Jeremy's Law

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From: Paul Hendriks


Hi Jeremy,

I'm a bit of a lurker here on the forum, & always find your replies & advice interesting & informative without giving too much away...

I feel you have an immense amount of knowledge & experience in the field of I/P's yet you always hold back the details & generalise the answer, making the person think for themselves by trying to figure out your true meaning.

I like this style, but it can be frustrating sometimes when people like to hear the nuts & bolts & actually how to put them both together.

I would like to hear your view on the current real estate market, in both residential & commercial as far as investments are concerned?

Where we're at, & where it's going, & your predictions over the next few years.

One more thing Jeremy, I would really like to listen to your own personal strategy for building your property portfolio, you may have more than 1.

If you decline I understand, but I think many people would be very interested in your response.

Thanks in advance,
Regards
Paul
 
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Reply: 1
From: Nigel W


I second Paul's motion! I understand you have a cashflow approach Jeremy and am interested in hearing what you do.
 
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Reply: 2
From: Simon St John


I vote in favour too - I've always appreciated Jeremy's posts and wanted to know more of his approach.

Simon
 
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Reply: 2.1
From: Jeremy Laws


Well thanks for the interest!
What I do is essentially very simple, but has worked well, and seems to be what a lot of people have reached independently. A little about the history first...

I started buying property while my parents were setting themselves up for retirement. I didn't really know what to buy, so I bought neither a true IP, nor a property I would live in. My second property was similar though I 'rented' to my then girlfriend. I became very short of cash so looked for properties that would at least cover themselves, and hopefully cover the losses on my 'neither/nor' properties. This strategy worked a treat and I have replicated it ever since. My first two properties after a time started to increase in value and I used the equity and cashflow to buy an inner city terrace, combined with a pair of 'proper' IP's providing the cashflow to cover my losses. The terrace increased in value in short order and I took out an LOC to buy more property. Question then was 'What sort?' I had a major setback at work at about the same time and I guess because of this I was able to be a little radical. I ended up chasing cashflow to fund myself so came up with either 1)buying commercial property in Australia, or 2) buying residential property in the USA. I felt that overall it was a better risk getting the same returns from residential property in the US than what I perceived as slightly more risk and less understood (to me) commercial property in Australia. I also had the massive benefit of turning a 10% equity LOC into a 10% deposit in California, thus almost doubling my portfolio in one deal. The cashflow from the USA helped with everything else as well. I had decided to renovate my terrace, which turned out to be a nightmare, taking over 2 years, and over $250,000 so I needed all the cash I could get. This was when I discovered the use of credit cards to get you out of trouble if needed. Kellie Dutton and I found out about the ground lease financing deals on big cashflow properties in USA and tried to do this as well. Nearly made it too! Learnt a lot and almost got an 86 unit apartment complex in Miami with only $50,000AUD of my credit cards at risk. The cash on cash return on that deal would have been phenomenal, but I learnt a lot, and will hopefully soon get my $50k back! So, where too next? Wrapping appeared, and whilst not nearly as good as the US (one of my apartment complexes there was in fact 'wrapped' to me so I knew the process well) it offered as good as you could get in good 'ol Oz. All but one of the deals I did collapsed through essentially being too high a price of property. I ended up with very good rental returning property, and massive capital growth on those in again a very short space of time. In conjunction with this I bought my first business 'Berowra Waters Inn' which came free with a stunning property. So now I am learning how to make restaurants work. In order to do this I have sold a couple of properties, which may turn out to be silly. If berowrawatersinn.com stops operating, you will know I was silly!

The trick as I see it, is to buy two or three cash positive properties in order to cover the loss on a less 'cashy' but higher capital growth property. You then lever off the faster increase in CG in order to buy more of the cashflow properties. These in turn go up.
It MUST be recognised that property at the moment is historically (in this country) overpriced. We have had a great run though! We WILL have a flattening out of the market for probably 2-3 years at least, then I guess an 88-89 style boom after which 'watch out'. I am particularly scared of inner city (SYD-MEL mainly) units/townhouses one of which I bought a year or so ago, and I have amazingly sold at a small profit. I believe a couple of years (1-2) and these properties will be available at GREAT prices.

I was asked to add up what I have a while ago by a friend and was stunned that in AUD terms I 'control' about 7m worth of property. It is fairly highly geared, and I must point out I am selling about $500k worth to fund the restaurant, so it is reducing, but the numbers still look big! I made $1m inside 5 years, and bought my first property 8 years ago. The important thing is that anyone can do this, as John Symonds famously says 'It's not rocket science ya know' and it all started when I read about a school teacher's book on property investment in the Financial Review.

I hope you all found that interesting - it's nice to read about real stories, without disguising wins and losses, and without exaggerating. I learnt from a lot of generous people, and I feel the same as they do. Hopefully one day someone will get something out of the things I have done.
 
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Reply: 2.1.1
From: Nigel W


Thanks Jeremy. Great stuff! You've done really well! Stories like yours show us not only that it can be done - but that there's more than one way to do it!

An inspiration for those of us still on the earlier stages of the journey...
 
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Reply: 2.1.1.1
From: Sim' Hampel


Thanks for that Jeremy, always good to hear about how someone got to where they are now.

sim.gif
 
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Reply: 2.1.1.1.1
From: Felicity W.


Great stuff Jeremy, congratulations! I love heraing success stories, particularly ones that are continuing.
Keep smiling
Felicity :cool:
 
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Jeremy%27s Law

Reply: 2.1.2
From: Simon St John


Hi Jeremy

What a great story - thank you for sharing it.

It's interesting because the forum has many different views - people who favour cash +ve and others who go for -ve on the basis of high CG.

You have opted for a hybrid that few talk of - high CG 'subsidised' by some +ve properties. The overall is cash flow neutral (or even positive?)but you get the benefit of the high CG to leverage off.

I was interested in your US deals. You said in your post "I also had the massive benefit of turning a 10% equity LOC into a 10% deposit in California, thus almost doubling my portfolio in one deal."

Just wondering if you could explain a bit more what you did here and how Kellie assisted you?

Finally, it's interesting to me that you have recently taken over Berowra Waters. For a number of years as a penniless student I dreamt about being able to dine there, after seeing it in a magazine. I was fortunate enough to visit some years later (a while ago now). The banks of louvre windows in my new house in Qld are in fact an inspiration from that wonderful lunch. BW is a great restaurant in an equally unique location.

How did you come about buying BW? Had you been in foodservice before?

Enough questions! Best of luck with your venture.

Cheers,

Simon
 
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Reply: 2.1.3
From: Simon St John


Jeremy,

I couldn't resist another question......

Where do you look for cash flow +ve properties.

I have been looking in large rural towns in QLD and I am hard=pressed to find anything that delivers a positive cash flow after all expenses. There are lots of opportunities at say $150,000 with $190 rental pw giving a 6.6% percent gross yeild before costs. Hardly the 10 - 12% people often claim on this forum.

I was wondering if you could give an example of a +ve property including approx location (city/country, state) price and rental yield, etc.

Again, many thanks,

Simon
 
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Reply: 2.1.4
From: Jas


On 6/12/02 10:32:00 PM, Jeremy Laws wrote:
>Well thanks for the interest!
>What I do is essentially very
>simple, but has worked well,
>and seems to be what a lot of
>people have reached
>independently. A little about
>the history first...
>

It makes for interesting reading thou! Eight years and look where you are. Congratulations are in order :)

Jas

----------------------------------
When facing a difficult task, act as though it's impossible to fail. If you're going after moby dick, take the tartar sauce
 
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Reply: 2.1.4.1
From: Jeremy Laws


thanks for the comments, I replied in great detail, but a blackout killed it before I posted, a shame!

Briefly - cashflow properties are getting hard to find - try Cairns and Tasmania. I got out bid for a $45k hovel renting for $145/week in Launceston, but I am not sorry as I have a deep suspicion of good CG there.

I got an LOC for 100k in 99 as that was ALL I could borrow. I was pushing limits as always, but when I took that 100k to the USA I could use that (through tricky financing and wraps) as a 10% deposit on new properties.

I have always found it easier to play in an uncrowded sandpit, and as cashflow properties are getting harder and harder to find the US seemed an obvious answer. The last property I closed on there (finally!) was USD$500k and nets about $40kAUDpa. It was closer to $50k but that bloody little WB and his forex trading is screwing my returns!

Re: BW Inn - I have never had anything to do with food (although my sister used to do the wild thing with a chef there) and I only bought the property because it was stunning and I was looking for an holiday house to enjoy. I got a free restaurant with it, which I then decided I had to make work. I would love to see any of you down there, but especially you Simon! Anytime you feel a hankering for the beauty of the louvres, you are more than welcome to anything you want for lunch for the small service of cleaning them. I am reliably informed there are 408 of them, which adds up to a LOT of beauty!

Thanks for the comments - I was flattered...
 
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Reply: 2.1.4.1.1
From: Simon St John


Jeremy

I had a laugh at the louvres joke Jeremy! Also a bit of a shudder as I am about to have about 250 of them 10 feet up in the air.....ahhhh well......! They say we all learn by doing!

As to cash flow property - it's clear to me that you're talking 40 - 60K properties that rent for early to mid $100'd/week. I can see why hard to find. Equally, I see how they have helped you achieve what you have so well.

Is your expectation of such a property CG or just income? You didn't get upset at missing out on the Tassie place because you were suspicious of the CG upside which tend to suggest you look for both income and CG. Do you accept a lower CG expectation on these +ve properties than your -ve ones?

Cheers, Simon

PS: Thanks for the kind words about visiting - believe me BW is on the list should I be visiting SYD - where else can you ride a boat to Murcott-inspired heaven.
 
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Jeremy%27s Law

Reply: 2.1.4.1.1.1
From: Jeremy Laws


Hah!
You can't have both, though in time I believe everything does go up in value. I have found that capital growth makes you truly wealthy, and cashflow, whilst you will never go broke will not do the same. If you can 'use' cashflow properties to pay bills on others, you will make it work. The perfect property does NOT exist, but I have been told that aircraft hangars do come pretty close........

Look forward to seeing you at BW Inn! If you come down get Mark or Peter to make sure either Kel or myself are there.
 
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Reply: 2.1.4.1.1.1.1
From: Paul Hendriks


Hi Jeremy,

Thanks for the reply, I certainly appreciated it & by the look of it so did many others.

My gut feeling was right & I applaud your success which is great to see & I value the detail of your response

Your strategy really does make sense, whilst getting your major CG on well located I/P's of I imagine - higher value , but offsetting the costs of these wealth creating properties with several positive cash flow I/P's - really gives you the best of both worlds.

It certainly throws a spanner in the works for people saying 1 is better than the other, why not have both working for you, like your doing.

BW will work Jeremy, have faith in it & learn all you can about marketing. Get into contact with Sydney Harbour Sea Planes & do a deal. Also go visit Cottage Point Restuarant ( Close to you in Cowan Creek ) & study their style, pricing, & menu. They service your clientel. Trust me on that.

Get yourself on the TV lifestyle programs, & give the customers what they want, not what you want to give them. Find out what they really want by asking them (your own surveys)

Test & measure all advertising, find what works & stick to it.

I have some very interesting information on developing businesses, so if you need some material or someone to bounce ideas off - just call...

I used to be a Pro Flyfishing Guide & Instructor operating in Pittwater, Broken Bay, & the Hawkesbury River, as well as Sydney Harbour - many of my ex clients would your be your clients too.

Anyway, getting right off track here, it's just that I'm excited for you with BW, because I am opening a Restuarant in Bowral in the Southern Highlands very soon, & know what your going thru.

Best of luck, & thanks again for the great insight to your success.

Regards
Paul
 
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Jeremy%27s Law

Reply: 2.1.4.1.1.1.1.1
From: Jeremy Laws


Sydney Harbour Seaplanes want huge kickbacks to come to BW Inn (charge $1200 to come here and $285 to go to Cottage Pt Inn including a 2 course meal 'because its further') in fact I have toyed with starting my own airline if they don't play ball. They have had their Air Operators Certificate cancelled because (among other things) they killed 5 of my customers, and are operating tenuously through Outback Air in the NT at the moment. They are, and I quote 'just a booking agent.' I don't like the way they play me, or their business relationships. Sydney by Seaplane, or Palm Beach Seaplanes are my airlines of choice, and ones I am happy to support. Their pilots like the crew snacks I give them also! Cottage Point is nice, but frankly we do everything they do and a lot better, and for cheaper. My US properties are providing a large price point advantage. We are starting, and I am pitching the thing for that market. I will never make real money out of BW Inn, but I do want it to cover itself. That is my aim. I will walk all over the competition because they HAVE to make money. I have lost about $400k in the last 12 months getting things right. We are right, and will continously improve because I have the right people, and have given them the right environment. Testing and measuring is almost impossible at BW Inn, because so many people have known about it for so long. The simple question of 'Where have you heard about us?' will often end in a magnificent story about a parents friend who took them down to BW Inn 25 years ago and they have always wanted to come back and someone told them the phone number. The only decent answers to that question have been along the lines of 'I saw you in the local paper and I didn't know you weren't flying anymore' Alternatively you get phone calls at 3am saying 'You guys still do the Duck?? (which we do) - Ill be there on the 29th - here's my hotel number' I haven't sent out surveys yet, basically because at the moment there is too much else to get done, but it is a good idea. I am with luck getting a number of TV shows and media personalities in coming months (need to organise accomodation) but I hope this will start to build the business to the point where I can call it a business. If you ever want to come down, have a chat, call us on (02)9456-1027 (Gay's old number) and I would love to hear what you have to say.
What is your called, did you buy it 2nd hand, or set it up yourself? Whats the number?
 
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Reply: 2.1.4.1.1.1.1.1.1
From: Paul Hendriks


Hi Jeremy,

Great to see you have the right go get it approach, & in there & doing it.

Any one of the Seaplanes is what I really meant, couldn't recall other names at the time.

Accommodation should be on the houseboats floating nearby the BW Inn for the TV crew.

Just a simple 7 question survey with ticks for answers only could be dropped on the table pre dinner (or after) with pencil, that alone should start your guide to marketing & I assume 30% of clients are refferals & 40% repeat clientel with 30% up in the air at the moment.

Magazine adverts are expensive, but 1 you may want to look at is Highlife Magazine, very upmarket readers & mostly from Sydney although it is about the Southern Highlands.

Stir Crazy Noodle Bar/Restuarant Franchise is what I'm setting up in 336 Bong Bong St (main st of Bowral & should be operating by mid august.

It was the Old Bowral Cafe, which many people recall over the years from Sydney.

No contact details yet but will let you know, & will be happy to see you down there 1 day. I will try to visit the BW Inn when in Sydney some time & contact you before I do.

Best of luck Jeremy

Regards
Paul
 
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