Banjo Smyth

Steer clear of emotional bidders and keep your eye open for motivated sellers.

When you are purchasing anything it’s obvious that you want to pay as little as possible for it. When it comes to buying houses there are two main factors that will alter the price – If you can take advantage of these two ideas you will learn how to buy property at a great price.

1. Steer clear of emotional bidders and people who are making their decisions with their heart. When people/families buy residential property there can be emotional factors that cause them to pay more than the value of the house. For instance they might be in a rush to find a property as they have already sold their previous house, or they might be living with their in-laws in between houses and desperate to find their own place. The husband might fall in love with the garden and be prepared to do anything to get buy or vice versa. Believe me you do NOT want to compete with these people, one of the great advantages you have as a property Investor is that you shouldn’t be emotional. Walk away from the property and find another one that will end up being a better deal. If you want to know how to buy property for way more than its worth then simply find an emotional buyer and you will see how its done.

2. If you can find a motivated seller you may be able to buy the property at a great price. What do I mean by a ‘motivated seller’? Simply someone who wants to get rid of their house quickly. For instance a divorced couple or someone who has been transferred to a new location and wants to sell their place before they buy a new one. Always remember that the ‘conditions’ of your offer can be just as important as the price. For instance if you know that the seller is desperate to get rid of the house then it would be a great idea to offer a very short settlement. You would be surprised at how often lower offers get accepted because of the conditions that are attached with the offer. I hope these two ideas can help you to learn how to buy property at a great price. Good luck and happy bidding.

Once you have found a property that you would like to buy you need to think about how you’re going to go about actually acquiring it.  Depending on how the property is listed you will need to bid at an auction or put a written offer into the real estate agent.

Let’s have a look at some tips on ‘how to buy a house at auction’.

Before you even think about trying to buy a house at auction it is vital that you have witnessed several other auctions take place.  I would recommend dedicating one Saturday to simply go to as many auctions as you can.  Go to www.realestate.com.au and search for upcoming actions around your desired area.  Then plan out your days schedule.  In most areas you should be able to see at least 3-7 in one day.  This shouldn’t be a chore or a hassle, believe me there is nothing more entertaining than an auction (I’m surprised there isn’t a reality TV show about it yet).  It has all the ingredients of great entertainment – suspense, excitement, joy and sadness, be careful because you might actually become addicted to going to them!

In all seriousness it is very important to see how they work because when it comes to your turn you want to at least believe that you know what’s going on.  When I go to an auction I always like to pretend that I’m going to buy the house.  I will give myself a realistic budget and then whilst the auction is going try to imagine when I would make my first bid and see if I couldn’t have won the property.  If you’re good at using your imagination a I would highly recommend using this strategy as it allows you to feel a little nervous and get an idea of how tense you will be when the real thing comes along.  Just make sure you don’t ACTUALLY make a bid – that could be quite embarrassing!

Another thing to study when ‘auction watching’ is to see who ends up winning and how they went about it.  When there is a competitive auction with a number of bidders the winner nearly always leaves their run to the last minute, or they might do something unusual like raise the bid by $5,000 when everyone else is only raising by $1,000.  A good bidder will give the IMPRESSION that they will pay ANYTHING for the property but when the price goes over their budget they will simply walk away.  Bidding at actions is a very stressful job and If you feel like it would stress you out too much then I would recommend finding somebody who has some experience and getting them to bid on your behalf.

The other way you might buy a property is by putting in a written offer.  This has its advantages and disadvantages.  You will generally have more time to think about how much you’re prepared to offer – but this is not always a good thing.  Remember not to fall in love with a place, think about the numbers and settle on a price that you would be very happy to buy the place at.  How high you’re offer is will depend greatly on how many of people are interested in the property.  The real estate agent will always tell you that there are ‘lots’ of interested buyers but it is generally pretty easy to get a realistic idea of how many people you are competing against.  If there is very little interest then you can obviously start low and try to portray the idea that ‘If I was to buy the property at this price I would be happy otherwise it’s not exactly what I’m looking for’.  If there really are other interested buyers then it’s important to think about what you offer.  It needs to be high enough that they will take you serious and will keep you updated as to other offers.  Always remember to keep your bid to a level that you would be delighted to buy the property at.  The last thing you want is to get a call from the Real Estate agent saying congratulations and think to yourself ‘oh dear, did I really want to pay that much for the property’.

So now that you know what your basic plan is, it’s time to start getting a little serious and put some structure into your actions.  The first thing you need to do is to get ‘pre approval’ for a loan.  In other words you need to find a lender that suits your needs and get them to agree ‘in writing’ to lend you a certain amount of money to buy a Property.  I remember when I bought my first property feeling completely over my head when it came to getting my finance into place.  I had so many questions – most of which I managed to answer by trial and error.  I will try to give you a detailed overview of all the question, problems and answers that I have encountered with getting finance.

Q.  Why do I need to get ‘pre approval’ of a loan?

A. You don’t NEED to get pre approval but I highly recommend you DO for a number of reasons.
-  Pre-approval will let you to know EXACTLY how much your budget is and therefore allow you to exclude properties that are out of your price range.  This can save you valuable time.
-  If you are competing against other buyers then having ‘pre-approval’ will definitely give you a big head start and allow you to take advantage of Vendors who are looking for a quick sale.  Think about it – If you were the vendor and two people both offered you $350k for your house BUT one of them had ‘pre-approval’ whilst the other didn’t.  Who would you choose?  It’s a no brainer, there are even times when you offer $1k -$30k less than somebody else and they still choose you.  Why? Because for one reason or another  the vendor needs to sell straight away and they can’t wait to find out if the other offer will be approved.
- Keep STRESS to an absolute Minimum.  There is nothing worse than having your offer accepted and then having to wait for the bank to make their decision.  This is especially the case if you haven’t got a home loan before or are self employed.

Q.   Should I use a Mortgage Broker?

A. Yes, a good mortgage broker should save you thousands of dollars and help you get a loan easily.  If you are buying your first property then you will appreciate as much help as you can get.  Mortgage brokers deal with banks every single day and they should know how to get you a loan and more importantly WHAT loan to get.  Have you noticed that there are a million different loan options these days?  A good mortgage broker will know which one suits your situation and save you lots of time and money.  Always do your own research but if you find someone who you trust you should have no problems.  Best of all you don’t even have to pay them; the bank will do that on your behalf.  So really there is no reason NOT to use one.  Just remember find a Broker who you trust and get along with.

Q.  What sort of loan should I get, and what does Interest only mean?

A. The best person to advise you on this is your broker but generally speaking Investors only ever use Interest only loans.  What this means is that they will never own the house outright, instead they make smaller repayments that only cover the interest bill.  This can be a crazy idea to get your ‘head around’ at first but the reason is quite simple.  The lower your repayments are on your property the less restricted your cash flow is, therefore you have more excess money to help finance your next investment property.  The logical question is – but if you never pay off the house how can you make any money?  As we learnt in Chapter 1, you can still access the equity in your property without selling or completely paying off the house (see chapter 9 for more details).   It’s also worth mentioning that the Interest component of an Investment loan IS tax deductible whilst the principle repayments are NOT, just another reason why Professional investors always use Interest only loans.

Q.  Should I fix my Interest rate or leave it variable?

A. I have a basic rule or recommendation when it comes to this question.  When you first see banks raise their long term fixed rates you know it is time fix your loan.  Using this rule and some common sense you should be able to work out what’s best for you.

Q.  How much do I need to save for a deposit?

A. Once again it depends on your situation and circumstances.  A ‘normal’ property loan would include a 20% deposit but professional investors will always try and pay as little deposit as possible.  So, would I recommend getting a 95% loan?  With caution and common sense, yes I would - BUT every situation is different and I obviously wouldn’t recommend for someone who is earning $20,000 a year to get a 100% loan for a $500,000 property.  Use your common sense whilst doing everything possible to make it happen for you.  The worst feeling in the world is when you have saved a decent deposit but decide to wait another 6 months to save that extra little bit only to find out that house prices have risen and your deposit is now effectively worth less than it was 6 months ago.

Ok, so you have decided that you want to buy an Investment property but you’re probably finding it hard to know where to begin.

Should I buy an old house?  Should I buy a new house?  Should I renovate? Should I buy a block of land and build a house? What does ‘off the plan’ mean?

All are great options but I’m going to focus our attention on what I believe is the best and most ‘accessible’ option that any ordinary person can use to fast track their Property Portfolio.

I like to call it the ‘5 R’s Strategy’
It revolves around buying an existing property at or under market value.  Then you simply follow the 5 R’s.

Revamp
The idea is to buy a property that is ‘structurally sound’ but in need of some cosmetic repairs.  I won’t go into too much detail here but you would be amazed at how much value you can add to your property by doing a few minor things.  Whether you polish the floorboards, paint the walls or even just replace some light fittings you can literally add thousands of dollars to the value of your property.  In Chapter 7 (Revamp/Renovations) we will discuss how much (or how little) you should do depending on your circumstances.

Rent
Simply rent your property out and start letting your tenants pay the mortgage.  Chapter 8 (Leasing out your property) will cover the pros and cons of doing this yourself or going through a Real Estate agent

Revalue, Refinance & Repeat
This is the most exciting part of the strategy that ordinary people don’t realize is possible.  If you have ‘Revamped’ your property correctly it will now be worth more than what you paid for it.  What most people don’t understand is that they can actually get instant access to this money.  Simply get your property revalued - then refinance your loan and use this extra equity you have created as the deposit for your next property.  WARNING - Make sure you don’t refinance and then use the money to buy a plasma TV or go on holiday.  Leave that stuff until after your 2nd or 3rd property.  Don’t worry if the idea of refinancing is a little confusing – Chapter 9 (Revalue, Refinance & Repeat) will go into it in much more detail

So now that you know roughly what your plan is you need to decide Where and What to buy?

Let’s start with Where?  What area should you buy your first Investment property?
This is a very important question but please don’t let it be too important.  What I mean is that lots of people get so stressed out about where they should buy, that they end up doing nothing at all.  There are plenty of websites and companies that can give you great information and research about predicted ‘high growth’ areas which can make you hundreds of thousands of dollars down the track.  So definitely take advantage of the resources that are out there.  Another aspect to consider is that if you are going to be spending some time revamping & renovating your property then it would be silly to buy in an area that was a 7 hour drive away.   So do your research and use your common sense.  Most importantly don’t stress too much and try to enjoy the research – It should be fun.

Now the question is What?
This depends entirely on what area you decided to buy in.  You always want to buy a property that is somewhere around ‘the average’ or ‘typical’ property in that area.  Why?  Simply because you want everything to be as easy as possible.  Imagine trying to rent out a brand new mansion in a lower socio-economic area.  You will find it very hard to find a tenant who will have enough money to pay the high rent of a mansion , yet be happy to live in that area.  Also when you are getting your property revalued the banks use ‘comparitable sales’ to decide how much your property is worth.  In other words they look at similar properties in your area and what price they have recently been sold for – If there are no comparitable sales the banks become very reluctant to give you a favorable valuation.

So I would recommend trying to establish what sort of rental properties are the most popular in your chosen area and start focusing your attention on that sort of property.  Anything from a 1 bedroom unit to a family home can be a fantastic investment, just make sure you get the right place in the right area.

So that’s the basic plan of attack, next we need to look at how we can get a bank loan so we can actually buy the property.  We will cover this in Chapter 2. - Getting Your Finance Pre-Approved

How to Buy Your First Investment Property

-A step by step guide-

This is an easy to follow, step by step guide to buying your first investment property. I have split the somewhat daunting task of buying your first property into 9 chapters. Each Chapter will walk you through the process in a simple and easy to follow format. Beginning your Property Portfolio should be a happy and fun experience that you look forward to. Too many people are too scared to take any action simply because they don’t understand how easy it can be. I hope you enjoy this guide and it helps you take your first steps towards financial freedom.

INDEX

1. The Plan – How, What & Where?
2. Get your Finance Pre-Approved
3. Finding the Perfect Investment Property
4. Purchasing the Property
5. How to Buy at a Great Price
6. Waiting for Settlement
7. Revamp/Renovations
8. Leasing out your property
9. Revalue, Refinance and Repeat

Surely everybody has felt this way at some stage?  So what IS the answer?

Whilst there might not be a ‘definitive’ answer to this question - there are definitely better and worse places to begin your quest towards financial freedom.

Robert Kiyosaki (the author of Rich Dad, Poor Dad) talks about the three main vehicles that the rich use to create wealth.  They are as follows

Stock Market

The stock market allows you to ‘buy in’ to a company and in turn receive a ‘share’ of the company’s profits or losses.  Professional Investors generally use the stock market to create cash flow.

Real Estate

Buying Real Estate can be less scary for the novice investor as you are buying a ‘physical thing’.  The ability to ‘leverage’ your money is one of the best features of Property Investing.  Professional Investors generally use Real Estate for long term capital gain

Business

Business can include everything from owning your own business to being employed by someone else.  If you think about it having a job is just like running a business but rather than selling a product you are selling ‘your time’.  Wealthy people use their ‘business’ to help fund their Stock Market & Real Estate investments.

I would like to add a fourth category 

Mindset/Education

Whilst you don’t physically ‘make money’ from this category, there is no way that you can create any amount of wealth without having a strong mindset and knowledge base.

So where should you start?

The first and most important thing you need to do is ask yourself “why do I want to be rich’?  Everyone ‘thinks’ they want to be rich but not many people take the time to explore what they would actually do if money wasn’t an obstacle.  Remember being Wealthy isn’t just about having lots of money.  There are plenty of people who earn millions of dollars a year but don’t have any spare time to see their family or who aren’t actually happy with their life.  To be truly wealthy I believe you need to have abundance and choice in four main areas

1. Financial – have enough money to do everything you dream of
2. Time – be able to spend your time how YOU want
3. Family/Love – have great relationships and a group of people you care about
4. Achievement/Contribution – be proud of who you are and what you have done

So when you ask yourself ‘why do I want to be rich’ make sure your answer includes all of these areas in some way. 

The next thing I would do is ‘Surround yourself with people who have what you want’.

Or in other words educate yourself.  There is plenty of great Wealth Creation information out there and the best part is that a great deal of it is Free.  A little Warning – once you begin learning new investment strategies and Wealth Creation ideas you will no doubt begin to feel liberated and excited.  DON’T let yourself be scared or put off by uniformed people who know less about the subject than you.  Jamie McIntyre talks about the ‘law of opposites’.  In short he is saying “If you want to succeed, you need to figure out what most Australians are doing and do the exact opposite”.  Remember, ‘Surround yourself with people who have what you want’ NOT ‘people who have what you already have’.

The next step is to decide what your first strategy is going to be.  Will you use the Share Market, Real Estate or your Business?  Always remember to start small, don’t try to ‘bite off more than you can chew’ and definitely don’t get too far ahead of yourself.  If you try and go too fast you can end up having a bad experience and it might turn you off Investing for life.  Once you find a strategy that works then repeat it and start looking for  a different strategy to learn.  As Robert Kiyosaki says the Stock market, Real Estate and Business will create the best results when they are employed in unison BUT you need to walk before you can run.  One strategy at a time is definitely the best option.

The final step and by far the hardest and most horrible part of this whole process is to reward yourself!  Celebrating your successes will encourage you to continue your good work and always remember there is much more to being wealthy than having lots of money.  So what are you waiting for?  Take action now, quite simply just  ‘Do Something’.  

Remember “A journey of a thousand miles must begin with a single step” - Lao Tsu

Does this sound familiar?  Isn’t it interesting that the common perception amongst the public is that investing is way too risky ?  What’s even more interesting is that if you asked any poor or middle class person how they thought the Rich made their money almost all of them would include ‘Investing’ in their answer.  So if poor people know that wealthy people are ‘Investors’ then why on earth do they believe that it is too risky for them to get involved?

The answer is simple

Humans are terrified of anything that they don’t know or understand.  In the immortal words of Garth from Wayne’s World “We fear change”.

So am I saying ‘Investing is not risky?’ Not at all, in fact if you don’t understand it or aren’t properly educated Investing is incredibly dangerous and risky.  But the same can be said about almost every daily activity that we undertake.  Whether it be swimming, crossing the road, riding a bike, driving a car or even eating a chicken wing – all of these activities would be highly dangerous if we hadn’t been taught or shown how to do them properly.  Luckily for us our parents took us to swimming lessons when we were children but unfortunately for us our parents never seemed to take us to Investment school.  Instead they taught us what their parents taught them about Money & Investing - and that was “to earn money you need to work hard”

Well I’ll tell you now that if you want to become financially successful and a master of wealth creation you will need to step out of your parents shadows and learn that ‘Rich people don’t work for money, they let their money work for them’.

I was first introduced to this concept in high school when I read ‘Rich Dad, Poor Dad’ but it wasn’t until a few years later that I truly understood the concept of having your money work for you. 

When I finished university I decided I wanted to travel the world for 6 months so I began working my backside off to try and finance the trip.  Whilst I was confident of my saving ability in the back of my mind I knew that I could always fall back on some money that my granddad had given me in the previous year.  As an early inheritance he had invested $7k (plus $3k of my own savings) into some shares that I knew very little about (other than the fact that if my ‘overseas trip fund’ was running low I had a backup plan).

To cut a long story short I managed to have the most amazing trip without eating into my Granddads shares.  But more importantly when I was overseas I met a fellow Australian traveler who was funding his trip by trading the stock market in internet cafes all over Europe (earning between $5-$15k per month).  Needless to say my interest in the Stock market suddenly grew and as soon as I got home I decided to see how my own shares were going.

Well to my great surprise the $10,000 that had originally been invested had now grown to $16,000.  So whist I had been climbing the Eiffel Tower and watching the Aurora Borealis in Norway my money had been hard at work.  What an amazing and life changing feeling!

 So how can you learn to make your money work for you?

Well as I found out this question is harder to answer that you might expect.  After learning about my shares success I couldn’t help myself from telling everyone I knew but for some strange reason no one seemed to share my enthusiasm.  All everyone could say was “be careful, the stock market is very risky’ or they would tell me stories about how their ‘nephews, cousins, friend had once lost all their money on the stock exchange’.  At this stage my head was starting to hurt and I didn’t know who or what to believe.  Just recently I found a great quote by Kurek Ashley that summed up the position that I was in perfectly:

“The most expensive advice you will ever get, is free from poor people”

If you look at what this quote really means you will be able to understand why the average person believes that investing is too risky.  It is simply because your typical ‘poor to middle class’ person is receiving their advice from a fellow ‘poor to middle class’ person.  Surely this is a case of the blind leading the blind, or at best the blind leading the severely visually impaired. 

If your child wanted to be a professional gymnast and you knew nothing about gymnastics what would you do?  Obviously you would find the best Coach/School and you would let them teach your child.  Well the same principle applies if you want to be financially successful.  You need to find Mentors, books, DVD’s, Seminars anything or anyone that knows more about Wealth Creation than you do and gradually build up your knowledge.  Then eventually like a professional surfer glides over the waves you can successfully let your money work for you rather than drowning in an ocean of uncertainty and risk.  As Warren Buffet once said “Risk is not knowing what you’re doing”

So you are now faced with a few options

1. Not invest and spend the rest of your life ‘working for money’
2. Invest your hard earned money before you are educated enough, loose  your life savings and in turn become one of those people who tell everyone else that “Don’t invest, it’s too risky, the stock market stole everything I had”
3. Or you can dedicate yourself to learning about Investment strategies and techniques and gradually build up your confidence until  you become a successful Investor and let your money work for you.

So are there risks with Investing? YES of course there are, but like swimming, crossing the road, riding a bike and driving a car once you educate yourself you lower these risks and in turn get to enjoy the wonderful benefits.

Surely NOT investing is the biggest Risk of all.