Hi all
Second round of my class room sharing here.
One of the activities we performed is like this:
1. There is a imaginary house for sale, market price is 110K.
2. The instructor assigned one of his team members to act as broker, one to act as accountant, one to act as property manager and 3 of them acting as RE agents.
3. The exercise is to try to negotiate the best deal and maximize monthly cash flow. Basically, to calculate rental income – loan – monthly operation expenses – property management fees and get that number to be as high as possible.
4. The instructor gave us 20 minutes to complete the exercise
5. The instructor and 2 mentors would walk around the class room and observe our actions.————————————–
At the end of the 20 minutes, the result various because different groups have different success as negotiating the deal. Some couldn’t get any discount and bought at 110k as it is, some got the best deal, which was 89K.
Anyway, that’s not the point. The points the instructor made were:
1. We all had too much ego, because none of the groups thought to make use of the knowledge of instructor and the 2 mentors. They were in the class room with us, but nobody thought to approach them and ask for advise on how to negotiate down the purchasing price.
2. We trust people who are not experts in their field more than those who are experts in their fields and that’s a huge problem. For example, someone in a group has difficulty calculating the cash flow figure correctly, but rather than asking the “accountant” for advise or asking the instructor and the 2 mentors for advise, they turn to someone else in the group who also doesn’t know how to calculate for advise, and those 2 people who do not know how to calculate, would then go on a heated debate for 10 minutes and still get the answer wrong.
Wow, I have to say this kind of observation is very familiar to me. I myself am guilty of that. Like in real life, we might get into financial difficulties, and then we turn to a friend of ours who is also financially uneducated for advise, and guess what? We believe in everything that friend says, and yet when someone who is financially literate tries to help us out and guess what? We reject that person’s advise. Two broke people together just means the two are more broke. (no, they don’t cancel each other out like they do in math)
Good advise rarely come free. We should all figure out that much by now…
Hi Steven,
That was a really good lesson – I’m impressed. Thanks for sharing it with us, Steven. The presenter obviously has quite some experience in these matters.
Does the weekend course also include any ongoing mentoring from him or one of the mentors? Or was that a purchaseable option at the tail of the seminar?
Benny
Hi Benny
No, that was it. It was a 3 day workshop, cost $1200. No further mentoring program.
There are purchasable options, but they are very expensive. So most people opted out but there were still 30 or so people who signed up. I want to sign up but I am getting heavy resistance from my wife. (she was even against me attending that $1200 course at first place)
I am sure you heard of the educational entity. It is Legacy Education Alliance.
The purchasable options are:
1. Go onto a New Zealand market program: 28K for 1 person or 35K for 2.
2. Go onto a UK market program: can’t remember the price
3. Do both at 63K for 2 people, but unsure how much for 1 person.The purchasable options include:
1. 3-6 months of study (materials provided) including Real Estate in the selected market, tax study, law study, etc.. in the selected market
2. Fly to the destination (Auckland if you choose NZ and London if you choose UK) to meet up with your mentors for 1:1 session for 3 days.
3. Meet up with their team including:
a) Solicitors
b) Tax Accountants (they specialize in property tax rather than general tax)
c) Sourcing Agents
4. They will register a trust company for you and open up a bank account for you in NZ, or a corporation in UK. Basically, any Real Estate trading you do will be done under the company rather than as an individual, so you get the benefit of paying company tax rather than personal income tax.
5. Then your investment journey begins.According to how they introduced the program, it goes something like this:
1. You need to do your own research and study and thoroughly understand what you are doing. Your mentor will answer any questions you can’t figure out on your own.
2. Sourcing Agent will source properties for below market price and forward you any deals that they think are worth investing. You also get to access their portal (Legacy students only) and can pick which deal you want to do.
3. Just because your sourcing agent did all the ground work, doesn’t mean you should blindly go ahead. Instead do your own research and due diligence and see if the deal matches up. If you are not sure, check with your mentor.
4. Do the deal if you think it is worth it.
5. Deals are all done remotely unless you feel like traveling to local market each time.
6. Your fee (28K for NZ, etc..) is tax deductible, so is your travel / hotel / meal expense during those 3 days of mentoring.
7. You can pay yourself an income salary from your trust/corporation to your Australian bank, subject to Australian personal tax. So many opt to do the trading using trust/corporation and bill their living expenses and travel expenses as company trips (need valid business evidence otherwise they can’t be written off as company cost) only pay themselves minimal salary (under $18K, so they don’t pay income tax in Australia).Basically, you can think of this as “you pay a very expensive fee, but you get to become an inner circle)”.
Whether it is worth it or not, is entirely up to each individual.
I hadn’t heard of them, so thanks for sharing. How did you find them, Steven? Or did they call you? Certainly sounds expensive to me, but then, if they are providing value …..
Obvious questions that arise (to me) would be to discover how much they gain from each property you buy through them – I am always just a wee bit more suss when they are finding the properties, providing the “team”, charging you the earth, etc.
I am sure that weekend experience has added heaps to your knowledge of RE investing, so good work.
Benny
OK, I just went Googling and found that Robert Kiyosaki has some involvement with this group (might be name only – not sure), and that it is International, not Australian. So yes, I know the name, but only by association though.
Suddenly, I have a host more questions about them, and am a lot more wary too. Not because of the Kiyosaki name, but simply because this is an overseas company looking for investors to buy up property they have sourced.
Alarm bells are ringing louder now…. make haste slowly in this situation, and do top-notch due diligence. Maybe there are good deals to be had, or maybe you could do much better on your own ….
Benny
No, I randomly saw them on Facebook so I attended their workshop.
At least at this stage, I do agree with a lot of what they say.
I mean really, if I personally run into Robert Kyosaki tomorrow, and he would like to introduce his team to me to do Real Estate, then I’d sign up right away. I know that Robert doesn’t pay his team member in the form of a “pay roll”, ie: they are not Robert’s employees, but they still form a good team working together.
So regarding to their team, the way how they presented is that, the Tax agents, Solicitors, sourcing agents, etc… are not Legacy employees, (that is, they are not on Legacy’s Pay roll so Legacy doesn’t pay them salaries to do business together) but people who they make use of.
To be honest, I couldn’t care less who sourced the properties and from where, as long as I keep in my head that:
1. The numbers add up. (do my math)
2. The numbers make sense. (research the area where the properties are sourced to understand if the property is really below market value or not in that area, and whether the area is suited for such investing)
3. I get to free up my time. (I have a full time job, so there is no way I get to do property investing in a full time manner, nor is it possible for me to dig up those under market value properties on my own. So instead of relying on the unreliable myself, why not make use of leverage instead).
4. The cash flow makes sense. (this is the king of everything. If the cash flow adds up and meets my requirement, then who cares if the sourcing agent and Legacy pay each other or not)I mean looking at my own situation now, I have 2 properties, 1 is my own home and the other is an investment property.
The amount of time and effort me and my wife spend is insane, and even then the investment property is not a good buy. (we bought for appreciation, not for cash flow, big mistake on our part).
Truth be told, I myself have very low confidence in my own ability to find under market value properties, whether in Australia or overseas because: a) I don’t know how to find out whether a property owner is deceased or divorced or defaulted on their loan. b) I don’t have any connections with any agents or otherwise. c) Even if I do, I don’t get the time to do that.
So basically the way how it is structured is:
1. The expensive part is the studying. (think of it as a uni fee)
2. When you do properties with them, each time a property is sourced:
a) you will be charged a sourcing fee. From what I see so far, it looks like usually it is around 4-5K NZ dollars
b) you will be charged legal fee, etc… obviously (I didn’t take note of a figure, but it is quite negligible compare to the rest)
c) you don’t pay stamp duty in NZ (my parents’ NZ friends verified that to be true)
d) currently there is no CGT in NZ. The NZ government are trying to introduce it, but whether it will be successful or not, we don’t know.
e) The assumption is that property management will be at 10-15% of rental income. (might as well assume 15%)
f) Once again, the monthly operation expense (such as insurance, water bill, rates, etc…) will form between 10-15% of rental income, depending on each circumstance. (again, might as well just assume 15%)——————————————-
One thing that the instructor repeatedly stressed is that we do not want to use our own money to invest. Unfortunately there are 2 fees that can’t be avoided, and they are:
1. they learning fee (that expensive 28K fee)
2. the first deposit for the first property — this one we will have no choice but to transfer from Australia to New Zealand as this our starting money.However, the important thing is once the first deal is done successfully, we do NOT need to transfer any more money from Australia to New Zealand to do further deals, because we can use the profit we generated from the first deal in New Zealand to keep us going. In other words, we make our initial investment using our Australian money and that’s it, and from this point onward, we are supposed to make more profit by using the profit gained within New Zealand, we should not need transfer money from Australia each time we want to buy our next property unless we messed up. This also means the first deal has to be done very carefully to avoid messing up. Once the first deal is done correctly, not only does it give us the leverage to use our profit in NZ to keep us going, it also gives us confidence too.
If a student has to transfer the deposit from Australia to New Zealand every time that student is trying to buy a new property, the that student is doing something terribly wrong.
The instructor made it very clear multiple times during the weekend: If you need to take cash out of your own saving account every time you want to buy a new investment property, then you are asking for bankruptcy, because the amount of money in your saving account is finite and they increase at a very slow rate if all we have is our 9-5 jobs. So you need to make use of leverage, use the “money in, money out” approach (with Australian property yield at record low, I am not sure if money in-money out approac really works that well in Australia, but then I won’t find out how well they work in New Zealand either until at least I give it a go).
The worst thing that I can think of is that I spend 28K, find that their sourcing agent’s deals are all unfit for my requirement and reject every offer they make.
Can’t think of anything worse than that.
Just before anybody else jumps in and say “the sourcing agents could be faking numbers when presenting you the deal”, well I am not worried about sourcing agents faking their numbers because when the numbers are presented to me, I can verify by:
1. Getting in touch with the local agents to see the value of similar properties in that area.
2. Getting in touch with my connections in New Zealand (ex-work colleagues, uni friends) to introduce the area to me so I can understand the location better.
3. A bit of google around can help out too.For me, the part that I have the biggest trouble with is to actually find a deal. This is the most time consuming and cumbersome part and the part where I have the least knowledge and the least personal connections. So really, I am not even going to try.
So just let the sourcing agent do that part and I will need to make sure that once a deal is presented to me, I have the knowledge to work out the numbers and the numbers in the deal make sense to my strategy and requirement.
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This reply was modified 6 years, 7 months ago by
Steven. Reason: spelling
Hmm, the confusing part I see (or read), Steven, is that you don’t have time to find/buy/research a property in Australia, even if using a Buyers Agent for $6k or so.
But if you pay them $28k, then you will need to spend 6 months learning about THEIR o’seas market (a purchaseable option?), and untold time researching their deal, checking out foreign laws, etc, and fly over there for a few days to meet their solicitors (???)….
“does not compute”….. springs to mind ;) but good luck with the decision.
Also, you make a mention of their fees (or some of them) being Tax deductible…. Well, they could be, but DO check this out with your favourite adviser as, from what I recall, this is NOT always the case (especially with recent changes to the laws brought in by the current Federal Govt). So again, softly, softly.
Good to hear though that you weren’t cold-called though :)
Benny
I think 30-60 minutes per day is an OK commitment. Its not like I need to spend hours and hours for 3-6 months. So basically, it is like do 30-60 minutes study, let things slowly sink in, etc… rinse and repeat.
The travel to Auckland for 3 days does not happen until after those 3-6 months. I was told we meet their team on day 2 and potentially for those students who are ready, they can get into their first deal during their trip, but most students are not expected to act that quickly.
Also, the mentor is not there to teach us for 3 days and then forget about us, nor are we supposed to leave our mentors underutilized. We paid to get mentoring for a reason. So if the sourcing agent presents me a deal and I need a second pair of eyes to check things out, I can ask mentor questions. The important thing is to stay in touch with the mentor the keep things going smoothly between us. So in a sense, I’d say this is not that much different from getting an Australian Mentor who lives in Sydney rather than Melbourne (except for the 28K part).
Now the mentor is not there to do my job for me, so if I am not sure about something, I need to put down my thoughts and specific questions I have about deal for the mentor to be come back with specific suggestions.
By the way, I sent you a private message in this regard. Let me know what you think.
I don’t know many buyer agents in Australia, just as I don’t know any NZ sourcing agents for the moment. So there is probably not a great deal of differences in this regard.
I haven’t signed up for the program though, just that I asked for a 7 days extension for me to think about before they shut me out (they gave me the 7 days to think about, and the instructor who presented the class still gave me homework as if I paid my deposit). So I have until Sunday evening to make a decision.
As for being tax deductible, I don’t think they are referring to Australian tax point of view, but more from NZ/UK point of view. ie: a trust will be setup in NZ if I go and this education expense and travel expense gets written off as part of trust cost rather than my personal cost. But I will clarify on that if I decide to sign up.
Based on my understanding, I think the strategy which they use are not going to work very well in Australia. Many students who sign up will opt to use a “buy and flip” strategy to get started, so they can build up their cash stock before they consider “buy and let” or “house of multiple occupancy (where we have property with 6-7 rooms and we rent out individual rooms)”
The problem with flip strategy is that, in Australia, we have the 2 nasty taxes called Stamp Duty and Capital Gain Tax, which neither exists in New Zealand (not now anyway).
This means:
1. When flipping, we need to consider the extra 5.5% as our cost when we sell the property. So less profit for us.
2. If the property is sold within 1 year (which will be the case if we flip), then that’s 50% CGT and if after 1 year, it is 25% CGT. This one is a killer.
3. Once that is over, the remaining profit gets added on top of my personal income and gets taxed again, so if I have a high paid job, that’s even more tax.This is just not going to work out very well if I need to do, say, 2-3 flips in less than 12 months.
Anyway, I still have 4 days to say yes to them if I still want to sign up by end of this week.
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This reply was modified 6 years, 7 months ago by Steven.
With those flips, I think the way you do them is important (and I haven’t done any at all, so I am flapping my gums here, but other members might be able to step in…..)
e.g. I think it can work out if one takes out an option, then onsells that option to someone else. In that way, you never do take possession of the property, so you don’t need to pay Stamps – at least, I think that is how it goes(???)
There are a small group on here who do this kind of thing (flips etc) who might be able to add much more value…. Fingers crossed.
Yes, I caught your PM and will answer in kind,
Benny
e.g. I think it can work out if one takes out an option, then onsells that option to someone else. In that way, you never do take possession of the property, so you don’t need to pay Stamps – at least, I think that is how it goes(???)
I heard about them to. I think that’s part of what Dominique’s teaching is about.
If someone defaults on their loan, I can pay loan temporally for that person.
Then I can get a caveat added and strike a deal and sign off legal documents with the distressed vendor, which gives me permission to sell that person’s property, and in term we negotiate a way to split the profit.
I then sell the property, and avoid Stamp Duty and Capital Gain Tax.A bit long winded way and more hassle on the legal side, but can get the job done.
Hi Benny
I got the clarification re: tax deductible from them.
Probably irrelevant, but more of an FYI for those who are curious to know the answer.
The Tax Deduction doesn’t happen in Australia, but happens in UK or NZ, depending on the choice of investment.
In UK, it can be claimed from the day of payment up to 3 years, and in NZ, it is 18 months.
So basically those who choose to pursuit further would setup their company / trust from the chosen market and write it off as business cost from there.
The Tax Deduction doesn’t happen in Australia, but happens in UK or NZ, depending on the choice of investment.
Cool – thanks for the clarification,
Benny
Try and find some people who signed up for the $28k and ask them for their experience. It would be good if you could find some people who have not been recommended by the company.
Try and find some people who signed up for the $28k and ask them for their experience
I have already signed up myself.
I plan to do some blogging or video along the way, as a way to record my progress so if I am successful of doing it, then this is an example of how it can be done. Or if I am not successful of doing it, then it is a living testimony of why this doesn’t work.
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This reply was modified 6 years, 7 months ago by
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