Saturday, February 24, 2018

The Ant Philosophy | Jim Rohn

Over the years I’ve been teaching children about a simple but powerful concept – the ant philosophy. 

I think everybody should study ants.

They have an amazing four- part philosophy, and here is the first part: ants never quit. 

That’s a good philosophy.

If they’re headed somewhere and you try to stop them; they’ll look for another way.

They’ll climb over, they’ll climb under, they’ll climb around.ant team work help guide build house pest control inspection

They keep looking for another way.

What a neat philosophy, to never quit looking for a way to get where you’re supposed to go.

Second, ants think winter all summer. 

That’s an important perspective.

You can’t be so naive as to think summer will last forever.

So ants are gathering in their winter food in the middle of summer.

An ancient story says, “Don’t build your house on the sand in the summer.”

Why do we need that advice?

Because it is important to be realistic.

In the summer, you’ve got to think storm.

You’ve got to think rocks as you enjoy the sand and sun.

Think ahead.

The third part of the ant philosophy is that ants think summer all winter.

That is so important.

During the winter, ants remind themselves, “This won’t last long; we’ll soon be out of here.”

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And the first warm day, the ants are out.

If it turns cold again, they’ll dive back down, but then they come out the first warm day.

They can’t wait to get out.

And here’s the last part of the ant philosophy. 

How much will an ant gather during the summer to prepare for the winter?

All that he possibly can.

What an incredible philosophy, the “all-that-you-possibly-can” philosophy.

Wow, what a great seminar to attend – the ant seminar.

Never give up, look ahead, stay positive and do all you can.

Friday, February 23, 2018

Coffee has surprising effect on your mental health

Do you enjoy your coffee?

I know I do, so I was pleased to read that moderate coffee consumption is linked to both mental and physical health.  interesting articles

A study  published in The British Medical Journal (Poole et al., 2017) shows that moderate coffee intake reduced depression risk and lower levels of Parkinson’s and dementia.

I knew I was drinking coffee for a reason – but I couldn’t remember what it was:-)

Not only that…

The review of more than 200 studies found that drinking 3 to 4 cups of coffee a day is linked to many other benefits.

These include lower levels of heart disease, reduced risk of some cancers, diabetes and liver disease.

The study’s authors write:

“Coffee consumption was consistently associated with a lower risk of Parkinson’s disease, even after adjustment for smoking, and across all categories of exposure.

Decaffeinated coffee was associated with a lower risk of Parkinson’s disease, which did not reach significance.  

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Consumption had a consistent association with lower risk of depression and cognitive disorders, especially for Alzheimer’s disease.”

Coffee was also associated with a lower risk of several cancers:

  • prostate cancer,
  • endometrial cancer,
  • skin cancer,
  • and liver cancer,

Risk of type 2 diabetes, gallstones and gout was lower in those drinking coffee as well.

Coffee’s apparent effect was particularly strong for liver conditions, such as cirrhosis.

The evidence for drinking decaffeinated coffee was not as strong.

So, if you don’t drink coffee already, should you start?

Writing in a linked commentary, Professor Eliseo Guallar, an expert in public health, gives the answer: coffee

“Should doctors recommend drinking coffee to prevent disease?

Should people start drinking coffee for health reasons?

The answer to both questions is “no.” “

But if you do already drink coffee, then how much should you drink?

Professor Guallar explained:

“…the lowest risk of disease is associated with drinking three to five cups of coffee a day.

Higher intake may reduce or reverse the potential benefit, and there is substantial uncertainty, both in individual studies and in meta-analyses, about the effects of higher levels of intake. Coffee 2538290 1920

Conclusions on the safety of coffee should thus be restricted to moderate intake, generally considered as ≤400 mg of caffeine a day (about four or five coffee drinks).”

The research was an ‘umbrella review’ which is a kind of review of the reviews.

It aggregates data from lots of different studies including many participants.

However, the way the studies were designed, it cannot tell us that drinking coffee causethese health benefits.

It just tells us there is a link to be explained.

 Read more: PsyBlog

What are credit ratings and why do they matter?

Robust credit ratings agencies are vital for the Australian economy, as the repercussions of their decisions are felt far and wide, writes…

Eliza Wu, University of Sydney

A new report has highlighted room for improvement in Australian credit ratings agencies, including potential conflicts of interest, overseas staff producing credit ratings, and failures to meet compliance standards. Tax Credit Blog

Having effective credit ratings agencies is vital for Australia, as they assess the creditworthiness of governments, corporations, banks and other entities that wish to raise funds by issuing debt.

The agencies’ decisions can have knock-on effects throughout the economy.

The ability of governments to borrow money has an impact on investors and companies, and companies pass on the cost of borrowing to their customers.

Ratings agencies are trying to represent not only the ability of borrowers to repay their loans, but also the willingness to repay on time.

Ratings are given as a ranking.

AAA is the highest, then AA and A, right through to C and then D (default).

The lower your credit rating the riskier you are deemed to be and the higher the interest rates charged. Some institutional investors (such as pension funds) are not allowed to hold debt with a credit rating of BB or below.

The exact methodology used by the ratings agencies is not publicly released.

But ratings are based on a mix of public information and private information provided by the debt issuers.

When it comes to giving the federal government a rating, agencies will use publicly available economic data such as economic growth, income per capita and unemployment and inflation rates.

This gives the agency an idea of the current state of the economy, as well as where it might be in the short and long term.

Agencies will also look at the federal government’s budget.

They will consider the gap between revenues and expenditures, when the government’s debts are due, and the quality of assets that the government could sell off.

Lastly, the agency will look at the wider economic and political context.

This includes the quality of financial regulators and levels of corruption and political stability.

It also includes potential internal or external vulnerabilities, such as an economic slowdown in China or the possibility of a trade war.

All of these factors have an impact on the ability and willingness to repay debt, even if they are beyond the government’s control.

Similar considerations are applied to the credit ratings of banks and other large corporations.

But the agency would also consider how likely it is that the government would bail out the company in a crisis.

There is a perception, for example, that the government would bail out the big four banks.

The impact of credit ratings

Last year S&P put Australia on a “negative outlook”, meaning the federal government’s AAA credit rating could be downgraded.

The immediate impact of a credit rating downgrade is that the interest rates paid by the federal government will go up.

But research shows that a federal government ratings downgrade has wide-ranging impacts. 14774351_l

The credit ratings of both banks and many corporations are tied to the federal government’s.

This means a federal government downgrade will have impacts on many companies, investors and individual borrowers.

Share markets would be affected, but so would other borrowers, including foreign governments.

Further, the credit assessments of governments and banks are often intertwined, especially in times of financial crises.

The link between governments and banks can create a negative feedback loop.

A downgrade for either banks or governments increases bank borrowing costs.

This makes it more likely banks will need to be bailed out by the government in the near future.

This puts more pressure on the government’s finances, which could lead to another government credit rating downgrade.

But a downgrade doesn’t affect only banks.

Recent research shows that when a government’s credit rating is downgraded, companies with similar credit ratings also see a ratings change, even if there is no fundamental change in their own creditworthiness.

Again, there is a negative feedback loop. A government credit rating downgrade leads to downgrades for corporations.

The corporations, faced with increased borrowing costs, will respond by cutting back on new investments, which slows down the real economy.

The slowdown in the economy will put more pressure on the government’s credit rating.

And on top of all that, when banks face higher borrowing costs, they either pass this on to households and investors in the form of higher lending rates and/or cut back on their lending.

This, of course, also has the effect of slowing down the economy, creating a double whammy.

So you can see that ratings agencies play an important role in the economy.

The ConversationThe Australian Securities and Investment Commission has made a number of recommendations to improve governance within credit ratings agencies, to make them more informative and reliable.

Adopting these will go a long way to further restore market confidence in the ratings agencies and improve investor protection.

Eliza Wu, Associate Professor in Finance, University of Sydney

This article was originally published on The Conversation. Read the original article.

The 4 biggest lies about property investing: Are you being fooled?

The lion’s share of your property’s value is in the land, therefore you should always buy houses rather than apartments.

Have you heard that one before?

It’s an oldie but a goodie, and harks back to those days when everyone believed a house on a quarter-acre block would always be the most sought after property. Lies Property

Generally speaking, houses are more valuable than apartments — at least if you’re looking in the same location.

But that doesn’t mean houses are always the best investment, or that apartments are not capable of delivering substantial profits.

Try telling that to the many investors who bought established apartments in the inner or middle ring suburbs of Sydney or Melbourne three or four years ago and who’ve seen the value of their properties increase substantially year after year.

Sure it’s the land component that increases in value, but I’d rather have a tenth of a block of land sitting under my apartment in a top inner suburban location than acreage in regional Australia that has few drivers causing it to grow in value.

So now let’s look at three other common “lies” you’ll hear about property investing.

Property lie #2: The “Australian property market”

It always makes me chuckle when I hear someone talk about the ‘Australian property market’, or the ‘Victorian property market’. 

investor-enquiry-form

In fact, digging deeper and even referring to the ‘Melbourne property market’ is a fallacy.

You see… Melbourne is comprised of dozens of suburbs, and each one operates with different supply and demand drivers and varying fundamentals, which combine to determine the performance of that specific market.

To drill down even further, within each suburb there are usually three or four districts with varying factors related to their location that can impact a property’s value.

A house on the water with uninterrupted ocean views, in a street full of multi-million dollar homes?

Obviously, that’s going to be worth more than a house of the same size, age and quality that is located three streets away in an unkempt cul-de-sac, where the only views are of housing commission flats.

Fact: There is no such thing as ‘one’ property market. Each state has multiple markets created by different geographic locations, different price points and different types of property. So avoid broad generalisations about the property market.

Property lie #3: House values double every decade or so

You’ll often hear people say that properties double in value every 7 to 10 years. Concept Of Real Estate Sales Growth

That’s just not true. While the median price in Melbourne and Sydney doubled over the last decade, properties in other capital cities didn’t perform so well.

Interestingly only three property markets outperformed inflation over the last decade: Melbourne, Sydney and Canberra.

But I’ve just explained the fallacy of talking about “one” capital city market and when you dig deeper you’ll find that some Melbourne and Sydney properties outperformed their state averages while others underperformed and didn’t double in value.

I guess that’s how averages work.

Fact: Not all property is created equal and you can’t just buy any property and hope it will make a good investment and substantially rise in value. The secret is finding an “investment grade” property that will outperform the averages.

Property lie #4: You should always buy at the bottom of the property cycle

You’ve probably seen the ‘property clock’ which depicts the cyclical nature of the real estate market with midnight representing the peak of the ‘hot market’, and 6 o’clock representing the bottom of the cycle. 17034015_l

At a very simplistic level, it makes sense to buy at the bottom of the market, but that’s not the only factor that matters and in reality the bottom is only one day which none of the experts can pick till the market has moved on.

Sure buying at the bottom of the cycle may mean that you score a bargain — but if that market stays in the doldrums for several years (or longer), then what have you really achieved?

Just ask those who bought in Perth, Adelaide, Darwin or most regional centres a few years ago and are still waiting for those markets to move.

On the other hand, look at Sydney’s recent performance; many properties there have increased in value by 10-20% per year for the last four years.

In fact it’s been a rising market (with stops and starts) since 2008. 

But according to conventional wisdom, buyers should have stay away once the market started rising (having missed the bottom), however if you had listened to this advice, you would have missed Untitled 1out on substantial profits.

Fact: Buying near the bottom of the cycle may seem like a great idea — it’s what some people call “hot spotting.” I call it speculating!

You make your money when you buy your property, not because you bought it cheaply, but because you bought the right property — one that will be in continuous strong demand by a wide range of owner occupiers who can afford to and be prepared to pay to live there.

Of course, these are just some of the many common “lies” being perpetrated about property — there are dozens more to be wary of.

My point is to be careful about what ‘wisdom’ you believe when analysing the property market and the potential deals within it, as it’s easy to be fooled by fiction dressed up as fact.

Successful property investing is like baking a soufflé

Like baking a soufflé, successful property investing requires three important elements: a well-proven recipe, good ingredients and technique.

Successful property investors know only too well that shortcuts or lack of research are sure to cause financial distress.

They also know that given the level of expertise and knowledge required to make the right decision it is essential that they have the best professionals on their team.

Well-proWell-proproperty gold rich moneyven recipeven recipe

Many property investors purchase with their heart.

They buy in suburbs that they think they know with little regard for what tenants actually want.

Successful property investing starts with purchasing the right property.

A good capital growth property will pay for itself within 10 years.

For those who like numbers, a property growing at a compound rate of 7% per year over a cycle will double in value in about 10 years.

A poorer-performing capital growth of 5% will double in just less than 14.5 years while a superior 10% growth property will double in just over seven years.

As an example, a $500,000 investment after 10 years will potentially grow in value to $814,447 (5% growth), $983,576 (7% growth) and $1,296,871 (10% growth).

Good ingredients

Now that you have a good recipe, you should choose good ingredients.

This involves identifying the correct name in which to purchase the property and ensuring cashflows are maximised by obtaining a depreciation schedule and scrapping schedule if embarking on a renovation.  

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For many investors a trust could be a good vehicle to hold and grow wealth.

The use of superannuation as a structure should also be considered, as this could mean you will pay no taxation on the investment property and potentially fund it without any additional cash resources.

Understand the various land tax rules and finance options, as these can significantly sweeten the result.

Like all good businesses you must not only grow your assets but protect them.

Even if you already have property assets in your name, you can successfully protect them without moving to a trust and incurring CGT and stamp duty.

Chan & Naylor refer to the secret ingredient as a buffer.

A buffer is accessible funds that can be used in emergencies including increased interest expenses, major repairs, a lost tenant, etc.

A buffer should be measured in time and outline the span you need to make a safer investment.

For example, if you say five years for a property that costs $10,000 per year to hold, then you need $50,000 in your buffer.

If you choose to sell, a buffer means you do not have to accept the first offer and accommodates for highs and lows in the market.

Technique

Property investment has a habit of throwing up the unknown, so you need to be prepared.

To maximise your chance of a superior property you should take control of the outcome by manufacturing capital growth and not rely solely on market movements.

Renovations will help turbo-boost your market value and also improve your rental yield, especially if completed soon after purchase.

Preparation time Preparation time

It is important that you choose a superior property for successful investment so don’t rush.

To be sure, research varying properties in a range of areas and use all available resources including seeking assistance from a professional.

And you have your soufflé!

The main difference between following this property soufflé recipe and a Margaret Fulton recipe is that your property investing will not collapse when the unexpected happens.

If you follow the three basic considerations, a lower return than expected is the worst you can expect, however with your buffer you can afford the time to see your property investment succeed.

Bon appetit!

How to invest in high growth properties without hurting your cash flow

It’s the age-old argument: do you invest for capital growth or cash flow?Capital growth or cash flow?

While most investors understand the benefits of capital growth properties, some feel they need the cash flow to stay in the game.

The problem with this is that it’s really hard to grow your wealth with cash flow.

You see…it’s the capital growth of your investments that delivers the equity you require for your next deposit and it’s the steadily increasing rental returns you receive from high growth properties that helps your cash flow.

The problem is that most good investment properties are cash flow negative for the first few years of ownership.

That is, the rental income you receive is not enough to cover all of the property’s outgoings – your mortgage, rates, agent’s commissions etc.

Sure you can claim a tax deduction for this negative gearing, but many investors can’t afford to or don’t want to commit to meeting a cash flow deficit every month from their income.

There can be a number of reasons for this:

investor-enquiry-form

Some are at a high expense stage of their lives with a single income while one partner is on maternity leave, or they require the cash flow to pay for school fees, or they might feel more comfortable channeling all their surplus cash flow into lowering their home loan.

Well, there is a way to get the best of both worlds – there is a financing solution that will allow you to own high growth properties and service the cash flow shortfall.

By the way…there is nothing new about this

It’s the way I’ve structured my property investment loans for over 20 years and the way most successful investors have set up their finance.

Almost any lender or mortgage broker can do this for you – but many won’t -because they don’t fully understand the concept.

It all has to do with having the right loan structure

Just to make things clear – negative gearing is NOT an investment strategy – it’s a result of how you finance your property.

If you had a lower loan to value ratio or no debt at all against your high growth property you’d be positively geared (your rent would be more than your outgoings.)

But most of us want us much finance as the banks will give us to allow us to buy more or bigger properties.

Here’s the trick:

The loan structure I’ve used for years to manage my negative gearing is to set up a Line of Credit.

This loan facility is essentially like having a big credit card that I can use for any purpose  – but I don’t.

I only use it to pay to the negative shortfall of my property portfolio each month such as the interest on the property investment loan, or for property expenses and most importantly to have as a “rainy day financial buffer” to buy me time if the markets turn sour. Line of Credit

The good news is that unlike a real credit card no repayments are needed on this Line of Credit loan, but of course the interest is added to the balance outstanding and is tax deductible if used for the purpose of running your property investment business.

However it’s important that you set up your structures correctly to ensure you can claim the tax deduction, so it’s critical to seek professional advice.

You’ll be using a common business principle

While borrowing money to pay interest and outgoings goes against the grain for many investors, it’s actually a common business principle called borrowing “working capital.”

Imagine you bought a new business – let’s say a Coffee Bar in the local shopping centre.

You’d probably go to the bank and ask for a loan for the goodwill of the business, the stock and the equipment you need to buy and, knowing that your new business would not be profitable for a few years, you would ask for some extra money, probably in a Line of Credit, as working capital for the first couple of years until the business produced positive cash flow.

There is really nothing different with borrowing “working capital” in a Line of Credit for the first couple of years of your property investment business.

The trick is you need equityCollateral for the banks

Obviously you must have sufficient equity in your existing properties to set up this strategy.

You must have something to use as collateral for the banks to give you a Line of Credit.

This could be untapped equity in your home or your existing investment properties.

It could work something like this….

Imagine you bought your home eight or 10 years ago the $400,000 and today it’s worth $800,000.

You also paid down part of your mortgage which means you could easily borrow $225,000 against the unused equity in your home.

You could allocate this $225,000 as follows:

  •  $100,000 as a deposit for your new investment property and you’d borrow the balance of the purchase price using your new property as security
  • $25,000 as acquisition costs for your new investment property
  • $45,000 to renovate your new property, thereby increasing your rental return and manufacturing some capital growth
  • $55,000 as a financial buffer (in your Line of Credit) to cover you negative cash flow shortfall for 3 or 4 years

Don’t get caught up with the numbers

Now the exact numbers aren’t important, however what is important is that you understand the principles:

  • Untapped equity in your existing properties is a tremendous asset because it gives you the opportunity to invest without you needing to contribute any cashDon’t get caught up with the numbers
  • Rather than gearing to the max, strategic investors take a more prudent approach by building an emergency buffer to buy themselves time to ride through the storms or cover their negative cash flow shortfall
  •  It’s best to set up the structures before you need them, because this type of loan structure provides you with choices
    While you may be able to cover the negative gearing shortfall from your income, having a rainy day buffer will protect you if interest rates rise, prolonged vacancies occur or unexpected costs or situation creep up

There is a catch:

However – correct asset selection is critical!

You need to be investing in “investment grade” properties so you can maximise the chances of enjoying strong capital growth.

Sure the value of your properties won’t increase each and every year, but in the long term the value of your properties must increase substantially more then the cost of holding and funding them (remember each year your outstanding loan balance increases as you add the cost of your interest payments to your loan amount), otherwise this strategy makes no sense.

What are the risks?

The four main risks I see with this strategy are:

  1. Rising interest rates – while rates are likely to remain low for a while, they will once again increase in the future, but this will most likely occur because our economy will be doing well and property values will be increasing strongly and the RBA will want to slow down the property markets9337186 - risk insurance
  2. Borrowing more than you can afford – remember you’re really borrowing 100% of the cost of your new investment property and then also borrowing the negative cash flow for the first few years
  3. Using the funds for something else – I’ve see inexperienced investors not having the required discipline and dipping into their lines of credit to pay for vacations, toys (cars, jet skis etc.) or speculative endeavours such as share trading or investing in options
  4. Low capital growth – remember we’re moving in to the next stage of the property cycle where capital growth is not assured for all properties. Again, that’s why selecting an “investment grade” property is critical

Financial Stability

While some would argue this strategy is risky, I see it my Line of Credit as a buffer that gives me consistent financial stability regardless of the ups and downs of world markets, the local property markets and the bank’s funding vagaries.

It buys a me time by covering the interest rate shortfall and allowing me to hold on to my properties till the market eventually picks up.

Build a buffer or buy a bargain

The other beauty of being financially prepared with a buffer is that when everyone else puts the brakes on and competition in the housing markets dries up, you will be in a position to nab the bargain priced opportunities that abound, by using some of your Line of Credit as a deposit on your next property investment.

Remember – you need to be proactive with your financial strategy and be in control of your situation before things turn sour.

By doing so, you will ensure that you remain sheltered from the next world economic storm and avoid the panic that many will feel when one day again, the local or global situation worsens.

What are you going to do to stay ahead? 

1-percent

If so and you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.

Thursday, February 22, 2018

Three common Family Trust mistakes

Family trusts can be a powerful tool for a variety of wealth creation and protection reasons.

These include building wealth, protecting assets, generating improved cash flows, managing distributions to family members, creating flexibility as well as assisting with estate planning.

But like all good things, there can be a downside, too.

Unfortunately, if incorrectly used, a Family Trust can create serious financial repercussions.

The secret is understand what these are at the outset to ensure you’re not one of the people who makes one of these common mistakes.

1. New taxes on foreign income distribution

Various state governments have introduced additional real estate stamp duty and land tax applicable to foreigners.

The thing is the definition of a foreigner is very broad. Understanding-Stamp-Duty

Family trusts allow for a very flexible distribution of income to a wide variety of people in your family group.

Plus, this income distribution can range from nil to all of the trust income in any year.

What this means is that if the beneficiaries have a relative who is a foreigner, that person would be entitled to be considered for a distribution.

Under recent legislation, therefore, the various state governments would see this as falling within the foreigner category and would apply the higher taxes to the trust.

Here’s the point…

An actual trust distribution does not need to be made to the foreigner!

The mere fact that it is possible to make such a distribution is enough to be caught out.

Fortunately, there is a solution which ensures that your Family Trust is not impacted by the new State foreign ownership rules – if the right clauses are included.

2. Trust loss lessons

A Family Trust allows for the distribution of income to any family member.  

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However, if the trust has a loss it is trapped inside of the trust and needs to be funded with after-tax income.

This is because the use of this type of trust does not push down losses to a taxpayer to claim against their PAYG income.

As an example, if the trust holds a property where the rent is insufficient to cover interest and other costs – so it’s negatively geared – then the loss is trapped inside.

The bank and other suppliers still need to be paid but this is achieved without getting a tax deduction.

Any accumulated losses in the trust are available to offset future profits, including a capital gain.

This issue can be adjusted, with the correct advice and implementation, to allow any negative gearing to effectively flow down to the taxpayer.

The end result being that the losses will be offset against PAYG tax to improve cash flow.

3. Asset protection issues

Family trusts are a great structure for asset protection.

However, in many cases, they are set up with an individual person as the trustee, which effectively neutralises a major component of the asset protection.

For example, if the trust is sued, say, by a tenant, the trustee would be at risk, as would any personal assets.

The appropriate trust amendment can fix this but if not correctly implemented it could trigger a full stamp duty event.

The bottom line… coins tax

Family trusts can be a valuable tool, especially for families who want to share the financial fruits of their success.

However, it’s vital that you access professional advice before considering whether Family Trusts will benefit your long-term wealth creation and protection goals.

Metropole Wealth Advisory can assist you to grow, protect and pass on your wealth and can advise on appropriate strategies to help your achieve your goals including assistance with issues such as those identified above.

Disclaimer:

The above information is general in nature and not intended to be taken as advice. Any information contained in this analysis has been prepared without taking into account your objectives, financial situation or needs and is considered general in nature. Before acting on any information contained herein we recommend that you consider whether it is appropriate for your circumstances. Please discuss with your licensee’s adviser before acting on any of the information. If this analysis contains reference to any financial products we recommend that you consider the Product Disclosure Statement (PDS) or other disclosure document associated with the product before making any decisions regarding any products.