GET RICH WITH REAL ESTATE

To get rich, really rich you should try real estate), but one has to know every 'trick' in the book. I am not talking about anything dishonest or borderline but everything that is available to the real estate investor to make the riches happen.

Which real estate property?

Decide what type of real estate you will use in your wealth building program. Essentially there are six types of real estate or property that can be used for wealth creation but no matter what type of real estate is chosen (except one) the guiding principles for all property are the same.

I happen to know two brothers, Alec and Andrew who have made a veritable fortune from one small property. They planned everything correctly and have managed it superbly and done extremely well. So well in fact, that Andrew does not really need to work and has spent large amounts of time when he did not bother. I have seen their property and I would never have believed that they could have done so well, but they have the evidence to prove it.

The six types of property are:
1. Vacant land
2. Houses
3. Units and Apartments
4. Commercial Properties – factories
5. Offices
6. Shops – either shopping malls or single shops.

Vacant land

Vacant land is one area where I have made very good money and in a short space of time. Land is different from other property investments in that it does not generate rental income. When I was young, I wanted to build a new home, as the home we were living in grew too small for our requirements. A new estate was opened up near our home and I was interested in purchasing a block.

The salesman really tried hard to pressure me into buying two blocks but I resisted and purchased only one. I subsequently built a house on this block but before I had finished building the price of land had increased markedly. Due to a number of factors - largely inexperience on my part - I sold the house and extended our home. The profit I made was less that I would have made if I had not built but sold the block. The next time I bought land, I bought two blocks, built on one and sold the other.

I learned a valuable lesson. When you sell a house you are selling your dream. When you sell a block of land you are selling their dream.

I have bought and sold other blocks and done very well out of the transactions.

The downside to selling land is that there are considerable holding costs and the land does not provide an offsetting rental income.

Would I recommend it? Yes , but only in a buoyant market where demand was high.

Houses

These are the most common real estate investment for ordinary investors. Houses provide, over time, an increasing rental income and are an appreciating asset.

Houses fall into two categories. One where the rental income as a percentage of the investment is high and secondly, where the capital cost is higher and the rent is lower. These houses usually have a much higher capital gain than the ones providing a better rental income.

Would I recommend houses? Yes, I have owned many rental properties over the years.

Units and Apartments

I have never owned these. I was put off these because of three factors.

1. I have not been happy with body corporate fees which sometimes can be extraordinarily high.
2. I know some who have had tenants who caused trouble to their neighbors and had to be evicted, causing increased costs in re letting.
3. People tend to rent newer properties and if these are available in a close proximity, older units may be vacant for a longer period or attract a lower rent.
   

Commercial Property

Dale swore by his factories. His were on the small side, but what he liked was that the tenant paid all the outgoings. The other thing which pleased him was that they were valued by the rental return and he saw good capital growth due to the increasing rents.

John, other other hand, had a bad experience. His factories were similar but he had relatively small businesses as tenants and he had two tenants go bankrupt. He rented to trades people who might have had good trade skills but were lacking in business skills area. The legal fees in getting them out and lost rent caused him to say 'never again'.

Commercial office space

Ken liked offices. He is the only one I know who has chosen this form of property investment. He selected strata titled offices in a larger building. Again, the tenant paid all the outgoings which increased his returns. He found that office tenants, although they were small business people, were not likely to go bankrupt and he did well. Again, capital growth was tied to the rent and, a fact he appreciated.

Shops

Alex and Andrew owned a small block of shops. The shops were in a row and by themselves. They were not particularly large but these young men kept the rents low and had happy, secure tenants. It was not a particularly attractive block but they had tenants who did not need passing trade, had profitable businesses and were contented in a low rent environment. I did not think the block was well situated but their success proved me wrong on many counts.

My friend, Les, had a bad experience with some shops and he was glad to sell them.

Would I buy shops? I saw more negatives than positives and so never did.

The main advantages in owning real estate is threefold.

1. The tenants pay the mortgage off.
2. Leverage can provide large capital gains for a small outlay
3. With mortgages over a long period, the properties can be negatively or positively geared. This can provide real tax advantages or provide additional cash flow.
   

My advice to any person seeking to own real estate investment properties is to do your 'homework' before you buy. Study the market carefully, negotiate hard and always use a manager to look after the real estate properties for you.

My friend , Robert, thought he would save money by managing the properties himself. He did not always get the best tenant or the best rent so after some losses , used a property manger and his fortunes changed. He was a successful property owner for many years.

In summary,
● be thorough with your research
● select a good property
● hire a good agent - let him do the worrying for you
● relax and let the real estate investment do what it is supposed to do – make you wealthy!

IS ANY INVESTMENT REALLY SAFE?

When I was quite young, having worked in my first job after leaving school, I accumulated a few hundred dollars. At that time in Australia, where I grew up, the only savings bank for the ordinary citizen was the government owned, Commonwealth Bank. This presented a dilemma for me. What was I to do with my $200?

The old way

The Commonwealth Bank only paid 3.25% interest per annum and they only paid interest on the monthly balance at the end of the month. Hence if you made a large withdrawal during the month, the interest that was credited to your account was on the balance as at the end of the month. We felt this was unfair as sometimes the withdrawal was made on the last day of the month but, as they used to say, 'rules are rules'.

My family, being savers for the most part, usually had some money to invest and so we looked at the various options to receive a higher return. Our main choice were debentures which were offered most commonly by the various finance companies, many of whom were subsidiaries of the major trading banks. While these were not guaranteed by the banks, they were generally considered to be quite safe. Over time, the banks then started issuing unsecured notes and these generally offered at least 1% over the debenture rate. Then the British finance houses entered the Australian financial market and some of these offered an even higher rate.

Finance “companies” spring up

Some bright lawyer and accountant realized that if a business incorporated, then the directors were shielded from personal liability if the company went 'belly up'. Before this happened, most of the businesses were usually family concerns or partnerships where the proprietors assumed full responsibility for the debts and obligations of the business. Gradually, many businesses went the way of the private company and of course, the owners could now describe themselves as 'company directors'. This seemingly gave prestige to the finance company operators even though some had a paid up capital of only a few dollars. Some of these companies had only a nominal paid up capital and yet strangely, the banks seemed happy to lend these new entities money.

Some of these new companies went directly to the market and offered glossy prospectus and high returns to attract the foolish investors. Sadly, I was one such ignorant and stupid investor who fell for the sales pitch of one of these companies. I was enticed by the promise of a high investment return and fell for the bait. I lost my $200 when the company went into liquidation.

High returns do not come without high risk

I never cease to be amazed that, in the 21^st century, investors are still fooled by the promise of higher than market returns from their investments and place all their savings in these suspect investment companies. I was fortunate in that I learned the lesson early.

Over the years, I have to admit, I have tried many forms of investment and the outcomes have not always been positive. In this essay, I will outline my experiences and give my opinions on the safety of various investments. You can then compare the conclusions I make with your own experiences and hopefully, we will discover what are the safe investments.

I began investing in company debentures. These instruments usually provided a charge over the unsecured assets of the company and ranked ahead of unsecured creditors and shareholders. Essentially they were as secure as the bank promoting them. Unsecured notes ranked equally with other unsecured creditors but before shareholders so again, their security depended on the stability of the financial company issuing them. As the financial security being offered was somewhat less, these notes paid a higher coupon. Again, the security was dependent on the financial stability of the issuing company.

I then turned my attention to stocks and shares. Unfortunately, except for one or two share purchases, I was caught up in the Australian nickel boom of the late 1960's, and bought some highly speculative stocks which turned out to be very poor investments indeed. This experience turned me off stocks and shares for a long time and my next investments were in real estate.

Over time, I owned in excess of twelve properties , including the family home. Were these good investments? I would say from my experience, no! I owned established homes for rental, land which I built on, and land which I later sold without developing.

However, as I look at the current market turmoil, I'm again looking affectionately at the “bricks and mortar” security of real estate – OK, from a return perspective, these investments may not have equaled stocks and shares, but in the current environment I would rather own real estate, than shares or units in a real estate fund.

Real Estate – the safest investment?

In my opinion, real estate is the safest form of investment. In boom times the return can be spectacular, but this is not always the case. I never really made much money out of real estate. I owned several houses for over twenty years and the returns were very ordinary to say the least. I built one house and owned it for nine years. It cost, including land, just over $154 000. I expected to sell it immediately after it was built but I could not. As I could not afford the repayments, I was forced to rent it out. Some nine years later, I sold the property for $242 000 – I'm not going to calculate the annual return for you – it still gets me a bit teary! In the two years after I sold, the house resold for almost double the amount.

Real Estate – fantastic if don't sell at the wrong time!!!

I believe the cliché, position, position, position is not completely correct as far as real estate is concerned. I believe the rule is more correctly, position, position and timing. Not always can we determine the timing when we have to sell.

Rental properties can take quite a lot of time in managing them and I, along with other owners I know, had just got tired of the week to week running of the properties even though I had them managed by a very good real estate agent. I think real estate is best owned by young people and it can be used as a means of compulsory saving. Is it safe? The answer has to be yes, but there can be major problems and costs with tenants and market cycles may mean that the price obtained is less than what was expected.

I have also invested in gold bullion. Is this safe? Yes, but there are price fluctuations and gold pays no interest and there are costs in storing it. Do I recommend it? No. Unless a large amount is invested, I do not think it is worth the bother and even then, it is possible to lose money if the price cycle becomes adverse.

In conclusion, from my experience, real estate is the most secure investment. Termites may destroy the building, but the land remains. It is possible to lose (or gain) from rezoning and compulsory acquisition by governments may not provide proper compensation as has happened to two friends of mine. Vacant land incurs holding costs and does not provide an income.

Shares are somewhat secure and provide a better return but this is related to the risk. Techniques can be implemented to minimize the risks and if a sensible strategy is employed, this may not be a problem. Severe downturns in the market cannot always be predicted and they may be long and severe.

What about money in the bank? In recent times governments in many countries have had to guarantee bank deposits so this gives some indication that they are not totally secure. In times of high inflation, there is no capital growth with bank investments and this can produce a loss of spending power over time.

Right now, the prudent course of action appears to be to panic and pull all of your money out of funds and stocks and shares – at least that is what the 'herd' is doing. Sorry, to tell you this, but the clever money is already cash and invested getting a nice interest rate return guaranteed by most of the governments of the world.

If you'd made a fortune, selling the wrong type of 'real estate' to the investors of the world, you'd have sold out and invested all of your money in cash by now – wouldn't you? Or maybe as markets fall you'll buy 'real' real estate from those poor individuals who find themselves financially stressed as a result of the abuses of the last few years.

FOUR STRATEGIES FOR THE ONLINE INVESTOR IN UNCERTAIN TIMES

AVOID EXTRAVAGANCES

People who have a poor saving record often do not realize how much money they simply let slip through their fingers. It is not always the large purchases that may be unwise in uncertain and difficult times but it is most important that a close watch be applied to all purchases in these days of turmoil and uncertainty on the world's financial markets.
A friend told me of his doctor who is still practising in his 80's. He drove a Porsche and enjoyed expensive wines which he consumed regularly. Fast cars and a taste for good wine has, over the years, cost him so much money that the good doctor was unable to retire at 65 because he had saved so little money. I should add that his wife had expensive tastes as well.
This is a somewhat extreme case but it shows how real money can be spent when one has a taste for the finer things in life. It is not unreasonable to expect that a medical practitioner could reasonably have spending habits that are above the average because of the higher earning capacity. Often, the spending pattern flows into other areas as well and before long these bad habits affect the whole pattern of spending and saving.
You do not have to waste your money on nice cars and fine wines to be extravagant in your spending.
I know a young man called Dave. He had a most extensive DVD collection. It is cheaper than going to the movies - which may be true - but the outlay he made was far in excess of what would be regarded as being prudent for a young man planning to marry.
Another friend had a wife who was extremely generous, and she was always buying things, not only for herself, but also for other friends as well. She always justified her purchases on the basis that she was able to buy so well and save so much on each purchase. Her husband told me one day that it is very possible to go broke saving money. I did not understand what he meant by that so I asked him to explain.
He remarked that it was possible to make large savings by buying bargains. But he said that to make a saving, money had to be spent. It is possible to save a huge sum of money by purchasing these bargains but unfortunately a huge outlay must be made in order to complete these purchases and it is very possible to run out of money even though you seemed to have saved so much in the process.
Extravagances can be as simple as buying a coffee and a couple of donuts every time you go shopping. It becomes a habit and this money is not spent because you are in desperate need of refreshment but purely because it becomes a part of the shopping routine. As we stated at the beginning of the article, these patterns often lead to a more disastrous problem of not controlling spending.

SAVE AS MUCH AS POSSIBLE - AND THEN SOME

Some people are naturally frugal and saving is no difficulty for these happy souls. However, for most of us, saving is a chore and it is most important to develop a saving habit very early in life. Often, a budget can be of great assistance in establishing a savings program. If a budget is used, it is very helpful to record all spending, whether it is for legitimate expenses or not. This then produces an accurate record of the outlays made over a specific period. These outlays can then be classified into essential spending, discretionary spending and wastefulness. When a record of this type is kept it can be very illuminating to see exactly how the weekly pay packet is spent. Essential spending usually cannot be modified or reduced. When waste is identified, it can be eliminated. Discretionary spending is the area where savings can be made. Careful examination of this type of spending can often reveal where savings can be made. Unless you itemize these things then it may be that these savings are not identified.

WORK AS HARD AS YOU CAN

This strategy has two parts to it. If a person is self employed, he or she usually works much harder than is readily apparent. In times of financial uncertainty, the self employed person must look closely at costs. If possible, these should be reduced. I knew a man some years ago who established his business in 1928 just a year before the Great Depression beginning in 1929. I asked him how he managed during this period. He remarked that he had done well. He had the advantage that he had a product that was in demand. He watched his costs very closely and even though his was a fledgling business, he survived this period better than most of his competitors. Another friend of that era started his business in 1930. He did not survive and changed direction after a couple of years. He told me later that he did not concentrate all his efforts in marketing and managing his business as he should, and with the benefit of hindsight, he realized that a greater effort on his part may have made the difference. For the employee, it is essential to demonstrate that you have more energy and greater skills than the next worker. Being the last one to arrive and the first one to leave at the end of the day may not impress an employer all that much when things get tough. Further study or the acquisition of additional skills may recession proof the job.

BE DISCIPLINED WITH YOUR SAVINGS AND ONLINE INVESTING

This is a failing that many of us have. Too often we start out on a project, or an online investment plan, full of enthusiasm and energy, only to find out further down the tack that we have largely given up. Greg is a young man who was shown a very simple savings plan. Under this scheme, he was going to save just three dollars a day, each and every day, bank the money in an online interest bearing account and let it accumulate until he needed it. I asked him how the savings plan was going. He said he was not very diligent and had got behind in his savings. If you do the math using compound interest, $3 per day amounts to about $1000 per year, add to this interest at say 7% and over three or four years this can amount to quite a sum. If you ask a young person to give you $3000 he probably could not, but if he had saved just three dollars per day, he could give you $3000 and still have some left over. This is what discipline can do. Whether it is relation to your savings or investing program, work or budgeting, discipline will pay off handsomely every time.

Online Investing Help

Welcome to Investing Online Help.

This site provides information and ideas for investors dipping their toes into the world of online investment. Investing online can be cheaper than investing in the 'real world' but there are plenty of pit falls as well.

Whether you are looking to invest in stock, shares, bonds, currency or trade in options or futures or buy real estate - online investing may save you money. If you have questions or topics you would like covered in Investing Online Help please use the comments below to raise them.

Happy Online Investing!