Michael Yardney's Rules of Property: Your plan for financial freedom through property investment in the new financial era

Published by:

Wilkinson Publishing Pty Ltd

ACN 006 042 173

Level 4, 2 Collins Street

Melbourne, Vic 3000

Tel: 03 9654 5446

www.wilkinsonpublishing.com.au

Copyright © 2014 Michael Yardney

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means without the prior permission of the copyright owner. Enquiries should be made to the publisher.

Every effort has been made to ensure that this book is free from error or omissions. However, the Publisher, the Author, the Editor or their respective employees or agents, shall not accept responsibility for injury, loss or damage occasioned to any person acting or refraining from action as a result of material in this book whether or not such injury, loss or damage is in any way due to any negligent act or omission, breach of duty or default on the part of the Publisher, the Author, the Editor, or their respective employees or agents.

The Author, the Publisher, the Editor and their respective employees or agents do not accept any responsibility for the actions of any person - actions which are related in any way to information contained in this book.

National Library of Australia Cataloguing-in-Publication data:

Author: Yardney, Michael, author.

Title: Michael Yardney’s Rules of Property / Michael Yardney.

ISBN: 9781922178435 (paperback)

Subjects: Real estate investment--Australia.

Real property--Australia.

Dewey Number: 332.63240994

Cover Design: Spike

Layout: Chris Georgiou

Acknowledgements

Many people have influenced my life, my thoughts, my values, my business career and my property investment success. Creating wealth is never a solo effort. Similarly, this book would not have been possible without the support and encouragement of certain people who have contributed to my life in many ways.

In particular thank you to my wife Pamela for encouraging me, supporting me in every way and putting up with all my late nights and weekends on the computer. She endures with my almost fanatical attitude to business and property investment and continually encourages me through all the good times and through all the things I still need to learn. I am humbled by her love and devotion, which I try hard but never quite succeed to match.

Important thanks go to Bronwyn Davis whose editing and writing skills have taken my ideas and concepts and turned them into flowing dialogue. Special thanks also to Josephine Fitt, my Executive Assistant who coordinates my business life and makes sure I’m doing what I need to be doing and that everything happens. She particularly enjoys it when I work from home on my book and leave her alone.

Special thanks go to my mother and my family, including my four children and Pam’s two children and our grandchildren for their love and encouragement.

Further thanks to my business partners, Gavin Taylor and George Raptis as well as the whole team of property professionals at Metropole and our many clients whose collective inspiration has given me strength. And I must acknowledge Kevin Turner my business partner in Real Estate Talk who inspires me daily.

This book was written based on my learnings from the experts I work with every day and who I consider my teachers, my advisors and my friends. I have also learned a lot from the many successful investors I consult to at Metropole Property Strategists and never take the trust they place in me lightly.

Over the years I have read almost every book about wealth creation and property investment ever written. I have learned a lot along the way and there are many ideas sprinkled throughout this book that I have learned from others. I guess I had to learn everything from someone at one stage, so I am sorry I cannot acknowledge everyone - I really can’t remember where I first came across many of my strategies.

Where I recollect first hearing about an idea I try to give credit where it is due, but if I have omitted mentioning your name, please excuse me as I shamelessly acknowledge borrowing other people’s good ideas picked up from observation or from conversation, books, CD’s, DVD’s and seminars. As knowledge about successful property investing is no one individual’s sole domain and there are really no secrets in this industry, I can only assume that these people also learned from and copied other people’s ideas, books, CD’s, DVD’s and seminars.

But I do recollect that over a decade ago I changed the way I formulated finance strategies from the teachings of Bill Zheng from Investors Direct Finance and these subsequently evolved as I worked closely with finance strategist Rolf Schafer who has since retired. I learned many of my tax strategies from Ed Chan and Ken Raiss, directors of Chan & Naylor Accountants whom I still work closely with.

I must thank Michael Wilkinson from Wilkinson Publishing for having faith in me and in 2006 publishing my first book How To Grow A Multi-Million Dollar Property Portfolio – In Your Spare Time. Since then this book has become a property investment classic, and having now published four revised editions has become one of Australia’s top selling books. Michael has become a friend and mentor and continues to encourage me to write.

And finally to you, the reader – thank you for choosing to invest in this book. Please take advantage of the information I have to offer by using it to obtain the financial independence you deserve.

Note to reader

This publication contains the opinions and ideas of the author. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, tax, investment, insurance, financial, accounting, or other professional advice or services. If the reader requires such advice or services, a competent professional should be consulted. Relevant laws vary from state to state.

Additionally, it is important to note that Australian laws and regulations are subject to constant revision and amendment and as such, some of those mentioned in this book may now be out of date. Any opinions, conclusions or recommendations set forth in this book are subject to change without notice.

The strategies outlined in this book may not be suitable for every individual and are not guaranteed or warranted to produce any particular results. Past performance may not be a reliable indicator of future performance.

This book has been written without taking into account the objectives, financial situation or needs of any specific person who may read this book, which means that before acting on the information in this book, the reader should seek appropriate professional or financial advice.

No warranty is made with respect to the accuracy or completeness of the information contained herein, and both the author and publisher specifically disclaim any responsibility for any liability, loss or risk, personal or otherwise which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents within this book.

Introduction

This is not just another book on property investment. Heaven knows the world doesn’t need another get rich quick book. This book is a timely, powerful set of rules to help you, the reader, finish rich in the new financial era. I am going to share with you a road map of proven principles and updated strategies (that I call my rules) for developing financial freedom through property investment.

As I speak at seminars all around Australasia people seem to ask the same questions: How do I build the financial freedom I’ve always wanted? or Why does success seem to come so easily to some people, while others have to struggle?

Admit it: we all want to be better off financially and many of us are fascinated by those who already are. How did they do it? How can we do it too?

I’ve found wealth is the transfer of money from the uninformed to the informed, so in this book I’ll reveal what successful property investors are doing to secure their financial futures – how they think and the rules they follow.

How do I know these rules?

Here’s how….

As a property strategist (in fact I was voted Australia’s leading property adviser by the readers of Your Investment Property Magazine) I’ve had the privilege of consulting with thousands of successful (and many not so successful) property investors since the year 2000. At the same time I’ve been conducting seminars around Australia educating property investors and it’s been said that I’ve probably educated more successful property investors than anyone else in Australia.

Over the years the team at Metropole Property Strategists, the company that I head, has been involved in over $1 billion worth of property transactions to help create wealth for clients.

But I’m not a theorist. Over the last 40 years I have built my own very substantial portfolio of residential and commercial properties and I’ve been active in property development since the mid 1980’s. I have lived through many property booms and just as many downturns. I’ve invested in period of high inflation and low inflation. I survived the high interest rates (17%+) of the late 1980’s, the recession we had to have of the 1990’s, the Global Financial Crisis of the 2000’s and collected many bumps, bruises and scars along the way; but I survived. In fact I prospered.

What’s different about this book you ask?

I’ve distilled those 40 years of property investment experience, along with all that I’ve learned from those successful and the not so successful investors, into a set of rules.

I’m now 61 and have paid a huge learning fee to get the experience I now have today. When I first started investing there were no Australian books on real estate, no seminars to attend and no DVD’s to watch. And I certainly couldn’t go to my computer to download research. Over the years I did many things right, but I’ve made more mistakes than most – in my personal life, in my business and in the early years of my investment journey. I had no mentors to follow and few role models to emulate so I learned by trial and error and banging my head against the wall enough times for the lessons to sink in.

What I’m going to share with you are the rules that I wish someone taught me when I first started investing. This book contains strategies that will revolutionise the way you think about money and investments and I will show you how you can truly achieve financial freedom.

Remember, everyone who picks up this book is seeking much the same thing as you. Every individual has the same potential to take charge of their financial situation, but not everyone will get there. Whether you make it or not is entirely up to you.

Almost everyone starts off in life with dreams of somehow becoming wealthy. And most of us have a much better chance to achieve that dream than our parents or grandparents ever did. We live in a world that is rife with opportunities and we are standing at the pinnacle of a new financial era and a new property cycle that presents us with a whole new realm of possibilities.

Who this book is for

I’ve written this book for beginners who want to fast track their success by understanding what accomplished successful property investors do. It’s for those who are unhappy with their past investment results as well as for experienced investors who feel stuck in a rut and want to take their real estate investing to the next level. And it will allow proficient property investors to revisit the basics and learn some distinctions that will give them an edge.

I’ve found that it takes most property investors up to 30 years to achieve financial independence – and that’s much too long isn’t it? That’s because they don’t know the Rules of Property and spend...

• The first 10 years working out what doesn’t work. They use the wrong investment strategies, either trying to buy positive cash flow properties or jumping from one strategy to the next looking for a way to get rich quick. If they survive this they spend…

• The next 10 years developing a wealth producing strategy. One that works and…

• In the next 10 years they become an expert by doing the same thing over and over again until they can consistently produce the results they want.

I’m going to expedite this journey for you by bypassing stages 1 and 2 and taking you straight to the Rules of Property.

This little book can’t teach you everything you need to know, but it will tell you what you need to know most and then I have a number of other resources for you. Firstly there are a heap of bonuses waiting for you when your register this book at www.TheRulesOfProperty.com.au - go there now to discover the important audios, videos and reports that I have waiting for you.

While there is a lot of new and previously unpublished material in this book, I’ve had to repeat some of the fundamentals of Property Investment that are in some instances explained in much more detail in my first book – How to Grow a Multi-Million Dollar Property Portfolio – in your spare time. You can find out all about this best selling book, which has become a real estate investment classic, at www.TheBookOnPropertyInvestment.com.au

Finally if you’re interested in the nitty-gritty of finance and tax structures I recommend reading my best seller What Every Property Investor Needs to Know About Finance, Tax and the Law – more details here - www.FinancialFluency.com.au

The Rich are getting Richer

One of the realities of life is that despite living in one of the richest countries in the world, many people are struggling financially and the gap between the wealthy and the average Australian only seems to be getting wider. As this trend continues financial freedom will become more and more elusive to the majority of people, because the rich understand how money works (they are financially fluent and appreciate the rules).

When I sit down with property investors many say they want to become rich and they’re looking for more money, but as you dig deeper you find it’s not really money they’re after, but what they can do with it. They are looking for:

1. More choices in their life

2. The option to go to work because they want to, not because they have to.

3. The ability to give something back to their family or the community

I guess they’re looking for financial freedom. When asked what this would mean they say things like I can buy things for my family without worrying about the price. or I’d order in a restaurant without having to look on the right hand column of the menu to see how hungry I am

Financial freedom

Okay, it may not be politically correct to say it, but the brutal reality of life is that for most of us (if we are completely honest with ourselves), 80% of our problems could be solved with money. I know that we’re taught to believe money doesn’t make us happy and I realise that it takes much more than money to make you truly happy, however a lack of money can certainly make life miserable.

The biggest dream for many people is to have an improved financial situation. They crave the financial freedom that would allow them to do many of the things they aspire to. The harsh reality is there’s only one way to get financial freedom and that’s to buy it. You can’t rent it, you can’t just wish for it; you buy it and then you own it. And I’ll show you how.

But what is financial freedom? Well because we all have varying ideals and value systems, financial freedom means different things to different people. To some it means being able to pay off your credit card debt and manage your bills. For others it means being able to go out every night and party and some would like to take two vacations a year. To me, being financially free means that you are able to support the lifestyle that you desire without having to work.

There are two important aspects to my definition.

Firstly, I’m talking about the lifestyle that you desire – not the one that you currently live. This is a significant distinction, because too often we limit our lifestyle to fit in with our income. Or even worse we live beyond our means by paying for a lifestyle we can’t afford with accumulating consumer debt and credit cards. Financial freedom is not about limiting our lifestyle; rather it’s about living the life you desire and having the means to support it.

Secondly financial freedom means you don’t have to work to support your lifestyle. It means you derive enough passive residual income from your assets to allow you to pay for the lifestyle you choose, without having to go to work. Passive income is money gained from sources other than your own time. Things like share dividends, interest, rental and capital gains. In other words – passive income means you don’t have to trade your time for money. Passive income gives you choices and the more you have, the more freedom you generally enjoy.

While passive income gives you the freedom to do what you want, I should explain that accumulating passive income is not a passive endeavour. Accumulating the assets to generate a stream of ongoing passive income takes time, financial fluency, skill and diligence. You can’t expect to sit back and have vast amounts of passive income deposited into your bank account regularly without lifting a finger.

The idea is to buy safe solid assets that will bring in income and increase in value over the long term – I want you to create your own personal cash machine. It will take time to set up a cash machine of some sort, whether it is a business, a share portfolio or my preferred option - a portfolio of income producing residential properties.

While others have created wealth and passive income through businesses or shares, I achieved my financial freedom many years ago by investing in property. The choice is yours, but I’m going to share with you the Rules of Property because in my mind investing in well-located residential property is the easiest and safest way for the average Australian to become rich.

So how do you wish to live - modestly or extravagantly? If you wish to live extravagantly then you’ll need to build a bigger asset base.

While it may take some time and effort to set up your streams of passive income, it won’t take nearly as much effort to maintain them. To earn your salary you typically have to put in forty hours or more a week. Maintaining the same amount of passive income takes a fraction of the time.

And the great thing is that you can outsource much of the time it takes to maintain your passive income to somebody else. You can hire a property manager to look after your property portfolio, or an accountant to monitor your assets, or a business manager to run your business. You can’t hire a temp to take your place at work can you?

Having financial freedom gives you your life back. One of the benefits of money is that you not only have fiscal freedom, you have time freedom too. When you are financially free, you generate enough passive income to ensure all of your future days are pre-paid. You may not want to retire when you get to this point (I didn’t) but you’re going to go to work because you want to, not because you have to. You no longer have to trade your time for money.

When this happens you feel an amazing sense of freedom that allows you to set bigger goals, dream bigger dreams and enjoy much more abundance. Time freedom means your work is your play, your play becomes your work and you enjoy it. Work does not own you, you feel comfortable and calm. It allows you to take the time off that you require; the days, the weeks and the holidays. And it gives you power and control over your own destiny.

Are you financially independent?

Now that you know what financial freedom is and why it’s important, let’s discuss what it is not. Financial freedom is not merely about having a lot of money. This ignores the other half of the equation – expenses.

Financial freedom is also not about retiring from the nine to five grind. It’s about having the option to retire early. Financial freedom doesn’t mean you can’t work; it simply means you get to choose whether you work or not and in what capacity. Interestingly, most wealthy people chose to continue working because they enjoy their day job more when they are no longer subject to the financial pressures most people feel.

There is no magic amount of income that leads to financial freedom. Rather it’s entirely dependent on your lifestyle and expenses. If you earn $100,000 in passive income each year and have lifestyle expenses of $75,000, you are financially free. If you earn $200,000 in passive income but have $250,000 in expenses each year you are not finically free. As you can see your lifestyle expenses are a critical part of the equation.

There’s more to Life than Money

We’ve all heard the saying Money doesn’t buy happiness. I completely agree with this old adage. The truth is, you can be poor and happy, you can be rich and happy and you can also be either poor or rich and completely miserable.

If you’re looking for money to make you happy, you’ll be disappointed. If you’re hoping that money will make you powerful, younger, sexier, and more interesting or better looking, you’ll also be disappointed. Money doesn’t do any of that. It might in your mind, but it doesn’t in reality. You can be all of those things without money; it isn’t money that makes you powerful, interesting or a nice person – money is neutral. Money makes you more of whatever you were before.

What I’m trying to tell you is that clearly, money isn’t everything.

To me, it’s not even among the most important things in life. But there’s no doubt that money does help. Having come from a poor background, I thought money was the answer to all of my problems, but after chasing the almighty dollar for the first part of my life and losing my marriage in the process, I realised that wasn’t the case.

I’ve heard it said that true wealth is what’s left when they take all of your money away and I understand why one would say that, but in my mind, to be truly wealthy you need money plus the time to enjoy it, the family and friends to appreciate it with, the health to be able to live the lifestyle you can now afford and spirituality (whatever that means to you). To me it means contribution.

I hope you agree that you can indeed be wealthy without being rich. That’s why some people may suggest that being financially free is an unworthy goal - even perhaps morally suspect. To me though, financial freedom is a means to an end.

Money by itself is neither good nor bad. It is our own emotions, experiences and attitudes toward money that determine whether we see it as a positive aspect of the world in which we live, or something that has negative ramifications. Money is merely a tool that, when used correctly, can provide the financial freedom that I’ve been talking about. It’s what you do once you become financially free that determines your level of happiness. That’s why I want to teach you how to ethically make it, keep it and share it. This will add a positive dimension to your wealth.

I’ve found a lot of wealthy people contribute to the community; in fact that’s become very important for Pam and myself as we’ve become wealthy. One of the reasons I still work at earning more money is not because I’m greedy, but because it enables me to help others, help our children, help our grandchildren and give to the community and to charity. It has also allowed me to educate many budding property investors so they too can become wealthy.

Shifting my focus from helping myself to helping other people has allowed me to look at creating wealth in a different way. I don’t feel guilty about my desire to make more money; in fact I’m obliged and morally responsible to become wealthy because it will allow me to help other people. That’s another reason why I’m happy to share my Rules of Property with you in this book.

No judgement

In this book I use the words wealthy or rich, and poor or average Australian to differentiate between those who have achieved financial freedom and the vast majority who never quite make it beyond the nine to five grind and continue to live just within or, in many cases, beyond their true financial means. I realise that in Australia there are very few poor people – we tend to have the rich and the middle class.

When I use these terms I am trying to make a distinction and I am definitely not making a judgment about the wealthy or the poor and whether one socio-economic group is better than the other. This is not a social analysis or commentary. I am just suggesting that most people in Australia want to become rich or at least financially well off. In fact most people I deal with want to become financially independent. They are not happy with mediocrity or struggling for a wage.

I want to make it clear that when I’m talking about rich or poor, wealthy or