursuit of enjoying who you were made to be and to revel in your uniqueness.  You are meant to wake up wondering how to enjoy the day, not wondering whether the neighbours have bought a new car.

How to finance your portfolio with no money

So how do you turbo-charge your investing with no money??
Last month I mentioned 3 great ways to get going with your investing.

• Vendor finance
• Long term settlement
• Equity partners

So following on from there, lets look at other ways to keep investing.  If you are starting at zero you will be constrained in terms of strategy.  You need to either use one of the above and/or look for deals you can reassign or trade.  What you are doing is finding a way to get control of your first deal or to make your first deposit.   You will be frustrated in the early stages but you have to put the effort in to get the results.  If you can find the money for the courses go and learn about sandwich lease options.  They are another strategy that requires no money.  Find a way to get started using the above ideas.

One creative idea I heard of was a young lady who found a section for sale very cheap that she knew she could trade.  However she had no money saved and needed 20K deposit.  She went and applied online for a credit card with every bank she could think of.  Four of them approved her for a 5K limit card.  She took them all, withdrew 5K from each and paid the deposit.  She then immediately onsold and came out with about 40K profit if my memory serves me correctly.  You need to decide how you will get started and then start.  Find a way.

So once you are over that initial hurdle and actually own a property or have a deposit to start investing how do you keep going?

Number one critical point, get in front of a good investor capable mortgage broker.  I cannot stress this enough.  A good broker will enable you to keep going by advising you on which deal you need next.

You see we often tend to get hung up on debt servicing issues without looking at the bigger picture.  A good broker will help you manage your borrowing until you reach the point of critical mass where it gets easy.

So lets look at a typical scenario and see how to do things better.  Many thanks to the investors who supplied their info.

Investor bought 4 rental properties all cashflow positive after-tax:

(a) $46K Aug 2003
(b) $115.5K Oct 2003
(c) $163.9K Apr 2004
(d) $203K June 2004

Then ran out of deposit money and since sold two properties to get going again:

(a) $126K Feb 2006
(d) $253K Jun 2006

Mortgages now:

(b)  $12.4K (used (a)’s sale proceeds to pay this one down)
(c)  $132K

Current situation:

Equity = $245.6K in (b) and (c)
Cash = $80K (from sale of (d))
2 IP’s

What could they have done differently?

Well firstly they could have refinanced the equity out of all 4 IP’s and set up a revolving credit facility for further deposits.  This would have left them with 4 IP’s instead of 2 growing in value and supplying income, the ability to keep investing and their larger portfolio and therefore cashflow would make it easier for them to keep getting mortgages.

Had they been working with a competent broker they would never have had to sell the 2 IP’s as this has moved them away from their goals.

So lets talk a little more generally.  If you are starting at zero you either need to trade or asssign until you have your first deposit, or use vendor finance, equity partners, long term settlement or sandwich lease options to get control of a property no money down.

But once you have started and you hit a wall what are the steps to get over, under, around or through it?

First thing always is sit down with another investor or mentor and make sure you know what your situation is.  Often we think we are worse off than we are.  I have met with 20 or 30 people in the last 2 months who thought they were unable to invest any further.  In every casae we found a simple solution.  They were often so concerned over lack of cashflow or stressed about getting a mortgage approved that they didn’t take a “How can I” approach.

Sit down with your broker and let them see what angles they have.  NOTE: All brokers are not created equal.  I have put probably a dozen people onto new brokers in the last few weeks who had been told by their now previous brokers they couldn’t borrow any more money.  They all could!!

I also had a phone call yesterday out of the blue form someone who related going into their bank and being told point blank they couldn’t borrow any more money.  Next day they were preapproved for FIVE MORTGAGES by going to see the right person.

Write down your new strategy based on the results of 1 and 2.  You see [fname] there are really only 2 reasons ever why you can’t keep building your portfolio in terms of finances.

A: Your debt servicing or LVR has gotten way out of whack.  Now this only happens because you didn’t have good buying rules that you were sticking to OR you have had a left field event.  However both of these servicing issues are solvable by trading properties to create lump sums of cash to lower your LVR and increase your cashflow.  In addition with low doc mortgages you can get around this hurdle anyway if the next deal is good enough.

B: The MAIN reason you will stop building your portfolio is not a practical issue.  I find this week after week as I meet struggling investors.  Some well meaning but ignorant person has told you that you can’t or shouldn’t buy any more.  Your bank manager said you have too much debt.  Your accountant tells you property is going into a slump.  Your broker says you are out of capacity.  So many people just like you go “Bummer, we can’t invest anymore.  You believe the lie that the wall is too big to get over.

Understand that this is a load of old cobblers.  There is ALWAYS a way forward.  There are so many ways to make money out of property, anybody who tells you otherwise is not to be listened to.  Especially when it’s your hairdresser who has rented all their life whose idea of wealth is buying 2 lotto tickets on Big Wednesday instead of the usual one!!
Do you get it?  The walls are in your head!!  Many of us need to start messin’ with the demolition man and see those walls come a tumblin’ down.

Finally let me say this. It is essential that you maintain a big picture focus with your investing.  I hear day after day that “I have to stop investing because I don’t have sufficient cashflow”.  Now I understand that cashflow is king BUT it is only one of the ways that property pays you.  If you need more cashflow because you actually have zero surplus cash every week and even with your IP’s tax benefits you can’t afford to put gas in your car then you need to learn to TRADE property to create cashflow!!  Get used to it.  You are going to have to develop a new skill.  If you are willing to learn however then you will achieve your dreams.  Alternatively look for deals with a twist or multiple income opportunities that will give you the cashflow.  Are they hard to find? yes.  Does that matter? NO!!  Keep hunting till you find them!!

But for the majority of you who don’t worry about paying your bills keep the bigger picture in your head.  If you have to choose between putting $30 a week into an IP that is increasing in value by $300 a week and will pay you money for the rest of your life OR buying lunch twice a week, why do so many of us take the lunches and never buy the property??
Anyone got a sledgehammer??

What goes on “Behind Closed Doors”

Our first ever workshop has nearly sold out without doing any advertising so this is just a heads up that if you are thinking of coming you need to register NOW!!
We will run additional workshops and possibly take ourselves on the road if there is sufficient interest but at this stage it may be a oncer, so please come if you can!!
We have been specifically asked to consider a South Island workshop so if there are any mainlanders out there who can’t get up to Auckland please email me with your interest and we’ll set it up if there’s enough of you.
More info here

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September 2006 Newsletter