Successful Property Investing

The Basics







Victor Kumar








2


Table of Contents




Introduction

3
Chapter 1: Decide to be Wealthy.Today! 4
Chapter 2: Types of Properties 9
Chapter 3: Research 13
Chapter 4: Property Purchase Ownership 15
Chapter 5: Holding Properties in Trusts or Company names 17
Chapter 6: Using a Property Advocate 18
Chapter 7: Negotiating a Price 19
Chapter 8: How Real Estate Agents are Paid 21
Chapter 9: Exchange to Settlement 22
Chapter 10: Saving for a Deposit 24
Chapter 11: Putting your Home at Risk 26
Chapter 12: Getting the Right Team 30
Chapter 13: Have Finances ready before Investing 31
Chapter 14: Finding the Right Tenants 32
Chapter 15: Have Safety Nets in Place 35
Chapter 16: Getting your Refunds earlyand other Perks 38
Chapter 17: Share Vs Property 40
Chapter 18: Getting Started 41

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Congratulations on your decision to purchase this
book, the first of a series in successful property
investment.

I have deliberately kept the contents of this book very basic, for it is
in the basics that many investors get derailed, and therefore get
burnt. The intent of this book is to give you answers to the more
commonly asked questions of most investors, novice and
sophisticated, when they start building their portfolio.

In investing, true success is derived by going about things in a
structured and planned manner, thus avoiding the pitfalls. The best
way to obtain a different result is to DO things differently. Eighty
percent of investors who purchase property end up selling within
the first eighteen months of ownership, because they have not got
their foundation right.




Victor Kumar is a
successful property
investor, licenced
Buyers Agent and a
family man.

The foundation starts with a mindset: you need to have the right
mindset to invest successfully. Society has programmed us too
rigidly to accumulate wealth effectively, unless we change the way
we do things. This is the reason why in the very first chapter I talk
about deciding to be wealthy.

The next thing you need for your foundation is to know the basics.
Know at least some of the rules, and surround yourself with a
successful team that specialises in property, and are actually doing
it themselves. Working with this team will save you time and money
and help you reach your destination faster.

Exit strategy is not dealt with in this book, as there are many ways
you can use to derive your profits. This depends on the strategy
that you use, and your mindset. In the forthcoming books, I will
discuss buying strategies, financing strategies, and then the holy
grail of property investing - retirement (exit strategies).

With this, I wish you successful investing.



Victor Kumar
Director and Founder
Right Property Group



4

Chapter 1

10 Steps on the Road to Wealth

Decide To Be
Wealthy.
Today!

I migrated to Australia in 1997, and had faced the monumental task
of getting somewhere in life. Therefore, I started studying
successful people around me with the purpose of discovering what
their secrets were in wealth and success.

The best piece of advise I got was from reading one of Robert
Kiyosakis books, Rich Dad, Poor Dad, where he stated that
in order to get a different result, you need to DO something
different.

This started me on the quest for financial freedom and personal
development. Over the years, as I became more and more
successful, I could directly attribute my success to the books that I
read, the seminars that I had attended and to the people I
surrounded myself with from whom I built my inspiration.

This is my attempt to provide you with a step-by-step guide on how
to achieve success, based on the multitudes of seminars and
courses that Ive attended and books which I have read. As well as
this I will share things Ive learnt from my own life experience, and
the results I have been able to get for my clients over the years.

These are decisions which I make consciously every day, and I am
certain they will inspire and aid you to become wealthy as well.
Based on my experiences, the definition of wealth varies from
person to person, depending on your beliefs, as well as your
emotional and spiritual fingerprint.

Step 1

Decide to be Wealthytoday!

Most people do not become wealthy based on the simple fact that
they decide fairly early in life NOT to become wealthy. They
believe that wealth is for the greedy and the lucky and therefore
they just do not have the attributes to be wealthy.

The fact is that it is very easy to be wealthy, and you dont have to
be greedy or lucky to be wealthy. What you do need is the right
frame of mind, and the conscious decision to start doing activities
that will get you closer to wealth TODAY, (not Ill start from
tomorrow). Your decision must follow immediate action.

So, make a decision to be wealthy, even if you are broke and
penniless today.

The difference between being poor and being broke is
that, being broke is TEMPORARY, whereas being
poor is a state of mind.


5


Step 2

Decide what kind of money problems you want


Decide To Be
Wealthy.
Today!

There are really two kinds of money problems you can decide to
have: not enough money or too much money. I know which
problem Id rather have!

In order to be wealthy, you must first decide how you are going to
utilize the excess cash coming your way to create more money.
Most people foolishly spend the excess funds that they receive on
unnecessary purchases. This is because they have not made a
decision to use the excess cash that they have to make more
money. What have you done with your tax refunds this year? Are
you using it to make money?

Think abundance, think of money being easily available to make
more money. Think of HOW you are going to invest this extra
money.

Step 3

Know where you are today

You need to know exactly where you are financially today before
you can decide where you want to be financially within a year, two
years or even ten years, and how you are going to get there!

Its like having a GPS in your car, or using Maps on your phone.
You may know where you want to go, but FIRST you need to
identify where you are now, to be able to plot the easiest route to
your destination, or even the scenic route. Remember, it is YOU
who is driving!

Step 4

Write your plan and follow it step by step

Now that you have identified your destination and your starting
point, you need to plan your trip. Set up milestones, so that the trip
is not as daunting, and you will be able to see the results.

Plan on:

1. Getting your money to work for you 24 hours a day

2. Getting into good debt, the type that makes you money.
Convert your personal debt into investment debt

3. Investing in well-researched real estate aligned with your
goals

4. Structuring your finances to protect your home, and use the
tenants and tax-mans money to help pay off your personal
debt

6

5. Setting up a good safety net, so that your debts are covered
if anything were to happen to you

6. Reinvesting your profits, and rebalancing your portfolio

7. Reviewing your plan regularly

If you are willing to become wealthy, and retire early, I can help you
develop a workable plan. If you are already wealthy, then I can help
you with plans to become even wealthier. The choice is yours!


Step 5


Reward yourself
Its not all about making money. You have to have fun along the
way or otherwise the trip will be boring and hard.

Plan to reward yourself each time you reach a milestone. After all,
you do deserve a pat on the back, and who can do this for you but
YOU. The reward itself does not have to be lavish: perhaps a
weekend away for you and your significant other, or maybe a quiet
time at the movies would be relaxing enough for you.

Step 6

Assemble a team of professionals around you

Get a team around you who will work with you to achieve your goal.
This will be an effective team because they will only make money if
you are successful, which is a powerful motivation in any language.
However, you must be open to pay for their advice and service.

Get professionals who are smarter than you are, and practice
what they preach.

Decide not to take advice from anyone else. They may mean well,
but do they have they the runs on board to be able to advise you, or
are they merely giving you their (misguided) opinion?

Step 7

Use time as an ally, and be patient

It requires time and patience to build a portfolio. And it is not likely
to happen overnight. Building wealth is not the same as working on
a job, where you get paid at the end of the week or fortnight for your
efforts. Investment is all about delayed gratification. Many people
get impatient and sell their investments to see how much they
have made, and lose thousands in unrealised income in the
process.

With an investment portfolio, you may not get paid for years. This is
all the more reason for you to be patient, and let time do its magic.
Over time, the right type of investments will invariably grow
substantially in value.

7

Remember your house? How much did you pay for it when you
bought it? How much is it worth now? How much do you expect it to
be in say, 10 years time? The longer you hold your investments,
the more money you can earn from it.

I recommend that you remain focussed on your long term goals.

There was a quote that I once read, source unknown, which went
something like this:


You may lose many battles along the way, before you
win the war

I guess the same could be true for investments. Use each setback
as a lesson to move forward, and learn from your mistakes. More
importantly, learn also from the mistakes of others who have
already done it.

Step 8

The magic of thinking big

Dream big, aim high. If you aim for the stars, even if you fail, at
least you would land on the moon.

Many people start small and stay small. What you need to do is to
get out of your comfort zone, stretch yourself so that you will start
achieving. As Jim Rohn once said:


You dont have to be great to get started, but you DO
have to get started to be great

Dont wait until the market is right, or next year. Start NOW, and
take the necessary steps to do something different, dare to dream
the dream of being financially secure, of not having to worry
about holding down a job to survive.

Set your first goal to replace your income with passive investment
income, then aim to double it. Do something different to what you
are doing now, and what the 95% of other mediocre people are
doing. By doing something different, you will get different results.

Step 9

Move forwardfast

Before you can move forward fast, you need to get rid of all your
excess baggage! Forget about what you did yesterday, or what you
could have done. If you want to be better financially tomorrow, you
need to tighten your activities today, and make a conscious
decision to take massive action and change your thinking.

Read inspirational books, or if you are not much of a reader, listen
to inspirational audios. With this, I am not referring to spiritual stuff,
but to items which the more successful people share freely with
others. Examples of these would be information on how they have
done it, or how to books. Many are available for free on the web.
8

Use them to propel yourself forward and to help keep a positive
mind-frame.

Decide to reach a certain milestone by a certain date, and do
everything that you can to reach your goal.


Step 10

Choose your friends and partners wisely

If you look around you, your friends would probably be in the same
financial bracket as you are. We are all significantly influenced by
our environment, and constant interaction with a certain type of
people will produce a certain type of result for us.

Rub shoulders with successful people; choose to spend time with
quality people, and move out of your comfort zone.

Summary:

Being wealthy is a frame of mind. You have to decide to be
wealthy, and remind yourself along the way that you are
ENTITLED to be wealthy. Define what wealth means to you, and
pursue it relentlessly.







9

Chapter 2

Types of Properties



In my opinion, properties that are purchased should be divided into
two categories: the ones that put money in your pocket (positive
cash flow), and the ones that take money away from you
(negative cash flow). These can then further be subdivided into
the types of properties. However, before we move on to describe
the types of properties, we need to first define positive and
negative cash flow.

Positive cash flow is when there is a surplus of money left after
you have paid out all your outgoing payments such as mortgage
payments, agent fees, rates etc. There are two ways a property
can generate positive cash flow: The first way is when your
return, after deducting depreciation and other tax deductions,
is combined with the net rent, producing a value that is above
the required costs of holding the property. We will discuss
depreciation in more detail later.

This depreciation method of attaining positive cash flow only works
when the title holder is still in the workforce and is paying tax, and
therefore is limited to the amount of tax he pays each financial
year.

The other way to achieve a positive cash flow is to have the
rentals cover ALL expenses.

Essentially, you are looking at a net return of at least 8% (assuming
rates are below this amount, of course.) This type of cash flow
requires investment on a particular type of property, which may be
harder to find than a negative cash flow generating property, hence
the popularity on negative cashflow properties.

Often investors try to make a property generate positive cash flow
by placing a larger deposit on the property. This is not a smart way
of leveraging on your money, as you are tying up your money to
the property, as these funds could have been better utilized on
several other properties.


The secret of successful investing is to use other
peoples money (such as from the bank) and limit the
use of your own. If you have used your own money, try to
extract that capital out as soon as possible, so that it can
be invested elsewhere. The less money from your
savings you use, the better. I call this recycling your
money or the Duplication Process.


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Types of
Properties
Negative gearing is a term that is often used incorrectly as far as
property investment is concerned. The word gearing itself means
leverage, which involves using a lot of other peoples money, while
keeping the use of yours at a minimum. Since people often buy
properties generating negative cash flow, the use of the term
negative gearing has stuck.

Negative cash flow properties are investments in which the
outgoing payments are far higher than the incoming rentals, even
after you take your tax deductions into account. These are cases
where capital growth is likely to be far greater than the costs of
holding the property over the short term.

These type of properties should only be purchased after careful
research and portfolio evaluation, as people have often made
these purchases hoping for an increase in value, and also because
it is the right thing to do. More often than not, these purchases are
made because of a gut feel, and because Uncle Jim or the real
estate agent said it would go up in value.

Holding these properties may cost anywhere from a few dollars to
several hundred dollars a week to hold, and therefore reduce the
capability of the investor to invest further without compromising on
lifestyle. With this, many of these properties have to be sold within
a few years.

In conclusion, a negative cash flow generating property should
only be bought when the negative cash flow is minimal.
Remember, several negative cash flow generating properties will
add up, and cost you hundreds of dollars a week out of your hard
earned money. Essentially, you would still be working, and paying
for someone else to live in your property. Unless the overall
strategy is clear, this situation would definitely turn people off
investing!


Types of Properties

These are some common property types that one can invest in,
each having its own advantages and disadvantages. I have the
most common ones explained below but this list is by no means
exhaustive.

Residential 1. Houses

Advantages:
Everyone needs somewhere to live, and if the rent is reasonable,
you will attract tenants who are families, and therefore not likely to
have a high turnover. If selected correctly, this type of property will
appreciate in value. Furthermore, it is fairly easy to rent out.

Disadvantages:
Houses usually generate negative cash flow. Also, if the property is
not located in a high-growth area, the capital growth may not be
adequate to justify for this. Of course, this is price and rent
dependant
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Caution:
Research well. The calibre of the property and location of the
suburb will determine the quality of the tenants, and the number of
vacancies you have.

Residential 2. Units

Advantages:
Units are ready to be rented out especially to young people who
have just moved out of home.

Disadvantages:
You are in direct competition with the rest of the landlords in the
same building, and your ability to rent is determined by how low
your rental is in comparison to other units within that block. You
are also governed by the strata by-laws.

Caution:
Unless there is a SIGNIFICANT chance of strong growth, buying
units with pools gyms and elevators will often lead to increased
holding costs.

3. Vacant Land

Advantages:
The value of vacant land may go up in value if bought before
registration with the land titles office as a separate title, or during
the early stages of development.

Disadvantages:
There is no tenant to help contribute towards the mortgage
payments.

Caution:
You may only be able to claim a tax deduction on the holding cost
of the property for probably a year or so. This is the period of time
within which you can convince the ATO that your intention in
holding the land is to build an investment property, and you are in
the process of organising this. Speak to your accountant for more
details.

Types of
Properties
4. Holiday/Serviced apartments

Advantages:
The value of serviced apartments may appreciate substantially in
value. You are also able to spend time there, for free!

Disadvantage:
As rentals are seasonal, the holding costs may be high due to the
payment of management fees applicable.

Caution:
The management fees can take a significant chunk out of your
takings. Check the management agreements, and verify that their
12

past performances indicate that they are capable of letting out the
property.

Commercial 1. Industrial units

Advantages:
With industrial units, you are likely to get long term tenants, who
are not likely to move out suddenly. Normally you will get three to
six months notice before the property is vacant. Tenants may also
pay all outgoings such as water rates.

Disadvantages:
It may take a while for you to get a replacement tenant and while
you wait, your holding costs will increase significantly.

Caution:
Check out the general types of businesses operating within the
area, and find out whether your unit would be appealing to these
businesses.

2. Office blocks

Advantages:
Office blocks involve long-term leases, usually three years with
the option to renew for another three. You can also subdivide and
sublet the office space to several tenants.

Disadvantages:
Once your existing tenant has vacated, finding another tenant
may take a while.

Caution:
Find out if the shop or office space is appealing enough to the
types of businesses around you and whether there is enough
traffic to support this type of business.


These are but only a few types of properties that you
can invest in. As you become a more sophisticated
investor, there are other types of properties which you
will find opportunities to invest in, and in which is beyond
the scope of this book.




13

Chapter 3

Research




Before purchasing or deciding on an area to make a property
purchase, the following research on the specific suburb needs to
be conducted. In actual fact, the research needs to commence
from a general overview aspect and move down to specifics of the
property being considered.

Start with:

Finding out the current situation of the countrys
economy. With this in mind, you can then decide on your
overall strategy.

Educating yourself on the latest happenings within the
state of the suburb you are keen on. Are there any laws
that you need to take into account when implementing your
strategy (e.g. NSW vendor tax)?

Analysing if there is a difference in conveyancing laws if
you are residing in a different state.

What is happening in the suburb? Areas to look into:

1. Does the area have a high rental demand?

2. Changes to infrastructure

3. Any major shopping centres going up?

4. What does the majority of the population in the area do?

5. What are demographics of the area?

6. What is the median price of property in the area?

7. Are there any imminent changes which will affect your
investment negatively?

8. What is the new price point being dictated by brand new
properties?

What is happening in the street?

1. What do the other houses look like? Do you have the
best house or the worst?
2. Is the street tidy, or does each yard have a wreck sitting
in their front yard, which hasnt been touched for ages?
3. Is there a lot of graffiti? What vibes do you get when you
drive into the street? The quality of the environment will
14

determine the quality of the tenants.

Research

After conducting general research, you can then have a closer
look at the property itself in order to decide whether it is suitable
for your portfolio. Remember, YOU will not be living in it, so bear
in mind what sort of tenants you are likely to get on the property. A
dump of a property will not be able to attract reputable and
professional tenants.

Some useful research tools are:

http://www.rightpropertygroup.com.au
http://www.domain.com.au
http://www.realestateinstitute.com
http://www.realestate.com.au

Additionally, you may also look up websites of local councils and
state revenue offices.




15

Chapter 4

Property Purchase Ownership


When purchasing an investment property, the holding cost will
be dependent on the way the ownership of the property has
been structured. Additionally, how capital gains are treated
when and if you decide to sell the property is also an important
factor.

Traditionally, when first time investors decide to make a property
purchase, they do not consider long term implications and end
up purchasing under joint names. This is potentially the worst way
you can buy property. The reasons for this are pretty simple.

The tax benefits on an investment property are shared equally
amongst the title holders or property owners. Assume that a
particular property, bought for $230,000 and rented out for $210
per week is bought under joint names by a couple, who each earn
$40,000 per year. These are other facts which have been taken
into consideration in order to calculate the holding costs of this
property:


Interest rate: 7%


Agent fees: 7.7%


Letting fee: One weeks rental


Building Cost Base: $100,000


Fittings: $13,000


Rental: 210 per week


Vacancy rate: 2%


Based on the rates above, the holding costs for this property is
$69 per week after tax. In my opinion, this is not a fantastic
investment property unless you are making substantial equity as
it is too negative in cash flow. (To calculate, purchase
investment analysis software such PIA
1
)



Lets say that the couple wants to start a family, and the mother
decides to stay at home for the next couple of years as a home
maker. As the tax benefits are now essentially halved, the cost of
holding this property now is $112 per week. Note that nothing has
changed except the fact that one partner has stopped working,
and this will now make it harder for the couple to hold on to the
property.


1
holding costs takes into account 2014 tax rates



However, if the same scenario is applied, except that the husband
now owns the property under his name only, the holding cost
remains unchanged at $112 per week, regardless of the income
status of the partner. Whilst in my opinion, this property is way too
16

expensive to hold, and generally not the correct type of
investment property to buy, what I am trying to illustrate here is
that the ownership determines the holding cost. Structuring
the ownership according to your life plans is crucial, as you will
have certainty as to what the property is going to cost you.

The above illustration is a clear example of what a novice would
do on buying a property, and end up buying a heavy negative
cash flow property. In this example, the cost of holding this
property is $485 a month, which is madness if you are only
earning $40,000 a year. A rate increase in one of the costs or a
situation of prolonged vacancy and you are wiped out! This is the
type of property most investors end up buying because they do
not have expert guidance!

Hence, when examining your options from a cost basis of
holding a property, it is essential to think forward into the
future, on what you are planning and what will likely happen to
your respective incomes. This way, you should then make the
property purchase on the name of the person with the most stable
income, and who will also be likely to get the most tax benefits.

Disadvantages of holding property in a single name

One of the major disadvantages of holding property in a single
name is that the person owning the property has full rights to
dispose the property, without the consent of the other
partner. This will put the other partner at a disadvantage as he or
she may be on the mortgage, and therefore is fully liable for the
debt of the loan.

In a divorce situation however, the Family Court recognises that
the property had been held under such a structure for taxation
reasons, and therefore views the property as being jointly owned.

Think five years ahead when considering which
person should own the property. If the intention is to sell
the property within the first two years, it may be prudent
to keep the property in the name of the lower income
earner to reduce capital gains tax when selling.


17

Chapter 5

Holding Properties in Trusts or Company
Names





There may be some investors who may choose to hold their
properties in trusts or company names. These options may be
advisable for property owners who may face a risk of legal action
because of their professions for example, doctors or lawyers.

This method of ownership has its distinct advantages and
disadvantages:

Advantages:

The income from property investment can be distributed to any of the
shareholders/beneficiaries of the company owning the property.

1. If the intention is to sell the property within the first year,
then the capital gains is taxed at a maximum company
rate, which is 30%, as opposed to the maximum individual
rate, which can be as high as 48.5%.

Disadvantages:

1. Land tax is payable from the moment the property is
purchased. There is no threshold allowed before land
taxes are applicable.

2. The negative gearing effect cannot be passed on to
the individual, unless the trust is a hybrid trust. This may
be reviewed by the ATO from time to time. Your
accountant will be able to advise you further on your
particular situation. If your accountant does not know, or
says it cant be done, dont get disillusioned. This just
means that he or she is not specialized in this area. Would
you go to a GP to have brain surgery? Of course not! The
GP will refer you to a specialist, a brain surgeon. The same
is true for every profession. No one is an expert in
everything.

Ownership under companies or trusts should only be undertaken
after consultation with an expert such as a taxation advisor. Dont
get sucked into expensive structures to hold your properties just
because someone is standing on a stage and saying thats the
way to go. Seek independent advise from qualified property
advisors.



18

Chapter 6

Using a Property Advocate

One of the easiest and time effective ways to search for property
is to hire someone to do the legwork for you. This way, you will
be assured of finding a property fairly quickly without wasting a
significant amount of your own time.
Naturally, before you start engaging someone elses help, you
must be absolutely sure of the type of property that you want,
which is aligned with your exit strategy.
Property advocates are real estate agents representing
buyers, and charge them a fee for finding the property. If they are
able to negotiate a fee from the seller or vendor, they will reduce
or refund the fees applicable to the buyer. Some will also require
a commitment fee before they start looking.

Some agents may implement the fee as a finders fee, while
others will simply work off a standard real estate sales contract.

Whichever the type, a good property advocate is worth their
weight in gold, especially if you have a good strategy in place,
but are unable to source for a property due to time constraints or
lack of experience.
Before deciding on an agent, you need to ensure that he or she
has the capability to seek for properties that match your
specifications, and not what he or she perceives you need. In
order to verify this as best as you can, request for testimonials
and more importantly ask for performance guarantee before
handing any money over.

I worked on the initial stages of building my portfolio with property
advocates who actually have a proven track record of owning
several investment properties themselves, and have used
multiple strategies to trade or buy them.

Over the years, these property advocates have saved made me
thousands of dollars in profit, and I am glad to pay them their fees.
This is because I know that engaging them helps me to get closer
to my goal .faster!

Of course, now I am a property advocate myself and help my clients
secure multiple properties in a very short time frame.



19

Chapter 7

Negotiating a Price

One of the rules I have when searching for property is to look for
the ones that have been listed for more than three months.
The reason behind this is fairly simple: The property has been in
the market for a while, and the vendor no longer has high
expectations of the price now. The real estate agent is also
now a bit disillusioned as he has not been able to move the
property in order to earn his commission. More importantly, he or
she would have already begun to condition the vendor to start
considering a lower offer.

I normally start by finding out the vendors motivation is to
sell. Is it because they are moving interstate? Is it because they
are going through a divorce? Or is it because they are in a
financial strife? Careful questioning may get you the answers. I
normally inform the agent that it would be OK if we went to inspect
the property while the seller is still on the premises. This gives me
an ideal opportunity to ask the seller directly why he or she is
selling. This way, you can spot a fib a mile away!

The best start to a negotiation on a piece of property is to win the
agent over first. Impress upon him that you are a serious buyer,
that you already have finance in place (which is also a prudent
thing to do), and that you are likely to buy several properties in the
area.

Dont be afraid to make a low offer, majority of the time they do
stick!

You would probably have to make several of such offers
before getting an offer accepted. The secret of
making money in real estate is to make the money
at the time of buying. When you buy at a lower price,
the cost of holding the property and the eventual capital
gains you make will be far greater.


Needless to say, most of the time the offers will be rejected. The
vendor may even come back with a counter offer. I normally ask
them at this stage, What do you think is a fair middle ground?
Invariably, most agents will come back with a price range
closer to 10% below the asking price, which I find most
agreeable.

Now, I get the agent to sell the price to the vendor, and there is a
win-win situation: I have managed to buy a property at a
percentage below market value and the vendor has been able to
get rid of a property that he or she has not been able to sell for
the past three months or more.


If you are really serious about buying a particular property, get it
20

valued at a very conservative price, by hiring a qualified valuer
and instructing him or her to do a fire-sale valuation (the price it
would sell for within 6 weeks) and present this to the agent. Make
an offer of a few thousand dollars above this price, and you will
usually be able to walk away with a bargain.

I do this not with a sense of lets rip em off but with a sense of
this is business, and I have the right to negotiate. At the end of
the negotiation, both parties will walk away satisfied with the
price, or otherwise there will be no sale.


There is no place for emotion in investing. The lower
the prices negotiated for, the stronger the property
portfolio will be.

Having said all of this, the amount of money you get off the listed
price shouldnt be the yard stick of whether you have secured a
bargain. Often vendors who need to sell list their properties at a
very sharp price and there generally isnt much movement in
price. You need to recognise the propertys true value.


21

Chapter 8

How Real Estate Agents Are Paid

There are good agents, and there are bad agents, like in any
other industry. As most buyers tend to interact with an agent only
once or twice in their lifetime when purchasing property,
understanding how agents get paid and the knowledge that they
have is the last thing on their minds.

Of course when you start investing, chances are that you will be
interacting with the agents of your choice quite often. Therefore, it
is prudent to know the type of training which they have
undergone.

I regard the real estate agent as an important and crucial
part of my team. It is important to realise that the real estate
agent is on the vendors or sellers side legally, as he or she is
paid directly by the vendors. Additionally, real estate sales are
governed by rules and regulations in order to make the industry
fair. Having said that, real estate agents are paid commissions
from the sale value of the property, and do not make any money
until the property is sold.

The agent who listed the property gets part of the commission
regardless of who sells the property. If it is an exclusive listing,
then only that particular agency can sell it, whereas for multi-listed
properties, several agencies are engaged and allowed to sell.
Whoever gets the sale gets the commission and shares this with
the agent who had listed the property.

The commission rate ranges from 1 percent to 3 percent of the
sale price. Knowing this makes it pretty obvious that a price
reduction of say $20 000 will only make a difference of only $200
in the agents commission. Therefore, most agents are willing to
work with you if the offer is reasonable enough to get the vendor
to sell his property.

One of the common mistakes first time investors make is to
assume that the agent has good investment knowledge, and
therefore take his or her opinion on a particular property as
gospel. While there are some very successful property investors
who are real estate agents out there, a majority of them do not
possess investment properties at all.



22

Chapter 9

Exchange to Settlement


It is important to know the sequence of events in a property
settlement process. I am using the flow chart below to help
illustrate this. Most of you would already have a good idea on this,
but I feel that it is important to include this in the book because in
the rush of things, we often forget the flow and this is where most
of us get stuck.
Holding deposit

People often place a holding deposit onto a property, often with
the agents recommendation. The holding deposit does not
obligate anyone, and is merely an act of commitment by the
buyer. The vendor can still sell the property to someone else at a
higher price. Buyers often sign contracts at this stage. My
recommendation is to have the contract sent to your
solicitor first, unless you have experts guiding you or have
done this before.

Cooling off period

If contracts have been signed at the real estate agents office, then
you will have a cooling off period of 5-10 working days in most
states. When I need to secure a property immediately, especially
where I have negotiated a good price, I usually ask for a 10 day
cooling off period to allow me to do my checks without having to
rush through things. To pull out now would in most states, incur a
penalty cost of 0.25% of the purchase price. The vendor is not
allowed to pull out once he or she has accepted the contract.

Contracts issued to solicitor

This is where the vendors solicitor will send contracts to
your solicitor. There is still no obligation to you, but you have
now started incurring costs from the solicitor. The solicitor
will start ordering the building and pest reports, and your broker
will start organising the valuation. (It is imperative that you have a
written conditional approval first.)

Exchange of contract

After the contracts have been sent to the solicitor, formal
(unconditional) approval of finance is obtained. If the building and
pest reports are satisfactory here, the contracts are formally
exchanged, with a deposit incurred (10%, 5%, a deposit bond,
or any other agreement). After the point which you have signed
contracts with the agent, then the contract is allowed to cool off.


23

Exchange to
Settlement
Mortgage documents signed

The lender will issue mortgage documents which you need to
sign. There are conditions placed on you by the lender that you
need to satisfy before settlement can take place. One of these
conditions is adequate insurance on the building, provision of a
certificate of currency of your insurance with the lender noted as
the interested party.



Mortgage documents arrive

Mortgage documents arrive. Your solicitor will explain the documents to
you and help you execute this. These documents will be sent back to
the bank with the relevant searches and insurances. The bank will need
a certificate of currency of your house insurance, with them being noted
as the interested party.

Settlement is booked

The settlement is booked, and the solicitor advises you on the
settlement date. Depending on your financial structure, you may have
to organise a few more cheques. It is prudent to inspect the property
again before settlement to ensure that the property is still in the same
condition as you originally saw it.

Settlement occurs

If the property is vacant, pick up the keys and get it ready to be leased.
This is a good time to get the quantity surveyor to come in and prepare
the depreciation schedule.

Ensure leases are in place

If the property is already tenanted, ensure that there is a lease in place.
If vacant, give the keys a couple of real estate agents and whoever gets
the first tenant in at the rental you desire, gets the management rights.
Screen your tenants well, and screen your managing agent well. Find
out how many properties they have on their books, and what their
staffing ratio is to properties managed.

Re-direct your rental

Redirect the rental income into an account where all the direct debits for
your debts are originating from. I prefer my rental to be paid to me on a
fortnightly basis in order for better cash flow.

Income tax variation in place

Ensure that income tax variation is in place. Your accountant will help
you with this. This enables you to obtain your tax refunds relating to the
property paid to you each pay day, rather than a lump sum at the end of
the financial year.


24

Chapter 10

Saving for a Deposit



If you do not own property at the moment, and do not have
adequate funds for a sizeable deposit, the first thing you should
do is to save up for at least 10% of the intended purchase
price (5% for the deposit, and 5% for the costs such as stamp
duty etc.) In order to accumulate your savings, funds must be set
aside in a consistent manner over a period of time, with no lump
sums deposited, or withdrawal. It would be prudent to have these
savings sitting in a separate account, such as a cash
management account. Also, ensure that the account is in YOUR
name.

Other alternatives to save are to buy shares or managed funds
in instalments. Many funds now let investors get started with as
little as $100 a month. A good financial planner will be able to help
you with this if you are unable to make sense of the maze of
information available on the internet with regards to managed
funds, or simply jump online.

Getting an instant leg up

Rather than wait for 6 to 12 months (or longer in some cases) to
accumulate adequate savings before you are able start investing,
there are a few alternative options available to get into the
property market today:

1. If you have a high income (80k plus) it may just make
sense to borrow the deposit from a lending institution
at the lowest rate possible, through a personal loan. The
borrowed amount would have to be at 15% of the purchase
price (sometimes more), and this would go towards the
deposit (10%) and the closing costs (5%).

It is advisable to talk to your finance broker before you
embark on this path, as it does not make sense to go
through the high expense of getting a personal loan, and
then finding out later that you dont qualify for a mortgage.
This can be risky if you end up with the wrong property.

2. If your parents or nearest relative owns a property, they
can help you with the deposit if they are willing to do so.
Your parents would have to refinance their property to be
able to give you the deposit required. Their money would
then be secured against your property by means of a
caveat. In a year or so, when the property value has gone
up, you can top-up your loan, and pay out the money that
was provided to you by your parents. This will work equally
well to get you your first property.


25

Saving for a
Deposit
Deposit bond

A deposit bond is essentially an insurance policy that the bond
company will give to the vendor, to assure the vendor that
YOU will be able to come up with the deposit during settlement.
This works exceptionally well in a situation where there is a
refinance involved for another property, which will not go through
in time for the exchange, the time when the deposit is required.



Alternatively, another instance where a deposit bond will be a
good idea is when you are buying on delayed settlement, for
example an off-the-plan unit which will settle in 12 months time.
This gives you enough time to save up for the shortfall in deposits
if there are any, and at the same time your money can continue
earning interest in a bank account, rather than in the trust account
of a solicitor.

Note that the deposit bond is NOT a deposit itself, merely an
insurance policy stating that you will come up with the
money at settlement, and if you are unable to, the insurance
company will pay the deposit to the vendor, and then go after you
for their money. Hence your liability is never removed.

Refinancing an existing property

If you already own a property, then a refinance would be a good
option, or a top-up to extract the deposit from the equity of the
property. People often do this the wrong way because of poor
financial structuring, and place their homes on substantial risk.

As all costs associated with the refinance would be tax
deductible, ensure that this and the extra money that you will get
out are sitting in a separate split, for ease of accounting.

One of the most common things that happen when refinancing is
that the full stamp duty is charged on the finance, and there is
no refund arranged for the overcharged amount. This is
unnecessary payments made to the Office of State Revenue
(OSR).

A good financial broker should be able to help you arrange for this
refund, or pay the discounted rate at the start. In the next chapter,
we will review how many investors place their homes at risk
through poor financial structuring when buying their investment
property.


26

Chapter 11

Putting Your Home at Risk


Do you know that using conventional finance when buying an
investment property places your home at risk?

Is your home at risk now?

Generally, lenders would link two or more properties together for
lending purposes. The borrower believes that they have one loan
per property, when in fact they have one loan for all properties,
with separate statements being generated for each split. This is
referred to as cross-collaterisation in lender terms.

What the borrower may believe is this:




The borrowers actual structure really is:





27

Putting Your
Home at Risk

Why is it common practice to cross-collaterise properties?

There are several reasons for this:

To protect the lender in the sense that the security that
they hold is significantly higher than the loan that they give
out.
Lenders (and brokers) are in the opinion that the borrower
will not move away if all the facilities are under one roof.
Less paperwork for the broker.
Potentially more commission for the broker, due to the
larger loan size.
Borrowers see themselves as paying only one set of
application fees, thus saving themselves around $800, BUT in
actual fact they are placing their home at risk, for a measly $800.

How does cross-collaterisation affect the borrower?

When properties are cross-collaterised, the following will occur:

If one of the two properties is the borrowers home, then it
is at risk of repossession should they fall on hard times.
As banks load the rate for assessment purposes, the
borrower can only qualify for a lower amount, as
opposed to a situation where different lenders are used.
It reduces the number of investment properties the
borrower can finance.

How can cross-collaterisation be avoided?

This can be avoided by utilising different lenders for the finance of
each property. In the case of multiple investment properties, the
same lenders may be used, provided that different mortgage
insurers are engaged.

One must NEVER use the same lender to fund both their
investment property and their home.

How does cross-collaterisation reduce the number of
investment properties that a borrower can finance?

If the same lender is used for each property purchase, the
borrower very quickly reaches a threshold where the bank is
unwilling to lend him or her any more money. Here, the borrower
is not able to pass their capacity test, as the lender would have
built in large margins to protect themselves.

If the borrower goes to another lender for the money, they may
qualify because the same large margin is not built into the
capacity test, as the margin will be only on the money THEY lend.


28

Putting Your
Home at Risk
How is your home at risk?

This could probably be best explained with the following example.
A couple has a home valued at say $400,000, out of which
$150,000 is from lender A. They also buy an investment property,
on which they owe $250000, and is valued at $300 000, again
with lender A.



The couple thinks that they have two loans, as they are getting
two separate statements for each property.




Lets assume that there is a change in the income status of the
couple. One of them has to stop working, and therefore they start
falling behind in their repayments.

The bank looks at this situation, and start processes to recover
their money.

This is what they see:


1. There are two properties secured against this loan: one is
the home, and one is the investment property.
2. The investment property is producing income, which when
combined with the couples wages, would service the loan.
3. The home is worth 400k, and only 150k is owed. The
owners cannot afford this repayment at present.

The lender makes a business decision, repossesses the home
and sells it. The couple LOSE their home, while the bank makes a
fire sale, selling it at a very competitive price to ensure that they
get their money back as quickly as possible. Lets say they sell it
for 90% of its value as they are keen to move the property. The
house sells for $360k, even though a normal sales process would
have achieved $400k.


29

Putting Your
Home at Risk
The bank takes the $150k it is owed, PLUS the marketing costs
and default fees (running into thousands), and pays the balance
to the couple, who now have a very small deposit, AND a bad
credit rating, therefore making it extremely hard to start all over
again.





How does the Right way protect you from losing your home?

Better financiers implement an innovative finance structure so
that the properties are not cross-collaterised, thus protecting you
from losing your home. This is if a situation arises where the
income is reduced to the point where you cannot meet your
mortgage repayments. The following example illustrates:





The home is refinanced with Lender A. A line of credit to 80% of
the value of the home is established. This is split into two, the non
tax-deductible loan (which is for the existing home loan), and a
second account for future investments.

The investment property is financed as an interest only loan
through Lender B. The loan is separate from the home, and not
linked in any way, thus providing less risk to the ownership of the
home.

If you were to face loss of income, you could continue paying your
home mortgage on your first account by first withdrawing funds
from the second account (line of credit) and secondly, from the
repayments of the investment loan with Lender B.

This gives you enough time to get back on your feet, with the bank
being none the wiser, as they will not notice that there has been a
temporary loss of income. YOU get to keep your home safe and
at the same time not get charged 2% higher interest by the bank
for late payments.

Note that the EXTRA money that you are utilising to help towards
the repayments cannot be claimed as a deduction. Your
accountant will be able to give you further advice on this.


30

Chapter 12

Getting the Right Team


As with anything that is worthwhile pursuing, having the right
support around you will make an enormous difference
towards your success.

One can decide to do things alone but will have to go through a
slow process, limited by the knowledge and time that one has.
Alternatively of course, is to use professionals to do the leg work
for you. These professionals cannot be anyone off the street; they
have to have the runs on board themselves. For example, when
using a finance broker, ask how many properties they control.
You would surely not want your finances handled by someone
who is only doing a job. What is the value of experience that he
or she brings to you?



The advantage of using a support team is that you will learn
from the mistakes they have made in the past, without
having to make those mistakes yourself.

These professionals would more likely charge a fee for their
services. Care must be taken here to see that they are upfront
about their fees and charges, and that they are transparent about
it. This is as they will receive a commission from lenders and
other institutes as well.

A team of successful professionals around you will ensure your
success, as it is in their interest to help you reach your goals, as
by doing so, they will earn their income. Do not begrudge these
consultants their fees, but instead look at it in this way:


If by paying a couple of thousand, you are guaranteed to
make tens of thousands, it would surely be a good
bargain. Without them, you may have a much slower
acquisition phase with your portfolio, and may also not
structure it correctly.

However, having said that, you should also not get swayed by
numerous seminars, or fast-talking sales pitches. Ask for
testimonials and be comfortable with the consultants, as you will
be working closely with them.

Most of the time these professionals will also refer you to other
like-minded team members. This is a good thing as you will then
have a coherent team working around you.


31

Chapter 13

Have Finances Ready Before Investing

The golden rule in investing is in my opinion, to have the finance
in place before you start. Many would-be investors look for a
property, find one and then only start seeking the finance for their
investment. This is a strong case of putting the cart in front of the
horse.

Ideally, you should sort your finances out first. This would mean
that you seek a pre-approval from a lender in writing (conditional
approval), with the only condition being satisfactory valuation
over an acceptable security. It is amazing how many investors do
this the other way round, and in the rush of things, end up
structured incorrectly. They place their homes at risk, for the
simple reason that they do not have sufficient time to think or
implement correct structuring once they find their property. This is
why properties often end up being cross-collaterised, or getting
into a loan that they ordinarily would not have gotten into.

It is imperative, both from an accounting and taxation point of
view, that debt be clearly separated into deductible
(claimable) and non-deductible debt. This can be as simple as
placing the appropriate amount into a separate split. Often, the
loan is structured to consist of principal and interest. If there is a
non-investment debt that should be paid off first (i.e. principal and
interest payments), then the tax deductible debt should incur
interest only payments.

The ATO looks at the use of the funds, not the origin, in
order to determine whether a loan is tax deductible or not.
Thus, funds taken out of your home loan for investment purposes
(e.g. deposit on an investment property), is tax deductible, as long
as it is clearly demarcated, and the usage is easy to identify. The
onus is always on the tax payer to prove that a loan is tax
deductible.

If you have a line of credit, it is prudent to separate the
money from the line of credit once it is used. This is because
in a line of credit, the balance is always fluctuating, and the ATO
can be in the opinion that the salary going into your line of credit is
in fact a principal reduction, and the subsequent drawing out of
funds (e.g. to pay your credit card at the end of the month, or the
interest on your loan) is in fact an increase on your loan for
personal use, thereby negating the deductibility for THAT portion
of the money.

This would also make accounting a nightmare, and as the
accountant will have to sort the funds going in and out of the line
of credit, which makes the cost of preparing your tax returns
higher.


32

Financing should be done first and then once a suitable property
is found, match that to the cash flow that you are able to sustain.
This way, you are assured of the holding costs, the growth and
are also certain of the amount of much money you will have to
attain, (or get) each week.


33

Chapter 14

Finding the Right Tenants








If the property that you have bought is unoccupied at the time of
settlement, then it makes financial sense to get a tenant in as
soon as possible. Often when we engage a real estate agent to
seek for a tenant, you are at the mercy of the competency of the
property manager in getting tenants. This also depends on the
number of tenancy enquiries that the particular agency gets and
the priority that they place on their rent rolls.

A real estate business is valued on the value of the rent roll,
i.e. the number of properties they manage.

I prefer to engage several property managers to look for a tenant
for me. In order to do this, I engage several real estate companies
to find me a tenant, and leave a key with each of them. The
agency that gets a suitable tenant first, gets the management
rights. It is amazing what a bit of competition can do! I do this, of
course only when I havent identified a really good property
manager (the person not true brand)

In cases where there is only one agency that does rentals in the
area, arrange to meet the property manager personally to
explain your requirements. Ask about their experiences and
find out why you should entrust the safe keeping of your property
to them. Sometimes, the property manager is someone who is the
most junior person in the office, and is paid a relatively small
salary. However, there may also be others who have actually
made this aspect of real estate their career. Which one would you
want to engage to look after your interests?

You probably would have been a tenant yourself at some stage,
and therefore you know that this is where good references come
in handy. Ensure that a thorough check into the background
of the tenant is undertaken. Just because the tenant has a
white collar profession does not mean that he or she may be a
good tenant. Appropriate checks should be done before a
tenancy lease is granted. Good questions to ask would be
whether the tenant has rented before and if he or she is currently
renting now. If yes, ask why he or she is deciding to move.

From my experience, if checks are made with existing managing
agents on tenants, who have a history of being bad tenants, the
responses from these agents may sometimes be an OK.
Therefore, I prefer a face to face interview with tenants who are
already renting, before I decide whether they are likely to be good
tenants or not.

Tenants with a bad history are often reported to a central
reporting agency, who keeps a history on them. Checks are
done automatically each time a tenant applies to rent a property.


34

Finding the
Right Tenants

I often decide to allow pets (not in strata titled properties) in
properties I have that are stand alone. If you set the proper
ground rules, these tenants can become long term tenants, as
there are not many properties available that will allow pets. A
particular tenant of mine has been in one of my properties for well
over 5 years, and the reason she stays on is because I allow her
to keep her pet ferrets in the house. The understanding we have
is that as long as there is no damage or droppings in the house,
she is welcome to keep them there. This is a powerful benefit to
her, as the previous places where she had rented had not allowed
this, and this was one of the reasons why she needed to move.

Another thing to look into is to expect and demand regular
inspections, at least once every quarter. Address any
damages straight away and ask the tenant to fix it, or else to leave
the premises.

Remember, the quality and condition of the property will
determine the quality and calibre of the tenants. Ask for
longer leases, rather than the standard three or six months. Most
tenants are prepared to sign a longer lease, but are discouraged
by the property managers, who will not be able collect a re-letting
fee (usually a weeks rent) for these cases. You can always build
in a rental increase into a long lease. Its what I call a ratchet
clause.




35

Chapter 15

Have Safety Nets in Place


Now that you have purchased your investment property, it is time
to look at the safety nets that you need to put into place. The first
step is protecting the income, which comes from the rent, and
which is dependent on rental demand of the place.

Have you heard of or seen horror tenant stories, where tenants
trashed the property, had not paid rent for months and at the
same time not did not allow anyone access to the place? The
poor landlords drown in frustration, and cry out in anguish I still
have to make my loan repayments! This will ruin me! Ill never
invest again!

This is all because they do not have the right insurance in
place.

Landlords Insurance

The normal building and contents insurance does not cover
intentional damages made by the tenants, as they have your
permission to remain on premises, and therefore are excluded
under most policies.

However if you had a Landlords Insurance in place, this
scenario would have been fully covered. Landlords insurance
cost around $300 a year (tax deductible), and covers:
Malicious tenant damage and accidental damage
Non-payment of rent for up to six weeks (sometimes
longer)
If the place is uninhabitable through no fault of the tenant,
alternate housing will be provided for the tenant and can
be rented for up to 52 weeks, while the property is in the
process of being fixed.
If access is not being granted, and rent is not being paid by
the tenant, the insurance company will pay for the rent.

Therefore, each time a tenant trashes one of my properties, I
jump for joy (well, not quite!) The reason I am unfazed is because
I know that I will get new for old, and am able to then potentially
charge a higher rental to the next tenant.

For example, in one of my properties the tenant absconded, and
the kitchen was absolutely unusable. I paid an access of $500,
had my rental income continue while they replaced the kitchen
(worth about $10,000). With this, the end result was that I got a
$10,000 kitchen for $500, which was a very good bargain, and
had no interruption to my rental income. Also, as I claimed on the
bond, the insurance kicked in after the fourth week with the rent.
Therefore, I ended up with a property which had INCREASED in
value because of the new kitchen. In the end, my cash flow
increased, due to a higher depreciation claim for the new kitchen,
36

as well as a higher rental of $15 a week more than previously.
Thank you Mr. Bad Tenant!


The morale of the story is that it is imperative to have the
right insurance in place.

Insurance policy to cover debt

If your property is generating negative cash flow BEFORE tax,
then you need to update your insurance policy to cover for a
sufficient amount of debt. This is in the event that you are
unable to work due to a disability, your debt will be lowered
sufficiently so that the rent more than covers for all outgoings, and
leaves you with some money in your pocket.

Each time you buy a property, you need to update your
insurance and wills. If you have a good group superannuation
policy, you may be able to increase your insurance coverage
within the super. This is a really cash flow effective way, as the
premiums are paid out of your super fund itself.

If your super policy does not allow this, then you need to update
your insurance policy outside of the super. See your financial
advisor with regards to this or contact me at
victor@rightpropertygroup.com.au and I will put you in touch with
the right professionals.

Income Protection Insurance

The other important safety net is income protection insurance.
This is your biggest asset, yet it never ceases to amaze me where
people will spend up to $1000 a year paying for comprehensive
insurance on their car, while they will not spend $1000 a year
insuring their capability to earn an income, a premium expense
that they can also claim as a tax deduction! If they did not have
the capability to earn an income, they wouldnt have been able to
pay for the car insurance in the first place. Ironically, they would
happily fork out money for this, and consider income protection
insurance too expensive.

Lets look at the logic behind this. When you are insuring a car
worth $30,000, and paying a fairly large premium (approximately
3% of the value) for it, you are insuring a depreciating asset.
However, if you are say 20 years old, and also earn $30,000 a
year, insuring that would normally cost only 1% of your total
yearly salary (note that this percentage differs from profession to
profession.) Therefore, you are insuring an asset worth
approximately $1.35 million, as the insurance will pay you until
the age of 65 if you are unable to work due to illness or injury (in
most policies).

If you do not have income protection insurance, you need to stop
reading this NOW and contact me on

37

victor@rightpropertygroup.com.au

or give me a call at 1300 302 166 to get it in place as soon as
possible! All your asset accumulation is for nothing if you are
not protecting your most important asset: your ability to
earn an income.
Obviously, I cannot give you insurance advise but I can certainly
put you in touch with my advisors, who look after most of my
insurance needs.


38

Chapter 16

Getting Your Refund Early


And Other
Perks

Owning an investment property while you are working means
that you are able to claim several outgoings as a deduction,
and claim this against any tax that you have paid.

Most investors make a claim at the end of the financial year,
together with the rest of their tax affairs. Whilst this may work
fine for most people, in my opinion, if its possible to get your
money back today, why not?

One of the most under-utilised tax strategies in property
investing is arranging to get your refund early, or parts of it. This
used to be called the 221D, which has had several name
changes. Now it is called Variation of Tax Withholding.

This form is best filled out and processed by your accountant,
who will use the depreciation schedule, developed by a
professional quantity surveyor on your property, together with
the anticipated interest repayments for that financial year, to
calculate your tax refunds at the end of the year. With this, your
accountant will then apply for a refund of that amount.

The ATO assesses this and writes back to your employer,
instructing them to withhold X amount less tax per pay, thereby
increasing your take home pay. Care must be taken to use this
extra money towards property repayments, and not for other
expenses.

When you buy a well researched property, it is advisable to
work out the holding costs first before making a purchase.
Apart from that, a property can also generate positive cash flow
because of the depreciation value.

Depreciation: For tax purposes, the value of plant and
equipment used to produce income can be written down to zero
over its working lifetime. This is not physical money being
spent, and therefore implementing this tax strategy is very cash
flow effective, as you are claiming back what you havent really
spent. Naturally, you would have to have been paying tax to be
able to do this.

Depreciation includes two aspects: building and plant.

Buildings built after the 18
th
of July 1985 can be depreciated at
4% per annum, while buildings built after the 16
th
of September
1987, is depreciated at 2.5% per annum over a period of 40
years.

Plants and fittings (lifts, pools, carpet etc.) are depreciated at a
faster level, and usually last only for 5 years. This does not
necessarily mean that if the previous owner had claimed
depreciation for 4 years, you will only have one year left; it is 5
39

years per owner, based on the starting value at the point
when you acquire the property.

Getting Your
Refunds
Early....

And Other
Perks

Other items that can be claimed

Whilst this is not an exhaustive list, the following items can also
be claimed as a deduction. Your accountant will be in a better
position to assess what relates to you best.

Travel

If there are no records being kept on the date and mileage (in a
log book), up to 5000 kilometres of travel can be claimed.
The cents-per-kilometre rate used is dependent on your car
engine capacity.

If records have been kept, then the percentage method can be
used. Assume that 20% of the time, the car had been used to
inspect and undertake, property related activities. Therefore,
20% of all costs of maintaining the car (fuel, insurance, service
and depreciation) can be claimed as a deductible expense.

If the property is located interstate, then the time spent in
inspecting the property will determine the percentage of
expenses (airplane tickets, accommodation etc.) that may be
claimed as a tax deduction. Note that if you had stayed
interstate for a couple of days, spent some time to inspect the
property, and utilised the rest of the time on a well-deserved
holiday, it would be prudent to claim just the portion that was
used to inspect the property. The onus of proving this is on you,
the taxpayer.

Education

Costs incurred for investment related education is usually
tax deductible. However, you will be unable to claim for a
deduction if you did a course first and THEN started investing.
This is the way the law works. Talk to your property accountant
for further clarification.

Therefore, if you own an investment property, and then decide
to further your knowledge to help you acquire more properties,
the cost would be deductible. However, if you had no
investments and did a course to help you understand the
property market before you started investing, the cost is not tax
deductible. Check with your accountant first as the laws change
from time to time.

It is prudent to note that taxation benefits should really be the
cream as far as the reasons for investing in property is
concerned. Investors who get into property investments
purely as a tax relief usually end up buying property that is
not ideally suited for wealth creation over the long term.
Know that generally, you cant run a tax minimisation strategy in
conjunction with a wealth accumulation strategy.
40

Chapter 17

Shares vs Property


When presenting seminars, I often get questions for my opinion
on shares in relation to property, and which one would make a
better investment.

If you talk to people who are comfortable and have always only
invested in shares, they will of course say that shares are the
best assets to invest in, and will give you all the statistics and
calculations supporting their claim.

Similarly, people who are comfortable and have always used
property as an investment vehicle will give you arguments
supporting their claim that property is the way to go.

In my opinion, you should have a major interest in what
works well for you. If you are petrified with shares, then
perhaps shares is not an asset class that you should have most
of your money put into. The same goes for property investment.

Both have their distinct advantages: shares are more liquid
(you can buy and sell fairly quickly), and property does not seem
to be as volatile in value as compared to shares.

In my opinion, one must have a blend of investments in
both property and shares, in order to achieve a balanced
approach. What I have done for my personal investments is to
get a sound base in property, and then use the equity to gear
into shares. Again, this is after I have completed all the relevant
research required for this type of investment.



41

Chapter 18

Getting Started






Investing is serious business. It should be treated like a
business, with the correct research conducted before starting,
and a formal plan that is reviewed periodically, just like any other
good business.

In order to be able to leverage off other peoples knowledge, join
a discussion forum or find a mentor. This way, you will learn
from their mistakes and successes without having to make
those mistakes yourself. Why would you want to re-invent the
wheel?

This book was intended as a basic book providing answers to
commonly asked questions. I hope that it has served its purpose
in giving you specific information and inspiration to get started.

As we live in the information age, we are often inundated with
information and, as one of my very successful mentors keep
saying, Its like drinking out of a fire hydrant! Therefore, dont
be drowned in the complexity and abundance of information and
get into what I call analysis paralysis.



The best way to get started is to take action after reading this
book. Take baby steps first, then you will learn how to start
running the rewarding marathon of successful property
investing.




Having bought over 31 properties in a relatively short period of
time, making mistakes as well as winning along the way, I have
designed a property investment system that can be tailored
to suit investors from all walks of life. This is so that you too
can control multiple properties over time, which will grow
substantially in value.



You have probably noted that I have not talked about how you
can successfully retire, that is stop working once you have
successfully built your portfolio. That was quite deliberate, as
there are several ways in which you can realise your profits,
some aggressive, some complex, and some downright simple.
You will be able to find this information in my next book.


42








Today, I run a successful buyers agency, Right Property Group,
where the emphasis is on building a multiple property portfolio
for our clients, and then working with them with several
individualised strategies to help retire the debt to get to the
passive income.

If you want to find out more about how this service can be of
benefit to you, send an email to:

dmin@rightpropertygroup.com.au, a

Mention this e-book and we can have a chat at a mutually
convenient time.


Happy, safe investing!











43








Successful Property Investing:
The Basics

By Victor Kumar










Disclaimer
This book is general advise based on the authors personal
experience as individual circumstances vary. Please seek
expert advise before implementing any of the strategies implied
or discussed in this book.





First published by Victor Kumar

Suite 3.03/5 Celebration Drive
Bella Vista NSW 2153

P.O Box 7624
Baulkham Hills NSW 2153

Australia

Tel: 1300 302 166
Email: admin@rightpropertygroup.com.au
Website: www.rightpropertygroup.com.au

Copyright 2005 by Victor Kumar
All rights reserved Worldwide

Revised January 2014
44



The author has asserted his moral rights in accordance with the Copyright Act 1987. No part of this book
may be reprinted or reproduced or transmitted or utilised in any form, by print, electronic, mechanical, or any
other means, now known or hereafter invented, including photocopying, printing and recording, or in any
information storage or retrieval system, without permission in writing from the publisher.

The author and publisher have made their best effort to produce high quality, informative and helpful
methods. But they do not make any representation or warranties of any kind with regards to the accuracy
of the methods shown. They accept no liability of any kind for any losses, damages, injury or alleged to be
caused, directly or indirectly, as a result from using the methods shown in this book.