The Ultimate Mini Guide To

PropertyInvesting

2020

The formula for succeeding in today's market

Cam McLellanwith Michael Beresford

Published by OpenCorp 2019opencorp.com.au © 2019 Cam McLellanThis publication is copyright. All rights are reserved. Except as permittedunder the Copyright Act 1968 (Cth), no part of this publication may bereproduced, stored or transmitted by any means, electronic or otherwise,without the specific written permission of the copyright owner.

Disclaimer

While reasonable care has been taken producing this guide, no guarantees aregiven in regards to the accuracy of its content or the material provided in theweb links. Property investing is a complex field and it is ever changing.Every person’s circumstance is different, and therefore no reader should relysolely or partially on the information in the guide or the material in web linksprovided by the author. Any person or organisation reading this guide orobtaining the material provided in the web links is responsible for their owninvestment decisions. The Open Group of companies, its directors andemployees are neither liable, nor responsible for the result of any actions orlosses incurred, whether whole or partial, from the use of the content,information or tools provided. The author is simply sharing information thathe personally uses himself when investing.

Table of ContentsAbout the Authors

Introduction

Why have I written this 2020 guide?

What is my investment strategy?

Part 1

Inside the property industry: Why you should ignore the hype

Will property prices continue to grow beyond 2020?

How Do Market Cycles Work?

Counter Cyclical Investment Strategy

Market cycles: how to catch and ride each wave

Appreciate depreciation

Flipping while factoring in future market growth

Balance your portfolio – yield and growth

Become an expert in your chosen market or sub market

Forget short-term predictions and bank on long-term gains

Why you need to toughen up

The biggest mistakes made by property investors

Be aware of analysis paralysis

Knock out poor investment options!

Part 2

The Straight Line to Wealth

The Circle of Duplication

Part 3

Tools and Check Sheets

What are the 2020 Opportunities?

About the AuthorsCam McLellan

Successful property investor and businessman Cam McLellan shares theknowledge that allowed him the option to retire in his 30s, build a substantialproperty portfolio and a group of companies employing more than 150people.His companies have been named in seven BRW Fast Growth lists. He is thebestselling author of My Four-Year-Old the Property Investor, a jargon-freeinvestment manual he wrote for his children. The book is a step-by-stepinvestment manual for those who wish to secure their financial future.As an expert in Australian property investment, Cam now helps others bysharing his knowledge and expertise. Through his company OpenCorp, heempowers clients, colleagues and friends to build successful propertyportfolios.

Michael Beresford

Michael Beresford is an experienced Australian property investmentconsultant and advisor.Michael purchased his first investment property at 25 and then proceeded tobuy four more properties on a single income over the next five years,providing him with a solid foundation from which to continue to build hisinvestment portfolio.As Director of Investment Services at OpenCorp, Michael is committed tosharing his passion for property and broad investment experience to deliveroutstanding returns for everyday Australians. He has helped over 1000OpenCorp clients add $500 million in value to their property portfolios.Michael attains his greatest satisfaction through empowering his clients, tosee them grow their portfolio and achieve wealth they didn’t know waspossible when they began their investment journey.

IntroductionWhy Have I Written This 2020 Guide?

The property market in 2019/20 is very different to what we saw two, fiveand 10 years ago. While our investment strategies generally remain the same,it is important to understand the landscape you’re in and what it means whenreducing risk and identifying opportunities.

This is the hardest lending environment I’ve seen, in more than 20 years. It iseven tougher than straight after the GFC. With that said, there are definiteopportunities to be had, if you know what you’re looking for.

The purpose of this guide is to help you understand what the 2020 propertymarket looks like and where those opportunities are. It will sharpen yourfocus, when investing in property.

Ultimately, the most important skill in property investing has nothing to dowith property. It has everything to do with mindset. Investing is not whatwe’re brought up with. We are taught debt is bad and not to talk aboutmoney. Bad news sells and we are bombarded by negativity in the media. Weare taught to follow the herd, whereas successful investing requires you to beone of the minority.

It isn’t hard to invest in property, although it requires a different way ofthinking about money. It requires a growth mindset rather than a minimalistmindset. The pension may have been sufficient in the past. But it’s not todayand will definitely not be enough in the future. You need to take control ofyour own situation and take action to create a better financial life for yourselfand your family.

With dedication to your goal and a long-term view in mind, amazing thingsare possible. This book is designed to help you take the first steps towardsachieving these goals. The strategy we adopt is not get rich quick. It takestime. It’s get rich slowly, safely and securely by applying a proven process toachieve a measured outcome and mitigate risk. There will always be talk of aproperty bubble and the fact prices can’t keep rising.

I like to refer to a newspaper article which talks about how markets areunaffordable and the dream of home ownership is lost forever.

It goes on to say that the median house price in Sydney has grown to $17,000and the median house price in Melbourne has grown to $11,000. The articlewas written on December 13, 1970.

This is proof, that in 1970 people had the same doubts they do today becausethe same material is printed year after year, decade after decade. If you took along-term view and bought property in December 1970, I’m sure you wouldbe pretty happy today!

Filtering fact from fiction and taking the first steps to invest in property canbe daunting. I wrote this guide to give you the tools to make soundinvestment decisions so you can reduce risk as you build your wealth.

As Part Of The Process We Will

Question your motivations. This is important because your reasons willdefine your strategy.

Demystify the industry. I take away the smoke and mirrors so you gain aclearer understanding of the property industry.

Identify excellent investments. I reveal my strategy for identifyinginvestment properties with exceptional long-term growth potential.

Explore how headlines differ from reality. I explain what motivates mediastories and how these don’t help you achieve long term growth.

Guide your decisions with tools and check sheets. My systems will helpyou select excellent investment properties and manage your portfolio, so youcan leverage equity and build wealth at a much faster rate.

What Is My Investment Strategy?

The first step in creating your investment strategy is deciding what you wantto achieve. When I started out, I had a clear goal. I wanted my family to befinancially secure, so I didn’t have to work to have the lifestyle I wanted.

Most investors I meet want that freedom and flexibility. They aren’t chasinga private island, helicopter, mansion or mega yacht, although it is fine ifthat’s your thing. You just need to be specific about your intentions.

Figure out how much money you need each year to achieve your goals. Put inplace an investment strategy that has you doing everything you can, as soonas you can, to achieve them. In property investing, aiming for a target keepsyou focused and motivated.

As a teenager, I remember casually asking my mate Bruce what he wantedout of life. Without hesitation he replied, “A wife, two kids, a dog, a houseand a Harley Davidson”. Bruce had a vision that was very real to him. Iwasn’t surprised when he had the dog, the house and the Harley by the timehe was 20. His wife and two beautiful daughters followed a few years later.

Knowing what he wanted was the key to his success.

Don’t be afraid to set goals because you might fail. Even if you don’t reachyour target, you will be much closer than if you never tried.

To be successful, you need to be happy being uncomfortable, rather thancomfortable and unhappy.

What Is Long-Term Growth?

Not everyone will have the same definition I do. My portfolios are built formy kids and their kids, so I define a long-term investment as one that willcontinue to grow in value for generations.

When you think of property investment this way, it makes decisions easierbecause it reduces your options and cancels out some of the risk. There areplenty of opportunities that suit my investment criteria but most simply don’tstack up.

The Power Of Compound Growth

I achieve my goals by taking advantage of compound growth; it's incrediblypowerful but it takes time. Einstein called it the eighth wonder of the world.

Compounding starts slow but it is amazingly powerful over time. I run acourse called Money Smarts for secondary school kids. Here’s an example Iuse to get their head around the power of compound growth.

Let’s say you started with one cent which doubled every day, over a 31-day-month. Day one you have 1 cent, day two you have 2 cents, day three youhave 4 cents and so on. After a week, you would have less than a dollar but atthe end of that month, you would have about $21 million!

The main reason people don’t achieve success through investing is becausethey want results immediately.

When it comes to investing in property, be patient, build your portfolio and

play the long game. It takes time but it’s very effective.

Part 1Inside The Property Industry: Why You Should Ignore TheHype

The most successful media content elicits an emotional response. In otherwords, bad news sells.

For this reason, it is important to ignore hype surrounding the boom and buststories we are exposed to every day. This media is motivated by sellingexcitement and fear and buying into the hype has the potential to derail yourproperty investing journey.

Most people trust the media to educate them about the state of the propertymarket, yet according to the Australian Bureau of Statistics Census data 87per cent of Australians retire on the poverty line, reliant on a pension ofbetween $300 to $400 a week to survive.

Over the last year or so media hype reached fever pitch and the conflicting information is confusing people. In 2019, a federal election year, bank-imposed lending restrictions are still in place. The great news for investors who have had trouble obtaining finance, is that the Australian Prudential Regulation Authority (APRA) who govern the banks, have provided instruction that lending restrictions be reduced.

The most important thing to remember is that the hype will pass. As asuccessful investor, you need a stable, consistent mindset. Remove emotionto what’s going on and commit to your long-term approach.

Will Property Prices Continue To Grow Beyond 2020?

The property market has faced some challenges in the last 30 years but I’myet to meet anyone who regrets buying a home in 1989.

While past performance is not an indicator of future performance, the medianhouse prices in Sydney and Melbourne have increased 452% and 529%respectively, since then.

In those three decades, there was a recession in 1991 and an Asian financialcrisis in 1998, which led to international stock markets losing about 60 percent of their value.

Surely major events like these, as well as September 11, 2001 and the GFC of2008, would have caused the market to crash, if it was going to do so.

Yet, if you bought 30 years ago, at the median, you are about $750,000 betteroff today. For this reason, I don’t speculate about short-term marketmovements and take a long-term approach to investing.

I don’t have a crystal ball but I think prices will continue to grow. We aren’texperiencing any crisis situations like those mentioned above. Instead, whatwe have is a tough lending environment. That means not as many people canborrow enough money to purchase properties above the median house price.

We’re not experiencing a market crash, like the media would have youbelieve. Once lending restrictions are relaxed and people can borrow again,I'm sure we'll see the median rebound and increase.

On a larger scale, I believe property prices will continue to grow as thegovernment increases the number of skilled workers migrating to Australia.Income tax from these new Australians is needed to pay for thebabyboomers’ pensions.

ABS data suggests that over the next four years the number of Australiansaged 65 and over will increase by 60 per cent. The government will need tofind around $24,000 for each single person and $36,000 for each couplerequiring the age pension.

Politicians would be eaten alive if they decreased the pension or chargedmore personal income tax. Instead, they will create jobs and increase theskilled migration, to replace baby boomers leaving the workforce and growthe economy while generating more tax revenue to pay the increased pension.

From an investing perspective, skilled migrants will bring continued demandfor residential housing and when supply is not meeting that demand, priceswill go up. This makes me confident of continued price increases.

How Do Market Cycles Work?

In 2017/18, media hype made it easy to think property market growth wouldcontinue forever. Historically however, capital city property markets see asustained period of rapid growth over four to five years. Afterwards, theyexperience a minor correction and stay stagnant for the best part of the nextfive to seven years, before another growth cycle starts.

So, a minor correction, like we’ve seen in Sydney and Melbourne is notunexpected. It is a natural part of the growth cycle and prices in these marketswill grow again down the track.

Don’t get caught up in all the talk of doom and gloom. Between 2013 and2017 the Sydney market grew 75 per cent. Homeowners who were in themarket for the full growth period will still be 65 per cent better off, if themedian house price decreases by 10 per cent.

If you’re one of these people, I'm sure you're happy to be 65 per cent aheadof where you were only five or six years ago!

Counter Cyclical Investment Strategy

Getting into property investing is not about getting rich quick. It is aboutbuying counter cyclically and entering a market before it sees that period ofgrowth, so you can take full advantage.

A counter cyclical strategy also means while there’s a buying frenzy goingon, you need to look at other markets.

I see a lot of investors come unstuck because it takes them three or four yearsto feel comfortable enough to take the plunge and they end up buying at thetop of the cycle. Then, because their property value doesn’t grow for eight to10 years, they lose confidence and think investing doesn’t pay off.

Really, it just comes down to market timing and location. Smart investorsknow how to buy counter cyclically and that supply and demand affect pricesover the long term.

Property developers have the greatest impact on supply in any city market.When I say developers, I mean medium and high-rise apartment blockdevelopers and broad acre land sub dividers (developers who bring newcommunity estates to the market, such as master-planned estates).

We designed the next diagram to demonstrate to clients, how developeractivity affects market prices.

OpenCorp Development Activity Chain

Look at the supply and demand lines in the Development Activity Chain.You’ll notice that at the point where demand outstrips supply, prices start torise. Developers see opportunities to make profits again and begin the processof buying and delivering stock to the market. This is indicated by the shadedsection of the diagram.

It takes time to bring any large-scale development to market. During this

period, there’s a shortage of dwelling stock resulting in further price growthand usually, rapid growth.

Most developers become active at the beginning of this and it can be two to four years before their projects are ready for sale. By this time, the market has often dropped off and there is an oversupply for up to 18 months as stock continues to enter the market.

As a result, prices correct and stagnate until the excess supply has been sold.When demand drops below supply, developers will stop taking on newprojects.

As this timeline shows, there’s only one small window of time, ‘the dangertime,’ when it’s not advisable to invest in property.

Market Cycles: How To Catch And Ride Each Wave

Each city is an individual market and should be analysed in that context.When I think about the four major Australian cities (Sydney, Melbourne,Brisbane and Perth), I view them as eight individual markets – fourresidential and four commercial. This market clock diagram is an example ofthe residential markets. I’ve again indicated here, the danger time forinvestors. Please note, the market clock below is an example and may notreflect where each market sits currently.

Smart investors buy at the start of a recovery period. Once the growth phasebegins and prices have been rising dramatically for two years or more, it’stime to look to other markets. Experienced investors never buy an investmentproperty at auction. Why? Because winning an auction by paying more thananyone else was prepared to, is not a smart investment strategy.

Market Clock

Appreciate Depreciation

Depreciation is the best tax benefit available to property investors, so it’ssurprising that few take advantage of it. Negative gearing is a good kick backwhile you build your portfolio but spending $1 to get 50 cents back, is not awise long-term strategy.

Somewhere between 50 and 80 per cent of investors do not claimdepreciation as a tax benefit. The taxman undoubtedly parties every year incelebration. Especially when you consider investors could net $10,000 to$15,000 on a new house, in the first year alone!

There are few downsides to depreciation. You don’t have to spend moremoney to claim depreciation (apart from having a depreciation scheduledrawn up).

If your property was built after July 17, 1985, tax law states that it will

depreciate over a 40-year period. This is because while land appreciates,buildings always depreciate. The ruling currently allows investors to offsettheir investment against income at 2.5 per cent of the construction costs.Fixtures, fittings and furniture depreciate at a faster rate.

Make sure you get a quantity surveyor to arrange a building depreciationschedule for your accountant so you can maximise the offset allowed. Thecost of the depreciation schedule is also a tax deduction.

Flipping While Factoring In Future Market Growth

Flipping property is the art of buying and adding value through renovation,then selling a property as quickly as possible.

When I was growing up my folks tried flipping a few properties. I stillremember my Dad saying, “hurry up, holding this thing is costing us, let’start it up”. The plan was simple: paint, carpet, tanbark, flip, but this gameplan didn’t always pay off.

Flipping a property is all about numbers and timing.

Most of the time investors forget to factor in all the costs involved:

Stamp duty

Legals

Renovation costs

Interest

Marketing costs

Agents’ costs

Capital gains tax

More legals

Opportunity cost

After paying this lot, you will be lucky if there’s any profit left. Flippingproperty is essentially trading. If done successfully, flipping is an income, notan investment strategy.

Smart investors buy well and hold for the long term.

Balance Your Portfolio – Yield And Growth

Balancing yield and growth is one of the keys to a healthy investmentstrategy. For example, before my wife and I had kids we decided to rent until5 years ago although we had a substantial property portfolio.

We decided to live in numerous inner-city Melbourne suburbs, close to thebeach, where we rented two-bedroom apartments. Elwood was a particularfavourite.

We loved living in that apartment and could have bought it easily, but wedecided to rent because the high holding costs would have made it a badinvestment for us. I’ll explain further with a few basic figures.

One of the reasons most property investors only own one property, is because

they buy a two-bedroom apartment in a blue-chip area like Elwood. In reality,this $800,000 Elwood property will cost you about $300 a week to hold.

Compare that with an investment property valued at $550,000, with aconservative holding cost of $100 a week. If you’re smart with yourinvestments, you can hold three properties with a total value of $1.65m forthe same holding cost as an apartment in a blue-chip area.

Even if we give the blue-chip area an advantage of nine per cent annualgrowth over a 10-year period as opposed to eight per cent, for the $550,000property in a less suburb, you will be $1.67m ahead simply because youmade a smarter investment choice.

Become An Expert In Your Chosen Market Or Sub Market

When you decide to invest, it is important that you take the time to becomean expert on your chosen investment suburb. The best way to do this isthrough good, old-fashioned legwork. Talk to council planning departments,builders and shop owners. Find out about local amenities like shops, schools,infrastructure, roads and rail. The more research you do before you buy, thebetter equipped you will be to assess potential investment properties.

Forget Short-Term Predictions And Bank On Long-TermGains

Beware of short-term price increase predictions. Even though city marketsare a passion of mine, I would never predict market price movements in thisway. I can tell you why I think one market is favourable to another over a twoor three-year period but I can’t say how much a specific house price willincrease by in the same period. No one can.

What I can tell you is, well-chosen properties will double in value within 10years. Poorly chosen properties will sit stagnant for three to four yearsslowing your process of duplication.

Why You Need To Toughen Up

When you invest in property, you have to accept that you’re not buying yourown home. So, don’t let emotion cloud your judgement. Conduct your duediligence on the market and stick to your investment criteria. Remember thereare plenty of options out there. If you don’t find a property that ticks all theboxes, move on.

Equally, don’t be swayed by a real estate agent’s hype. They know how towork every angle. It’s their job. If you live in the area, they will press all youremotional buttons with comments like these.

This is a lovely safe area.

Doesn’t it feel homely?

You’ll definitely get nice tenants here.

You can drive past the house and keep an eye on it.

This is a total crock. Don’t let them fool you with these emotional hooks.

Toughen up. There’s no place for emotion in property investment.

The Biggest Mistakes Made By Property Investors

Listening to media hype

Buying a property close to home (so they can drive past)

Self-managing tenants

Buying at auction

Buying older properties (without potential to add real value)

Buying based on the look or feel of a place

Asking a real estate agent for advice

Overcapitalising

Selling for profit (when they should refinance and save the tax)

Paying off debt (when they should create a redraw facility or usean offset account)

Selling property to transfer into self-managed super funds (topurchase property)

Not including a finance clause in the contract

Cancelling a contract under the ‘cooling off' option rather than thefinance clause

Failing to get an expert to review the contract

Buying in regional or rural areas

Not having a strategy for mitigating risk

Waiting for the deal of a lifetime

Buying for ‘future development upside’ on the open market

Chasing the lowest interest rate option

Not having the correct ownership or financial structures in place

Not allowing for all purchase costs (stamp duty, mortgageregistration, lenders mortgage insurance)

Taking an approved finance limit as an unconditional commitmentfrom the bank

Selling property to finance lifestyle

Be Aware Of Analysis Paralysis

When I bought my first property, it’s fair to say I didn’t have a clue what I

was doing. When I went to sign the contract at the agent’s office he asked formy conveyancer’s details. I gave him a blank look. What’s a conveyancer? Ibought that property because a mate had bought one in the same street andhis dad was a successful investor. So, I knew the odds were pretty good that itwas a smart buy.

Education and research are keys to smart investing but be aware of analysisparalysis. If you spend all your time trying to find the deal of a lifetime, youmay pass up good investment opportunities along the way and end upmissing out in the long-term.

Do your research and then take the plunge. Enjoy the rush that comes fromtaking action.

Knock Out Poor Investment Options!

Once you’ve decided on your investment strategy, it’s time to select yourinvestment property. Start by ruling out all the options that don’t meet yourcriteria. It’s much easier than sifting through every option on the market. It’sa bit like buying a new pair of shoes. If you’ve worked out that sturdy brownshoes are what you need, you don’t have to look at every shoe option.

When it comes to property, I like infill areas or master planned estates thathave limited land supply. Medium density housing is my investment choice.

Why medium density?

I’ll explain this by a process of elimination.

Apartments are a flashy investment option. There is something cool about thethought of owning an apartment but most don’t meet my long-term criteria.The reality is that most investors don’t have the know how or resources toreview the potential supply of additional apartments that may come onto themarket. This additional supply will potentially slow the growth of theirinvestments. So, for most people it’s safer to stay away from apartments as an

investment.

For most people, if you like apartments, rent one.

Regional properties generally double every 15 years as opposed to cityproperties which double every seven to 10 years. The long-termcompounding growth difference is staggering. I don’t buy in regional areas.

Mining towns, at the time of writing are being given the hard sell. In mostcases, by the time the infrastructure has been built to support the mine, thework force will drop by as much as 70 per cent, leaving a massive oversupplyof dwellings. What we see is prices and rental yields plummeting, which isvery unfortunate for investors.

I like medium-density housing located in infill areas. In my opinion, medium-density housing includes a house or townhouse, on its own land title ofbetween 200m2 and 450m2.

Since I was a kid, the average house block has more than halved in size. Asan investor, I know that prices will double on a 300m2 block of land, thesame as the they will on a 600m2 block. The advantage is that a smallerblock requires less equity to enter the market. Also, people rent bedrooms,not backyards so the rental yield is better on smaller lots.

What does infill mean?

An infill area is land surrounded by established housing. When all the landhas been developed in the area, the resulting pressure on supply usuallymeans prices will increase.

I also like master-planned estates with limited competition. A suitablemaster-planned estate will have quality housing, local infrastructure and agood community. I stay away from master-planned estates that have anabundance of vacant lots nearby. I’m talking thousands of lots, enough tobuild a whole new community. Be sure the master plan you’re consideringdoesn’t have large amounts of land that could be developed in the futurebecause this will slow price growth.

I spend a lot of time analysing different areas so I can choose an estate thatgives me the best potential for long-term growth. I’m writing this on a flightto Melbourne, after spending a few days in Brisbane checking out sixdifferent estates, looking for one that fits my criteria. It’s important to put inthe hard yards to find good investments. I think the lady sitting next to me isreading over my shoulder as I write.

Part 2The Straight Line To Wealth

The Straight Line to Wealth is the process I follow when selectinginvestments to add to our portfolio. The straight line guides me from theinitial idea stage, all the way through to securing the right tenant. Each stageis designed to reduce risk.

In this mini guide, I’ll focus on the investment identification section of TheStraight Line. This is the process experienced investors use to chooseproperty.

Market – Area – Property

The first step is to choose a city market with the best potential forgrowth.

Secondly find an area with a balance of yield and growth, alongwith good infrastructure.

Finally, select the optimum size and quality investment propertyfor the area.

This is the opposite approach to your typical investor who invests close tohome. Smart investors use the market > area > property approach because itfast tracks your portfolio’s growth potential by allowing you to catch eachcity’s growth wave. The faster your property value rises, the sooner you canleverage your equity and acquire more properties.

Remember, it’s always Market – Area – Property. Make it yourmantra.

Investment Target

Let’s go over the process in more detail.

MarketGrowth trends. Stay away from markets that have undergone a period ofstrong growth (10 to 15 per cent per annum) for more than two consecutiveyears, because after every strong growth period you can expect a pricecorrection.

Check out other markets to see if they’re better positioned for future growth.

Consistent population growth. When you’re looking at markets, always checkpopulation forecasts. A low population growth forecast is a sign you shouldsteer clear of that city market.

Employment, wages and consumer confidence. People won’t buy when

they’re feeling insecure about their jobs. Higher wages mean people canafford more expensive houses and we all want the best, it’s human nature.Invest when consumer confidence is recovering.

AreaEmployment. Check whether the property is located close to diverseemployment centres like offices, factories or industrial areas. Suburbs with alarge range of employers have more potential for long-term growth.

Excess supply. Check that the area doesn’t have an oversupply of dwellingsor a large supply of vacant lots near your potential investment.

Owner-occupiers. You should always buy in areas where the majority ofproperties are owner-occupied.

Vacancy rates. Ensure there is strong rental demand and that properties areleasing within 4 weeks of being on market.

Essential services. The area should have schools, local shopping and majorretail centres, public transport, parks and sporting facilities located nearby.

Planned future quality of housing. Check whether there are controls over thestandard of house that can be built in the area. You don’t want to find that atin shack has been built next door to your investment.

Value indicators. Check whether there are plans to build new infrastructuresuch as railways and roads in the area.

PropertyLow holding costs. It’s important to achieve a good balance between rentalyield and capital growth to maximise tax benefits. The more you receive inrental income and tax back, the less you pay in holding costs. Think growthfirst then achievable yield. Rental yield is usually viewed as a percentage andcompared against the cost of the property.

Calculation

Rent = (weekly rent x 52) / purchase price x 100 Rent = $430 pw.

Purchase price = $550,000

Yield = (430 x 52)/550,000 x 100 = 4.1%

Optimum size and quality. Every area has a property that is optimum in termsof size and quality. What I mean by this is, you will reach a point whereyou’re overcapitalising because you’re not adding to the property’s value orrental yield. For example, if you decide to build your property with a mediaroom, it might not add to the value and you may not receive additional rent,although you’ve incurred significant costs. If you do your research and get toknow your investment area well, you’ll be able to identify the optimumquality and size of property to aim for.

Established capital benchmark. Check how much owner-occupiers are paying for comparable homes in the area. For instance, if you’re buying a property and the maximum sale price nearby is only 10 per cent higher than your purchase price, it doesn’t give you much room for growth. Aim to buy in an area with an established capital benchmark at least 30 per cent above the value of your potential investment.

Land content. This is the golden rule of long-term property investment. Landincreases in value and buildings decrease. The total site area must, in mostcases, be at least 50% of the total floor area of all buildings. This rules outmost apartments and small units.

Close to amenitiesYour investment property should be close to:

Public transport, including train stations and bus routes

Education facilities, including primary schools, high schools andprivate secondary schools or colleges

Retailers, including local supermarkets and within the catchment

of a major shopping centre

Parks, including playgrounds and open spaces

New over old. Over the years we’ve bought many established houses andadded to the value. I think my wife Felicity must have painted at least six orseven houses before she went on permanent strike. We now buy new propertyinstead and the main reasons are:

Tenant appeal

Maximum taxation benefits

Minimal ongoing maintenance

Builder’s construction warranty

In the tools section, you will find a ‘builders due diligence check sheet’ and a‘tenant assessment sheet’ to help select a builder and then a tenant.

Now that you have your investment and your tenant, you will need a systemto manage and grow your portfolio. I have included some tools to assist you.

The Circle of Duplication

Sounds very Zen doesn’t it? Being a disorganised guy, I needed a system tohelp me manage my portfolio and identify increases in equity that could flagwhen it’s time to invest again. This is how it works.

Let’s break down each of the three points.

Part OneThe Straight Line to Wealth. As you’ve already seen, this is the process thatenables you to identify worthy investments. The Straight Line to Wealth isthe first part of the circle. In the next section of this guide you’ll find adiagram of the Straight Line to Wealth and associated tools.

Part TwoMonthly portfolio check. It’s important to check in on your portfolio eachmonth. On our website, you will find a check sheet called the PortfolioManagement Review Form.

Part ThreeSix-monthly equity and rental check. This will determine if you have enough

equity to duplicate your investment. To do this you need to compare sales ofsimilar properties in the same area by using the Property Review Check Sheetfor each one. When you’ve checked each property, compile your data into thePortfolio Equity and Rental Check Sheet to get an overview of your portfolio.

I know it sounds like a lot of work but you’ll only need to do this every sixmonths. I can honestly tell you it’s worth the effort, so make a note in yourdiary or calendar to check up on your equity. You may find that there areperiods of little or no movement. That’s just part of the cycle. You need to sittight through these periods because when the market turns you’ll be makinghundreds of dollars each night while you sleep.

Part 3Tools and Check Sheets

These diagrams explain the Straight Line to Wealth and the Circle ofDuplication. The tools and check sheets are listed next to each section.

Feel free to download them from the OpenCorp website.

Straight Line To Wealth Tools And Checks

The Circle Of Duplication Tools And Checks

What Are The 2020 Opportunities?

When we look beyond Sydney and some parts of Melbourne, we see a lot ofopportunities available in 2020.

Potential investors have left the market due to lending restrictions and medianegativity. This means better opportunities are available for those buildingtheir portfolio this year.

We are focused on the markets which have historically experienced growthafter Sydney and Melbourne, some of which saw their last major growthcycle 15 to 20 years ago.

Rental yields will also increase over the next few years, as less supply entersthe market. When developers are active and supply levels are high, we seefewer rent rises, although we experience capital growth.

During the correction period, provided we’re in quality areas where thedemand for rental properties is high, we’ll be able to charge higher rent.

So, if your borrowing capacity in the restrictive lending environment doesn’tallow you to add to your portfolio, you can still take positive steps to getcloser to your next property purchase.

In the words of the world’s most successful investor, Warren Buffett, “Befearful when people are greedy and greedy when people are fearful”.

A perfect example is 2018’s Bitcoin craze. Everyone jumped on board to getrich quick and it has since had a massive correction and many people havelost money.

Residential property, on the other hand, is a proven performer, although ittakes time and patience.

To summarise, 2020 is a great time to take advantage of opportunities leftbehind by those too fearful to invest and also to increase your rental income.

If you enter the market now, and as the lending restrictions relax, you will beready for renewed demand and a kick in growth.

Keep emotion at the back door and do what you can, as soon as you can toreach your goals.

All the best with investing in 2020.

Cam McLellan

Michael Beresford