Making Your First Million.pdf - Association of Net Entrepreneurs and ...

Making Your First Million
locking you into a higher level of exposure to any downturn in that industry. There may
be compelling reasons of synergy or business expertise that warrant you taking that
course, but in general, it's better to play safe. When Pauline and I got together she owned
a half share in a physiotherapy practice. When the opportunity arose for us to acquire the
freehold in the building she occupied, one of the criteria that tipped us into doing it was
the fact that the building was a duplex and the other tenant was a physician. This halved
the risk.
The exercise of acquiring her premises is a good lesson in wealth creation. We purchased
jointly with her partner, putting a $40,000 deposit down, borrowing about $140,000. The
rent paid everything from that point, all outgoings, interest and principal repayments and
at the end of the 9 years we sold our half back to the other partner for $145,000. In other
words, we turned $20,000 into $145,000 in nine years. At present, in 1999 investment
loans cost 7%, commercial rents return 11% and capital gains yield 5%+. In other words,
if you borrow money at 7% you can invest it in bricks and mortar security to return
16%+.
Why would you not do it? The answer is risk. There is the risk of having no tenants.
There is the risk of the tenant falling over. There is the risk of a recession. There is the
risk that hidden costs of ownership will eat into your return. The answer is to take
control. You can control risks in your investments just as you have controlled risks in
your business to date. Look creatively at what is happening and try to align your
investments to take advantage of trends. I live in the Hunter Valley on the rapidlygrowing
east coast of Australia, so I can quote what's happening here. The F3 freeway
from Sydney to Brisbane has been a multi-billion dollar gift to property developers, in
just the same way as the railways were in the US last century, though in that case the
railway owners also owned the land. All along the track of the F3 I see new
developments, residential, industrial and commercial development at Tuggerah,
Ourimbah, Morisset, Minmi and Thornton. Why? Because the new freeway makes
Sydney's far north more accessible than Sydney's near west.
Develop cheap land alongside new, high-speed access routes, cheap new buildings,
purpose-designed with rents less than half comparable in the congested west or central
coast and you have a very high level of control. Just yesterday, for example, I was offered
a substantial investment in a new industrial estate with a Fortune 500 tenant on a new ten
year lease yielding 10.5% nett. Why wouldn't I take it? It's money for jam. Twenty-five
percent deposit, borrowings at 7% and falling, rents at 10.5% net of all outgoings and
rising, and the prospect of reasonable capital gain. New building. No repairs or
maintenance.
Yes, there are still risks. War, depression, market crash, massive dollar devaluation.
Certainly. But there is no such thing as a risk-free investment, be it money in the bank, in
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