Lomas. - How to Create an Income for Life

Contents

Also by Margaret Lomas

How to Maximise your property portfolio

How to Make Your Money Last as Long as You Do

How to Invest in Managed Funds

The Truth about Positive Cash Flow Property

A Pocket Guide to Investing in Positive Cash Flow Property

20 Must Ask Questions for Every Property Investor

First published March 2002 by Wrightbooks

an imprint of John Wiley & Sons Australia, Ltd

42 McDougall Street, Milton, Qld 4064

Office also in Melbourne

Reprinted August 2002, September 2002, May 2003, August 2003 (with revisions), April 2004, March 2005, March 2006 (with revisions), April 2007, March 2008 and September 2011.

Margaret Lomas 2002, 2003, 2005, 2006, 2007, 2008

The moral rights of the author have been asserted

National Library of Australia Cataloguing-in-Publication data:

Lomas, Margaret.

How to create an income for life.

Includes index.

ISBN 0 70163651 3.

1. Finance, Personal. 2. Real estate investment. I. Title.

332.024

All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the prior permission of the publisher. All inquiries should be made to the publisher at the address above.

Cover design by Rob Cowpe

Disclaimer

The material in this publication is of the nature of general comment only, and neither purports nor intends to be advice. Readers should not act on the basis of any matter in this publication without considering (and if appropriate, taking) professional advice with due regard to their own particular circumstances. The author and publisher expressly disclaim all and any liability to any person, whether a purchaser of this publication or not, in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication.

Dedication

I never cease to wonder at the dedication, support and inspiration of my wonderful husband, Reuben.

You are not the wind beneath my wingsyou are my wings.

Preface

Welcome to Your Future

I HAD A PHONE CALL from a client I have been assisting for many years now. She worked hard to pay down her first mortgage so that she could build her dream home. Having accomplished this a few years ago, she was now ready to buy her first property investment. When I explained to her that my heavy work schedule meant that I may have to bring in one of my very experienced staff to assist, she revealed that she was worried that there was no one else who knew quite as much as I did. I only want to see you, she said to me.

When How to Make Your Money Last as Long as You Do was first published, it stirred up the negative gearing industry. Since the mid-eighties, when the government first allowed investors to write off the losses incurred on a property investment against other income, people have turned to property as a viable investment. Subsequently, property developers and marketers began cashing in on the concept of buying a property for just $40 a week from your own pocket as a way to attract people to buy their stock. It is only now, as some of those early investors begin to look at liquidating their investments, that they are realising this kind of investing may not have yielded such a good return after all. The $40 a week from an investors own pocket, when considered in terms of its loss of value over time and the lost opportunity, is showing a very poor real return when compared to other investment vehicles.

How to Make Your Money Last as Long as You Do aimed to show people how negative gearing principles could be used to generate a higher than average return on property, provided the investor did the homework and chose property which I like to call positive cash flow propertythat is property which generated a profit from the first day, not months or years later.

For many years people have believed that the only way to gain a positive return from property was through positive gearing. Yet, to achieve this an investor either had to be very lucky to find a property with a rent return which was considerably higher than average for its purchase price, or be fortunate enough to have substantial cash at the outset to minimise the borrowing costs and so produce a positive return.

How to Make Your Money Last as Long as You Do exploded this myth, and showed people how they could buy property without using any cash of their own and still get a positive cash flow from the first day. It motivated thousands of Australians to be more discerning in their choice of property investment, and once again guided people towards property. However, that book was only an introduction to the concept, and in many cases raised many more questions than could be answered in just one book.

So, when my client called and insisted on seeing only me, I knew this was because she felt that I was the one with all of the inside knowledgeinformation which she felt she needed in order to confidently embark on her investment plan. It was then that I knew I had to write another property investment bookone full of all of those little bits of information that I know about property and can share with others to help them crystallise their own investment plans.

Every day I receive email from people who have been caught with a property which either did not perform as expected or with net returns which did not even keep pace with inflation. These people enthusiastically embraced the concept of investing for their retirement, yet in many cases the experience has left them disillusioned, disheartened and with no real desire to attempt to invest further. Often the reason for the poor choice of property was the investors did no more research beyond the marketing material provided by the developer. They also may well have been swayed by emotions at the time. But, in many cases it has simply been a lack of knowledge from both the investors and the people advising.

...there simply will not be enough money paid in taxes to provide pensions for us in retirement.

Its no secret that the future of our middle-aged working population is in serious jeopardy. Our parents had large families, and my generation is now footing the welfare bill for the hundreds of thousands of aged pensioners, who insist on living well into their eighties! But, what will happen to us? We chose to have smaller families, and the situation at present is that the only thing preventing a negative population growth in our country is immigration! It does not take Einstein to work out that there simply will not be enough money paid in taxes to provide pensions for us in retirement.

Sadly, our shell be right mate attitude is the very thing which keeps many heads in the sand, with the greater proportion of tax payers putting into place absolutely no plans for their own retirement. If you thought that living on $18,000 a year (the current aged pension for a couple) seemed impossible, then can you imagine what life would be like with nothing?

We must begin a plan for our own retirement, and we must start it today! If property is the vehicle that most attracts you, then this book will tell you everything you need to know to be sure that the property you choose has every chance for success. You will no longer have to rely on marketing material promising wonderful (and often unsustainable) returns, or the advice of well-meaning professionals who really do not know much at all. You will have the knowledge you need. And, most importantly, you will learn that a property investment must be treated in the same way as any other investment; with a business brain, and not an emotional heart! Forget how you feel about the kitchen, the bathroom or the rose garden, and start looking at the returns and the potential of your investment.