7 STEPS TO WEALTH

A fast-track introduction to accelerated wealth building through property investment

7 steps toAcceleratedwealth

J o h n F i t z g e r a l dF o r e w o r d b y I a n L e s L I e

All the things they

don’t tell you about

Property Investment

John L Fitzgerald

5th Edition

Seven S

teps to Wealth

John L Fitzgerald

Buying an investment property can be like swimming with sharks... very dangerous. In this practical and refreshingly jargon-free book, John L Fitzgerald lifts the veil on building wealth through investment real estate.

How it can be done - and how it can’t.

How to select an investment property for sustained capital growth.How to optimise rental income and tax benefits.How to structure the finance and manage the risks.

And how not to fall foul of bad faith and bad advice.

John L Fitzgerald is not an investment theorist. He has personally created and managed wealth using the principles outlined in these pages - and successfully helped others to do the same, through Wealth Building programs and workshops Australia-wide.

“John Fitzgerald’s ‘Seven Steps to Wealth’ is a fascinating book by someone who is not only a fine author but is a man who writes from personal experience and is generous in sharing his knowledge.”

Mr Bert Newton AUSTRALIAN ENTERTAINER

“After reading John’s book ‘Seven Steps to Wealth’ I could not but relate and have an affinity to his successful philosophies.

I, like John, can testify that the acquisition of good land can reap enormous capital gain over a short or long term.

I hope those readers who will be as absorbed as I in ‘Seven Steps to Wealth’ will take up the gauntlet and enjoy the ensuing rewards.

Congratulations, John, it’s a really good and factual read.”

Dr. Betty Byrne Henderson AM FAIM FAICDNamed one of the “Leading Women Entrepreneurs of the World 1998”Trustee Committee for Economic Development of Australia (CEDA)

All proceeds from the sale of this book benefit The Toogoolawa Childrens’ Home Ltd, Australia.

Most Australians would

like to be wealthy.

Most Australians retire

below the poverty line.

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The Bali bombings happened in October and my wedding to Nerissa had been planned for 14th December of that same year. So, that was my first real short-term goal: to really focus and work and drive towards marrying my girl. I was not given all that much hope, but we got there. And there is no doubt in my mind that the determination to make that ceremony helped me to kickstart the journey into getting back and playing AFL football. One thing supported the next … and the next …

So, the goal to continue my career followed. However, throughout the process I realised I knew little about burn injuries and soon I knew I had a long, long road ahead. It would take two to three years to fully recover.

My next goal was to get back and play, yes, but the ultimate was to play and play and then play one game only. I was able to achieve that milestone on 6th June of the 2003 season when I returned to play for the Kangaroos against Richmond. What an amazing night that was. The main objective was achieved as we won that game, most importantly! From a personal point of view, I was thankful I could play my part by kicking a goal and helping to set up the last one that ultimately got us across the line. But when you are involved in a team, it’s about team success. And the team did it.

From there it’s been about the next phase of my life – retirement. I worked at the AFL for six years after I officially retired, with involvement in game development and coaching the national team. Presently, I’m working at the Bulldogs Football Club as List Manager, in control of overseeing recruitment, the lists and the contracting process for our players … so maybe some might say I am not quite retired. Basically, I am obviously still heavily involved in something I love – football. So I reckon I’m lucky, in lots of ways.

The outcome of my story is a real positive, I think. And, in telling it, I am happy to be able to tell whoever wants to read this that being with an Australian company such as Custodian did help when we needed it. Custodian has been a great journey for us. One we’re still on. We have a lovely home in Melbourne … still with a little debt sitting on it, but the Custodian program is a ways and means by which we have been able to set ourselves up. We have two young boys, one eight and one six, so beyond primary school we have education costs to consider with them. All told, we plan to continue with Custodian, as we know Custodian’s our way forward.

My life and work are busy, but we all need to make sure to get some time away. After what I went through, and after what Nerissa went through with me, I know it’s important to get away, spend some time with the family, overseas or anywhere in Australia, and do the things you love. Custodian is the road by which we can do these things and I hope to continue to do more.

Jason McCartney

Jason’s Custodian Story

Jason McCartney is a Custodian investor, AFL footballer and Bali bombing survivor.

I looked at a few property groups before I became part of the Custodian group in 1998. And it’s been a fantastic journey. At one stage my wife and I had six properties. Through the miracle of compound growth that John speaks about so often, we chose to capitalise on and sell three of those properties in order to fund our family home in Melbourne. Only recently have we recommitted to our wealth building journey in order to purchase another property.

My background is AFL. I played with Collingwood, Adelaide and the North Melbourne Kangaroos. In 2002, I unfortunately found myself caught up in the Bali terrorist attacks in Paddy’s Bar. I was only five metres away from where the first of the explosions went off, set there by a suicide bomber. I sustained burns to 50% of my body, my eardrums were perforated and I sustained numerous shrapnel wounds.

When I go back to that time in hospital in 2002 in my mind, I remember sitting there – laying there – as I couldn’t do much else, and knowing Nerissa was really concerned with trying to think about all the things she had to take care of at home. I remember one thing she asked, ‘What about the investment properties? What do I need to do about them, Jason?’

‘You don’t have to do anything,’ I said with some confidence. ‘Custodian is a well-structured program. They’re well set up and they’ll take care of themselves.’ And they did.

That’s what I’ve found with Custodian. Once you get set up and get started, it will take care of itself. And what I said to my wife then is still true: ‘It’ll be OK … it’ll be fine.’ And it has been.

Obviously, it was a very difficult period for my family and me as I found myself in a hospital, fighting for life. But I had amazing support. I think that’s what’s really important with whatever you do, that ability to set goals and challenge yourself. But you need outstanding people around you, and I certainly had that and more.

It was a struggle. But I had tremendous support and with that, and determination, in three-and-a-half weeks, much to the surprise of my surgeons and the people at the Alfred Hospital, I was released. A rehabilitation program came next, with the ultimate goal of me getting back to playing AFL football again. But before that I had a more immediate goal to achieve.

....continued on back page

Inside front cover & back_with spine_V2.indd All Pages 19/05/15 12:25 PM

John L. Fitzgerald

Extract – 7th Special Edition

‘In an ever changing investment climate you need an all-weather, proven property strategy. And this is it.’

‘In an ever changing investment climate you need an all-weather, statistically proven property plan.And this is it.’

Seven Steps to Wealth

First published in Australia 1998 by Toogoolawa Children’s Home Ltd.

(ABN 73 053 100 351) now Toogoolawa Schools Limited.

Seventh edition: May 2015© 2015 John L. Fitzgerald

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the publisher in writing. Every effort has been made to trace the copyright holders of statistical information and diagrams reproduced in this book. The author is grateful to BIS Shrapnel, The Real Estate Institute of Australia, Residex, Business Review Weekly, ANZ Bank and the Australian Bureau of Statistics for permission to use selected data. No responsibility can be accepted by the author or publisher of this book for any action taken by any person or organisation relating to any material contained herein. Property investment is a complex and constantly changing field and all readers should seek independent and detailed advice as to the relevance of any part of this material to their own specific circumstances.

National Library of Australia Cataloguing-in-Publication date Fitzgerald,

John L., 1963–

‘Seven Steps to Wealth’

‘All the things they don’t tell you about property investment’

Extract ISBN 978-0-9942905-0-2

Real estate investment – Australia

Other authors/contributors – Toogoolawa Schools Limited

Text John L. Fitzgerald with Pattie WrightEditor Pattie WrightCover Art Direction & Design Angie Ross, Spellbound CreativeCartoons Chris GroszPrevious 6th Ed. Cartoons Dennis Holmes to concepts by

Claire Louise WrightFinished art and design Mitch Keys, Electric Designs,

New Zealand

Printed and bound in Australia by McPherson’s Printing Group, Maryborough, Vic.

To Mary Fitzgerald

We are all teachers. Some teaches explain.

Some teachers complain. Some teachers inspire.

CONTENTS

INTRODUCTION John L. Fitzgerald 1Jason’s story 7Just Who Is John Fitzgerald? 9Notes 26Start-up Quiz 28

CHAPTER 1Why build wealth? 31Notes 43

CHAPTER 2 Why residential real estate? 45Notes 65

CHAPTER 3 A structure for growth 67Notes 80

Any Other Questions? 81

Glossary 83

Property Success Table 85

Round-up Quiz 86

Quiz Answers 88

Conclusion 90

Custodian 93

Contacts 94

Toogoolawa Schools Limited 96

Your Book Order or Donation 97

Introduction 1

INTRODUCTIONA short speech is a good speech. Whoever coined that was

right. So, with this thought in mind, let’s get right to the point

of this Extract. The pages ahead are meant to assist you in

becoming familiar with the basis of my statistically proven

property plan for achieving financial security and to embark

upon figuring out how to get compound growth. And if you’re

not sure what compound growth is, good – that’s why you’ve

picked up this book. In fact, Einstein referred to it as the 8th

Wonder of the World. And I can tell you it’s a financial miracle.

And … if you read on, I’ll show you why it’s a financial miracle.

But first, a question: “Why have you even opened this book?”

It’s a presumption that we all want to be wealthy. In truth,

our research shows us Australians want to be comfortable,

not necessarily wealthy. But we all know we don’t want to

be broke, right?

So, the obvious answer as to why you are reading this book is

that you want to secure your financial future using a statistically

proven property plan. Plus, you simply want to get ahead.

And you can. These two answers are correct. You might have

others and all would be right, such as:

• How can I pay off my home much quicker and make a passive,

tax-deductible income just as quickly?

Now there’s a terrific challenge that gets right down to the core

Extract - Seven Steps to Wealth2

of things for many people. And then there’s the big one:

• Why do you have to settle for just getting-by when you can

get ahead?

This too is just as easily answered as your first question.

With such a simple step, you have taken your first big step. So

well done!

The second step is to take heed of where Australia is right now.

The most striking of these positions is with our population. Post-

GFC, Australia has experienced the biggest population boom in

our history. Nearly 250,000 people per annum immigrate to this

country and our total population is growing by nearly 400,000

per annum, equating to double or even triple as a percentage of

any other developed country. This situation will lead into, in my

opinion – and it’s already started – the biggest property boom

ever in our history. Added to that, Australia has the lowest interest

rates I have ever seen and that’s over some 30 years. An unheard

of scenario! Even better … this growing population will be with

us for 10 more years, so my next comment is important: take

advantage of the timing and get involved in property investment

through wealth building – as timing is nearly everything in life.

In addition, and new to the market, is the Self-Managed Super

Fund (SMSF) investment buying. On top of that, Chinese buyers

are purchasing real estate in this country, for the first time ever.

This mix provides a fertile platform for long-term growth.

Introduction 3

It’s safe to say there will be no better time than right now to plan

and build your own wealth for your future and that of your family.

Success, I believe, and have proven, lies in repetition. So

start that repetition in a time of surging population growth,

affordable low interest rates, new buying groups and economic

stability. This climate will give you even more initiative and

confidence to begin.

This Extract of the 7th Special Edition of Seven Steps to Wealth

is my gift to you as part of your introduction into how you

can secure your financial future through understanding what

the numbers say.

Ooohhh, numbers, you say?

Sorry, let’s take a minute here.

I control well over a hundred million dollars of property and

I have done that over 30 years. Accumulation, that is. The

difference between me and someone else you might listen

to is I have the numbers in dollars to prove it, whereas many

others have just a colourful story. And, as I said in the first

edition of Seven Steps to Wealth - sadly not an original line,

but nonetheless a very good one – ‘A fool and his money are

easily parted’. Therefore, my first coaching tip to you is to look

behind the person and study the numbers. And that applies to

everyone in the property business, including me.


Here are a few numbers that we can claim:

• I first registered my business on October 13, 1981.

• That’s over 30 years of continuous success.

• Should you have any doubt about Custodian or me? Since

1998, our clients’ properties have increased in value by

close to $1 billion.

• In that time, I have bought, sold and developed more than

10,000 properties.

• I wrote the book Seven Steps to Wealth, which well over

150,000 Australians have read. It is has gone into its

7th Special Edition after 20 years in print. It is widely

acknowledged as the benchmark strategy. And it has also

been translated and successfully published in China.

• We have delivered over 6,000 properties to our clients.

With all being tenanted.

• We have over 3,000 clients.

• Our clients’ property portfolio is in excess of $2.9 billion.

• We have property in the four main capitals of Australia –

Sydney, Melbourne, Brisbane and Perth – and have worked

within these markets for over 10 years.

• Over seven hundred real millionaires have been produced,

with case studies to prove it. These defined ‘millionaires’ are

people with four or more properties – over 11 times the

national average. This equation puts those clients in the top

1% of all property-investing Australians.

Introduction 5

• Investloan, a fully owned internal finance arm, has funded

well over two billion in investment loans.

• Our clients have paid, on average, $212 per square metre

for their properties, which now values at over $564 per

square metre. A great set of figures! (Make a note of this

as I’m going to be talking about this later as the real ‘real

estate’ meaning.)

• Our clients have saved approximately $440 million in tax.

That sums it up for me: numbers that work. We have a program

we know works and we are a company on which you can rely.

My hope is you will be able to find the answers by coming with

me on this journey to become a Custodian. And I am confident in

saying that this Extract is the best, most informative introductory

volume on wealth building you will ever read.

I’ll leave you with this thought:

If you want to do property, talk to me. I do property.

If you want to build wealth, you must speak to me.

And I will listen.

Look to the future. It’s an exciting one and I am excited for you.

John L. Fitzgerald

CEO

Custodian

Invest Different


Introduction 7

JASON’S STORY

As I have mentioned, numbers do tell a story, a very necessary

one in wealth building. But, just recently, the human importance

of what we do here at Custodian was summarised so well by

Jason McCartney, Australian hero, AFL player and long-term

Custodian client, when he spoke at our annual Kick Start client

event for 2015.

You can read Jason’s entire story on the inside front and back

cover of this Extract, but when he personally related how being

a Custodian client helped both he and his wife in their time of

dire need, I thought, my work is done. I’ll let Jason re-cap what

took place at his hospital bed:

In 2002, I unfortunately found myself caught up in the

Bali terrorist attacks in Paddy’s Bar. I sustained burns to

50% of my body, my eardrums were perforated and I

sustained numerous shrapnel wounds.

Obviously, it was a very difficult period for my family and

me as I found myself in a hospital, fighting for life. But I

had amazing support.

When I go back to that time in hospital in 2002 in my

mind, I remember sitting there – laying there – as I

couldn’t do much else, and knowing Nerissa was really

concerned with trying to think about all the things she had

to take care of at home. And I remember one thing she


said, ‘What about the investment properties? What do I

need to do about them, Jason?’

‘You don’t have to do anything,’ I said with some

confidence. ‘Custodian is a well-structured program.

They’re well set up and they’ll take care of themselves.’

And they did.

That’s what I’ve found with Custodian. Once you get set

up and get started, it will take care of itself. What I said

to my wife then is still true: ‘It’ll be OK … it’ll be fine.’

And it has been.

That sums it up for me! This is an example of our point of

difference here at Custodian, where real-life evidence of the

numbers working and the program remaining strong in a time

of need is there for all to see.

Introduction 9

JUST WHO IS JOHN FITZGERALD?I would ask, if I was you.

And just who is suggesting he can help me achieve financial

security?

It’s a good question, a necessary one for you to ask. I often

think we can take some professionals too casually at their word

about their expertise, when all the while we should do our own

due diligence and investigate who we are considering working

with and trusting; so let me answer your question by giving you

a potted history of ‘Fitzy’.

First and foremost, I am a builder of wealth. And a successful

one at that! I don’t think there is a category on any of the

Australian Tax Office forms for this profession, but that is

what I do. And I have helped build the wealth of thousands of

Australians. I have assisted over 3,000 Australians, just like you.

Ask me and I can tell you about their case studies. Many have

become friends and remain clients. I wouldn’t move away from

me either if someone had made me a millionaire, by the way!

I am also the man with an established Australia-wide group

called Custodian, which has over 30 years proven experience

in the property business. It is through Custodian that I can give

you the confidence in knowing you too can build a property


portfolio with a statistically proven property plan. I can show

you how to do it – successfully. To plan for the future. To build

for the future. Because it works! But let’s take one step back

and I’ll fill you in a little on my history.

My story might help you understand why I do what I do

and where I come from. Again, its not complicated. I’m not

complicated. I am an Australian born and bred in the outer

suburbs of Melbourne, Victoria … perhaps like many of you.

I’m pretty much an average person: if anything, a bit below

average academically, and a bit above average in sport. I

once bought a table tennis table, ‘flat packed for easy home

assembly’. After half an hour of wrestling with the instructions,

I found a nearby 15-year-old who was able to put the whole

thing together, ‘as advertised’, in about three minutes.

So, I’m not good at everything!

But I am a proven front-runner at building wealth.

And, if I can build wealth, so can you. Seriously! And if that’s

all you really need to know, feel free to skip the next few pages

and go straight on to Chapter 1.

If not, my history continues – you have been warned.

I was born in Melbourne in 1963 and spent my first eight

years in the middle-class suburb of Moorabbin. My father

was a menswear retailer and went into business on his own

at the age of 30. By the time he was 37 he had built up three

menswear shops in Collingwood, Belgrave and Stawell. He was

a devout Catholic from an Irish Catholic family: five children, all

Introduction 11

in Catholic schools. My mother ran the home full-time, having

left a career as a ballroom dancing instructor to marry Dad.

The school holidays of September 1972 changed my life – all

our lives – suddenly and forever. My oldest brother David

(then aged 12) went, as we often did, to visit Uncle Morris’s

farm near Shepparton. We heard later that he and our cousin

Peter were lighting a fire when David, who was practising his

notorious balancing act on a log, lost his balance and fell into

the fire. Uncle Morris got him to the hospital, where he was

found to have third degree burns from knee to ankle, and

given skin grafts. I remember visiting David at the Shepparton

hospital, the slick lino floors and the cold concrete walls.

He was there for six weeks. One Tuesday morning dad drove

out to visit him – and never returned. On his way home, the

car was sandwiched between two semi-trailers and driven off

the road; he was killed instantly.

At nine years old, I sensed there was a purpose behind those

rollercoaster days, believing even then that everything happens

for a reason. That was the start of what I now see as a journey

to discover my own purpose in the world – a journey that has

since become one linked to the creation and use of wealth. (If

there’s a ‘bigger’ purpose to your reading this book, I hope it

will become clear as you read on.)


My mother had to take over the businesses, as well as run the

family. She did a tremendous job, showing amazing business

acumen for someone with no direct experience. You may

have noticed I dedicated this book to her. To help her cope,

in 1974 we three boys were sent away to a boarding school,

where I skipped Grade 6 in order to go to the same school

as my brothers.

It was pretty clear from the first that I’d make my mark on the

sports field, not in the classroom. I made the first 18 football

team in Form 4 (Grade 10) despite being a year younger than

my classmates, and I excelled in athletics and all the various

sports on offer. I am very health and fitness conscious to this

day, and am grateful that I was able to take part in so many

sports so early in life.

I left school in 1979, having just scraped through with enough

of an aggregate to get my HSC. It was expected I would go to

university, or at least repeat my HSC in order to improve my

marks, but I decided against both, as the academic life was not

for me.

Having barely lived at home from the age of 10, and as boarding

schools make their students independent, I knew it was time to

decide on my own life. By then the sum total of my worldly

possessions fit into a locker 1.8 metres high by 40 cm wide,

so some decisions were made easy. With all this in my young

mind, I decided to ‘get in amongst it’, as the saying goes, and

see what life was all about.

Introduction 13

A friend and I had planned to hitchhike to Queensland – I

wasn’t old enough to have a car, being not quite 17. By January

1980, the friend pulled out, but I nevertheless shoved things

into a backpack and headed off alone for the Gold Coast. On

a hot day in that January, my brother drove me to the outskirts

of Melbourne, dropped me on the side of the road at the Ford

factory on the Hume Highway and wished me a well-meant

‘Good luck and see ya’. I had a couple of hundred dollars in my

pocket. I was on my own.

My arrival on the Gold Coast was great timing – and I do believe

in timing. The Gold Coast was in the midst of a property boom

and I knew immediately I wanted to be a part of it. I applied

for several real estate positions as a salesman and eventually,

through contacts, got a start with Bert Cockerel, who had

an office in Surfers Paradise. To call Bert a ‘jack-of-all-trades’

would be an understatement. I remember going to visit a motel

he owned on the highway in Surfers, called the Golden Sun

Motel. It’s now the site of a 30-storey high-rise named Zenith.

Bert owned the Palm Beach Picture Theatre as well and was a

keen – read ‘mad’ – fisherman. He did the fishing report for the

local radio station and he did it splendidly. Bert was a great guy

and I owe him a lot to do with my start in life.

I had gone around to see him about signing my application for

a licence as a real estate salesman. I told him that I was not

yet 18, as required, but Bert wasn’t fazed by technicalities, and

neither it seemed was whoever rubber-stamped the application

forms for my registration as a real estate salesman, despite me


being up-front about my date of birth. Does that make me the

youngest ever? Perhaps it’s better not to ask.

Less than a year passed before I was introduced to George

Margolis. George had built a fortune in real estate during the

1960s – and then lost it in the crash of 1974–75. When I first

met George, he was re-emerging from bankruptcy, but he

had a good plan. With all his knowledge and contacts, and my

energy, we would make a tremendous partnership. So at 17

and nine months old, I became an associate partner of Cousins

Real Estate. I still didn’t know anything about real estate, but

fortunately, I was a fast learner.

Those were the heady days of the early ’80s: looking back,

‘incredible’ is the word that comes to mind. And at my age

and with my experience (neither of which were particularly

impressive) I was able to advertise for people willing to invest

in a private property trust to develop units – and literally secure

dozens of investors who were prepared to punt $50,000–

$100,000 on my ability to acquire a site, construct a building

and make a profit.

Like I said: ‘Incredible!’

Of course, it wasn’t just ‘my ability’, as I had the sound

building advice of a structural engineer who was part of the

management team – and, of course, George Margolis.

I remember all too well the high-rise buildings going up along Old

Burleigh Road and the Surfers Paradise strip, where units would

Introduction 15

be settling in a building such as Aquarius. The developer would

attend settlement, only to see the property transferred two

or three times on the spot! Greed, as ever, was the underlying

factor. Real estate agents were promising that if speculators

bought, they could on-sell the unit immediately, because of

the sky-high demand. It was not uncommon to see units, sold

off the plan by the developer for $150,000–$180,000, resell

for $250,000, then $400,000, then $500,000 at settlement! I

call this the Bigger Fool Theory. If you invest in real estate on

this basis, you have to be sure there’s a bigger fool than you

coming along behind, to give you a back door. On the heels of

greed, as ever, came the crash. In 1982, you couldn’t give high-

rise units away for love or money! Literally tens of millions of

dollars were wiped off the already over-inflated prices paid by

investors at the height of that feeding frenzy.

Developers also had their problems. Notably Dainford

Limited. This company had built most of the high-rises on the

Gold Coast, having just completed the Peninsula building, the

tallest and one of the best-located buildings in Surfers Paradise.

A record number of people who had acquired the units on the

basis that they could on-sell them found they couldn’t – and

defaulted at settlement.

The ups and downs of the early 1980s taught me a very

quick lesson: real estate is an ever-changing market and while

buildings are its prime ‘product’, it is the land that is the true,

limited commodity. People repeatedly made the mistake of

paying a premium above already inflated prices for a building


that of itself was commonplace and easily replaceable.Things

haven’t changed much. Speculators are still madly snapping

up inner-city units in Melbourne and Sydney, despite one in

five currently having to take a loss on resale! And no matter

how many books I write on this general subject, this sentence

will vary in its figures, but never its impossible imbalance. Ask

yourself this question: What percentage of Australians do you

think buy units to live in, as owner-occupiers? Take a guess.

Answer: less than 10%.

There I go, getting interested in real estate again. I need to

go back to my history, as promised. So, let’s return to when I

purchased my first house. It was a house and land package in

Shailer Park, Brisbane, and in 1985 I bought it for the tidy sum

of $49,000. I borrowed $47,000 on it – which sounded like a

lot at the time. But the deal meant that I could start out with

just $2,000 of my own money – today that property is worth

over $500,000 (2015). So, that’s where I started. With not

much in the way of dollars and one load of a belief in myself

and what I had learnt.

I had cottoned on to an invaluable lesson. The fact that it

was land that appreciated in value, not buildings. And that

this created some rather encouraging mathematical effects,

namely, if the house goes up by 10%, the land will go up by

20%. Armed with this information in 1987, and with a couple of

houses under my belt, I approached one of Australia’s largest

developers, Dainford Limited, and asked them to finance me

Introduction 17

into land estates. Dainford generally took ‘long positions’ in

the market (meaning they were committed to projects that

wouldn’t provide income for 3–5 years), so my formula for

acquiring land and immediately turning it into income was

pretty attractive.

Together, our first project was a 1,200-lot estate at Loganholme,

south of Brisbane. This was acquired as an englobo parcel –

meaning before subdivision and infrastructure development

– for approximately $2,500 per lot. At that time, lots in that

area were selling for around $25,000, with houses selling for

approximately $60,000. As house values crept up to over

$140,000, the raw land value rocketed to $90,000, forcing the

englobo land up to approximately $40,000–50,000.

This sounds like a complete sweetheart deal, but for wealth

building purposes I wouldn’t recommend it. Land on its own

generates no regular income (unlike a rentable property) and

despite the potential for super profits, roughly nine out of 10

land developers go broke in any 10-year period. I was one of

the lucky ones.

In four years, Dainford and I developed and sold over 1,000

properties together. Yet, for all that activity, I soon realised

I would have been a lot wealthier, a lot sooner, if I had

constructed homes on 10% of the allotments I developed and

sold, and simply kept them as rental properties.

I have been in the business for over 30 years and I have bought,


sold and developed over 10,000 properties. I have probably

made most of the mistakes that can be made – although

I like to think I avoided a few, through seeing them coming,

and I have gathered a pretty good idea of what makes a good

investment, and how to make a good investment work even

better. I realised you don’t have to be a property developer to

build wealth in property. In fact, rather the reverse – most go

broke, as I have mentioned at one time or another, in pushing

ahead on bigger and bigger projects.

The present day finds me continuing to work and succeed.

Otherwise you wouldn’t be reading this book or listening to me

at any of my seminars. I run and own Custodian – a property

investment company in Queensland. I have fathered happy

children and contribute to the assistance of underprivileged

children. This particular part of my life has taken shape over

25 years as I established and funded Toogoolawa Schools

Limited. This school provides free education for youth at

risk. Specifically, for children who have been excluded from

mainstream schooling. I’ll talk more about this later in the

book, because this is the ‘why’ for me.

Of late I spend a good deal of my time in China pressing the

flesh for investment in this country, and I give hundreds of

investment seminars a year throughout Australia. I am asked

for investment and wealth building advice from Canberra to

Broome and all stops in-between. I mentor, offer philanthropy

and live a happy life. I could also stop working. But that has

never occurred to me as I actively enjoy helping people to build

Introduction 19

their wealth because then that wealth goes on to help others. It

is a flourishing circle for all involved.

So now you know who John Fitzgerald is. How about I tell you

about my company, Custodian? The two go well together, like

two peas in a spring pod in a vegetable garden.

Since 1994, my company, Custodian, has worked on a system

– based on the structure outlined in this book – that facilitates

a successful wealth building program for ‘ordinary’ Australians,

none of who ever turn out to be ‘ordinary’, by the way.

We have held Australia-wide property events on wealth building

for those interested in the concept of property investment

over most of the years Custodian has been in business. And, as

a piece of confidence for you, we have never faltered. Never in

the recent GFC, never before, and I hope, if I have lived up to

my own rules, never since.

From the start, I set out to do things a little differently from

other developers and marketing operations I know. Through

Custodian I have sought to build very solid relationships with

thousands of our clients, beginning with their first property

purchase and successfully continuing on to assist them with

further investments in building a wider portfolio. Custodian

has worked with these clients over many years of monitoring

their capital growth and helping to guide them step-by-step to

establish a handsome property portfolio. As John Fitzgerald,

I am a hands-on CEO and owner of Custodian and if you


become one of our clients you will get to know me well, and I

will help you well. And profitably.

It’s been fascinating for me to see people come fresh to the

ideas of wealth building, and to watch where they get to. It is

both professionally satisfying and personally a pleasure for me

to be able to observe this. It is, of itself, rewarding.

Some of the people we work with are top sports people.

They have need to reduce their tax liabilities and shift their

thinking from ‘income’ to ‘wealth’ for a future beyond sport.

Others are those ‘ordinary’ Australians I spoke about earlier

who might never have thought beyond paying off their own

home and earning a decent salary until they retire – but for

whom the words ‘financial freedom’ (or is it ‘millionaire’?)

conjure up a whole new world. And right here I might add a

taste of reality. If you wish to place a small, regular, amount

of money into a bank savings account over a 20-year period,

do the sums at how little you will earn on the present low

interest rates compared to placing the same amount of money

into a leveraged investment in property at the same interest

rate? I don’t need to show you the figures, but they are

astronomically different; they are weighted towards property

success by some six to one.

In saying this, I am thus very proud of the fact that some of

our clients, those who started with us so many years ago now,

own up to five to six properties. Many others have eight to ten

and some even have ten or more. We have one investor with

Introduction 21

19 properties, and a family with over 30. In fact, Custodian

can boast creating over 700 millionaires to date. My team walk

the walk, for example, collectively owning over 120 investment

properties themselves. I don’t know of any other organisation

with such positive results. And, on a personal note, I know all

of them.

BECOMING A CUSTODIAN AND

WHERE MY LIFE AND WEALTH HAVE LED ME

There’s another dimension to all of this for me. Whatever

our clients’ initial motivation to build wealth may be – and I

guess we all start out ‘self-centred’ with this to some extent

– I’ve watched person after person achieve more than wealth

through the journey. Many have also found perspective and

definite purpose and much more than financial reward. For

many, this outcome was most unexpected.

I have had my own major shift in thinking along the way. As you

may have gathered, I knew from a pretty early age that I wanted

to be wealthy and I set some ambitious goals for myself and

went after them aggressively. I got there and when I did I found

my perspective had changed.

There are very few really wealthy people in the world. Very

few. And I believe that it’s pretty much up to those who control

and enjoy the world’s wealth to help those who don’t! Once

I had pulled myself into the former category, I felt the weight

of that responsibility. I say ‘weight’ because it is exactly that.

Over time, however, I have found an opportunity to use my


wealth responsibly – to make a contribution to society – and

this has been one of the most joyful and enriching experiences

of my life.

Mentors are important people, and it was my mentor who

challenged me to look for a purpose in life. There’s a great

saying in Africa: ‘We have two hungers. The lesser hunger is

for the things that sustain us and the greater hunger is for the

reason why.’ And it was my mentor, when I was only 25 years

of age, who caused me to pause as I celebrated my success

– multimillionaire, house owner, property developer and

investor, etc., etc. He asked me a most important question:

‘So, what defines you?’

My answer was, ‘Well, I am this person.’

He then said, ‘You are not this person. There are so many other

people like that.’ And without missing a beat, ‘How are you going

to define yourself ?’ he continued to ask. ‘The only way to answer

that question is what you can actually give back.’ And with that

salutary advice he then gave me a book to read about a person

who had dedicated his life to working with youth at risk, and

it resonated with me very intimately, because I could have

been one of those youth at risk. I decided then and there that

I wanted to make a difference. And when you make a decision

to take action, I promise the universe does open up for you.

That happened for me in 1990, when I met a husband and

wife psychologist team – Ron and Suwanti Farmer, and

together we established The Toogoolawa Children’s Home,

now Toogoolawa Schools Limited. Ever since, some of my

Introduction 23

wealth has funded this outstanding school, thus creating unique

educational opportunities for troubled youth.

To give you some idea of our ongoing intent and success

at Toogoolawa, all the boys have either been expelled or

excluded from main street schools. We have a saying there

that they are either mad, bad or sad. But, to be honest, they

are just highly stressed and traumatised youth because their

upbringing has been unimaginable and beyond comprehension

for many people. Personally, it took a lot of tears for me to

come to grips with the fact that they need me to be there for

them, rather than pity them, or feel sorry for them, and so I

do. Stress and trauma is interesting because every study on

education tells us that for kids to learn they need to be in a

happy environment, and that’s our challenge at Toogoolawa as

many of them have come from anything but happy. We’ve had

to reinvent education in a lot of ways, and I am proud to say

that the state and federal governments have acknowledged us

by giving us a three million dollar building grant as recognition

of our school being leading-edge in what we do. We have, for

example, a ratio of social workers to students higher than any

other school in Australia and we focus on getting the kids to

feel good about themselves and teaching them what they need

for a healthy future. In fact, Toogoolawa means ‘a place in the

heart’. As we try and teach the kids, and recognise that there

can be many difficult things going on in their lives, as in the

wider world, there is always a place in your heart where you

can find safety, security and solace.


This is an important and ongoing part of my story and my life. In

fact, that’s how I start my week every week when I’m at home,

and I have done so for 20 years. At 9 am on Monday mornings

I’m at the school with the boys and teachers doing what we call

‘affirmations, quiet time and the thought for the week’. When

we help people build wealth, we are not shy of urging them to

think of themselves as custodians – as well as creators. To think

of wealth as an enabler in making a difference in the world. The

choice of my company name was therefore no coincidence.

Custodian is what we are called and we live the values that the

name implies, and hope you will as well.

Custodian openly expresses its corporate mission and

philosophy quite simply, and we encourage each person who

joins us to become a fellow Custodian.

Purpose: To create wealth

To serve humanity

Integrity: To accept responsibility

Truth: To keep questioning

Integrity Truth

Purpose

Introduction 25

Of course, none of this may be important to you right now.

Feel free to put it all aside, but just let it idle in a corner of

your mind somewhere, for later. First, start building wealth so

you and your family can meet your future needs – or to set

yourself a challenge. And as you build wealth and meet your

goals, perhaps you’ll remember this seed of philanthropy sown

here. Perhaps you too will find something more, something else

to invest in for the future of our country.

On that note, let’s move on to the business of building wealth!


NOTES !

Introduction 27

NOTES !


START-UP QUIZSo you can get to know us, and for Custodian to get to know

you, try out this Start-Up Quiz.

The following questions will help you focus on beginning to

understand how to build a financial future for yourself, often

with what you have at hand. The quiz may also remind you of

where you are starting from in order to build that future.

Don’t worry if you don’t know all the answers yet – you will.

By the time you attempt the Round-Up Quiz at the end of this

Extract, I know you will surprise yourself.

There’ll be no prizes right now, no frozen chook or meat tray

waiting at the door when you leave. But by completing this quiz

you will begin to inform yourself about your financial situation.

There will be more to come. More security and more flexibility

in your life ahead … so read on and answer honestly.

Introduction 29

1. In making a wealth building investment decision, what

would be more important?

£ How you felt about it

£ How it stacked up logically

2. In considering a residential investment property for wealth

building, what would be more important?

£ Rental returns

£ Taxation benefits

£ Capital growth

3. Is it prudent for me to acquire property close to where

I live?

£ Yes

£ No

4. Which institution(s) effectively control the affordability of

housing in Australia?

£ Real Estate Institute £ Banks

£ Property developers £ Valuers

5. Is the number of renters of property in Australia

£ Increasing?

£ Decreasing?


6. In choosing a location that is going to give capital growth,

which factor is most important?

£ Proximity to transport

£ Proximity to schools

£ Percentage of investor-owners

£ Established capital benchmark

7. What is the ‘established capital benchmark’ of an area?

£ The median price of property in the area

£ The highest price of property in the area

£ The lowest price of property in the area

8. What was the average land size of an urban house in the

capital cities of 1970?

£ 450 m2

£ 650 m2

£ 750 m2

£ 1,000 m2

Sorry, but I’m not going to give you the answers at this

point. That’s what this Extract is for. Forget about this

quiz altogether for the moment. Read the following three

chapters, and by the time you get to the end you’ll be able to

tackle the same questions again. And with answers provided

by what you have read.

Chapter 1 - Why build wealth? 31

Chapter 1Why build wealth?


DO YOU WANT TO BE WEALTHY?Silly question, right? Everybody wants to be wealthy.

Actually, no.

Crazy as it sounds, after we polled over 5,000 people, the results

showed us that many of those involved were offended by the

connotations of ‘wealth’ and ‘wealthy’. Their more personal,

and in fact, honest comments were that they just wanted to be

comfortable. But they really do want to be ‘comfortable’.

Here is where I need to take you to the numbers again, because

as I tried to reinforce in my Introduction, lots of people have

stories, but there’s only truth in numbers when you get to the

core of things. And to

be comfortable now you

need to be a little wealthy.

I’m not playing with words

here, not being clever; I

am being, in fact, precise.

Imagine the security and the freedom of retiring with enough

money to do all the things you’ve always wanted to do, for

as many years as you’ve got – and not having to rely on the

government for a cent!

It seems extraordinary, but when we surveyed 2,200 people

in the south-west Brisbane area, 78% of them said they ‘never

thought about building wealth’.

Nearly all of us retire below the poverty line!

What’s going on?


Let’s look at it another way.

How much do you reckon you’d need – per year – to live

comfortably in retirement? I’m not asking you to do budgets

and calculations and adjustments for inflation, although at

some stage, if you were thinking about talking to an investment

advisor, it would be a good idea to have an idea of your financial

position. Well armed is well served as the saying goes.

I’m just talking ballpark figures here; what kind of a sum per

year would you want to retire on, in today’s dollars?

Most of the people I talk to would say something over $70,000

per annum.

Your own estimate: $_____________

That estimate may be perfectly realistic for your own financial

circumstance; you’d have to do a few calculations to find out.


How Australians Retire

The following chart shows what Australians actually do

retire on.

How Australians Retire

Source: ABS 2011 Census

In order to retire on $70,000 per annum, you actually need

around $1.5 million in assets, plus you need to own your own

home. That’s a lot for some and far too much for many. And

that’s only in terms of today’s dollars. In 20 year’s time, with

inflation at 4%, the equivalent sum would be $150,000 per

year, requiring $3 million or so in assets. How many of you

have millions in assets? My answer would be not many.

Therefore, how many of you have a plan in place to build up

those kinds of assets by the time you retire? Apparently, only one

in 100 of us! It used to be five in 100, so we’re only getting worse

at looking towards our retirement in wealth building. But, if you


are that one in 100, please accept my congratulations and best

wishes, and feel free to stop reading (although there may be a few

things in this book that will surprise even you). If you are not one

of those, it’s your responsibility to change this for yourself! (Think

about it. On whom would you want to be financially dependent

when you retire? The government? Your kids? Read on … it could

be both financially and personally very worthwhile).

WHY AREN’T MORE AUSTRALIANS WEALTHIER?

It’s a great question. And there are a number of answers to it.

(I haven’t included ‘waiting to win the lottery’ – although, with

$75 billion ‘invested’ in gambling in Australia each year, you’d

think we were pretty serious about this as a retirement plan!)

We don’t have enough money to build wealth

Wrong. The structure I’ll show you in this book allows you

– even encourages you – to start small. You only need a

combined annual gross income of $100,000, and a small

amount of cash or equity in your own home or other property

to get started. Wealth is accessible to most Australians. Mostly,

it’s about using the resources you have, taking sensible advice

and direction and restructuring your cash flow.

And all that takes is:

(a) knowing how

(b) choosing to give it a go


Our parents never taught us to build wealth

Most people my age were taught that we would grow up, go

to a trade or get a university degree and then find a job. With

today’s less-than-stable job market, in both professional and

trade areas, the surety of work is far less available than it was

only a few decades ago, so we need to make our money work

smarter, earlier.

In times past, we’d save up enough money for a deposit on a

house, and we’d use our work income to pay off the loan on

that house over 25 years … then maybe we could consider

another investment. Sound familiar? Well, that’s exactly what

most Australians do.

I call this ‘income thinking’. We need to replace it with ‘capital

thinking’. This is my first piece of real advice. Think ‘capital’!

There’s always a safety net

I think this is part of the same thing. Our grandparents seemed

to live fairly happily on the pension in the post-war years, and

in the ’50s and ’60s, Australia enjoyed a relatively high standard

of living compared to other nations. Of course, that was when

there were about 18 taxpayers for every pensioner.

Today, there are less than four taxpayers per pensioner, and

if demographic trends continue downwards, within 20 years

there will be less than one taxpayer per pensioner. Meanwhile,

because we’re living longer, the average Australian will have to

fund at least 20 years of retirement. It won’t be long before


the government simply won’t be able to afford the age pension

– even at its current meagre levels. So we might like to think

about making our own arrangements.

We don’t like debt

This is another of those helpful attitudes our parents taught us.

There are some sound values behind it – self-reliance, pay your

own way, don’t put your hand in your pocket unless you have

the cash to pay for what you want when you want it. It’s true

that escalating debt is a concern for everyone. What we need

to distinguish between, however, is debt on consumer items

that depreciate in value (like a car, a dining suite, or a stereo

system) as opposed to

borrowing on an asset

that appreciates in value

and generates income,

like property. The latter

kind of debt (a) supports

the borrower’s ability

to make the necessary

repayments, and (b)

offers a profit on sale of

the asset.

On the other hand,

you could buy a new

BMW Cabriolet for, say,

$100,000, and by the

time you drive it out of

Our parents never taught us to build wealth

Most people my age were taught that we would grow up, go

to a trade or get a university degree and then find a job. With

today’s less-than-stable job market, in both professional and

trade areas, the surety of work is far less available than it was

only a few decades ago, so we need to make our money work

smarter, earlier.

In times past, we’d save up enough money for a deposit on a

house, and we’d use our work income to pay off the loan on

that house over 25 years … then maybe we could consider

another investment. Sound familiar? Well, that’s exactly what

most Australians do.

I call this ‘income thinking’. We need to replace it with ‘capital

thinking’. This is my first piece of real advice. Think ‘capital’!

There’s always a safety net

I think this is part of the same thing. Our grandparents seemed

to live fairly happily on the pension in the post-war years, and

in the ’50s and ’60s, Australia enjoyed a relatively high standard

of living compared to other nations. Of course, that was when

there were about 18 taxpayers for every pensioner.

Today, there are less than four taxpayers per pensioner, and

if demographic trends continue downwards, within 20 years

there will be less than one taxpayer per pensioner. Meanwhile,

because we’re living longer, the average Australian will have to

fund at least 20 years of retirement. It won’t be long before

Today there are less than four taxpayers per pensioner. In 20 years....


the showroom, it’s only worth $85,000; if you borrowed

$100,000 on it, you’re already facing a deficit of $15,000,

which you have to pay off. Each year, more of the same; you

could end up making payments of $12,000 for four years – and

still face a balloon payment of about $70,000 (which may, or

may not, equal the capital value of the car by that time). Now,

that’s debt.

Ironically, people routinely run up thousands of dollars in ‘small’

debts on consumer items – but baulk at taking on a mortgage.

So, let’s get debt into some perspective. You can’t build wealth

without acquiring substantial assets for capital growth, and

you can’t realistically do that without borrowing the money to

invest. This is called ‘gearing’.

What I am suggesting here is we offset what we owe to the Tax

Office by investing in property. Tax is the biggest debt you’ll

pay in your whole life. They take 30%+ of everything you earn.

They take this money so the Australian government can look

after you in retirement – which I am not convinced of. They

give you the option. You can borrow to buy property and use

the money that you would pay them in tax later, or to service

the loan.

As a somewhat salutary fact, even the Treasury predicts that

when every superannuation contribution from every worker in

Australia is finally mature, our pension bill will only reduce by

some 6%. It’s quite plain – we all need to look to our financial

and retirement future.


Start small, think big – make success a habit.

If you’re interested in gaining this habit, there’s an interview

that might be of interest to you. A great friend of mine, Peter

Richie, started McDonald’s Restaurants here in 1971, and he

is a great businessman, a real success story. He built over 500

stores in the preceding decades and if you want to hear the

story of McDonald’s and its real estate story in Australia, Peter

recently spoke at one of our annual Custodian client events

and it can be accessed at www.custodian.com.au

It’s an income world

What does ‘being wealthy’ mean to you? It’s an interesting

question to ask, don’t you think? And a core question in the

arena we are now having a conversation about. For some,

it just might be a difficult one to answer. For many it might

be a big salary, with a lifestyle to match. But that’s not how

wealth works. Income by itself doesn’t make you wealthy. It

often means you just spend some. You save some (maybe),

and inflation gradually wears its value away. Capital, on the

other hand, is material wealth that can be used to produce

more wealth, through investment. Capital grows, income flows

(mostly, through your fingers).

Unfortunately, most people don’t get past income; they don’t

get their money growing and working for them. The system is

there – but only capital-focused people use it to build wealth.


If there is something you should take away from this early

chapter, it’s this:

You can’t save your way to wealth.

Wealth building is strictly for those in the know

Some investment advisors would like you to think so. But the

good news is that property investment need not be the sole

preserve of financial experts. By the end of this book, you’ll

know enough about ‘leverage’ and ‘negative gearing’ to get by.

You’ll have a simple investment structure and clear principles to

work with. And if the whole business seems like too much of a

hassle, remember – you don’t have to do it all yourself! You can

get advice and help with everything from working out an initial

budget to managing a whole portfolio of investment properties.

Custodian is just one example of an organisation that offers a

whole range of services in the property investment field – you

could get advice from other sources. Look behind the veil. Try

to find someone who has actually done what they are advising

you to do! This goes for accountants, financial advisors and real

estate agents: there are some good ones who have built wealth

– that’s the first credential I’d look for.

Wealth building is strictly for sharks

It’s easy to get that impression – and not everybody relates

to the idea that ‘greed is good’ the way we seemed to when

Michael Douglas first said it in the movie Wall Street in the late

’80s. I do believe it is of benefit to challenge the way we think


about wealth. Sure, it’s about quality lifestyle, providing for

family, a financially secure retirement, control over your future

and all that good stuff. But it is also about responsibility.

As I outlined in my personal story, the Custodian philosophy is

that those few of us who are fortunate and informed enough

to build wealth can – and

must – choose to use it

responsibly. Wealth puts

us in a position to help

those in trouble and need

– and to shape the kind of

fair and hopeful society

we would want our

children to inherit. It’s also

our responsibility to educate the next generation to manage

and preserve capital, for our nation’s financial and social

wellbeing. Custodian believe that this is what true investment in

the future means – and we find that it yields the most valuable

and satisfying returns.

We encourage all fellow wealth builders to adopt this

philosophy. This book is about what’s possible – in all sorts of

ways. Sharing in the custodianship of our society’s future is one

way of being all you can be.

Sharing in thecustodianship of our

society’s future isone way of being

all you can be


WHAT’S THE SOLUTION?

At the risk of sounding like a sportswear advertisement, it’s

quite simple:

Just think differently!

JUST THINK DIFFERENTLY!

CAPITAL, NOT INCOME.

When we talk about ‘wealth building’, we are talking about:

• establishing a structure, or system, to manage your

cash flow

• acquisition of assets (in this case, residential real estate)

• capital growth; that is, increasing the value of your

investment over time.

Your investment may, of course, also offer you income and

tax advantages. But it’s the capital growth that counts. It’s the

capital growth – combined with compound growth – that make

millionaires.

And as it happens, most millionaires achieve capital growth by

investing in real estate.

This Extract will take you through the initial step-by-step of

how it all works, and what you have to do.


NOTES !


NOTES !

Chapter 2 - Why residential real estate? 45

Chapter 2 Why residential real estate?


If you just look at results, you’d have to say that property makes

good investment sense. It does!

For example, it is consistently a major source of wealth for the

wealthiest of Australians (and 90% of millionaires worldwide).

Residential real estate, in particular, scores high on any quality

you’d look for in an investment – and remember, your purpose

is capital growth.

SECURITY

Residential real estate offers the security of ‘bricks and mortar’

compared to the fluctuating values of shares and commodities.

Even compared to the manageability of commercial and industrial

properties, over the medium to long-term. And, even allowing

for the ups and downs in real estate values we all hear about, the

underlying trend shows remarkably steady growth.

Source of Wealth

Source : BRW Rich 200, 2014


You can see this trend quite clearly in the next table as well as

with the one following. These clearly depict house prices over

the last 30–40 years.

Source: RP Data/REIA, 2014

In fact, the growth pattern has stayed pretty constant

throughout the last century.

Sydney Median House Price

Source: ABS/RP Data 2014

$

$

$

$

$

$

$

$

$

House Price GrowthCapital City

1966 1976 1986 1996 2006 2015

($) ($) ($) ($) ($) ($)

Melbourne 13,000 37,000 83,700 144,000 330,000 660,000

Sydney 15,000 42,000 97,600 202,000 472,000 858,000

Brisbane 9,700 30,000 60,400 132,000 325,000 505,000

Adelaide 10,000 31,000 77,700 110,000 280,000 429,800

Perth 10,200 38,000 55,100 127,300 365,000 550,000


Roughly speaking, this means that residential property has

historically doubled in value every 8–10 years. And don’t forget

that with the population continuing to grow, the demand for

housing must also continue to increase.

PERFORMANCE

The following graph by the Reserve Bank of Australia (RBA)

produced in July 2014 shows residential property as the best

investment asset class over the past 30 years. And these are

just averages.

The better your real estate investment strategy is – where you

buy, what you buy, how much land content there is and how

you finance – the better the returns can be.

Some of the statistics actually downplay the performance of

property. Take median house prices, for example; over the last

Long Term Asset Class Returns

Source : RBA, 2014

$1,638,400

Value of $100 Aust residential property (11.1% pa)

Aust shares (11.5% pa)

Aust cash (5.6% pa)

Aust bonds(6.9% pa)

$409,600

$102,400

$25,600

$6,400

$1,600

$400

$100

1926 1936 1946 1956 1966 1976 1986 1996 2006 2016


20–25 years, the median house price in most of the capital cities

has increased by between 8–11% per annum. But look at that

‘median house’ in the 1980’s: it’s on a standard quarter-acre

allotment, or 1,000 m2. Look at the ‘median house’ today due

to urban sprawl; the standard lot size has decreased to about

450 m2! Remember, it’s the land value we’re mostly interested

in. If you look at the actual value of that quarter-acre block in

the capital cities, it has well outperformed the supposed ‘median

house price’ and presented huge wealth building opportunities,

particularly with the advent of dual occupancy or subdivision.

LEVERAGE

Because of its security and performance, residential real estate also

represents ‘security’ (in the legal/financial sense) or collateral for

loans. Most banks regard residential real estate as prime security,

against which some will lend up to 90–95% of the property’s value.

_________________________________________________

Definition

Gearing is borrowing money for investment that provides

reliable income.

_________________________________________________

‘Leverage’ in mechanics is a way of turning a small amount of

force, at a strategic point, into a much greater force. (Think of

a car jack.) Financial leverage works the same way: you can use

a small amount of money to acquire an asset of much higher

value, on which you reap larger returns and growth. (This is a key

factor in the performance of property, as compared to shares,

as a long-term investment. We’ll look at it in more detail soon.)

_________________________________________________


Definition

Leverage is gearing your investment so that the proportion of

capital you invest is low in relation to borrowings; say, 20:80

or 10:90.

Equity is your ‘net worth’, the value of assets that is actually

yours, or accessible to you. In other words, the value of your

assets minus the debt you owe on them.

_________________________________________________

If the value of an investment property goes up, and the mortgage

on it stays constant, your equity – or net worth – increases.

Basically, the high degree of leverage on residential property

allows you to build wealth by using just a little of your own

money – and quite a lot of other people’s!

This is great news, because it means you don’t have to be

wealthy to build wealth! Residential real estate is actually one

of the most affordable

investments around.

The confidence of banks

with residential property

allows you to use your

increased equity as

security in a fairly liberal way, to piggy-back one purchase on

another and build up a portfolio of properties – as we’ll show

you in Chapter 3 – so that you benefit from compound growth.

You don’t haveto be wealthy to

build wealth!


WHAT ABOUT SHARES?

A lot of people will try to tell you that shares are a better

investment than property. It’s true that some shares show a

higher income return. They are easily tradeable, and shares in

major companies have the advantage of high liquidity – they’re

practically cash. In fact, prior to the crash of 2007–08, shares

even measured up to property based on annual returns.

Obviously that will change after the global financial crisis (GFC)

and the All Ordinaries Index fall of around 47%. Shares are

rebounding, but they have a long way to go - and property,

in some markets, may also be at the peak of its cycle. So let’s

acknowledge that both show good capital growth. I’d still argue

that property is the better investment, however. Why?

The difference is the leverage. You can buy property on a 10%

deposit, because it represents a bankable security. When it

comes to shares, however, most banks will only lend 50–60%

of the purchase value. Big difference … big!

Here’s an example: Bill and Ted both have $50,000 in cash. Bill

puts his down as a deposit on a property, while Ted uses his to

buy shares.

Let’s assume that in the first year, the value of Bill’s property

increases by 9.8%, and Ted’s shares go up by 12.6%. Which was

the better investment?


Bill’s Property Ted’s Shares

Deposit $50,000 Deposit $50,000

Banks will loan 90%

$450,000

Banks will loan 60%

$75,000

$500,000 @ 9.8%

Capital Growth

$125,000 @ 12.6%

Capital Growth

Return $49,000 Return $15,750

Bill gets a better return by over three times in property.

Bill’s equity has gone up from $50,000 to $99,000 ($549,000

minus $450,000). That’s a return of just under 100%.

Ted’s equity has gone up from $50,000 to $65,750 ($140,750

minus $75,000), a 32% return.

Numbers tell us everything.

So even if the shares have twice the ‘growth’ factor, the

property offers more than twice the growth in true capital

worth (equity) – simply because of its leveraging ability.

Property’s reliability makes a difference, too. When banks

lend on shares, they usually reserve the right to a margin call

should the shares drop in value. (A margin call is where you


are required to provide a cash top-up to maintain the agreed

loan-to-security-value ratio. So if you borrowed 50% of the

value of shares, and their

price drops, you would

have to pay off part

of the loan so that the

outstanding amount still

represented only 50% of

the value of the shares.)

This can be scary, because

some banks can give you

just two or three days to

rectify the problem; if you

have a falling share price,

you could be topping up

on a daily basis!

Banks don’t, however, require a margin call on three to five

year loans on property, particularly at the lower-end price

bracket. So there’s no risk of them selling you up because of a

temporary hiccup or glitch in the market!

WHAT ABOUT COMMERCIAL PROPERTY?

Commercial property includes land and premises used for

retail, offices, industry, entertainment and hospitality – anything

from the corner store to a Westfield centre. While residential

property values are expected to maintain their rising trend,

the future for commercial and industrial property is much less

certain – and that’s generally reflected in the amount banks

Even if the shareshave twice the‘growth’ factor,property offers

more than twice thegrowth in true capital

worth (equity) – simplybecause of its

leveraging ability.


are willing to lend. Moreover, while the growing demand for

rental property allows you to be a relatively passive investor in

residential housing, you can’t take the same kind of back seat

with commercial property.

When you buy a commercial property, you’re buying land

plus buildings, plus goodwill. If the property is tenanted, its

purchase price will generally be based on the rate of capital

return it offers, which may be a far cry from the building’s

replacement value. Let me give you an example. A friend of

mine once developed Big Rooster (now Red Rooster) outlets.

He purchased land for around $80,000 and built premises for

around $100,000, including car parking and landscaping and

so on. He then leased it to Big Rooster for a whopping $40–

45,000 per annum, and sold on – showing a10% return. This is

good development business.

The point is that an investor buying a Red Rooster outlet is

paying a premium of $200,000 for goodwill – in effect, for

Red Rooster’s continued success. But if Red Rooster left those

premises at the end of the lease, you would be left with an

empty shell, with a replacement value half of what you paid for

it, and limited ability to attract new tenants, since the premises

were purpose-built for a particular fast food chain.

There have been some real horror stories since the GFC. For

example, people borrowed to invest in companies that no

longer exist, such as Westpoint, Timbercorp, Great Southern

and Storm Financial. Tens of thousands of investors were burnt.


A sad fact: while I am writing this Extract, the ANZ Bank is

issuing writs to hundreds of people who had invested in the

now-defunct Timbercorp. This type of tenuous investment,

and the subsequent hard-hearted corporate reaction, goes a

long way to the warning ‘buyer beware’.

Horror stories about margin calls are not just related to the

companies that went broke. They also relate to the big ‘blue-

chip’ companies, as their shares also lost significant value in the

GFC. This made the banks call on their margins, and investors

needed to come up with the cash within two to three days.

In many circumstances, the banks sold the shares and then

pursued those investors for the balance of their outstanding

debt. This resulted in some people having to sell other assets

or even their own homes. From my perspective, margin loans

are a very high-risk way of investing in shares and making

money, especially if you do not have the cash to meet the

margin difference.

I remember an investor telling me he had found the perfect

way to build wealth. He had bought large tracts of land and

leased them for a 10% return to emerging timber companies

Timbercorp and Great Southern. He said he could buy these

properties for $800,000 and with the timber companies renting

them at 10%, he could see no better way to make money. I told

him the Red Rooster story – how they were bought out and

closed many of their shops – and that it was unwise to put all

his eggs in one basket – especially in an industry as fickle as

growing trees supported by tax savings.


Early in 2009, both Timbercorp and Great Southern went

broke. They ceased making payments and left investors with

large areas of land with small trees growing on them. The land

has almost negative value because it does not provide income

in its current state and the cost of clearing the land to provide

income would cost hundreds of thousands of dollars. Future

use of the land would also be subject to council approval and

potential rezoning.

Businesses come and go – and not just geographically. You have

to think about the retail areas around you. The last 20–30 years

have seen the mushrooming of regional shopping centres, which

have squeezed out many high street shops and neighbourhood

shopping centres. They come complete with entertainment and

refreshment facilities so you can stay all day and pick up a few

more impulse buys. With the advent of 24-hour shopping, it

seems only a matter of time before these shopping centres, along

with petrol station/convenience stores, completely take over.

I am not saying all shops

are bad; what I am saying

is leave it to the specialists

and big companies. Some

of the biggest and best in

the world do it very well

and even so, they too experienced tough times during the GFC.

It is a similar story with office buildings. Office tenants will

come and go, and the office buildings will often age quickly and

Businesses comeand go – and notjust geographically


require you to spend money on capital works and lease fit-out

incentives as well as taking risks on tenants, which, during a

downturn, could be high. The better buildings will rent well but

these are $10 million investments – not what you would call a

starting point for average Australians.

Banks look at commercial property differently to housing. I do

have a sizable commercial portfolio but it is something I have

dedicated managers working on almost full-time. When the

banks reviewed my debt levels during the GFC, they did not

blink on my housing debt but they did require me to get all

of my commercial properties revalued, and then they wanted

me to lower my loan-value ratios to below 70% of the new

valuations.

If that doesn’t say something, nothing does. I am not saying

commercial property is a bad investment, but it is a specialised

one for a small investor. If you are keen, you could invest in

property trusts with a range of commercial properties, enabling

you to spread the risks of tenant downturns. However, while

commercial property offers a reasonable income base, it does

not have the best potential for capital growth or for duplicating

your success to build a portfolio.

MEANWHILE, THE FUTURE FOR HOUSING...

Fortunately, we all have to live somewhere. The wonders

of modern technology still haven’t provided any alternatives

to living in some form of housing. (Indeed houses are still

the norm, outside medium to high-density urban areas). We


know we have long-term

housing growth because

Australia currently has

the highest population

growth in our country’s

history. However, as

our population ages, this

growth is not home-

grown, it is occurring

through migration and,

we are not only short of

houses now, but we will

need a lot more homes

over the next 20–30 years

to cope with the growth

needed to replace our

retiring baby boomers in

the workforce.

AREN’T WE ALREADY INVESTING IN

RESIDENTIAL REAL ESTATE?

One of the things I like about residential real estate is that

it is a known quantity for a lot of people. They may not be

entirely comfortable with the language of finance and banking,

leverage and gearing, but they have some experience of the

sector, especially if they own their own home. This can be

pretty reassuring if you’re sticking your toe in the shark infested

At least you know youknow how to choose

and buy a home

Logic and emotion can give you two

conflicting messages


waters of investment for the first time: at least you know that

you know how to choose and buy a home.

Sorry, but actually this makes for rotten investment decisions!

It’s a bit like taking up snow-skiing.

If you haven’t snow-skied, it’s a great sport – and if it’s

accessible to you, I recommend that you give it a try. I learned

some of the basic principles when I was a kid, but only took

it up again about 10 years ago, having water-skied for many

years. And now, on my annual visit to the snowfields in Victoria

or New South Wales, I’m constantly reminded of two things:

1. Snow-skiing and water-skiing may look vaguely similar, but

if you try to snow-ski the same way you water-ski, you end

up on your face (or worse). The apparent familiarity makes

you feel pleasantly confident, but it can also blind you to the

fact that the principles and techniques involved are quite

different.

2. Logic and emotion can give you two conflicting messages –

and if you’re doing something that ‘feels’ risky, it’s the feelings

that shout loudest! When you’re on top of a mountain,

thinking about heading down, logic and science and the ski

instructor and all those good things are telling you that to stay

in complete control, you need to lean down the mountain,

with all your weight on your downhill leg. Meanwhile, your

emotions are telling you to keep your bum as close to the


snow as humanly possible! It’s easy to say ‘go with the logic’,

and I’m the first to admit that, for a novice, hurtling down a

mountain at 30–40 kph doesn’t feel ‘in control’ at all. And,

yes, the temptation to lean cautiously back into the slope is

fairly powerful. But that’s the reason you see me, and a fair

few others, losing control on the slopes and ending up with

our bums on the snow. We let emotion, not logic or science,

make our decisions for us.

And that’s exactly how too many people invest in real estate.

They take the (largely emotional) experience they have

in choosing their home, and try to apply it to choosing an

investment property. Logic and science go out the window –

and so does capital growth.

So what are the right criteria to use?

CHOOSING A HOME

When we choose somewhere to live, we naturally go with our

emotions, gut instincts and lifestyle choices, and quite rightly:

this is going to be your home. We walk into a place with our

partner, having looked at several properties – perhaps not

even knowing what we’re exactly looking for – and suddenly

we’re in love. It’s the place of our dreams (or looks like it could

be, with a little work).

I had exactly the same experience buying the property where

I used to live. My fiancée and I had been looking for months,

and because of our lifestyle we particularly wanted acreage


land near water. On a rainy Saturday afternoon, I drove up the

driveway of perhaps the twentieth property I’d looked at. I got

out of the car and knew instantly – this was the one. I made

an offer on the place before I was halfway through the front

door – and without even consulting my fiancée. Talk about

risky decision-making. Fortunately, she had exactly the same

response to the place when we went back together the next

morning – and of course, we did eventually get around to going

through cupboards, flicking switches and checking carpets.

Later, I pulled down that house and built another one, and I am

the first to admit I completely overcapitalised on the place as

an investment. Even so, it was a great way to buy and make a

home! If you’re happy in your own place – be happy. You need

to ‘feel at home’ where you live; it makes a huge difference to

your work and other areas of your life.

But it’s not the way to invest in residential real estate for capital

growth.

CHOOSING AN INVESTMENT

PROPERTY … NOT!

I always seem to get people coming up to me, bragging they’ve

started ‘wealth building’, and all excited because they’ve

just purchased an investment property to take advantage of

negative gearing, etc., etc. They sound like they’ve won the

lotto – and they want to tell me all about it.


They spoke to their accountant and bank manager, got the tick,

and went off in search of a property. Their first port of call was

the local real estate agent, because after all, they’d purchased

their home through him, and they’d got chummy over the

years. And would you believe it? ‘The Perfect Property’ had

just come on the market – ‘Just Around the Corner’ from their

home! Old Mrs Reid’s house was for sale; she was moving into

a retirement village, and had signed a contract to purchase a

unit. It was such a big house, and she couldn’t look after it any

more. And what a bargain! (‘She’s asking $500,000, but I’m

sure if you made a cash offer you could get it for $475,000 …’)

Our couple can’t believe their luck. They’ve driven past Old

Mrs Reid’s house a thousand times, always admired it, and now

they not only get the chance to buy it, they can get it for a full

$25,000 discount on asking price! Within 30 days, they’ve got

themselves an investment property …

Why did they choose this

particular property? ‘It’s

ideal: we can drive by it

every day on our way home

from work!’

Does that sound like a

dumb reason? It does,

if your purpose is to build wealth. (In fact, our couple have

broken just about every rule in this book).

Does that soundlike a dumb reason?

It does, if yourpurpose is tobuild wealth.


And do people really do that? It sure looks like it. Of the

Australians who own residential investment properties:

26% INVEST WITHIN THEIR OWN POSTCODE!

CHOOSING A PROPERTY FOR CAPITAL GROWTH

Here’s where the logic and science come in. There are three

questions we need to ask ourselves, if we want to invest in

residential real estate for capital growth:

1. What structure will best utilise my cash resources to allow me

to build up a property portfolio in the shortest period of time?

2. What sort of property will give me the highest capital growth?

3. What location will give me the highest capital growth?

Unfortunately, most Australians who invest in property

don’t ask themselves even one of these incredibly important

questions – let alone all three – which is why 97% of them don’t

maximise their capital growth or their tax benefits. And why

only 1% of them build enough wealth to retire on an income

(in today’s terms) of the average wage of $75,000 per annum.

Just one more statistic: less than 15% of all property investors

buy more than one property. But one property won’t make you

wealthy. You need to focus on building a portfolio of five or six

properties over 10 years. Remember these numbers if you want

to build wealth over time in a financially healthy way.


So, the good news is that this catapults you to the very top –

that magic 1% – of successful investors in financial security and

freedom.

Therefore, it’s time to ask – and answer – the three big

questions.

We’ll start with structure, in Chapter 3.


NOTES !


NOTES !

Chapter 3 - A Structure for growth 67

Chapter 3A structure for growth


In order to build wealth, you need to:

• establish a structure

• to acquire assets

• for capital growth

• and then duplicate the process to develop a portfolio.

Why do you need a ‘structure’? You need a structure because

there are different elements involved in making your investment

work. You’ve got land and buildings, equity and loans, tax and

tax benefits, rental income and outlays, and time. The mix and

balance of all these elements needs to be just right in order to

accelerate portfolio development and maximise capital growth –

and it needs to be do-able, time and time again. If you can work

out what the ‘best fit’ is, and set it out as a simple formula, you

can achieve predictable results – without having to juggle all the

balls in the air all the time!

And you can duplicate the strategy without having to rethink

it every time! Remember – one property won’t make you

wealthy. You need to use the equity growth in that one property

to acquire a second, third, fourth – a portfolio of properties all

providing (compound) growth. That’s when it gets exciting!

Building wealth using property is a bit like building muscle

using weights.

There are different elements to building muscle.


The weights are only

the vehicle you use

to build the muscle.

(Some people seem

to think just owning

weights is good for you

– but it’s using them,

and how you use them,

that counts.)

Technique is important.

You need to use a

weight that is within

your capacity, and to lift it correctly, in order to stretch a specific

muscle. Then you can gradually build up to heavier weights.

Diet is all-important in ‘fuelling’ the exercise. You need the basic

energy of carbohydrates, a reduced fat intake, and an increased

intake of protein, for specific muscle growth.

Finally, rest is essential. The muscle actually only grows when

resting after being stretched.

A weekly or fortnightly exercise routine incorporating all these

factors would provide an efficient, effective structure to follow.

It might seem as if I have gone off into a TV guru type of

health exposition here, but consider the analogy I am posing:

Technique, Diet, Rest …as opposed to Structure, Assets,

Growth and Duplication. Whether you are building wealth or

Start small, think big!


building your health, it’s the same process, just different words

(and there are no gym fees for wealth building). Remember –

success is a habit!

OK, SO BACK TO WEALTH BUILDING!

An effective structure for wealth building will incorporate the

same kind of elements.

• A ‘vehicle’ for building wealth – in this case, residential

real estate. The land is the vehicle for capital growth, and

the building is for generating rental income.

• A ‘technique’ to maximise the effectiveness of the vehicle

for your purpose of capital growth. You need to select

a suitable vehicle: the right property, in the right location.

And you need to start – and stay – within your financial

capacity, at the bottom end of general affordability,

where most people can afford a first property. As you

see growth, you can begin to build up a portfolio – more

properties, not more expensive ones.

• ‘Fuel’ for your investment. With a basic level of available

equity and income, you can secure finance. With the right

property and the right lender, you can borrow 90% of

the purchase price. You put in just 10% of the capital, and

access 100% of the capital growth. That’s the beauty of

leverage. In order to make this work, without draining

your personal resources, you need income from the

property, to service the debt. If you optimise the rental

income and maximise the tax benefits available, you can

effectively offset all your outlays, not just the loan interest,


but also maintenance, rates, fees and so on. As long as

your costs are covered, you won’t be putting any strain

on your cash flow – and you shouldn’t be able to get into

too much trouble! In other words, you’re setting things up

so that there’s a lot to gain – and not a lot to lose.

• Meanwhile, you need to let your investment ‘rest’ in

order for it to grow. Over time, the value of the property

(in particular, the land component) increases, and – since

your debt stays the same – your equity also increases.

Once you have a 10%–15% increase in value, you can

use the extra equity to ‘fuel’ the purchase of a second

property – and so on, and so on, using exactly the same

formula, and with no further claims on your income or

other assets!

At the end of a 10-year period, you can have built up a portfolio

of, say, six residential properties this way. If they’ve shown

sufficient capital growth (and remember, house prices have

doubled every 8–10 years over a century – with a blip caused

by the GFC which pushed that cycle out) you need only sell

one or two of them to reduce your borrowings on the whole

portfolio. This leaves you with strong equity in the remaining

properties, plus the ongoing rental income from them.


The overall structure can thus be illustrated as follows:

Structure

Duplicate

Capital Growth Reliable Cash Flow

Land Content Rental Income

Timing Tax Deductions

Location

Finance

If all this seems too good to be true, I can tell you that it is

possible. I’ll be showing you how.

Case study: McDonald’s Restaurants

McDonald’s restaurants is one of my favourite examples of a

system based on real estate.

When Ray Kroc established the McDonald’s franchise system

in 1954–55, the menus consisted of only nine items, and the

restaurants prided themselves on being able to sell and serve

a 15-cent hamburger inside 60 seconds. By the end of the

’50s, there were more than 80 restaurants across America, and

each franchise sold for around US$900: franchisees also paid

Ray Kroc a percentage of their investment as a franchise fee

to cover administration. Unfortunately, huge business growth


can’t be sustained by limited capital – and therefore limited

capital growth – and in the late ’50s, McDonald’s nearly

collapsed under its own weight.

What enabled McDonald’s to grow into one of the outstanding

businesses of the 20th century? Structured investment in

real estate. The company had previously acquired all of

the restaurant properties and then leased them back to the

franchisees, retaining management of some restaurants

themselves. In the following decades, this strong real estate

base financed the building of thousands of restaurants all

over the world. McDonald’s is today worth billions of dollars

because of a fundamental decision to restructure their cash

flow, allowing them to acquire property, and to secure a steady

demand for tenancy (through the success of the franchise),

thus generating rental income. They started out with little or

no equity.

That’s pretty much how Custodian’s structure works – by

supplying property to willing tenants (within an affordable

price range), to finance the building of a real estate portfolio

for sustained capital growth.

HOW IT ALL WORKS: AN OVERVIEW

1: Gearing

You borrow 90% of the value of an investment property, giving

you 10% equity. All it takes is 10% growth in the property’s

value, and you have 100% return on the capital you invested,

per annum!


Your 10% could represent a cash deposit, or you could use the

equity in your own home, which may be more tax-effective.

2: Cash flow management

But what about the loan interest and all the other costs of

doing this? Surely they eat away at your 100% return? No.

That’s where the structure comes in. It’s all about cash flow

management, the basis of all successful businesses.

Ability to Duplicate

Capital Growth

Rental Income Tax Benefits Outlays

Reliable Cash Flow

+ =

100% Return P.A. on Capital

Growth @ 10% $50,000

Loan $450,000

Deposit $50,000

Price $500,000


3: Equity growth

462You need 10–15% equity growth to give you the 10% equity

you need to duplicate your strategy with your next property.

And repeat. And repeat again.

If there’s a warning bell ringing at the back of your mind about

the debt you’ll have chalked up by this time, don’t worry. I

promise to put that into perspective later on.

THE STARTING POINT

You can begin to build wealth now if you have:

• about $100,000 annual (combined gross) income

• and $100,000 in available equity (in your home or other

property) or cash deposit (although there are ways of

getting around this too).

Don’t forget, you needn’t actually pay out any of your income.

It’s just an indicator of your ability to repay a loan, one of two

criteria – equity being the other – on which banks and other

Value and Debt

Loan debt: $450,000. Property final value: $1,079,462. Source: Custodian


institutions lend money for property investment. In fact, you

could actually increase your net income, thanks to tax savings.

THE BEAUTY OF COMPOUND GROWTH

If I took just one cent and doubled it each day, how long

would it take to turn it into a million dollars? The answer is

just 27 days. Sounds amazing, doesn’t it? That’s the power of

compound growth – growth on growth (on growth …). The

following graph shows how you can access that power, from

the minimum starting point cited above.

Financial Goals

At Year 12 Net Assets $2.81 Million Positive Income $64,313 p.a.At Year 12 Net Assets $2.992M. Positive Income $60,092 p.a.

Buy 6 homes over 10 years at 8% capital growth

Year 9

Year 12

Year 11

Year 10

Year 8

Year 7

Year 6

Year 5

Year 4

Year 3

Year 2

Year 1

Optional Sale

Asset Growth


HOW MUCH CAN YOU ACHIEVE?

Here’s a slightly more aggressive use of the same structure.

I can’t tell you what your goals or commitment should be, or

what your potential is. It has to be up to you.

My best advice is to allow yourself to start small, and to think big.

After more than 20 years of coaching investors, many clients

have six, eight, ten homes and more. Some clients have as many

as 15–20 homes. They started small and built momentum. As

the capital value of their properties and their income grew, they

were able to duplicate to achieve compound growth. Many of

them are now millionaires and multimillionaires by using exactly

this system.

Financial Goals

At Year 12 Net Assets $5.33 Million Positive Income $142,934 p.a.

Buy 10 homes over 10 years, with option to sell in Years 11 and 12

Year 9

Year 12

Year 11

Year 10

Year 8

Year 7

Year 6

Year 5

Year 4

Year 3

Year 2

Year 1

Optional Sale

Asset Growth


WHAT DOES IT TAKE TO MAKE THE STRUCTURE

WORK?

We’ve already mentioned key elements – but let’s get specific.

There are seven basic steps to building wealth:

1. Buy land for capital growth

2. Optimise your income

3. Maximise your tax benefits

4. Finance to build

5. Aim for affordability

6. Make time work for you

7. Be all you can be

Be all you can be is a good way to finish my three introductory

chapters of the Extract of Seven Steps to Wealth, don’t you

think? But read on to the final pages and talk to us. As you can,

‘Be all you can be’ and we can help.

ANOTHER THOUGHT – THAT DIY-STRATEGY

THING

Sadly, many Aussies have a ‘do it yourself ’ mindset. And over

the years I have encountered a lot of people who, having

attended one of our events, read my book ‘Seven Steps to

Wealth’ and have then thought, Bingo! This is easy. I can do

this myself.’ As I said above, ‘sadly’ – they have been wrong.

These same people have come back years later with disaster

stories asking me if I can help them sort out the mess they


have gotten themselves into. Some of the stories have been

quite dire.

The world specialises today, and when it comes to building a

property portfolio, it’s no different. You need a team of experts

around you. I have that team of experts – they are called

Custodian. They are specialists in research and valuations,

town planning investment funding, project management and

construction, accounting, financial planning and much more.

They are the Custodian team and they are at your disposal.

Can I say I don’t know any truly successful person who would

say they have gained success alone. I am successful because I

have an A-team of professionals around me and together we

achieve great success. Just think outside property investment

for a minute; no sporting team is successful based on one star

player. It’s a team effort and I would caution you to not attempt

a true wealth building journey ALONE.


NOTES !

Any other questions? 81

ANY OTHER QUESTIONS?Great, I hope you do. Ask away! I love questions about

this business. Questions are a good thing. And I hope you

have many, as it shows you’re aware and proactive … and

not procrastinating.

Write down what you feel you don’t know. That’s what the

few ‘Notes’ pages are for. Take a moment after you read each

chapter and just scribble down your queries.

I haven’t been in this business all these years to not be able to

answer most or all of your queries. Why not try and find out

which one I can’t answer? It may sound as if this is a personalised

business I am offering here, but it’s not. I am a team. I have a

team, an Australia-wide team of experts who can assist with

all your queries. And some are even named John. But there’s

only one Fitz!

You need to attend to all the information you now have at

your fingertips so you can make informed decisions about your

financial future.

We all want it to be clear for you from the very beginning.


Just ask if you do have any further questions, like ‘What’s that

mean.?’ or ‘What is this when that happens then?’ or even ‘Just

where did you get those stats from?’ All the questions you have

can be answered. And answered honestly.

As an added help, this Extract includes a two-page Glossary of

words to help you further understand the terminology used

in the financial/property investment sphere. It might save you

a question or two. I had to learn them and they have stood

me well. So it’s your turn. I have also included a small table

of property successes within Custodian. It’s not a wildly

comprehensive table of property purchases and their eventual

profits, but it’s enough to let you see, in a straightforward

manner, just how much you can make on buying a property

when you’re advised by Custodian.

So your next step is to talk to one of my Custodian

team. Attend one of our Property Events. Or call us on

1800 174 999 and join Custodian’s team of wealth builders

www.custodian.com.au

My colleagues are all trusted experts and they can answer (or

assist you in continuing to ask) any questions you may have.

Sceptics make the very best investors and I like to answer all

comers in this field of enquiry. I am – we are – comfortable with

questions. And even more comfortable with making you money.

Now keep turning the pages – Custodian’s contact details are

in the few pages ahead.

Glossary 83

GLOSSARYCapital Any form of wealth that can be used to create more

wealth. Most commonly in the form of cash or equity in other properties.

Capital growth An increase in the market value of an asset above the purchase price. Also called capital appreciation.

Compound capital growth

The rate of return on an asset, usually expressed as a percentage on the original amount of capital over time. Put simply, growth on growth on growth.

Compound growth

Growth on growth.

Debt service ratio

The amount of money you can borrow relative to your income in order to service a debt. Usually expressed as a percentage.

Depreciation The reduction in value and usefulness of an asset over time.

Duplicate A strategy to build steady wealth over time, using the capital from one property to buy another prop-erty. If you keep duplicating this strategy, you will create compound growth.

Established Capital Benchmark (ECB)

A benchmark used to identify a potential high growth property, based on proximity to far more valuable properties. Used in conjunction with other criteria.

Infrastructure Public and commercial facilities such as road, rail links, schools, playing fields, hospitals, shopping centres, etc.

Integrator A business that pulls together all the components necessary for clients to achieve a performing investment.

Land content The percentage of the purchase price represented by land value. If you purchase a property for capital growth it is the land content that usually grows in value. The higher the land content, the higher the capital growth.


Loan value ratio (LVR)

The amount that can be borrowed to purchase a property relative to the purchase price. Usually expressed as a percentage.

Leveraging The degree to which an investor is using borrowed money to supplement an investment.

Managing developer

Like Custodian, a managing developer is a person or entity that deals with all aspects of developing an investment property on behalf of their clients.

Market value The dollar amount of an asset estimated in the cur-rent market looking at comparable assets as a guide.

Negative gearing

An investment strategy whereby tax deductions are used to minimise the shortfall between an invest-ment property’s income and its outgoings.

Non cash loss An accounting term that includes items like depre-ciation.

Prime cost item An item (for example, a fixture or fitting) that either has not been selected, or its price is not known at the time a building contract is entered into and for the cost of supply and delivery of which the builder must make a reasonable allowance in the contract.

Positive gearing The opposite of negative gearing. The returns (in-come) in property investment are greater than the outgoings. This surplus amount will usually attract income tax.

Stand-alone security

An asset that guarantees a lender their loan until the loan is repaid in full. Usually the property is offered to secure the loan.

Valuation A report generated by an independent property professional, outlining their opinion of a property’s current market value. Commonly used by lenders to ascertain the security value of a property.

Property Success Table 85

Est

ate

Nam

eD

ist

C

BD

Pop

Pop

per

Hsl

d

Sub

urb

%

Ren

ters

Lan

d C

onte

ntM

edia

n W

eekl

y R

ent

Ren

tal

Yie

ldD

ate

R

elea

sed

Ave

rage

C

WB

P

rice

on

Rel

ease

Feb-

14%

in

crea

se

Mid

dlet

on G

rang

e N

SW43

km51

53

35%

53%

$325

5.5%

2010

$420

,000

$590

,000

40%

Jord

an S

prin

gs N

SW59

km14

,721

3.1

25%

53%

$450

5.4%

2012

$446

,500

$530

,000

19%

Har

ringt

on G

arde

ns/P

ark

NSW

60km

2,25

73.

413

%53

%$4

655.

1%20

12$4

85,0

00$5

50,0

0013

%El

ders

lie H

illcr

est N

SW7k

m4,

252

2.7

22%

52%

$570

6%20

11$4

70,0

00$5

30,0

0013

%M

orni

ngsid

e H

ouse

s Q

LD5k

m9,

399

2.2

42%

31%

$460

13%

1998

$180

,000

$550

,000

206%

Pim

pam

a R

iver

s Q

LD42

km12

,439

2.8

29%

41%

$415

13%

1999

$162

,000

$425

,000

162%

Wyn

num

Wes

t QLD

17km

11,7

452.

929

%45

%$4

1513

%20

00$1

68,0

00$4

30,0

0015

6%C

ashm

ere

QLD

21km

8,94

83.

315

%35

%$5

8015

%20

02$1

98,0

00$4

70,0

0013

7%Tr

ugan

ina

VIC

23km

9,13

83.

311

%41

%$4

007%

2007

$315

,000

$420

,000

33%

Der

rimut

VIC

18km

13,3

153.

123

%42

%$4

007%

2007

$315

,000

$415

,000

32%

Poin

t Coo

k To

m R

ober

ts V

IC25

km32

,413

3.1

17%

58%

$390

6%20

10$3

65,0

00$4

45,0

0022

%C

ragi

ebur

n V

IC26

km20

,784

3.1

14%

48%

$380

6%20

10$3

54,0

00$4

15,0

0017

%C

anni

ng V

ale

WA

15km

30,6

663.

125

%48

%$5

5013

%20

01$2

20,0

00$5

80,0

0016

4%M

alco

lm P

ark

WA

17km

30,6

663.

215

%46

%$4

309%

2003

$260

,000

$540

,000

108%

Mer

riwa

WA

36km

5,57

13

15%

46%

$400

8%20

05$2

45,0

00$4

60,0

0088

%A

shby

WA

24km

2,39

42.

412

%47

%$5

709%

2007

$330

,000

$520

,000

58%

* Fi

gure

s co

rrec

t at t

ime

of p

ublic

atio

n

CU

ST

OD

IAN

PR

OP

ER

TY

SU

CC

ES

S T

AB

LE


ROUND-UP QUIZAs promised at the start of all this, here is the Round-up Quiz.

It’s an opportunity to show yourself just how much you’ve

learned and remembered. More importantly, it could show you

how good you are now at looking for answers, once you know

what the questions are, of course.

I do encourage you to have a go at this quiz, now. Let yourself

notice how easily the information comes to hand with the

information you have gained from only three chapters of this

Extract. The answers should come easily. If not, ask us.

1. In making a wealth building investment decision, what

would be more important?





£ Rental returns


£ Capital growth

3. Is it prudent for me to acquire property close to where I live?

£ Yes

£ No

Round up Quiz 87





5. Is the number of property renters in Australia

£ Increasing?

£ Decreasing?













£ 450 m2

£ 650 m2

£ 750 m2

£ 1,000 m2


QUIZ ANSWERSThis will take moments, but it will give you an insight into what

you have already learnt. Check your answers against ours in

both the Start-up and the Round-up quizzes that I hope you

completed earlier.

1. In making a wealth building investment decision, what would

be more important?





£ Rental returns


£ Capital growth

3. Is it prudent for me to acquire property close to where I live?

£ Yes

£ No





✓

✓

✓

✓

Quiz answers 89

5. Is the number of property renters in Australia

£ Increasing?

£ Decreasing?













£ 450 m2

£ 650 m2

£ 750 m2

£ 1,000 m2

I’d make a bet on the fact that you answered all of the

above correctly.

At least I hope so.

✓

✓

✓

✓


CONCLUSION‘What’s Next?’

OK, the conclusion is … you’ve got to do something. Don’t

become a statistic.

Sorry, but lots of people read books, study programs, surf the

internet, attract contradictory information overload and get so

confused it’s easier to do nothing … and then they read more

books … and then they don’t do anything. And time passes! There’s

a great saying I learned when I was 17: ‘If you’re standing still, then

you’re going backwards.’ It’s as true today as it was then.

Procrastination is a big problem, and it kills our dreams. I have

given you the numbers in this book, but too many of us are

retiring absolutely flat broke and relying on the pension. We don’t

want to be wealthy, we want to be comfortable, as our research

shows, but few realise what that means in numbers.

Now you have a taste for it with the knowledge I’ve given you, as

well as with the skills and tools you need, but I need you to now

take the next step.

And I’ll make it very easy for you. You can email me with any

questions you’ve got. You can also sit down with any of my

Custodian team so we can get to know one another so we can

understand your goals and how we can help you achieve them. It is

helpful to do what we call a ‘general financial health check’ to first

Conclusion 91

and foremost identify where you are and where you want to go.

And secondly, how fast compound growth will get you there.

That’s free. So if you don’t do that I’m certainly asking myself why.

Obviously, when you sit down with us we’ll be happy to offer you

a full copy of Seven Steps to Wealth. I suggest you should read it,

re-read it, dog-ear the pages, highlight it and talk it over with your

family, your kids, anyone who is interested, and then talk to us again.

As you can see, we talk the talk, but we also walk the walk. Our

numerous Custodian Property Events are important because

they allow people the opportunity to educate, investigate and

begin to build wealth. They bring together that small percentage

of Australians who are doing something about their financial

future. Come along to one of these events and talk to us or

to the people who have come along on this journey with us.

And these people are successful. They are successful not just

because they are doing something about their financial future,

but because of their mindset: they are positive, responsible and

most importantly, proactive.

So, I urge you to take the bull by the horns and pursue the next

stage of how we can help you at Custodian.

So, what’s keeping you?

John L. Fitzgerald

CEO

Custodian


Standing poised in anticipation of challenge

and opportunities,

mind and body and balance.

He summons his talents to realise the

sanctioned visualisation.

With determination, integrity and conviction

of truth, service to humanity is his foundation.

He is honour-bound.

“The Custodian”

Custodian 93

Custodian John Fitzgerald first established the JLF Group of Companies

in 1981. As one of Australia’s most trusted property,

development and financial services corporations, it embraces

more than 25 entities. JLF has forged a successful business built

on the strong core values of integrity, trust and proven results.

Custodian is a JLF subsidiary wealth building company of

John’s vision. Founded in 1997, the company has assisted

thousands of Australians to build sustainable wealth, providing

a comfortable lifestyle at retirement. The numbers speak for

themselves; clients, success stories and secured retirements.

Visit www.custodian.com.au/thefacts

Custodian serves clients Australia wide and has offices in

Sydney, Melbourne and Brisbane.


ContactsHead Office

JLF Corporation Head Office

Custodian House

7027 Southport-Nerang Road,

Nerang Qld 4211 Australia

Phone: (07) 5527 4999

Free Call: 1800 174 999

Fax: (07) 5527 4955

Email: [email protected]

Websites: www.custodian.com.au

www.jlf.com.au

95

What would you like your next step to be…..?If you would like to attend one of Custodian’s Property Events

(online or face to face), or you or any member of your family

require further information on any of our services, please visit

www.custodian.com.au or call 1800 174 999.

Let us know what you think

If you have any comments about this book, or you would like

to let us know how the wealth building concept is working for

you, please contact us. You are most welcome to write or

send an email to John Fitzgerald at our head office.

Send your email to: [email protected]

To order a copy of the book

If you would like further copies of this Extract please visit

www.custodian.com.au/7stepstowealth


Toogoolawa Schools LimitedEver since establishing Toogoolawa School, John Fitzgerald has

directed much of his energy and a great deal of his own money

into helping fund the continuation of Toogoolawa Schools

Limited.

Toogoolawa assists students in striving to live a strong and

happy and productive life utilizing the five universal Human

Values: Love, Truth, Peace, Right Conduct and Non-

violence.

Find out more at www.toogoolawa.com.au

Contacts:

Drs Ron & Suwanti Farmer

Toogoolawa Schools Limited

351 Creek Street

Ormeau Qld 4208

Telephone: (07) 5546 7998 or (07) 5547 5866

[email protected]

Your Book Order 97

Your Order is Your Donation

AND IT’S TAX DEDUCTIBLE SO A WIN-WIN FOR BOTH

YOURSELF AND TOOGOOLAWA’S CHILDREN!

The proceeds of every book you purchase is donated in full to

Toogoolawa Schools Limited.

To order your copy of one of John’s books, or to make a

donation to Toogoolawa, please visit

www.custodian.com.au/7stepstowealth

Choose from the following great reads -

‘We Can Be Heroes’ by John L. Fitzgerald

‘Seven Steps to Wealth’ by John L. Fitzgerald

‘Love Changes Everything’ by Dr. Ron Farmer

Thank you for your support

The Bali bombings happened in October and my wedding to Nerissa had been planned for 14th December of that same year. So, that was my first real short-term goal: to really focus and work and drive towards marrying my girl. I was not given all that much hope, but we got there. And there is no doubt in my mind that the determination to make that ceremony helped me to kickstart the journey into getting back and playing AFL football. One thing supported the next … and the next …

So, the goal to continue my career followed. However, throughout the process I realised I knew little about burn injuries and soon I knew I had a long, long road ahead. It would take two to three years to fully recover.

My next goal was to get back and play, yes, but the ultimate was to play and play and then play one game only. I was able to achieve that milestone on 6th June of the 2003 season when I returned to play for the Kangaroos against Richmond. What an amazing night that was. The main objective was achieved as we won that game, most importantly! From a personal point of view, I was thankful I could play my part by kicking a goal and helping to set up the last one that ultimately got us across the line. But when you are involved in a team, it’s about team success. And the team did it.

From there it’s been about the next phase of my life – retirement. I worked at the AFL for six years after I officially retired, with involvement in game development and coaching the national team. Presently, I’m working at the Bulldogs Football Club as List Manager, in control of overseeing recruitment, the lists and the contracting process for our players … so maybe some might say I am not quite retired. Basically, I am obviously still heavily involved in something I love – football. So I reckon I’m lucky, in lots of ways.

The outcome of my story is a real positive, I think. And, in telling it, I am happy to be able to tell whoever wants to read this that being with an Australian company such as Custodian did help when we needed it. Custodian has been a great journey for us. One we’re still on. We have a lovely home in Melbourne … still with a little debt sitting on it, but the Custodian program is a ways and means by which we have been able to set ourselves up. We have two young boys, one eight and one six, so beyond primary school we have education costs to consider with them. All told, we plan to continue with Custodian, as we know Custodian’s our way forward.

My life and work are busy, but we all need to make sure to get some time away. After what I went through, and after what Nerissa went through with me, I know it’s important to get away, spend some time with the family, overseas or anywhere in Australia, and do the things you love. Custodian is the road by which we can do these things and I hope to continue to do more.

Jason McCartney

Jason’s Custodian Story

Jason McCartney is a Custodian investor, AFL footballer and Bali bombing survivor.

I looked at a few property groups before I became part of the Custodian group in 1998. And it’s been a fantastic journey. At one stage my wife and I had six properties. Through the miracle of compound growth that John speaks about so often, we chose to capitalise on and sell three of those properties in order to fund our family home in Melbourne. Only recently have we recommitted to our wealth building journey in order to purchase another property.

My background is AFL. I played with Collingwood, Adelaide and the North Melbourne Kangaroos. In 2002, I unfortunately found myself caught up in the Bali terrorist attacks in Paddy’s Bar. I was only five metres away from where the first of the explosions went off, set there by a suicide bomber. I sustained burns to 50% of my body, my eardrums were perforated and I sustained numerous shrapnel wounds.

When I go back to that time in hospital in 2002 in my mind, I remember sitting there – laying there – as I couldn’t do much else, and knowing Nerissa was really concerned with trying to think about all the things she had to take care of at home. I remember one thing she asked, ‘What about the investment properties? What do I need to do about them, Jason?’

‘You don’t have to do anything,’ I said with some confidence. ‘Custodian is a well-structured program. They’re well set up and they’ll take care ofthemselves.’ And they did.

That’s what I’ve found with Custodian. Once you get set up and get started, it will take care of itself. And what I said to my wife then is still true: ‘It’ll be OK … it’ll be fine.’ And it has been.

Obviously, it was a very difficult period for my family and me as I found myselfin a hospital, fighting for life. But I had amazing support. I think that’s what’s really important with whatever you do, that ability to set goals and challenge yourself. But you need outstanding people around you, and I certainly had that and more.

It was a struggle. But I had tremendous support and with that, and determination, in three-and-a-half weeks, much to the surprise of my surgeons and the people at the Alfred Hospital, I was released. A rehabilitation program came next, with the ultimate goal of me getting back to playing AFL football again. But before that I had a more immediate goal to achieve.

....continued on back page

Inside front cover & back_with spine_V2.indd All Pages 19/05/15 12:25 PM

A fast-track introduction to accelerated wealth building through property investment

7 steps toAcceleratedwealth

J o h n F i t z g e r a l dF o r e w o r d b y I a n L e s L I e

All the things they

don’t tell you about

Property Investment

John L Fitzgerald

5th Edition

Seven S

teps to Wealth

John L Fitzgerald

Buying an investment property can be like swimming with sharks... very dangerous. In this practical and refreshingly jargon-free book, John L Fitzgerald lifts the veil on building wealth through investment real estate.

How it can be done - and how it can’t.

How to select an investment property for sustained capital growth.How to optimise rental income and tax benefits.How to structure the finance and manage the risks.

And how not to fall foul of bad faith and bad advice.

John L Fitzgerald is not an investment theorist. He has personally created and managed wealth using the principles outlined in these pages - and successfully helped others to do the same, through Wealth Building programs and workshops Australia-wide.

“John Fitzgerald’s ‘Seven Steps to Wealth’ is a fascinating book by someone who is not only a fine author but is a man who writes from personal experience and is generous in sharing his knowledge.”

Mr Bert Newton AUSTRALIAN ENTERTAINER

“After reading John’s book ‘Seven Steps to Wealth’ I could not but relate and have an affinity to his successful philosophies.

I, like John, can testify that the acquisition of good land can reap enormous capital gain over a short or long term.

I hope those readers who will be as absorbed as I in ‘Seven Steps to Wealth’ will take up the gauntlet and enjoy the ensuing rewards.

Congratulations, John, it’s a really good and factual read.”

Dr. Betty Byrne Henderson AM FAIM FAICDNamed one of the “Leading Women Entrepreneurs of the World 1998”Trustee Committee for Economic Development of Australia (CEDA)

All proceeds from the sale of this book benefit The Toogoolawa Childrens’ Home Ltd, Australia.

Most Australians would

like to be wealthy.

Most Australians retire

below the poverty line.

What’s going on?

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