Steve McKnight and his back to basics

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From: Carlo Chiodo


What tha................

You've got to be kidding.

How can you possibly compare investing for income to investing for capital growth.

Lets look at some facts:

1/ Capital growth by % has FAR outstripped income % in areas where capital growth should be the main focus. 15% cap growth and 2% rental is WAYYYYYYYY better than 7% rental and 2% cap growth. The exceptions, in cyclically bad years...which last about 2 years. I can live with that.

Please don't tell me that I would have earnt more money by investing in a rental suburb for 7% rental yield (which is high for rent and unlikely) than investing in a high cap growth suburb. Please don't, that would just be tooooooo funny.

2/ Even if your income is low initially in a high growth area, watch it increase as your house price increases. Case in point: House i bought in Elwood for 210,000 in 96 is now being rented for $350, was being rented for $200 back then. Low income turns into high income. Why, cos its a high cap growth area. The house is now worth $600G. Yes the rental is low as a % of 600,000 but its damn high as a % of 210...not that I care about the rent much.

3/ Tax benefits of investing in capital growth given the discounted capital gains. Oh yes you get interest deductions on income, but you didn't want to negatively gear remember.

The statistics SHOW clearly that capital gains investment is much better than rental investment. Your mention of INTERNATIONAL SHARES as a good investment even supports investing for capital growth.

Im not saying dont invest for rental. Im saying, don't invest in rental and ignore capital growth.

Who knows, change your ways and you may have 100+ properties compared to the 50 or so you have now.

Regards

Carlo Chiodo

Disc: The above is only my personal opinion and should not be taken as advice.
 
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Reply: 1
From: Anonymous


What the hell are you on about Carlo!
Who the hell cares if Steve McKnight is wrong or right. He has found his niche, so why bag him. How many properties do you own?
Do you really believe the bank will lend me the money for 50 houses in Elwood that are - geared and sinking a hole in my cashflow.
At 600k a pop and renting at $350 per week, how many of those that you can own?
What statistics are you on about? Prove it and stop rambling!
 
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Steve McKnight and Carlo with no idea...

Reply: 1.1
From: Asy .


Well said, Anon,

But, it makes me wonder why you need to be anon?

Have an opinion, and have the balls to tell us who's opinion it is.

In MY opinion, Carlo is a fool. And I don't believe he has ANY idea of what it is that Steve ACTUALLY does...

In any case, Carlo, we will await, with trepidation, your seminar series, since you know it all...

Come to chat sometime, could be fun!

asy


There are no problems, only solutions which have not yet been discovered.
 
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Steve McKnight and Carlo with no idea...

Reply: 1.1.1
From: Carlo Chiodo


Seminar series, what seminar series...i don't have any seminar series. I was posting an opinion...WHICH HAS worked for me. Don't use it if you don't want to, your loss. If you want further basis for my argument, feel free to email me, as others have done.

And I'll gladly volunteer to attend a CHAT, name the place and time and we can discuss any issues.

By the way to the person that asked me how many properties i have, here you go:

Elwood: 2 one of which purchased 210,000 now worth 600000+, the other purchased recently at 470,000
North Carlton: 1 purchase 280,000 recently offerd 380
Collingwood: 1 commercial property (you dont want to know the value)

Not 50 is it...but all houses, all fantastic CAPITAL growth, and not bad for 26 years of AGE. Oh and by the way, my effective rental yield FAR outstrips the effective rental yeild I would have achieved had I invested in a low growth, high income area. Again email me to see how.

I have an email in which I answered someones query as to why capital growth beats rental investment and another which answer how capital growth properties can finance other properties bettr than high income properties. Please email me to have it. cdchi1@ihug.com.au or at work Carlo_chiodo@norwich-union.com.au

For the record, I am a superannuation consultant specialising in corporate superannuation. Obviously I would not promote HIGH CAPITAL GROWTH Areas for those seeking security in their retirement. However I would by no means advise against it.

Regards,

Carlo

Disc: Again this is all personal opinion which I am sharing. If you need to call me a fool do so, fact is, I know what I have achieved and think others can also.
 
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Steve McKnight and Carlo with no idea...

Reply: 1.1.1.1
From: Robert Forward


Hi Carlo

Now some of my thoughts with your strategy.

Yes it works, and it works for some, but not others. Unfortunately with the style that you currently use, there is a "hitting the wall" factor that you may have not hit as yet but soon will if you do not get a hold of some high yield stock.

Yes there are ways of getting around hitting the wall or delaying it anyway. But eventually you will hit it with this strategy (being mainly negative gearing). By no means do I say your strategy doesn't work, it does, it just takes longer to remove yourself from the "Rat Race". But to use other strategies that include high yields will get you out faster to concentrate of bigger deals.

So what I see is that you're not as aware of the whole market and different strategies as you may think. As for Steve McKnights strategy, well he isn't a property investor with his wraps (though I know Steve has buy and holds too), wraps are a business and are treated as such. Wraps are completely different to buy and hold or trading properties or any other style you may think off.

I look forward to your views on the above.

Cheers
Robert

Cheers
Robert

The Sydney "Freestylers" Group Leader.

PS: "Be Not Afraid Of Growing Slowly, Be Afraid Of Only Standing Still."
 
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Steve McKnight and Carlo with no idea...

Reply: 1.1.1.1.1.1
From: Carlo Chiodo


Robert

In response to your above post and as discussed in chat, please refer to my email which discusses how cap growth WILL not have you hitting the wall.

Regards,

Carlo
 
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Steve McKnight and Carlo with no idea...

Reply: 1.1.1.1.1.1.1
From: Robert Forward


I have read the email Carlo and yes you will be "hitting the wall". You haven't as yet got enough properties or lending for it cause you a problem at the moment.

In your email you state that rental rates are always going up. Not so, I'll provide a little story that I have previously posted on this forum. And this has been a familiar occurance through Sydney over the last 6 months.


A property that I lived in in 1995 and rented for $320pw in the eastern suburbs of Sydney was vacant recently. In 1995 the unit was worth $280-300k now it's worth $430-450k and when it was placed onto the rental market the asking rent was listed as negotiable $350pw. I would have been able to rent this unit for $320 no probs, so that is 6 years without a rent increase.


Now using the above as an example, the property would have been negatively geared at purchase price of $280k (without taking purchase costs into account). Now, you've got a neg geared property that you have to put in approx $30-40pw to maintain. So how many of these properties can you buy till you run out of money "income" to service this debt? If you are on a average salary of lets say $800pw after tax the banks will only allow you take up to (max) 40% of this income. So you can only buy up to 8-9 and even this is dependent of how much you are borrowing. As soon as your borrowing goes over "x" amount LMI starts becoming a huge issue, ask any banker (or broker).

Now lets have a look at this same property if you purchased it today. Buying it for $450k and renting it out for $320pw, how far neg geared is this going to be? Your monthly interest rate on $450k at 6.2% = $2325.00pm
Your rent will $1386.00pm (These are current figures that are coming out in the Sydney market right now). So, now you have a short fall of just under $1000pm after tax benefits and etc you will still be up for at least $600pm (optimistically) so you need to come up with $150pw to service your loan. And remember I haven't added in extra costs such as maintenance/rates/management fees etc....

How many of these properties do you really think you can buy whilst negatively gearing them? You can't just keep buying when you have no money to service the debt.

So how do you get around this, you need to up your serviceability. And how do you do this, you buy high yield properties that are positively geared to give you more income, it's easy.

Let me also add that yes Cap growth is good and it helps with further purchases of IP's. But you need more then equity to buy more, you need to service the debts. Hence why I trade properties to then put 50% of the profit back into debt reduction of my buy and hold properties. With this strategy I won't go broke when interest rates finally go back up, cause my debt will be lower and I'll be ready to jump in when others are having troubles servicing debt on their properties and I'll be able to pick up some very good deals.

FYI to all: Below is a copy of the email.

Cheers
Robert

The Sydney "Freestylers" Group Leader.

PS: "Be Not Afraid Of Growing Slowly, Be Afraid Of Only Standing Still."

QUOTE
Actually I'm a bit of a contrarian. I like to buy houses when the market
goes off colour a bit. Lots of passed ins lately, which is why it was so
easy to find a house undervalued. People also desperate to sell b4 the real
estate market shuts down (effectively) for the Summer. Right now I feel is
the best time to buy in Melbourne. Half the houses are still selling well
while the other half aren't going so well. Theres too much supply at the
moment.


By cash bonds I figure you mean deposit bonds. Surprisingly I never have
any problem getting a 100% loan from the 'BANK'. They usually don't ask any
questions if you've got plenty of security...and obviously I have. Also.
I've never missed an interest payment which helps.

I'll be looking for another house in the new year after I bed this one down.

As for how I finance my properties, well basically the rent from them. As I
stated in the post re capital gains v income, my High growth properties are
now returning more rent per week than a property in a low income suburb
would. WHY? Because the yield growth rate is higher in capital gains. Heres
an example:

Lets say rent in a high growth area (Area 1) is 3% of price historically
and in a low growth area (Area 2) 5% of price.

Assume that in year X the price of a property in Area 1 is $300000 and
rental yield is therefore $9,000 while in Area 2 the price of an identical
property is $200,000 and rental is $10,000. Higher income for lower outlay,
sounds good right. But lets say Area 1 grows at 15% per year which Area 2
grows at 4% (inflation rate).

In Year X + 5, the property of Area 1 is $603,000. Assuming worst case
scenario that rent yield has infact fallen to 2.5% (unlikely), the rent now
is $15,085. However, given my outlay was 300000 my effective yield is 5%.
Meanwhile, property of Area 1 is now $243,330. Assuming rent stays at 5% of
current property value, this means rent of $12,166. Given my outlay of
$200,000, my effective yield is 6%.

As you can see, the effective yield has grown by 2% for the high growth
property (despite an unlikely fall in rent yield to 2.5%) while the low
growth property has only increased by 1%.

Obviously the effective yield in the high growth area will soon overtake
the effective yield in the low growth area. Which one will finance a new
property more rapidly??? The answer is obvious.
UNQUOTE
 
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Steve McKnight and Carlo with no idea...

Reply: 1.1.1.1.1.1.1.1
From: Carlo Chiodo


I think I read your post about...ohhhhhhh, half way...and thought, what are you talking about?????????

Hello??? Anybody home???

You are comparing apples with oranges and you have become to 'WRAPPED' up in your way of doing things to bother to see the way that capital growth can finance many a property as an alternative.

Before you start saying someone has 'no idea' get your facts straight as I am definitely someone that DOES have an idea.

Oh and your ALSO assuming that I would NOT be paying any of the loans off. I don't remember saying that ALL my properties would be INTEREST ONLY...so that squashes your 30-40 p/w maintenance argument as it assumes all properties are still fully negatively geared.

What happens when a couple of the houses are fully paid off????? hmmm...

Lets see I have FOUR high growth propertis at the moment...Two are fully paid off, total rental income is oh $1330 (350 + 420, + 260 + 300) per week. My total interest bill on the other two is 6% (approx) of $600000 (500000 + 100000),which is $36000...whch is $692 per week...the two are negatively geared. My GOD I'm OVER $600 in front a week on rental alone (and all these properties were initially negatively geared), yet given that the value of my 4 properties is now conservatively 1.8 million (valued each at: 570,000, 380,000, 450,000 & 400,000), and my full rent is 69160, thats a rental yield of 3.8%.

Try doing the above assuming higher interest rates, I still come out on top up to a fairly high rate. I also have plenty of room for financing another property which will assist in paying off one of the other two.

Gees I'm not doing to good am i in these high growth areas am I.

Now I'm not saying your styles isnt great. What I am saying is that your earlier post (which admittedly I thought was recent) specifically states that investing for capital growth and negative gearing ARE TWO FUNDAMENTAL ERRORS.

Obviously not the case...

Carlo
 
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Keep up the good work!

Reply: 1.1.1.1.1.1.1.1.1
From: Land Holdings


Carlo,

I'm around your age (a tad bit older) and I think you've done really well for yourself. I think people just can't handle your sense of ego. I'd just like to say congratulations, I really admire what you've achieved and can't wait to build up the same amount of equity.

When you've achieved so much in so little time, I think it's really a matter of not how you achieve your dreams and goals but just the fact that you've taken the steps to achieve them. Not like so many other people I know who far from even achieving their goals are sitting on their hands and wondering how come they're not so lucky.

Best of luck in the future!

LH
 
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Keep up the good work!

Reply: 1.1.1.1.1.1.1.1.1.1
From: Darren B


Carlos, yes you have done well in your property investing, no one is disputing that. The big question is, can you give up your job TODAY and rely on your real esate investing to support you. And if you are so successful as an investor, surely the deals you do must be more lucrative than working for Norwich?
Wrapping is a business that provides long term passive income now. I dont think that investing in high growth areas such as Elwood is going to get someone out of the rat race now. Which is the whole point of someone doing wraps.
The capital growth is great, but $350 per week in rent is a pittance!
 
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Keep up the good work!

Reply: 1.1.1.1.1.1.1.1.1.1.1
From: Anony Mouse


I hate to buy into this argument, because I think you are both right.
Taking every thing back to basics, which is the only way I can understand anything, you have two situations:
Buy and sell.
People buy and sell their properties because of lifestyle factors.
They want to move, move into a bigger, smaller property etc.
Other people don't want to buy because they can't buy property because that is their choice, or they cannot afford the price.
These people want to live somewhere on a short term basis, so they rent.
This is where the entrepreneur comes into the picture.
He/she looks at the situation and see if they can make a positive cashflow out of the situation. If they can they invest their savings or what they won't consume, as opposed to people who are fully extended on their income.
The situation then is then a tradeoff between borrowed money and income from that money.
If it is positive then more entrepreneurs will move into the market.
what throws all this in a quandary is Government manipulating interest rates.
If they reduce interest too much, you will have people trying to find a better investment than a bank deposit .
You then have a new breed who are trying to make a financial investment as opossed to a business investment.
The first group are buyers and sellers, the second group are bulls and bears.
They essentially are in two different markets.
Property to the second group is a derivative, a financial instrument.
As long a the value of these derivatives is going up more and more speculators will be attracted to the market. Property will increase step by step, as up a stairs, but if something should happen to spook that market, then the speculative element will vanish overnight, as they say down the escalator.
So investing for capital growth can be profitable, but it is a high risk strategy along with the rewards.
Investing for income is less risky.
To each his own path.


"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
 
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Reply: 2
From: Michael G


Carlo,

Hi there, actually you can't compare wraps with rentals or any other form of property investing because wrapping is a business venture, not an investment.

So you are correct, you can't compare them.

With wrapping, the idea is to develop a skill, which you can market to investors. These "investors" then supply the funds to secure the cashflow streams.

The theory then is to generate cashflow with none of your own money. This would in effect produce infinite returns.

When using your own capital, I agree, developments, flips, buy+holds are way better.

But with wraps, you do need to use a little of your own equity to practice and develop your own track record to show investors you know what you're doing.

Regards
Michael G.
 
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Reply: 2.1
From: Rick Gibson


Carlo,

Let me firstly congratulate you on your investment success, you are doing very well.

But to knock someone who's investment style you clearly don't understand is a little premature.

And as per only investing in capital growth investments, I don't know about you but I hope to leave the rat race as soon as I possibly can and I have yet to find a grocery or petrol store or any other bill of mine that will accept my capital growth as payment for my account.

Cashflow is the key to true wealth

Just a thought.

Rick

Always be fascinated by the possibility of what could be, not what is!
 
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Steve McKnight and Carlo with no idea...

Reply: 1.1.1.1.1.1.1.1.2
From: Robert Forward


Hehehe, Carlo we are arguing about exactly the same strategy. It would have helped if you'd mentioned that you did debt reduction on these properties to get them out of being negative geared. Unless I missed that somewhere along the line (which I don't think I did, nor anyone else that has read the posts or that was in the chat room at the time either).

I do debt reduction by trading of properties, you do debt reduction by (I presume) putting your own cash into the deal or some other means. Doing the above extracts the same ending that I am getting, positive gearing and equity. Of cause it's hard to keep buying property when you are max'd out with LMI to 90-95%. Which is why you need equity, it's just you need high yield rent to help with servicing your debt.

So why are we arguing???

One thing though, your last comments about Fundamental Errors. I never said anything like that, are you meaning the Steve McKnight post???

Cheers
Robert

The Sydney "Freestylers" Group Leader.

PS: "Be Not Afraid Of Growing Slowly, Be Afraid Of Only Standing Still."
 
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The property version of Eric Snow?

Reply: 2.1.1
From: Anonymous


Carlo

Have you read any of Eric Snow's posts? You should because that's how you're coming across.

You don't have to criticise others to make a point.
 
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Email of Posts

Reply: 1.1.1.1.1.1.1.2
From: Ray Summerton


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Webmaster. somehow I have started receiving posts to the property forum =as emails. I wish to stop this but am unable to work out how. Can you =please advise me the step by step method to do this? Thanks Ray

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Email of Posts

Reply: 1.1.1.1.1.1.1.2.1
From: Sim' Hampel


Ray,

Check your settings in the forum...

More... -> Email Notification Status

Make sure they're all unchecked.

 
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Reply: 2.1.1.1
From: Rick Otton


i agree with whoever said what

.......excuse me sir,could you leave the little umbrella thingese out,they get caught up my nose....

(oh magoo!..you've done it again.)
 
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