7 Steps to Wealth Extract

Jason’s Custodian Story Jason McCartney is a Custodian investor, AFL footballer and Bali bombing survivor.

I looked at a few property groups before I became part of the Custodian group in 1998. And it’s been a fantastic journey. At one stage my wife and I had six properties. Through the miracle of compound growth that John speaks about so often, we chose to capitalise on and sell three of those properties in order to fund our family home in Melbourne. Only recently have we recommitted to our wealth building journey in order to purchase another property.

My background is AFL. I played with Collingwood, Adelaide and the North Melbourne Kangaroos. In 2002, I unfortunately found myself caught up in the Bali terrorist attacks in Paddy’s Bar. I was only five metres away from where the first of the explosions went off, set there by a suicide bomber. I sustained burns to 50% of my body, my eardrums were perforated and I sustained numerous shrapnel wounds.

When I go back to that time in hospital in 2002 in my mind, I remember sitting there – laying there – as I couldn’t do much else, and knowing Nerissa was really concerned with trying to think about all the things she had to take care of at home. I remember one thing she asked, ‘What about the investment properties? What do I need to do about them, Jason?’

‘You don’t have to do anything,’ I said with some confidence. ‘Custodian is a well-structured program. They’re well set up and they’ll take care of themselves.’ And they did.

That’s what I’ve found with Custodian. Once you get set up and get started, it will take care of itself. And what I said to my wife then is still true: ‘It’ll be OK … it’ll be fine.’ And it has been.

Obviously, it was a very difficult period for my family and me as I found myself in a hospital, fighting for life. But I had amazing support. I think that’s what’s really important with whatever you do, that ability to set goals and challenge yourself. But you need outstanding people around you, and I certainly had that and more.

It was a struggle. But I had tremendous support and with that, and determination, in three-and-a-half weeks, much to the surprise of my surgeons and the people at the Alfred Hospital, I was released. A rehabilitation program came next, with the ultimate goal of me getting back to playing AFL football again. But before that I had a more immediate goal to achieve.

....continued on back page

‘In climate you you need need an an ‘In an an ever ever changing changing investment investment climate all-weather, proven property plan. all-weather, statistically proven property strategy.

And this is it.’

And this is it.’

Extract – 7th Special Edition John L. Fitzgerald

Seven Steps to Wealth First published in Australia 1998 by Toogoolawa Children’s Home Ltd. (ABN 73 053 100 351) now Toogoolawa Schools Limited.

Seventh edition: May 2015 © 2015 John L. Fitzgerald All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the publisher in writing. Every effort has been made to trace the copyright holders of statistical information and diagrams reproduced in this book. The author is grateful to BIS Shrapnel, The Real Estate Institute of Australia, Residex, Business Review Weekly, ANZ Bank and the Australian Bureau of Statistics for permission to use selected data. No responsibility can be accepted by the author or publisher of this book for any action taken by any person or organisation relating to any material contained herein. Property investment is a complex and constantly changing field and all readers should seek independent and detailed advice as to the relevance of any part of this material to their own specific circumstances.

National Library of Australia Cataloguing-in-Publication date Fitzgerald, John L., 1963– ‘Seven Steps to Wealth’ ‘All the things they don’t tell you about property investment’ Extract ISBN 978-0-9942905-0-2 Real estate investment – Australia Other authors/contributors – Toogoolawa Schools Limited Text John L. Fitzgerald with Pattie Wright Editor Pattie Wright Cover Art Direction & Design Angie Ross, Spellbound Creative Cartoons Chris Grosz Previous 6th Ed. Cartoons Dennis Holmes to concepts by Claire Louise Wright Finished art and design Mitch Keys, Electric Designs, New Zealand Printed and bound in Australia by McPherson’s Printing Group, Maryborough, Vic.

To Mary Fitzgerald We are all teachers.

Some teaches explain.

Some teachers complain.

Some teachers inspire.

CONTENTS INTRODUCTION John L. Fitzgerald Jason’s story Just Who Is John Fitzgerald?

Notes Start-up Quiz

1 7 9 26 28

CHAPTER 1 Why build wealth?

Notes

31 43

CHAPTER 2 Why residential real estate?

Notes

45 65

CHAPTER 3 A structure for growth Notes

67 80

Any Other Questions?

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Glossary

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Property Success Table

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Round-up Quiz

86

Quiz Answers

88

Conclusion 90 Custodian

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Contacts

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Toogoolawa Schools Limited

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Your Book Order or Donation

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INTRODUCTION A short speech is a good speech. Whoever coined that was right. So, with this thought in mind, let’s get right to the point of this Extract. The pages ahead are meant to assist you in becoming familiar with the basis of my statistically proven property plan for achieving financial security and to embark upon figuring out how to get compound growth. And if you’re not sure what compound growth is, good – that’s why you’ve picked up this book. In fact, Einstein referred to it as the 8th Wonder of the World. And I can tell you it’s a financial miracle.

And … if you read on, I’ll show you why it’s a financial miracle.

But first, a question: “Why have you even opened this book?”

It’s a presumption that we all want to be wealthy. In truth, our research shows us Australians want to be comfortable, not necessarily wealthy. But we all know we don’t want to be broke, right?

So, the obvious answer as to why you are reading this book is that you want to secure your financial future using a statistically proven property plan. Plus, you simply want to get ahead.

And you can. These two answers are correct. You might have others and all would be right, such as: • How can I pay off my home much quicker and make a passive, tax-deductible income just as quickly?

Now there’s a terrific challenge that gets right down to the core

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of things for many people. And then there’s the big one: • Why do you have to settle for just getting-by when you can get ahead?

This too is just as easily answered as your first question.

With such a simple step, you have taken your first big step. So well done!

The second step is to take heed of where Australia is right now.

The most striking of these positions is with our population. PostGFC, Australia has experienced the biggest population boom in our history. Nearly 250,000 people per annum immigrate to this country and our total population is growing by nearly 400,000 per annum, equating to double or even triple as a percentage of any other developed country. This situation will lead into, in my opinion – and it’s already started – the biggest property boom ever in our history. Added to that, Australia has the lowest interest rates I have ever seen and that’s over some 30 years. An unheard of scenario! Even better … this growing population will be with us for 10 more years, so my next comment is important: take advantage of the timing and get involved in property investment through wealth building – as timing is nearly everything in life.

In addition, and new to the market, is the Self-Managed Super Fund (SMSF) investment buying. On top of that, Chinese buyers are purchasing real estate in this country, for the first time ever.

This mix provides a fertile platform for long-term growth.

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It’s safe to say there will be no better time than right now to plan and build your own wealth for your future and that of your family.

Success, I believe, and have proven, lies in repetition. So start that repetition in a time of surging population growth, affordable low interest rates, new buying groups and economic stability. This climate will give you even more initiative and confidence to begin.

This Extract of the 7th Special Edition of Seven Steps to Wealth is my gift to you as part of your introduction into how you can secure your financial future through understanding what the numbers say.

Ooohhh, numbers, you say?

Sorry, let’s take a minute here.

I control well over a hundred million dollars of property and I have done that over 30 years. Accumulation, that is. The difference between me and someone else you might listen to is I have the numbers in dollars to prove it, whereas many others have just a colourful story. And, as I said in the first edition of Seven Steps to Wealth - sadly not an original line, but nonetheless a very good one – ‘A fool and his money are easily parted’. Therefore, my first coaching tip to you is to look behind the person and study the numbers. And that applies to everyone in the property business, including me.

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Here are a few numbers that we can claim: • I first registered my business on October 13, 1981.

• That’s over 30 years of continuous success.

• Should you have any doubt about Custodian or me? Since 1998, our clients’ properties have increased in value by close to $1 billion.

• In that time, I have bought, sold and developed more than 10,000 properties.

• I wrote the book Seven Steps to Wealth, which well over 150,000 Australians have read. It is has gone into its 7th Special Edition after 20 years in print. It is widely acknowledged as the benchmark strategy. And it has also been translated and successfully published in China.

• We have delivered over 6,000 properties to our clients.

With all being tenanted.

• We have over 3,000 clients.

• Our clients’ property portfolio is in excess of $2.9 billion.

• We have property in the four main capitals of Australia – Sydney, Melbourne, Brisbane and Perth – and have worked within these markets for over 10 years.

• Over seven hundred real millionaires have been produced, with case studies to prove it. These defined ‘millionaires’ are people with four or more properties – over 11 times the national average. This equation puts those clients in the top 1% of all property-investing Australians.

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• Investloan, a fully owned internal finance arm, has funded well over two billion in investment loans.

• Our clients have paid, on average, $212 per square metre for their properties, which now values at over $564 per square metre. A great set of figures! (Make a note of this as I’m going to be talking about this later as the real ‘real estate’ meaning.)

• Our clients have saved approximately $440 million in tax.

That sums it up for me: numbers that work. We have a program we know works and we are a company on which you can rely.

My hope is you will be able to find the answers by coming with me on this journey to become a Custodian. And I am confident in saying that this Extract is the best, most informative introductory volume on wealth building you will ever read.

I’ll leave you with this thought: If you want to do property, talk to me. I do property.

If you want to build wealth, you must speak to me.

And I will listen.

Look to the future. It’s an exciting one and I am excited for you.

John L. Fitzgerald CEO Custodian Invest Different

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JASON’S STORY As I have mentioned, numbers do tell a story, a very necessary one in wealth building. But, just recently, the human importance of what we do here at Custodian was summarised so well by Jason McCartney, Australian hero, AFL player and long-term Custodian client, when he spoke at our annual Kick Start client event for 2015.

You can read Jason’s entire story on the inside front and back cover of this Extract, but when he personally related how being a Custodian client helped both he and his wife in their time of dire need, I thought, my work is done. I’ll let Jason re-cap what took place at his hospital bed: In 2002, I unfortunately found myself caught up in the Bali terrorist attacks in Paddy’s Bar. I sustained burns to 50% of my body, my eardrums were perforated and I sustained numerous shrapnel wounds.

Obviously, it was a very difficult period for my family and me as I found myself in a hospital, fighting for life. But I had amazing support.

When I go back to that time in hospital in 2002 in my mind, I remember sitting there – laying there – as I couldn’t do much else, and knowing Nerissa was really concerned with trying to think about all the things she had to take care of at home. And I remember one thing she

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said, ‘What about the investment properties? What do I need to do about them, Jason?’

‘You don’t have to do anything,’ I said with some confidence. ‘Custodian is a well-structured program.

They’re well set up and they’ll take care of themselves.’

And they did.

That’s what I’ve found with Custodian. Once you get set up and get started, it will take care of itself. What I said to my wife then is still true: ‘It’ll be OK … it’ll be fine.’

And it has been.

That sums it up for me! This is an example of our point of difference here at Custodian, where real-life evidence of the numbers working and the program remaining strong in a time of need is there for all to see.

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JUST WHO IS JOHN FITZGERALD? I would ask, if I was you.

And just who is suggesting he can help me achieve financial security?

It’s a good question, a necessary one for you to ask. I often think we can take some professionals too casually at their word about their expertise, when all the while we should do our own due diligence and investigate who we are considering working with and trusting; so let me answer your question by giving you a potted history of ‘Fitzy’.

First and foremost, I am a builder of wealth. And a successful one at that! I don’t think there is a category on any of the Australian Tax Office forms for this profession, but that is what I do. And I have helped build the wealth of thousands of Australians. I have assisted over 3,000 Australians, just like you.

Ask me and I can tell you about their case studies. Many have become friends and remain clients. I wouldn’t move away from me either if someone had made me a millionaire, by the way!

I am also the man with an established Australia-wide group called Custodian, which has over 30 years proven experience in the property business. It is through Custodian that I can give you the confidence in knowing you too can build a property

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portfolio with a statistically proven property plan. I can show you how to do it – successfully. To plan for the future. To build for the future. Because it works! But let’s take one step back and I’ll fill you in a little on my history.

My story might help you understand why I do what I do and where I come from. Again, its not complicated. I’m not complicated. I am an Australian born and bred in the outer suburbs of Melbourne, Victoria … perhaps like many of you.

I’m pretty much an average person: if anything, a bit below average academically, and a bit above average in sport. I once bought a table tennis table, ‘flat packed for easy home assembly’. After half an hour of wrestling with the instructions, I found a nearby 15-year-old who was able to put the whole thing together, ‘as advertised’, in about three minutes.

So, I’m not good at everything!

But I am a proven front-runner at building wealth.

And, if I can build wealth, so can you. Seriously! And if that’s all you really need to know, feel free to skip the next few pages and go straight on to Chapter 1.

If not, my history continues – you have been warned.

I was born in Melbourne in 1963 and spent my first eight years in the middle-class suburb of Moorabbin. My father was a menswear retailer and went into business on his own at the age of 30. By the time he was 37 he had built up three menswear shops in Collingwood, Belgrave and Stawell. He was a devout Catholic from an Irish Catholic family: five children, all

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in Catholic schools. My mother ran the home full-time, having left a career as a ballroom dancing instructor to marry Dad. The school holidays of September 1972 changed my life – all our lives – suddenly and forever. My oldest brother David (then aged 12) went, as we often did, to visit Uncle Morris’s farm near Shepparton. We heard later that he and our cousin Peter were lighting a fire when David, who was practising his notorious balancing act on a log, lost his balance and fell into the fire. Uncle Morris got him to the hospital, where he was found to have third degree burns from knee to ankle, and given skin grafts. I remember visiting David at the Shepparton hospital, the slick lino floors and the cold concrete walls.

He was there for six weeks. One Tuesday morning dad drove out to visit him – and never returned. On his way home, the car was sandwiched between two semi-trailers and driven off the road; he was killed instantly.

At nine years old, I sensed there was a purpose behind those rollercoaster days, believing even then that everything happens for a reason. That was the start of what I now see as a journey to discover my own purpose in the world – a journey that has since become one linked to the creation and use of wealth. (If there’s a ‘bigger’ purpose to your reading this book, I hope it will become clear as you read on.)

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My mother had to take over the businesses, as well as run the family. She did a tremendous job, showing amazing business acumen for someone with no direct experience. You may have noticed I dedicated this book to her. To help her cope, in 1974 we three boys were sent away to a boarding school, where I skipped Grade 6 in order to go to the same school as my brothers.

It was pretty clear from the first that I’d make my mark on the sports field, not in the classroom. I made the first 18 football team in Form 4 (Grade 10) despite being a year younger than my classmates, and I excelled in athletics and all the various sports on offer. I am very health and fitness conscious to this day, and am grateful that I was able to take part in so many sports so early in life.

I left school in 1979, having just scraped through with enough of an aggregate to get my HSC. It was expected I would go to university, or at least repeat my HSC in order to improve my marks, but I decided against both, as the academic life was not for me.

Having barely lived at home from the age of 10, and as boarding schools make their students independent, I knew it was time to decide on my own life. By then the sum total of my worldly possessions fit into a locker 1.8 metres high by 40 cm wide, so some decisions were made easy. With all this in my young mind, I decided to ‘get in amongst it’, as the saying goes, and see what life was all about.

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A friend and I had planned to hitchhike to Queensland – I wasn’t old enough to have a car, being not quite 17. By January 1980, the friend pulled out, but I nevertheless shoved things into a backpack and headed off alone for the Gold Coast. On a hot day in that January, my brother drove me to the outskirts of Melbourne, dropped me on the side of the road at the Ford factory on the Hume Highway and wished me a well-meant ‘Good luck and see ya’. I had a couple of hundred dollars in my pocket. I was on my own.

My arrival on the Gold Coast was great timing – and I do believe in timing. The Gold Coast was in the midst of a property boom and I knew immediately I wanted to be a part of it. I applied for several real estate positions as a salesman and eventually, through contacts, got a start with Bert Cockerel, who had an office in Surfers Paradise. To call Bert a ‘jack-of-all-trades’ would be an understatement. I remember going to visit a motel he owned on the highway in Surfers, called the Golden Sun Motel. It’s now the site of a 30-storey high-rise named Zenith.

Bert owned the Palm Beach Picture Theatre as well and was a keen – read ‘mad’ – fisherman. He did the fishing report for the local radio station and he did it splendidly. Bert was a great guy and I owe him a lot to do with my start in life.

I had gone around to see him about signing my application for a licence as a real estate salesman. I told him that I was not yet 18, as required, but Bert wasn’t fazed by technicalities, and neither it seemed was whoever rubber-stamped the application forms for my registration as a real estate salesman, despite me

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being up-front about my date of birth. Does that make me the youngest ever? Perhaps it’s better not to ask.

Less than a year passed before I was introduced to George Margolis. George had built a fortune in real estate during the 1960s – and then lost it in the crash of 1974–75. When I first met George, he was re-emerging from bankruptcy, but he had a good plan. With all his knowledge and contacts, and my energy, we would make a tremendous partnership. So at 17 and nine months old, I became an associate partner of Cousins Real Estate. I still didn’t know anything about real estate, but fortunately, I was a fast learner.

Those were the heady days of the early ’80s: looking back, ‘incredible’ is the word that comes to mind. And at my age and with my experience (neither of which were particularly impressive) I was able to advertise for people willing to invest in a private property trust to develop units – and literally secure dozens of investors who were prepared to punt $50,000– $100,000 on my ability to acquire a site, construct a building and make a profit.

Like I said: ‘Incredible!’

Of course, it wasn’t just ‘my ability’, as I had the sound building advice of a structural engineer who was part of the management team – and, of course, George Margolis.

I remember all too well the high-rise buildings going up along Old Burleigh Road and the Surfers Paradise strip, where units would

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be settling in a building such as Aquarius. The developer would attend settlement, only to see the property transferred two or three times on the spot! Greed, as ever, was the underlying factor. Real estate agents were promising that if speculators bought, they could on-sell the unit immediately, because of the sky-high demand. It was not uncommon to see units, sold off the plan by the developer for $150,000–$180,000, resell for $250,000, then $400,000, then $500,000 at settlement! I call this the Bigger Fool Theory. If you invest in real estate on this basis, you have to be sure there’s a bigger fool than you coming along behind, to give you a back door. On the heels of greed, as ever, came the crash. In 1982, you couldn’t give highrise units away for love or money! Literally tens of millions of dollars were wiped off the already over-inflated prices paid by investors at the height of that feeding frenzy.

Developers also had their problems. Notably Dainford Limited. This company had built most of the high-rises on the Gold Coast, having just completed the Peninsula building, the tallest and one of the best-located buildings in Surfers Paradise.

A record number of people who had acquired the units on the basis that they could on-sell them found they couldn’t – and defaulted at settlement.

The ups and downs of the early 1980s taught me a very quick lesson: real estate is an ever-changing market and while buildings are its prime ‘product’, it is the land that is the true, limited commodity. People repeatedly made the mistake of paying a premium above already inflated prices for a building

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that of itself was commonplace and easily replaceable.Things haven’t changed much. Speculators are still madly snapping up inner-city units in Melbourne and Sydney, despite one in five currently having to take a loss on resale! And no matter how many books I write on this general subject, this sentence will vary in its figures, but never its impossible imbalance. Ask yourself this question: What percentage of Australians do you think buy units to live in, as owner-occupiers? Take a guess.

Answer: less than 10%.

There I go, getting interested in real estate again. I need to go back to my history, as promised. So, let’s return to when I purchased my first house. It was a house and land package in Shailer Park, Brisbane, and in 1985 I bought it for the tidy sum of $49,000. I borrowed $47,000 on it – which sounded like a lot at the time. But the deal meant that I could start out with just $2,000 of my own money – today that property is worth over $500,000 (2015). So, that’s where I started. With not much in the way of dollars and one load of a belief in myself and what I had learnt.

I had cottoned on to an invaluable lesson. The fact that it was land that appreciated in value, not buildings. And that this created some rather encouraging mathematical effects, namely, if the house goes up by 10%, the land will go up by 20%. Armed with this information in 1987, and with a couple of houses under my belt, I approached one of Australia’s largest developers, Dainford Limited, and asked them to finance me

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into land estates. Dainford generally took ‘long positions’ in the market (meaning they were committed to projects that wouldn’t provide income for 3–5 years), so my formula for acquiring land and immediately turning it into income was pretty attractive.

Together, our first project was a 1,200-lot estate at Loganholme, south of Brisbane. This was acquired as an englobo parcel – meaning before subdivision and infrastructure development – for approximately $2,500 per lot. At that time, lots in that area were selling for around $25,000, with houses selling for approximately $60,000. As house values crept up to over $140,000, the raw land value rocketed to $90,000, forcing the englobo land up to approximately $40,000–50,000.

This sounds like a complete sweetheart deal, but for wealth building purposes I wouldn’t recommend it. Land on its own generates no regular income (unlike a rentable property) and despite the potential for super profits, roughly nine out of 10 land developers go broke in any 10-year period. I was one of the lucky ones.

In four years, Dainford and I developed and sold over 1,000 properties together. Yet, for all that activity, I soon realised I would have been a lot wealthier, a lot sooner, if I had constructed homes on 10% of the allotments I developed and sold, and simply kept them as rental properties.

I have been in the business for over 30 years and I have bought,

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sold and developed over 10,000 properties. I have probably made most of the mistakes that can be made – although I like to think I avoided a few, through seeing them coming, and I have gathered a pretty good idea of what makes a good investment, and how to make a good investment work even better. I realised you don’t have to be a property developer to build wealth in property. In fact, rather the reverse – most go broke, as I have mentioned at one time or another, in pushing ahead on bigger and bigger projects.

The present day finds me continuing to work and succeed.

Otherwise you wouldn’t be reading this book or listening to me at any of my seminars. I run and own Custodian – a property investment company in Queensland. I have fathered happy children and contribute to the assistance of underprivileged children. This particular part of my life has taken shape over 25 years as I established and funded Toogoolawa Schools Limited. This school provides free education for youth at risk. Specifically, for children who have been excluded from mainstream schooling. I’ll talk more about this later in the book, because this is the ‘why’ for me.

Of late I spend a good deal of my time in China pressing the flesh for investment in this country, and I give hundreds of investment seminars a year throughout Australia. I am asked for investment and wealth building advice from Canberra to Broome and all stops in-between. I mentor, offer philanthropy and live a happy life. I could also stop working. But that has never occurred to me as I actively enjoy helping people to build

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their wealth because then that wealth goes on to help others. It is a flourishing circle for all involved.

So now you know who John Fitzgerald is. How about I tell you about my company, Custodian? The two go well together, like two peas in a spring pod in a vegetable garden.

Since 1994, my company, Custodian, has worked on a system – based on the structure outlined in this book – that facilitates a successful wealth building program for ‘ordinary’ Australians, none of who ever turn out to be ‘ordinary’, by the way.

We have held Australia-wide property events on wealth building for those interested in the concept of property investment over most of the years Custodian has been in business. And, as a piece of confidence for you, we have never faltered. Never in the recent GFC, never before, and I hope, if I have lived up to my own rules, never since.

From the start, I set out to do things a little differently from other developers and marketing operations I know. Through Custodian I have sought to build very solid relationships with thousands of our clients, beginning with their first property purchase and successfully continuing on to assist them with further investments in building a wider portfolio. Custodian has worked with these clients over many years of monitoring their capital growth and helping to guide them step-by-step to establish a handsome property portfolio. As John Fitzgerald, I am a hands-on CEO and owner of Custodian and if you

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become one of our clients you will get to know me well, and I will help you well. And profitably.

It’s been fascinating for me to see people come fresh to the ideas of wealth building, and to watch where they get to. It is both professionally satisfying and personally a pleasure for me to be able to observe this. It is, of itself, rewarding.

Some of the people we work with are top sports people.

They have need to reduce their tax liabilities and shift their thinking from ‘income’ to ‘wealth’ for a future beyond sport.

Others are those ‘ordinary’ Australians I spoke about earlier who might never have thought beyond paying off their own home and earning a decent salary until they retire – but for whom the words ‘financial freedom’ (or is it ‘millionaire’?) conjure up a whole new world. And right here I might add a taste of reality. If you wish to place a small, regular, amount of money into a bank savings account over a 20-year period, do the sums at how little you will earn on the present low interest rates compared to placing the same amount of money into a leveraged investment in property at the same interest rate? I don’t need to show you the figures, but they are astronomically different; they are weighted towards property success by some six to one.

In saying this, I am thus very proud of the fact that some of our clients, those who started with us so many years ago now, own up to five to six properties. Many others have eight to ten and some even have ten or more. We have one investor with

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19 properties, and a family with over 30. In fact, Custodian can boast creating over 700 millionaires to date. My team walk the walk, for example, collectively owning over 120 investment properties themselves. I don’t know of any other organisation with such positive results. And, on a personal note, I know all of them.

BECOMING A CUSTODIAN AND WHERE MY LIFE AND WEALTH HAVE LED ME There’s another dimension to all of this for me. Whatever our clients’ initial motivation to build wealth may be – and I guess we all start out ‘self-centred’ with this to some extent – I’ve watched person after person achieve more than wealth through the journey. Many have also found perspective and definite purpose and much more than financial reward. For many, this outcome was most unexpected.

I have had my own major shift in thinking along the way. As you may have gathered, I knew from a pretty early age that I wanted to be wealthy and I set some ambitious goals for myself and went after them aggressively. I got there and when I did I found my perspective had changed.

There are very few really wealthy people in the world. Very few. And I believe that it’s pretty much up to those who control and enjoy the world’s wealth to help those who don’t! Once I had pulled myself into the former category, I felt the weight of that responsibility. I say ‘weight’ because it is exactly that.

Over time, however, I have found an opportunity to use my

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wealth responsibly – to make a contribution to society – and this has been one of the most joyful and enriching experiences of my life.

Mentors are important people, and it was my mentor who challenged me to look for a purpose in life. There’s a great saying in Africa: ‘We have two hungers. The lesser hunger is for the things that sustain us and the greater hunger is for the reason why.’ And it was my mentor, when I was only 25 years of age, who caused me to pause as I celebrated my success – multimillionaire, house owner, property developer and investor, etc., etc. He asked me a most important question: ‘So, what defines you?’

My answer was, ‘Well, I am this person.’

He then said, ‘You are not this person. There are so many other people like that.’ And without missing a beat, ‘How are you going to define yourself ?’ he continued to ask. ‘The only way to answer that question is what you can actually give back.’ And with that salutary advice he then gave me a book to read about a person who had dedicated his life to working with youth at risk, and it resonated with me very intimately, because I could have been one of those youth at risk. I decided then and there that I wanted to make a difference. And when you make a decision to take action, I promise the universe does open up for you.

That happened for me in 1990, when I met a husband and wife psychologist team – Ron and Suwanti Farmer, and together we established The Toogoolawa Children’s Home, now Toogoolawa Schools Limited. Ever since, some of my

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wealth has funded this outstanding school, thus creating unique educational opportunities for troubled youth.

To give you some idea of our ongoing intent and success at Toogoolawa, all the boys have either been expelled or excluded from main street schools. We have a saying there that they are either mad, bad or sad. But, to be honest, they are just highly stressed and traumatised youth because their upbringing has been unimaginable and beyond comprehension for many people. Personally, it took a lot of tears for me to come to grips with the fact that they need me to be there for them, rather than pity them, or feel sorry for them, and so I do. Stress and trauma is interesting because every study on education tells us that for kids to learn they need to be in a happy environment, and that’s our challenge at Toogoolawa as many of them have come from anything but happy. We’ve had to reinvent education in a lot of ways, and I am proud to say that the state and federal governments have acknowledged us by giving us a three million dollar building grant as recognition of our school being leading-edge in what we do. We have, for example, a ratio of social workers to students higher than any other school in Australia and we focus on getting the kids to feel good about themselves and teaching them what they need for a healthy future. In fact, Toogoolawa means ‘a place in the heart’. As we try and teach the kids, and recognise that there can be many difficult things going on in their lives, as in the wider world, there is always a place in your heart where you can find safety, security and solace.

Introduction

23

This is an important and ongoing part of my story and my life. In fact, that’s how I start my week every week when I’m at home, and I have done so for 20 years. At 9 am on Monday mornings I’m at the school with the boys and teachers doing what we call ‘affirmations, quiet time and the thought for the week’. When we help people build wealth, we are not shy of urging them to think of themselves as custodians – as well as creators. To think of wealth as an enabler in making a difference in the world. The choice of my company name was therefore no coincidence.

Custodian is what we are called and we live the values that the name implies, and hope you will as well.

Custodian openly expresses its corporate mission and philosophy quite simply, and we encourage each person who joins us to become a fellow Custodian.

Purpose

Integrity

Truth

Purpose: To create wealth

To serve humanity Integrity: To accept responsibility Truth:

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To keep questioning

Of course, none of this may be important to you right now.

Feel free to put it all aside, but just let it idle in a corner of your mind somewhere, for later. First, start building wealth so you and your family can meet your future needs – or to set yourself a challenge. And as you build wealth and meet your goals, perhaps you’ll remember this seed of philanthropy sown here. Perhaps you too will find something more, something else to invest in for the future of our country.

On that note, let’s move on to the business of building wealth!

Introduction

25

NOTES !

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NOTES !

Introduction

27

START-UP QUIZ So you can get to know us, and for Custodian to get to know you, try out this Start-Up Quiz.

The following questions will help you focus on beginning to understand how to build a financial future for yourself, often with what you have at hand. The quiz may also remind you of where you are starting from in order to build that future.

Don’t worry if you don’t know all the answers yet – you will.

By the time you attempt the Round-Up Quiz at the end of this Extract, I know you will surprise yourself.

There’ll be no prizes right now, no frozen chook or meat tray waiting at the door when you leave. But by completing this quiz you will begin to inform yourself about your financial situation.

There will be more to come. More security and more flexibility in your life ahead … so read on and answer honestly.

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1. In making a wealth building investment decision, what would be more important? £ How you felt about it £ How it stacked up logically 2. In considering a residential investment property for wealth building, what would be more important? £ Rental returns £ Taxation benefits £ Capital growth 3. Is it prudent for me to acquire property close to where I live? £ Yes £ No 4. Which institution(s) effectively control the affordability of housing in Australia?

£ Real Estate Institute £ Banks £ Property developers £ Valuers 5. Is the number of renters of property in Australia

£ Increasing? £ Decreasing?

Introduction

29

6. In choosing a location that is going to give capital growth, which factor is most important? £ Proximity to transport £ Proximity to schools £ Percentage of investor-owners £ Established capital benchmark 7. What is the ‘established capital benchmark’ of an area? £ The median price of property in the area £ The highest price of property in the area £ The lowest price of property in the area 8. What was the average land size of an urban house in the capital cities of 1970? £ 450 m2 £ 650 m2

£ 750 m2 £ 1,000 m2 Sorry, but I’m not going to give you the answers at this point. That’s what this Extract is for. Forget about this quiz altogether for the moment. Read the following three chapters, and by the time you get to the end you’ll be able to tackle the same questions again. And with answers provided by what you have read.

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Chapter 1 Why build wealth?

Chapter 1 - Why build wealth?

31

DO YOU WANT TO BE WEALTHY? Silly question, right? Everybody wants to be wealthy.

Actually, no.

Crazy as it sounds, after we polled over 5,000 people, the results showed us that many of those involved were offended by the connotations of ‘wealth’ and ‘wealthy’. Their more personal, and in fact, honest comments were that they just wanted to be comfortable. But they really do want to be ‘comfortable’.

Here is where I need to take you to the numbers again, because as I tried to reinforce in my Introduction, lots of people have stories, but there’s only truth in numbers when you get to the core of things. And to be comfortable now you Nearly all of us retire need to be a little wealthy. below the poverty line!

I’m not playing with words here, not being clever; I am being, in fact, precise.

What’s going on?

Imagine the security and the freedom of retiring with enough money to do all the things you’ve always wanted to do, for as many years as you’ve got – and not having to rely on the government for a cent!

It seems extraordinary, but when we surveyed 2,200 people in the south-west Brisbane area, 78% of them said they ‘never thought about building wealth’.

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Let’s look at it another way.

How much do you reckon you’d need – per year – to live comfortably in retirement? I’m not asking you to do budgets and calculations and adjustments for inflation, although at some stage, if you were thinking about talking to an investment advisor, it would be a good idea to have an idea of your financial position. Well armed is well served as the saying goes.

I’m just talking ballpark figures here; what kind of a sum per year would you want to retire on, in today’s dollars?

Most of the people I talk to would say something over $70,000 per annum.

Your own estimate: $_____________ That estimate may be perfectly realistic for your own financial circumstance; you’d have to do a few calculations to find out.

Chapter 1 - Why build wealth?

33

How Australians Retire The following chart shows what Australians actually do retire on.

How Australians Retire

Source: ABS 2011 Census

In order to retire on $70,000 per annum, you actually need around $1.5 million in assets, plus you need to own your own home. That’s a lot for some and far too much for many. And that’s only in terms of today’s dollars. In 20 year’s time, with inflation at 4%, the equivalent sum would be $150,000 per year, requiring $3 million or so in assets. How many of you have millions in assets? My answer would be not many.

Therefore, how many of you have a plan in place to build up those kinds of assets by the time you retire? Apparently, only one in 100 of us! It used to be five in 100, so we’re only getting worse at looking towards our retirement in wealth building. But, if you

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are that one in 100, please accept my congratulations and best wishes, and feel free to stop reading (although there may be a few things in this book that will surprise even you). If you are not one of those, it’s your responsibility to change this for yourself! (Think about it. On whom would you want to be financially dependent when you retire? The government? Your kids? Read on … it could be both financially and personally very worthwhile).

WHY AREN’T MORE AUSTRALIANS WEALTHIER? It’s a great question. And there are a number of answers to it.

(I haven’t included ‘waiting to win the lottery’ – although, with $75 billion ‘invested’ in gambling in Australia each year, you’d think we were pretty serious about this as a retirement plan!)

We don’t have enough money to build wealth

Wrong. The structure I’ll show you in this book allows you – even encourages you – to start small. You only need a combined annual gross income of $100,000, and a small amount of cash or equity in your own home or other property to get started. Wealth is accessible to most Australians. Mostly, it’s about using the resources you have, taking sensible advice and direction and restructuring your cash flow.

And all that takes is: (a) knowing how (b) choosing to give it a go

Chapter 1 - Why build wealth?

35

Our parents never taught us to build wealth Most people my age were taught that we would grow up, go to a trade or get a university degree and then find a job. With today’s less-than-stable job market, in both professional and trade areas, the surety of work is far less available than it was only a few decades ago, so we need to make our money work smarter, earlier.

In times past, we’d save up enough money for a deposit on a house, and we’d use our work income to pay off the loan on that house over 25 years … then maybe we could consider another investment. Sound familiar? Well, that’s exactly what most Australians do.

I call this ‘income thinking’. We need to replace it with ‘capital thinking’. This is my first piece of real advice. Think ‘capital’!

There’s always a safety net I think this is part of the same thing. Our grandparents seemed to live fairly happily on the pension in the post-war years, and in the ’50s and ’60s, Australia enjoyed a relatively high standard of living compared to other nations. Of course, that was when there were about 18 taxpayers for every pensioner.

Today, there are less than four taxpayers per pensioner, and if demographic trends continue downwards, within 20 years there will be less than one taxpayer per pensioner. Meanwhile, because we’re living longer, the average Australian will have to fund at least 20 years of retirement. It won’t be long before

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the government simply won’t be able to afford the age pension – even at its current meagre levels. So we might like to think about making our own arrangements.

We don’t like debt This is another of those helpful attitudes our parents taught us.

There are some sound values behind it – self-reliance, pay your own way, don’t put your hand in your pocket unless you have the cash to pay for what you want when you want it. It’s true that escalating debt is a concern for everyone. What we need to distinguish between, however, is debt on consumer items that depreciate in value (like a car, a dining suite, or a stereo system) as opposed to borrowing on an asset that appreciates in value and generates income, like property. The latter kind of debt (a) supports the borrower’s ability to make the necessary repayments, and (b) offers a profit on sale of the asset.

Today there are less than four taxpayers per pensioner. In 20 years....

On the other hand, you could buy a new BMW Cabriolet for, say, $100,000, and by the time you drive it out of

Chapter 1 - Why build wealth?

37

the showroom, it’s only worth $85,000; if you borrowed $100,000 on it, you’re already facing a deficit of $15,000, which you have to pay off. Each year, more of the same; you could end up making payments of $12,000 for four years – and still face a balloon payment of about $70,000 (which may, or may not, equal the capital value of the car by that time). Now, that’s debt.

Ironically, people routinely run up thousands of dollars in ‘small’ debts on consumer items – but baulk at taking on a mortgage.

So, let’s get debt into some perspective. You can’t build wealth without acquiring substantial assets for capital growth, and you can’t realistically do that without borrowing the money to invest. This is called ‘gearing’.

What I am suggesting here is we offset what we owe to the Tax Office by investing in property. Tax is the biggest debt you’ll pay in your whole life. They take 30%+ of everything you earn.

They take this money so the Australian government can look after you in retirement – which I am not convinced of. They give you the option. You can borrow to buy property and use the money that you would pay them in tax later, or to service the loan.

As a somewhat salutary fact, even the Treasury predicts that when every superannuation contribution from every worker in Australia is finally mature, our pension bill will only reduce by some 6%. It’s quite plain – we all need to look to our financial and retirement future.

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Start small, think big – make success a habit.

If you’re interested in gaining this habit, there’s an interview that might be of interest to you. A great friend of mine, Peter Richie, started McDonald’s Restaurants here in 1971, and he is a great businessman, a real success story. He built over 500 stores in the preceding decades and if you want to hear the story of McDonald’s and its real estate story in Australia, Peter recently spoke at one of our annual Custodian client events and it can be accessed at www.custodian.com.au It’s an income world What does ‘being wealthy’ mean to you? It’s an interesting question to ask, don’t you think? And a core question in the arena we are now having a conversation about. For some, it just might be a difficult one to answer. For many it might be a big salary, with a lifestyle to match. But that’s not how wealth works. Income by itself doesn’t make you wealthy. It often means you just spend some. You save some (maybe), and inflation gradually wears its value away. Capital, on the other hand, is material wealth that can be used to produce more wealth, through investment. Capital grows, income flows (mostly, through your fingers).

Unfortunately, most people don’t get past income; they don’t get their money growing and working for them. The system is there – but only capital-focused people use it to build wealth.

Chapter 1 - Why build wealth?

39

If there is something you should take away from this early chapter, it’s this: You can’t save your way to wealth.

Wealth building is strictly for those in the know Some investment advisors would like you to think so. But the good news is that property investment need not be the sole preserve of financial experts. By the end of this book, you’ll know enough about ‘leverage’ and ‘negative gearing’ to get by.

You’ll have a simple investment structure and clear principles to work with. And if the whole business seems like too much of a hassle, remember – you don’t have to do it all yourself! You can get advice and help with everything from working out an initial budget to managing a whole portfolio of investment properties.

Custodian is just one example of an organisation that offers a whole range of services in the property investment field – you could get advice from other sources. Look behind the veil. Try to find someone who has actually done what they are advising you to do! This goes for accountants, financial advisors and real estate agents: there are some good ones who have built wealth – that’s the first credential I’d look for.

Wealth building is strictly for sharks It’s easy to get that impression – and not everybody relates to the idea that ‘greed is good’ the way we seemed to when Michael Douglas first said it in the movie Wall Street in the late ’80s. I do believe it is of benefit to challenge the way we think

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about wealth. Sure, it’s about quality lifestyle, providing for family, a financially secure retirement, control over your future and all that good stuff. But it is also about responsibility.

As I outlined in my personal story, the Custodian philosophy is that those few of us who are fortunate and informed enough to build wealth can – and must – choose to use it Sharing in the responsibly. Wealth puts custodianship of our us in a position to help those in trouble and need society’s future is – and to shape the kind of one way of being fair and hopeful society all you can be we would want our children to inherit. It’s also our responsibility to educate the next generation to manage and preserve capital, for our nation’s financial and social wellbeing. Custodian believe that this is what true investment in the future means – and we find that it yields the most valuable and satisfying returns.

We encourage all fellow wealth builders to adopt this philosophy. This book is about what’s possible – in all sorts of ways. Sharing in the custodianship of our society’s future is one way of being all you can be.

Chapter 1 - Why build wealth?

41

WHAT’S THE SOLUTION? At the risk of sounding like a sportswear advertisement, it’s quite simple:

Just think differently!

JUST THINK DIFFERENTLY! CAPITAL, NOT INCOME. When we talk about ‘wealth building’, we are talking about: • establishing a structure, or system, to manage your cash flow • acquisition of assets (in this case, residential real estate) • capital growth; that is, increasing the value of your investment over time.

Your investment may, of course, also offer you income and tax advantages. But it’s the capital growth that counts. It’s the capital growth – combined with compound growth – that make millionaires.

And as it happens, most millionaires achieve capital growth by investing in real estate.

This Extract will take you through the initial step-by-step of how it all works, and what you have to do.

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NOTES !

Chapter 1 - Why build wealth?

43

NOTES !

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Chapter 2 Why residential real estate?

Chapter 2 - Why residential real estate?

45

If you just look at results, you’d have to say that property makes good investment sense. It does!

For example, it is consistently a major source of wealth for the wealthiest of Australians (and 90% of millionaires worldwide).

Source of Wealth

Source : BRW Rich 200, 2014

Residential real estate, in particular, scores high on any quality you’d look for in an investment – and remember, your purpose is capital growth.

SECURITY Residential real estate offers the security of ‘bricks and mortar’ compared to the fluctuating values of shares and commodities.

Even compared to the manageability of commercial and industrial properties, over the medium to long-term. And, even allowing for the ups and downs in real estate values we all hear about, the underlying trend shows remarkably steady growth.

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You can see this trend quite clearly in the next table as well as with the one following. These clearly depict house prices over the last 30–40 years.

House Price Growth 1966

1976

1986

1996

2006

2015

($)

($)

($)

($)

($)

($)

Melbourne 13,000

37,000

83,700

144,000

330,000

660,000

Sydney

15,000

42,000

97,600

202,000

472,000

858,000

Brisbane

9,700

30,000

60,400

132,000

325,000

505,000

Adelaide

10,000

31,000

77,700

110,000

280,000

429,800

Perth

10,200

38,000

55,100

127,300

365,000

550,000

Capital City

Source: RP Data/REIA, 2014

In fact, the growth pattern has stayed pretty constant throughout the last century.

Sydney Median House Price $ $ $ $ $ $ $ $ $

Source: ABS/RP Data 2014

Chapter 2 - Why residential real estate?

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Roughly speaking, this means that residential property has historically doubled in value every 8–10 years. And don’t forget that with the population continuing to grow, the demand for housing must also continue to increase.

PERFORMANCE The following graph by the Reserve Bank of Australia (RBA) produced in July 2014 shows residential property as the best investment asset class over the past 30 years. And these are just averages.

The better your real estate investment strategy is – where you buy, what you buy, how much land content there is and how you finance – the better the returns can be.

Long Term Asset Class Returns $1,638,400 $409,600

Aust residential property (11.1% pa)

Value of $100

$102,400

Aust bonds (6.9% pa)

$25,600 $6,400

Aust shares (11.5% pa)

$1,600 $400

Aust cash (5.6% pa)

$100 1926

1936

1946

1956

1966

1976

1986

1996

2006

2016

Source : RBA, 2014

Some of the statistics actually downplay the performance of property. Take median house prices, for example; over the last

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20–25 years, the median house price in most of the capital cities has increased by between 8–11% per annum. But look at that ‘median house’ in the 1980’s: it’s on a standard quarter-acre allotment, or 1,000 m2. Look at the ‘median house’ today due to urban sprawl; the standard lot size has decreased to about 450 m2! Remember, it’s the land value we’re mostly interested in. If you look at the actual value of that quarter-acre block in the capital cities, it has well outperformed the supposed ‘median house price’ and presented huge wealth building opportunities, particularly with the advent of dual occupancy or subdivision.

LEVERAGE Because of its security and performance, residential real estate also represents ‘security’ (in the legal/financial sense) or collateral for loans. Most banks regard residential real estate as prime security, against which some will lend up to 90–95% of the property’s value. _________________________________________________ Definition Gearing is borrowing money for investment that provides reliable income. _________________________________________________ ‘Leverage’ in mechanics is a way of turning a small amount of force, at a strategic point, into a much greater force. (Think of a car jack.) Financial leverage works the same way: you can use a small amount of money to acquire an asset of much higher value, on which you reap larger returns and growth. (This is a key factor in the performance of property, as compared to shares, as a long-term investment. We’ll look at it in more detail soon.) _________________________________________________

Chapter 2 - Why residential real estate?

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Definition Leverage is gearing your investment so that the proportion of capital you invest is low in relation to borrowings; say, 20:80 or 10:90.

Equity is your ‘net worth’, the value of assets that is actually yours, or accessible to you. In other words, the value of your assets minus the debt you owe on them. _________________________________________________ If the value of an investment property goes up, and the mortgage on it stays constant, your equity – or net worth – increases.

Basically, the high degree of leverage on residential property allows you to build wealth by using just a little of your own money – and quite a lot of other people’s!

This is great news, because it means you don’t have to be wealthy to build wealth! Residential real estate is actually one of the most affordable investments around.

You don’t have to be wealthy to build wealth!

The confidence of banks with residential property allows you to use your increased equity as security in a fairly liberal way, to piggy-back one purchase on another and build up a portfolio of properties – as we’ll show you in Chapter 3 – so that you benefit from compound growth.

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WHAT ABOUT SHARES? A lot of people will try to tell you that shares are a better investment than property. It’s true that some shares show a higher income return. They are easily tradeable, and shares in major companies have the advantage of high liquidity – they’re practically cash. In fact, prior to the crash of 2007–08, shares even measured up to property based on annual returns.

Obviously that will change after the global financial crisis (GFC) and the All Ordinaries Index fall of around 47%. Shares are rebounding, but they have a long way to go - and property, in some markets, may also be at the peak of its cycle. So let’s acknowledge that both show good capital growth. I’d still argue that property is the better investment, however. Why? The difference is the leverage. You can buy property on a 10% deposit, because it represents a bankable security. When it comes to shares, however, most banks will only lend 50–60% of the purchase value. Big difference … big!

Here’s an example: Bill and Ted both have $50,000 in cash. Bill puts his down as a deposit on a property, while Ted uses his to buy shares.

Let’s assume that in the first year, the value of Bill’s property increases by 9.8%, and Ted’s shares go up by 12.6%. Which was the better investment?

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Bill’s Property

Ted’s Shares

Deposit $50,000

Deposit $50,000

Banks will loan 90% $450,000

Banks will loan 60% $75,000

$500,000 @ 9.8% Capital Growth

$125,000 @ 12.6% Capital Growth

Return $49,000

Return $15,750

Bill gets a better return by over three times in property.

Bill’s equity has gone up from $50,000 to $99,000 ($549,000 minus $450,000). That’s a return of just under 100%.

Ted’s equity has gone up from $50,000 to $65,750 ($140,750 minus $75,000), a 32% return.

Numbers tell us everything.

So even if the shares have twice the ‘growth’ factor, the property offers more than twice the growth in true capital worth (equity) – simply because of its leveraging ability.

Property’s reliability makes a difference, too. When banks lend on shares, they usually reserve the right to a margin call should the shares drop in value. (A margin call is where you

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are required to provide a cash top-up to maintain the agreed loan-to-security-value ratio. So if you borrowed 50% of the value of shares, and their price drops, you would Even if the shares have to pay off part of the loan so that the have twice the outstanding amount still ‘growth’ factor, represented only 50% of property offers the value of the shares.) more than twice the This can be scary, because growth in true capital some banks can give you worth (equity) – simply just two or three days to because of its rectify the problem; if you leveraging ability. have a falling share price, you could be topping up on a daily basis!

Banks don’t, however, require a margin call on three to five year loans on property, particularly at the lower-end price bracket. So there’s no risk of them selling you up because of a temporary hiccup or glitch in the market!

WHAT ABOUT COMMERCIAL PROPERTY? Commercial property includes land and premises used for retail, offices, industry, entertainment and hospitality – anything from the corner store to a Westfield centre. While residential property values are expected to maintain their rising trend, the future for commercial and industrial property is much less certain – and that’s generally reflected in the amount banks

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are willing to lend. Moreover, while the growing demand for rental property allows you to be a relatively passive investor in residential housing, you can’t take the same kind of back seat with commercial property.

When you buy a commercial property, you’re buying land plus buildings, plus goodwill. If the property is tenanted, its purchase price will generally be based on the rate of capital return it offers, which may be a far cry from the building’s replacement value. Let me give you an example. A friend of mine once developed Big Rooster (now Red Rooster) outlets.

He purchased land for around $80,000 and built premises for around $100,000, including car parking and landscaping and so on. He then leased it to Big Rooster for a whopping $40– 45,000 per annum, and sold on – showing a10% return. This is good development business.

The point is that an investor buying a Red Rooster outlet is paying a premium of $200,000 for goodwill – in effect, for Red Rooster’s continued success. But if Red Rooster left those premises at the end of the lease, you would be left with an empty shell, with a replacement value half of what you paid for it, and limited ability to attract new tenants, since the premises were purpose-built for a particular fast food chain.

There have been some real horror stories since the GFC. For example, people borrowed to invest in companies that no longer exist, such as Westpoint, Timbercorp, Great Southern and Storm Financial. Tens of thousands of investors were burnt.

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A sad fact: while I am writing this Extract, the ANZ Bank is issuing writs to hundreds of people who had invested in the now-defunct Timbercorp. This type of tenuous investment, and the subsequent hard-hearted corporate reaction, goes a long way to the warning ‘buyer beware’.

Horror stories about margin calls are not just related to the companies that went broke. They also relate to the big ‘bluechip’ companies, as their shares also lost significant value in the GFC. This made the banks call on their margins, and investors needed to come up with the cash within two to three days.

In many circumstances, the banks sold the shares and then pursued those investors for the balance of their outstanding debt. This resulted in some people having to sell other assets or even their own homes. From my perspective, margin loans are a very high-risk way of investing in shares and making money, especially if you do not have the cash to meet the margin difference.

I remember an investor telling me he had found the perfect way to build wealth. He had bought large tracts of land and leased them for a 10% return to emerging timber companies Timbercorp and Great Southern. He said he could buy these properties for $800,000 and with the timber companies renting them at 10%, he could see no better way to make money. I told him the Red Rooster story – how they were bought out and closed many of their shops – and that it was unwise to put all his eggs in one basket – especially in an industry as fickle as growing trees supported by tax savings.

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Early in 2009, both Timbercorp and Great Southern went broke. They ceased making payments and left investors with large areas of land with small trees growing on them. The land has almost negative value because it does not provide income in its current state and the cost of clearing the land to provide income would cost hundreds of thousands of dollars. Future use of the land would also be subject to council approval and potential rezoning.

Businesses come and go – and not just geographically. You have to think about the retail areas around you. The last 20–30 years have seen the mushrooming of regional shopping centres, which have squeezed out many high street shops and neighbourhood shopping centres. They come complete with entertainment and refreshment facilities so you can stay all day and pick up a few more impulse buys. With the advent of 24-hour shopping, it seems only a matter of time before these shopping centres, along with petrol station/convenience stores, completely take over.

I am not saying all shops are bad; what I am saying is leave it to the specialists

Businesses come and go – and not just geographically

and big companies. Some of the biggest and best in the world do it very well and even so, they too experienced tough times during the GFC. It is a similar story with office buildings. Office tenants will come and go, and the office buildings will often age quickly and

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require you to spend money on capital works and lease fit-out incentives as well as taking risks on tenants, which, during a downturn, could be high. The better buildings will rent well but these are $10 million investments – not what you would call a starting point for average Australians.

Banks look at commercial property differently to housing. I do have a sizable commercial portfolio but it is something I have dedicated managers working on almost full-time. When the banks reviewed my debt levels during the GFC, they did not blink on my housing debt but they did require me to get all of my commercial properties revalued, and then they wanted me to lower my loan-value ratios to below 70% of the new valuations.

If that doesn’t say something, nothing does. I am not saying commercial property is a bad investment, but it is a specialised one for a small investor. If you are keen, you could invest in property trusts with a range of commercial properties, enabling you to spread the risks of tenant downturns. However, while commercial property offers a reasonable income base, it does not have the best potential for capital growth or for duplicating your success to build a portfolio.

MEANWHILE, THE FUTURE FOR HOUSING...

Fortunately, we all have to live somewhere. The wonders of modern technology still haven’t provided any alternatives to living in some form of housing. (Indeed houses are still the norm, outside medium to high-density urban areas). We

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know we have long-term housing growth because Australia currently has the highest population growth in our country’s history. However, as our population ages, this growth is not homegrown, it is occurring through migration and, we are not only short of houses now, but we will need a lot more homes over the next 20–30 years to cope with the growth needed to replace our retiring baby boomers in the workforce.

At least you know you know how to choose and buy a home

Logic and emotion can give you two conflicting messages

AREN’T WE ALREADY INVESTING IN RESIDENTIAL REAL ESTATE? One of the things I like about residential real estate is that it is a known quantity for a lot of people. They may not be entirely comfortable with the language of finance and banking, leverage and gearing, but they have some experience of the sector, especially if they own their own home. This can be pretty reassuring if you’re sticking your toe in the shark infested

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waters of investment for the first time: at least you know that you know how to choose and buy a home.

Sorry, but actually this makes for rotten investment decisions!

It’s a bit like taking up snow-skiing.

If you haven’t snow-skied, it’s a great sport – and if it’s accessible to you, I recommend that you give it a try. I learned some of the basic principles when I was a kid, but only took it up again about 10 years ago, having water-skied for many years. And now, on my annual visit to the snowfields in Victoria or New South Wales, I’m constantly reminded of two things: 1. Snow-skiing and water-skiing may look vaguely similar, but if you try to snow-ski the same way you water-ski, you end up on your face (or worse). The apparent familiarity makes you feel pleasantly confident, but it can also blind you to the fact that the principles and techniques involved are quite different.

2. Logic and emotion can give you two conflicting messages – and if you’re doing something that ‘feels’ risky, it’s the feelings that shout loudest! When you’re on top of a mountain, thinking about heading down, logic and science and the ski instructor and all those good things are telling you that to stay in complete control, you need to lean down the mountain, with all your weight on your downhill leg. Meanwhile, your emotions are telling you to keep your bum as close to the

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snow as humanly possible! It’s easy to say ‘go with the logic’, and I’m the first to admit that, for a novice, hurtling down a mountain at 30–40 kph doesn’t feel ‘in control’ at all. And, yes, the temptation to lean cautiously back into the slope is fairly powerful. But that’s the reason you see me, and a fair few others, losing control on the slopes and ending up with our bums on the snow. We let emotion, not logic or science, make our decisions for us.

And that’s exactly how too many people invest in real estate.

They take the (largely emotional) experience they have in choosing their home, and try to apply it to choosing an investment property. Logic and science go out the window – and so does capital growth.

So what are the right criteria to use?

CHOOSING A HOME When we choose somewhere to live, we naturally go with our emotions, gut instincts and lifestyle choices, and quite rightly: this is going to be your home. We walk into a place with our partner, having looked at several properties – perhaps not even knowing what we’re exactly looking for – and suddenly we’re in love. It’s the place of our dreams (or looks like it could be, with a little work).

I had exactly the same experience buying the property where I used to live. My fiancée and I had been looking for months, and because of our lifestyle we particularly wanted acreage

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land near water. On a rainy Saturday afternoon, I drove up the driveway of perhaps the twentieth property I’d looked at. I got out of the car and knew instantly – this was the one. I made an offer on the place before I was halfway through the front door – and without even consulting my fiancée. Talk about risky decision-making. Fortunately, she had exactly the same response to the place when we went back together the next morning – and of course, we did eventually get around to going through cupboards, flicking switches and checking carpets.

Later, I pulled down that house and built another one, and I am the first to admit I completely overcapitalised on the place as an investment. Even so, it was a great way to buy and make a home! If you’re happy in your own place – be happy. You need to ‘feel at home’ where you live; it makes a huge difference to your work and other areas of your life.

But it’s not the way to invest in residential real estate for capital growth.

CHOOSING AN INVESTMENT PROPERTY … NOT! I always seem to get people coming up to me, bragging they’ve started ‘wealth building’, and all excited because they’ve just purchased an investment property to take advantage of negative gearing, etc., etc. They sound like they’ve won the lotto – and they want to tell me all about it.

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They spoke to their accountant and bank manager, got the tick, and went off in search of a property. Their first port of call was the local real estate agent, because after all, they’d purchased their home through him, and they’d got chummy over the years. And would you believe it? ‘The Perfect Property’ had just come on the market – ‘Just Around the Corner’ from their home! Old Mrs Reid’s house was for sale; she was moving into a retirement village, and had signed a contract to purchase a unit. It was such a big house, and she couldn’t look after it any more. And what a bargain! (‘She’s asking $500,000, but I’m sure if you made a cash offer you could get it for $475,000 …’)

Our couple can’t believe their luck. They’ve driven past Old Mrs Reid’s house a thousand times, always admired it, and now they not only get the chance to buy it, they can get it for a full $25,000 discount on asking price! Within 30 days, they’ve got themselves an investment property …

Why did they choose this particular property? ‘It’s ideal: we can drive by it every day on our way home from work!’

Does that sound like a dumb reason?

It does, if your purpose is to build wealth.

Does that sound like a dumb reason? It does, if your purpose is to build wealth. (In fact, our couple have broken just about every rule in this book).

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And do people really do that? It sure looks like it. Of the Australians who own residential investment properties:

26% INVEST WITHIN THEIR OWN POSTCODE! CHOOSING A PROPERTY FOR CAPITAL GROWTH Here’s where the logic and science come in. There are three questions we need to ask ourselves, if we want to invest in residential real estate for capital growth: 1. W hat structure will best utilise my cash resources to allow me to build up a property portfolio in the shortest period of time?

2. W hat sort of property will give me the highest capital growth?

3. What location will give me the highest capital growth?

Unfortunately, most Australians who invest in property don’t ask themselves even one of these incredibly important questions – let alone all three – which is why 97% of them don’t maximise their capital growth or their tax benefits. And why only 1% of them build enough wealth to retire on an income (in today’s terms) of the average wage of $75,000 per annum.

Just one more statistic: less than 15% of all property investors buy more than one property. But one property won’t make you wealthy. You need to focus on building a portfolio of five or six properties over 10 years. Remember these numbers if you want to build wealth over time in a financially healthy way.

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So, the good news is that this catapults you to the very top – that magic 1% – of successful investors in financial security and freedom.

Therefore, it’s time to ask – and answer – the three big questions.

We’ll start with structure, in Chapter 3.

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NOTES !

Chapter 2 - Why residential real estate?

65

NOTES !

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Chapter 3 A structure for growth Chapter 3 - A Structure for growth

67

In order to build wealth, you need to: • establish a structure • to acquire assets • for capital growth • and then duplicate the process to develop a portfolio.

Why do you need a ‘structure’? You need a structure because there are different elements involved in making your investment work. You’ve got land and buildings, equity and loans, tax and tax benefits, rental income and outlays, and time. The mix and balance of all these elements needs to be just right in order to accelerate portfolio development and maximise capital growth – and it needs to be do-able, time and time again. If you can work out what the ‘best fit’ is, and set it out as a simple formula, you can achieve predictable results – without having to juggle all the balls in the air all the time!

And you can duplicate the strategy without having to rethink it every time! Remember – one property won’t make you wealthy. You need to use the equity growth in that one property to acquire a second, third, fourth – a portfolio of properties all providing (compound) growth. That’s when it gets exciting!

Building wealth using property is a bit like building muscle using weights.

There are different elements to building muscle.

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The weights are only the vehicle you use to build the muscle.

(Some people seem to think just owning weights is good for you – but it’s using them, and how you use them, that counts.)

Technique is important.

You need to use a weight that is within your capacity, and to lift it correctly, in order to stretch a specific muscle. Then you can gradually build up to heavier weights.

Diet is all-important in ‘fuelling’ the exercise. You need the basic Start small, think big!

energy of carbohydrates, a reduced fat intake, and an increased intake of protein, for specific muscle growth.

Finally, rest is essential. The muscle actually only grows when resting after being stretched.

A weekly or fortnightly exercise routine incorporating all these factors would provide an efficient, effective structure to follow.

It might seem as if I have gone off into a TV guru type of health exposition here, but consider the analogy I am posing: Technique, Diet, Rest …as opposed to Structure, Assets, Growth and Duplication. Whether you are building wealth or

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building your health, it’s the same process, just different words (and there are no gym fees for wealth building). Remember – success is a habit!

OK, SO BACK TO WEALTH BUILDING! An effective structure for wealth building will incorporate the same kind of elements.

• A ‘vehicle’ for building wealth – in this case, residential real estate. The land is the vehicle for capital growth, and the building is for generating rental income.

• A ‘technique’ to maximise the effectiveness of the vehicle for your purpose of capital growth. You need to select a suitable vehicle: the right property, in the right location.

And you need to start – and stay – within your financial capacity, at the bottom end of general affordability, where most people can afford a first property. As you see growth, you can begin to build up a portfolio – more properties, not more expensive ones.

• ‘Fuel’ for your investment. With a basic level of available equity and income, you can secure finance. With the right property and the right lender, you can borrow 90% of the purchase price. You put in just 10% of the capital, and access 100% of the capital growth. That’s the beauty of leverage. In order to make this work, without draining your personal resources, you need income from the property, to service the debt. If you optimise the rental income and maximise the tax benefits available, you can effectively offset all your outlays, not just the loan interest,

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but also maintenance, rates, fees and so on. As long as your costs are covered, you won’t be putting any strain on your cash flow – and you shouldn’t be able to get into too much trouble! In other words, you’re setting things up so that there’s a lot to gain – and not a lot to lose.

• Meanwhile, you need to let your investment ‘rest’ in order for it to grow. Over time, the value of the property (in particular, the land component) increases, and – since your debt stays the same – your equity also increases.

Once you have a 10%–15% increase in value, you can use the extra equity to ‘fuel’ the purchase of a second property – and so on, and so on, using exactly the same formula, and with no further claims on your income or other assets!

At the end of a 10-year period, you can have built up a portfolio of, say, six residential properties this way. If they’ve shown sufficient capital growth (and remember, house prices have doubled every 8–10 years over a century – with a blip caused by the GFC which pushed that cycle out) you need only sell one or two of them to reduce your borrowings on the whole portfolio. This leaves you with strong equity in the remaining properties, plus the ongoing rental income from them.

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The overall structure can thus be illustrated as follows:

Structure Capital Growth

Reliable Cash Flow

Land Content

Rental Income

Timing

Tax Deductions

Location Finance

Duplicate If all this seems too good to be true, I can tell you that it is possible. I’ll be showing you how.

Case study: McDonald’s Restaurants McDonald’s restaurants is one of my favourite examples of a system based on real estate.

When Ray Kroc established the McDonald’s franchise system in 1954–55, the menus consisted of only nine items, and the restaurants prided themselves on being able to sell and serve a 15-cent hamburger inside 60 seconds. By the end of the ’50s, there were more than 80 restaurants across America, and each franchise sold for around US$900: franchisees also paid Ray Kroc a percentage of their investment as a franchise fee to cover administration. Unfortunately, huge business growth

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can’t be sustained by limited capital – and therefore limited capital growth – and in the late ’50s, McDonald’s nearly collapsed under its own weight.

What enabled McDonald’s to grow into one of the outstanding businesses of the 20th century? Structured investment in real estate. The company had previously acquired all of the restaurant properties and then leased them back to the franchisees, retaining management of some restaurants themselves. In the following decades, this strong real estate base financed the building of thousands of restaurants all over the world. McDonald’s is today worth billions of dollars because of a fundamental decision to restructure their cash flow, allowing them to acquire property, and to secure a steady demand for tenancy (through the success of the franchise), thus generating rental income. They started out with little or no equity.

That’s pretty much how Custodian’s structure works – by supplying property to willing tenants (within an affordable price range), to finance the building of a real estate portfolio for sustained capital growth.

HOW IT ALL WORKS: AN OVERVIEW 1: Gearing You borrow 90% of the value of an investment property, giving you 10% equity. All it takes is 10% growth in the property’s value, and you have 100% return on the capital you invested, per annum!

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100% Return P.A. on Capital Growth @ 10%

$50,000

Loan

$450,000

Deposit

$50,000

Price $500,000

Your 10% could represent a cash deposit, or you could use the equity in your own home, which may be more tax-effective.

2: Cash flow management But what about the loan interest and all the other costs of doing this? Surely they eat away at your 100% return? No. That’s where the structure comes in. It’s all about cash flow management, the basis of all successful businesses.

Ability to Duplicate Capital Growth

Rental Income

74

+

Reliable Cash Flow

Tax Benefits

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=

Outlays

3: Equity growth

Value and Debt

Loan debt: $450,000. Property final value: $1,079,462.

Source: Custodian

You need 10–15% equity growth to give you the 10% equity you need to duplicate your strategy with your next property.

And repeat. And repeat again.

If there’s a warning bell ringing at the back of your mind about the debt you’ll have chalked up by this time, don’t worry. I promise to put that into perspective later on.

THE STARTING POINT You can begin to build wealth now if you have: • about $100,000 annual (combined gross) income • and $100,000 in available equity (in your home or other property) or cash deposit (although there are ways of getting around this too).

Don’t forget, you needn’t actually pay out any of your income.

It’s just an indicator of your ability to repay a loan, one of two criteria – equity being the other – on which banks and other

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institutions lend money for property investment. In fact, you could actually increase your net income, thanks to tax savings.

THE BEAUTY OF COMPOUND GROWTH If I took just one cent and doubled it each day, how long would it take to turn it into a million dollars? The answer is just 27 days. Sounds amazing, doesn’t it? That’s the power of compound growth – growth on growth (on growth …). The following graph shows how you can access that power, from the minimum starting point cited above.

Financial Goals Buy 6 homes over 10 years at 8% capital growth Asset Growth Optional Sale

2

1

0

r1

a Ye

r1

a Ye

9

8

1 ar Ye

ar Ye

6

r7

ar Ye

a Ye

r5

ar Ye

r4

a Ye

a Ye

3 ar Ye

r1

2 ar Ye

a Ye

At Year 12 Net Assets $2.992M. Positive Income $60,092 p.a.

At Year 12 Net Assets $2.81 Million Positive Income $64,313 p.a.

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HOW MUCH CAN YOU ACHIEVE? Here’s a slightly more aggressive use of the same structure.

Financial Goals Buy 10 homes over 10 years, with option to sell in Years 11 and 12 Asset Growth Optional Sale

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

ar Ye

12

11

10

9

8

7

6

5

4

3

2

1

At Year 12 Net Assets $5.33 Million Positive Income $142,934 p.a.

I can’t tell you what your goals or commitment should be, or what your potential is. It has to be up to you.

My best advice is to allow yourself to start small, and to think big.

After more than 20 years of coaching investors, many clients have six, eight, ten homes and more. Some clients have as many as 15–20 homes. They started small and built momentum. As the capital value of their properties and their income grew, they were able to duplicate to achieve compound growth. Many of them are now millionaires and multimillionaires by using exactly this system.

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WHAT DOES IT TAKE TO MAKE THE STRUCTURE WORK? We’ve already mentioned key elements – but let’s get specific.

There are seven basic steps to building wealth: 1. Buy land for capital growth 2. Optimise your income 3. Maximise your tax benefits 4. Finance to build 5. Aim for affordability 6. Make time work for you 7. Be all you can be Be all you can be is a good way to finish my three introductory chapters of the Extract of Seven Steps to Wealth, don’t you think? But read on to the final pages and talk to us. As you can, ‘Be all you can be’ and we can help.

ANOTHER THOUGHT – THAT DIY-STRATEGY THING Sadly, many Aussies have a ‘do it yourself ’ mindset. And over the years I have encountered a lot of people who, having attended one of our events, read my book ‘Seven Steps to Wealth’ and have then thought, Bingo! This is easy. I can do this myself.’ As I said above, ‘sadly’ – they have been wrong.

These same people have come back years later with disaster stories asking me if I can help them sort out the mess they

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have gotten themselves into. Some of the stories have been quite dire.

The world specialises today, and when it comes to building a property portfolio, it’s no different. You need a team of experts around you. I have that team of experts – they are called Custodian. They are specialists in research and valuations, town planning investment funding, project management and construction, accounting, financial planning and much more.

They are the Custodian team and they are at your disposal.

Can I say I don’t know any truly successful person who would say they have gained success alone. I am successful because I have an A-team of professionals around me and together we achieve great success. Just think outside property investment for a minute; no sporting team is successful based on one star player. It’s a team effort and I would caution you to not attempt a true wealth building journey ALONE.

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NOTES !

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ANY OTHER QUESTIONS? Great, I hope you do. Ask away! I love questions about this business. Questions are a good thing. And I hope you have many, as it shows you’re aware and proactive … and not procrastinating.

Write down what you feel you don’t know. That’s what the few ‘Notes’ pages are for. Take a moment after you read each chapter and just scribble down your queries.

I haven’t been in this business all these years to not be able to answer most or all of your queries. Why not try and find out which one I can’t answer? It may sound as if this is a personalised business I am offering here, but it’s not. I am a team. I have a team, an Australia-wide team of experts who can assist with all your queries. And some are even named John. But there’s only one Fitz!

You need to attend to all the information you now have at your fingertips so you can make informed decisions about your financial future.

We all want it to be clear for you from the very beginning.

Any other questions?

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Just ask if you do have any further questions, like ‘What’s that mean.?’ or ‘What is this when that happens then?’ or even ‘Just where did you get those stats from?’ All the questions you have can be answered. And answered honestly.

As an added help, this Extract includes a two-page Glossary of words to help you further understand the terminology used in the financial/property investment sphere. It might save you a question or two. I had to learn them and they have stood me well. So it’s your turn. I have also included a small table of property successes within Custodian. It’s not a wildly comprehensive table of property purchases and their eventual profits, but it’s enough to let you see, in a straightforward manner, just how much you can make on buying a property when you’re advised by Custodian.

So your next step is to talk to one of my Custodian team. Attend one of our Property Events. Or call us on 1800 174 999 and join Custodian’s team of wealth builders www.custodian.com.au My colleagues are all trusted experts and they can answer (or assist you in continuing to ask) any questions you may have.

Sceptics make the very best investors and I like to answer all comers in this field of enquiry. I am – we are – comfortable with questions. And even more comfortable with making you money.

Now keep turning the pages – Custodian’s contact details are in the few pages ahead.

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GLOSSARY Capital

Any form of wealth that can be used to create more wealth. Most commonly in the form of cash or equity in other properties.

Capital growth

An increase in the market value of an asset above the purchase price. Also called capital appreciation.

Compound capital growth

The rate of return on an asset, usually expressed as a percentage on the original amount of capital over time. Put simply, growth on growth on growth.

Compound growth

Growth on growth.

Debt service ratio

The amount of money you can borrow relative to your income in order to service a debt. Usually expressed as a percentage.

Depreciation

The reduction in value and usefulness of an asset over time.

Duplicate

A strategy to build steady wealth over time, using the capital from one property to buy another property. If you keep duplicating this strategy, you will create compound growth.

Established Capital Benchmark (ECB)

A benchmark used to identify a potential high growth property, based on proximity to far more valuable properties. Used in conjunction with other criteria.

Infrastructure

Public and commercial facilities such as road, rail links, schools, playing fields, hospitals, shopping centres, etc.

Integrator

A business that pulls together all the components necessary for clients to achieve a performing investment.

Land content

The percentage of the purchase price represented by land value. If you purchase a property for capital growth it is the land content that usually grows in value. The higher the land content, the higher the capital growth.

Glossary

83

84

Loan value ratio (LVR)

The amount that can be borrowed to purchase a property relative to the purchase price. Usually expressed as a percentage.

Leveraging

The degree to which an investor is using borrowed money to supplement an investment.

Managing developer

Like Custodian, a managing developer is a person or entity that deals with all aspects of developing an investment property on behalf of their clients.

Market value

The dollar amount of an asset estimated in the current market looking at comparable assets as a guide.

Negative gearing

An investment strategy whereby tax deductions are used to minimise the shortfall between an investment property’s income and its outgoings.

Non cash loss

An accounting term that includes items like depreciation.

Prime cost item

An item (for example, a fixture or fitting) that either has not been selected, or its price is not known at the time a building contract is entered into and for the cost of supply and delivery of which the builder must make a reasonable allowance in the contract.

Positive gearing

The opposite of negative gearing. The returns (income) in property investment are greater than the outgoings. This surplus amount will usually attract income tax.

Stand-alone security

An asset that guarantees a lender their loan until the loan is repaid in full. Usually the property is offered to secure the loan.

Valuation

A report generated by an independent property professional, outlining their opinion of a property’s current market value. Commonly used by lenders to ascertain the security value of a property.

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Property Success Table

85

Middleton Grange NSW Jordan Springs NSW Harrington Gardens/Park NSW Elderslie Hillcrest NSW Morningside Houses QLD Pimpama Rivers QLD Wynnum West QLD Cashmere QLD Truganina VIC Derrimut VIC Point Cook Tom Roberts VIC Cragieburn VIC Canning Vale WA Malcolm Park WA Merriwa WA Ashby WA

Estate Name

43km 59km 60km 7km 5km 42km 17km 21km 23km 18km 25km 26km 15km 17km 36km 24km

Dist CBD

515 14,721 2,257 4,252 9,399 12,439 11,745 8,948 9,138 13,315 32,413 20,784 30,666 30,666 5,571 2,394

Pop

3 3.1 3.4 2.7 2.2 2.8 2.9 3.3 3.3 3.1 3.1 3.1 3.1 3.2 3 2.4

Pop per Hsld

35% 25% 13% 22% 42% 29% 29% 15% 11% 23% 17% 14% 25% 15% 15% 12%

Suburb % Renters

CUSTODIAN PROPERTY SUCCESS TABLE

53% 53% 53% 52% 31% 41% 45% 35% 41% 42% 58% 48% 48% 46% 46% 47%

Land Content

$325 $450 $465 $570 $460 $415 $415 $580 $400 $400 $390 $380 $550 $430 $400 $570

Median Weekly Rent

5.5% 5.4% 5.1% 6% 13% 13% 13% 15% 7% 7% 6% 6% 13% 9% 8% 9%

Rental Yield

$420,000 $446,500 $485,000 $470,000 $180,000 $162,000 $168,000 $198,000 $315,000 $315,000 $365,000 $354,000 $220,000 $260,000 $245,000 $330,000

Average CWB Price on Release

$590,000 $530,000 $550,000 $530,000 $550,000 $425,000 $430,000 $470,000 $420,000 $415,000 $445,000 $415,000 $580,000 $540,000 $460,000 $520,000

Feb-14

40% 19% 13% 13% 206% 162% 156% 137% 33% 32% 22% 17% 164% 108% 88% 58%

% increase

* Figures correct at time of publication

2010 2012 2012 2011 1998 1999 2000 2002 2007 2007 2010 2010 2001 2003 2005 2007

Date Released

ROUND-UP QUIZ As promised at the start of all this, here is the Round-up Quiz.

It’s an opportunity to show yourself just how much you’ve learned and remembered. More importantly, it could show you how good you are now at looking for answers, once you know what the questions are, of course.

I do encourage you to have a go at this quiz, now. Let yourself notice how easily the information comes to hand with the information you have gained from only three chapters of this Extract. The answers should come easily. If not, ask us.

1. In making a wealth building investment decision, what would be more important?

£ How you felt about it £ How it stacked up logically 2. In considering a residential investment property for wealth building, what would be more important?

£ Rental returns £ Taxation benefits £ Capital growth 3. Is it prudent for me to acquire property close to where I live?

£ Yes £ No

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4. Which institution(s) effectively control the affordability of housing in Australia?

£ Real Estate Institute £ Banks £ Property developers £ Valuers 5. Is the number of property renters in Australia

£ Increasing? £ Decreasing?

6. In choosing a location that is going to give capital growth, which factor is most important?

£ Proximity to transport £ Proximity to schools £ Percentage of investor-owners £ Established capital benchmark 7. What is the ‘established capital benchmark’ of an area? £ The median price of property in the area £ The highest price of property in the area £ The lowest price of property in the area 8. What was the average land size of an urban house in the capital cities of 1970?

£ 450 m2 £ 650 m2 £ 750 m2 £ 1,000 m2

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87

QUIZ ANSWERS This will take moments, but it will give you an insight into what you have already learnt. Check your answers against ours in both the Start-up and the Round-up quizzes that I hope you completed earlier.

1. In making a wealth building investment decision, what would be more important?

£ How you felt about it ✓ How it stacked up logically £ 2. In considering a residential investment property for wealth building, what would be more important?

£ Rental returns £ Taxation benefits ✓ Capital growth £ 3. Is it prudent for me to acquire property close to where I live?

£ Yes ✓ No £ 4. Which institution(s) effectively control the affordability of housing in Australia? ✓ Banks £ Real Estate Institute £ £ Property developers £ Valuers

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5. Is the number of property renters in Australia ✓ Increasing? £ £ Decreasing?

6. In choosing a location that is going to give capital growth, which factor is most important?

£ Proximity to transport £ Proximity to schools £ Percentage of investor-owners ✓ Established capital benchmark £ 7. What is the ‘established capital benchmark’ of an area?

£ The median price of property in the area ✓ The highest price of property in the area £ £ The lowest price of property in the area 8. What was the average land size of an urban house in the capital cities of 1970?

£ 450 m2 £ 650 m2 £ 750 m2 ✓ 1,000 m2 £ I’d make a bet on the fact that you answered all of the above correctly.

At least I hope so.

Quiz answers

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CONCLUSION ‘What’s Next?’

OK, the conclusion is … you’ve got to do something. Don’t become a statistic.

Sorry, but lots of people read books, study programs, surf the internet, attract contradictory information overload and get so confused it’s easier to do nothing … and then they read more books … and then they don’t do anything. And time passes! There’s a great saying I learned when I was 17: ‘If you’re standing still, then you’re going backwards.’ It’s as true today as it was then.

Procrastination is a big problem, and it kills our dreams. I have given you the numbers in this book, but too many of us are retiring absolutely flat broke and relying on the pension. We don’t want to be wealthy, we want to be comfortable, as our research shows, but few realise what that means in numbers.

Now you have a taste for it with the knowledge I’ve given you, as well as with the skills and tools you need, but I need you to now take the next step.

And I’ll make it very easy for you. You can email me with any questions you’ve got. You can also sit down with any of my Custodian team so we can get to know one another so we can understand your goals and how we can help you achieve them. It is helpful to do what we call a ‘general financial health check’ to first

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and foremost identify where you are and where you want to go.

And secondly, how fast compound growth will get you there.

That’s free. So if you don’t do that I’m certainly asking myself why.

Obviously, when you sit down with us we’ll be happy to offer you a full copy of Seven Steps to Wealth. I suggest you should read it, re-read it, dog-ear the pages, highlight it and talk it over with your family, your kids, anyone who is interested, and then talk to us again.

As you can see, we talk the talk, but we also walk the walk. Our numerous Custodian Property Events are important because they allow people the opportunity to educate, investigate and begin to build wealth. They bring together that small percentage of Australians who are doing something about their financial future. Come along to one of these events and talk to us or to the people who have come along on this journey with us.

And these people are successful. They are successful not just because they are doing something about their financial future, but because of their mindset: they are positive, responsible and most importantly, proactive.

So, I urge you to take the bull by the horns and pursue the next stage of how we can help you at Custodian.

So, what’s keeping you?

John L. Fitzgerald CEO Custodian

Conclusion

91

Standing poised in anticipation of challenge and opportunities, mind and body and balance.

He summons his talents to realise the sanctioned visualisation.

With determination, integrity and conviction of truth, service to humanity is his foundation.

He is honour-bound. “The Custodian�

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Custodian John Fitzgerald first established the JLF Group of Companies in 1981. As one of Australia’s most trusted property, development and financial services corporations, it embraces more than 25 entities. JLF has forged a successful business built on the strong core values of integrity, trust and proven results.

Custodian is a JLF subsidiary wealth building company of John’s vision. Founded in 1997, the company has assisted thousands of Australians to build sustainable wealth, providing a comfortable lifestyle at retirement. The numbers speak for themselves; clients, success stories and secured retirements.

Visit www.custodian.com.au/thefacts Custodian serves clients Australia wide and has offices in Sydney, Melbourne and Brisbane.

Custodian

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Contacts Head Office JLF Corporation Head Office Custodian House 7027 Southport-Nerang Road, Nerang Qld 4211 Australia Phone: (07) 5527 4999 Free Call: 1800 174 999 Fax: (07) 5527 4955 Email: info@jlf.com.au Websites: www.custodian.com.au www.jlf.com.au

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What would you like your next step to be‌..?

If you would like to attend one of Custodian’s Property Events (online or face to face), or you or any member of your family require further information on any of our services, please visit www.custodian.com.au or call 1800 174 999.

Let us know what you think If you have any comments about this book, or you would like to let us know how the wealth building concept is working for you, please contact us. You are most welcome to write or send an email to John Fitzgerald at our head office.

Send your email to: info@jlf.com.au To order a copy of the book If you would like further copies of this Extract please visit www.custodian.com.au/7stepstowealth

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Toogoolawa Schools Limited Ever since establishing Toogoolawa School, John Fitzgerald has directed much of his energy and a great deal of his own money into helping fund the continuation of Toogoolawa Schools Limited.

Toogoolawa assists students in striving to live a strong and happy and productive life utilizing the five universal Human Values: Love, Truth, Peace, Right Conduct and Nonviolence.

Find out more at www.toogoolawa.com.au

Contacts: Drs Ron & Suwanti Farmer Toogoolawa Schools Limited 351 Creek Street Ormeau Qld 4208 Telephone: (07) 5546 7998 or (07) 5547 5866 suwanti@bigpond.com

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Your Order is Your Donation AND IT’S TAX DEDUCTIBLE SO A WIN-WIN FOR BOTH YOURSELF AND TOOGOOLAWA’S CHILDREN! The proceeds of every book you purchase is donated in full to Toogoolawa Schools Limited.

To order your copy of one of John’s books, or to make a donation to Toogoolawa, please visit www.custodian.com.au/7stepstowealth Choose from the following great reads ‘We Can Be Heroes’ by John L. Fitzgerald ‘Seven Steps to Wealth’ by John L. Fitzgerald ‘Love Changes Everything’ by Dr. Ron Farmer

Thank you for your support

Your Book Order

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The Bali bombings happened in October and my wedding to Nerissa had been planned for 14th December of that same year. So, that was my first real short-term goal: to really focus and work and drive towards marrying my girl.

I was not given all that much hope, but we got there. And there is no doubt in my mind that the determination to make that ceremony helped me to kickstart the journey into getting back and playing AFL football. One thing supported the next … and the next …

So, the goal to continue my career followed. However, throughout the process I realised I knew little about burn injuries and soon I knew I had a long, long road ahead. It would take two to three years to fully recover.

My next goal was to get back and play, yes, but the ultimate was to play and play and then play one game only. I was able to achieve that milestone on 6th June of the 2003 season when I returned to play for the Kangaroos against Richmond. What an amazing night that was. The main objective was achieved as we won that game, most importantly! From a personal point of view, I was thankful I could play my part by kicking a goal and helping to set up the last one that ultimately got us across the line. But when you are involved in a team, it’s about team success. And the team did it.

From there it’s been about the next phase of my life – retirement. I worked at the AFL for six years after I officially retired, with involvement in game development and coaching the national team. Presently, I’m working at the Bulldogs Football Club as List Manager, in control of overseeing recruitment, the lists and the contracting process for our players … so maybe some might say I am not quite retired. Basically, I am obviously still heavily involved in something I love – football. So I reckon I’m lucky, in lots of ways.

The outcome of my story is a real positive, I think. And, in telling it, I am happy to be able to tell whoever wants to read this that being with an Australian company such as Custodian did help when we needed it. Custodian has been a great journey for us. One we’re still on. We have a lovely home in Melbourne … still with a little debt sitting on it, but the Custodian program is a ways and means by which we have been able to set ourselves up. We have two young boys, one eight and one six, so beyond primary school we have education costs to consider with them. All told, we plan to continue with Custodian, as we know Custodian’s our way forward.

My life and work are busy, but we all need to make sure to get some time away. After what I went through, and after what Nerissa went through with me, I know it’s important to get away, spend some time with the family, overseas or anywhere in Australia, and do the things you love. Custodian is the road by which we can do these things and I hope to continue to do more.

Jason McCartney

Seven steps to wealth | Extr act

Seven

Most Australians would like to be wealthy.

Most Australians retire below the poverty line.

What’s going on?

Seven Steps to Wealth

Buying an investment property can be like swimming with sharks... very dangerous. In this practical and refreshingly jargon-free book, John L Fitzgerald lifts the veil on building wealth through investment real estate.

How it can be done - and how it can’t.

How to select an investment property for sustained capital growth.

How to optimise rental income and tax benefits.

How to structure the finance and manage the risks.

And how not to fall foul of bad faith and bad advice.

John L Fitzgerald is not an investment theorist. He has personally created and managed wealth using the principles outlined in these pages - and successfully helped others to do the same, through Wealth Building programs and workshops Australia-wide.

“John Fitzgerald’s ‘Seven Steps to Wealth’ is a fascinating book by someone who is not only a fine author but is a man who writes from personal experience and is generous in sharing his knowledge.”

John L Fitzgerald

Mr Bert Newton AUSTRALIAN ENTERTAINER

“After reading John’s book ‘Seven Steps to Wealth’ I could not but relate and have an affinity to his successful philosophies.

I, like John, can testify that the acquisition of good land can reap enormous capital gain over a short or long term.

I hope those readers who will be as absorbed as I in ‘Seven Steps to Wealth’ will take up the gauntlet and enjoy the ensuing rewards.

Be Se st lle r

Steps

to

wealth...

All the things they don’t tell you about Property Investment

Congratulations, John, it’s a really good and factual read.”

RRP $21.95

Dr. Betty Byrne Henderson AM FAIM FAICD Named one of the “Leading Women Entrepreneurs of the World 1998” Trustee Committee for Economic Development of Australia (CEDA) All proceeds from the sale of this book benefit The Toogoolawa Childrens’ Home Ltd, Australia.

John L Fitzgerald 5th Edition

7 steps to

Accelerated wealth A fast-track introduction to accelerated wealth building through property investment

John Fitzgerald

Foreword by Ian LesLIe