My Toolbox Methodology

From: Grant P

I saw this post on another forum and thought it was fantastic. I am reposting it here for all the newbies, myself included, so that they may have the opportunity to take a step back and inhale to see the big picture as well. Who knows, someone may hear that penny drop. Anyhow, one thing to remember is that 'Action cures fear! Just do it!"

Michael's post starts here.

My toolbox
From: Michael Gruber
Date: 7/1/01
Time: 5:59:08 PM
Remote Name:


Relax, take a step back and look at the big picture. What's the basic idea?, wealth via property. That's it.

Now, if you look a little closer all you see are various means of obtaining that property.

Think of each "method" as a tool. The more tools you have in your tool box the more problems you can fix.

When someone is selling a property, they have a problem, because they are trying to get rid of something they don't want anymore.

It's up to you to fix their problem :) Think of yourself as their handyman(woman)

As they say, if the only tool you have is a hammer, you will see every thing as a nail.

So, learn different techniques, they all work, practice in one you are comfortable with, then as you master it, learn a new one.

Remember, you have to learn how to use your tools properly, otherwise you may smash your thumb with a hammer, or cut your finger off with a circular saw.

They are just tools, its the user that determines the outcome.

Investing, is all a mindset, once you have the right frame of mine, you begin to see more opportunities.

Having said that, lets go over some basic tools, anyone is free to add or comment as they please:

- negative gearing: the process of borrowing (gearing) funds to buy where the income is less than the expenses (negative cashflow). Sometimes applied for high growth areas, sometimes inner city. Where price far exceeds the rent. There are many books on the process, Jan Somers and Dolf De Roos are some known authors.

- positive gearing: as above except the income is greater than the expenses (mortgage, rates, etc). More commonly done in country, outer metro areas (well easier anyway).

- neutrally geared: my term for a property that is only positively geared if tax deductions from personal income is counted (otherwise without an income, it would be negatively geared).

- flip: the process where you negotiate a finders fee with a buyer, then locate a property deal. The buyer, then pays you a considering for the time/effort of locating the deal. You receive the fee, and the buyer signs the contract. Can be a useful tool to build up cash/equity, when no other source of income is available.

- joint-venture: can take many forms, two or more people, agreeing to buy a property together, pooling equity and debt serviceability together. One simple method is a equity/debt partner team. One person negotiates a deal to secure equity, the other partner takes on the mortgage in their name. Usually done when one has no time but can borrow, and the other has plenty of time but cant get loans.

- wrap: a process where you buy a property, secure it with a first mortgage, then onsell that property using a installment contract. As the buyer pays you an installment for payment, you in turn back the bank an installment for the loan. The different (margin) is your profit, which was created by an increase in the resale of the property and a increase onto of the banks interest rate. Very effecting in low growth, high yield areas, as the investor gives up captial growth on the property as soon as the property is sold. Also know as a wrap-around mortgage, check Amazon for such books. Robert Allen also writes stuff about the concept, or check forum for info.

- renovation: buy a property, improve "value" by means of paint, flooring, replacing kitchens, bathrooms, etc. A way to improve the value and yield of a property.

- subdivision: many ways to do this, buy a property with a large block, cut it in half, build another property in the back, sell of the one or both properties.

- optioning: one means of getting an option "the right to buy" a block, sometimes used with subdivision, where for a small fee you buy an option on a block, get subdivision approval from council then onsell the option to a developer.

- relocation: find an empty block, have a house moved onto the block, connect utilities and either sell or rent. Again depends on area, handy for places that already have wood or fibro homes as most ones moved are this type. Could be used with subdivision, to move other home onto the block.

- development: the process of building from scratch, requires more time and knowledge to implement.

As you can see the list just goes on and on, there's no wrong way, just the wrong tool, for the wrong problem.

If this is all too much, I understand, just don't let it prevent you from doing anything. Since that's what 95% of the population do, don't bother, 'cause its too much hassle.

Start small, a carpenter doesn't build a house for their first job do they?, no they start small with a gift box or a door stop or something. So just start small. Look for a small deal, something so tiny that you could not possibly fear. And once you gain confidence with that progress up.

And you don't make mistakes, you just have lessons. So if something doesn't work out like you expected, then think about what you learnt.

Hope that helps.

Regards Michael

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