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GUEST OBSERVATION
I am sure one priority for many of us is to increase your net wealth over the coming year.  
Over the holiday period I put some thought to what I believe makes a successful property investor.
In my role as an accountant and advisor I have consulted to thousands of property investors over the many years that I have been in practice. Some investors have been successful and others not so successful, but over this time I have observed what it is that makes a successful property investor tick, what it is that they do that enables them to stand out amongst the pack and what are the attributes that makes them so successful. 
Here then is what I have observed, seven habits of successful property investors. 
Habit one - They have the Right Mindset
Successful property investors understand that debt is a tool to help them leverage and build their asset base and as such, debt is not a bad thing if managed correctly.
They do not overcommit which means that their cash flows are never impacted if anything untoward was to occur. In other words, they are never put in a position to have to sell a property if something in their life goes wrong.  
They always have in place risk strategies such as insurances (income protection, life cover, landlords insurance) and they establish buffers with banks to protect their cash flows. They treat their property investment like a business and to them property investment is an active not a passive, investment.
Habit two - They get educated
Successful property investors are constantly reinvesting in themselves by attending seminars, reading property publications (like this one) and reading property websites. 
They make the effort to keep themselves up to date.  In fact it could be said that their hunger for quality property information gives them a competitive advantage and allows them to pounce when a suitable property opportunity arises.
Being better property educated is the difference that allows them to make their next investment decision with both accuracy and speed.
Habit three - They use Professionals
All the successful investors that I know use the professionals around them.  They use professionals just like a company would use a board of directors to provide them guidance and advice in each specialty field.
<ul>
<li>They understand that the accountant /financial advisor can assist with Income tax and structure establishments.  For example, whose name do I buy this property in?  What is my expected budget and cash flow? 
</li>
<li>They form great relationships with their broker/banker who will assist them with obtaining the best finance to purchase the property, and an ongoing ability to draw equity if required. 
</li>
<li>They build great relationships with their buyer's agent/real estate agent to assist them with purchasing the right investment property in the right area for the right price without any emotion. 
</li>
<li> They use their real estate agents to act as the go between the landlord and the tenant as well as look after the ongoing management of the property. 
</li>
<li>They use lawyers to assist with conveyancing and estate planning issues if required. 
</li>
<li>They work with an insurance broker to ensure that they are adequately covered in all areas especially mindful of insuring ongoing cash flow.</li>
</ul>
Habit four - They understand both Leverage, and Time In the Market concepts
Successful property investors understand that in order to increase their asset base they must borrow the money and manage the cash flow (the leverage). 
They do this without putting themselves under undue stress and they always have a buffer in place in the event of an emergency.
They know that purchasing property is a long-term investment and cyclic, they don’t panic if the market turns.  If they have selected the right property they know that time will heal all things and capital growth will occur over the long-term.
They understand that the return on property investment is not just the rental, but it is also the capital growth (invisible, but money in the bank) which helps them to focus on the bigger picture and not react by selling when faced with either, a bad tenant issue, or a short vacancy period or a slower market.
They know that if they have purchased correctly then the key is, time in the market.  In other words, the ability to spend more time in the market reduces the risk because of capital growth.  
However they also can recognise when they have bought a dud and can quickly sell to cut their losses if necessary, and move on.
Habit five - They Know the Market
Successful property investors do their research and seek external assistance before buying a property to ensure they invest in the right areas. 
They know what areas are the most likely to achieve growth within a state by city suburb and street, and what the demographics of particular cities, suburbs and streets within the suburb.
They often seek assistance from professional buyers agents to do their legwork and whom have all the statistics on hand regarding capital growth trends, overdevelopment, vacancy rates and rental yields potential future plans for the area, and will also take emotion away from an investment. For them, it’s a business decision plain and simple, and all about returns both capital and rental.
Habit six - They Understand the Effect of Tax and Cash-flow, Depreciation and Negative gearing
Although most successful property investors are not tax accountants, they leverage their accountant to manage this area but they do make it their business to understand how the taxation system assists their cash flow as they know this is critical to them, ‘cash flowing’ the next property.
They understand how negative gearing works and the significant positive impact that depreciation of their properties, buildings, fixtures and fittings, has on their cash flow,  which in turn may influence the style of property they invest in, (both old and new).
Habit seven - They Renovate for Profit
Because the successful property investors treat this as a business they are always looking at ways of maximising their return on investment, always.  
So, if they see an opportunity to increase their returns by investing in a renovation of a kitchen say, or a bathroom or something larger like by adding a bedroom or granny-flat, they will do this. They recognise that by investing an amount of money by renovating, then this could generate both instant capital value and an increased rental return.
Property investment is engrained into the D.N.A. of the Australian investor but not everyone is successful.  I have learnt over the years not to reinvent the wheel but to watch and learn from successful investors and then just copy their actions, the seven habits, and implement the same.  By following these steps you are increasing your chances of being successful.  
Happy successful investing in 2015.
David Naylor is non-executive director and co-founder of <a href="https://www.chan-naylor.com.au/" target="_blank">Chan &amp; Naylor</a>.
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The seven habits of successful property investors: David Naylor

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GUEST OBSERVATION
We are noticing that there has been a marked increase in audit activity by the ATO over recent time.  
Everyone dreads the thought of an ATO audit but it doesn’t have to be that stressful, especially if you know how to handle the situation. 
Firstly if you do get that dreaded ‘knock on the door’, immediately contact your accountant and ask for their professional guidance and assistance.  This may incur a cost, but for peace of mind it is money well spent. 
Your accountant will act as your agent and will have direct contact with the ATO.  They can understand and speak tax office lingo and know how to answer their questions without raising further questions, plus will hold your hand throughout the process so that you may never have to get involved, other than providing them with any initial and/or ongoing information. 
<h3>Any ATO audit can typically be broken down into seven basic stages:</h3>
<ol start="1">
<li>Initiation</li>
<li>Information gathering</li>
<li>The issue of a facts/position paper</li>
<li>The taxpayer’s response</li>
<li>The issue of assessments</li>
<li>Objections and</li>
<li>Settlements and alternative dispute resolution</li>
</ol>
<h3>There are 2 types of ATO investigations:</h3>
<ul>
<li>Review </li>
</ul>
The ATO use reviews to investigate inconsistencies or risks about some activities, transactions or industries and try to confirm the risks. During a review they look for ways to help you comply with tax obligations. They will give you the opportunity to correct any errors by making a voluntary disclosure. If you do not make a voluntary disclosure, they may decide to escalate the review to an audit.
<ul>
<li>Audits</li>
</ul>
The ATO use audits to find, measure and correct errors. Some audits follow on from reviews where they confirmed there was a risk.
Some audits will commence without first doing a review where, from the available information, they know there is a risk. If an audit commences without a review first happening, generally you will be given an opportunity to make a voluntary disclosure.
<h3>Complexity</h3>
The reviews or audits the ATO conduct vary in their complexity. Usually they only involve a phone call or a letter asking you or your accountant to provide further information or verify your claims.
In some cases however, a tax officer may visit you (although this is rare), or you may be asked to bring all your records for examination. They sometimes may decide to look more closely at tax returns making similar claims, or from within the same industry. 
<h3>Property Investors</h3>
Property investors always seem to be a target as there are usually large claims in the individual’s tax returns.  T
he areas that generally let property investors down in an audit are, claiming costs for a capital improvement as a repair and maintenance.  For example the cost of replacing an old kitchen with a new kitchen is a capital expense and should be depreciated over time v written off against the income immediately. 
Other areas are, incorrect claims of  the interest on borrowings, and inaccurate capital gains disclosures on the sale of a property.
When the ATO come knocking this is what they are looking for
1.            That you have declared all the income you have received
2.            That you have claimed the appropriate deductions against this income
3.            That you have claimed the correct credits or offsets
4.            That you have correctly withheld and reported PAYG amounts
5.            That you have correctly reported any other tax-related obligations
<h3>Audit Insurance</h3>
As a safety net, audit insurance is something worth considering.  For a very small annual premium you can have peace of mind in that if you are selected for a review or audit, and depending on the policy, the majority of your professional fees you pay to the accountant to assist you with the process, will be covered. 
David Naylor is non-executive chairman and co founder of <a href="https://www.chan-naylor.com.au/" target="_blank">Chan &amp; Naylor</a>.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.
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Don't fear the taxman: What to do if you are audited

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GUEST OBSERVATION
I personally invest across all asset classes, property, shares and cash and I was interested in finding out how my property investments stacked up compared to other investments in my portfolio over the long-term.
So with that in mind I thought I would undertake some research into the performance of the two major investments in my portfolio, property and shares, and which is the better asset class to invest in. 
This is an age old question and the answer will depend on who you talk to. However, I wanted to strip the debate right back and look at recent data. As they say in the classics “you can’t argue with the facts”.  So, here is what I discovered.
According to statistics and the reputable Russell Investments/ASX Long-term Investing Report 2014, the past 10 years may have been a great time to invest in the equity market, but residential property delivered better, more steady returns over the longer run.
The report concludes comparing the total returns - after fees, and including rental and dividend incomes over the past 10 years up to the end of 2013, that Australian shares unsurprisingly led at 9.2% even after the crash associated with the global financial crisis.  It was closely followed by hedged global shares which delivered an 8.2% return. Investment property lagged behind at 6.1%, comparable to fixed interest over the same period.  
But the results over the past 20 years look quite different.  An investment in residential property returned a 9.9% gain, beating both Australian shares at 8.7% and global shares at 8.0%.  In addition, over the past 20 years residential property delivered steady rental returns compared to the erratic equity market.
However, the report also shows that the dominance of property over shares in the 20-year period becomes reduced after the tax benefits of the fully-franked dividends provided by Australian listed companies are factored in.  At the top marginal tax rate, property delivered a 7.5% return over the past 20 years, only just ahead of a 6.9% return for shares.
So now I sit back and look at the numbers provided by economists and then equate this back to my personal situation.  Have I achieved the sort of growth quoted by the reports? 
Firstly, returns vary from property to property and for me have not been as consistent as quoted within the report.  Yes rental returns have been consistent, with very little no vacancy periods and consistent CPI increases.  
Some of my properties have performed well and above the returns quoted and others below, however the same could be said about the shares.  The performance of individual assets, are probably more of a function of location and selection of the particular property or share investment, more than the Investment class itself. 
So, for me yes the returns are important but there are other reasons why I see property as a strong investment.
<ol start="1">
<li>As the report states, property delivers steady rental returns due to low vacancy rates and low supply, we are simply not building enough properties quickly enough in areas where people want to live to accommodate the growing population. 
</li>
<li>Lenders see property as a solid security and will lend up to 80% (in some cases more) of the asset at historically low rates, and even though my shares are more liquid it is more complex to borrow against them.  However the ability to access equity in property (without selling) is quite simple, as property lending is mainstream for banks that are aggressively competing for market share. 
</li>
<li>The tangible ‘see, touch and feel factor’ of property provides me with comfort and gives me control. 
</li>
<li>The ATO allows me to claim the tax benefits of depreciation on the building and various inclusions over a number of years, although some conditions do apply.  In other words on top of the rent I receive, the tax office is assisting my cash flow by allowing me to claim depreciation on the capital outlay. You cannot depreciate a share!</li>
</ol>
My conclusion is that both asset classes are an important part of my portfolio but the key is in the selection process. Seek professional help when it comes time to making your choice. 
For property I would recommend you speak to a registered buyer's agent and with shares a licenced financial planner. Assuming I have purchased the property well, specifically in the right location, taking into account the points 1-4 above and the economists research (numbers don’t lie), then I feel very confident that over the longer term my property portfolio will grow and is a good and solid investment.
David Naylor is non executive chairman and co founder of <a href="https://www.chan-naylor.com.au/" target="_blank">Chan &amp; Naylor</a>.
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Property v shares: Which is the best assest class to invest in?

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GUEST OBSERVATION
I want to share with you seven relatively easy ways to achieve your financial goals with very little personal effort. As I incorporated more and more of these small tips into my daily life, the savings started to add up and saved me thousands over the course of a year
Investors are constantly looking at ways of building wealth and accumulating assets with their focus is driven by working harder to generate more money to then invest in either, property, shares or cash. Therefore the majority of our focus is (rightly so) on our balance sheet and we pay less attention to our profit and loss. I focus on both which has helped me to build equity and wealth more quickly. At the end of the day the result is about net worth, the gap between the gross value of my assets and any debt owing.
Most Australians have debt, so let me explain some very simple strategies that have worked for me and has helped me accelerate my wealth without costing a penny. A reminder that this is of a general nature and for specific advice you should seek professional advice.
<ol start="1">
<li>I prepared a personal family budget and paid attention to the detail, I was surprised how quickly I was spending money because I was not paying attention.  I also found out that Australia is an expensive country to live in. I put pen to paper to work out where my income was coming and what were my weekly and monthly expenses, basically what it cost me to live. It then allowed me to look at excessive spending and what areas could be cut back or reduced and allowed me to work out what I could put aside as if it was ‘OUT OF BOUNDS’ from a spending point of view. I sit down on a regular basis to review this and opened a separate Account to place these excess funds out of harms way and I watched the balance grow. 
</li>
<li>I contacted various Banks and asked for a discount on my current mortgage rates. I armed myself with competitors rates and used that as leverage and the threat of moving.  Believe me, one five minute phone call saved me thousands. I have done it successfully on numerous occasions. 
</li>
<li>Commentators use the term good debt (being debt that is tax deductible for example i.e. interest paid on an investment property loan) and bad debt (debt that the interest is not tax deductible i.e. your home Loan). I focused on reducing the bad debt that is not deductible, i.e. my personal home loan, credit card or car and make sure my investment loans are interest only facilities. This will still increase my overall equity but the tax benefits will help me improve my cash flow which in turn will allow me to either invest further or access the increased equity in later life. 
</li>
<li>I pay my mortgages on a weekly or fortnightly basis, after all the banks calculate interest daily! Who made the rules that you have to pay monthly? I contacted my bank and requested that I pay the repayments on a more regular basis…once again one phone call and its done and saved me thousands in interest over a loan period. 
</li>
<li>
I use my credit card sensibly and use and manage the credit terms on offer versus borrowing. For example if my credit card cycle is the 20th of the month I defer payments till the 21st if possible which will gives me potentially up to 50 days before actual payment is due all interest free. Not bad trading terms. 
</li>
<li>I created an offset account so that any surplus funds are offset against my mortgage to reduce and save the interest. 
</li>
<li>I have shares and investment properties that are negatively geared so I arrange a pay as you go variation at the beginning of each year, this basically means that rather than wait till the end of the year to get a tax refund my weekly, fortnightly or monthly pay-packet are automatically increased by the refund amount. I can now use this extra cash to pay off the home loan or add to my investment portfolio.</li>
</ol>
These are simple but effective strategies that have been effective for me by increasing my cash flow which in turn, helps me to reduce my debts and add to my asset portfolio.  These small changes have resulted in significant savings.
David Naylor is co-founder and non-executive director of <a href="https://www.chan-naylor.com.au/" target="_blank">Chan &amp; Naylor</a>.
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Seven easy ways to achieve your financial goals

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Approximately 83% of Australians over the age of 60 are on some form of age pension, and this means only 17% have accumulated enough wealth over their lifetime to be self-funded. Whether you are building your nest egg via property, shares or through your business, planning is critical. There is an old saying “measure twice, cut once”. What this actually means in simple terms is that the more time you invest in planning, the fewer problems you’re likely to have with a higher likelihood of a successful outcome. 
Think of it this way: if you were going to build a house, you wouldn’t simply buy a block of land and ask the builder to start laying bricks. You would first engage an architect and sit down to put your vision onto paper to create the house you have dreamed of.  The same applies to your investing and business, so you must start with the end result in mind. 
It is simply impossible to work towards a profitable future if you don’t know where you’re going, and the fact is, the more time you spend on planning, the less time you spend on doing. 
As we were going through the process of creating a property portfolio and building a business we decided that we needed to sit down and work out exactly what we wanted to achieve. After all, let’s face it, how can you possibly know what you want to build if you don’t have a vision and plans to build it? 
Firstly, we had to work out what we (individually) wanted out of the business and our investments. We sat down and wrote a list of the things that we each hoped to personally achieve with the business and our investment portfolio, and we were surprised to discover that our answers were very similar:
 
<ol start="1">
<li>Generate a passive income stream well into our retirement</li>
<li>Restore balance in our lives</li>
<li>Choice – the ability to choose whether we work or not, without our income stopping when we stop working</li>
<li>To help others through our succes </li>
</ol>
 
Do you have a roadmap for the future of your business or investments? In his book The 7 Habits Of Highly Effective People, Dr Stephen R Covey says that “you don’t plan to fail, you simply fail to plan”. Planning helps us to focus on the ’important, but not urgent’ things that we need to attend to. It helps to anticipate and prepare for change. Think of your plan as if it’s your blueprint for change in every aspect of your business and investing life. One of our goals was to create a business that we, as the owners, did not have to work in for 100+ hours each week, as we were doing at the time. So we started delegating work to the team. This gave us more time to work on our business.
Next, we identified the key things that we needed to do in order to achieve our goals and this became our business plan, which we like to call our ‘action plan’.
This document helped us to stay focused on the critical stages of transformation in our business, and ensured that our key activities were identified and implemented in a logical and practical way.
 
Your business and financial plan will help you do three things:
<ol start="1">
<li>It will clarify your vision and goals regarding what you want your business and investment portfolio to look like in the future.</li>
<li>It will identify where your business and investment portfolio is currently placed.</li>
<li>It will determine what work you need to do to close the gap.</li>
</ol>
It is point number three – knowing what work you need to do to close the gap – that forms the basis of your action plan.
It’s important to remember that you may come up with hundreds of ideas and strategies regarding things that need to be done, but they can’t all be implemented at the same time. In fact, this is one of the reasons why many businesses and investors fail to transform themselves, because there are just too many changes and decisions to make and people become overwhelmed and do nothing – or they try to do everything at once.
David Naylor is acting CEO of <a target="_blank" href="https://www.chan-naylor.com.au/">Chan &amp; Naylor</a>
This information has been prepared as a general guideline, and is not intended to be an exhaustive or a complete analysis of the topics in question or issues raised in this article.
 
 
 
 
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David Naylor

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