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contents

how to get out of the rat race

the 3 keys to financial independence

why is property such a great investment vehicle?

why debt can be your best friend

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what area should you invest in to get the best capital growth?

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the secret formula that will ensure you never get ripped off

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the mrd multiplication formula

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a 6 step formula for achieving financial freedom

January 2005This Report and all its contents remain the property of Mentoring, Research and Development, PTY LTD Disclaimer: Please note the information contained in this report is intended for educational purposes only and the reader agrees to take all responsibility for using the information contained within it. investment decision. You should conduct your own independent research before making any

how to get out of the rat race by Nicholas Lockhart

If youre like me, the idea of living from pay check to pay check is not all that appealing! So then why is it that 95% of Australians are in this exact position; working hard all of their life, just getting by? Whats even more alarming is that their retirement is also a struggle.

Here are a few facts to demonstrate what I am talking about: Research has proven that if you take a hundred people at the beginning of their working careers, and follow them for 40 years until they reach retirement, youll discover that only 1% will be truly wealthy, and just another 4% will be financially secure. The other 95% represent those who have died (27%); those who are forced to remain working (7%) and those classified as broke (relying upon Government welfare, friends, relatives or charities), make up a staggering 61% of those hopefuls entering the work force some 40 years earlier! Have you decided yet which group you want to be part of? You dont realise it yet, but by the time you finish reading this report, you are going to be exposed to knowledge that only a small select group of the population exposes themselves to. Making the decision to implement this information could mean your life could look like this:

YOU OWN THE HOUSE OF YOUR DREAMS

You know the one. You wake up each morning to the sound of the birds. You cook the most divine tasting food in your new designer kitchen. Now theres plenty of room for your friends and family to come and stay. Your friends compliment you because you have the finest furniture, combined with fixtures and fittings. You are the envy of all your neighbours. Your house has it all youre living the dream.
YOU GO ON HOLIDAYS WHENEVER YOU CHOOSE

How would it feel to be able to pick up the phone to book a trip anywhere in the world you want to go? What about going to visit your family or relatives no matter where they areor organising that family reunion youve always dreamed of because you dont even need to think about how much it costs.
YOU DO WHAT YOU WANT WHEN YOU WANT

You choose what to do with your time. Now tell me what would you be doing if you didnt have to worry about money? Would you spend time helping your favourite charity, or invest the time helping your children or grandchildren with their favourite activities? Whats a hobby you would do more of if only you had the time and money? Thats what money gives you the freedom to choose.

You see, when the rubber meets the road, what every one of us wants are more choices. I know that you would love to make these changes to your lifestyle. Or simply to have the option of waking up each morning and doing those things you want to dosuch as: wandering up to a shed in the back yard to spend time restoring old cars building furniture or making pottery; to name but a few choices! Sure, the preferred choices of one person will differ from that of another... but is there anybody who would not design a richer and more fulfilling life; given more time and money freedom? Having been told all their lives that "money is the root of all evil"; some people fear wealth. It's NOT money that deserves such recognition; however, as the correct quote says its the love of money that is the root of all evil. Always broke, living from pay packet to pay packet and constantly wishing for more is not how we ought to live! In this report, youre going to discover exactly what you need to do to get out of the rat race, and get rid of money worries for good. In fact, as you study this report, you will become aware of the exact steps you need to take in order to become one of the 5% of the financially secure people in Australia. We trust that you will thoroughly enjoy the journey.

the 3 keys to financial independence

About 25 years ago, when I first started out in the workforce, I worked as a Management Trainee with MBF in Sydney. During my four weeks in despatch I spent a day sitting alongside a lady; (I will call her Mary) who at the time seemed old to me. Still to this day I remember the impact Marys job had on me hand addressing envelopes. Mary worked on the third floor in the department that mailed anything and everything that MBF despatched to members. I really felt for Mary. She had been doing her job (void of any challenge or excitement) for so many years that she appeared to have become numb to the hatred that she probably once had for it! Like so many of us, she turned up each day, was paid on Fridays and probably never questioned the tax that was taken from herMary knew no other way. I wish I knew back then what I know now. Imagine helping Mary do in about ten years what she probably never achieved in all her working life retired early and financially secure? You see it is possible using a simple strategy [we call it the mrd set n forget strategy] for ordinary wage earners to become part of the 4% or even 1%. Here are the three steps I would recommend Mary (or anybody) follow in order to achieve financial independence:
DREAM:

Lets face it. The "winds of life" blow on all of us. Where they carry us, however, depends on how we have set our sails. Have you taken time out to set your goals? Do you have an action plan? It's far too easy for a few years to pass you by and then to look back and wonder where the years have gone, and why you are no better off. You need to make it your priority to set your sails. After all, if you want to sail from Sydney to Hobart, you need to firstly know where you are going and set your sails so they take you in that direction. If you have not set clearly defined goals you could end up anywhere. Likewise, in the game of investment you need to be very clear on what your desired outcomes are. Its the reason why you are doing things that will drive you towards achieving your dreams.
KNOWLEDGE:

Now if you want to sail from Sydney to Hobart, the one problem you may face, (unless of course you are a professional sailor) is a lack of knowledge. Otherwise youll end up going nowhere. Youll need to learn how to sail. Investing is no different. Like any skill, if you want to get the results you desire then you will need to study and get the knowledge to achieve your objectives. VEHICLE: If you have an old clunker of a boat, it doesnt matter how great a sailor you are, its going to take a heck of a long time to get from Sydney to Hobart if you are in the wrong vehicle. Investing is no different. The most important step you need to take when you decide to invest is choosing the right vehicle.

In my experience, property is not just an equally good investment as other investments, but hundreds of times better. By the time you finish reading this report, youll understand why.

MY DREAM:

KNOWLEDGE I NEED TO CREATE MY DREAM:

MY VEHICLE:

why is property such a great investment vehicle?

This section is going to teach you something really valuable. From the time I first left school I was always wondering what the quickest and safest method of becoming financially free was. Over a number of years I gave different vehicles a go, but in the end settled on that vehicle that seemed to consistently work for the most peopleproperty!

HERES WHY: Once I have money to invest, I can basically park it anywhere. Of course, my goal is to park it somewhere where I will get the best possible return on investment. As you know, there are many options: superannuation, shares, or even fixed deposits. Your goal is to invest into the area where your hard earned money will work best for you AND at the same time remain the most protected. Imagine you have a specific amount of money you want to invest. It doesnt matter if its $25,000, $40,000, $80,000 or $1 million, as youll learn that the same principles apply no matter how much money you have. To make it easy, well choose the amount of $50,000. And well assume you are considering 2 investment options: the share market or the property market - as your first choice. HERE ARE A FEW QUESTIONS TO CONSIDER Question 1: What value of shares can you own with $50,000 in cash? This isnt meant to be a curly question. If you are like most of us, youre looking at $50,000. How does this compare with property? Question 2: What value of property can you purchase with $50,000 in cash? Now you could buy a $50,000 property. However, you could also invest in $500,000 property using a 10% deposit. Heres my point: When you invest in the share market, generally youre not able to leverage your money: you require all the money you invest available in cash.

However, when you select property as your wealth vehicle, you are investing in a tangible and secure asset. Its a fact that banks and other lending institutions are generally more than happy to lend you money on low risk investments. Consider any other investment in the world: gold antiques diamonds phone cards bonds shares Now consider what your bank manager would say if you visited him for a loan of 90% for these investments. You would probably be laughed out of his office. However, with property he would look at your proposition with interest. PROPERTY IS A SAFE, SECURE AND SOLID INVESTMENT! The security of a property as an investment is demonstrated by the willingness of financial institutions to lend us money against it! Its not because they like us, rather because it is a secure investment Safe as Houses, as the saying goes. To reinforce this truth, they will usually offer cheaper finance for the purchase of residential real estate than they will on any other type of loan. The reason is simple where the perceived risk is greater (such as a business or car) we pay more! Using the example above if both your share investment and property increased in value by 10%; your shares would now be worth $55,000 (total profit = $5,000), whereas your property would have risen to $550,000 (total profit = $50,000). So as you can see even just a 10% increase of a properties value equates to a whopping 100% Return on Investment (ROI), compared to a 10% ROI with shares. Question 3: When your $50,000 share portfolio doubles in value, what can you do to enjoy the rewards? Simple question, right? Sell. You could sell everything and take your $100,000 ($50,000 profit) or you could decide to only sell a portion of it. In Australia if you sell, youll be required to pay capital gains tax; a much less attractive option, wouldnt you agree? In addition, if you are on a good thing selling will reduce the amount of your future returns; thus leaving you with an opportunity cost. Question 4: When your $500,000 property doubles in value, what can you do to enjoy the rewards? One option is to sell it. You might want to think about that carefully though because it may be the dumbest decision you could ever make! Why? Well, if you have invested in the appropriate property then its value and the cash flow (rent) it generates will continue to increase.

Remember if you sell an investment property you may have to pay capital gains tax for some or all of the profit you have made. So how do you enjoy the fruits of your investment? After all, you want to enjoy your wealth while youre still here and live the lifestyle of your choice. Its easy you need to refinance. Simply request a new valuation (for $1,000,000), go back to your financial institution and apply for a new mortgage. At the 90% loan-value ratio, you would have $900,000 that you could access. You would still have the original $450,000 mortgage, but also end up with an additional $450,000 in surplus cash (for further investments, kids, lifestyle or simply a rainy day account). Now youre really going to appreciate this point. You dont need to pay one cent of tax on the $450,000? Why? Because its not income; therefore you dont have to pay a cent in income tax. And you havent sold the property so you owe no capital gains tax. Therefore, as the property continues to appreciate; it does so with your name on the title! What will you do with the extra $450,000? You have a few options: you could use it as a deposit on a handful of other properties. Or you could jump on a plane to Hawaii, Greece, Paris, or Fiji for a holiday. Or you could go down to your local dealership and buy that brand new car youve always wanted. Or perhaps take a year off, relax and enjoy your favourite hobby. Quite frankly, you can decide to do whatever your heart desires. Its yours to enjoy. So thats why I am so passionate about property. Its the ultimate investment. After all, everyone wants to receive money for expending little or no effort and with no tax obligation? Compare this with working a job. My goal in writing this chapter is to explain to you why property is the ultimate investment. And I believe Ive done that. However, what stops people investing in anything is the element of risk involved and the fear it stirs up within many people. After all, you are taking on a considerable amount of debt whenever you invest in property. Thats why Im going to crush your beliefs about debt in the next chapter. In fact, you wouldnt believe it right now, but my prediction is that once youve finished reading about the 3 types of debt youll want to use debt to your advantage.

why debt can be your best friend!

Have you ever wondered why the things that evoke the most passion or emotion in us... are usually known by four-letter words? Some of these include love, hate, fear and of course... Golf! Another emotion-charged four-lettered word that causes most of us to break into a sweat is...debt!!! Mostly, we are conditioned to fear debt and avoid it at all cost. So why does debt propel one family to great riches... and another to poverty? How come the majority of wealthy people manage large amounts of debt? Can debt then be a positive thing to help us get ahead... or is it always a negative thing to be avoided? Before we can accurately answer this, we need to clarify our definition of debt! The same one word... debt, can be used to describe three very different borrowing strategies. Let's look these three different types of debt... and dispel any confusion surrounding this subject:

Horrible Debt is the type of debt we enter into to buy things that depreciate (go down in value) and receive no tax deduction for having made the purchase. This is exactly the type of debt that we should "run and hide from"! Horrible debt, typically credit card or consumer debt is what the masses enter into every day... usually without a second thought! Of course we must spend money to buy clothes, food, petrol, children's education and so on... but just maybe, we should consider delaying the purchase of that wide screen plasma television, or the new lounge suite that we so desperately "need" (want)... until we can pay cash! Horrible debt is debt that will keep people poor! We believe that the least amount of horrible debt we take on... the better!

Tolerable Debt, as the name implies, is not all bad... but neither is it all good! Put simply, tolerable describes that type of debt that (as with horrible) will not attract any tax relief, but is used to purchase appreciating assets things that go UP in value. Typically, tolerable debt is used to buy the family home. Most of our industry peers and analysts tend to put all debt into one of two categories...good debt and bad debt; where the family home is considered bad debt. We disagree with this view and, while acknowledging that the family home is not good debt... neither do we believe it's fair to put it into the same category as credit card debt for that new plasma screen television.

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Productive Debt is the type of debt we (personally) want as much as we can get our hands on... Productive debt works for us! In a nutshell, productive debt is used to invest in an item that appreciates in value and offers tax relief as a result of having made the purchase/investment. Investment properties fall into this category. For instance, if you can invest in a $270,000 investment property that appreciates at 7.2% a year (i.e. 10 years to double) and you are only paying $54 a week to fund the loan (after the taxman and tenant have paid their share) in 10 years, based on this appreciation, your property would be valued at $540,000, an increase of $270,000 and youve only paid a total of $28,080 (i.e. $54 x 52 weeks x 10 years) to fund the loan. That means your debt has made/earned you $241,920 which makes it (very) productive debt. NB: By the time your property has doubled in value, its likely that your rental income has too; meaning the $54 a week shortfall (even though factored in for this example) is unlikely to still apply. With the above clarification in mind we can see how one persons (horrible) debt can keep them in poverty, while another persons (productive) debt can be the catalyst for them to create real wealth and security in retirement. So the advice your parents gave you was essentially true avoid all horrible debt! What they may not have understood and thus not mentioned, however, is the incredible wealth creating power of properly harnessing productive debt!

what area should I invest in to get the best capital growth?

Separating hype from fact (especially when it comes to real estate) is a must! After speaking with many hundreds of would-be-investors, it is apparent that too many of them allow sensational news headlines and/or the opinions of their (well meaning yet ill informed) friends and family members to be their greatest influence. Although, sadly for them, yesterdays opportunities are lost new opportunities still exist today. The 'trick' is to recognise an opportunity... while it still is! So the million dollar question is how can you pick a winner in the property market? People are very confused about the property market and thats why I thought I would outline it here:

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THE EXACT THINGS YOU NEED TO CONSIDER WHEN PURCHASING AN

INVESTMENT PROPERTY ARE:

Where the supply of land is limited Where people want to live (increasing demand) Where baby boomers want to retire to (thus forcing prices up) Where there is access to a capital city job market Where there is good infrastructure and services Where there is an abundance of lifestyle choices Where there are beautiful beaches, and of course Where there is a warm climate

The key to success in real estate investment is being able to see things through your tenants eyes. For instance, if you look at the example above you will see that every one of these factors is crucial to the tenants. The other thing to consider here are the cycles. Let me explain whats occurred in the Australian Real Estate Market in recent years: While the southern states enjoyed significant growth, the South-East Queensland (SEQ) property market endured roughly 12 flat years. Around the latter part of 2001, things began to radically change; as the evidence had already been suggesting long beforehand. Real Estate prices rise in areas experiencing sustained high population growth, where there is a chronic land shortage and limited supply of established dwellings. In my opinion, despite the bad name Queensland Real Estate got in the 80s and 90s, the Gold Coast and Brisbane are two of the areas that are now set to continue booming.

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HERES WHY: It fits into each of the criteria above. (Limited land supply, people want to live there, baby boomers would love to retire in the warm weather and near the beaches, good job market, infrastructure and services). Other capital cities like Sydney and Melbourne have increased significantly over recent years to the stage where they are out of the reach of many new homebuyers. The laws of supply and demand dictate that if the demand goes down (as it does when prices rise above what people can afford) thats when the property bust occurs. As a result of this, more and more people are moving to Brisbane and the Gold Coast where housing is affordable. The great demand causes prices to rise. HERE ARE SOME FACTS TO EXPLAIN WHAT IM TALKING ABOUT: Access Economics predicted recently that Queensland would continue to grow faster than Australia as a whole with its population now expected to overtake Victoria to become the second largest state well ahead of mid-century predictions. Recently, Qld Treasurer, Terry Mackenroth, said... "In the last year, Queenslands population increased by 2.4 per cent and the same is predicted for this coming year. With that sort of population increase there is going to be a great demand for housing and that demand will be where people are moving to and the Gold Coast is one of those areas. The Gold Coast can take a great deal of credit for Queenslands growth". According to the Midwood Report, and a study done by the Gold Coast City Council, the population of the Gold Coast is increasing by 13,000 people per year... and they are all looking for a home. Some analysts have suggested growth rates are even higher. It is worth noting that the average annual Growth Rate of the Gold Coast is 3.6% per year (significantly higher than the Queensland average 2.4%). Sydney is 1.3% per year and Melbourne is 1.4% per year. WHY THERE IS NO TIME LIKE THE PRESENT Imagine if you had purchased a property in any of the major Australian cities 30 years ago and held onto it. How much better off would you have been? We get caught up with what real estate prices were... back when we didn't do anything. Should have, could have and would have attitudes keep us broke. No matter where you decide to purchase, determine NOW to: GET INTO THE PROPERTY MARKET, AND STAY THERE FOR THE LONG TERM!

Any late entry has a chance of success... but a scratched favourite has none!

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the secret formula that will ensure you never get ripped off

Drop me off at any English speaking city in the world and allow me about 48 hours I will then emerge confident enough to purchase a property and not pay too much for it! Now stay with me, because right now I am going to show you the first 3 steps of the 5-step strategy I use that allows this to be so. In fact, if you really take the time to get your head around this chapter then theres no reason why you should ever have to worry about getting ripped off by Property Sharks again.

HERE ARE THE EXACT STEPS YOU NEED TO TAKE: Step 1: Call the Property Managers as somebody looking to rent a property: Pick up the phone and call 5 real estate agents in your area. But talk to the property managers; not the sales agents. (Sales agents, quite frankly will generally feed you what they think you want to hear). Tell them that you are looking for a 3 bedroom town house for a friend who moving into the area in a few weeks. What you want to hear the property manager say is that it will be really difficult to find something. The reason for this is supply and demand. Obviously if it is incredibly difficult to find a property for your friend in 3 weeks, it is an indication of a strong rental demand in the area. Step 2: Call the Property Managers as a Developer: In this instance, contact 5 DIFFERENT property managers explaining that you are looking at doing a development in the area. Explain the exact type of property you are looking to sell (which is in fact, the one that you want to invest in). Tell the property manager NOT to tell you what he/she may think you want to hear but to simply give the facts (good or bad) concerning the current rental market.

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HERE ARE THE QUESTIONS YOU NEED TO ASK: What rent can I expect to get in todays market? How quickly (or slowly) is it likely to be to find a tenant? How easy would they be to sell to investors? Step 3: Call the Property Managers as an Investor: Contact 5 new property managers and tell them that you are looking at investing in a property and looking for someone to manage the property. Ask them what the market is like, and repeat the questions above. The other advantage of this is you are much less likely to get led down the garden path. For instance, you may find that you get a different response calling up as a renter than an investor? Why? Because the real estate agency gets a benefit through selling you property. Therefore they may tell you how great everything is if you are looking to invest. However when you are looking to rent there is no benefit in doing this. Now the great thing is you can do all this from home, and because you are shopping around with a variety of different hats on you can see things from 15 different perspectives. Now there are a couple of other steps involved in this process. But my experience has shown me that after I reveal the whole process it needs a bit of explaining. Thats why I have made a commitment to only reveal the final 2 steps at our Information Sessions. For details of our upcoming Information Sessions (or to request one in your area) visit www.investmentmentor.com.au and follow the links on the right hand side of the page.

the mrd multiplication formula

What you are about to read is important to understand. Very important because once you grasp and fully internalise this concept, youll have an understanding of investment that very few people really get. Investing is like anything. It takes a long time to get started, but once you get started you benefit from the power of multiplication and you enjoy exponential growth.

The diagram shows an example of a graph that starts out slow, but your portfolio grows faster and faster as you progress due to the process of multiplication.

SOONER OR LATER ALL PROPERTY DOUBLES IN VALUE

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Think about this If you were paid 1 cent each day for the 31 days in July, you would earn just 31 cents for the month ... but if you were paid 1 cent on the first of July, 2 cents on the second, 4 cents on the third and so on; i.e. your pay doubled each day ... do you have any idea of how much you would earn in the month? You have probably already figured it's a lot; but maybe you don't realise just how much it would be. OK, on July 1st you would earn 1 cent. By the fifth day that amount would have grown to just 16 cents. Five days later it would be up to $5.12; and by the middle of the month (July 15th) you would receive a massive $163.84. Look what happens to that initial 1 cent as it keeps doubling throughout the second half of the month of July. On the 20th July you would be paid $5,242.88 and just another five days later you would earn a whopping $167,772.16 ... the power of multiplication has really set in now. During the five days from July 25th to July 30th, we would have gone from earning $167,772.16 to $5,368,709.12. Let's now double that one last time, representing our pay on July 31st ... $10,737,418.24 (almost $11m ... not bad for ONE days work). WHATS MY POINT? The point to take from all this ... short of finding someone who'll pay you this way ... is to recognise the power of multiplication over addition. Multiplication can work for us when we buy multiple properties and hold them for the long term. Few could consider buying five properties at once (e.g.), but all of us can plan to own five over time. Besides death and taxes, there is something else we can be pretty darn sure of. That is that sooner or later, all residential property doubles in value (and then doubles again and again). History tells us this! A great understanding of research will help you identify those properties that are likely to double sooner. Buying and holding multiple properties is a powerful and effective way to harness the power of multiplication in order to create personal wealth. Let me give you an example: Property purchased in 2004 for $320,000 (based on it doubling every 10 years)

2004 Based on the example, a 35 year old who invests in a property today at $320,000 would have a property valued at $2,560,000.00 by the time they are ready to retire at age 65. 2014 2024 2034

$320,000.00 $640,000.00 $1,280,000.00 $2,560,000.00

Find a 65 year old today who doesnt wish he/she had invested in a property in any major city 30 years ago! Based on history, I believe that we will be saying exactly the same thing 30 years from now!

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a 6 step formula for achieving financial freedom

6 STEP FORMULA: Set your goals actually write them down Save for a deposit (or get started with existing equity/value in another asset) Do your research Invest in a property Hold that property Invest in other properties as previous properties rise in value

Sounds too easy? Not at all. Yes. It is simple, but its not easy. Why? Because it takes the discipline to act - and specialised knowledge! And theres no better time than now to get started. As Jim Rohn, one of the worlds foremost business philosophers once said: THE BEST TIME TO SET UP A NEW DISCIPLINE IS WHEN THE IDEA IS STRONG

Its your responsibility to use your own personal discipline as the bridge between your goals and accomplishment. Its our role to educate you. Thats why you need to find out about Your next step Over the last 16 pages, weve covered a lot. You have learned some secrets that many people are never exposed to methods that will make you, and save you thousands.

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IN A NUTSHELL,

YOUVE LEARNED:

The 3 keys to financial independence The difference between horrible debt, tolerable debt and productive debt Why property allows you the leverage thats not viable with other investments How to choose an area to maximise your capital growth The first 3 steps of the 5-step formula that makes it virtually impossible for you to ever get ripped off How to use multiplication to your advantage and why its a heck of a lot better than addition

complimentary property information sessions

Every couple of months we visit the major capital cities of Australia to hold Information Sessions that outline our No Nonsense Property Investing Methodology. During these Information Sessions, we outline a series of our more detailed No Nonsense methods, which you can apply to take the fast track out of the rat race and achieve the financial independence youve always desired. Within these Information Sessions youll have the opportunity to meet other people, just like you, who are on the path to financial freedom, and well be revealing some of the strategies weve personally used to develop our property portfolio of multiple properties.

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HERE IS WHAT YOU WILL LEARN:

How to legally avoid paying tax. A rarely known secret for getting the Government to actually fork out their money to pay for your investment property. How to purchase an investment property without a cash deposit. Why some investors have made a 100% return in the last 5 years, and why others made a 33% loss. The expensive mistakes that 80% of investors make and how to avoid them. How to instantly realise where the greatest potential for future growth lies and profit from it. And a whole lot more.

Your First Step towards Financial Freedom By the time you leave the Information Session, youll receive a blueprint with the exact steps you need to take in order to achieve your financial objectives. This Information Session is normally valued at $59.00, but because you have made contact with us, wed like to invite you and a friend to our next session free of charge. Our ultimate aim is to assist you to invest in one of our researched properties. But theres no obligation whatsoever. Everything we do is based on: Mentoring: Educating you as to how to invest in property so you wont fall into the many property traps that are out there in the marketplace. Research: Researching the marketplace, and educating our clients on how to perform research in order to source property deals that set them up for financial freedom Development: Sourcing opportunities that meet our investment criteria, and passing these opportunities onto our clients. Our ultimate aim is to help you to generate financial freedom through what we believe is the most powerful investment method available. So call us now (07) 5580 8888 and make your booking. Alternatively, all Information Sessions bookings can be made on-line at www.investmentmentor.com.au

YOULL BE GLAD YOU DID!

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