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| Money Making Property Strategies | Pinnacle Wealth, 1/27/2003
As most people know, there is a major demographic change taking place in our society. Simply put, our population is ageing. This means fewer employees paying taxes and more people eligible to claim benefits. The Federal Government Treasury Department has predicted massive budget deficits going forward. Whether the Government will be able to support everyone in retirement is a question that is difficult to answer.
Now some of you will say “Superannuation is the answer”. Not according to the Treasury Department. They have predicted that still 70% of the population will be eligible for the aged pension in some form even with superannuation.
Even if the Government did provide for you in retirement, is it the retirement you would want anyway? According to the Australian Bureau of Statistics, currently just over 50% of retirees live on an income of less than $8,000 per annum. Another 26% live on an income of between $8,000 and $12,000 per annum. Not much of a retirement provided by the Government is it?
So how do you provide for your own retirement? Superannuation helps but is unlikely to provide you with the lifestyle most people aspire to. To create significant wealth you have to be a success in at least one of three areas. These areas are property, shares and business. For the majority of people, the safest and surest way to create wealth is through property investment.
Most people think property is only a long-term wealth generator. However, you can generate both long term and short term wealth through property investment. For those that understand the property market, and how to find the “millionaire makers” and choose the properties that will generate excellent capital growth, they can generate significant wealth over the longer term.
98% of people who buy property only operate in the retail property market. That is, they buy property after a home open inspection or they see an ad in the paper. They also use conventional property financing, where you borrow about 80% of the value of the property. Most property investors who use this strategy only buy 1 or 2 properties in their lifetime
Not everyone has the time or inclination to wait long term to generate property wealth. There are ways you can rapidly increase your property wealth. You have to understand the secrets that successful investors use to build their property fortunes and put that information into action.
There are 3 ways that successful investors fast-track their property wealth and you can too, if you use these strategies.
Fast-track Strategy 1
Firstly, you have to look at adding value to property. Rather than waiting for capital growth to increase the value of your property, you have to add the value yourself. You can do that by adding value to the land (through zoning changes or subdividing) or through renovating the building structure. For most people the easiest way to add value is through property renovations.
What is the benefit of renovating property? Let’s look at an example.
Let’s say that you buy a property for $150,000. Your settlement costs are around $5,000 taking your total investment to around $155,000. You spend $50,000 on renovations and the property is re-valued at $240,000. So what have you just done? You have added $35,000 of instant equity! Not only have you made money, you will be able to rent the property out for a higher amount.
Also you can refinance the property based on the new revised value of $240,000. At 80% of value, this would be $192,000. Your total investment cost is $205,000, meaning you can borrow almost all of the value using conventional finance. If you use alternative financing you can likely borrow the entire cost of your investment.
And what can you do with that new found equity you have created? Go and buy more properties and do the same thing! The great part about this strategy is that you don’t pay any income tax or CGT on these renovated properties unless you sell. No sale no tax.
Fast-track Strategy 2
The second strategy you have to look at is buying property at a discount to market value. There is rarely any need to pay retail price for property, yet that is what most of the population do. There are 15 ways you can buy property at a significant discount to market value and these are covered in Module 3 of the Pinnacle Property Masters™.
You may have heard that the share market is an “efficient” market. The property market definitely isn’t. At any given time there are thousands of properties on the market in any city and each property is unique. There is no property exactly like it and each property has its own market value.
In addition each seller is in a different position to anyone else. Unless you know the sellers circumstances you have to assume that everyone is equally negotiable. Because of the vast number of properties on the market it is impossible for anyone to be familiar with any more than even a few percent of the properties on the market at any time. That’s one area where the opportunity lies.
Fast-track Strategy 3
The 3rd way you can fast-track your property portfolio is to use the advanced property financing strategies. There is a whole world of finance apart from the banks and if you want to build up your property portfolio quickly then you need to understand the creative financing solutions.
Wealthy investors love debt. The poor and middle class are scared to death of debt. There are 3 types of debt. They are horrible debt, tolerable debt and productive debt. Horrible debt is borrowing for things that depreciate in value. They are worth less and less every year. These are things such as cars, tv’s stereo’s and furniture. Worse still this debt is usually not tax deductible. This type of debt is horrible and should be avoided at all costs.
The next type of debt is tolerable debt. This debt is used for the purchase of appreciating assets but the interest on the debt is not tax deductible. Typically this is borrowings that are used for the purchase of a primary residence. While paying non-deductible interest is bad for your wealth creation strategy, at least the asset (if well selected) may increase in value.
You may hear some overseas “experts” tell you that your home is a liability. That could be true for the USA where the annual property tax on a home may be 4 or 5 times as much as it is in Australia. But for most people in Australia, their principle residence is their first step at asset building and this type of debt is tolerable.
The trouble is that most of the poor and middle class people only use horrible debt and tolerable debt. They never use productive debt. Successful investors tend to use productive debt. That is debt that is used to purchase assets that are going up in value and the interest payment on the debt is fully tax-deductible. Productive debt is what creates wealth.
This is an abridged version of my recent short presentation at a recent convention and exhibition. If you would like to learn more about these topics and anything else covered in the Pinnacle Property Masters™ click here.
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Article by Damian Collins from Pinnacle Wealth Property Masters Home Study Course.
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1. Moneybags Pty Ltd does not take into account the investment objectives, financial situation and particular needs of any person; and
2. Before making an investment decision on the basis of any investment products, the investor or prospective investor needs to consider, with or without the assistance of a securities adviser, whether the advice is appropriate in light of the particular investment needs, objectives and financial circumstances of the investor or prospective investor. |
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