People insistent on seeing and touching a property before contemplating a purchase may be missing out on the benefits associated with an off the plan purchase. Off the plan is simply property not yet registered with the Land Titles office; either near completion or perhaps before construction has begun. There are numerous advantages buying off the plan but you need to understand the potential pitfalls.

Our initial research is to identify affordable areas with strong capital growth potential. Where demand for housing is strong and growing but available land is limited (the irrefutable law of supply and demand). Land value in areas of strong capital growth will generally make the construction of a single dwelling prohibitive. It’s in these areas located around infrastructure, employment and services that we tend to see more dense housing under construction; such as apartments and townhouses. With such development comes the opportunities to purchase off the plan.

Profiting From An Off The Plan Purchase

• Developers of medium to high density projects typically secure construction funding from banks and institutional lenders
• Any finance approval will generally be conditional on a percentage of pre sales first being achieved
• Price incentives may be offered to aid in securing quicker pre sales. This normally results in the first handful of purchasers buying at below market value
• Incremental price rises are commonplace after the required number of initial pre sales has been achieved
• Incremental price rises throughout the construction period are not unusual. This means that although all purchasers may ultimately settle on the same day, those who contracted early will pay less than someone who committed to their purchase later in the timeline

In a rising market it is not unusual for people who purchased off the plan to settle their property at well below market value (tomorrow’s property at yesterday’s prices). Developers often hold back some property sales in a project until the very end… when they expect to realise a premium sell price. As a rule of thumb, land values are rising and construction materials and labour costs are steadily increasing. That’s why property bought tomorrow will almost always cost more than property bought today. Once you have your name(s) on a fully executed contract of sale, the purchase price is fixed and any capital growth the property experiences throughout the construction phase  is yours to keep!

Buying Off The Plan Benefit Summary

• Commit to purchasing a property today
• Will not have to pay for it for months or even years
• NO cash flow shortfall to subsidise pre settlement
• NO rates payable pre settlement
• NO body corporate fees payable pre settlement
• NO need for a tenant pre tenant
• NO maintenance pre tenant
• NO wear and tear pre tenant
• Property will still be brand new at settlement (maybe 2 years away)
• Settle tomorrow at today’s (or perhaps yesterday’s) price

WARNING: In my considered opinion, based on much experience… any investment property worth owning will initially be negatively geared. Prior to the recent interest rate falls, the cash flow shortfall on the best buys was often in excess of $200 a week.  Someone buying off the plan would effectively be saving this $200 a week shortfall until the day of settlement (rent plus tax refund… less interest, council rates, body corporate, maintenance, insurance, management fees etc). That’s about $10,000 a year! Many times people mistakenly set out to purchase an already completed property to secure an immediate tax benefit. As important as a tax deduction is to a property investor, it is  just one part of the equation and should never be the sole driver of any investment decision.

By Way Of Example

• A property costs $300 a week (before tax) to hold
• The negative gearing benefit produces a $100 tax saving
• Your net cost (after tax) would be $200 a week
• Buying off the plan means you would not save the $100 in tax while the property was under construction (negative)
• Buying off the plan means you would not be paying the $200 a week shortfall (positive)
• So therefore, buying off the plan means that my $100 a week still goes to the tax man but I don’t have my $300 a week holding costs
• Buying a completed property means I will have $300 a week in holding costs; less $100 tax savings
• Even though you are not saving your tax you are still $200 a week better off having an off the plan property that has not yet settled

When A Project Runs Over Time

Another advantage of an off the plan purchase that is often overlooked is that many of them run over the scheduled time and complete long after they were originally supposed to. Why is this an advantage? Because it means the savings in the example above are multiplied.  Given the price is fixed, the longer it takes a developer to complete a project that I have bought into the better.  My capital gains clock is still ticking away in my favour as it’s MY NAME that will appear on the title post settlement, yet I am avoiding that cashflow shortfall in the meantime. The longer a project takes to complete… the more money I save.  I could end up settling on a property with two years capital growth already in it, yet my carpets etc are still brand new. This allows me to ask a better rent than if the property was already two years old.

Some of my off the plan purchases have simply been because that was all that was available. Brand new projects are normally sold out well before construction completes; so the person waiting to see it and touch it will miss out completely. Due to the current climate we have been able to secure on behalf of clients some great developer offerings on completed stock.

The Other (Negative) Side To Off The Plan Purchasing

While I freely subscribe to the many positives that result from an Off the Plan purchase, there are pitfalls that you need to be aware of. The biggest PLUS in buying off the plan is also the biggest MINUS; the time frames involved!  While these time frames can work to your advantage (as outlined above) they can also work to your detriment when it comes to dealing with banks.  Any finance assessment and approval done with your lender will expire after 3 to 6 months; which is really of little good to someone not needing the funds for say 12 or 24 months. 

You will need to satisfy your finance clause and go unconditional on your contract at the front end of the process (normally 21 days from the date of contract) but you will not have unconditional finance approval from your bank until the end part of the construction timeline.

The way to approach this is to ensure your broker assesses your borrowing capacity now to ensure you would qualify for the necessary finance under the current lending criteria and with consideration for your ongoing financial and family situation.  As completion of the new property draws near a formal application will then be lodged with your lender to secure the funds required at settlement.

Unconditional Without Unconditional Finance

Once the finance clause has been satisfied, your contract normally becomes unconditional. However, for the most part of the construction phase you will not have unconditional finance approval from your lender. In almost all cases this is not a problem, however, responsibility and care need to be shown in a few areas:

1. Changes to your financial situation. Changes to your financial situation will change your borrowing capacity. You need to ensure that any changes you are contemplating will not disqualify your ability to secure the settlement funds required. Don’t quit a job or cut back your spouse’s hours or borrow money to renovate your home etc without first having your broker assess how such a change will impact on your ability to secure the funds required for the new purchase.

2. Bank lending criteria. In response to the global credit crunch our banks have greatly tightened their lending criteria. Someone who previously qualified for funding could now find themselves outside their bank’s lending parameters. If you are currently contracted to buy an off the plan property and you have any doubts whatsoever as to how the recent changes to the bank’s lending rules may impact on you, I suggest you speak with your broker and have him/her reassess your borrowing capacity. Of course we are here to help too; but not until Monday 5th January.

3. Valuations. The Valuer is potentially another “curve ball” for you to consider.  Valuations generally come in at between 5% and 7% under contract price; therefore it is vitally important to keep a little “up your sleeve” for a contingency. Where possible I suggest you consider having your home valued and lines of credit set up against the unused equity during the initial 21 days finance clause. This will eliminate the nasty surprise of having a low valuation also applied to your own home later on. For these reasons we discourage people from going to contract on a property that would require all of their borrowing capacity. For more on valuations see my article “Valuations; Will Somebody Please Explain” click here.

4. Sunset Clauses. Where a project is delayed and titles have not issued by the sunset clause date, either party can terminate the contract. I have heard of instances on a few occasions where a developer has cancelled contracts and reissued them at a higher price; either because of greed or to recoup the additional costs he has incurred because of the delays to his project. I only know of one instance where this has happened to mrd clients back in 2003. Normal practise is that the solicitors will arrange to have the sunset clause extended to cover any delays.

In Summary

• There are pros and cons for buying already constructed property as there are with those off the plan.  Whatever choice you make ought to be after you have identified the ongoing strategy necessary to manage your portfolio:
  - With an already completed property purchase you will need to manage any weekly cash flow shortfall and be mindful of your tenants needs
  - With off the plan property you need to manage your personal finance situation until settlement
• Obligations and entitlements are imposed upon all that are party to a contract. Just as a developer has his obligations to you that he must meet, so too do you as the purchaser need to ensure that you meet your obligations
• Buying off the plan offers great advantages but you need to understand your obligations and address them with responsibility and discipline
• Off the Plan purchases are most suited to those who have a strong employment history and/or strong equity backing them
• When buying off the plan ensure you consult with your broker before making any employment or family changes that may affect your ability to secure funding.  If you expect a change to your situation, such as adding a little person to your family, please advise your broker upfront so they can factor that into the initial calculations
• If you know your situation will be changing down the track, speak with us ahead of time about helping you plan a strategy that will work for you both now and when your situation changes

From all the team @ mrd have a wonderful Christmas break; we look forward to helping you make 2009 your year of financial possibility.

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

I’d like to share with you two of the slides I use in my presentations around the country. These slides emphasise two of the messages I echo… and 2008 has confirmed their validity. They are:

1. “You Need To Do Something”
2. “38 Years Of Economic & Social History: 1974 To 2008″ and property proved itself to be resilient… regardless!

In your household, I hope history continues to repeat itself ONLY IF your are making significant and measurable financial progress… each year that passes.

2008 Has Confirmed The Validity Of These Two Messages (from Nick’s Infomation Session presentation)

1. ”You Need To Do Something”. The uncertainty of the financial health system in the USA is one HUGE reason to do something and

2. ”38 Years Of Economic & Social History: 1974 To 2008″. There will always be a calamity or drama giving rise to “64,000 reasons” why the present is not a good time to be investing in property. My response was (and is) that there will always be a headline or “reason” for inactivity and procrastination; as there have been for 34 years.

The notes below (cut ‘n pasted from my PowerPoint presentation) highlight some of the bigger reason why you may have thought you would have been better off avoiding property since 1974; during which time the median price of a home in Brisbane grew to become 41 times what it was in 1974!

You Need To Do Something

• 75 Million baby boomers  will start to retire in the US in the next few years (cease paying taxes and become dependant on social security and medicare)
  
• $10US Trillion current debt carried by the US Social Security Department. That’s -$10,000,000,000,000 (ahead of all the babyboomers retiring)
  
• $62US Trillion current debt carried by the US Medicare Department. That’s -$62,000,000,000,000  (ahead of all the babyboomers retiring)
  
• $31US Trillion Estimate of the value of all the stocks in the world in the year 2000 (after 2008 it may be a lot less now)
  

With an alarming debt already about to grow significantly as babyboomers exodus cease being taxpaying workers and become social security and medicare dependant… only a fool would not have an individual plan to reach financial independence!

38 Years Of Economic & Social History: 1974 To 2008

• 1974 World Oil Reserves “Running Out”; Prices through the Roof
  
• 1979 Oil Shortage Produces Petrol Rationing & Spiralling Prices
  
• 1982 Discovery of AIDS
  
• 1983 Tax Deductions on Property Depreciation Abolished
  
• 1985 Capital Gains Tax Introduced
  
• 1985 Average Home Loan Rates Hit a Whopping 13%
  
• 1987 Stock Market Collapse
  
• 1988 Pilot Strike – Hawke sacked them
  
• 1989 Interest Rates Hit 17%
  
• 1990 Collapse of the Pyramid Building Society (Geelong)
  
• 1991 1st Gulf War
  
• 1991 Australia Enters Two Year Recession
  
• 1992 Collapse of the State Bank of South Australia
  
• 1992 Interest Rates Fall To 7% 
  
• 1998 Asian economic melt down
  
• 2000 Introduction of GST then 5 Interest Rate Rises
  
• 2001 New Era of War & Terrorism 
• 2002 SARS health epidemic
• 2002 2nd Gulf War
  
• 2002 Bali Bombing
  
• 2004 Tsunami
  
• 2008 Sub prime credit crisis
  
• 2008 12 Interest Rate Rises in a row since 2002
  

In the 34 years between 1974 & 2008, despite interest rate highs & lows, times when inflation is high or low, times when unemployment was high or there were labour shortages. In times of great uncertainty & fear residential real estate (unlike any other type of investment) has insulated itself against any and all external conditions that at the time seemed a threat!

Click here to view Nick’s entire “You Can Live WITHOUT Your Income” Information Session presentation online; recorded  in May 2007; BEFORE we knew what subprime was

2008 was a tumultuous year; but it was also a year that confirmed that exact message mrd has been warnings of for a number of years. We have made some bold predictions over recent years and a number of them are starting to come to pass. Here’s a few others that I would like to remind you of…

• The Official Cash Rate will be down to 4% (or less) by April 2009
• The trend away from the traditional quarter acre block in suburbia and towards higher density apartment & townhouse living close to infrastructure, lifestyle, employment and services will continue to take hold… and those who sell books and seminars teaching why you should only buy house & land and not apartments & townhouses will see their credibility weakened
• The property market in Australia will definitely survive the troubles that Steve Keen and various others have predicted. The notion that your home will drop in value by 40% was and is ludicrous. It will not happen
• The property market will see growth in the early part of 2009 and by the middle of the year I believe we will see strong growth coming back (albeit in some areas more than others)

If you missed being a part of Nick’s Web Seminar “What In The World Is Going On With Property” click here to view online

Our stock market was overheated (and over rated) for far too long. Banks in the USA were giving money away like drunken sailors. I have been a rather lonely voice warning people against the stock market, saying that interest rates would come down and our property market would surge again. I admit that the events of 2008 put the brakes big time on our property market resurging by mid year… but I still believe that the credit crisis has only managed to slow that growth (for about a year) and it will resurge again; in areas subject to the forces of supply and demand.

On a closing note I would like to remind you of the two of the Irrefutable Laws Of Abundance:

1. If you don’t control money; the lack of it will control you
2. Your thought seeds of today are little more than the undeveloped photos in your future scrap book

Have a wonderfully blessed Christmas. We look forward to assisting you to make 2009 your year of financial prosperity!

Merry Christmas,

Nick Lockhart
mrd customer care program… because investing is personal

Olive?

Yeah, you know, “Olive the other reindeer, used to laugh and call him names”.

NB: If you missed out on participating in one these Web Seminars you can now watch it online; click here.

The Global Credit Crisis & Property Investors

As property investors the good that has come out of the recent global turmoil has been a massive reduction in interest rates. I am now so very close to being cashflow positive across my property portfolio… and interest rates are still falling and likely to stay very low for years to come!

The downside for property investors is that lenders have tightened their lending criteria making it harder to secure funding that it was previously, in some instances. With interest rates falling, however, serviceability has been made that much easier creating opportunity for many who previously could not secure funding to now qualify.

The Global Credit Crisis & Property Developers

The impacted on developers has been massive. Companies large and small have all been affected. Many developers have gone broke or just closed up shop, others have shelved projects indefinitely and are waiting until they see evidence of investors returning to the market. Others have soldiered on but have had many new funding hoops to jump through put in front of them.

Banks have been scared to lend to each other, so regardless of whether you are an individual looking to borrow money to buy a property or a developer looking for the funding necessary to complete a project… 2008 has seen a real tightening of lender willingness.

Waterside Residential:

We have received the following update from the developer…

16th December 2008
UJ/jat

Waterside Residential Pty Ltd
ABN: 65 092 231 000

Mr Nick Lockhart
mrd Realty
Suite 4, Gallery Vie
226 Varsity Parade
Varsity Lakes QLD 4227

Dear Nick,

Re: Commencement of Waterside Residential Development - Cairns

Just a short note to keep you informed of the progress of this development.

Currently in this market it has become extremely difficult to obtain development finance. We are currently working with our financial institution to secure adequate funds to commence this project. The banks have indicated their support but at a later stage. We anticipate to hold further talks re this matter with the bank in early February/March 09 where we will have a clearer picture of a starting date.

We will keep you informed as to our progress early in the New Year.

Yours sincerely,

UDO JATTKE
Managing Director

In layman’s terms… Udo had been promised funding and expected to commence this project earlier this year. His lendersubsequently moved the goal posts and said that they would now not release any funding to commence this new project until after he had completed and sold out on some others that he had in the pipe line. Most of these are now sold and Stage 1 of Clifton Views is due to settle in late January, meaning in February or March next Udo will go back and renegotiate the terms of the funding he needs to commence Waterside.

In short, this project has been held up and we hope to have a more concrete update to you in the early part on next year.

Please see the latest mrd Cairns Region Property Report by clicking here and the PRD Nationwide Property Watch: Cairns Market Overview by clicking here

Special Incentive from UDO:

Udo has come up with a special offering to enable him to quickly sell off the last few completed apartments his banks are insisting he sells before releasing new funding to him. This offer is open to anybody interested in purchasing one of the below listed properties or to anybody wanting to transfer from a Waterside Residential purchase onto one of the below listed properties:

1. Cash deposit refund of 10% will be returned to the investors (for those transferring from a “Waterside Residential” contracted purchase)
2. The deposit on new contracts will be only $1,000.00
3. Any extral legal fees incurred up to the value of $1,000 will be paid for, on receipt of invoices from clients solicitors by way of a reimbursement at settlement (for those transferring from a “Waterside Residential” contracted purchase)
4. Management letting fees waived for 12 mths (conditional upon Glencorp Property Management being given the management rights)

The Following 6 ONLY Properties Are Being Offered With Bonus Incentives

City Park (2 only) - Expected settlements in mid February 2009

• 12 mths management letting fee waived (Glencorp Property Management only), plus
• 12 mths rental guarantee ($360 pw)

Clifton Waters (4 only) - completed and ready to settle in 30 to 60 days

• 2 bedroom – price reduced from $325,000 to just $295,000
• 3 bedroom – a rebate letter of $20,000 to be paid at settlement will be attached to the contract but not part of the contract making price $309,000

From all the team @ mrd, we wish you and your family the very best for Christmas and we look forward to partnering with you on your wealth creation journey in 2009.

Merry Christmas,

The mrd Team

mrd Customer Care Program works for you… because investing is personal

NB: If you missed out on participating in one these Web Seminars you can now watch it online; click here.

The Global Credit Crisis & Property Investors

As property investors the good that has come out of the recent global turmoil has been a massive reduction in interest rates. I am now so very close to being cashflow positive across my property portfolio… and interest rates are still falling and likely to stay very low for years to come!

The downside for property investors is that lenders have tightened their lending criteria making it harder to secure funding that it was previously, in some instances. With interest rates falling, however, serviceability has been made that much easier creating opportunity for many who previously could not secure funding to now qualify.

The Global Credit Crisis & Property Developers

The impacted on developers has been massive. Companies large and small have all been affected. Many developers have gone broke or just closed up shop, others have shelved projects indefinitely and are waiting until they see evidence of investors returning to the market. Others have soldiered on but have had many new funding hoops to jump through put in front of them.

Banks have been scared to lend to each other, so regardless of whether you are an individual looking to borrow money to buy a property or a developer looking for the funding necessary to complete a project… 2008 has seen a real tightening of lender willingness.

Seashells @ Clifton

We have received the following update from the developer…

16th December 2008
UJ/jat

Glenwood Homes

Mr Nick Lockhart
mrd Realty
Suite 4, Gallery Vie
226 Varsity Parade
Varsity Lakes QLD 4227

Dear Nick,

Re: Commencement of Seashells Development - Cairns

Just a short note to keep you informed of the progress of this development.

Currently in this market it has become extremely difficult to obtain development finance. We are currently working with our financial institution to secure adequate funds to commence this project. The banks have indicated their support but at a later stage. We anticipate to hold further talks re this matter with the bank in early February/March 09 where we will have a clearer picture of a starting date.

We will keep you informed as to our progress early in the New Year.

Yours sincerely,

UDO JATTKE
Managing Director

What Does This Mean?

In layman’s terms… Udo had been promised funding and commenced earthworks earlier this year. His lender subsequently moved the goal posts and said that they would now not release the funding for this project until after he had completed and sold out on some others that he had in the pipe line. Most of these are now sold and Stage 1 of Clifton Views is due to settle in late January, meaning in February or March next Udo will go back and renegotiate the terms of the funding he needs to commence Seashells @ Clifton.

In short, this project has been held up and we hope to have a more concrete update to you in the early part on next year. NB: In today’s final newsletter for 2008 my feature article is on the topic of “Off the Plan” purchasing… in it I analyse the cost benefits of delays.

Please see the latest mrd Cairns Regional Report  by clicking here and the PRD Nationwide Property Watch: Cairns Market Overview by clicking here

From all the team @ mrd, we wish you and your family the very best for Christmas and we look forward to partnering with you on your wealth creation journey in 2009.

Merry Christmas,

The mrd Team

mrd Customer Care Program works for you… because investing is personal

The Westpac-Melbourne Institute index of consumer sentiment rose by 7.5 per cent in December to 92.0 index points, from 85.5 points in November.

Most of the 1,200 consumers polled were surveyed after the Reserve Bank of Australia (RBA) cut the cash rate by 100 basis points on December 2 to 4.25 per cent.

Westpac chief economist Bill Evans said the lift in consumer sentiment in December was not a given after a “disappointing rise” of only 4.3 per cent the month before.

via Consumer confidence surges 7.5%: survey - Breaking News - Business - Breaking News.

Remember Michael and Sam’s story. Chances are you too will one day be faced with what I call an avoidable disaster.

mrd is made great by the fantastic, competent team that I have the privilege of working with. One team member with a strong analytical ability is both an experienced property investor and licensed finance broker. After just a few hours, he was able to identify and demonstrate a way for Michael and Sam to eliminate their $34,000 shortfall; without selling a property. That means over the next property cycle Michael and Sam will be $350,000 wealthier; just by hanging onto the property they had planned to sell.

Michael and Sam, not their real names, have about $2m in property value with just $800,000 of debt (40% LVR). Their broker, one outside the mrd network, did not understand loan structuring for property investors as we do. This jeopardised them seeing their property portfolio double to $4m in value… over the next property cycle.

Property investors are business owners and cashflow shortfall is simply a business overhead. Michael and Sam’s shortfall of about $34,000 a year was insignificant; given it represented just 1.7% of their current property portfolio value.

***********************************

Michael and Sam’s Problem

Michael and Sam had been structured in such a way that they were left personally funding most of their business overheads… and this understandably put a huge strain on their lifestyle.

Michael and Sam’s Solution

• A more “investor friendly” way for them to structure their finances
• Point out that they were paying a higher interest rate than they qualified for from their lender
• Point out that Sam was receiving significantly more deductions than her income allowed her to use
• Recommend their accountant look at ways of altering their income distribution so as to allow Sam the tax deductions she was missing
• Give them a suggested alternative financial structure to have their broker establish for them

Michael and Sam’s Break Even Point

Even if they never saw another rent increase and it took all of 42 years before their property values doubled (their break even point), Michael and Sam could comfortably service the entire $34,000 shortfall from their existing equity. They had thought their only option was to sell (and in a buyer’s market too) in order to reduce outgoings. The knowledge to reorganise loan structures and income distribution proved their best option; allowing them to eradicate the entire $34,000 drain on their family while holding onto an appreciating asset!

***********************************

Don’t Perish From A Lack Of Knowledge

Selling property because of a cashflow shortfall is akin to closing a business because it has overheads. Not understanding how to isolate investment property expenditure from personal exertion income drives many people to unnecessarily sell.

Your Retirement Realities

This story had a happy ending. Sadly, many don’t. Do you question why after a lifetime of work, most people can’t fund a dignified retirement? Outside of the pension, your retirement funding options will come from one of the following:

1. Inherit it
2. Steal it
3. Learn to manage debt properly

Sadly for many, the need to understand responsible and proper debt management is not matched by the priority most people put on it. Therefore, history will continue to repeat itself and most people will continue to retire broke. If anything you read from me provokes a question or challenges you in some way… or if you are concerned that your finances have not been structured to best meet your requirements; then add a reply to the bottom of this article… or email us.

…Over To You

Each situation is uniquely different and no one persons best option will necessarily be another’s. A “Financial Structure and Cashflow Health Check” is in my opinion essential… and the starting point forward for all property investors; especially those feeling financially constrained.

If we can possibly help you like we did for Michael and Sam, please let us know. Benefit measured in many hundreds of thousands of dollars will cost you nothing more than the effort to ask and the willingness to learn.

Yes, I would like to take up your complimentary offer of a “Financial Structure and Cashflow Health Check” - Click here

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

Our “What In The World Is Going On With Property” Web Seminar proved to be so popular that we have uploaded a recording of one session to our web site. By listening to this recording…

You will learn…

• Four important factors that must be considered if you want to accurately analyse the state of our property market
• Rental market equilibrium; how is it reached and what does it mean
• What are balanced and stressed rental markets and what must follow
• Changing property cycle and fresh wealth creation opportunities
• How the US property market works and why they got themselves into so much trouble
• Why the value of your home will NOT follow that of Europe and the USA
• Plus much more (including answers to YOUR questions, at the end)

Running time approximately 2 hour 05 minutes.

Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments.

From: The Age on 05/12/2008

See last week’s article: Should You Fix Interest Rates And When

He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms.

The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf. In the absence of the man, the assistant told the villagers. ‘Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.’

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant ever again, only monkeys everywhere!

While this is a little simplistic and not completely accurate, you should now have a better understanding of how the stock market works.

We wish you and your family a very Merry Christmas and a prosperous and happy New Year.

Kind regards,

The mrd Team

Click here for Property Page and full Property Report

State Parliament passed legislation last night to respond to the changing private rental market.

http://www.news.com.au/business/story/0,27753,24744318-31037,00.html

The apartments are of a multi award winning design and feature two double size bedrooms, an open airy deluxe kitchen with granite hi-bars and stainless steel European appliances opening on to one of the best living areas available for our magnificent tropical lifestyle here in tropical North Queensland.

Casinos and Banks; The Winners and Losers

Casinos arrange games to ensure the house wins. You may beat the house short term… but we all know long term that gamblers lose. It’s much the same way with fixing rates according to research. Figures released a year ago by the mortgage industry concluded that a person was better off on a variable rate 83% of the time and that in 27 years of recorded figures you would have paid less interest with a variable product than with a fixed; in the majority of instances.

Official Cash Rates & Money Markets

The cost of a variable loan is determined by the official cash rate set by the Reserve Bank of Australia (RBA) plus a retail margin added by the bank. The cost of a fixed rate is determined by the bank gambling on what they will be able to buy money for via the money markets plus a retail margin.

Understand that banks assume a position of risk when offering you a fixed rate; they gamble on what their future funding will cost them. Their risk is in offering you a one, two, three or five year fixed rate with funds that carry money market fluctuation costs over the same time period. Any reasonably educated person with some understanding of how the world works must conclude that all banks must build into their margins a contingency for carrying that risk.

When you “buy” a variable loan you will pay according to whatever the official cash rate is at the time plus a margin for the bank to make a profit. When you “buy” a fixed rate loan you will pay a margin for the bank to make a profit PLUS a margin to cover their risk. Of course there will be a contingency for error or misinterpretation of future likely market movements. Therefore, logic says that with few exceptions, fixed rate loans must cost the consumer more than a variable loan that does not carry the same risk.

Casinos and Card Games

Simply put… when you are offered a fixed rate from a bank they are inviting you to sit in on their equivalent of a casinos betting table and statistically speaking you have only a 17% chance of a win!

Sometime back a guy who works with me @ mrd received an out of the blue call from his bank. The loans officer offered him a fixed rate; which he declined. Was this bank offering to switch customers to fixed rate loans to help them win? I rather suspect it was because money market funding looked as though it would become significantly cheaper moving forward, leaving banks with BIG profit margins on those they could lock in ahead of time.

How To Measure Risk

Risk is a measurement of knowledge. While it would be risky (a huge understatement) for me to rewire a house; it would be a “walk in the park” for an electrician. If it were important enough for me to learn how to do this myself there are plenty of ways that I could. I think I have a pretty reasonable grasp on our property market as well as things economic and as such prefer to back myself rather than gamble against the bank. I don’t want to pay the bank to carry my risk as my level of knowledge allows me to comfortably carry it myself.

If your level of investment knowledge resembles mine in the electrical arena… no doubt you may be really nervous about taking on any financial commitments. Because I believe that investing somewhere is that important to anyone not wanting to wind up broke I encourage you to either:

• Consider placing your confidence in the bank’s ability to pick the money markets and stick with a variable rate (as a general rule of thumb) or
• Prioritise developing the necessary knowledge so as to minimise risk yourself

The Advantage of Fixed Rates

The advantage of fixing your interest rates is in the certainty it offers. If the thought of your variable rate loan increasing keeps you awake at night worrying maybe you should fix. Remember that your new risk will be that you have an 83% chance of paying for your new found peace of mind; just as with any worthwhile insurance policy. To me it seems that the most sensible and least costly choice is to gather your own knowledge.

I empathise with those tens of thousands of frustrated Australians who fixed their rates in the past year or so. Wendy took a call this morning from an mrd client who chose to fix his rates in January past. He now finds himself locked in for another two and a bit years at 8.29%; OUCH!  Please do not fix your rates based on emotion or advice from anyone who lacks understanding of financial markets; even if they are bankers, financial advisers or finance brokers. As with all investment decisions you ought to be fully informed. I rely on an electrician who is competent and trustworthy to undertake my electrical work. This is certainly the blueprint I suggest you rely on before making those seemingly little investment decisions that actually have big consequences going forward!

PS: My mission is to earn your trust so that mrd will become your property investment mentor. That’s why our trading name is:
mrd your property investmentmentor.com.au

Rates will rise and rates will fall! It’s all part of normal economic cycles. For the property investor, rate rises normally produce rental (income) rises… albeit not immediately. Rate drops generally do not result in rental (income) drops! This is that part of the property cycle that draws investors back into the market and drives property values higher. So to me, either way property investors win!

An mrd client, whose property portfolio became cashflow neutral after the November rate cut, emailed and asked if he should now fix his rates. I will not answer such a question directly; to do so would be to offer financial advice. His and a couple of others asking similar questions prompted me to write this article; to educate and empower you to make your own better informed decisions. At the very least, I trust it has provided food for thought.

A General Suggestion

General speaking if someone is happy with current interest rates and locking in now would offer peace of mind; then going ahead and fixing may be their best “bet“. Remember, as part of the ongoing mrd customer care program we are committed to three important client check points… ahead of any investment decision:

1. You must have the borrowing capacity
2. You must know what your out of pocket expenses will be and possess the capacity and understanding to manage any funding shortfall
3. You should have the mental toughness capacity; or sleep at night factor.

If fixing rates helps with number three; go ahead. Considering you will have an 83% chance of being the loser a safer bet would be to increase knowledge and minimise risk that way. Knowledge leads to understanding which in turn fosters confidence. From there you can take those steps necessary to secure your family’s financial future.

Looking Ahead - Times Have Changed

I have never fixed my interest rates. I have a brother who did in mid 2005, for three years and he was one of those rare winners who “laughed all the way to the bank”. I am watching the market now and will let you know if and when I may decide to do so sometime in 2009. If I could get a fixed rate at 4.something% and I thought we were at the bottom of the cycle I would have to say even I would be sorely tempted to fix my loans. I would even look to locking in for a longer timeframe… but that is all based on a big IF such a great deal were to be offered… and I suspect not!

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

Precincts where transit oriented development principles are applied are called transit oriented communities.

Transit cities are based on the principles of Transit Oriented Development. This is a form of urban development that clusters a greater mixture of land uses around a high quality transport service. The transport node, either train, light rail or bus terminus is designed to be the focus for the development and ideally becomes the community ‘heart’. It is where people shop, work, meet, relax and live.

Transit Oriented Development is gaining currency worldwide as a key tool to reduce car dependence, boost public transport use and hence reduce reliance on fossil fuels…

Differing patterns of development in cities have a direct impact on the way people move about. European cities tend to have a compact form due to such factors as a lack of space for expansion. As a consequence they have comparatively low levels of transport energy use. Australian and North American cities tend to be more dispersed and thus are more reliant on cars for travel.

Geared around creating “walkable communities”, transport-oriented developments - or TODs as they are known - bring together a range of uses and are designed to link working, living, learning and entertainment.

The benefits of transit oriented development include:

• • improving the attractiveness and access to public transport, cycling and walking;
  • providing communities with interesting and vibrant places for people to interact;
  • reducing the impact of transport on the environment;
  • reducing household travelling expenses; and
  • providing more housing diversity and affordable housing options.

Property analyst Michael Matusik said the model also offered the potential to create a cheaper living option for residents, with reduced transport costs and improving housing affordability.

“TOD concepts can be applied to create new community hubs or transform existing areas, and can be an alternative to the ever-rising cost of car travel,” Mr Matusik said.

The design theme is also a return to more traditional concepts of neighbourhoods and villages, albeit with a modern twist, he said.

“Historical photographs often reveal railway stations surrounded by stores, hotels, offices and multi-family housing that were linked to adjacent downtown areas.

“As populations expanded, properties near railway stations were acquired to accommodate commuter parking needs, eventually creating a no-man’s land separating communities from their transit stations.”

Transit Oriented precincts are key areas for property investing. There is often a stronger demand for rental accommodation in areas close to employment, amenities such as shopping centres and entertainment and infrastructure such as a good quality transport system.

Transit Oriented Development is a key policy of The South East Queensland Regional plan. Planned communities such as Robina and Varsity Lakes have been developed with this concept in mind.

CBD Robina has been designed around the railway line that currently links to Brisbane and is being extended first to Varsity Lakes then onto Coolangatta Airport. Within a short distance of the station you will find the new Skilled Park Stadium and soon to be developed “Stadium Village”, commercial office space, retail, the Robina Town Centre and a mix of residential development.

Located where it is, Robina Station is at the centre of ELEVEN major precincts. It is within 600 metres of all of these precincts and so serves an urban centre far greater than the Robina Town Centre shopping mall.

CBD-Robina has always been positioned to be as much a satellite of Brisbane as it has a central business district for Gold Coast City and as Gold Coast City, Logan and Brisbane start to merge into one giant conurbation CBD-Robina’s potential and original intent become clear.

Robina Station was designed to carry commuters to both CBD-Robina and Brisbane. In its early years the commuters were headed mainly for Brisbane. As CBD-Robina grows and all the new office accommodation in CBD-Robina comes on stream the flow will change.

The location of Robina Station is all about employment opportunities and convenient travel for the overall workforce.

To see the precincts numbered above and to view a full report on Robina click here.

Happy Investing,

Katrina Lockhart
mrd customer care program… because investing is personal

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

Running time approximately 1 hour 23 minutes

Our Customer Care Program Works For You… because investing is personal

Then using God’s bountiful gifts, Satan created Dairy Ice Cream and Magnums. And Satan said, ‘You want hot fudge with that? And Man said, ‘Yes!’ And Woman said, ‘I’ll have one too with chocolate chips’. And lo they gained 10 pounds.

And God created the healthy yogurt that woman might keep the figure that man found so fair…

And Satan brought forth white flour from the wheat and sugar from the cane and combined them. And Woman went from size 12 to size 14.

So God said, ‘Try my fresh green salad’. And Satan presented Blue Cheese dressing and garlic croutons on the side. And Man and Woman unfastened their belts following the repast.

God then said ‘I have sent you healthy vegetables and olive oil in which to cook them’.

And Satan brought forth deep fried coconut king prawns, butter-dipped lobster chunks and chicken fried steak, so big it needed its own platter, and Man’s cholesterol went through the roof.

Then God brought forth the potato; naturally low in fat and brimming with potassium and good nutrition.

Then Satan peeled off the healthy skin and sliced the starchy centre into chips and deep-fried them in animal fats adding copious quantities of salt. And Man put on more pounds. God then brought forth running shoes so that his Children might lose those extra pounds.

And Satan came forth with a cable TV with remote control so Man would not have to toil changing the channels. And Man and Woman laughed and cried before the flickering light and started wearing stretch jogging suits.

Then God gave lean beef so that Man might consume fewer calories and still satisfy his appetite.

And Satan created McDonalds and the 99p double cheeseburger. Then Satan said ‘You want fries with that?’ and Man replied, ‘Yes, and super size ‘em’. And Satan said, ‘It is good.’ And Man and Woman went into cardiac arrest.

God sighed ……… and created quadruple by-pass surgery.

And then ………… Satan chuckled and created the National Health Service.

THE FINAL WORD ON NUTRITION

After an exhaustive review of the research literature, here’s the final word on nutrition and health:

1. Japanese eat very little fat and suffer fewer heart attacks than us
2. Mexicans eat a lot of fat and suffer fewer heart attacks than us
3. Chinese drink very little red wine and suffer fewer heart attacks than us
4. Italians drink excessive amounts of red wine and suffer fewer heart attacks than us
5. Germans drink beer and eat lots of sausages and fats and suffer fewer heart attacks than us
6. The French eat foie-gras, full fat cheese and drink red wine and suffer fewer heart attacks than us

CONCLUSION

Eat and drink what you like. Speaking English is apparently what kills you.