Kim describes her thoughts, decisions and fears of her first investment purchase. Listen in as she talks about the time it took to find the property and her fears of making a bad investment.
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Making money through property investing by generating a passive income is a sweet proposition for anyone.
It is a rich man who doesn’t dream of making money without having to lift a finger for it, and the poor man who fools himself into thinking it is possible.
Talk to any successful property investor and you are bound to get the same story; that in order to create a passive income, you’ll have to work damn hard to achieve it.
Lisa Dudson, co-author of Create Wealth, a bestselling book on property investment, says many who go into in real estate suffer from a delusion that there is easy money to be made in housing.
“The whole passive income thing is a bit over-used and under-estimated, really, because nothing is free in this world – you have to work for it,” Dudson says bluntly.
A successful property investor, financial planner and entrepreneur, Dudson knows of what she speaks.
The tough talking 40-year-old Aucklander has sweated her way to financial freedom, and along the way advised hundred of clients and readers how to do it right in real estate.
Dudson says very few ever get to the stage of achieving a genuinely passive income, where rental revenues are creating positive cashflow instead of being used to finance debt.
Why?
Time for one. “It doesn’t happen in five minutes; it sometimes takes 25 years,” she says.
Patience aside, making a profit in property takes sound planning, strategy, wise counsel and firm financial foundations.
These four areas are the focus of talks that Dudson gives to property investors when she is invited to speak on the subject. She’s a regular on the lecture circuit.
Dudson drives home the same message for clients, most of whom she sees after the damage has been done.
“I’ve seen a lot people this year that have $3 million to $4 million worth of property, but they also have 95 per cent debt on it. They’re just sitting on diddly- squat at the end of the day, because if they sold it all today, they’d probably have zero in this market.”
Dudson says investors who blunder into property without a proper game plan are setting themselves up for disaster.
“They’re building up all these properties and buying all these things, but it’s not actually delivering a hell of a lot to their bottom line. Then they say they’d like to retire in five years and I say, ‘Well, how the hell are you going to do that!’ They haven’t actually given it any thought. They’re not sure what they are trying to achieve.”
If property investment requires air- tight planning, clear thinking and foresight, it also requires the right kind of personality.
Dudson says some investors might actually be better suited to the stock market, but they’ve forged into property often for no other reason than “because everyone else was doing it at the time”.
She believes that is one of the main benefits of professional advice; getting guidance about investment options that take into consideration risk tolerance, interests, desired and required rate of returns and long-term goals.
Ironically, many are drawn to property because of the belief that it is one area of investment that doesn’t require professional advice.
Andrew King, Dudson’s co-author in Create Wealth, says many view it as a safe alternative to the stockmarket, given what’s happened with finance companies and more recently the stock market crash.
“A lot of people view it as a bit more secure. They see it as something they can do themselves and have control.”
And while Kiwis have a reputation for being property crazy, King says the numbers do not back it up.
“People say New Zealanders over- invest in property, but it’s just not true. There’s only about 7 per cent of the population that does buy investment property. And that’s because it requires more effort than simply giving your money to a fund manager,” he says.
Tangible or not, at the end of the day most investors just want some assurance they’ll make some money.
Dudson doesn’t believe one is better than the other by measure of return.
“But there is for an individual – one that is better than another,” she argues.
“It depends on how active or passive you want to be with your investments; it depends on how much risk you want to take on, it depends on where your interests lie, what your skills are, all of those things are really important when deciding which investment strategy to choose.”
King agrees property is not for everyone but he has a personal preference for property. He thinks there is more be gained from it.
“A lot of sharebrokers and financial planners love to pull out these charts that show shares outperforming property but I haven’t seen a decent one yet. A decent property, done properly, will always out- do the sharemarket, I believe.”
So what constitutes a decent property done properly?
King points to several factors including buying at the right time, buying in the right area, building up equity and being a good landlord. The importance of the latter should not be under-estimated as a key factor in boosting the bottomline.
“You’ve got to treat tenants like customers, and if you treat them well, they tend to treat you well. If you manage a property well, maintain it, treat the budget well, spend money on maintenance, know the residential tenancy acts and know your rights and responsibilities – all those sorts of things – you save yourself a lot of time, a lot of grief, and you will maximise your income return.”
It is a formula that has served Rotorua’s Debbie Van Den Broek well. Last week, she was named Landlord of the Year by the New Zealand Property Investors’ Federation.
She started with one property 20 years ago and worked her way up to “less than 20″ with her husband.
Van Den Broek says persistence, hard- work and high standards as a landlord have landed her in good stead financially.
“No matter what area, lower or mid class, I like to have a house that is of a good standard of repair with unstained carpets, vinyl that is not all chipped to pieces, a stove that looks clean and you want to cook on and good quality thermal drapes. At least when your tenant moves in they don’t need to clean it immediately and you’re inclined to have people look at the house more if they move in when it’s in good condition.”
She demands as much from her tenants in return and is vigilant about screening.
“I do face-to-face interviews, reference checks, credit checks . . . I will try to go around to their existing house to see how they’ve kept it, I’ll pass by their car and if it’s full of empty McDonalds wrappers and rubbish, well, I think my house is going to look like that fairly soon, too.”
Getting to where she is today, didn’t come by chance or without mistakes. Van Den Broek credits a good friend and mentor in Wellington for inspiring and advising her. She also counts financial guru Robert Kiyosaki (of Rich Dad, Poor Dad fame) and real estate tycoon Dolf De Roos as key influences.
Dudson, also an avid reader, says personal interest is another driver of success. “You’ve got to have some kind of interest in it because you’re going to have some s . . . . . experiences.”
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World renowned author and Real Estate investor, Robert Kiyosaki, talks to Joe Aldeguer about his insights and strategies in investing into Real Estate.
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Couples frequently avoid talking about money before marriage. That’s unfortunate, because sharing perspectives about money can help couples resolve the financial issues that doom many marriages.
The following financial compatibility quiz can help couples planning to tie the knot discuss financial issues. Answer “true” or “false” to each of the following statements.
1. We are aware of and comfortable with each other’s money personalities.
2. We have discussed our short- and long-term financial goals.
3. My spouse and I are well versed in personal finance.
4. My spouse and I have discussed a plan to structure our finances.
5. We have planned for the impact that marriage will have on our taxes.
6. We have decided how to divide up the money management tasks.
7. We understand the importance of establishing a realistic budget.
8. I know my future spouse’s investment personality and risk tolerance.
9. I know how much debt my spouse is bringing into our marriage.
10. We have made a commitment to discuss money regularly.
Answering “true” to eight or more statements indicates that you and your spouse are on your way to a stable financial future. However, it’s still a good idea to continue to communicate and work together.
If you answered “true” to between five and seven of the above statements, you and your spouse need to devote more time to planning your financial future together. With a little luck, you can achieve financial compatibility.
If you answered true to fewer than five questions, don’t call off the wedding yet. Instead, make a sincere commitment to discuss these issues and consider meeting with an experienced financial planner who can help you start your marriage on firm financial footing.
Read on to learn more about the importance of each question.
We are aware of and comfortable with each other’s money personalities.
Some of us grew up in families where parents watched every dime; in other families money flowed easily. Some people measure self worth in terms of money and possessions. Some people are natural spenders; others are savers. Understanding your future spouse’s background and values can help avert problems down the road.
We have discussed our short- and long-term financial goals.
Setting financial goals helps you develop priorities and define the type of lifestyle you will lead. Break down your goals into manageable pieces. If you want to buy a house in five years, determine how much you need to save monthly to meet the down payment.
My spouse and I are well versed in personal finance.
Parents and schools rarely provide training in personal finance. Work together to develop your financial knowledge and build confidence by taking a course, meeting with a financial planner, or purchasing a reputable book.
My spouse and I have discussed a plan to structure our finances.
Will you pool all your resources into joint accounts, maintain separate accounts, or devise some combination of the two? There is no right or wrong answer; the key is to come up with a plan that works for you both.
We have planned for the impact that marriage will have on our taxes.
The marriage “penalty” means that you and your spouse together are likely to pay more taxes than you each did as singles. Check with a CPA or tax professional to ensure that you are prepared to meet your tax responsibilities and aware of any tax law changes in this area.
We have decided how to divide the money management tasks.
Decide who will be responsible for balancing the checkbook, filing taxes, and tracking investments, or better yet, set up a plan for rotating these and other financial tasks.
We understand the importance of establishing a realistic budget.
Couples without a budget tend to live and spend from day-to-day. A valuable budget helps you save regularly, utilize income wisely, and avoid misunderstandings about how money is spent.
I know my future spouse’s investment personality and risk tolerance.
Investing styles are different, ranging from conservative to risky. Take the time to arrive at a level of risk where you both feel comfortable.
I know how much debt my spouse is bringing into our relationship.
Couples must enter marriage knowing how much debt they each carry and how it will be paid.
We have made a commitment to discuss money regularly.
Differences are inevitable. How you handle them is important to your marriage.
Whatever your answers, honest communication is the key to a lifetime of financial compatibility.
