Take Action Despite Your Fears Part B

The Fear Of Not Being Worthy

Many people fail to take action because they fear they do not deserve wealth. This also stems from the financial “programming” they received in childhood. All those negative things that some well meaning people said early in their lives. Things like “don’t be greedy”, “people like us don’t get rich”, “what makes you think you can do that when others have failed?”

Investors have sabotaged their wealth because they felt undeserving.

The Fear Of Debt

Obviously the fear of debt holds some investors back, however debt should not be feared.

It is the inability to service the debt or repay loans that should be feared. If you understand how to use debt wisely and if you know the difference between good and bad debt, there is nothing to fear about debt.

All rich and successful people have fears, doubts, and worries; they just don’t let those feelings stop them. That is the big difference; unsuccessful people also have fears, doubts and worries but they let those feelings stop them.

It is normal for your brain to bring up these fears. Your mind is protecting you. It is doing its job. And acting in spite of your fears is going to be uncomfortable.

We all like living in our comfort zones because they are comfortable. But if you want to move to a new level you have to break through your comfort zone. Your comfort zone may make you feel warm and fuzzy but it does not allow you to grow. The only time you will grow is when you move outside your comfort zone.

If you think about it, every time you tried something new was probably uncomfortable, but the more you did it the more comfortable it became. If you persevere you expand your comfort zone which means you can do more things comfortably.

What this means is that every time you are feeling uncomfortable instead of retreating back into your comfort zone, pat yourself on the back and say “hey this is great, I’m moving forward and I’m growing”.

If you want to be a successful property investor, and if you truly want to be one of the wealthy, you are going to have to become comfortable with being uncomfortable.

December 5th, 2009  |  Posted in For Investors, Motivation  |  No Comments »

Take Action Despite Your Fears Part 1

Why is it that most people don’t take action? Sometimes it is a lack of knowledge, but more frequently it is fear that stops people from living their dreams.

However, successful people tend to act in spite of their fears. They have learned to harness their fears and use them to their advantage.

The most common reason people don’t get involved in property investment is fear.

The fear of failure or that they will lose money, or that people will ridicule them.

The key to success is not to let your fears scare you into inaction, but to use them to prepare you for action.

Apart from failure, let’s look at some other potential fears.

The Fear Of Ridicule

Your cannot do much about what other people say, but you can control how you react to it. The people trying to stop you achieving your dreams have probably lost the ability to do the same. The only way they know how to build themselves up is to bring other people down.

Now that is sad – but it is not your problem. No one has ever died of embarrassment, so tune out to the critics and focus on what you want to accomplish.

The Fear Of Success

Surprisingly the fear of success can be almost as paralysing as the fear of failure. It often follows on once you have conquered the fear of failure.

It is ironic that you work so hard to overcome the fear of failure and achieve success and then all of a sudden you become afraid you will not be able to maintain your success.

Yet this has happened to many investors once they have grown a sizeable property portfolio.

Things seem to be going well and then they start feeling uncomfortable. While there is no logical reason for this, we are all controlled by our own internal “financial thermostat” that sets our level of comfort.

Yours is set to a particular level of success that you see yourself at with your self image. If you exceed that level of success you become nervous, you become fearful. This fear has sabotaged the efforts of property investors because their inner thermostat just did not allow them to see themselves as successful. In fact they were so afraid of what migh happen when they became successful that they subconsciously did things to keep them from being successful

December 5th, 2009  |  Posted in For Investors, Motivation  |  No Comments »

Part 4 Legal Loopholes

5. Undisclosed Leases And Options

The standard contracts of sale used for the sale of real estate contain provisions that the property is sold with vacant possession unless details of tenancies and options to extend the tenancies are set out.

Many properties which are tenanted, however, are sold with vacant possession and without the details of the tenancies being noted on the contract of sale, on the assumption that the letting agent will terminate that lease before settlement so that vacant possession can be passed to the buyer.

Where, however, the letting agent is different to the selling agent, there may not be a lot of cooperation between the two agencies. If you were the buyer of such a property then it would pay you to make discreet enquiries to ascertain whether the tenant would be vacating on the completion date.

If they fail to do so then there is fundamental breach by the seller under such a contract, as they would fail to deliver vacant possession and this entitles you to terminate the contract of sale as the buyer. If you sign a contract to purchase a property which is tenanted, call for a copy of the lease and carefully check that the terms of the lease are disclosed in the contract of sale.

If the lease is incorrectly described in the contract of sale as a periodic (i.e. month to month tenancy) and the lease document shows that the lease is for a fixed term and has, say, another six months to run, unless the tenant vacates the property on settlement, in most cases you would have the right to terminate the contract of sale and receive a refund of the deposit. Likewise, check the contract of sale against a copy of the lease to ensure it discloses any options to extend the term of the lease that are contained in the lease document.

Options are for the benefit of the tenants and it is generally the tenants’ call about whether they exercise the option and stay on. If details of the option are not included in the contract of sale then this may also give you the right to terminate the contract of sale or at least use it as a lever to renegotiate the price down.

Ask your solicitor, too, to also carry out a title search of the property and check that the parties shown as the landlord or lessor on the lease are the same as the parties that actually own the property.

December 4th, 2009  |  Posted in legal  |  No Comments »

Part 3 Legal Loopholes

4. Easements

When you buy a property most standard contracts provide that you acquire the property free of encumbrances unless details of these encumbrances are noted on the contract of sale.

The main type of encumbrance that can affect the property is an easement. An easement is the right to use a property in a particular way without taking anything from it, for example the right to passover the property where you have purchased a battle-axed property (i.e. the property has no road frontage itself and access to the property is via a right of way along a road in front of the property that you are purchasing). Other examples of easements are rights of way granted to the electricity authorities, Telstra or the local council for drainage purposes.

If you are looking for a loophole in the contract of sale you should immediately carry out a title search to determine whether the property is affected by any easements. Easements are what lawyers call “a classic defect in title” to a property. Even a humble drainage easement that may be situated along the boundary of the property may constitute an easement that gives you rights to terminate the contract.

Where an easement materially affects the use of a property a buyer has the right to terminate the contract of sale unless details of the easement are noted on the contract of sale.

The big thing to remember about easements and why they are so important is that it is unlawful to build over an easement.

A group of client companies purchased a large parcel of vacant land to construct a storage shed development. Diagonally through the land ran a drainage easement for the benefit of a neighboring property. It was the classic humble drainage easement. When they searched the title to the property and checked the terms of the easement that was registered on the title, the results revealed that the path of the easement was diagonally through the middle of the block and was much wider than originally represented by the selling agent. The development could still have easily proceeded and been built around the path of the easements, however the configuration of the development that would have been built around the path of the easement would have drastically reduced the income yield from the storage sheds (less sheds could be constructed on the site if the path of the easement remained as is).

If you were the buyer of this property you may have the right to terminate the contract  because the existence of this easement was not noted on the contract of sale itself.

Once an easement is noted on the contract of sale, this has the legal effect of making the buyer’s purchase of the easement. If you had been this buyer then the search of the easement would have sent you scampering off to your lawer’s office to check the terms of the easement and your ability to pull out of the contract of sale.

In that real-life situation, however, the buyers successfully negotiated a re-routing of the path of the easement with the neighbor who had the benefit of the easement so everyone lived happily ever after.

December 4th, 2009  |  Posted in legal  |  No Comments »

Part 2 Legal Loopholes

2. All Parties To Sign

With multiple buyers or sellers it is vital to realise that if all parties have not individually signed the contract of sale, then there is no contract. For example, in the case of four sellers, namely two couples, each of the two couples (i.e. four people) must specifically sign the contract.

As an investor you should also scan all of the signatures and initials on the contract and if, say, there are four sellers who are selling the property, check there are four full signatures and four sets of initials alongside all of the alterations to the contract. Contracts usually also provide for there to be a witness to all signatures. This however, is not essential and failure to have a signature witnessed will not be fatal to the legality of the contract. The purpose of having a witness is just to have back-up evidence or corroboration so that if one of the parties whose signature appears in the contract denies they actually signed it and claims their signature was forged, the person who witnessed their signature could come forward to confirm they actually saw them sign it on the day.

Can a husband sign for his wife and vice versa? There is no law that says a spouse has authority to sign a contract of sale for their partner without there being in existence a registered Power of Attorney or specific written authority where, for example, mum authorises dad to sign the contract on her behalf. An exception to this rule is where the parties have bought the property in partnership (a “partnership” is a legal term and simply buying a property jointly with someone else does not by itself constitute that purchase as a partnership).

3. Area Of The Land

Most contracts of sale contain a provision for the area of the property to be inserted.

Great care must be taken in completing this provision of the contract and in most cases, unless you are perfectly certain what the area is, it is best to leave it blank.

What licence does the law allow to forgive an error in the completion of the area? If, for example, the true area is 1000 square metres, however the contract was incorrectly completed as 1100 square metres, does this entitle the buyer to terminate the contract of sale or bring an action against the seller for compensation (or threaten to bring such an action in an attempt to lever down the price)? In Queensland, for example, the contract provides that where any area is completed in the contract of sale, the seller guarantees this is the area (more or less).

The case law allows a discrepancy of between two to five per cent and forgives an error of this magnitude, but not more.

The reality is that in practice the error is usually much greater than two to five per cent, so it is worth checking any area shown in the contract with information on the title deed for the property contained at the Titles Office. A discrepancy of even well under two per cent of the area of a property can be fatal in some cases.

December 4th, 2009  |  Posted in legal  |  No Comments »

Legal Loopholes Part 1

If you have ever signed a contract of sale and not long afterwards had buyer’s remorse, then read on to find out what technical defects there may be in the contract that may allow you to walk away from the transaction.

The Starting Point

Firstly, do not share your regrets with the real estate agent. If you do, then understand that they are the seller’s agent and it is very likely you will be advised that you have a “watertight contract” and there is no way you can walk away from the transaction.

Don’t be deterred either, by comments from the agent such as “I’ve been in this game 20 years now so take it from me, you’ve got a watertight contract.”

The reality is they probably haven’t got 20 years experience and their advice to you is based on just one year’s experience 20 times over. It might be worth getting legal advice.

What are the loopholes then?

1. Is There A Contract?

For there to be a binding and enforceable contract there are a number of essential elements that must be satisfied under contract law.

Firstly, there must be an offer. Secondly, there must be an acceptance of that offer (or in the case of a counter offer, acceptance of the counter offer). Finally, and most importantly, there must be communication of acceptance by the person who accepts the offer (or the counter offer) to the other party. Without this fact being communicated to the other party or their solicitor then there isn’t a legal contract in existence.

If, for example, the contract of sale was signed by you as a buyer during the day and the agent collected it and visited the seller later that evening to attempt to persuade them to accept your offer, until you receive a copy of a contract signed by the seller or alternatively advice from his agent that they have accepted your offer and signed the contract, there is no contract.

If you do not hear from the agent during the course of the evening and you have cold feet the next morning you need to immediately instruct your solicitor to fax the agent with your instructions that as no acceptance of your offer has been communicated to you, your offer is withdrawn. In that situation there is no contract of sale.

This example also illustrates why a legally educated real estate agent will always ring you as a buyer no matter how late at night it might be to “congratulate” you on your successful purchase. You know now it is more that just good PR to do so. It is essential to lock you into the contract.

December 4th, 2009  |  Posted in legal  |  No Comments »

Beware Of Low Rates

First-Time home buyers who took out a mortgage with a low honeymoon rate will be in for a shock when their introductory offer expires, a mortgage broker has warned.

More than 170,000 people have taken up the Federal Government’s more generous first home owner’s grant since October last year.

The Loan Market Group said some of those first-time buyers may have chosen honeymoon rates, which were as low as 4.5 per cent. When this period ends their variable rates could increase up to 1.5 per cent.

Introductory rates could lull first home buyers into a false sense of security. Honeymoon rates are tempting but borrowers need to be aware of restrictions and exclusions on the loan such as significantly higher fees for early repayments and exiting the loan.

People also need to consider all the issues they will face such as starting a family and potentially moving to one income.

The government grant was reduced at the end of September from a maximum of $14,000

to $10,500 for existing homes, and from $21,000 to $14,000 for new homes.

It will return the original $7000 on January 1, 2010.

December 3rd, 2009  |  Posted in Interest Rates  |  No Comments »

$200,000 Fine Over Failure to Pay GST On Sales

A recent case provides a warning for anyone thinking about developing a property and trying to skip paying GST on the sale. In Khoury v Federal Commissioner of Taxation, Administrative Appeals Tribunal (AAT) 2009, the taxpayers were fined $162,405 for failing to disclose the sales of new townhouses in their Business Activity Statement and a further $32,481 for obstructing the audit investigation.

The taxpayers were considered to be obstructing the Australian Tax Office (ATO) when they didn’t give correct information to their tax agent, failed to attend meetings and refused to give information on the sale of their units.

The taxpayers’ plea that they did not have the funds available to make the payment at the time because their financier had imposed a condition upon them that all sale proceeds were to be paid direct to the bank only led the AAT to conclude that the non-disclosure was deliberate.

The AAT readily accepted that the penalty would crush the taxpayers but as errors had been discovered in other GST audits they deserved no leniency.

If you build a property with the intention of selling it for a profit then you are required to register for and charge GST on its sale.

Catching you is a no-brainer for the ATO; they get all the information they need from the Titles Office.

December 3rd, 2009  |  Posted in Taxation  |  No Comments »

Government Closes Hobby Farm Tax Loophole

The Federal Government has introduced legislation to close tax loopholes around hobby farms and smaller non commercial pursuits exploited by nigh income individuals.

Assistant Treasurer Nick Sherry said the legislation would give effect to the changes to the non commercial losses rules announced in the 2009 – 2010 Budget.

“The current loophole in the rules allows high income individuals to take advantage of the tax system and claim deductions meant for functioning businesses when the non commercial activity is no more than a hobby or lifestyle choice,” Sherry said “The targeting contained in this measure will contribute $700 million to the budget bottom line over the forward estimates.”

Under the existing rules, individuals may apply losses against their other income where one of four tests is met.

The current four tests focus on the business activity’s prior years profits, its revenue and the assets, such as real estate and equipment, that are involved in carrying on the business.

The new non commercial losses rule will prohibit individuals win an adjusted taxable income of more than $250,000 from applying losses from non commercial business activities against their other income, unless the Commissioner of Taxation has assessed the activity as genuinely commercial.

Disclaimer: this authors of this blog do not purport to give financial, accounting or taxation advice. Do not rely on anything we say here. Instead consult with your accountant or tax professional.

November 30th, 2009  |  Posted in Taxation  |  No Comments »