John Fitzgerald talks about 7 Steps to Wealth & Compound Growth
How To Build Wealth – The 7 Steps to Wealth
Hi, I’m John Fitzgerald and I wanna take 15 minutes and teach you about building wealth and real estate. Two things that lots of people talk about but not many people have done. I’ve actually done it and more importantly, I wrote a book about it nearly 20 years ago and now it’s in its eighth edition. And why that’s important is because it’s stood the test of time, through GFCs, through everything that’s gone up and down, so, I think my advice has some value to you as an Australian.
Retirement story in Australia
The average wage today is around $75,000. If you want to retire on a wage of 75,000, you need around about one to one point five million. Now, that’s the shocking truth and I often say there’s the only truth in numbers, that’s the shocking truth. You might say, oh, I don’t wanna be a millionaire, I don’t want to retire on 75,000, I could retire on fifty, I could — Fine, what’s your number?
You know, I like Australians to have a number that they’re aiming for and, you know, we polled nearly five thousand people and they said, well, we wanna have a comfortable retirement but we don’t want to be wealthy. They feel millionaire was wealthy, but, the truth is, if you wanna retire on anything around forty, fifty thousand, you’re gonna need a million dollars plus own your own home. So, work that number yourself because it really is, it really is important because it gives you some focus. Focus is a key. You know we say that you either do things by design or default. That is, you design your future, to reach that million, two million dollar target or, by default, you end up broke. And guess what, eighty, ninety percent of Australians are ending up all but broke. You know, on an income in retirement, significantly less than half the wage, I mean, it’s just, it’s just terrible. Only one percent of Australians, So, it’s not even one percent. We have a population of 23, 24 million. So, as I go through the seven steps, the why is the most important and the why, why we do things is so that we can be an example to the people around us, our kids. And we can break this stranglehold of our parents and their parents and their parents basically retiring on their pension, because the government’s made it clear, they can’t afford the pension. The Australian government spends a hundred million dollars a day more than it collects in revenue and it’s borrowing that money. It’s put its hands up and said, wait on, this can’t go on and so, we need to do something about it. It really is important. The why is the key and I wanted to start with the why but lets talk about how to build wealth through property investment.
This is the question that I ask every single person who says that they are building wealth. What strategy, what proven property strategy have you got that gives you compound growth? Please write those things down. Ask that question, put it down, put it in your diary. Because, when it comes to building wealth it comes down to just numbers. The only truth is in numbers, it’s just a mathematical formula. And the only way you can take the equity from your house, or a hundred thousand and turn it into a million dollars, the only way I know, safely and securely, is compound growth. And that is the summary of seven steps to wealth. That is the summary of the Custodian programme and we’ve now got so many clients who started with one property up to property number six, eight, ten properties, millionaires, multi-millionaires. Why? Because they answer that one question. They have a strategy which gives them compound growth. And it’s a proven strategy, that is proven by data and case studies.
The 7 Steps to Wealth gets you through
1. The Real estate is land.
The buildings that are on top of it, they’re just buildings, they come and go, they depreciate. The golden rule of real estate is this. Land appreciates buildings depreciate. So, page one of Seven Steps to Wealth that I wrote nearly 20 years ago, and what I learned off my mentors who were Jewish billionaires, buy land for capital growth. That’s step one, really important. When I’m buying property, I want at least forty percent land content. Now, you may not know what that means, fine, in the end, you can book an appointment with one of my team and they can explain to you, what is forty percent land content. But that is number one. That’s really the key.
2. Optimize your income.
Cash flow. I got a saying when I was first in this business, cash is like oxygen, if you run out of it, it’s over very quickly for you. You should buy property today, that after tax, costs you nothing. And more importantly, in the next one, two, three years, becomes cash flow positive. The only way to do that, optimise your income, so, when you sit down with my team, put them through the test on this. How do you optimise your income? What’s the goal? What’s the focus on that?
3. We need to maximise our tax benefits.
Now, the government, I mentioned to you before, the government’s spending a hundred million dollars a day more than it makes. What they want is for you to go out and look after yourself in retirement. So, they actually give you a tax break to do it, called negative gearing. That means, if you go out and buy property, and borrow money, the interest cost can be tax deductible. And the depreciation can be tax deductible. And here’s how it works. You buy a house for around five hundred thousand. The land is two hundred and twenty thousand, the house might be two hundred and eighty thousand, lets say. That house can be depreciated so that, here’s how the numbers work without confusing you, after tax, it could cost you zero dollars a week and you could get a tax deduction of around about 10,000 dollars a year. What? How does it work? Good, ask the question. And you know what, when I go though this with people, people say, John, why isn’t everybody doing this? That’s a good question, why isn’t everybody doing this? Incredible. To build wealth, you need three things. You need growth, you need income. I’ve gone through those two things. Growth comes from land, you need income, point one on that is optimising your income, point two is maximising your tax benefits, and the third thing is you need leverage.
4. Finance to build.
We’ve got to go with banks that give us eighty, ninety per cent LVRs (Loan Value Ratios). The biggest mistake I see investors make is, they buy an investment property and go with the same bank that’s funded their own home. Huge mistake, because the banks cross collateralize the mortgages and reduce what’s called the LVR, the loan value ratio. When I wrote Seven Steps, I said make sure you keep your bank loan outside your investment loan because the banks do something tricky as well. They don’t give you a copy of the bank valuation. You must have a copy of the bank valuation as an investor. So, when we say finance to build, there’s some rules around that, there’s a checklist. And if you sit down with one of my team, they’ll go through the checklist and how to optimise your loan value ratio, to enable you to, not just buy one property now, but as it grows in value, to buy the next one and buy the next one because compound growth is actually growth on growth and I’m gonna show you the maths on it at the end.
5. Aim for affordability.
Ninety five per cent of Australians, buy houses under the median house price, at or below the median house price. So, when I’m buying properties in the main four capitals, which is where I look for, I look to be buying in the lower quartile. Today, the median house price in Sydney is 900,000. Now, when the median was 575,000, we bought 400 houses in Sydney, for 450,000. So you can see, we had a discount to the median house price, they are all now worth about and let me go through the maths on this, those clients bought those houses for 450,000, lets say they put in twenty per cent deposit, made 300,000 dollars. What’s that? That’s a three hundred plus per cent return on their money in three years. A hundred per cent per annum. That’s how the numbers work but it works at the lower quartile better and it’s easier to finance. So, aim for affordability, stay in the lower quartile and in all of the markets, we buy property under the median house price. That’s an absolute key.
6. Make time work for you.
Don’t get caught where things have to happen in a certain period of time. What we’re looking to do is to buy that house, as it grows in value, use the growth to buy the second one and buy the third one and buy the fourth one. Now, I’m gonna show you this slide, and this will amaze you, because you put those six steps together and you get compound growth. And let me show you the point on this. If you buy that first house and lets say you’ve used the equity in your property. You buy the first house, as it grows, you don’t put any more equity in, you use the growth to buy the second one, and then as it grows you use the growth to buy the third one. In ten to twelve years, if they are just growing by nine percent, you will have net assets of nearly one point five million dollars. Just with three properties. And those three properties would put you into the one percent of all Australians. In fact, under one percent of all Australians. That, my friends, is compound growth. And that’s what I want you to focus on. Now, I’ll show you six, because we’ve got lots of clients now who are at six, ten, fifteen, twenty. Six is, they’re up to three million dollars, ten it’s higher home, ah, no, I don’t want that. Just set your goal at least to get you into the millions so maybe, two or three houses. And let us show you how to get there. And lastly, let me finish with the why. I started in 1991, well, I should say in 1989, when I was in my twenties, my early twenties. My mentor, Jewish billionaire, John, what difference are you gonna make? You know, you’re wealthy, I was a millionaire by then, made my first million by age forty, it’s just up and up and up, because of the formula I’m giving you now, compound growth. What I’ve given you is a formula, not just for compound growth, but a formula that will empower you. Because I know, if you reach three, four houses, you will have a mindset, positive, responsible, proactive. Think of the opposite of that. Negative, blame, reactive, and a lot of the coaching I do is on these mindsets. But, let me get to the end of it.
If you have that mindset, positive, responsible, proactive. You’ll create compound growth but then, it’s up to you to inspire others, and the best way to inspire others is being a leader in your community. To be all you can be. And I’d say, for the last twenty, thirty years, I’ve been in this business for thirty years, and every Monday morning, I go to my school, see the kids, all that sort of thing, the youth at risk school Toogoolawa, that’s the highlight of my week and I’d say, that is what defines me from inside. I get no thanks or anything like that, and I don’t do it for thanks, but I come away from the school feeling wow, you know, something inside, every cell of my body says yes, yes. I’d like you to have that feeling. But lets start with you taking care of yourself, because there’s another great saying, you can’t take care of any body else until you can first take care of yourself. So, first of all, work out what you want financially. Secondly, have a proven property investment strategy that gives you compound growth. Let me say it as clearly as that, because lots of people talk, you can make money doing this, this, this, this, this, this. No, show me a proven strategy that gives you compound growth. And then go through the seven steps, it works. Now, we’ll happily give you a copy of my book, sit down with one of my team, they will do an analysis and identify, okay, where you’re at and where you want to get to and how compound growth can get you there.
Take it up for our next Property events.