Friday, 29 June 2012

6 Ways To Buy Real Estate Without A Deposit

There was an interesting item on a “current affairs” show recently. ASIC and a Consumer Organisation sent a number of genuine, financial hardship cases to 219 different and fully qualified financial planners. The results were that only ONE IN FIFTY of the financial plans reflected the needs of the clients, the rest reflected the financial planners commissions. This just highlights how valuable the genuine educational workshops and e-books are. This article is based on a workshop and E-book by Ray Jamieson and first presented at The Executive Mastamind Programme Workshop.

The purpose of all these workshops and e-books is to educate. Not to advise, or tell you where or how to invest, or suggest one strategy over another. Simply to educate. This is the same in that respect. T

This article and the associated e-book are on the fundamentals of creating wealth through Real Estate. The e-book, through virtue of the unlimited space criteria, goes into much more depth and can be found on There is nothing new in this concept, people have been buying and selling real estate since trading and commerce first began. However, one would think that with something that has been around for so long, more people would understand it!

One of the things I believe about Real Estate is that if you make a good buy which is making you good money, you hang onto it, unless some mug offers you an absolute fortune for it. Now, I DID buy real estate and it WAS a good buy, but you aren’t getting it, you have to go find your own. However, I will give you some tips on buying, which might make yours as great an investment as mine!

This article and e-book is about some things that many people will find are a secret. Sadly, there are many vested interests that would rather you didn’t know what you will learn here.

In this article and e-book, we will discover WHY you need to consider buying real estate without using your own money for a deposit. It actually makes a lot of financial sense to NOT use YOUR money! That's where we start. Why, because we, as a society, have been conditioned into thinking we have to conform to the rules that the banks and financiers want us to conform to. And whom do you think those rules benefit? The consumer? NOT LIKELY! The Golden Rule states that them that makes the rules gets the gold from the rules! OK, it was a little different when I first heard it too, but the principle is chillingly accurate!

We will also learn of 6 different strategies to buy a house without a deposit, the criteria you need to fulfil before you choose a property for the exercise, vendor profiles, some warnings to observe and more. By the end of the session, you might have a whole new way of looking at property purchasing, whether you are a vendor or buyer! You might discover a few other little tricky things you need to be aware of when buying any house. You need to come out a winner, as well as the vendor. Remember, this has to work for everyone involved!

DISCLAIMER: When we look at the 6 different methods of purchasing property without you putting money into a deposit, I will not give you advice; rather, I will encourage you to look at different ways of investing into Real Estate for a better outcome. At all times, you need to have your solicitor and purchasing team on board to guide you into the specifics. Please remember, this is an educational article and e-book only, for advice on anything I say here pertaining to your particular situation, you need to consult your own solicitor and accountant. They will be able to advise you on your own situation, and the legal and financial criteria and regulations pertaining to your own jurisdiction, regardless of the country or state. These factors will vary from country to country and from state to state within different countries, but the principles will always apply.

Everything here is legal, ethical, moral and above board. It is also standard real estate practice, but vested interests in the game would sometimes rather you didn’t know these things, as they have their own agenda and formula they work to. Once you get “outside the box” they think you belong in, it makes them uncomfortable and they lose control of the deal. That’s not good for them.

Just a point on being in control: If someone else is controlling the deal, to whose advantage do you think they structure it to?

Themselves, of course! However, it is possible to have a win/win/win situation. These are 6 ways you can do that.

Firstly, let’s set a yield guideline to follow as we work through. If you were a property owner, residential or commercial property, what is a reasonable return on investment that you would expect? At the end of the year, your accountant says you made X% yield last year from your real estate investments, what was that percentage return for you? ……………%

If someone NETTS 7% they are doing very well. Some properties do more, most do less, and rely on eventual capital gains to realise a profit. But let’s be generous. Let’s allow that someone might be making 7% from their property after costs. Is that OK?

(We had one person in a seminar in Brisbane claim to be making 10% nett on his investments, but he went home and did the calculations and rang to apologise. One was in fact yielding 10% but two others were dragging his yield overall down to a poor negative result! It pays to keep track of things like that!)

With residential property values peaking in Australia as they have in the last year or two, the returns as a percentage yield are very low right now on most properties. Rents do not increase as fast as values and therefore, as values increase, yields fall. With high borrowings, some are now impossible to gear positively. However, there are properties and strategies that do work for you. We will show you how to go looking for them.

Now, why do it this way? WHY NOT PUT DOWN A DEPOSIT?

A question for you: Is it possible to earn 6% to 10% per month on an investment portfolio? Yes, and it doesn’t take a lot of money or knowledge to do it! Many of the sharemarket trading programs, options, futures, arbitrage, currency, etc, do this regularly and consistently - if you have the ability to operate them and have the discipline and education to do it.

6.8% per month is approximately 100% pa. Think about it! GREAT opportunity money! Putting it to use where it will do some good, rather than sitting dead in a trust account! Doubling it!

For example, if you had a share portfolio making 6-10% per month, would you like to take that money out and leave it sit in a solicitor’s trust account for 6 months earning NO INTEREST while a deal went through? Of course not!

And by the time the deal WAS ready to settle, you might find that what you have done under the conditions of the contract was enough to ensure you don’t need the money anyway – the value had increased enough to give you the equity without a deposit.

By working this way, you don’t forfeit the “opportunity cost” of not having access to your money for other opportunities that come up. Letting it sit idle in a trust account doesn’t help you at all!

Lets look at the RETURN ON INVESTMENT.How important is it for you on a ROI basis to not put down a deposit? (ROI = Return On Investment)

1.EG, You buy a $100,000 property for cash. What is the ROI on it, if increases by $10,000 over 12 months? 10%

2.What if you only put down $10,000 and it increased by $10,000? 100%

3.What if you put NOTHING down and it increased by $10,000? Infinity. An infinite return on investment. Truly, something for nothing!

The same property – but we used 3 different ways to buy it. And remember, your $10,000 was earning perhaps 6% - 10% PER MONTH in a share portfolio while you didn’t need it. What is the opportunity cost, to miss out on it?

So now that we have established that it IS worthwhile to buy real estate without a deposit, is it possible? Absolutely. I will list 6 methods now that are eminently suitable, although there are more. However, as we are limited by space here, full details and the critical warnings are fully outlined in the associated e-book on the website.

1. Full Vendor finance
2. Part Vendor finance
3. 100% bank finance
4. Long Term Unconditional Contract
5. Long Term Conditional Contract
6. Deposit Bonds

Important point - not every method is suitable for every property. Not every method is suitable for every vendor. The methods CAN be combined to make their application simpler and better for everyone. Each has a small minefield attached for the unwary, so please again ensure you have your legal and real estate buying team ready to support and advise you BEFORE yo make a move.

Each of these methods has been around for quite some time and are not new to the industry. However, what is not generally known by the people you would regularly go to for advice is the list of pitfalls associated with each of them and how, where and with whom they are applicable and relevant. More importantly, where they should not be used!

The potential problems arise from the fundamental fact that if you use these strategies, you need to understand the implications of being 100% geared. That's right, in one form or another, you have borrowed 100% of the purchase price. There is NO LEEWAY for mistakes and if anything goes wrong, you can kiss your butt goodbye and often some of your other securities as well.

The buying price of the property, when purchased at your leisure, is MUCH HIGHER than the selling price if you have to unload it in a hurry. You need to follow the guidelines for property purchase outlined in the e-book to ensure you get it right. Follow the formula and you will generally be fine. Step outside and it's like walking around on a rope ladder - you are very close to the edge at all times. Having said that, I have NEVER bought property the traditional ways because these ways offer so much opportunity and profit potential!

In simple terms, the property has to pay for itself. If it doesn't, you are going backwards from the start. It cannot be a sound investment, whether you live in it or rent it out, if it costs you to own it! OK, I hear the negative gearing gallery screaming. Yes, in some cases there are tax advantages with interest etc on some negative gearing situations.


The first thing to remember is that the property must be capable of making a profit for you.

Second point, it must also be capable of growing into something better. The "worst house on the best street" is a phrase that comes to mind.

Finally, you need to be able to offload it instantly for a profit if the worst does happen and you need to sell it in a fire sale situation. By using a combination of the above strategies, which I fully detail in the e-book, you are almost assured of that.

Who can you buy from? Who can you not buy from?

By definition, the vendors need the flexibility to negotiate and that means they need equity in their property or outright ownership. They need to be free of commitments on the property and be making their own decisions, rather than doing as their financiers tell them.

The people you cannot negotiate with are distressed property owners who urgently need to sell at any price to get out! They are no longer the owners of their property; they are virtually acting on behalf of the banks!

Yes, there are a few to look out for. Banks don't like you taking control of your finances and do all sorts of things to tie you up in a deal. For example, you may already have an investment property, purchased with the equity in your residence. About 95% of people would have those properties tied together with a clause in the mortgage that says the bank controls both properties under either loan arrangement. In other words, if you want to sell one, they decide where the proceeds of the sale go and can decide to apply the funds to whatever part of your loan portfolio they deem appropriate! Now, who did you say was in charge of your investments?

Keep your investment loans separate - rule number 1.

Keep equity available - rule number 2.

Stay away from Interest Only Loans - rule number 3.

I again hear the "professional" investors screaming that this is what they have been taught! Except for ONE situation, which I outline in the e-book, I NEVER use Interest Only loans. They maintain your debt at artificially high levels and greatly hinder your ability to increase your property portfolio.

What if you could reduce your debt and increase your portfolio, with more flexibility and growth, for the same repayment level? You would never go back to Interest Only loans again and you would see the peddlers of them for what they are. You can do so much better!

For more information and a greatly expanded explanation of all the above headings, please visit the e-book on the website DO NOT INVEST without studying this in depth and with your advisors.


Ray Jamieson


Tuesday, 26 June 2012

4 Bulletproof Strategies that Let Real Estate Professionals

Never Invest a Cent Without Considering the Likely Tax Impact on Yourself

Realtors® and others in the real estate field see first-hand the steady increase in property values. Everyday, you assist both buyers and sellers to profit from it. You can spot the "good buys" and insider opportunities. But when you're the buyer, don't get so caught up in "the deal" that you forget to factor in the tax savings or costs that come with it.

Just as a property with critical easement problems deserves extra scrutiny, the same is true for any investment with tax complications. An investment (a real estate trade, for example) may look very different once the related federal tax consequences are calculated. Title defects shown by the title insurance report must be resolved before the closing. Be as careful to take into account tax scenarios that could diminish your true financial return going in.

I constantly travel the country, conducting 150 seminars a year for Realtors® and financial professionals. As a former IRS employee and tax expert (CFP and Enrolled Agent) I remind audiences that it's not how much you money make, but how much you keep that determines your true earnings. Being savvy about IRS rules helps you size up potential investments wisely, so you'll keep more of what you earn in the long run.

1. Depreciation Saves Money Several Ways

Depreciation is different than all other business expenses, since you don't have to actually spend those depreciation dollars to claim the expense. Yet depreciation gets to be added to the operating expenses, property taxes, and interest on the loan to offset the rental income. Since there's usually a tax "loss" during the first five to seven years a property is owned, that shelters your other income from taxes from the first year you own it.

Full-time real estate professionals may be able to deduct 100% of their rental property tax losses from their income. That's not true for people who spend less than full time as real estate professionals or rental property owners. Details are spelled out in the Internal Revenue Code 469(c)(7). The key factors for this deduction to apply according to IRS MSSP Guidelines (Feb. 1996) are this:

Beginning with the 1994 year, a taxpayer who meets ALL of the following can deduct current rental real estate losses in full regardless of how high his/her Adjusted Gross Income might be:

A. More than half of the taxpayer's personal services in all businesses must be in real property businesses. A real property business is real property development, construction, acquisition, conversion, rental, management, leasing, or brokerage .

B. The taxpayer must spend more than 750 hours a year in real property trades or businesses.

NOTE: For time to be counted in either of the above two tests, the taxpayer must materially participate in the activity.

C. The taxpayer must materially participate in each rental real estate activity unless he or she has filed an election to group all rental real estate activities as one (for purposes of materially participating). See your accountant for more detailed information on this issue.

2. Re-think Your Interest Costs

Do not justify running up your debts to generate tax deductions. For an individual in the highest bracket, for every dollar of interest paid, the tax savings is only 35 cents. This means you paid 65 cents for nothing. (For an individual in the 28% bracket you paid 72 cents for nothing.) Don't spend the money if the main reason you're buying it is to "buy" a tax write-off.

When in doubt, remember the saying: Borrow to purchase appreciating assets, pay cash for depreciating assets.

3. Pay off Existing Debts

The rate of return on the funds used to pay of a debt is equal to the rate of interest being charged on it. For example, when you pay off a credit card where you owe $5,000, which bears an 18% interest rate, you have just guaranteed yourself an 18% rate of return on that money.

Some of the best investments are the easiest. And here's a strategy that puts more funds into your pocket right away-that won't even cost you any taxes.

4. Deduct All your Equipment Purchases the First Year

The IRS permits you to write off up to $100,000 of equipment the first year you buy it
(IRC 179 deduction). With the deduction limit so high, Realtors® can deduct all their purchases of equipment - and that's not limited to computers, desks, PDAs, etc. By significantly reducing your taxable income, the social security taxes that would be paid on it are also reduced.

Two concerns need to me kept in mind when you use this expensing election. Taxes saved must be repaid upon sale of the asset(s), but that amount will not be subject to social security taxation. The only exception regarding recapture (in the prior sentence) occurs when the business use of the asset falls to 50% or less.

Being Tax Savvy is the Mark of a Professional

Your long-term tax consequences are as important as PITI (principal, interest, taxes and insurance) when you're assessing a real estate deal. For any investment or purchase to make sense, it needs to make good tax sense as well. That's what determines how much money really ends up staying in your pocket in the long run.

Friday, 22 June 2012

10 Important Tips to Successful Real Estate Investing

When it comes to investing, everybody has certain goals and aspirations. However, we have found that there are certain guidelines every aspiring real estate investor needs to know:

1. Compare Property Values and Rents

Financial statistics only go so far; the best measure of a property's market value is often the sale prices of nearby properties. The same holds true for area rents. A low price can often be justified by a reasonable rent; renters who can afford a high rent can afford to buy instead, so reasonably priced rent is a need.

2. Be Careful - Tax Laws May Change

Don't base your tax investment on current tax laws. The tax code is constantly changing, and a good investment is a good investment regardless of the tax code. The right property with the right financing is what you should look for as an investor.

3. Specialize In Something You Know

Start in a market segment you know. Whether you focus on fixer-uppers, foreclosures, starter homes, low-down payment properties, condominiums, or small apartment buildings, you'll benefit from experience by specializing in one aspect of investment real estate properties.

4. Know The Costs Going In!

Know the financial statements inside out. What are operating expenses? What are loan payments? Vacancy costs? Taxes? What does the cash flow statement look like? These are key issues that must be addressed before making a solid investment.

5. Know Where Your Tenants Are Coming From

If the last rent increase was recent, your tenants may be considering a move. If tenants have a short-term lease, they may be living there simply to attract unsuspecting buyers. It is also important to collect the tenants' security deposits at closing.

6. Assess The Tax Situation

Taxes are an integral part of successful real estate investing, and they often make the difference between a positive cash flow and a negative one. Know the tax situation, and see how it can be manipulated to your advantage. It may be a good idea to consult a tax advisor.
7. Investigate Insurance Coverage

If seller's coverage is based on lower-than-current replacement value, your insurance cost may increase when you pay a higher purchase price.

8. Confirm Utility Costs

Ask the local utilities to verify recent utility expenses, especially if any of these costs are included in your tenant's rent.

9. Consult Your Accountant

Taxation is a key element of successful real estate investing, so be sure to find an accountant who is well-versed with the constantly evolving tax code.

10. Inspect!

Make sure that you always perform a thorough inspection of the property before buying it. Never, ever buy any property without at least examining the site. In some cases, hiring professional inspectors to examine the structural mechanical system may be a sound investment.

(c) Copyright 2005 Madan  “Raja” Ahluwalia. All rights reserved.