Paul Do - I Buy Houses: The Property Investors Handbook

Contents

First published 2009 by Wrightbooks

an imprint of John Wiley & Sons Australia, Ltd

42 McDougall Street, Milton Qld 4064

Office also in Melbourne

Typeset in 10.5/12.6 pt New Baskerville

Paul Do 2009

The moral rights of the author have been asserted

Reprinted September 2009

National Library of Australia Cataloguing-in-Publication data:

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, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.

Google Map: 2008 Google Data Map 2008 Map Data Sciences Pty Ltd, PSMA

Cover image: Shutterstock/Matt Trommer

Cover design by Brad Maxwell

Microsoft Excel charts reprinted with permission from Microsoft Corporation

Disclaimer

The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based upon the information in this publication.

To my parents, Anthony and Wendy Do, who instilled their values in me.

Acknowledgements

My sincere thanks go to the team from John Wiley & Sons and their business partners. In particular, I would like to thank Kristen Hammond, my acquisitions editor, who not only knows a good thing when she sees it, but provided valuable feedback on the draft and project managed the book. Thanks also to Michael Hanrahan, who worked tirelessly to edit and lay out the book.

Finally, and most importantly, special thanks go to Amy Thai for being my biggest supporter and encouraging me to get published.

Introduction

I wrote I Buy Houses because family and friends were always asking me for real estate advice: Should I get into the property market now?, How do I buy a property? and How much should I pay? When you look at the approach that most people use to buy a property, they attend open inspections every weekend for months on end, and eventually they get fed up and buy anything. They spend a lot of time and effort, but it is the wrong approach. I spend the bulk of my time at my desk; I focus on research, not inspections, and achieve a more effective outcome while expending much less time and effort. In this book Im going to show you how you can do this too.

In addition, there are the things that family and friends should have asked me about real estate but didnt. Most people do not understand how real estate works as an investment or how to make money with it. They think the way to make money in real estate is to buy below market value, or buy a run-down property and then renovate it and flip it for a profit. No, I make money in real estate by spending time in the market, and augment my returns by timing the market.

Who is this book for?

The people who will find this book useful are divided into two groups. Firstly, there are the people looking to buy their first home. None of the real estate investing books provide a detailed how to guide to buying a property. I include a step-by-step guide to the buying process with a comprehensive example of one of my recent purchases to address this gap. The second group are property investors, both new and experienced. Other real estate investing books mostly focus on finding motivated sellers or positive-cash-flow properties. However, the market conditions for these strategies no longer exist. Instead, I explain my value approach to investing in real estate, a strategy that is universal, timeless and makes common sense, but also requires hard work. When I say hard work, I mean that it is not palatable work for many people. In terms of physical effort, it actually requires much less time and effort than most other strategies.

Who am I?

What are my credentials for writing this book? Well, I dont have a ragsto-riches story to tell. What I do have is nearly 20 years of experience investing successfully in the real estate and stock markets, combined with the rigour of a corporate background in pricing and financial analysis. Why is this important? Well, firstly I am equally successful investing in the real estate market and the stock market, therefore I do not preach real estate all the time. As you will see later on, this is very important because there is a right time to buy real estate and there is a wrong time, and the difference can mean having a profitable portfolio of properties working for you or struggling to hold and service an overpriced property.

Secondly, I am a property-investing expert. I have bought and built many houses, in different states and over a number of cycles. So I know the boom times when most novices mistake luck for skill, and the down times when they question the merits of investing in real estate, and how to deal with both.

Thirdly, because I have invested successfully in the real estate market for so long, I know what works and what doesnt. For example, I have found that if you cannot get a standard loan then you are probably better off renting rather than buying a property.

Finally, I was a senior manager in a large corporation and I have an MBA, so I know how to manage businesses profitably, and investing in real estate is a business. For example, I explain how it is usually the boring things that make me money, while the sexy things often cost me money. In addition, my background in pricing and financial analysis has helped me to understand how real estate price cycles work, how to manage them and how to take advantage of them, and I will show you how to do this too.

I buy houses...

I Buy Houses is divided into five parts. Real estate basics forms the foundation for the rest of the book and will bring new readers up to speed with the fundamentals of real estate. Next, I explain my SYSTEM T investment framework that forms the foundation of every buying and management decision I make with my real estate portfolio. Then I go through The buying process in detail (with a comprehensive example provided in the appendix). I follow this with a section on Managing your properties, which covers property management, renovation, some advanced material on property development, and selling. Finally, I wrap up with Making money in real estate, including the common real estate investing strategies, how I make money in real estate using the value approach, and the stages of development of a real estate investor.

I started writing this book 10 years ago when I began to make some decent returns in the real estate and stock markets. As I grew, so did the book, and it has been a work in progress ever since. Over time I found that investing became quicker and easier, and it was then that I realised that I had mastered the principles of successful investing in the real estate market. These principles form the basis of my SYSTEM T framework, my buying process and how I manage my properties, and they will act as guideposts on your investment journey.