All Topics / General Property / NEW 11 SECOND SOLUTION

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  • Profile photo of brownbearbrownbear
    Participant
    @brownbear
    Join Date: 2003
    Post Count: 14

    I went to the rcent seminar at the Intercontinental Hotel on the weekend and as Steve was getting through explaining the NEW 11 Secoond solution he looked around and said ‘I can see that thee are a lot of blank faces in the audience and I don’t hear many A.Ha’s. Well I was one of the silent ones. I understood all the leadup and the issue of changing useage. I understand the acutual maths, HOWEVER I JUST DON’T GET IT……Steve said that some would not get it and I am sorry to say I am one of them……can someone who went to the seminar give me a hand with this.[confused]

    Profile photo of oziozi
    Member
    @ozi
    Join Date: 2004
    Post Count: 262

    Can I ask what the “new 11 second solution” is? Or is this a secret only for seminar attendees?

    Regards,
    Ozi

    Profile photo of Robbie BRobbie B
    Member
    @robbie-b
    Join Date: 2004
    Post Count: 2,493

    Hi Brownbear,

    I was also at the seminar. It was pretty good!

    I think what Steve was trying to get at was that any property could be made into a good investment. The current annual rent and rent return tells you the purchase price to get in today. Once in, manipulating the figures by doing things like changing the use of the property or throwing in some extras to increase the yield would see increases in property value.

    From the above, what I got out of the new, revised formula was that pretty much any property could be made into a positive cashflow investment property (unless you get totally ripped off at the start) or value can be added fairly quickly by making some large OR SMALL changes.

    Robert Bou-Hamdan
    Mortgage Adviser

    M: 0414 347 771
    E: [email protected]
    W: http://www.mortgagepackaging.com.au

    Comments made are of a general nature and should not be construed as individual advice.

    © 2004 Mortgage Packaging Pty Ltd

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763

    Hi BrownBear,

    There’s not a lot more I can add that I didn’t cover at the seminar, except to reinforce some of the key points.

    First, in order to profit from the property market it is essential that you understand how it works.

    In the recent boom, skill wasn’t necessarily needed as all real estate investments appreciated in value on the back of very strong demand. However, it is not reasonable to expect this in the short to medium turn given current market conditions and weak market sentiment.

    In short, those that know how the market works can use this knowledge to form an investing position prior to the rest, and this first-mover advantage can be very valuable.

    Second, once you understand the market, it’s critical to also appreciate that not all property profits are equal. Those that rely on unrealised gains derived from a long-term investing position ride the market trend, which includes periods of stagnation and decline. Such people don;t find opportunity, the stumble upon it through the sheer weight of time.

    Louise Bedford once told me a saying that I feel is very true… namely that even a broken clock tells the correct time twice a day. This being the case, if you stay in the market long enough then eventually you must make money… but whether you have made money overall, or whether you have maximised your opportunities is a different matter.

    I’m an advocate of matching the right strategy with the right time/market. Growth for growth and decline for decline. In this way I try to attract the right type of profit for my investing position.

    This talk of profit led to the discussion about the ‘new’ 11 sec solution. Unlike the old one, this is more difficult to apply and understand because it pulls apart the gross profit ratio and presents it in a way that allows you to see the variables that influence profit via impact on purchase price.

    Doing this allows you to begin using strategies that ‘makes’ a profit, rather than trying to ‘find’ a deal and relying on the existing circumstances to form the basis of your profit.

    I’d encourage you to go back and work through the five examples given, taking the time to see how changes in annual rent and rent return % impact profitability.

    Profiting from the revised formula requires a familiarity that doesn’t come easily. It may take a few goes until you get that ‘a-ha’, which is why you should stick at it.

    If you continue to have trouble then rebook for the next one as it might make more sense the second time around.

    Regards,

    Steve McKnight

    **********
    Remember that success comes from doing things differently.
    **********

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of renoreno
    Participant
    @reno
    Join Date: 2004
    Post Count: 10

    Hi Steve

    I was at the seminar on Sunday and did not understand the new 11 second solution either, despite your attempts. With all respect, I wonder if you are making something much more technical and confusing than what it needs to be – getting a bit too analytical.

    I am more than willing to try and understand, and have spent quite a bit of time looking at it from different angles. But I can’t help thinking that it is just playing with maths. It is like saying the tail wags the dog!

    The three factors – rental income, yield and property value can all be swapped around to work out what any one of those figure are if given the other two. This is simple maths.

    BUT, the way I look at it, yield is the end result of rental return income in relationship to property value. You can determine a figure for rental income, just as you can for property values – which will then give a yield value. But other than commercial, or where there are an extremely high percentage of investors, I have never seen or heard of residential property values determined by yield. Isn’t this determined by supply and demand?

    If you have two houses side by side, exactly the same, one rents for $250 pw, the other for $300 pw, you are saying that the one that rents for $300 pw has a higher property value! Who would pay this? How many owner occupiers would care about the rental income or yield?

    Yield can make properties more attractive to investors (high cash flow +ve), which then has the potential to drive up property values due to demand, but this is the result of the rental income in proportion to property value.

    Where I think the confusion lies is the reason for the higher rental income is due to an improvement to the property – which has also increased the property value. It is the improvement which has added value, not merely increasing rental income. (Unless you had a particular deal with the tenant where a higher than normal rental was negotiated – and would be guaranteed to continue permanently with new owner. But if the yield was still the same as the property next door, what is the advantage of paying the higher price???)

    Am I on the right track, just looking at it in a simpler way??

    regards
    Reno

    Profile photo of renoreno
    Participant
    @reno
    Join Date: 2004
    Post Count: 10

    P.S.

    If the increased rent is due to, say, renting the house out to uni students by the room, this may increase the value of the property, but mainly to someone wanting to retain it as is – which is leaning toward commercial. But once again, it is the change in use of the property which has possibly increased the property value, not merely increasing the rent.

    I think this is what you are trying to get across isn’t it Steve?

    Reno

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763

    Hi,

    I agree that it is difficult conceptually to understand (e.g. your comments about yield and residential property).

    In the end, the rules you need to remember are:

    1. Increasing annual income; and
    2. Decreasing rent return %

    are the drivers to increase purchase price.

    The maths etc. justifies this is the case.

    One last point – you need to appreciate that ALL property is sold on a yield basis (even if it is not advertised or perceived, and even if home owners don’t really care), as yield is the measure of affordability and the acceptable price at which the market buys.

    Keep working through it.

    Bye,

    Steve McKnight

    **********
    Remember that success comes from doing things differently.
    **********

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of brownbearbrownbear
    Participant
    @brownbear
    Join Date: 2003
    Post Count: 14

    Just working through the notes given at the seminar Slide 84 I am ok with everything outer than the fact of decreaseing yield. Am I to understand that say for instance you had a home unit in an industrial area and the yield was say 5% and because you changed it to offices that the yield would drop because of the fact that you changed the nature of the premises from resi to commercial, and the average yield for commercial in that area is say 12% and you are only receiving 5% .Also that, as commercial you may be able to raise the rental, which is another plus to the value ofthe place. Am I on the right track.

    Profile photo of Robbie BRobbie B
    Member
    @robbie-b
    Join Date: 2004
    Post Count: 2,493

    In your example, changing it to commercial would mean that you could rent it for more money. This would mean higher annual rent which would increase the purchase price. A reduced rental return would most likely occur as well when considered in reference to the new purchase price.

    I think of it like this:

    If I had two properties side by side which were identical but one was renting for 100 p.w. and the other for 200 p.w., I would pay twice as much for the one renting for 200 p.w. if I thought they were a good buy in the first place. People like myself work on numbers. I have no intention of renovating or developing for example. A renovator might prefer the property that rents for 100 p.w. and pay half as much and fix it up so it also rents for 200 p.w.. They would make more money but they had to work harder for it.

    Robert Bou-Hamdan
    Mortgage Adviser

    M: 0414 347 771
    E: [email protected]
    W: http://www.mortgagepackaging.com.au

    Comments made are of a general nature and should not be construed as individual advice.

    © 2004 Mortgage Packaging Pty Ltd

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi

    I was at the weekend seminar too (and enjoyed it). But I have to agree with renos comments. When valuers are valuing residential property, they use comparable sales data. ie they look at what similar properties sold for in the same area. comparing position, number of bedrooms, improvements etc Rental yield would only be one small factor.

    If you could put up the rent by converting a living room into a bedroom, then it would help as you are creating an improvement. But putting up the rent simply because you found a person willing to pay more would have very little effect on value. This is especially so for bank valuations, however it may help slightly if you are selling to an investor-especially a cashflow investor.

    Terryw
    Discover Home Loans
    Mortgage Broker
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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of crjcrj
    Participant
    @crj
    Join Date: 2004
    Post Count: 618

    Not having attended any seminars, it seems from this thread as if the principles are based on Steve’s new book ie problem plus solution equals profit.

    I like to look at a number of scenarios, worst case, medium and best case and prepare a cash flow over a number of years. If I then consolidate the cash flow with my other investments I can see where there might be problems and look at how I manage those risks. I’ve gone for P & I loans so that although I can have a good taxable profit, the effect of the principal payments and tax payments might give an investment a negative cashflow. One of the other advantages of this approach ie worst, medium and best case is you can look at strategies to reduce your worst risks, and improve your returns. Second your bank or lender can see you have done a business plan and that you’re not winging it. My bank manager comes into town periodically so I can say to him where we’re up to etc what might be possible in the future etc. After all if times get tougher, the people with better management have a better chance of prospering.

    Profile photo of AGreatDaneAGreatDane
    Participant
    @agreatdane
    Join Date: 2004
    Post Count: 3

    Hi everyone,

    I have just finished reading both books that Steve wrote, which I absolutly think is great. I’m completly new to the property investing scene, but are in the planning stage to embark next year. I currently work in IT. And yes I got most of IT from Steves books! [biggrin]

    My question is. What is the exact formular for the NEW 11 SECOUND SOLUTION.

    Cheers,
    Jan Holm

    Profile photo of MonopolyMonopoly
    Member
    @monopoly
    Join Date: 2004
    Post Count: 1,612
    Originally posted by janholm:

    My question is. What is the exact formular for the NEW 11 SECOUND SOLUTION.

    I can’t say for sure, but from my understanding, there isn’t an actual FORMULA that you can use as a calculation as per the old rule.

    Profile photo of Robbie BRobbie B
    Member
    @robbie-b
    Join Date: 2004
    Post Count: 2,493

    That is right Monopoly. It is about manipulating a basic formula to determine different results. If the results look good, you proceed and vice versa.

    Steve really needs to explain this one as it gets a bit tricky.

    Robert Bou-Hamdan
    Mortgage Adviser

    M: 0414 347 771
    E: [email protected]
    W: http://www.mortgagepackaging.com.au

    FREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm

    Comments made are of a general nature and should not be construed as individual advice.

    © 2004 Mortgage Packaging Pty Ltd

    Profile photo of scotty3scotty3
    Member
    @scotty3
    Join Date: 2003
    Post Count: 54

    Hi guys

    I also was at both the October and December seminars and the Ah-Ha moment for me was when Steve first looked at the idea of increasing purchase price by increasing rent.

    I am now applying this to one of our IP, so maybe a practical example willhelp some of you understand…

    We recently signed new tenants into our house on a 12 month lease at $230 pw (5%, current market yeild). We have now decided to sell, but before doing so I have offered the tenants ducted A/C for an increase in rent to $245 pw. I had an agent give me a rent appraisal before the A/C and then after the A/c was added. The market value had increased by a commensuarate $15,000 (for a $2,500 outlay).

    Here’s the trick:
    Yes, I value-added, but the new buyer will be an investor, not a home-owner because the lease is in place for 12 months. Investors want return, so I had to find a way to make the return stay around 5% with the increased purchase price. If I hadn’t raised rent, the return would be below market value and even though the house might now be worth that, the investment isn’t.

    Hope this helps.

    And thanks to Steve for showing us how to make more money!!

    Cheers,
    scotty3

    Profile photo of MonopolyMonopoly
    Member
    @monopoly
    Join Date: 2004
    Post Count: 1,612

    So Scotty, what you have effectively done then (and I am not saying that it was a bad strategy, quite the contrary) is you have TARGETTED your market, by eliminating “home buyers” and making it appealing to “investors” only.

    In a market where investors are aplenty that may work well, but in one such as this where genuine buyers of any description are not so readily found, you may have bigger issues.

    All in all, I hope you get your sale, and well done!

    Jo

    Profile photo of scotty3scotty3
    Member
    @scotty3
    Join Date: 2003
    Post Count: 54

    Hi Monopoly

    Yep, I suppose I have – but by accident rather than design! I had intended to hold the property as I bought before the boom on a 7.6% return. The place has increased in value by about 37% in one year. It was an Ah-Ha moment at Steve’s seminar (AFTER the new teants had signed up) which showed me that I’m not getting 7.6% anymore, I’m only getting 5%, so sell the thing and get me money working harder elsewhere!
    From there it was a matter of making the sale more profitable, and Steve’s development of the new 11-second rule has been very valuable indeed in that respect! I have targeted the investor market (had no choice), which in this case is still very strong.
    Make the most of what you’ve got!

    cheers,
    scotty3

    Profile photo of MonopolyMonopoly
    Member
    @monopoly
    Join Date: 2004
    Post Count: 1,612

    I’m afraid I don’t agree that the investor market is very strong; I am not saying it is non-existence by any stretch, but certainly length of time on the market and clearance rates paint a different picture.

    http://www.iproperty.com.au/Content/Content.aspx?TopicId=3748
    See the article re investors and returns.

    Look at properties in blue chips areas, their yields are very low in comparison, but their overall market value is huge….ask yourself why???

    Cheers,

    Jo

    Profile photo of richmondrichmond
    Participant
    @richmond
    Join Date: 2003
    Post Count: 831

    You’ll have to let us know how the sale goes, because until you get your price, the alleged gain is only theoretical. Keep us posted.

    cheers
    r

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