Financial Success

My intention in this article is to get you to think about your investment strategies and whether these are in your best interests along your wealth creation path, or whether you are just making others rich with very little financial benefit for yourself.

 

 

As you know, my purpose is to teach you how to take control of your finances and manage them yourself. I believe you should be in the driver�s seat.

 

 

I also want you to know how to do your research and what questions to ask, so you don�t get taken by the sharks. That�s why I wrote the book, Due Diligence Made Simple.

 

 

You see, it seems that every man and his dog is now a financial expert and can show you how to become rich by next Wednesday. Some claim that property is going to do it for you, while others can do it much faster in the sharemarket. Another team of experts can save you thousands off your mortgage when you join their programme and others will tell you how the super rich do it and how you can too!

 

 

Some say you can do it in Australia while others promise outstanding returns, tax and privacy benefits overseas.

 

 

Unfortunately, most of these �gurus� aren�t rich themselves and only have a vague idea of how the rich do it. Most of them are just salespeople promoting another scheme. Most of them are at the wrong end of the investment process.

 

 

Some of the headlines I often see include: �Live Like Donald Trump� Learn To Invest In Property and Build Your Own Empire�; �Fast Track Your Way To Riches�; �Find Out What The Rich Know . . .�; How To Retire Rich in 3 to 5 Years�; You Can Retire A Multi-Millionaire In Less Than 3 Years�.

 

 

Many of these promoters are teaching things which are only partially true or strategies which no longer work. An example is a person who is promoting property investment in commercial buildings.

 

 

He tells his attendees to find a property which is listed on the market for around a million dollars. He then tells you to negotiate the price down to $750,000. Once you have achieved this, you need to find a valuer who will value the property back up to a million dollars and you go to the bank and borrow a million dollars based on the valuation you have just received. This was a strategy that the 80�s entrepreneurs applied to dramatically inflate asset values and borrow more. There are just a few flaws in this strategy.

 

 

Firstly, the massively inflated valuations achieved in the 80�s were based on directors� valuations which are no longer acceptable to lending authorities these days.

 

 

Secondly, the value of a commercial property is directly related to the rental return of the property. Therefore, if you want to get a much higher professional valuation, you will need to be able to influence the rental contracts. Here the presenter will tell you to go and find a property which is only partially tenanted so that hopefully, it will be on the market for less than it�s true market value. You will then run around and get written forward commitments from prospective tenants (I�m sure you�ll know how to find those) who are willing to change from their existing tenancies to your building. Next you will take these expressions of interest to your friendly valuer who will of course give you a valuation which is higher than what you actually intend to pay for the building.

 

 

If you can successfully navigate your way through to this stage of the suggested path to instant riches, you are about to have to jump another hurdle. You see, in order to decide on the amount they are willing to lend you, lenders will want to see a copy of the contract which as you might expect would show the agreed purchase price. Now, there are not too many lenders around that will lend you 100% of the purchase price, and there even less that will lend you more money than the contract price of the building, unless you have a significant asset base which you are willing to put up as security.

 

 

When the banker asks you why he should lend you more than the purchase price of the building, you will of course reach into your trusty toolkit of get-rich-quick strategies and pull out the new valuation from your friendly valuer. This will undoubtedly convince the banker that regardless of what the contract says, the building is in fact worth a lot more than what you are actually wanting to pay for it.

 

 

Now, my imagination is reasonably good, however, I have yet to find someone who can pull this sort of deal off in practice. It certainly sounds good on paper and in front of an eager audience of soon-to-be-millionaires, however, the bankers I have met are not quite as gullible.

 

 

Now let�s take a look at the people who are telling you that you can live like Donald Trump by buying their investment properties. Sure, Donald Trump has made money from real estate, however, he makes his money by developing real estate and then selling it off to investors.

 

 

Sometimes he brokers a deal where he finds a willing buyer for a desperate seller and then takes a cut for his efforts. He does NOT make his money as a retail investor. He puts the deal together and then sells it off to the last �punter� in the chain. As I say in my Super Secrets to Wealth� course, he works out his exit strategy when he goes into the deal and so should you if you want to be an astute investor.

 

 

Let me give you an example of what I mean. The other day I was looking at a block of 8 units which was on the market for $560,000. The block was not strata titled and was fully tenanted. I made an offer of $500,000 which was accepted and which would give me an 11% gross rental return. My unit cost therefore was $62,500 before stamp duty and legal fees. My market research in the area indicated that the cheapest single units in the area sold for $95,000. After allowing for strata titling fees, legals and stamp duty I was looking at a potential profit of around $30,000 per unit should I choose to get out. The amount of effort in putting such a project together is relatively small and would not take a huge amount of time. In fact, most of the work involved is in co-ordinating other professionals to do the work.

 

 

My question to you is this: in this scenario, am I a wholesale investor or a retail investor?

 

 

Obviously I am buying wholesale and selling retail. This is the same approach that people like Donald Trump apply when they make large profits. The rich are in the deal at the beginning and not at the end. Do you seriously think that this is the strategy being promoted by the marketeers who are suggesting that you can live like Donald Trump? Absolutely not! They are selling you their properties at retail.

 

 

Now you may be thinking, �well it�s alright for him to put $500,000 on the line, but I don�t have that much to play with.� That�s OK. In fact, most investors had to start out small before they became large investors. What is important is that you learn to tell the difference between buying wholesale and selling retail.

 

 

You can buy a single property wholesale if you know where to look and what to look for. In my Super Secrets to Wealth� do-it-yourself real estate investment course, I teach you how to find these types of properties. While other people believe they can live like Donald Trump by buying retail from the property marketeers, you�ll know how to sniff out bargains that the crowd shuns.

 

 

When it comes to the sharemarket, there is also a major difference between the way people such as Kerry Packer and Warren Buffet invest and how retail investors operate in the market. Warren Buffet builds large holdings in companies which he believes to be undervalued at the time and where he sees substantial potential upside. On the other hand, he has also been the selling shareholder in his company Berkshire Hathaway.

 

 

Kerry Packer looks for opportunities to invest in companies that are about to list. These are called IPO�s. As soon as these companies list, he sells part of his shareholding and takes a profit to recover his initial capital outlay. He has bought his shares at wholesale and sells them to the retail investors.

 

 

To invest in IPO�s, you will need to have the contacts, the knowledge and the ready cash as deals arise. This is certainly not a starting position for new investors. However, while you are investing retail, you can be acquiring the knowledge and the contacts to move into that area once you have expanded your asset base.

 

 

The more you develop your mindset towards becoming a wholesale investor, the more you will attract these opportunities into your life.

 

 

 

About Hans Jakobi

 

Hans Jakobi is an educator, author and investor. He is the author of six best-selling books including, How To Be Rich & Happy On Your Income which is available at: www.supersecrets.com and the presenter of the Super Secrets� to Wealth do-it-yourself real estate home study course. Join Hans Jakobi�s FREE Super Secrets� Online Newsletter

 

� 2002 Hans Jakobi. All rights reserved worldwide

 

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