CONTENTS
1. Personal Update - A Step In The Right Direction!
2. In the Press
3. Negotiation Tips
4. Golden Tips For Newbies
5. The Small Things Are The Big Things
6. Funny Fotos
7. Members' Questions Of The Month
8. NEW! - Project Update
1. PERSONAL UPDATE
A Step In The Right Direction - Elise Parker
One of our goals for 2010 was to move north to live in the warmer climate of Queensland. We have always loved hot weather, beaches and the easy-going lifestyle that the sun brings out. Our goal was to get ourselves into a position where we could make the move and now that we are there we are starting to shift our investing closer to our new home. One of the most common questions we are asked is: 'What are the best suburbs to invest in?' For us it doesn't matter; we apply a formula and a system to any deal we look at and decide from there. It is not the suburb that matters but the deal itself. It was convenient for us to invest in Ballarat as we have lived there for the past few years. We have also invested and applied our systems in Geelong and New Zealand, proving that you don't have to be on the ground every day for it to work.The move to Queensland has to be to the right place at the right time. We are using our investing as a vehicle not only to make money but to get to know a few communities and areas before moving. The environment has to be just right and so it is exciting to be able to use our time effectively whilst travelling to buy other properties to decide on a location to base ourselves (for a while anyway).
Other things that have been a part of our last month include keeping fit and healthy by going to the gym, yoga, exercising and eating well. The summer months always make this task easier, which is another motivation for wanting to be in more summery surroundings all year round. It is good for our health in many ways.
P.S. With one quarter of 2010 already behind us, what steps have you made towards achieving a bigger goal? We have been buying property in Queensland to familiarise ourselves for a permanent move to a warmer climate by the end of this year.
2. IN THE PRESS
Australian Property Investor and Your Investment Property magazines - Elise Parker
We were featured in March's Australian Property Investor Magazine and April's Your Investment Property Magazine. You can check out the articles in our Reno Expert page.3. NEGOTIATION TIPS
Almost Everything Is Negotiable! Elise Parker
The mistake that most investors and home buyers make is believing that the only thing negotiable in a property deal is the price. If they offer $300K and are met with a counter offer of $310K the obvious move is to meet in the middle and offer $305K. A good agent will squeeze a few extra thousand out of you and the end result might be that you pay $307K. 
But is that the best result for all? At the end of the day, price is obviously very important but so are other factors such as holding costs. A loan of $300K could have interest attached to it of $1,500 a month and you might have a 6-month project planned and are budgeting $9K in holding costs. In this case it can be a smarter move to accept the price that is counter offered (or close to it) and to focus instead on the other parts of the deal. In this example of holding costs, if you paid $310k and instead had a 6-month settlement with early access to improve the property, you can come out the other end well in front. The vendor gets their full asking price and everyone is better off.
Another tool might be furniture - there is no reason why you can’t say you are happy to accept the $310K but you need a fridge, washing machine and couch and if the vendor includes them with the house, you have a deal. Almost anything can be negotiated - one investor actually negotiates that he gets the car in the garage as well, not because he wants it but because he thinks it is fun and a challenge. This savvy investor then sells the car and uses the cash for the reno!
So if an agent says ‘You can’t do that’, you probably can - it's just that most people just don’t think to do it! Keep it simple, but remember that an offer that gives the vendor a great result for their circumstance has a greater chance of acceptance.
4. GOLDEN TIPS FOR NEWBIES
You Have To Start Somewhere So Start With The Right Knowledge – Dean Parker
Two of the most common questions we are asked are: ‘How can I buy my first investment property with little money?’ and ‘Where are the best areas to buy?’Firstly, let me show you how we started and why it can seem as though things are slow in the beginning but can snowball in the future by applying the same system over and over again.
The more expensive the property, the more you are exposing yourself to risk as a first time investor. This is not to say that it is not profitable to invest in more expensive areas, it just means it will be more cash intensive and may create more hurdles in the short term. In Victoria for example, a property costing $500,000 will incur stamp duty of about $27,000 and a further $10,000 in agent's fees when you sell. That is almost $40,000 you have to make up before you start. That may not be a problem for an experienced investor but as a beginner do you really have that much spare cash?
Compare this to settling on a $300,000 property with costs of about $14,000 in stamp duty and $6,000 in selling fees. It leaves you with a further $20,000 in your pocket, which you can spend on the renovation. It also gives you a bigger market to sell to as more people can afford a $360,000 renovated home than a $600,000 one.We started small and made good profits to start with, giving us confidence and credibility to leverage and undertake joint ventures with others to repeat the process, using our system and time with their money for a 50:50 split! As we did more and more deals we were able to slowly take on bigger and bigger projects with larger chunks of profit.
The second question of where to invest is an easy one. We invest where there is a profit high enough to meet our goals and investing criteria. Often the media name a great hot spot such as Frankston, for example. Think about it - thousands of people suddenly want to buy in Frankston, the demand exceeds the supply, prices rise and the media are right!
Knowing what the profit is takes time and involves market investigation. We don't believe there is one quick rule to identifying the best place to invest your money right now - you have to do the research.
We invest in Ballarat mainly because our system works for us in that area. We have also had projects in Geelong and New Zealand and have recently purchased deals in Queensland too, as we know the suburb does not matter. All that matters is that the numbers work and there is demand for our final houses once renovated or developed.
Here are 5 golden tips for newbies:
1. Take action - after you have carried out your investigations and done your area due diligence, buy a property and implement a system. If you sit on the sidelines, you will not only miss out on potential profits but also on the opportunity that only experience provide.
2. Start small - there's no need to go too big too soon. Get the system right at a lower price point level and then step it up once you have made some good profits and contacts.
3. Don’t get emotionally attached. The aim of the game is to make money so don’t over capitalise on items that add no perceived value to a home - give the property a wow factor with a cosmetic renovation that, most of the time, you can do yourself.
4. Only take advice from those that have what you want. If the local butcher says that we are in a recession and property is going down don’t listen unless your butcher is also an investor. The media will dictate uneducated peoples thoughts so get educated and back yourself
5. Have fun! If you dislike property and property investing and aim only to make a lot of money, you are unlikely to last. Enjoy what you do, as no amount of profit is worth being miserable.
5. THE SMALL THINGS ARE THE BIG THINGS
How I Saved $12K For A Friend By Checking The Paperwork - Dean Parker
Don’t underestimate how a seemingly minor detail in a deal can add up to massive dollars. Recently a friend of mine was purchasing a property and had done most of the paperwork but, for some reason, sent it through and asked if all looked good. The contract looked great, bar one thing - the deposit level was recorded as 5% and not the 20% my friend was going to contribute. No big deal? Wrong! There is a big difference, as a lower deposit triggers different fees and charges and, once submitted, can't be changed without huge costs.
Lenders Mortgage Insurance (LMI) is insurance paid by the purchaser only when their deposit is less than 20%. It is put in place to protect the lender if the purchaser defaults on the loan and the property goes down in value. A 20% buffer is sufficient for the lender to not on charge this insurance.
In this particular case the LMI was going to be around $7,500. That is a lot of money! Had the contracts been lodged, my friend would have been liable for this despite the fact that the other 15% deposit money was there and ready to go.
Secondly, different interest rates and exit fees apply with each loan and a higher interest rate is generally applied when there is a lower deposit. For my friend, I did the numbers over a 12-month period at the higher interest rate and larger loan and showed that they would be paying an extra $4,500 in interest.
This is another case of ‘you don’t know what you don’t know’ and why it is so important to cross check everything and get your information from the right source.
Just on this too, the lender was pushing for this loan to be submitted and told our friend that it was too late to make changes. As the property had not yet settled, I mentioned that it would be cheaper to pay penalty interest for a few days until this was sorted out rather than settling with this loan structure. In the end the lender had the new loan documents ready within hours.
For me, I have some landscaping to do on a project coming up so I know who I'll be calling to return a favour and dig a few fencepost holes! Only kidding - it is satisfying just to help people to see that there is sometimes a different way.
6. FUNNY FOTOS
Recognise This Famous House? – Gerry Giraffe
In 1997 this house was constructed in just 49 days but comes with fixtures and fittings a little out of the ordinary. The home was built as part of a contest and is located at 712 Red Bark Lane in Henderson, Nevada.
If you haven’t worked it out yet, it is a real-life replica of the house in The Simpsons and brings the famous address at 742 Evergreen Terrace to life.
Now, we don’t know how big a market there would be for people wanting to live here but no doubt some fanatic would pay top dollar for the collectable aspect.
7. MEMBER QUESTIONS OF THE MONTH
Wow, investors seem to be coming back into the market. Why do I say that? Based on the number of questions that we received in the past month it seems confidence is back and people are itching to get in. We can't answer them all in this space so here are three that we liked and feel could be useful for many others. Thanks to Kylie of Perth, Dave of Adelaide and Caitlin also of Adelaide for these questions. To have your questions answered in next month's newsletter, send to
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Q. How do I find a good real estate agent to be on my team?
A. Initially for us it was a matter of trial and error, but now we have a system (like everything else in our business) where we have a checklist and questions we ask when interviewing an agent. The best time to interview an agent is when they don't know they are being interviewed. For example, attend an open inspection as a buyer, pretend to be interested in the home and see how they answer your questions. If it were your home, would you be happy with their answers? We have spoken to agents before who have said things like: If you offer $x, they will probably take it.' That is a 'no no', so by seeing how an agent performs at an open home can give a good indication of their suitability for your team.
You also want a connected agent with contacts and networks to sell your property quickly. Some will have a database of people, which can be gold if it leads to an early sale.
The other tip is to talk to others who have used the agent before. Were they happy with the service? How quickly did the home sell? Were all their promises fulfilled?
Q. Should I start with a renovation or a development for my first project?
A. The answer to this will vary depending on the available deposit levels and, time, as well as the risk profile and goals. The best way to answer is to give some pros and cons for each, as there is no better way to start investing than to take action - decide on a strategy and do something.
Renovation
Advantages: this is a cheaper way to enter the market and generally requires less cash than building. The risk is lower as the holding costs are less as there is less likelihood of time delays. Generally, you are less reliant on council (where time frames are hard to control) and more reliant on tradespeople. The time in the deal is far less so you will get your profits quicker.
Disadvantages: it can be harder to find high-profiting projects as much of the difference between the buying price and the selling price can be quickly eroded with government stamp duty and selling agent's fees. There needs to be plenty of room to add value to the home.
Developing
Advantages: this generally has a higher profit margin as you are taking land and improving it by increasing the number of dwellings. It does require more work to understand a development and the reward is in profiting from your knowledge. The natural property investing progression tends to lead to a development after several renovations.
Disadvantages: a development requires more cash and much longer holding periods, which results in being without a cash flow for an extended period of time.
Extra tip: Cash flow management is so important for both strategies.
Q. What do you think about painting feature walls to help sell my home?
A. Nine out of ten times we would advise not to do it. The safer option is to paint your rooms in neutral colours as this gives the new owner the chance to make the desired changes themselves. A feature wall may look great but if 50% of your market doesn't like the blue you have chosen you are only making your job of selling the property harder. Prospective purchasers may already have furniture and if your feature wall colour does not fit in with their furniture you could lose buyers. If you purchase a renovation with a feature wall, consider painting over it or at least make a judgement call on the type of area and buyer.
Keep your questions coming!
8. PROJECT UPDATE
We've mentioned in previous emails that we're doing two renovation projects in Geelong. We thought we'd show you through one of the the finished units that we've just put on the market. There were two main learning outcomes we had during the renovation stage of the project that we'd love to share with you. 
