The "don't"s of wealth creation

[craigb]

OK as invited , craigs dont's

1, don't listen to others, they are usually masters of ******** any way.find out for yourself.

2,don't allow jelous folks, to tell you all the doom and gloom that happens. keep thinking of the big picture.

3, dont believe , the agent, the bankers, or any one else for that matter, untill its in the hand ,counting on things in the bush is just that.

4, don't miss the opertunity,to listen, yes listen (mouth closed) to millionairs, they are sharing their way through life, learn from them as they are not the jelous type that will feed you crap, info.

5,don't stop reading, papers,books SS, this stuff might be booring, and yes you have read it somwere before, but if you pick up 1% extra your a winner.

6,don't stop trying, giving up , is failure garenteed!

7, dont go to just a couple of lenders, if you were looking for a lounge or a car i am sure you would visit more that 2 shops, to get best value for money.

8 don't cross colaterise, you might get to 3 ip's and from there it becomes a tangeled nightmare, "AND" by then the bank has your short and curlies.

9, don't choose a partner either in "LIFE" or "BUISINESS" that does not share this dream, it "WILL" lead to an unhappy relationship.
finally.....
don't hang around loosers, no hopers, bludgers,and crooks, as my avitar says, to catch a ride you need to play in the traffic. you will get support and better freinds,

 

[mja]

Don't...:

* Confuse opinions with facts. The media have opinions. The economists have opinions. Property commentators have opinions. Form your own opinion from reliable facts.

* Sit on the sidelines. You have to act.

* Make excuses about not investing. Latest excuse I heard this week from a colleague is that they'll start investing when the kids are grown up.

* Spend $thousands on property courses when you are starting out. Go to a couple of investor meetings (they are on all the time everywhere), but not meetings where they are trying to sell you into the latest developments, or an upsell into their "weekend/home study courses". Once you have a grasp on what you want to do, then go get more education.

* Try to do it yourself. You need a team to leverage off and get professional advice from.

* Make it complicated. Your first property doesn't have to be a in hybrid discretionary trust with trustees who are on a solicitor's board in the Cayman Islands. Keep it simple to start off with.

 

[Intrinsic_Value]

Say you have 2 investors, both own their own PPOR worth $300k for the point of the example.

Investor 1 wants to put some money into the sharemarket, so they save up and plonk $20k in.

Investor 2 thinks bigger, and with the same $20k cash for the market, he also borrows another $20k from the bank against his house , then plonks that into the market and opens a margin loan at a conservative say 40% and has a total exposure to the market of $67k. Now think bigger scale and do the same with $100k cash, or better yet to do it with $0 of your own cash using only borrowed funds.

Investor 1 wants to buy an investment property. So he saves and saves and 2/3yrs later has enough for a deposit for a $300k property.

Investor 2 isn't interested in saving for a deposit and buys it straight away using his PPOR as collateral. By the time Investor 1 is buying his 1st property, Investor 2 is up to property number 2/3.

Now obviously you may look at the above and think some of it is obvious - but that's because you are to some degree already thinking big.

.

This has got nothing to do with 'thinking big' or 'thinking outside of your comfort zone'.

Its very simple, if the return exceeds cost of debt you come out in front.
If not you get BEHIND.

There are periods when taking on additional debt 'makes sense', and there are times when its bloody risky.

Maximising debt does not always make investment sense.

I know i am not going to be popular on this forum, to keep emphasising this.
But for those who know me under my old name Chilliaa, i am not a perpetual D&G'er.
For those interested go back through previous posts in the coffe lounge dating back to 2008/09, i will take risks with debt when the investment crieria stack up, but to just say that thinking big means taking on debt is naive.

I cant emphasise this enough.

For the record as well, i have been a big fan of Keiths story, about how he made a very big jump towards financial freedom by leveraging his properties to enter the stock market, and then using leverage on leverage (through margin loans) to gain additional exposure to the stock market.

But reflect on one overiding criteria for a moment.
When our stock market last declined (pre GFC), it was because of the dot.com crisis.
Now when any market has a general decline, MOST stocks decline, why because of market fear, sometimes its deserved and at other times not.

Now think 'big picture', Australia has very limited exposure in the scheme of things to the dot.com, we are not a high tech society, we have few global dominant dot.com type industries.
Hence buying after the dot.com crisis made alot of financial sense.
This is exactly why keith was able to buy bank shares on fantastic dividends, with LOW RISK.

This cycle is not replaying itself in the current cycle. This cycle we are the POTENTIAL dot.com, why because resources are hot, and what is australia:
essentially a resource play (maybe not as much as in the past, but we still ride the sheeps back so to speak).

Look one year after the GFC, i dont see bank shares trading on 8% ylds at the moment, yet one year after the dot.com they were (or pretty close to it).

Look at the change in composition of our ASX200. Look at the number of companies that are in the index that are essentially cyclical companies.

Look at the recent growth rates of residential property.

LOW DEBT allows you to weather the cycles, high debt mean you have to TIME the cycles.

 

[steveadl]

Yes but you're talking more about timing than leverage.

Any investment decision - with or without leverage - needs to be made at the right time. Invest 100% cash into a property that drops 40% next year and you're still going to be negative for quite a while. Expand your business poorly or at the wrong time and you could be left with nothing in 3yrs.

The point I'm making is, you need to think 'big' if you want to get big. You're not going to be a property millionaire if you only purchase when you have 100% cash. Gerry Harvey didn't get to where he is by saying "ok well let's play it safe and open one new store a year and see how it goes."

The same way I think big in some areas, I don't in others - and this is completely ignoring leverage for a minute. I'm 'thinking big' at the moment in my property and equity investments and creating a substantial portfolio. On the other hand, I'm not thinking big in regards to my business investments - at this point in time anyway, I'm not interested in getting 'big' in my chosen business through adding more locations etc. because I see too many negatives for my personal situation. Other people in my industry however are thinking 'big' every day and will probably have 3-4 locations in a few years while I still have my one.

The point is, if I did decide to divert my attention and think big in business, it would be on a much bigger scale in say 5-10yrs, but because I'm focusing on staying small, it won't be.

 

[aussierogue]

Have a goal - an end game.

Say - net worth of 1 million (or 10) by age 40!

Its amazing how once you set a goal things transpire to help make it happen. I believe this. Many times I have had to make decisisons and reflected on that goal. It helped me make better decisions.

Even if you reach the goal you can then re evaluate.

 

[BayView]

Thye biggest don't I reckon is:

don't listen to folks who haven't done it.

And they are all around you - friends relatives, work colleagues and even here (some of the D&Gers with a spreadsheet and no runs on the board).

One of our (newer) friends is gung-ho about investing. Hasn't done anything yet, but has a few areas in mind to buy in. She is pretty switched on and will do well.

She asked me whaddya reckun? about a few spots she's watching. I gave here my opinions on all of them. Now, I'm not that much of an expert, but we've done a few of the IP thingies now, so I reckon I could offer a little bit of value. One area I reckon is a good one.

But, she goes to work (a nurse) and tells a couple of the girls what here plans are and they shot her down. These chicks have no investment property by the way; just ya super and PPoR, living cheque to cheque.

Now, she's gone from ready to sign cheques, to starting all over again and lots of doubt; again.

The second biggest don't would be:

don't over commit yourself.

People only go broke when they run out of cashflow.

 

[Paul Do]

Thye biggest don't I reckon is:

don't listen to folks who haven't done it.



The second biggest don't would be:

don't over commit yourself.

People only go broke when they run out of cashflow.

These are good points, and to tie them together: don't listen to newbies that have overextended themselves and done if many times in the space of a few years, because it's a very risky approach. For example, if I roll two dice, I might get two 6's this time, but when you do it, you're much more likely to get something else.

 

[jaycee]

I feel education is an important one.

Learn and keep learning as you grow.

We dont know everything and things constantly change, including what we choose to do, so to not keep learning reallly is to fall behind in how educated you are about the world you operate in.

 

[Bigtone]

I would say,

" When you have achieved a good level...move towards less risk"

I was reading once that many investors have achieved enough to retire but dont rcognise the fact and keep going for more believing that they are only almost there.

MJK

Think that is excellent advice, it is hard to do as the acquisition stage is so much fun and you have to let good opportunities go if you want to move towards less risk. However the longer u r in the game the more u have to lose so pulling back on the leverage and letting time work its magic is the smart thing to do but it is not easy to change the mindset.

I think the GFC taught many of us we r not infallible and to move forward with more caution in future, hopefully that lesson stays in the mind as time passes. Another lesson it taught me was the importance of having some $$$ available to load up on the awesome opportunities a downturn presented for buying, I did have $$$ available but in hindsight some of that was as much luck as good management.

 

[Bigtone]

These are good points, and to tie them together: don't listen to newbies that have overextended themselves and done if many times in the space of a few years, because it's a very risky approach. For example, if I roll two dice, I might get two 6's this time, but when you do it, you're much more likely to get something else.

Yes good advice, don't listen to me as I definitely fit the criteria of being a newbie to the forum and have overextended myself in terms of my ability to service my debt from income many many many times in the space of a few years.

However if u were foolish enough to listen my points they would be

1, don't sweat the small stuff (interest rates, tenant issues, vacancies, repairs, land tax, bank fees, rental mangers, etc etc and

2, ignore people that know everything but own very little

 

[Witzl]

Don't...:

* Spend $thousands on property courses when you are starting out. Go to a couple of investor meetings (they are on all the time everywhere), but not meetings where they are trying to sell you into the latest developments, or an upsell into their "weekend/home study courses". Once you have a grasp on what you want to do, then go get more education.

Have to agree with this point here, as this was a mistake we sadly made.
The course was a complete waste of time as it taught me absolutely nothing i hadnt already picked up from reading books and reading Sommersoft forums. All the concepts were the same, all the education was the same... it was just put into a glossy format and repeated ad nauseum for those who just couldnt grasp the simple concepts.

Quite honestly, the only time i can see such courses benefiting someone is for those type of people who need to have their hand held the whole way along the investing journey - but in my mind, that is not the sort of person who should be investing in such a way anyway.... you need to have a certain type of mentality and personality to do well in resi IP i rekon, and you certainly arent that type of person if you need to have your hand held all the way along.


My other DONT is:

.... dont let yourself run out of steam just because you have run out of funds to keep building your portfolio. Sure you might have run out of loan servicability, cashflow or equity to continue building on your portfolio.... but not let that give you the excuse to stop being active in your investing mind.
Keep looking at potential properties and doing the numbers on them as if you were genuinely looking at buying them... you know, keep the mind active! Keep thinking about the next steps you can take, and planning how you will do that, perhaps when you have more equity or cashflow.

We're at that point now where we have no servicability or equity left to keep building safely.... so we spend our "investing" time looking at houses and "pretending" we are going to buy them, and making up plans of how to take the next steps in growing our portfolio and building towards our goals.

 

[Dazz]

Waste your time renovating.

 

[oracle]

Don't follow the herd mentality to investing. When everyone is talking/investing there it's probably too late. Instead, much better to develop a contrarian investing philosophy.

Waste your time renovating.

LOL.

Cheers,
Oracle.

 

[MichaelW]

Waste your time renovating.

Boo, hiss...

I don't mind a good bit of value add and the odd reno done well works well in this regard.

These guys certainly think so...

Spot the difference

''They just repainted, recarpeted, tidied up the garden and made a slight improvement to the kitchen area. That's pretty much it.

Cheers,
Michael

 

[JIT]

Boo, hiss...

I don't mind a good bit of value add and the odd reno done well works well in this regard.

These guys certainly think so...

Spot the difference





Cheers,
Michael

But it would have gone up by this amount without doing the reno anyway, that's the point, the market in this sort of suburb moved by 30-40% in this particular time frame (from Dec '08), whether you value added or not.

 

[ozharp]

Moved in to my own apartment 6 months ago (that I'd been renting out as an IP for the last 15 years) and spent $50,000 doing it up for myself to live in only to find that it has only increased in value by the amount I'd spent on it. Great lifestyle decision but poor investment/value adding move.

 

[Paul Do]

Spot the difference

The increase was purely market driven. It would have increased by approximately the same if they had done nothing.

There were some bargains to be had at least in Sydney around the end of 2008 due to the GFC and high interest rates.

 

[Monopoly]

Moved in to my own apartment 6 months ago (that I'd been renting out as an IP for the last 15 years) and spent $50,000 doing it up for myself to live in only to find that it has only increased in value by the amount I'd spent on it. Great lifestyle decision but poor investment/value adding move.

What did you spend the $50,000 on?? If you spend money that either can't be seen (isn't instantly obvious when you look at the place such as insulate walls or restump foundations) then this will not be reflected in your re-valuation, and although is definitely money well spent, does little to add "wow" factor that will draw in buyers!!

As an after thought (in accord with comments made by others here) $50,000 is a lot of money on an apartment especially if you have not added any more value than the actual $ amount spent!!

 

[skater]

Waste your time renovating.

OMG, I'm agreeing with Dazz!

But only partly.

I think it all depends on your market and what you want to acheive, also your skills in doing the renovating. There is no doubt that Nathan adds value with his reno's. The homes he buys are unliveable without it, and he only brings them back to a comfortable condition. He does not do the stainless steel "name" brands of appliances complete with all the mod cons and would never overcapitalise. They are basic homes brought up to a nice basic standard.

We have several IPs in original 60-70's condition. At the moment it would be a complete waste of time, energy and money renovating them. In saying this, however, there is a rental shortage and the unrenovated properties are getting a similar rent to the renovated ones. The value in the properties does not change a whole lot either to justify the inconvenience of renovating. We tend to do "stuff" between tenants when we can too, so that even if they are basic homes, they are well maintained and often have a decent/recent paint job. In most cases a "reno" would involve installing a new basic kitchen, and not a lot else. This will get done, but not yet.

Knowing the market, I know that I won't get extra value by adding expensive appliances, whether the properties were to be sold or leased out. Same with window coverings, light fittings and any other things you can think of. If it is new and cheap, it will be the same value as new and expensive.

Sometimes a reno can add a lot of value, depending on how the home is laid out. Changing a carport under main roof to a garage, just by enclosing a wall can add value. Same with changing the layout of rooms where sometimes simply adding a wall can create another room (which we did recently) or changing a garage to a room and adding a carport.

 

[craigb]

Moved in to my own apartment 6 months ago (that I'd been renting out as an IP for the last 15 years) and spent $50,000 doing it up for myself to live in only to find that it has only increased in value by the amount I'd spent on it. Great lifestyle decision but poor investment/value adding move.

50k for an apartment, you got taken sorry, most of the value adds are done by the owners and i would think that most some here have done appartment makeovers for about, 14k tops,