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By Frank Janelle. June 2009. An INFORMATION SESSION About the benefits of Residential Property Investment Presented by Frank Janelle Managing Director
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By Frank Janelle June 2009
An INFORMATION SESSION About the benefits of Residential Property Investment Presented by Frank Janelle Managing Director Frankie J Investors Group (FJIG)
This Information Session will cover… a. Why Invest b. How to Invest Beware: This is an example only. You must take all necessary factors into consideration before deciding whether or not to invest in property. I’m an experienced investor, not a Financial Adviser. You must take responsibility for your decisions
Why Invest in Property? Welcome to the Frankie J Investors Group. Ibegan the Frankie J Investors Group as a means to offer the benefit of my experience to others who may not have the time or expertise to "go it alone" - some of the benefits of the Group, bringing investment opportunities to regional and country areas, besides free membership, is access to various property projects including new, construction and off the plan purchases. Once again; "Our goal is to source quality property for our members and to make the experience of purchasing an investment property portfolio as rewarding and hassle- free as possible“
ARE YOU INTERESTED IN INVESTING IN PROPERTY BUT... • Are unsure where to start? • Don’t want to go through the hassle of finding the right property, the right finance, dealing with solicitors, quantity surveyors, property managers & real estate agents. • Want to legally minimize tax and create wealth for a better future • Want to ensure that the price is affordable and minimize your financial exposure
Want to deal with someone you can trust, who can help you secure a great investment portfolio? • Provide an objective approach to property investment based on market research and value for money • Our network partners deal directly with credible property developers to provide properties to members as soon as they become available. We have focused on developers with a proven track record who provide quality property at a realistic market price
We have long associations with other professionals in our network including • Accountants, Mortgage Brokers, Solicitors & Conveyancers, Depreciation Specialists, Insurance Brokers, Property Managers, and Financial Planners. • This allows us to provide an integrated service to our members. • Investing in property can be a daunting process especially if you have never done it before. • It’s not easy to find someone who’ll give you the guidance you can trust.
If you are really serious about being a property investor, you need knowledge and confidence. We will help you to build your confidence to be a successful property investor…just like most of our members. If you are really serious about being a property investor, you need knowledge and confidence. We will help you to build your confidence to be a successful property investor…just like most of our members. You will also be shown how to make informed decisions, overcome your fears and more importantly get into action You will have the support of other like-minded people like who have already begun.
Also, not everyone has the time, knowledge or the energy to do it alone. • We help members to establish affordable and profitable Property investments to accumulate wealth. • The Frankie J Investors Group, Bringing investment opportunities to regional and country areas and providing members with access to end to end property investment solutions; from selecting the right property, all the way through to settlement and beyond.
What are the benefits of being a member of the Frankie J Investors Group? • Access to your choice of property projects including new and “ off the plan purchases “ • Tax effective and financial structuring through our network partners providing access to tax solutions and providing access to effective ways to hold property, and choosing the loan that best suits your needs. • Depreciation – providing members with negotiated discounts with quantity surveyors for depreciation schedules
After settlement – our network partners can assist in obtaining landlord’s insurance, liaising with property managers, quantity surveyors and tax agents to ensure the smooth management of your investment. • The opportunity to meet with like minded people to share the opportunities and rewards of property investing • Our goal is to source quality property for our members and to make the experience of purchasing an investment property portfolio as rewarding and hassle-free as possible • Please log onto our website for more information on the Frankie J Investors Group at • www.fjig.com.au
Building a strong investment property portfolio is not a get rich quick scheme. We believe that “time in the market” is just as important as “market timing”. We know that in order to make a responsible and successful property investment you will need a lot of information. When you become familiar with our strategy you will see how easy it is to ensure that you have a strong investment portfolio for the future which will ultimately result in a lifestyle retirement.
The 3 biggest mistakes investors make • 1,Lack of Knowledge: 2, Misunderstanding Debt: 3, Incorrect Loan Structuring: • Examples:
1, Lack of Knowledge: Most people have some knowledge about investing. However, those who realize that there might be more to learn, are the ones who will succeed. Examples
Success Strategies • You have to feel comfortable to live with the idea to going into debt to try to build better future. If you can do that the sky’s the limit. • Surround yourself with a reliable team - including a good tax accountant and good property managers. • Start accumulating as many properties as you can, as quickly as you can. If the bank will lend you $ 1 million take it. • You have to get comfortable with the idea of borrowing large sums of money to gear into property. You will never be able to do it on your own money. • Once you start, keep buying - don’t stop at one. Your aim is to build up a portfolio.
Making profits with someone else’s money • ADOPT A POSITIVE APPROACH to property investment • FIND A MENTOR. Somebody who’s been there and done it successfully • EDUCATION. Get educated, learn about the investing world. • START INVESTING TODAY, because tomorrow never comes • KNOW THE DIFFERENCE BETWEEN good and bad debt • FOCUS, ON BUILDING YOUR NET WORTH… if you believe, it will increase. • DON’T WORRY IF YOU HAVE A LOW INCOME, it just takes a little longer. • SURROUND YOURSELF WITH LIKE-MINDED PEOPLE - it keeps you inspired
1, Misunderstanding Debt: We are taught to believe that debt is bad. However, using debt the right way can considerably increase your wealth. Examples
Know the difference between good and bad debt. Most of the people invest their money, usually borrowed, into things that make them feel wealthy – cars, boats, clothes etc, and pay a high interest rate on borrowings and the goods they buy are always decreasing in value. These people never get ahead, are always paying things off and going backwards doing it. Call that BAD DEBT
Some of the people, however, invest their money, again usually borrowed, into things that increase in value such as – property. And continue to purchase rental properties. • 90% of the western world millionaires started with Property Investment. Call that GOOD DEBT.
3, Incorrect Loan Structuring: This is a problem that can cripple an investors ability to grow to their fullest potential, and can be expensive to rectify.
Real Estate is one of the few Investments which enable you to make profits with someone else’s money. Borrowing money to buy Real Estate can be a very profitable exercise. This is because you can make profits on the money you borrow, as well as the money you contribute yourself.
Property… your equity • If you do own property, ask your self these questions: • What is the current value of your property? • How much do you owe the bank? • Obviously, the difference between the two is your EQUITY or NET WORTH • What is your net worth right now
Why Invest in Property? While you are working you can continue to purchase rental properties until you decide that it is time to retire. You can look forward to an early retirement and total financial independence. If you already have some equity in your own home then you are well on the way. Borrowing to buy your next property as an investment is much easier. Why? Because the debt on this next rental property is paid by other people -not just you. The tenant and the tax men help pay your interest and other bills
Property Research • Here comes the hard part – FINDING THE PROPERTY… this is where “KNOWLEDGE IS POWER” comes in. RESEARCH IS CRITICAL as far as investment properties are concerned. Getting good advice from an experienced property investor is critical to the process. • The research ranges from: UNDERSTANDING WHAT DRIVES INVESTMENT PROPERTY VALUES
Research into AREAS THAT HAVE CAPITALGROWTH and WHY IT HAS OCCURED and TENANT DEMAND which strengthens rental returns. • DON’T FALL IN LOVE WITH YOUR PROPERTY. Think of it as a money making machine, to secure your financial future and pyramid your property investment to build wealth.
Why Invest in Property? Investment in residential property offers an attractive combination of GROWTH and RETURNS. The Three essential ingredients that need to be weighed up when investing in property are: Growth Income Risk.
GROWTH: It means investment goes up in value over time. INCOME: It means investment produces a cash return in the form of rent. RISK: In other words your potential to lose money
Growth This means that over time the value of your investment or investments can potentially grow in value. Example: If you purchase a $250,000 investment property today with a $25,000 deposit in 7-10 years this value could double to $500,000. (Based on historical real estate results from various sources) This will give you $275,000 equity in this property.
Income - Return on Investment As with any investment you like to see an income or return on investment. With property this income is in the form of Rent. Rental returns are calculated and determined by the market. Example: You purchase a property and the Rental Agent advises you that in the current market you can expect to receive $250.00 a week. The market is calculated by taking the following into account. Thenumber of properties available for rent, the size and location of the property (what facilities are close) and the condition of the property compared to what else is available.
Risk (Potential Problems) When you invest you need to understand that if there is a potential for Good (Growth) there is also a potential for bad (Loss). Example: buying property in a non growth area, further and further from the capital city. Some investment scenario has Risk associated with it. CBD and surrounding areas are most likely to produce exciting, long-term capital growth.
Gearing and Capital Growth. Gearing means borrowing money to invest. Negative Gearing means your borrowing costs (interest and fees) exceed the income you receive on your investment. If you buy property with high growth in a good area it means that to a certain degree you may have to sacrifice income (which is partly compensated by taxation benefits). Achieving good rental income is often not asimportant asCapital growth. As the value of property goes up your rental income is increasing as well.
If you purchase property-with medium growth, it is mainly • “Cash flow property” which means, the income and the taxation (depreciation) covers the interest. On paper deductions and making the bottom line slightly positive, or slightly negative. • So the trick is to find cash flow positive properties, that are also going to benefit from strong future capital gains.
POSITIVE GEARING MEANS your borrowing costs are, more than fully covered by the investment income. It means: If you buy property with high income that is where you get higher rent and lower purchase price, or hold a negatively geared property for longer time, the income exide the interest. • If you purchase property in high growth and highincome areas, you will have to accept higher risk. Example: Purchasing in tourist resort type apartments, which are dominated by holiday makers and lettings.
DEPRECIATION This is one the most wonderful benefits of buying an investment property. Depreciation is the tax dedication the government allows you to claim without you having to spend money. Depreciation is the “Special Purpose Building Write Off” and “Chattel Value” wear and tear that you can claim. The Quantity Surveyor will identify the depreciation you can claim such as: Carpets, floor covering, curtains, light fittings, air condition units, hot water service within the house as a tax deduction, and is only available on buildings constructed after July 1985 Example: we buy an investment property for say $360,000 the Quantity Surveyor estimates that the building would have cost about $200,000 to build at the time was constructed, and the chattel value estimated claim was $25,000. Allows you to claim 2.5 per cent out of $200,000 at your tax rate for 40 years. At the same time you can claim the 25,000 cost of “chattel value” 20 per cent a year for next five years at your tax rate. Estimated life expectancy for chattels is 5 years. After 5 years you can repeat the claim Taxation ruling subject change, to fined out more go to Australian ATO web side
Choosing an Investment Property. Choosing an investment property is a completely different prospect to choosing a family home. A home is an emotional purchase On the other hand if you purchase your own home you purchase that home with your HEART, because you will live in it yourself. An investment property, on the other hand, is simplya business prospect, which will continue to generate capital growth throughout the years. If you purchase a investment property you purchase the property with your HEAD not with your heart,
If you purchase a new car or boat today for $30,000 will this asset appreciate or depreciate in value? How does your superannuation fund look? Are you able to have the lifestyle you deserve in retirement? By looking at the following graph you can see the answers to these questions that people are asking everyday.
Why Invest in Property? In year 1 you have a car/boat valued at $30,000. Your Superfund has a balance of $30,000 also. You have a property valued at $300,000(with 10% equity $30,000)
Why Invest in Property? Using today's rates in year 10 you have a car/boat valued at $15,000. Your Super fund has a balance of $60,000. Your property is valued at $600,000(with 55% equity $330,000)
Why Invest in Property? Using today's rates in year 20 you have a car/boat valued at $5,000. Your Super fund has a balance of $120,000. Your property is valued at $1,200,000(with 77.5% equity $930,000)
How Do I Live Off My Portfolio There does seem to be some contention in finance and property circles as the best formula for retiring comfortably on a property portfolio. Many investors might think that offloading propertyis the easiest way to go when they need to make some money. Living off increasing equity can seem too confusing to contemplate. Really through, it doesn’t need to be so hard. The concept of living off equity is one that very few people adopt because it’s foreign to what they’ve been taught.
Refinance in retirement and pay no income tax. One means of retiring on property is to build a geared portfolio, which once it has grown to equity of, say, $1.5 to $2 million, can be regularly refinanced, producing new borrowed funds used to pay for living expenses. The extra interest repayments arising from the refinancing are capitalized, that is, added to the loan amount, so that over time the loan amount will continue to rise. So long as the properties in the portfolio appreciate at a faster rate than the new borrowings the investor’s net assets will grow and wealth will be created
The principle is: I’ve got $2 million worth of equity on all my properties in good locations. On 10% yearly growth the properties will earn extra $200,000 a year So therefore every year I’m worth $ 200,000 more. If I live on $100,000 of that I’m still going to be worth another extra $100,000 every year, So even if I’m eating away $100,000 capital, at the end of first year I’ll be worth $2.1 million and it still continues creating wealth for me. So hold onto your good-quality properties and retire or live on the rental income and your borrowings.
Why Invest in Property? Statistics reveal that out of every 100 people the age of 65. ☺ One is Rich. ☺☺☺☺ Four are independent. ☺☺☺☺☺ Five are still working. ☺☺☺☺☺☺☺☺☺☺☺☺ Thirty Six are deceased. ☺☺☺☺☺☺☺☺☺☺☺☺ ☺☺☺☺☺☺☺☺☺☺☺☺ ☺☺☺☺☺☺☺☺☺☺☺☺ Fifty Four are broke. ☺☺☺☺☺☺☺☺☺☺☺☺ ☺☺☺☺☺☺☺☺☺☺☺☺ ☺☺☺☺☺☺☺☺☺☺☺☺Where do you want to be at 65? ☺☺☺☺☺☺
HOW DO I GET STARTED Simply complete the Finance Enquiry Form (F.E.F) to determine your borrowing capabilities Once you have completed the F.E.F you then provide the documents listed on the Borrower Check List and return that to our finance team so they can pre-qualify you for your finance. Once you have your pre-approval you will have access to the range of properties available so you can choose the property that will kick start your Property Investment
FINANCE Our finance partners recommend that you seek a pre-approval for property purchase prior to selecting a property. This works to your advantage in two ways. 1 When you find a suitable property it is simply a matter of signing an expression of interest and the property is effectively taken off the market and it is yours. 2 It will save valuable time where you could lose the property if there is a delay with finance approval
FRANKS PORTFOLIO The way that I Invest in Property. I have many properties within my Investment Portfolio. These include Units, Town Houses and Houses that range from Low Risk to High Risk. I use property NOT as a “Get Rich Quick” Strategy but as a “Wealth Creation” Strategy • Introducing some of my favorites in my property portfolio.
BEL AIR AT GOLD COAST BEL AIR
