More about real estate investing on a single income

Continued from a previous post:

Positive Cash Flow Property

Finding investing properties that earns enough rent to cover the costs of owning it canmake it a lot easier to get into investment property. Finding such property isn’t as easy as it used to be – but it’s still possible.

Tricia Green of Home Loans Now in Brisbane says positively geared property real estate will make a difference in getting a loan with a low income. “If it’s close to neutral, it’s pretty good as well,” she says. “But it depends on the individuals’ circumstances.”

Montgomery says: “If it’s positive cash flow it will increase their chances – totally.” But Lomas warns that the property needs to be positive by virtue of its rental income, not through tax deductions. “If it’s positive cash flow because of tax deductions, it won’t make much difference,” she says.

“If the return is 5 per cent and it’s on paper deductions like depreciation that makes it positive cash flow, the bank won’t be impressed. Borrowing criteria is worked out on disposable income – what you have left after you’ve paid tax and personal debts. “If you have positive cash flow because the income is greater than the expenses, then it will enhance your borrowing capacity. The bank will take whatever income the property is generating and add that to your income.”

Lomas suggests there’s a risk factor. These days, she says properties which are positively geared by virtue of a high-rent are mostly found in one-industry towns such as mining towns, where values are dependent on the longevity of the resource boom. Those willing to take the risk can find high-returning properties in town such as Moranbah and Blackwater in Queensland, Newman in Western Australia and Whyalla in South Australia.

Keep in mind, however, that the entry price is getting quite high in some mining towns, particularly in Moranbah and Newman where good houses cost $350,000 to $400,000 often more. It is possible to get 7 per cent to 8 per cent returns in major cities, but they tend to be found on smaller apartments – one bedroom and studio apartments – and that presents another set of problems. While such properties have a low entry price and good returns, many financiers are reluctant to lend on properties under 50sqm. Green says attitudes are changing and some lenders have reduced their minimum to 40 sqm, while some will lend on any size of property provided it’s not mortgage-insured.

Good locations to find units with the highest returns include Spring Hill in Brisbane, Tweed Heads West in northern NSW, Darlinghurst in Sydney and the Manoora/Manunda precinct in Cairns. Two likely capital-city locations for good returns on houses are the Beenleigh areas south of Brisbane and the Elizabeth precinct in Adelaide.

Making it easier to get finance

Wizard Home Loans says borrowers make a range of common mistakes that make it harder for them to get finance. In particular, it says borrowing hopefuls commonly believe a number of misconceptions. One prevalent myth is that banks are interested in how much you owe on your credit cards. They’re not; they want to know the total of the limits on al your cards.

“Every type of credit you have in your name, regardless of balance, is used to calculate your ability to service your loan,” says Wizard chairman Mark Bouris. “the less credit (credit cards and other loans) you have on your home loan application, the better.”

Green says: “if you have $30,000 in credit card limits, they’ll take 3 per cent of that limit as a monthly expense sometimes 2.5 per cent, it depends on the lender.” Another misconception is that you need a 20 per cent deposit to get started. “Not true!” says Bouris. “These days you can borrow up to100 per cent of the real estate property value. This is proving to be an attraction option for many cashed-up first homebuyers, who often wonder whether they’ll ever get their feet on to the property ladder.

“One hundred per cent finance provides a lifeline to many people who otherwise would be unable to buy a property.” “From a lending perspective, a lack of a deposit isn’t a major obstacle. What really matters is ensuring that borrowers can comfortably meet their mortgage repayments in the future – and if interest rates increase. “But a lower deposit may mean a higher interest rate and fees.”

Green says it’s possible to borrow 100 per cent of the purchase price of the real estate investment property, but borrowers need to have money set aside for costs such as stamp duty, legal fees and mortgage insurance.

“And when you’re borrowing 100 per cent, the lender is a lot tougher in their criteria. If you’ve just started a new job, for example, they won’t look at you.” The less deposit you’re able to pay when you apply for a loan, the higher the premium of the mortgage insurance.

Some borrowers think a bad credit history doesn’t matter if they eventually pay off the debt. The truth is that a patchy credit history can hurt a borrower’s chances, evne if the issue is very old or just a small, one-off amount. Lenders consult the major credit reporting agencies, which record debts (including any missed or defaulted payments on credit cards, interest-free contracts and mobile phone plans), while assessing a loan application.

Another myth is that assets count the same as income in the eyes of the lender. They don’t. Bouris says, “People often believe that a strong asset position can be a substitute for income when it comes to servicing a loan. But no matter the strength of your assets, what really makes the difference is your capacity to repay the loan through a regular income.”

Shared Equity Investing

Green says equity finance mortgages, or shared equity loans, are new to the real estate market and there’s lots of resistance from consumers. While buyers can achieve a property purchase for less than the full price, they have to forego a chunk of the capital growth when they sell. “The jury is still out on this kind of product,” she says. “There are lots of pros and cons – and many people are against them.”

The general concept is that the ban retains a 20 per cent share of the property investment but receives 40 per cent of the capital gain when the property is sold. The property is solely in the name of the borrowers: they’re granted two loans by the lender, one for 80 per cent of the value and the other for the remaining 20 per cent. The smaller loan is interest free.

When the property investment in real estate is sold, the lender gets there 20 per cent contribution back plus 40 per cent of the capital gain. The 80/20 split isn’t the only possible configuration – it could be 90/10 or 85/15. “A lot of people are against them once they realise they’ll lose 40 per cent of the future growth,” Green says.

Montgomery says this kind of loan product is specifically targeted at individuals who struggle to buy property in the normal way. “These types of loans are quite complicated in their structure at this point in time, but as these types of loans roll out and become a little simpler to understand, they may be an option for single people.”

Montgomery says the State Government in Western Australia recently introduced a shared equity product which allows first homebuyers to purchase part of a property, with the government buying the other part.

Real Estate Investing On a Single Income

If you think your income is the only thing stopping you from investing in property, you might want to think again.

Published by Terry Ryder for the Australian Proeprty Investor Magazine for June 2007. For families on a single income or single people with low incomes, it must seem like a consipiracy to deny them access to the property real estate market. High prices, low affordability, rising interest rates, high buying costs. It’s easy to believe it’s just too hard to get into the real estate property market unless you’re a couple with dual incomes or a highly-paid individual. But there are still plenty of options for wannabe investors whose incomes present barriers to getting into the market.

Lisa Montgomery, head of consumer advocacy for Resi Mortgage Corporation, says single people buying real estate alone is a growing trend. People are getting married later, if at all, and many are driven by a desire for independence, including the growing numbers of women buying real estate. “some people think that because they’re single they won’t qualify for a loan or that it will be too onerous to maintain an investment,” she says.

“I always say to people: if you’ve done your sums and you’re comfortable with the numbers, but finding it difficult to take that big step, remember you can sell a property real estate if there’s an issue that crops up or a change in your circumstances.”

Investment adviser and property author Margaret Lomas says it’s challenging for people on a single or low income, but not impossible. These are real estate opportunities for people, particularly if they have some equity in their home. Lomas says low-income earners can’t afford to take big risks and the reality is they have smaller borrowing capacity. But that doesn’t mean they can’t put together a property portfolio of real estate over time.

“It’s amazing how much more they can achieve, compared with somebody who doesn’t do anything,” she says. “they will have a borrowing capacity. It won’t be what they would like it to be and they can’t buy high-end property or middle-of the road property and they may not be able to buy many real estate properties. But they will be able to create a property portfolio.”

Here’s a short list of important considerations that can make a difference for people in this situation:
• Have realistic expectations of what you need
• Check out the “ugly duckling” suburbs
• Find positive cash flow properties
• Understand what matters to financiers
• Consider a shared equity loan
• Consider low-doc loans
• Take a longer term to lower payments
• Buy property with others

Realistic Expectations in real estate investing

Lomas says the biggest hurdle is the mismatch between expectations and reality. “they have to understand they can’t aim too high – but nor do they need to espair,” she says. “Providing they understand what their capacity is and aim for lower-end properties, they can be successful property investors. “Unfortunately, we have people running courses on how to buy a hundred properties in six minutes – and writing books that suggest that becoming rich means you have to borrow a huge amount and have low-doc loans. It creates a perception that success in property investing is about accumulating huge numbers of properties in a short period of time.

“The reality is most people don’t need that many investment real estate properties. But they do need a little bit of time. Single or low-income earners can buy a couple of real estate investment properties over time, sit on them and wait until time does its thing.”

Lomas says someone earning $30,000 faces the prospect of retiring on an annual pension of $18,000. To maintain their existing lifestyle in retirement, they need to create additional income of $12,000. “They really only need $300,000 worth of real estate, returning just 4 per cent or 5 per cent, to create that $12,000,” Lomas says. “If you think of it that way, it’s possible for a person to buy one, two or three properties in ugly duckling suburbs and over 10 years they should go up in value by $50,000 to $100,000. And then they’ve crated the portfolio they need to make up the difference between the age pension and what they’re earning at the moment.”

Finding Affordable Investment Property

The frequent publicity about the affordability crisis can create the impression that no-one can get into the real estate market any more. That’s simply not true. Every major city, including Sydney, has areas with affordable homes, and if people are buying for investment, the whole of Australia is their market: there are numerous regional centres with solid economies where typical homes are within reach of most people.

Lomas urges people with limited incomes to look for opportunities of real estate investment in the ugly duckling suburbs. These are the areas that have cheap homes but also have tangible reasons to grow and evolve into better locations. She says you can find acceptable investment real estate properties with buy-in prices as low as $110,000 or $120,000. And the returns tend to be higher, which helps in getting finance.

“Even on a low income, with the higher rent returns in these areas, its’ likely that they’ll be able to get a bank to lend to them,” Lomas says. Montgomery agrees compromise is needed. “Sometimes you may need to compromise on the type of property or indeed the area,” she says. “You may be thinking the river bank in Brisbane or the Lower North Shore in Sydney, but your income doesn’t allow you the luxury of investing in these areas. “The areas where you can afford to buy may not be close to wehre you live. A lot of Sydney people have purchased property in Newcastle – and I’m one of them. There are lower prices there and the returns are better.”

Montgomery says another option is buying a unit or townhouse, usually cheaper than a house on land. The median house price for houses in Chatswood (Sydney) is around $900,000, but apartments costs half as much. At the other end of the spectrum, in Beenleigh (halfway between Brisbane and the Gold Coast) typical houses costs $250,000 but units only $160,000.

Teresa Whitby, who works at Lomas’ Destiny Financial Solutions, was a low-income earner when she started out with property investment. She began building a real estate investment portfolio by buying property at the low end of the market. Five years later, she’s now buying her eight property andnone of them have cost more than $130,000. A useful website on urban living experiences in new communities in online.

“Borrowing capacity has been an issue for her all the way and sometimes she hasn’t been able toborrow when she’s wanted to,” says Lomas. “But lending criteria change and very time that’s happened, she’s been able to add a low-cost property to her portfolio She’s had some good growth as well. She now has eight properties and all she needs to do is sit on those eight properties. She’s only 45 and in another 10 years she’ll have at least $1 million in equity.

“At a modest 5 per cent return, that would give her $50,000 in income and it will be non-taxable. That’s more than what she and her husband are earning after tax at the moment.”

23 Ways to Cut your Overhead in Real Estate Investing

Is your cash flow a bit tight? Here are some ways you can make things a bit easier. Written by Michaela Ryan for the API Magazine May 2007 issue.

Many beginner investors in real estate put a high proportion of their income towards their mortgages. Eventually rents rise and cash flow becomes a lot easier. But in the meantime, there could be a few years when you’re strapped for cash. So here are some suggestions for cuttng your living and property expenses, to free up some cash flow and make life a little easier for real estate investors.

1 | Stick to a real estate investment budget

Karen Novak, a certified financial planner with Westpac, says the first thing you need to do is work out where you’re spending your money. There are a lot of pro forma budgets available online or through financial advisers. You could use one of these or simply go through al your bills and work out what you’re spending each month. According to Novak, the problem areas for most people isn’t their bills, it’s their discretionary spending. Most real estate investors underestimate the amount they spend on items such as groceries, entertainment, takeaway and clothes. That’s why Novak recommends tracking your expenditure for a month and copmaring it to your initial estimates. Once you know how much you’re really spending you’ll be in a good position to establish a realistic weekly limit.

2 | Identify your weaknesses

All real estate investment professionals and beginners have weaknesses. As you track your spending, you’ll see where your greatest weaknesses are. For example, Novak says some people regularly go to the supermarket for one thing and end up coming home with six additional items. Another person’s weakness might be shouting rounds at the pub on their keycard once their cash runs out. Once you’re aware of your weakness, you’ll be able to change your behaviour.

3 | Negotiate with a property manager

Do you own a number of properties, managed by different property managers? If you offer several properties to one manager, you’re in a strong position to ask for a discount. These days there are a number of property management real estate companies that service an entire city rather than one suburb. Tenant enquiry tends to come largely from the internet these days, so it isn’t as important to have a local manager as it once was.

4 | Do real estate property repairs yourself

If you need to spend a handyman around to a property it can set you back $60 or more. If you employ a gardener to attend a property regularly, it can cost you several hundred dollars a year. Are you capable of doing these jobs yourself?

5 | Shop around for insurance on property

Do you know how competitive your insurance premium is? Not just landloards’ insurance. What about your health, car, and home and contents insurance? It sounds like tedious work shopping around for a better deal. But it’s just a matter of making a few calls that might save you hundreds of dollars each year. Alternatively you can ask an insurance broker to shop around for you. Or you could try an online service such as www.iselect.com.au to compare a wide range of health insurance premiums.

6 | Shop around for phone and internet services

While we’re on the topic of shopping around, there are huge savings to be made on your home phone, mobile and internet bills. When your contracts expire, it’s a good time to consider your options. Or if the cost of breaking an existing contract is small compared to the savings you’ll receive from a different service provider, it could be worth while making the switch even earlier. There are attractive deals in each of these areas individually. Or you could bundle the three services with one provider to attractive discounts. You just need to set aside a hour to go online and consider the packages that various companies offer.

7 | Reduce bank fees

Bank fess and charges can take a nasty bit out of your savings each month. If you shop around, you might be able to swap to a bank or building society with much lower fees. In some cases you can be stung withfees even though your account is closed.

8 | Use your own ATMs

For beginner real estate investors in Australia, do you know how much you pay every time you use the ATM of another bank? If you’re regularly incurring fees of two or three dollars, you might want to think about locating the nearest ATM or branch belonging to your bank, and doing your withdrawals so you don’t have to find an ATM so often. Check your bank’s terms and conditions to find out whether you’re charged a fee for getting cash out via EFTPOS. It might be that you can get your weekly pocket money when you do your grocery shopping.

9 | Reduce credit card costs

Beware of late payment fees and over-limit fees on your credit card, which can be up to $40 a pop. According to the ACA, if you don’t make a payment by the due date, some credit unions even charge $15 every seven days until a payment is received. By shopping around you might be able to change to a credit card which offers a much lower interest rate and perhaps no annual fee. The market is becoming much more competitive.

10 | Consolidate Debt

Novak says you can save money by consolidating the debt that you have. Novak suggest you could settle your other credit card debts using the new card, and then pay of the debt on the new card in a focused period to time so that there’s no debt remaining by the end of the honeymoon period. This strategy could get you out of the cycle of making costly ongoing interest payments – so long as you have the discipline to carry it out properly. Alternatively you can speak to your mortgage broker or banker about consolidating personal loans and credit car debts by refinancing your home loan on your residence property.

11 | Pay less interest

in some cases you will be able to reduce your monthly mortgage commitment if you refinance to a new lender or negotiate with your current lender to get a reduced rate. This is extremely great for first time real estate investors and investment professionals who can lower their monthly costs by a lot.

12 | Pay interest only

There are pros and cons if you pay interest only on your mortgages (as opposed to principal and interest on your real estate investment properties). For example, sometimes it can hold back you borrowing capacity (i.e. next time you apply for a loan the bank might not be willing to lend you as much money as it otherwise would.) However, paying interest only on loans is a common strategy for reducing the overheads of property investment.

Points 13 through 23 are coming soon! Stay tuned.

Stay the Course in Real Estate Investing

By Michaela Ryane for the Australian Property Investor magazine May 2007 issue. Not many of us are turned on by the idea of ‘getting rich slow’. But patience does pay off on the winding road that is property real estate investment.

Remember Veruca Salt, a.k.a. the girl who screeched: “I want an Oompa Loompa now!” in Charlie and the Chocolate Factory? Well, if we’re really honest, a lot of us have some Veruca in us – we crave for instant gratification.

Occasionally, property real estate investors get rich quick. But for most of us, it’s a case of sitting back for a while before the gains become obvious. In the meantime your inner Veruca might become impatient. She may even urge you to sell up. So how can you get out of the Veruca mindset and into the mindset of ‘staying the course’?

1. Consider historical data

If you’re influenced by short-term events, you’ll make yourself unnecessarily anxious. Historical data confirms that real estate property values and rents have always gone up in the past. Best selling property author Jan Somers has been investing in real estate since the seventies. She uses historical data to build her confidence. However, she cautions: “You shouldn’t rely on those statistics to decide when or where to invest.”

2. Take a long-term view

If you buy real estate property expecting strong short-term gains, there’s a reasonable chance you’ll be disappointed. With a long-term view there’s a much lower chance of disappointment. “Long term is more than four or five years,” Somers suggests. “I can’t tell you the number of people who in the late 1990s and early 2000s had held on to property for four or five or seven years and said, ‘look nothing’s happening and we’re going to bail out’. And they’ve bailed out and missed out (on significant gains).”

3. Remember why you’re doing it

Goal setting 101: if you set a goal, write down the reasons why you want to achieve the goal. If you didn’t do this when you started investing in real estate, do it now. This is your big picture – your motivation to stay the course. You can refer to it whenever you start to get impatient. You may be forced to make some sacrifices when you start investing in property and real estate investments, but if your big picture excites you, you’ll be more willing to do whatever it takes to achieve it.

4. Know your risk profile

If you’re prone to anxious worrying, look for ways to increase your ‘sleep-at-night’ factor. You can fix rates, hire property managers, get landlord’s insurance. Whatever it takes for you to stay the course.

More Tips on Real Estate Renovations for Homes from API

Time to hold

Though they were more than happy with the outcome of the duplex project, Paul and Cindy have changed their overall property real estate strategy in the months since then. Rather than renovating real estate and selling, they plan to hold from now on. The duplex halves would be worth another $50,000 each already, Cindy notes.

“We have in the past when we’ve renovated real estate properties always on sold them but we’ve finally tweaked that that’s probably not such a great idea because of capital gains tax, stamp duty and the like, so we’ve decided to start keeping the ones that we renovate.”

The Hendersons have made their decision with the aim of living off extra borrowings against their home equity gains. Paul explains, “Rather than sell our assets for our money, we decided to keep the assets and do ourselves three favours; firstly, we get to keep an appreciating asset; secondly, we don’t get to pay capital gains tax on what we make; and thirdly, we relive ourselvces of the need to instantly find another dump to do up. We’ve literally got rid of three problems by adopting that strategy.”

Paul and Cindy are well on their way to building an impressive real estate portfolio. They own 15 properties and homes and are about to settle on their 16th, with a combined LVR of about 50 per cent. They’re keeping busy with a number of real estate projects currently under way, including a triplex development in Perth, a house construction on a block in Busselton and a house and land packages in Karratha and Perth, as well as their biggest renovation real estate property yet at upmarket Carine in Perth’s northern suburbs.

Paul and Cindy say their accountant has sanctioned their idea of living off increased borrowings. It’s a grand scheme for a couple who only got their start in the real estate property world in 2003, after a wealth-building course introduced them to real estate property investing. In 2004, Paul and Cindy sold their office supplies business and devoted themselves to the property real estate game. “It’s been hammer and tongs at the property empire ever since,” Paul says.

Renovating for charity

At the suggestion of a real estate property mentor, Paul and Cindy recently teamed up with other real estate investment students to renovate a property for charity, as a result ofa challenge to raise $42,000.

“We decided pretty much the only way we were going to raise such a large sum was from a house renovation,” Paul said.

Paul and Cindy bought the house through their trust – for $205,000 – and again managed to negotiate a long settlement with prior possession. The real estate investment gropu then went about giving this “dump” a facelift. Some of the other real estate members of the group were very handy, so few tradespeople were required. A number of the suppliers gave discounts in order to help the charitable causes. Just 14 weeks after the purchase, the house sold for $285,000, with the selling agent donating her time.

“That was a really great result,” Paul says. “there were about $30,000 costs so there was about $50,000 to $55,000 profit from that.” The profits were split between the WA Children’s Cancer and Leukemia Socity and the Hebron Orphanage of India that was damaged by the Boxing Day tsunami in 2004. All three groups were “over the Moon”, Paul says.

After their recent experiences, Paul says he and Cindy would be perfectly happy to invest with others again, adding “you just have to partner with someone you trust like you trust yourself.” I’m happy to do it but only under very strict guidelines because there’s so much scope for stuff to go wrong. You never quite see people’s nature as when money’s at stake,” Paul says.

That said, Paul and Cindy stress there were no problems during the duplex renovation. It just opened their eyes to possible risks.

“Imagine for one moment if we’d put $20,000 of costs into the real estate renovation and at that point something went wrong with the transfer of ownership such that the sale couldn’t go through,” Paul says. “How keen would the other people be to say, well okay, we were going to split the profits, now I understand that we have to divvy up the losses too. They might’ve said, no, we did the work, you did the finances and the finances this time have lost $20,000. Better luck next time but you’re not getting anyh of my money.”

API Interactive
Do you have a question for Paul or Cindy? Email it to forum@apimagazine.com.au. Answers will be published in a future issue of API.

Tall Poppy Syndrome | Are you reluctant to talk about real estate property investing with friends and family. If so, you’re not alone!

Written by Michaela Ryan for the February 2007 Australian Property Investor Magazine (www.apimagazine.com.au).

Welcome to Australia – land of the tall poppy syndrome. Don’t we just love to applaud Aussies who’ve become rich or famous … that is, provided they have the right amount of modesty. And you can never have too much modesty, it would seem. So how does a successful real estate property investor fit into a society which worships the idea of being ‘down to earth’? Jan Somers and Margaret Lomas, are both real estate property authors as well as highly successful property investors. Here they share some ideas about managing tall poppy syndrome.

The dilemma about real estate investment properties
Friendships are integral in Australian society, Lomas says. People often build their lifestyles around their friendships. So it’s important to realise that your real estate property investing does have the potential to threaten some friendships. Unfortunately, Lomas has seen it happen to a number of her clients.

“I find that, especially when everyday battlers do really well with real estate property, their friends start to see them a little bit differently. My favourite expression is that in Australia people like you to get ahead, as long as it’s not ahead of them. It’s almost one of those things that keep people back from achieving as much as they possibly could. They’re worried about what their friends may think,” Lomas says. So how can you be successful and keep your friends?

1. Getting your friends involved with investing in real estate properties

Lomas suggests that you could try to get your friends involved in property investing right from the start. “Motivate them before you become successful. Get them committed to and sold on the idea themselves, and do it as a group,” she suggests.

2. The hush-hush approach in real estate investing with friends and family

Another option is to keep quiet about your achievements. “some of my clients don’t event ell their friends what they’ve achieved,” Lomas says. “That’s very sad, that you can’t talk about success because then people do think that you’re boasting or bragging… And we often hear the expression, ‘Oh they think they’re too good for us now’.”

While Lomas feels it’s a shame for people to play down their real estate success, Somers is more accepting of it. “That’s just life,” she says. It’s just a social skill. You don’t want to intimidate people. You don’t want to make them feel uncomfortable.”

Somers knows this from personal experience. “When we started to invest in the ‘70s in real estate properties,” she recalls, “I thought it was such a great idea, I used to tell everyone. It probably took 10 years or so to realise it felt like I was selling Amway. The response was sometimes a bit cool.”

People would often infer that Somers’ success had been thanks to good luck, or good timing, rather than any hard work or effort. They’d explain away their own inaction by saying: “Weren’t you lucky you bought when things were cheap?”

Somers would respond, “Well, you can do it too,” and she’d see them back-pedalling, “as though I was trying to sell them a concept.” In time, Somers grew tired of what she calls cross between tall poppy syndrome and Amway syndrome. “I take reverse view on real estate investing now. I don’t talk about real estate property at all. I suppose I’ve become older and wiser and now I can see people are just different. They just don’t want to do it and they don’t want to talk about it. And they don’t want to feel intimidated by it.”

Somers still jumps at the chance to help someone with a specific enquiry about property real estate investing. She’s just extremely unlikely to be the one to bring up property real estate in a social situation. “I think there’s only a tall poppy syndrome if you’re there talking about it, and you’re flaunting your wealth. If you flaunt it then you’re going to get knocked down,” she suggests.

“If you turn up at Woolies, like I do, in thongs and shorts, there’s no tall poppy syndrome at all.” She concedes, “There is a tall poppy syndrome in real estate investments where some people will unjustly be dragged down. But in most cases it’s probably self-inflicted.”

3. Being selectively quiet about real estate investments

A small number of your friends might be excited about property and investment in properties. So it can’t hurt to ‘test the waters’.

When you come across someone who’s into real estate property, it’s usually pretty obvious. They’ll want to hear all about your investing real estate strategy and they’ll be happy to reciprocate with details about their properties, and their future investment plans.

Of course, there will always be people who aren’t interested in property. And there’ll always be people who are insecure about your success. If you value your friendships with these people, you might have to accept that you’re better off not to mention real estate investing around them.

4. Seeking out like-minded people

If your friends and family just aren’t interested, why not seek out new people? “We truly have a lot of success when we’re motivated and supported by people hwo think like we do,” Lomas says. Some investment real estate advisory companies have real estate focus groups where clients can get together and talk freely about their real estate investments. It’s a great way to stay motivated and to learn from other people’s experiences in investing in real estate. And you’re likely find plenty of people who are happy to celebrate your successes with you. You can also meet other property investors by attending real estate seminars. (If you’re not sure about the presenter’s reputation, search the internet and see what you can find out about their background).

Alternatively, if you already know of one or two like-minded people, you can always set u your own interest group. One real estate investor we profiled in API a couple of years ago did this very successfully. Before he knew it, tea and bickies at the mate’s place turned into a big scale affair with guest speakers at a local community hall.

5. The ‘who cares’ approach in investing

You’ve done well with your investments in real estate and your want to spoil yourself with a better lifestyle. A new home, car or boat. Perhaps a new school for the kids. At this point, a visible gap might open up between you and your friends. Tall poppy syndrome might kick in.

Let’s assume you’re not carrying on like an egotistical jerk, and therefore the tall poppy syndrome is unwarranted. You’ve worked hard and now you’re reaping the rewards in real estate investments. Should you really care about the opinions of people who’d prefer you to be less successful, because that would suit them better?

Lomas jokes, “I think (investors in real estate) should say, “I couldn’t care less what anybody thinks’, because I would rather be old with fewer friends, than old (and) poor with lots of friends.”

Lomas doesn’t mince her words, but she makes a reasonable point. Sometimes it’s probably worth asking whether it’s worth continuing a friendship with someone who can’t be happy for you when you do well.

Life’s easier if you can be authentic in your real estate dealings with other people. If real estate property is a big part of your life, it’s hard to constantly hide that. And it’s also hard to hid the fact you’ve accumulated significant wealth. Arguably, you’re doing no-one a favour if you keep hiding your real estate investment success from others.

In the oft-quoted words of author Marianne Williamson: “You’re playing small doesn’t serve the world. There’s nothing enlightened about shrinking so that other people won’t feel insecure around you … And as we let our own light shine, we unconsciously give other people permission to do the same.”

A word on investing in real estate with families

In an ideal world, your family would be thrilled to hear about your capital growth and your increased rental yield in real estate investments. But in reality, a lot of the discussion in this article about friendships applies equally to family members. Some will be supportive, but you can’t expect everyone to be.

Somers says she’s even less likely to talk about real estate property with her family than she is with friends. “I just don’t bring it up at all,” she says. “It’s just not something I feel as though I want to impose on people.” Somers also feels there’s no need to tell people- even family members – how many real estate properties she and her husband own.

It’s enough is the answer she gives if asked. They’re aware of how well you’ve done and there’s no need to rub their noses in it.

Of course, like anything, its about assessing the relationship you have with a particular family member before deciding how open you can be about your real estate investing. So long as you’re careful who you talk to, and even then you try to keep your ego in check, you can’t go too far wrong.

Dealing with Misunderstandings in Real Estate Investing

It’s possible that people around you don’t understand how real estate property investing works. There might be some occasions when you’re better off setting them straight.

For example, property investors in real estate often comment that their friends think they must have large piles of cash sitting around.

People aren’t always aware that net wealth doesn’t necessarily equate to a large bank balance. If you’re highly geared, you might actually have less cash flow than your non-investing friends and family for quite a few years.

Just be prepared for people who “joke” that the drinks should be on you because you’re doing so well in your real estate property investing.

Excuses, excuses when it comes to real estate investing …

When it comes to property real estate investment, it really is true that “anyone can do it”. Is it time to challenge some of your erroneous beliefs? Story by Michaela Ryan written for the December edition of the Australian real estate magazine called API.

I can’t afford to invest in a real estate property at the moment. Because I’m a single parent. A student. A low income earner. I’m single. I have four kids. Do any of these sound familiar? For just about every excusive you might think of, API has at one stage or another profiled a real estate investor to prove you wrong. Whether it’s your first property or your fifth, there are practical ways to overcome any obstacles you think are standing in your way. API regularly presents techniques for investing when you mightn’t have much home equity, cash flow or time. The scope of this article isn’t the practical things you can do, but the mental shift you need to make in order to succeed in property real estate investing.

Last month, we looked at some positive beliefs that tend to lead to success. Now it’s time to consider whether there are any negative beliefs standing in your way.

What is a belief?

Behavioural science expert Philippa Bond, CEO of Inform Training and Research, says beliefs aren’t substantial facts, although people mistakenly think they are.

“A belief is usually formed by anywhere between one or three experiences that occur, that the individual looks back on retrospectively and then formulates a belief based on (those incidences),” she explains. For example, Bond suggests a person might hear that everyone else is getting a much better return on their real estate property investment. Then they might have a bad experience with tenants. And they might go on to purchase another dud property or real estate investment. So any or all of these incidents might lead them to form a belief that they’re no good at property investing. Making a link between the events, they think that their belief is a fact.

The belief is not a fact, as it would be easy to do some learning and research and become quite good at property investments and real estate. But they never find this out, because their beliefs puts an end to their property investing. Alternatively, they keep investing, but all the time they’re telling themselves that they’re no good at it. “The pre-disposition of that belief being validated increases enormously,” Bond says.

How can you change a belief?

Bond says in order to change a belief, you need to think through its consequences. If the consequences are unsatisfactory enough, you might be prompted to change the belief.

So if you currently believe “I won’t ever be wealthy”, what are the consequences of that belief going to be? Perhaps you won’t ever develop a savings or investment plan. That might mean in 10 years’ time you’ll still be living in your current apartment or home. It might mean yuou’ll never get to take your family overseas. And in 30 years’ time you might be retiring to live on the pension – without a great quality of life.

If you’re spooked by any of the consequences, you’ll probably change your mindset. You might start to believe that you actually can be wealthy. There are plenty of practical things you can do to build your wealth. But until you alter that limiting belief, you’re never going to get off the ground. Now let’s look at some other examples of beliefs you might need to challenge when it comes to investing in property and real estate.

1. I can’t afford to invest“Some people say, ‘I can’t really afford it.” Says John McGrath. CEO of McGrath Estate Agents and author of You Inc. “The reality is you could have a lot more home equity than you think in your first property, and you might be able to borrow against it.” He adds, “Funnily enough, I think it’s as much about your belief and your strategy as it is about your financial capacity. I know people that are earning $50,000 or $60,000 a year that have bought two properties and real estate investments over the last six or seven years. And I know people that are earning $250,000 and they still have no assets or real estate investments.

“It’s not necessarily about how much you earn, it’s about how much you have the ability to save and how disciplined you are in your approach to your financial affairs.”

2. Property real estate is so unaffordable these days
If you listen to certain sections of the media on real estate and property, you’ll believe that property ownership is out of reach for most Australians and North Americans.

“it’s a very interesting psychological barrier – this ridiculous word called ‘affordability’,” says Bond. She suggests that affordability doesn’t actually mean anything; it’s only relative to your net worth, and your ability to access money. So the first thing you might need to do is define what affordable means to you. “Something that’s affordable has nothing to do with the price. Whether something is affordable or not has got everything to do with a cost benefit analysis,” Bond argues.

In other words, you don’t need to get a ‘bargain’ in order for a real estate property to be affordable. “If the return on the investment real estate property is going to be strong enough, and you have access to the funds for that property, then it’s affordable to you.”

3. Property homes can’t go up any more
McGrath regularly hears people say they don’t believe property real estate prices can go up any more. He recalls hearing the same thing 20 years ago when he was starting out in the real estate business. At an open inspection for a studio apartment in Centennial Park, he overheard someone say, “This is like a tiny room. How in the future will anyone pay more than $15,000 or $20,000 for a studio apartment?”

“Of course today that’s probably worth $220,000 or $240,000 for the same apartment. And someone walking in there today might be inclined to say the same thing,” he says. “I think you’ve just got to follow the trends, see that there are certain real estate assets – predominantly I think it’s real estate property and blue chip shares – that over a period of time have had a very consistent growth cycle that is dependable. There are some things that have faltered – I think you can buy risky shares. I think you can buy risky property. But if you stick with well located property and blue chip stocks, I thin you’re guaranteed the same cycle that generations before have enjoyed.”

4. Property’s too difficult to liquidate
Bond says many people believe that real estate property investments takes much more time and money to sell than other types of investments. She challenges this belief by saying, “(If) the contacts are in place, you can turn over a real estate property at a party! You get an exchange (of contracts) the next day. You then demand a 10 per cent release on the deposit … which gives you instant cash there and then.

“But if you have a managed fund, it can take anywhere between 14 days and 21 days to be able to get your money out.” “The shortest property settlement in real estate is going to be 30 days. But even it if goes up to 60 days, you’ve got it locked in by a legal contract real estate which is very difficult to get out of.”

This is only hypothetical, of course, and Bond isn’t arguing that real estate property is any better or worse than a managed fund. However, she makes the point that property investments can be liquidated (turned into money) a lot faster than many people would imagine. If a vendor is ambitious about getting a high price, then it might take a long time to sell a property or real estate investment home. But that’s a problem that’s easily avoided by keeping realistic price expectations from the start.

5. I don’t pick the best properties or real estate
Bond is impatient with people who believe that they aren’t good at choosing decent real estate. “If you don’t pick the best properties, it’s because you’re lazy,” she says. “There are so many magazines, so many reports. It’s so easy to pick the right properties and investments in real estate markets. You’ve just got to do your research. “(Someone might argue) ‘Yes but I don’t want to pay for the median price reports’. Well-pick the wrong properties then!”

Where to from here?

If you think through the consequences of any of these beliefs, they don’t auger well for your success in property investments in real estate. However, you can turn them around whenever you like. John McGrath suggests, “Use (your limiting beliefs) as a catalyst for developing specific solutions that help you move forward.”

“So if something concerns me or I don’t get a great feeling about it, it doesn’t always mean I won’t go forward on it. It often means, I’ll just ask myself the question, ‘what is it about this particular strategy or transaction that I’m uncomfortable with?’ And (I’ll” sit down on my own or with my advisors and say, ‘how can I get beyond this?’ “Sometimes there’s no solution and you’re better to not go ahead. But a lot of the time you’ll find there is (a solution),” McGrath says.

For example, if you believe you couldn’t cope with an interest rate rise in real estate, the solution would be to lock into a fixed rate home mortgage. Or if you believe you can’t afford another real estate property investment, you might resolve to see a lender to find out how much you can borrow. That way you can act based on the facts, not beliefs.