Since 1983 I have been fascinated with the annual BRW Rich 200 list and the people who made the list. Upon reading it for the first time, I realized that many of them made their money in property or stored their wealth in real estate. I figured if it was good enough for them, then property would be for me.
This year, for the first time, 83 year old Harry Triguboff, a Chinese born son of Russian immigrants, became the first residential developer to top the list with an estimated wealth of $10.62 Billion. Not only did Mr Triguboff top the list, but of the remaining 200, 53 have made their fortune in property, with around another 15 or so having made their money in another industry and then ploughed the wealth in to real estate.
I just can’t understand why there is so much white noise around property investors and negative gearing. Much of the negative press and commentary has been coming from the “green eyed monster” approach, where the “evil rich investors” who are utilizing legal methods to lower their level of personal taxation and grow their wealth, are blamed for the high pricing of Australian real estate.
It’s just rubbish.
And it’s disappointing to see people trying to get ahead in life by property investing are being vilified. The same taxation rules apply to share investors and business owners. So why is property singled out?
Last week I received an interesting email from a former student who was a member of one of my mentoring groups, thanking me for the updates and asking me a really interesting question.
I’ll repeat it for you here:-
“I’ve been hearing through a few people that an economic crash is facing us later this year or early next year. What do you think about this prediction? Some good friends of mine are “cashing” up in preparation for what they feel is an inevitable crash. I’ve also just received an email from the people who manage Robert Kiyosaki and during his upcoming presentations in Sydney and Melbourne, he will be talking about the crash he believes will be happening later this year. I was just interested in your opinion as I remember you predicted something was amiss just before the last financial crash.”
When you invest in real estate you are no doubt hoping for strong gains in value over time. But what if you could improve your chances of making a quick gain early on – a fast improvement in value that will help propel along your wealth portfolio?
The ideal situation would be for you to be able to invest in an area that is either already growing fast or is about to do so – a property hotspot. It is not always possible to pick these suburbs with complete accuracy and timing, because the statistics we use can be three to six months out of date by the time they are collated and we can analyze them. And a hot spot that is identified using data that old, could conceivably already have started to cool down.
When we buy real estate to hold for the long term, we must factor in earning a rental income stream from the future tenant. Not only do we need that to support any borrowings we may have against the property, we also need to maximize the total return on the investment – which will include any capital gain, income from rent and any tax benefits.
It might sound trite, but my experience is that investors don’t often think overly much about the needs of their future tenant – someone who in fact will become your de-facto financial partner in the months and years to come. They tend to think about the great deal they just got, rather than how it fits in to their portfolio or strategy or if it will be desirable to a tenant.
I spent a lot of time driving around looking at property. Over the weekend, I noticed a number of large prominent “For Lease” signs on homes that fronted busy through roads.
I remember being fascinated with fire as a child. I loved scratching the red-headed match against the rough side of the box and watching it burst in to flame, producing heat and energy. I thought it was some kind of magic trick. At least until the first time I burnt my fingers. Then I knew it was real.
As I grew up I began to understand that fire was life and fire was death. It bought life to those who were cold in winter and death to those caught in its untethered path. I discovered fire was a source of power that could be either friend or deadly foe.
It is often said that the most important factor in successful real estate investing is – location, location, location. And in some respects that is correct. Though there are so many other factors that come in to what can affect real estate values – like supply and demand; unemployment; average incomes; proximity to infrastructure like transport, shops, schools, medical facilities; population growth including natural births & immigration. It can be quite a long list of elements to consider.
Most commentators ignore what I now believe to be a critical factor in the pricing and relative value of real estate. The lifeblood of building a property investment portfolio is money. That is – money you borrow to buy houses, apartments, townhouses or other income producing real estate. If there is plenty of money available at cheap prices (low interest rates) people will borrow to buy and drive prices up. If the money supply is tight and fewer people can borrow to buy, the assets prices can no longer be supported.
Last year, the Australian Prudential Regulatory Authority (APRA), at the behest of our Federal Government, issued instructions to our major lenders – pull back on your investor lending. APRA and the Government were rightly concerned about the growth in real estate prices over the last several years, particularly in Sydney & Melbourne.
The Federal Government wanted to lower interest rates to support the broader economy, but they knew they could not do that without risking sparking yet another run up in property values. They decided the best way they could slow things down was to squeeze the supply of loans, yet they chose to do this only for investors, who got the blame for pushing up real estate values. If they were really serious, why didn’t they have the banks slow down all lending?
I have enjoyed sharing with you an ongoing series about some of the most successful people on the planet, including Richard Branson, Mark Zuckerberg, Aristotle Onassis and Andrew Carnegie (look back through my website for these stories). I haven’t yet written about another of my heroes – an Australian – Robert Holmes a Court (though he was born in Johannesburg!)
While it is not certain, there are many who believe that Robert Holmes a Court was Australia’s first billionaire. Holmes a Court rose to national prominence in the heady 1980’s business boom, alongside characters like Kerry Packer and Alan Bond. His journey from South Africa to Perth to build his corporate fortune is one that fascinated me as a teenager.
Welcome to the Radio Wealth Real Estate Crowdfunding special broadcast. Since launching the Brickraise platform and our first investment offer in Melbourne, we have been flooded with questions. So the team though that we should share these so that everyone learns more about the next generation of real estate investing.