The key to becoming a professional property investor

I thought that I would share this article with you from a property investment company in Australia called Investors Direct. While there are some slightly different regulations regarding taxation on investment property the bulk of this article still applies to property investment in the UK. What is interesting about the Australian market is that generally yields are very low (usually 3-4% while interest rates are 6-7%) and yet many people still actively invest in property because of potential capital growth.

My name is Nils Oman. I came to Australia from Sweden in 1980. In 1984 I settled in Melbourne and worked in the telecommunications industry. At that time I had a young family and was trying to figure out how I could best provide for my wife and my two sons. For years I went to better-yourself seminars. I read the few books I could find about real estate. Most were from the US. The only Australian author in those days was Alan Falkson.

In 1991 I bought my first investment property in the Melbourne suburb of Kew. This was just at the start of the long lull in real estate from 1991-1996. The tenant and I paid $800/mth each towards the mortgage. That was tough. In 1998 I bought my second property and today I have over 20 properties.

Most properties are in Melbourne but I also have some of my investments in Queensland. I have also invested in regional areas and at one time had a dozen properties in the country. When I first started out my strategy was to Buy & Hold. But then I started to get a bit more creative and did some renovations. Once my equity had built up a bit I ventured into development. Today I do mostly development.

When I started out investing in property I entered unknown territory. Many of us prepare for the big step by reading lots of books, going to seminars, reading magazines etc. We learnt quite a lot about property but we have not yet actually bought a property. It is totally different when you practically apply all the theories you have read about.

Once I bought my first property I was in new, unchartered waters.
I was right out of my comfort zone and this uncertainty brought up many fears in me:
Will I get the finance?
Will there be a tenant for my property?
How do I find a good managing agent?
Will the maintenance be expensive for me? Etc.

There were so many countless little doubts that entered my mind. But I think the biggest and most sinister fear I have had to overcome in order to take my investing to the next level was my Fear of Debt. There was always a niggling thought at the back of my mind saying: can you actually afford this? What happens if you get laid off at work? What if there is a downturn in the economy? What if this, what if that, what if what if what if..

What I realised was that this fear is often subconscious so you don't actually notice it. But your subconscious mind controls your actions. The result is that your subconscious mind is trying to get you away from this threat. The mind tries behaviours like: dragging your feet when looking for a property, diverting your attention to other less threatening activities and making you easily distracted from the task at hand.

Many times during 1991-96 I doubted the wisdom in owning property. I seriously considered selling my Kew investment to get away from the negative gearing. But I persisted. Apart from getting back to square one again if I sold, I would also feel that I had failed if I sold. So I held on. This property has now trebled in value. The negative gearing was tough at the time but pales into insignificance when I do the numbers on this property today. During this period I often found myself subconsciously avoiding reading property articles to avoid thinking constructively about the next step.

It is only if you can observe yourself and notice that this is happening then you can start taking control of the situation. So how do you control your subconscious mind?
Well, it is notoriously difficult to communicate with the subconscious. But it is not impossible. As so often, education is a very good start. If you try to understand how the financing actually works then you can put your mind to ease a bit. Education helps to overcome the fear of the unknown. In 1996 I started to engage myself in property again and forced myself to think positively about it. I read more books and I found a couple of investors to talk to. This helped me to change my attitude and to program my subconscious mind by setting goals and visualising them.

You also have to remind yourself that you are actually buying an appreciating asset. You must also remember that you are not alone in your quest for financial independence. The tenant and the taxman are helping you. One of the great advantages of residential property is that there is always a tenant waiting to rent your property. If the property is slow to rent you can lower the rent $5-$10/wk and suddenly it is leased. The taxman helps you by lowering your tax if you are negatively geared. At the end of the day . if you can make up the shortfall between the interest payments and the rent then you are OK.

The most critical period in your investing life is when you just start out. You don't have a lot of resources behind you at this stage. You rely heavily on your income to make up any shortfall between interest payments and the rent.

As your first property grows in value, your equity position gets better. But that does not help your cash flow initially. Once the equity has grown enough you can refinance the property (increasing the loan and getting the extra out as cash). This increases the interest payments but by now you also probably have higher rent payments to compensate. You can use the cash you have just released as a buffer for your cash flow or to buy another property (if you don't need the buffer).
This is called equity financing. It might appear frightening to borrow more money so you can pay the interest using this money. But this is the technique most investors use to finance their negative gearing and to buy more properties. I use a LOC (line of credit) to finance my monthly negative gearing. It also provides my 20% equity when I buy a new property. I top up the LOC via refinancing when I need to.

I must admit that the last couple of years I have been a bit nervous about my cash flow since I am a fulltime investor and don't have any other income. The market has been flat and my portfolio is negatively geared so every month I have used up a bit of this equity I have. But now the market here in Melbourne has started to move again so the reserve I had has been sufficient.

I think the big leap of faith is when you realise that you can finance debt with debt and you dare to actually use this strategy. If your rental return is 4% and the property increases by 10% per year then your total return is 14%. You pay roughly 7% of this to the bank. The remaining 7% grows your asset. This means that you must take out 3% per year of the 10% growth to pay the bank.

The other way to do this is to refinance a property every once in a while, use the cash released to pay your shortfall cash wise on all your properties and then do another refinance before you run out of cash. This might sound a bit hairy and risky, but if your properties are reasonably well chosen you can be fairly sure that this process can be used. Your broker will be able to do the refinancing for you and get you the necessary cash.

The fallback position (if you are in a period with little growth) is that you have 20% equity in the property (always leave 20% equity in the property if you can) so if all else fails you can sell the property and get your 20% out again. This is not recommended but it will save your skin.

Active investors have, as a rule, always negatively geared portfolios. All serious investors I know that hold a number of properties use this technique. It works because your assets are growing consistently. I have refinanced some of my properties several times to release more cash from them. The beauty is that the properties are still mine and they still go up in value!

Everyone knows that there is a difference between theory and practice. The fear of debt can stop many investors from moving from theory to practice. However it is only once you have experienced this that you truly conquer your fear of debt, can take control of your emotions and have the confidence to take your investing to the next level!

Act Now and Reap The Benefits!

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Negotiation . The best paid work

Let's do a quick test!!

1. What is your hourly rate?

2. Now divided that number by 60 and what do you get?

That's the value of your time every minute. If it's more than 50 pence you're doing well. However, how would you like to increase this figure to £100, £1000 or even £10,000 per minute? Well you can, simply by learning the art of how to NEGOTIATE. As real estate investor Hans Jakobi says, "NEGOTIATION Is Highest Paid Work You'll Ever Do!"

The following points are property investor Hans Jakobi's views on the subject of 'The Psychology of Negotiation'.

1. Understand Where the Money is Made
All successful property investors know that the money is made when they 'buy' and not when they sell.

Buying at wholesale or 15-20% below market value is like adding rocket fuel to your portfolio's growth. By buying below market value you instantly build significant equity in your investment.

You can use this equity to move onto your next property faster, or perhaps to fund renovations which in turn increase the property's value even further (more equity) and enable you to receive a higher rental return (more income).

2. Know that the Deal you do is the Best Deal for them
Remember that if you come to a deal with the vendor, it was the best deal they had on the table. So by doing a deal with them, you have in fact helped the vendor take the property off their hands and you've paid more than what others could afford to pay.

By understanding this you will make a small yet significant shift in your psychology when negotiating on a property. By having the mindset that you are there to help the vendor out of their predicament, you'll be less inclined of becoming emotionally involved in the negotiation.

3. Get to Know the Vendors Needs
Although it is true that in negotiation 'information is power' it is information about the vendor's needs that will help you to reach the best deal for both parties. If you can find out the real reason why the vendor is selling, you'll know how motivated they'll be to accept your low offer.

What's more by asking questions, you'll be in a better position to offer more favourable terms and conditions. So show interest, and ask questions!

4. Don't act too keen on a property
When talking on the phone or while doing a house inspection, a trained real estate agent will ask pointed questions of you to extract information which may later be used against you to lever up the price.

When this happens stay neutral and even a little nonchalant. But be careful to not come across as disinterested, otherwise you won't be seen as serious contender and you'll be left out of the communication loop. So stay relaxed and cool but with your eye on the ball.

5. Never Loose Your Cool
Keep in mind you'll need to be in communication with the agent and vendor over the entire length of the contact, which could be up to 90-days or more. So it's imperative you stay consistent and refrain yourself from sudden outbursts if something doesn't go right.

Remember if the vendor believes they have been taken advantage of or felt offended, even the smallest request by you will be seen as an opportunity to get even. It's called human nature!

6. Be Prepared to Walk Away
Sophisticated investors understand the deal of a lifetime comes around once a week, so don't be disheartened if one slips through your fingers.

Take some time to sit and think about what happened and what you can learn from the experience. Then get on your feet and keep moving, because another deal may just be waiting right around the corner

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"Continuous effort - not strength or intelligence - is the key to unlocking our potential." - Sir Winston Churchill 1874-1965, Former British Prime Minister

"The victory of success is half won when one gains the habit of setting goals and achieving them. Even the most tedious chore will become endurable as you parade through each day convinced that every task, no matter how menial or boring, brings you closer to achieving your dreams." - Og Mandino 1923-1996, Author

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Persistence by Bob Proctor

If you were to choose just one part of your personality to develop that would virtually guarantee your success, I'd like to suggest that you place persistence at the top of your list.

Think about it. If you took a quick mental walk down memory lane and reviewed some of your accomplishments in the past . large and small . you would have to agree that persistence played an important role in your success.

Take a look at many of the world's most successful people, Henry Ford, Thomas Edison or a host of other notable greats, the one thing that they all have in common is persistence. What I have found intriguing is the fact that so many of these individuals were often misunderstood to be ruthless or cold-blooded yet I believe that this misconception grew out of their habit of following through in all of their plans with persistence.

It's both interesting and sadly amusing to me that, as a society, we would be quick to criticise people for realising they had an unshakeable power within them and were capable of overcoming any obstacle outside of them. This power would ultimately move them toward a greater chance of achieving any goal they set for themselves!

Ultimately persistence becomes a way of life, but that is not where it begins. To develop the mental strength . persistence - you must first want something. You have to WANT something so much that it becomes a heated desire... a passion in your belly. You must fall in love with that idea. Yes, literally fall in love with the idea and magnetise yourself to every part of the idea. At that point, persistence will be virtually automatic.

Persistence is a subject I have studied all of my adult life and I can tell you one thing I know for certain: very few people ever, mentally or verbally, say to themselves... this is what I really want and I am prepared to give my life for it, and thus, they never develop the persistence to achieve it.

Persistence is a unique mental strength; a strength that is essential to combat the fierce power of the repeated rejections and numerous other obstacles that sit in waiting and are all part of winning in a fast-moving, ever-changing world. There are hundreds of highly successful men and women who have cut a path for others to follow, while leaving their mark on the scrolls of history . and every one of these great individuals was persistent. In many cases it was the only quality that separated them from everyone else.

It is generally believed that a lack of persistence is a consequence of a weak willpower. That is not true. A person could have a highly evolved willpower and still lack the persistence required to keep moving forward in life. In more cases than not, if a person lacks persistence, they do not have a goal that is worthy of them, a desirable goal that excites them to their very core.

Though willpower is important in moving a person toward their goal, if there is ever a war between the will and the imagination, the imagination will win every time. What that means is: you're powered by desire and fuelled by the dream you hold. Once you start to use your imagination to help you build a bigger picture of your dream, to define and refine it until you get it just right in your mind, the emotion that is triggered by that desire far outweighs any force that may be caused by sheer will alone. I am not suggesting the will does not have to be developed, it does. It must become highly developed in order to direct you toward the image with which you are emotionally involved.

Vision and desire have to be the focus of your attention if you're going to develop persistence into the great ally it can become. Persistence is an expression of the mental strength that is essential in almost every profession, where repeated rejection and obstacles are part of a daily routine.

In closing, let me give you four relatively simple steps that will help you to turn persistence into a habit. These steps can be followed by virtually anyone.

1. Have a clearly defined goal. The goal must be something you are emotionally involved with, something you want very much. (In the beginning, you may not even believe that you can accomplish it -- the belief will come.)

2. Have a clearly established plan that you can begin working on immediately. (Your plan will very likely only cover the first and possibly the second stage of the journey to your goal. As you begin executing your plan, other steps required to complete your journey will be revealed at the right time.)

3. Make an irrevocable decision to reject any and all negative suggestions that come from friends, relatives or neighbors. Do not give any conscious attention to conditions or circumstances that appear to indicate the goal cannot be accomplished.

4. Establish a mastermind group of one or more people who will encourage, support and assist you wherever possible.

What do you dream of doing with your life? Do it. Begin right now and never quit. There is greatness in you. Let it out. Be persistent.

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"The person interested in success has to learn to view failure as a healthy, inevitable part of the process of getting to the top." - Dr. Joyce Brothers, Psychologist and Television Personality

"The first step toward success is taken when you refuse to be a captive of the environment in which you first find yourself." - Mark Caine, Author

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What's available?

We currently have the following investment opportunities.

UK property
Spa Court, Spa Road, Gloucester, GL1 1UZ
The Hermitage, Hermitage Road, Kenley, Surrey, CR8 5EA
Barkers House, Gleadless Road, Sheffield, S2 3AE
The Jam Works, Fleet Street, Liverpool, L1 4AN
Chantry Court, 27 Stanley Park Road, Carshalton Beeches, Surrey, SM5 3HT
Perseverance Mill, Dewsbury Road, Elland, West Yorkshire, HX5 9AX
Birkdale Court, 207-209 Tarbock Road, Huyton, Liverpool, L36 5XN
Sherbourne Park, Chandlers Way, Sutton Manor, St Helens, WA9 4TY

Overseas property
Our overseas property division . Property for Life International - now has its own website. Take a look at www.pfl-international.com.

If you are looking for quality overseas property you need look no further. Whether you want discounted French property with guaranteed rental returns, a luxury villa overlooking the Mediterranean or maybe something a little more exotic we can help.

Property for Life International is growing fast and over the coming months we will be offering even more exceptional opportunities in an increasing choice of locations.

Please go to www.pfl-international.com for full details and look out for more great opportunities coming soon!

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Upcoming events

Over the coming months we will be running a number of property investment academy sessions as part of our ongoing academy programme. For full details of the academy programme and an online booking form, please take a look at http://propertyforlife.com/whyinvest/education.html. Additionally, our events calendar can be viewed at http://propertyforlife.com/profile/events.html

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Do you fancy a spending spree at one of the UK's leading department stores?

The new look Property for Life referral programme can offer you just that.

All you need to do is tell an interested friend about Property for Life and you could soon have a minimum of £250 in gift vouchers to spend in any John Lewis or Waitrose store.

Quite simply, for each person introduced by you who then purchases a property through us you will receive a cool £250 in John Lewis gift vouchers. If they purchase more than one property you will receive £250 in gift vouchers for each property they purchase. You could soon be well on your way to that spending spree.

Remember, the more people you introduce the more chance you have of grabbing at least £250. So why not tell your friends and family about Property for Life? Make sure they register on-line at www.propertyforlife.com/register. When registering it is important that they select the recommendation option in the 'How did you hear about us' section of the form and include your name in the 'other' box.

Please note that the referral programme is on a per property not a per person basis. Please see www.propertyforlife.com/services/referalprogramme.html for further information.

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