From: Steve McKnight
Hi,
As a chartered accountant and successful property investor I have to say I am becoming more and more annoyed at all the hype merchants pushing high-priced property as answer to everyone's wealth dreams.
It's time to set the record straight.
Who am I? Well, I'm just an ordinary guy who used to work as a chartered accountant but now co-own (with my business partner) more than 50 income producing properties (which we purchased in under two years.)
I make about $70 per week per house or about $182,000 per annum of nett income. It's not that hard and doesn't involve any cheating or swindling. I was on 'A Current Affair' recently and they couldn't find any dirt at all...in the end they gave it an amazing plug and called me 'Melbourne's Housing Hero'!
My property strategy is a mixture of wraps and rentals.
I don't own high priced city apartments. No, I invest in single family houses located within one hours drive of the Melbourne metro area.
In this post I'm going to outline my thoughts about property investing and why 99% of investors get it wrong from the start. This will be revision for those who know my work, but for others it will be potentially the most important e-mail you read for weeks!
Let's get into it...
From my experience 99 out of 100 investors make two fundamental errors:
Error #1: They invest for capital returns; and
Error #2: They invest in properties that are negatively geared
Let's look at each error in turn.
Investing in property for capital gains is a bad idea. Yes, you read right! Here's why:
What strikes me as inexplicable is seemingly professional investors almost always invest without a specific goal other than to make money. Once the magic figure is reached then these investors believe that everything will change and life will once again be worthwhile.
This is a fantastic myth, because the answer to 'how much money is enough money' is like trying to figure out 'how long is a piece of string'.
A monetary goal by itself is irrelevant...what I encourage you to think about is what will the money goal provide (i.e. think in non-monetary terms).
A windfall capital gain of $100,000 might buy a fancy new toy, yet $2,000 per week might allow you to work two days a week less.
My goal was not to stop work. My goal was to win back control of when, where and how hard I work. To do this I needed regular income to flow into my bank account to act as a substitute to the salary I'd otherwise earn if I was at work.
I looked at all the different options available and finally decided on real estate. But not in the way 'normal' investors look at it. No, I knew I couldn't buy my weekly groceries with unrealised capital gains - I needed regular income!
Today I believe biggest investment lie of all time is that people should invest in property for capital gains.
Surely investing a dollar now in the hope of making a dollar in the future is a fingers-crossed approach; pure speculation at best!
I wanted to retain control of when I made money and I wanted to make money from day one.
As I see it, successful investing is all about how quickly you get your money working for you. If all you did was invest in properties that made money from day one then you'd become wealthy pretty quickly.
Don't worry about investing for returns in the future...worry about investing for returns today!
The second error most people make is they use property as a tool to obtain tax benefits.
There seems to be a free seminar you can go to every night outlining how the tenant and the taxman can fund an investment property for you. Speaking as a chartered accountant, this is a classic smoke and mirrors trick.
To have the taxman fund your investment you must be getting a deduction. In the case of a negatively geared property, the deduction comes in the form of a loss incurred when your expenses are more than your revenue.
Negative gearing unlocks a double-whammy!
First, for every $1 you lose, the taxman will only refund you a maximum of $0.485 cents back. The other $0.515 is lost...forever!
Second, the result of this so-called benefit is you have to work harder to earn more income to fund the $0.515 loss.
If I tried to peddle as a good idea an investment which lost money and made you have to work harder, I'd be laughed out of the profession, yet it seems that people's obsession with avoiding paying tax at all causes logical thought to fly out the window.
So how am I different?
I believe in only investing in positive cashflow properties. No, I don't have a seminar for you to come to and I'm not a real estate agent. I'm not even at my goal of complete control of when, where and how hard I work...but I am very close to it.
What I hate is all the hype that just results in innocent investors being burned so that sales people can earn a large commission. I believe education is the answer, which is what I created my web site and publish a free monthly newsletter (with close to 1,000 subscribers).
I hope this post has outlined the two biggest errors that you should try to avoid as a property investor.
My final comment is to suggest to you that shares (particularly international shares) are a far better vehicle for capital growth than property. But, if you want to work less, all the potential capital gains in the world won't add up to enough to buy your weekly groceries.
Sincerely,
Steve McKnight
http://wealthtipsonline.com.au
Hi,
As a chartered accountant and successful property investor I have to say I am becoming more and more annoyed at all the hype merchants pushing high-priced property as answer to everyone's wealth dreams.
It's time to set the record straight.
Who am I? Well, I'm just an ordinary guy who used to work as a chartered accountant but now co-own (with my business partner) more than 50 income producing properties (which we purchased in under two years.)
I make about $70 per week per house or about $182,000 per annum of nett income. It's not that hard and doesn't involve any cheating or swindling. I was on 'A Current Affair' recently and they couldn't find any dirt at all...in the end they gave it an amazing plug and called me 'Melbourne's Housing Hero'!
My property strategy is a mixture of wraps and rentals.
I don't own high priced city apartments. No, I invest in single family houses located within one hours drive of the Melbourne metro area.
In this post I'm going to outline my thoughts about property investing and why 99% of investors get it wrong from the start. This will be revision for those who know my work, but for others it will be potentially the most important e-mail you read for weeks!
Let's get into it...
From my experience 99 out of 100 investors make two fundamental errors:
Error #1: They invest for capital returns; and
Error #2: They invest in properties that are negatively geared
Let's look at each error in turn.
Investing in property for capital gains is a bad idea. Yes, you read right! Here's why:
What strikes me as inexplicable is seemingly professional investors almost always invest without a specific goal other than to make money. Once the magic figure is reached then these investors believe that everything will change and life will once again be worthwhile.
This is a fantastic myth, because the answer to 'how much money is enough money' is like trying to figure out 'how long is a piece of string'.
A monetary goal by itself is irrelevant...what I encourage you to think about is what will the money goal provide (i.e. think in non-monetary terms).
A windfall capital gain of $100,000 might buy a fancy new toy, yet $2,000 per week might allow you to work two days a week less.
My goal was not to stop work. My goal was to win back control of when, where and how hard I work. To do this I needed regular income to flow into my bank account to act as a substitute to the salary I'd otherwise earn if I was at work.
I looked at all the different options available and finally decided on real estate. But not in the way 'normal' investors look at it. No, I knew I couldn't buy my weekly groceries with unrealised capital gains - I needed regular income!
Today I believe biggest investment lie of all time is that people should invest in property for capital gains.
Surely investing a dollar now in the hope of making a dollar in the future is a fingers-crossed approach; pure speculation at best!
I wanted to retain control of when I made money and I wanted to make money from day one.
As I see it, successful investing is all about how quickly you get your money working for you. If all you did was invest in properties that made money from day one then you'd become wealthy pretty quickly.
Don't worry about investing for returns in the future...worry about investing for returns today!
The second error most people make is they use property as a tool to obtain tax benefits.
There seems to be a free seminar you can go to every night outlining how the tenant and the taxman can fund an investment property for you. Speaking as a chartered accountant, this is a classic smoke and mirrors trick.
To have the taxman fund your investment you must be getting a deduction. In the case of a negatively geared property, the deduction comes in the form of a loss incurred when your expenses are more than your revenue.
Negative gearing unlocks a double-whammy!
First, for every $1 you lose, the taxman will only refund you a maximum of $0.485 cents back. The other $0.515 is lost...forever!
Second, the result of this so-called benefit is you have to work harder to earn more income to fund the $0.515 loss.
If I tried to peddle as a good idea an investment which lost money and made you have to work harder, I'd be laughed out of the profession, yet it seems that people's obsession with avoiding paying tax at all causes logical thought to fly out the window.
So how am I different?
I believe in only investing in positive cashflow properties. No, I don't have a seminar for you to come to and I'm not a real estate agent. I'm not even at my goal of complete control of when, where and how hard I work...but I am very close to it.
What I hate is all the hype that just results in innocent investors being burned so that sales people can earn a large commission. I believe education is the answer, which is what I created my web site and publish a free monthly newsletter (with close to 1,000 subscribers).
I hope this post has outlined the two biggest errors that you should try to avoid as a property investor.
My final comment is to suggest to you that shares (particularly international shares) are a far better vehicle for capital growth than property. But, if you want to work less, all the potential capital gains in the world won't add up to enough to buy your weekly groceries.
Sincerely,
Steve McKnight
http://wealthtipsonline.com.au
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