News

BIG Duplexes - Larger than life

Wed, 05 Nov 2014 12:37:00 GMT

The primary function of any investment property strategy is to generate wealth and the best way to achieve that is to buy well.

Naïve investors might be convinced they reap their reward when they sell their investment properties, but BIG clients know your profit is made when you buy your investment property – which is why you need to buy well.

That means identifying a property that will deliver the reward every property investor strives for is critical to a successful property investment strategy. At BIG we know “buying right” involves obeying a process that starts with recognizing the lure of a location. Once the location has been identified and verified, it is followed by the hunt for suitable land – not a single block but a holding that can deliver several blocks so investors can reap the benefits derived from the economy of scale. Next is the design of the dwelling because it’s simply not true that all houses are created equal.

What I’ve learned in my years as a property developer is that if one is good, two is better! For that reason the emphasis at BIG is on duplexes and for a number of reasons that will become clear soon. Also, at BIG, we invest only in brand new properties that we build because of the opportunities that offers to make the initial buy even more attractive.

There are incentives for building brand new homes that evaporate when you invest in existing structures, such as paying stamp duty on land only rather than on the house and land as a package. Yet another saving and when you need to buy right, every dollar counts!

Some people who are new to this business are afraid that the cost of building a duplex will exceed the cost of building a single dwelling and that extra cost might cripple an investor. While that’s a legitimate question, it’s an unfounded concern because the cost of construction has to be weighed against the return on investment and even the most basic mathematician can see a duplex will return twice as much rent as a single dwelling and no, the cost of building a duplex, while more than the cost of a single dwelling (simply because it’s larger with twice as many kitchens and bathrooms) is certainly not double thanks to the economies of scale. But, as they say in the advertisements, there’s more, much more.

Property investors make their money either by hanging on to their holding, banking the rental return and, in the fullness of time, selling their property for a substantially higher sum than they paid for it. Other property investors choose to divest themselves of their holdings as soon as possible and bank what is called the “development profit” as their return on investment. That means if a property cost $550,000 to construct and you sell it for $650,000 on completion, you’ve made a $100,000 development profit.

Now with duplexes you can have your cake and eat it too, so to speak by doing this. Once the construction phase is over, simply sub-divide your holding (it will cost approximately $25,000) sell one half and keep the other. The development profit from the sold half will mean your investment in the remaining half is substantially lower, resulting in an even higher return on investment when you factor in your rental return against your investment!

For a real life example let’s look at some duplexes BIG developed in Toowoomba. We performed our due diligence and identified this Queensland city as an ideal location for BIG and our clients.

Specifically, Stage 3 of the Sanctuary Rise Estate has just started construction and BIG secured some of the best priced duplex capable blocks in the estate exclusively for our clients.

These modern, sophisticated 3 bedroom 2 bathroom units have a large, open plan living area with separate dining area, large outdoor entertaining area with double lock up garage, are 15m2 larger than most other units on the market. Estimated value on completion is $355,000 per side.

Based on current rental and sales appraisals this project could see you earn a healthy 6.7% return*, or alternatively, you could sell the project on completion and make more than $130,000* in development profit and move onto your next project.

If you choose to sell one half of your holding at $355,000 and subtract that from the total price you paid $575,000 what you’re left with is a dwelling that cost you only $220,000 and, at that price, it is certainly a bargain worth hanging on to. Of course, what you choose to do will be dictated by your circumstances and at BIG we specialize in arranging property holdings to suit the exact needs of our clients.

But do you know what the sting in the tale is? Remember the $25,000 to subdivide the property, which is a fee paid to the local council to facilitate the strata or community title (subdivision). Well, that’s not your problem because BIG picks up the tab.

If you want to know more, register your interest now and let’s grow your BIG property investment portfolio.

Why Toowoomba ? Why a duplex?

Wed, 15 Oct 2014 00:09:00 GMT

Slowly, the rest of the country is waking up to what BIG Property Investment and its fellow investors have known for years – that the best property markets for investors are not in the big population centres of Melbourne and Sydney, but in regional locations blessed with multiple economic activities. And right now, juiciest of those regional centres is the Queensland city of Toowoomba.

The criteria for such a claim is not based on nefarious elements such as proximity to coffee shops or sandy beaches, as nice as both those things are, but on totally hard-nosed yardsticks such as outstanding growth and the eminently believable promise of more growth to come. On both those criteria, Toowoomba comes top of the class because the city not only delivered outstanding growth last year, but has the credentials to keep on doing it.

Boasting one of the nation’s most vibrant local economies, it’s hardly surprising to learn Toowoomba also has one of the country’s lowest unemployment rates. And that combination is sweet music to the ears of property investors. As any government worth voting for knows, the key to growth and sustainability is infrastructure development that gives truth to the chant of build it and they will come.

You can download the full due diligence report here

The affordability factor of Toowoomba, combined to its above-average rental yields is given an unbreakable foundation with the massive infrastructure spend currently under way.

All these factors have helped bake an investment cake that is already proving irresistible and should, for any savvy investor, become compulsory once you factor in the resources activity consuming the Surat Basin.

As any BIG Property Investment partner knows, I have long championed this part of the world for exactly the reasons stated above. However a question I have been asked with dismal frequency is what would happen, what would it mean, if all this activity suddenly stopped? Well, you know what I would say because I’ve said it time and again, so this time I’m going to let someone who has no interest in BIG Property Investment, answer.

One of the highest regarded property experts in Australia who had this to say when faced with just that question.

“If all that activity suddenly stopped, would the location still be a good investment?"

“In the case of Toowoomba, this means if all the coal seam gas and related activity stopped tomorrow, would Toowoomba still be a good buy?

“The answer, unequivocally, is yes!”

You can download the full due diligence report here

He then went on to spell out his rationale. That Toowoomba has long been an important regional centre and, as Queensland’s largest inland city, it has that most important of ingredients, economic diversity – including agriculture, tourism, manufacturing, health and community services, construction and government administration.

He then goes to lay out the evidence for his claims, evidence with which BIG Property Investment partners are totally familiar but which I’m always happy to provide whenever anyone needs any reassurance.

Affordability with houses in the high twos or low threes, apartments in the mid twos, vacancies consistently low, exceptional capital growth in the past 12 months with some of its suburbs achieving a staggering 18%. And, most importantly, the prospects for ongoing growth are strong thanks to the twin blessings of infrastructure spend and resource activity.

Some of the “coming attractions” identified by this undisputed property expert include The Wellcamp Airport, massive investment in roads, plans for two major new rail links, a $300 million convention centre and the upgrades to medical facilities including Toowoomba Hospital.

You can download the full due diligence report here

But do you want to know the best news of all? Toowoomba is not the only perfect property investment location identified by BIG, so please contact us for information on our other projects. Alternativly click HERE to view them all.

However if Toowoomba is the location you would like to purchase you next investment let me tell you briefly about the package that BIG has put together – and it’s a duplex!

Stage 3 of the Sanctuary Rise Estate has just started construction and BIG has secured some of the best priced duplex capable blocks in the estate exclusively for our clients.

These HUGE modern, sophisticated 3 bedroom 2 bathroom units have a large, open plan living area with separate dining area, large outdoor entertaining area with double lock up garage, are 15m2 larger than most other units on the market. Estimated value on completion is $355,000 per side.

Based on current rental and sales appraisals this project could see you earn a healthy 6.7% return*, or alternatively, sell the project on completion and make over $130,000* in development profit and move onto your next project.

SPECIAL "BIG" OFFER - included in the turn key price will be:

Stamp duty $5,000

Legals $1,500

Depreciation report $500

Headowrks $25,000

THAT IS OVER $35,000 WORTH OF INCLUSIONS THAT YOU NORMALLY HAVE TO COVER !!!

That’s right – the $35,000+ you normally need to fund (out of your pocket) to title these properties is included in the package price. This is unheard of and only possible due to BIG’s experience in these types of developments.

You can download the full due diligence report here

CLICK HERE TO REGISTER YOUR INTEREST NOW…

Why to use a Mortgage Broker

Wed, 01 Oct 2014 08:02:55 GMT

I’ve always said that the most important aspect of building a property investment portfolio is finance.

Get the financing right and everything else will fall into place or, to put it another way, it doesn’t matter how much of a bargain or great investment is on offer, without money you simply can’t play.

Finding the right finance deal is not as simple as calling the nearest bank and expecting them to write a cheque. In fact, finding the right finance deal is not dissimilar to negotiating a maze. There are lots of dead ends and false turns and the best person to get you through is someone who has steered a course through the maze more times than they can remember because there is no substitute for experience.

It amazes me how many people do take the obvious path of simply leaving it up to their bank to find them the right deal. That trusting approach merely means the bank has been given permission to structure a deal that is best for them – not you!

What people who are not in the industry don’t know is that every lending institution has a set of priorities and those priorities differ from lender to lender. Some lenders are comfortable with first home buyers but not investors while others might give priority to investors but are uncomfortable with shared property ownership.

Understand this, if you go first to a bank that bank is going to assess you against its lending criteria and judge your suitability for one of its products and if you are deemed to be not a good fit for one of the bank’s products it could have delayed your investment strategy by up to half a year.

No, my very strong advice to any property buyer is to go, in the first instance, to an independent mortgage broker who can assess your very particular needs before marrying you to the right lender. The right mortgage broker is not beholden to any lending institution and knows (or should know) the priorities of each and every lender and after a brief conversation with you should be able to identify at least a couple of potential lenders that would welcome you into the fold.

Also, it is dangerous to make an assessment of a lender based solely on the advertised interest rate. Make sure your broker explains the difference between the advertised rate and what is called the comparison rate, which is a truer indication of what you will be paying, but most important of all, any broker worth their salt will do a risk assessment so that any loan that is arranged on your behalf is structured so that it will not cripple you. Trust me when I say you do not want a loan you can’t afford to repay and sometimes the best financial advice you can get is to forgo an opportunity because the numbers just don’t stack up in your favour.

At BIG Property Investments we’ve formed a strategic alliance with Century21 Home Loans so when it comes to mortgage brokering and arranging the best possible finance deal for our investors, we’ve got years and years of experience and thousands of deals that have gone before to pave the way for you to get a smooth ride!

Paul Bieg

Director - BIG Property Investments

Dongas Doomed!

Wed, 01 Oct 2014 07:54:00 GMT

There’s an old, old joke that goes something like this:

First guy: I’ve been reading a lot lately about the dangers of smoking. I’m going to have to quit.

Second guy: You’re going to give up smoking?

First guy: No. I’m going to stop reading.

While I’m not seriously advocating giving up reading will help you escape the perils of nicotine, it is true that bad news needs to be properly evaluated – and then used to your advantage.

Truth is, I’ve traditionally used bad news to identify opportunities, and that’s because when bad news is aired most people run for cover which leaves the path to opportunity clear for people who know how to accurately evaluate what they hear and have the courage of their convictions to act on the information.

You’d think all this was leading me to reveal some really bad news before suggesting a strategy to advance our own interests in the face of such adversity, but no, the news that started this train of thought was actually some really good news for people who do what we do – niche developments in economically active, remote locations.

The really good news is that illegal accommodation is to be removed from the mining town of Paraburdoo in WA’s Pilbara and other towns, including Onslow and Tom Price have been given notice they will soon be audited.

Now it should be obvious why that news is music to our ears, because we’re in the business of providing quality housing to hard working tax payers, and no one will tell me that they deserve anything less.

The illegal housing sprouted when any accommodation was deemed “good enough” for workers forced to commute to remote locations where they toiled manfully (and were well paid for their labour) while making gazillions for mining barons and working miracles with our country’s balance of payments.

The illegal dwellings were called dongas and came about because they were needed in a hurry owing to the lack of “proper” accommodation. Sure, they served a purpose, but they weren’t really fit for long term human habitation and now that the development of economically active remote locations is progressing well, it makes sense authorities such as councils want a better class of building for housing workers in their dominions.

A recent council inspection showed that 11 out of the 22 lots in Paraburdoo's light industrial area had unauthorised accommodation, ranging from two to 12 rooms per lot, with rooms containing various combinations of bed and bunk provisions. And that is not a good look for any council.

And even better news was delivered by Ashburton Shire chief executive Neil Hartley who said Paraburdoo was not the only town affected.

"This occurs in every industrial area across the Pilbara," he added.

“The solution is to offer vacant blocks for either businesses or investors to build residential accommodation that will allow workers living quarters to move out of the industrial area."

When the universe unites to throw you such a bunch of bananas, you’d be a monkey’s uncle to not peel a few for a feast!

Paul Bieg

Director - BIG Property Investments

180,000 homes - and its STILL not enough...

Tue, 16 Sep 2014 07:15:00 GMT

I read a lot when I’m researching the viability of any project I’m contemplating becoming involved in and while I may not always remember where I read it, I always recall the message of any article I consider relevant.

The other day I came across exactly such an article which was quoting a report put out by the Residential Development Council. It was the council’s Outlook report, its glimpse into the future, and in it the council warned that despite work about to start on 180,000 new homes the country was a long, long way from meeting the demand for new housing.

It’s solution to this crisis was to remove the twin barriers of overly bureaucratic planning approval processes and stamp duty. It further urged the Government to avoid hog-tying the industry in even more red tape, citing the Foreign Investment Review Board rules as an example of an impending tsunami of red tape.

Right now, for those of you who weren’t aware, a Federal parliamentary committee is considering the impact of foreign money on local property prices, demand and volumes.

The RDC is calling for the removal of policy roadblocks such as planning system delays and stamp duty costs, which it hopes will offset changes to negative predictions for the industry and improve affordable building.

The negatives are low wages growth, rising unemployment, few first-home buyers and falling affordability for owner-occupiers and investors. The negative indicators affects the number of people lining up to buy property but, as far as BIG is concerned, what might be a negative for the industry is a real positive for those who are already in it and eager to expand their involvement.

At buying time, what you want is less competition and with fewer owner-occupiers entering the market it means there are more renters out there increasing demand for rental properties.

Record low interest rates are a real incentive for those who are not affected by rising unemployment or who can afford to ignore the slower economic conditions or are not affected by them.

It is important to remember that when it comes to property investing there is no such thing as “good” or “bad” times, there is simply time. And if all your ducks are in a row, then “now” is always the best time to either enter the property market or expand your activity if you are already part of the investment community.

It really is an ideal time to think BIG when contemplating your next move in property investment because while others are dithering over high unemployment versus historically low interest rates, what I urge my clients to remember is that we’re not building houses for the unemployed, but for working Australians and despite the projected construction of 180,000 new homes in the next 12 to 18 months, we are still going to come up short when confronted by the demand for new housing.

And isn’t that exactly what property investors want – a shortage of new properties and a glut of renters?

Strategies can be fine tuned and adjusted to meet any economic conditions but what will never change is that unless you invest in property you’re never going to be able to play the game.

Paul Bieg

Director - BIG Property Investments

How would my team go in the finals of the great property investing tournament?

Tue, 02 Sep 2014 14:50:00 GMT

It’s finals time around the country with various sporting codes hard at it deciding which team is tops for 2014.

And that got me thinking. How would my team go in the finals of the great property investing tournament?

For starters, most people involved in property investing don’t think in terms of teams and tend to regard themselves as lone operators, prowling for great investment opportunities. But they’d be wrong, for to be truly successful in property investment we are almost wholly reliant on a team of people while never forgetting that ultimate responsibility rests with the individual paying the piper.

In sporting terms, whether we’re part of a team game (football, cricket and so on) or an individual activity (tennis, athletics) we’re totally dependent on our support staff starting with coaches and then moving on to trainers, dieticians, masseuers, physiotherapists, chiropractors, doctors, fitness coaches and on and on (depending if you’re Roger Federer or ranked 500).

Success on the sporting field relies of three main components – skill set, physical condition to enable you to execute those skills and (most important of all) a mind set that puts you in a winning frame of mind.

The big difference however, between sporting endeavours and property investing is while in any sporting contest there’s a 50/50 chance one of the participants will lose, there’s no reason why everyone who plays the game of property investing can’t end up a winner. Played responsibly there should never be a “loser” in property investing which is one of those rare activities where “everyone’s a winner”.

So who’s on your team? It starts with finance because without money you don’t get to play any part in the game of property investment. How’s your relationship with your source of finance? Do you know the name of your case manager? Do you have their after hours number or their mobile number and can you call them any time of the day? How aware are they of your investment strategy and are they sufficiently confident to back you? Do you know how much you can call on and are the terms you’re being offered the best you can get?

At BIG Property we take finance so seriously we have established our own financial arm that is fanatical about financial health checks to establish how and with whom our investors should partner before securing the best possible financial deal for our investors.

Next comes the property partner. Who do you use? Newspaper advertisements? On-line recommendations? Or do you know a friend who has a relative acquainted with a builder or developer? And, in the first instance, are you talking about buying a piece of land, a house and land package or an established development?

If it’s a land only purchase you now have to hunt down a builder, and then an agent to manage your finished property and incidentals such as someone to maintain your property, an accountant to balance your books and a tax consultant to make sure you are getting to the best possible deal from the tax office.

About now your team is starting to make an AFL side look small!

I know, because I went through all those steps and while some of them were missteps, when I found a winner I signed them up for life.

What I discovered was it was cheaper to buy one block of land if it was in a parcel of 40 blocks and it was cheaper to build one house if it was part of a package of 20 homes. The economies of scale and all that. What has evolved from my adventures is what I like to call the Big Property way, which is, in effect, our systemized approach.

I source land, where the suitability of the location has been thoroughly and painstakingly researched, I have on board builders I have used again and again, property managers who know if they look after my properties and do the right thing by me and my fellow travellers we will look after them – in short every member of my property investment “team” knows the interests of every investor is paramount.

And do you know what the secret to our collective success is? Everyone, including me, pays the same price. Sure, I charge a fee for service for the work I do, but whatever you pay for your block of land, I pay for mine and whatever you pay for the build, I pay and however much your property manager charges you, they charge me.

Yes, the property investment game, the way I play, is very much a team sport and there’s always a place in our team for another dedicated player.

Paul BIeg

Director - BIG Property Investments

The ethics of property investment

Wed, 27 Aug 2014 11:49:00 GMT

If the only priority of investment is to make money then our primary focus should be on the nefarious activities of drug dealing, illegal arms sales and insider trading. Because, let’s face it, that’s where the money is.

But, of course, making money cannot be the SOLE objective of investment (or, at any rate, should not) and improving the society in which we all live must always take priority over the fiscal rewards of investing. In other words, ethical investments is key to not only growing rich in a way that allows you to enjoy your new found wealth free of any pangs of conscience but also benefits the society in which we all live.

Ethical investment is when you know what your investment is achieving, when you know your investment is contributing to a better world.

There are plenty of ethical investments and arguing that one ethical investment is “more” ethical than another ethical investment is buying into an argument that can never be resolved. We can’t argue which good is greater, just that any good is desirable and should be encouraged. Given my interests and my obvious bias towards property investment, I’m stretched to think of a more ethical investment than housing. Everyone needs a roof over their heads, a place to call home that provides them with security, shelter and a sense of well being. Our sense of worth so often begins with a good home base. And, in the course of doing good, I can formulate a strategy that helps you turn your investment into one that grows your wealth portfolio then, I like to think, that is a win for everyone – you and your community

The good news for property investors is that Australia needs more houses than are being built so with every house you build you are contributing to the very real need of our society, and that benefits us all.

I have heard people argue that the tax benefits of negative gearing should be removed because it only encourages speculators to enter the market and keeps home owners out of it. Now, while negative gearing is not part of the BIG Property Investment strategy, anything that works against people investing in property works against the very real needs of our society and the argument outlined in the preceding sentence is utter nonsense.

What do you think would happen if property investment came to a shuddering halt? I’ll tell you what I think would happen. For a start there would be fewer houses available to a growing population which would have the effect of causing the prices of remaining houses to rise, making finding a home even more difficult than it already is.

Further, if property investment stopped that would have dire consequences for the building industry because property investors such as BIG, invest exclusively in brand new properties. The building of investment properties means work for the builders and homes for the workers.

No, for a variety of reasons, not least because it’s what I do, I champion the ethical values of property investment and while you are the final arbiter of how and in what field you invest, I can only tell you that the sense of growing rich while helping others find a home they otherwise might not be able to afford, is a fantastic reward.

Paul Bieg

Director - BIG Property Investments

IF YOU’RE READING THIS THEN I BET YOU ARE PAYING TOO MUCH FOR YOUR HOME OR INVESTMENT LOAN…

Fri, 15 Aug 2014 01:20:00 GMT

There are times in our financial lives when all the portents are screaming out for action. For many of us, this is one of those times!

Consider these two contradictory facts.

FACT 1

Home loan interest rates are the lowest they’ve been in more than 50 years. Yes 50 years!

FACT 2

Most households and even investment property holders are paying mortgage rates well above the historic lows on offer. Which begs the question…. WHY aren’t you cashing in?

DID YOU KNOW VARIABLE RATES ARE AS LOW AS 4.65%?

Why would people keep a loan that is costing them real money?

I don’t mean to offend anyone “but” to be honest there are many reasons, such as, ignorance, out of sight out of mind; laziness or couldn’t be bothered doing anything about it; too busy; not my field of expertise; comfortable with current arrangement; don’t want to upset the bank and the most common “I really had no idea”– and on and on and on.

Well, I can’t tell you what to do because, if you’re like most people (including me), you’ll resent anyone telling you what to do and you won’t do it so, instead, I’ll simply tell you what it might mean to a person currently tied to an unseasonally high interest rate on their home loan who decides to switch to a more competitive rate

All I ask is after reading this blog is that you think about what you want to do with the information. Ultimately it’s your choice.

For starters, exit fees (once upon a time high exit fees from home loans was a real obstacle to people wanting to switch to a new, more competitive lender) are now a thing of the past and banks have even waived application fees. Some even pay you to refinance to them!

Yes, there was a time you paid the bank to leave it after you had paid the bank to become one of its customers! Not any more however – but they won’t tell you this.

But even though the rules have been relaxed, dealing with banks is still not a walk in the park for most people. Imagine an ordinary person walking into a bank to apply for a home loan – which can be a daunting task in itself. Who does the bank employee work for? The bank, of course, so the employee is obliged to put the bank’s interest before the welfare of the walk-in customer. If you had a boss what would he tell you to do in this instance?

However, an independent and (importantly) experienced mortgage broker who understands the system works for you – the borrower – and knows how to negotiate the best possible interest rate from the bank.

But what do I mean by “experienced” broker? Well, when you walk up to a teller and ask for advice do you know if it’s that person’s first day on the job or their 10^th year anniversary? Obviously this is what I mean by experienced. I’ll admit that writing a loan for a first home buyer is reasonably easy as they have minimal debt, an adequate deposit and a reasonable objective in sight. However writing a loan(s) for a savvy investor, with multiple properties who wants to continue to invest for the unforeseeable future is extremely complicated.

But I digress. Now imagine you have a $400,000 mortgage over the standard 30 years at the bank friendly rate of 5.10%. That means your monthly repayments are $2,171 per month. Now if you switched to a broker secured rate of 4.65% at $2,062 per month you could go one of two ways. If you maintained the earlier monthly repayments of $2,171 you would pay off your loan 3 years sooner saving you $40,109 in interest. And all you had to do is review your options.

Alternatively if you were happy to stay the course for 30 years you could reduce your monthly payments to $2,062.55 – and have an extra $109 discretionary spending every month.

The choice may appear simple – however at this point I need to point out that $109 per month is more than enough to cover the repayments on an investment property which could see you acquire equity gains in excess of $300,000 over the next 20 – 30 years based on a modest purchase price of only $350,000, and then there are also the tax advantages – but that’s for another blog.

If either of those scenarios appeal to you, call me and I’ll tell you how you can pay the bank less and pay yourself more!

Paul Bieg

Director - BIG Property Investments

My attitude towards tax

Thu, 06 Mar 2014 11:39:00 GMT

My attitude towards tax is not over friendly, but to be honest I’m happy to pay my share so long as I’m making plenty.

Not everyone, however, is as calm as I am about the subject. Remember how the late Kerry Packer tore strips off a Senate media enquiry he was called before and on the question of tax evasion famously said: I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn't minimize their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra.

A rallying cry for those strong enough to stand up to the ATO, but over the years, many people have approached me and asked how can they use property investment to minimise their tax obligations.

Well, in honour of the fighting spirit so famously encapsulated in Kerry Packer, here’s my answer.

Yes, of course, it is possible to minimise your tax, possibly even down to zero, using real estate investment. But there are a few caveats.

First of all, you need someone in your corner who really understands tax law because in any fight with the ATO you're going to lose - even if the judgement goes in your favour. My reason for saying that is because getting involved in any prolonged battle with the ATO takes an enormous emotional toll and while you're busy fighting them you're not busy growing your business so avoid as best you can making a declaration of war against the ATO. Any struggle with a large Government department is an unfair battle, not unlike getting involved in a tag team wrestling match except you're alone in your corner and your opponent has an endless stream of wrestlers to tag so you're always facing a fresh opponent.

The other thing to remember is the large Government department is not fighting with its money but is being funded by the overly generous Australian Taxpayer while your hands are going deeper and deeper into your pockets.

The maths would dictate it is a simple formula if you want to use real estate to help you pay no tax. All you have to do is make sure your real estate investments lose enough money to balance out what you made in your other ventures. But what's the sense of that? No, for any successful business person, tax avoidance is not only illegal but impossible. Tax minimisation, however, is almost your corporate responsibility and means you pay the least amount of tax your legally obliged to pay and the way to use real estate to achieve that outcome is to invest in properties that have strong capital growth potential and minimum cash flow outcomes. The cash flow appeal of an investment property is measured as a percentage of rent against the value of a property. A $200,000 property, for instance, might attract an annual rental return of $20,000 or 10%. But a million dollar property is more likely to attract a top rental of $1000 a week or $50,000 a year, giving a return of 5%. However, when the houses have doubled in price after 10 years, the $200,000 house returns $200,000 and the million dollar property returns that much again. Investors need to weigh the 10% return from one against the million dollar reward of the other and decide for themselves which scenario suits their position better. There's no doubt, however, the 5% return delivers a more favourable tax outcome over the investment period depending, of course, on your personal circumstances. However, I tend to take the approach that if I'm paying a lot of tax it means I'm making a lot of money.

It will be interesting to see what the Australian Government does in relation to Apple, which last financial year paid less than 2% of its earnings in tax (1.82% to be exact). And this was how it did it. One company made the goods in China and sold it to another company in Ireland (which has a very low tax threshold). The Irish based company then marked up the goods 39% and sold it to its Australian outlets that sold them to Australians at virtually cost price so the company made almost no money and, as a result, paid almost no tax. What's obvious to Blind Freddy is that all three companies, in China, Ireland and Australia are all Apple even though they've been set up as individual entities.

Anyone who says luck plays no part in their good fortune is a fantasist.

Thu, 06 Mar 2014 07:42:00 GMT

How lucky are we to be living in the Lucky Country?

For many of us it wasn’t a choice because we simply had the good fortune to choose parents who had already made Australia their home. And for those of us who were born somewhere else and ended up here, think about all the people who set out to make the same journey but, for whatever reason, never arrived. Characteristics such as courage and good planning count for nothing if you’re somewhere in a leaky boat with no chance of floating to terra firma.

I was reminded of the role “luck” plays in life when I was listening to the ABC and the person being interviewed was Andrew Leigh, a politician and author who was spruiking his latest book, Battlers and Billionaires. Now, everybody has their own story of luck and bad luck visiting either themselves or someone they know, but the one Andrew used resonated with me because it focussed on an industry in which I have immersed myself – mining.

The undoubted star of this world is Australia’s richest person, Gina Rinehart who is reputedly worth more than $20 billion. When her father, Lang Hancock, died in 1992 he was worth $150 million and Gina, as we all know, inherited the mine. Now there’s no doubt Gina is an incredibly hard working woman, but there was one factor that worked in her favour. Since 1992 the price of iron ore has risen 10-fold. And no matter how hard working Gina is and no matter how much business acumen she has displayed, we can’t credit the rising price of iron ore to her. But rise it did and Gina’s personal fortune was not just knocked out of the ball park, but sent into the stratosphere.

Now imagine if the price had done the reverse and fallen 10-fold instead of having risen 10-fold? If that had happened, chances are Gina Rinehart would not have evolved into the mining star she became.

The lesson I took away from the story was there may be things in life over which you have no control, but when fate does throw us a break we need to grab the opportunity and make the most of it because we never know when we’ll find ourselves aboard a leaky boat, miles and miles from terra firma.

Paul Bieg

Director - BIG Property Investments

Honing in on the right location

Thu, 06 Mar 2014 05:28:00 GMT

We've all heard the cliche that ends with location, location, location.

What we've heard less of is the discussion to help determine exactly what is meant by location.

Truth is, location means different things to different people. To the elderly it might mean a quiet alcove in a quiet suburb, and to those dependent on public transport it might mean being on a busy street with easy access to buses and trams while young people might regard a bustling inner city location as the perfect address and many parents will first check out the schools before settling on the suburb.

Different people have different needs and it is whether or not a location panders to a particular set of needs that makes a location perfect for a specific individual.

But the definition I'm interested in is what makes a perfect location for a property investor. Before I answer that, another question needs to be asked - why are you buying an investment property? In my experience it always boils down to one major reason - to make money. If that's not true for you then you're reading the wrong magazine, so if we can agree that the purpose of buying an investment property is to build your wealth portfolio, the onbvious next question is how is this investment property going to grow your wealth?

There are only two ways an investment property will enrich you. The first is through the income it will generate via rent and the second is through capital growth. Rental income only happens if the property is positively geared, that is, if the rent being generated exceeds the mortgage repayments. If it doesn't, then the property is negatively geared, which removes one of the pillars of my wealth generation strategy.

Quite simply I don't believe in negatively geared investment properties and if that's the only way to add a particular property to your portfolio then I'd be inclined to regard the property as not being in the “right location”. The only exception, of course, is if the property is in an area with proven capital growth, because the second pillar of the astute property investtor strategy is capital growth, or the money you make when you sell the property with your profit represented by the difference between how much you paid for the property and how much you sold it for.

A conventional rule of property investment dictates you make money either through the agency of cash flow positive properties or via capital growth, but not both.

And that is where my definition of location for property investors comes in, because the properties I invest in and in which my clients invest in defy conventional wisdom by being both cash flow positive and generating substantial capital growth.

Here's the secret. An investment property needs to be located where there is plentiful high-end demand for rental properties. The high demand pushes up rents and the higher the rental return the greater the value of the home and the higher the value of the home the less likely renters are to commit to buying one and continue paying the high rents. It is a perfect storm for property investors but it is also a delicate balancing act because very quickly high end demand can evaporate like so much dew on a hot desert day and all you're left with is a mirage of investment properties.

If I may coin a new cliche it is that research, research, research will determine location, location, location. Remember it's not only who you know but also what you know, so get knowing!

Paul Bieg

Director - BIG Property Investments