Berkshire Property Meet May 2009 with Dolf de Roos

Sylvia: Can I please ask you to be outstanding and welcome our international speaker and in a warm and thumb resound of applause please Dolf DeRoos. [CLAPPING]

Dolf DeRoos: Thank you so much. Thank you very much. Hey stop the clapping, stop the applause folks. Please sit down. You don’t know if it’s any good yet so what are you doing? And then thank you for your kind, gentle words and all that sort of thing but Sylvia’s got a completely different style from me. I heard her say, I don’t know if you realised this, she said at one stage, “I love you all.” Did you hear it? Well, I don’t love you all. I barely know you. I know about I think four or five of you in the room, so for me to say that, I mean, you know, no I don’t. I don’t even care if you like me folks. I don’t. Seriously I do not care if you like me. I care that you learn something tonight and I’m willing to sacrifice myself in order that you do learn something because I can tell some of you still don’t get this property game. You don’t get it because you’re worried about the economy.

Folks you should be down on your knees praising the good Lord or the man upstairs or whomever it is you do applaud for giving these economic conditions that make this the best time to buy that we’ll experience in our lifetimes. And some of you are saying, yeah well I kind of realise that, but you should look in the mirror and see whether your face expresses that joy or apprehension. Mostly we’re pretty scared. What is going to happen? Maybe that’s why you’ve come along tonight or maybe you thought it was another speaker, you know. And the speaker of the house we’ve got a full house. Give yourselves an applaud for being here tonight because it takes time, effort and for some of you money to be here and you could have been home watching a soap on TV. And if you know my theories on TVs, my theory is that you would do yourself a favor if you take your TV and toss it out the window. If you want to save some money by all means open the window first time and (inaudible 0:02:08) about that but get rid of that TV because it rots the brain.

You just sit there exercising your thumb. Where I live, I live in Phoenix Arizona now, I’ve got over six hundred channels and I’m telling you, you can go through those channels and you will find something that you’ll say, you know what this is worth watching, I can justify this. And yet what have you learned three years ago by watching something that you thought you could justify watching. How do you have an ongoing benefit from it cause the benefit that you’re going to get from investing in real estate is that it increases your passive by a notch. Maybe not a big notch but it’s there and unless you sell that property you’re going to have it for the rest of your life. I was just exit strategy is death. So the exit strategy death? No. It’s bequeathing it to someone. If you’ve got kids you can leave it to them, if you don’t like them you can to other people’s kids or whatever but you can leave it to someone and they can get the benefit right. So you got to see things in a different light.

Now if you notice I don’t read from notes and tonight is a very good example why I don’t have any notes. I used to have two reasons. One was if I ever lost my notes what on earth would I talk about and the second one was I can’t stand it when I’ve paid money to listen to a speaker and he gets up on the podium and stands there reading from his notes and says, “Well today we’re going to talk about,” bollocks you’ve seen my notes don’t say that. “Oh yes today we’re going to,” and he starts reading. I can read his stuff faster than he can read it out loud so let me read the notes and speak from your heart. I don’t know what I’m going to talk about tonight. You could say I’ve got an unending stream of consciousness from a bottomless pit of arch energy or – the rest of you will get that later – or…actually I’m suffering from jet lag.

I only…someone said to me, “When did you get to England?” and I said, “Two o’clock.” And they said, “You mean like today?” And I said, “Yes I’ve just landed.” Got picked up at the airport, taken here, I got changed, well showered and changed if you want all the details, then I’m here, I’m the speaker of the house. I understand that speaker of the house is not a very popular label not that I’m sure what that’s all about. Thanks for your applause. So I’ve come here to talk not about what I want to tell you but what you want to hear about. There’s a difference between market push or technology pull for those of you who know what I’m talking about because there are unending opportunities out there and especially in England because this is a place where not everyone has got the drive and the enthusiasm to get things done.

I remember once arriving at Heathrow airport and I had to get a connecting flight to Gatwick. No big deal. You get on the connecting bus and I had a number of cases with me, I had my daughter with me, she was about five at the time. As those of you who have five year old kids know the younger they are the more stuff they have to carry with them. So I had two or three suitcases and I was about to get on the bus and there was a driver and a navigator or whatever you call them. And he had his hands in his pocket and he said, “You know, I can’t put those suitcases on the bus for you.” I didn’t ask him if he could. I said, “Really?” He said, “No, union rules you understand.” I said, “Well I don’t really understand what that means but let me tell you something. I said I’ve been on a flight for twelve hours restrained in a very confined space. And now I’ve got the freedom to do what I want and get some exercise and there’s no gym around here but I can lift weights in the form of suitcases. So not only will I have pleasure in putting my own suitcases on the bus but I’m going to offer a free service to every other passenger on this bus.” I turned, “Anyone who wants their suitcase put on it will be my pleasure,” and that’s the attitude you need in order to do well in real estate and it is easy to soar like an eagle when all around you you’ve got nothing but turkeys. So you can see things in a different light.

There’s a different way of considering everything and the way you’ve got to consider real estate is when the market is slow, when everyone says how bad it is you’ve got to jump for joy and say this is the best time it’s every been. Does that make sense to you.

Audience: Yeah.

Dolf DeRoos: Okay. So they said at the end if I could do some question and answers. If I make the end now, near now than we can do nothing but questions and answers and I will be sure to address…some of you are looking at me and say, “Is he for real?” Well lighten up folks it’s life. In a hundred years time the chances are none of us will be around anyway and it won’t have mattered. You’ve got to kind of…if you cannot put your head down on your pillow at night and say today was a great day I’m looking forward to tomorrow. If you’re not doing…I can tell some of you (inaudible 0:07:02). You’ve got to change what you’re doing. The great thing about property is it fives you the freedom to do what you want when you want. You can help other people. Some of you have this image that well landlords aren’t very popular, no one likes a landlord. Well that’s in our head. I’ve got tenants who don’t exactly relish the fact that they pay me rent but they know that if they weren’t paying me they would paying someone else and they’d much rather pay me than a lot of other landlords they’ve experienced, you know. If you’re fair, you don’t have to be mean but if you’re firm and fair then they will like that.

We can talk with this thing all evening about how you can make tenants actually appreciate you. That’s a whole topic for discussion. So can I have a clue, who wants to know about the economy and why it’s affecting the entire world at the moment? No one. Okay. What do you want to know? What did you come hear to learn? Or you…or you thought it was a different speaker? [LAUGHTER] That’s okay. You know it’s funny when they say you’re international and you do get an insight in different cultures and all that sort of thing. I’ve experienced the entire gamut of emotions that you can. You know my…I was born in New Zealand – I see we’ve got fellow New Zealanders here – but my parents were Dutch and French. I’ve got a really mixed background. I grew up in six countries and people always say, “Well were your parents in the military?” I say no. “Were they in the diplomatic core?” and I say no. “Well what were they?” Well they were on the run. [LAUGTHER] (Inaudible 0:08:36) but it gives you this experience and the Dutch are always considered very stingy, you know. Well here the Scottish are considered very stingy right and that’s why they say do you know how copper wire was invented? It was a Scot and a Dutchman fighting over a one cent coin. [LAUGHTER]

But so when I went to Scotland I stayed with friends of mine the McGuiness family and they were elderly and unfortunately while I was there he passed away which was very awkward. And then Mrs. McGuiness I was there when she called the local newspaper and she said, “I understand that when someone dies you have to announce the death in the newspaper,” and they said yes that’s right. And she said, “Well how much is it?” and the answer was one pound per word. And she said, “Well in that case put McGuiness is dead.” And he said, “I’m so sorry to inform madam that there is actually a five pound minimum.” And she thought for a moment she said, “Well in that case put, McGuiness dead Volvo for sale.” [LAUGHTER] But don’t (inaudible 0:09:52) that was really bad. And then talk about the I love you thing, you know, the French are very lovey-dovey. You know I arrived there and they kissed me on both cheeks which I wouldn’t have normally minded except I was tying my shoe laces at the time.

The very first time I went to New York, I mean who’s been to New York here? Talk about a liberal city. They have all these huge high skyscrapers right and then there’s a beautiful Gothic Church in the Gotham city I guess and on the side in brass letters was written, “If you’re through with sin then come on in.” And underneath someone had written in lipstick, “If not phone Penelope on 212.” [LAUGHTER] So you get to see all these specifics. Anyway what did you come to learn? You want to figure out how fill a vacant warehouse in a sea of otherwise unoccupied warehouses and that’s easy to do? What have you come to learn folks? Do you want insights into how to get more of your cash flow into your pocket? Do you want to learn to get money without having to go to the banks? Who thinks that you can only buy a property if a bank will give you finance? No one does. Who thinks the opposite?

Not everyone has voted folks and I heard everyone allude to the psychology of wealth and all that sort of thing and maybe we have to talk about that a bit too, cause if you don’t have an opinion on something you’ll end up without an opinion. He who stands for nothing will fall for anything. You’ve got to have an opinion. You’ve got to be willing to make more mistakes. It’s quite of an British mentality, you know, stiff upper lip and never show your emotions and heaven forbid never get the answer wrong. And we go to school twelve to fifteen years being told that you have to get the answer right and in generations gone by if you got it wrong you were racked over the knuckles. And we’re so ingrained in getting the answer right that when you get the answer wrong a few times and you try and you’re told you’re wrong we stop trying.

So have you ever come across a group of five year old kids? Who’s got five year old kids at home by the way? Some of you have. Who’s ever had five year old kids? All right. Who’s ever been a five year old kid? [LAUGHTER] Well you know what I mean. I mean they’re racing around asking questions and when you hold up…we don’t have a pen here but when you hold up a microphone and say, “What color is this microphone?” they’re all saying, “Ask me, ask me.” And you’ll say, “Okay Sally what color is it?” and she’ll say, “Nestle, Nan,” or whatever. It’s a blue microphone. And you’ll say, “Can anyone help Sally out?” Now how would you feel if I responded to one of your answers by saying, “Can anyone help this klutz out?” You wouldn’t feel too good would you. How does Sally feel? She’s saying, “Ask me again I know the real answer this time.” You can’t hold those kids back. Why is the sky blue, why is the grass green, is the green that you see as green the same as green that I see as green. Listen if you think this is bad you should see me when I’m not jetlagged. [LAUGHTER] To ways to rolling on the beach after the sun has gone down at night and all that sort of thing. You can’t hold them back. True or not?

Audience: True.

Dolf DeRoos: Now let’s go forward a decade. You’ve got a fifteen year old kid, comes home from school and you say, “Hey how was school Anthony, how was it?” “Yeah.” “Did you learn anything?” “No.” What has happened between the ages of five and fifteen to go from, “Ask me,” to “No.” And what’s happened to half of you or two thirds of you such that when you ask a simple question it was either yes or no (inaudible 0:13:35) but who hasn’t who has or whether you’ve got any…you know you’re scared to answer. Why? Because it’s that enthusiasm that will drive you forward. Have you ever noticed that successful people are more enthusiastic than those who are not successful? We have a saying that if you catch fire with enthusiasm people will come from miles around to watch you burn. [LAUGHTER] And it’s true it works that way.

So you’ve got to be enthusiastic first. Most people think that in order to get a property if you don’t have the money in cash, even if you had the cash I wouldn’t recommend that you use cash to buy a property. Why? One of the big advantages of property is that you’ve got leverage. So you use other people’s money but it doesn’t have to be from a bank. That’s the biggest complaint I hear that, well I can’t get any funding. I don’t have the right credit rating or the banks are very tight at the moment they won’t lend money. Folks people are struggling so much they are starting to pay you money to take their properties off their hands. So I don’t know how much in this countries loans can be taken over like if there’s a house with a mortgage on it can the new purchaser of the house take over the mortgage?

Audience: Yeah.

Dolf DeRoos: It’s possible right and if you don’t think so, so that you go to the bank and say, “Mr. Bank Manager, you have a mortgage that you accepted,” because the bank is the mortgagee and the borrower is the mortgagor. “You accepted a mortgage from Mr. and Mrs. Smith and I understand they’re facing some trouble right now.” And he’ll say, “Yes that’s right they’re five months behind,” or something like that. You say, “Well I’ve got a solution. I’m willing to buy that property but I just want that mortgage left in place. Is there anything you can do?” You’ll be surprised at the answer. But anyway they are assumable here so you can just assume the mortgage and pick the house up for a song and get all that equity. That’s one way. You can also ask for seller finance or a vendor carry back. Terminology changes. I’ve flipped around so often as long as the steering wheel is on the correct side of the car in (inaudible 0:15:46) where I am I’m fine. If you put me in left hand drive country with a left hand drive vehicle then I’m in trouble. But you toggle so often that after a while you become immune to that. I don’t mind if you call them appraisers or valuers, whether it’s a footpath or the sidewalk, or the book of the car or the trunk of the car or the hood of the bonnet, it’s all the same thing, it works the same. The terminology differs a bit.

So we can talk about…in fact I sort of talk about things and as an example of an economy that shouldn’t work that does work we can talk about why you should invest overseas. Who’s got an investment overseas? Some of you have, great. Good, good, that’s good going. Most people in America and America is the worst. Do you know that only 17% of Americans have a passport. It’s that astounding. When the previous president whom I should have known by name because in a few years time when we’ve got a few more changes of presidents who actually was (inaudible 0:16:45) become anonymous. But when the immediate past president became president he’s only ever been to one other country and it was a road trip to Mexico. It’s astounding. The person who become essentially the most powerful person in the world had never traveled and I think you should travel anyway just to broaden your horizons, get a different perspective on things.

But there’s another benefit for me of having traveled a lot and that’s I have cross fertilised so many ideas on property from one country where something is the norm to another country where it’s not the norm that I’m surprised more people haven’t traveled just for that reason. And I can give you countless examples of that, of things that are common in one part of the world. Naming rights on buildings for instance. Down in New Zealand that’s a very common thing. Every building is called Kodak House or…Kodak’s out of date now. They didn’t go digital did they. Who still buys Kodak film? Well some of you do, that’s all right. So putting the naming rights on it. You’ve got a commercial building you can sell the naming rights to that building for maybe a £100,000 or a quarter of a million pounds. Just off the bat and through a mechanism knows as the capitalisation right which we probably shouldn’t go into tonight, that increases the value of the building by maybe a million pounds or two and a half million pounds. That’s a pretty slick idea.

We have another one that we’ve done a lot. I learned this in Indonesia, Jakarta Indonesia. Most people firstly have never been there. Indonesia is the world’s fifth most populous country and it’s the most populous Muslim country and I think more of us should go there to get a sense of, you know, all this terrorism nonsense that’s going on at the moment we tend to label people of one particular flavor as being examples of that whole group but it’s not the case. It’s one of the…I think it’s one of the most fun places to be in. It’s got great food and all that. Anyway you’re in Indonesia check out…it has a night time population of 10 million peple and a daytime population of 15 million. Do the math folks. That means that in the morning 5 million extra people come into that city and at night 5 million people leave again so the streets are clogged. You crawl along, you do about one or two miles an hour. Just about every car in Jakarta has lavatories built in. They are plastic contraptions, there’s a different model for mean and different model for women, please don’t ask me to explain but they have them because it can take so long to get somewhere that you need to go. And you might say well it would quicker to walk. Actually it would be. Conditional would be because some of those 5 million peple also think it would be quicker to walk and therefore the sidewalks or footpaths are cluttered with people trying to get to work and all that.

So in this environment we’ve got high rise buildings. We have found that if we buy a pail of paint which here might cost £20 but down there is like £2 pounds and a wide brush for another 50p we go on the roof of one of these buildings – we have to get civil aviation authority approval first of course – but we paint a big white circle and in the middle of the circle we paint the letter H and we’ve just put a helipad on the roof of one of these buildings. That’s all we do, a circle with the letter H and our rental goes up by about $20 a square meter and we’ve got about 10,000 square meters in one of these buildings so it goes up by $200,000 dollars and what would that be, about £150,000 and you cap that out at 10% and the value of the building has just gone up by £1.5 million pounds for an outlay of you know, £2 for the paint and 50p for the brush. Is that a hot idea? I mean I wish I magically could pull out a big mirror and show yourselves to yourselves because you’re not thinking it’s a good idea. Based on your facial expressions you’re saying, “We came to listen to this?” but it’s a perfect example how you can get an idea from one city where they have this pressure of population and still apply it to other places.

We’ve applied it to homes because you can pour a slab of concrete in the backyard of a home. Has to be a pretty big home like one or two acres or something and what happens is the concrete driver comes along and says, “Where do you want the concrete?” And you say, “Well see that (inaudible 00:21:02) in the front yard, yeah just dump it all there.” And he says, “Well would you mind if I had a quick word with your spouse.” And you say, “No, that’s fine.” (Inaudible 0:21:13) dump it there and you do the same thing. You let it dry and you paint the letter H and the value of the house goes up by £50,000 because now the society newspapers can say that you can drop in for afternoon tea by helicopter. You think this is crazy. I did an event in San Francisco for an outfit called The Learning Annex and this woman stood up and said, “Dolf I want to ask your opinion.” I said okay. She said, “Listen I bought a house five years ago for a million dollars in Santa Barbara.” Santa Barbara is a coastal city. It’s where Oprah has got (inaudible 0:21:47). She spent 55 million on her house so it’s a very fancy…it’s one the top twelve places in the States. She bought a house there for a million dollars five years prior and she said she just got it valued and it came in at 2.4 million. And she asked the opinion of her accountant and her financial planner and her lawyer and all of them said, “Have you ever made this much money before in anything?” She said no, they said, “Then sell.”

I said okay thanks for sharing what’s your point. She said, “Well what do you think I should do?” I said, “Well you’ve already asked for three professional opinions how many more opinions do you want? And if you get too many of them it means you’ll never be able to make up your mind.” And you know what come on I’m here, I came here to get your opinion, what should I do? And I said to her, “Have you ever made this much money from anything else you’ve have had before?” She said, “No. No I haven’t.” I said, “Then why sell the one thing that’s a made you a million bucks and keep everything else?” She said, “Are you saying I should keep it?” I said, “You’re fast.” So I said, “Yes of course keep it.” Anyway, forget that story. A year goes by and I’m doing another event in San Francisco this woman stands up and says, “Remember me?” And, “Should I?” She says, “You know I was here last year and I asked a question about that house.” I said, “Oh yes I remember.” She said, “Well I kept it and I’ve just had it valued or appraised again and it came this time at $3.4 million. It went up a million dollars and I just wanted to thank you for not letting me sell it.” I said, “Lady don’t thank me give me part of the million.”

She said, “But here’s the interesting point,” which is why I bring this up. “It’s a pretty fancy house at that price,” she said, “but there is no gate at the front entranceway and both appraisers said that if I put in a gate that was commensurate with the rest of the property,” obviously not a, you know, a $200 gate from what we call Home Depot, it’s one of the local cheap, you know, home redecorating outfits. “But if you put in a fancy gate commensurate with the rest of it, you know, triple hinged and remote controlled and camera and keypad access and all that sort of thing, then the value of the house would go up by another half million dollars.” I said, “Have you put the gates in?” She said, “They’re being put in. I got the quotes $27,000 for the front gate.” Is that a lot of money for gates by the way? I think it’s a lot of money. 27 grand you can do a lot with that but relative to the half million that it goes up in value is that good? I think it’s hot and that brings me to one of the things I love about property. Unlike any other investment, name me another investment where you can do this, you can spend money on a property you’ve already got and increase the value by many times more than the cost of making that improvement. I mean to drive this home, everyone is going like oh the share market is starting to turn again and to think there’s life in the share market again and all that sort of thing. Let’s say you spend £100,000 on shares what can you do to increase the value of that portfolio? And don’t tell me that if you bought Starbucks shares you’d buy more and you’d drink more coffee. What can you do? Well that’s not very creative. I mean could you not hope, could you not pray, could you not write letter so encouragement to the directors to wish them a good day hoping that that gives the enthusiasm, looking in this room I wonder how a letter could do it if I can’t do it. [LAUGHTER]. You know you could give them the enthusiasm to work that little bit harder which will increase the dividend pay and then maybe the share price will go up. You’re kind of right there’s nothing you can do.

And when it comes to property there are a 101 things you can do to massively increase the value of your property without spending much money and always being one to put my mouth where my money is I wrote a book. It’s the longest title on Amazon. 101 Ways To Massively Increase The Value Of Your Real Estate Without Spending Much Money. And by the way was it easy or difficult to come up with a 101 ways?

Audience: Easy.

Dolf DeRoos: It was difficult folks. It was difficult to limit it to 101, there are so many more. And we find people get this book and they go…with their existing portfolios they can’t find ten or twenty ideas that they can apply right now and some of them are really simple. For instance do you know, I mean here’s the cheapest idea in the book, cheaper in terms of what it costs. For about 50p, 69 cents you can do this. If you replace a 40 watt bulb in a room with say 150 watt bulb do you know that that room will appear bigger, brighter, fresher, cleaner, smarter everything like that and it only cost 50p for a 150 watt light bulb. And if you’re kind of on the cheap side of things and you’re frugal and all that, here’s the really extra big bonus about this. That 40 watt bulb that you took out, it still works. [LAUGHTER] It’s easy. That’s how simple it is and when you have rooms that look bigger and brighter and fresher they’re easier to find tenants for. If you must know there are certain (inaudible 0:27:00). I have to confess that I have sold four properties in my life, I do kind of regret having sold the four but at least I kept all the others. That’s the easiest one and then there are more complex ones. Remodeling a kitchen can often give you rewards far more than the cost of the remodeling itself. Does that make sense?

Audience: Yeah.

Dolf DeRoos: All right. Has this stirred any thoughts because I apologise for talking about international stuff, why deride England when I’m overseas (inaudible 0:27:30). You know any other thing you want to hear? Yes sir.

Audience: Five key tips for new investor.

Dolf DeRoos: Five key tips for a new investor. Wow, that many. All right was that a statement or was that a question. You want me to give you five key tips.

Audience: I would love you to.

Dolf DeRoos: Oh very lovey-dovey crowd tonight. That’s good, that’s good. Listen, firstly welcome to the fold of new investors because have you ever noticed that people involved in other industries they tend to come and go. Then they’re involved in this multi level company and then they’re doing this and then they’re doing that but real estate investors tend to stay to core, hard core real estate investing. And why? It’s not because it’s so much fun. Listen it isn’t even all that much fun getting calls from tenants at two in the morning and they’re saying, “My lavatory is blocked, come and fix it.” And you go, “Well I can’t get a plumber at this hour and anyway what are you doing? This is the third time in two months that it’s blocked.” “Listen here sonny Jim it’s none of your business to find out what’s going on. It’s just blocked, fix it.” So it’s got a lot of hassles, it’s not mentally stimulating, it’s cranking a handle. Once you know these formulas you just do it over and over again. The only redeeming feature about being a property investor is that it’s lucrative. Would you agree?

Audience: Yeah.

Dolf DeRoos: So (inaudible 0:29:04). I mean I enjoy it sometimes but not the Mondays. So five tips for a new investor. The first tip I would give you is never fall in love with a property, fall in love with the deal. People buy houses for the wrong reasons. Well I’m going to be a property investor and this house is so cute, or worse still the neighbour’s dog is so cute or even worse than that is the neighbour is so cute. Wrong reason to buy a property. The numbers have to work and that’s why I encourage you to have a system. I’m not…I don’t have these books here for sale so when I’m showing them I’m just showing them to highlight that I put some thought and that I’ve actually gone to the bother of writing down 101 ways of massively increasing the value of your property. The same goes for when I talk about analysing a deal. You have to analyse. People will do it on the back of an envelope and say, “Well let me see. The rental income is about £10,000 and they’re asking 120 so that’s about a 9%, okay it’s good I’ll do it.” You’ve got to analyse the deal completely to know if it works for you. By the way is a deal that is good for me necessarily a deal that’s good for someone else? No because we all have different levels of cash flow, cash reserves, liquidity, asset backing, credit rating, dependants, you know, if we goof up they’re going to go hungry all that sort of thing. So it could well be that the two of us go to look at the deal and it really suits you and it doesn’t suit me or vice versa and that’s good. There’s nothing wrong with that so be open to that.

All right so you’ve got to do the numbers that’s why I say analyse stuff. I started out having no analysis system. There was no system to analyse a property and one day an agent was saying, “Well don’t forget the vacancy rates,” and they next time they say well don’t forget the rates and the insurance and the maintenance allowance. It was always different so I set about devising, this is long enough ago that it was in the DOS days. I know a lot of young people in the room tonight won’t even know what DOS is. Consider yourselves lucky. Like when we were talking before with Simon here he said, “Well you know the thing for you to get across is you’ve been through many, many cycles.” You know I’ve had ups and downs (inaudible 0:31:18) but not that many cycles but it was long enough ago that it was in the DOS days and then we had, you know, Windows 3.1 and 3.11 and 95, I don’t know. And we’ve got a software package now where you put the information in to see if the property is a good investment for you. So never fall in love with a property, fall in love with the deal.

Number two analyse it and, you know, go to town on this. There’s so little you can do. Listen, there are only about twelve words you need to know. Oh my time is up, I’m sorry. [LAUGHTER] They warned me they’d do this. All right. Can you hear me at the back.

Audience: Yeah.

Dolf DeRoos: That’s a fake question because if they cant’ hear me how are they going to answer. I always think that’s the daftest thing when people come in and say hello can you hear me down the back. Give us a break. All right can you hear me now?

Audience: Yeah.

Dolf DeRoos: That’s a joke in America. It’s horizon but anyway. What were we talking about because if you’ve forgotten I’m off the hook. Point number two okay but more particularly what were we talking about. Yeah, I know, how you have to analyse a deal.

Audience: Twelve words.

Dolf DeRoos: Oh you’re twelve words, he’s the man. Always, always the person who gets the answer right is sitting in the front row. I don’t know whether people who get the answers right sit in the front row or whether people who sit in the front row end up getting the answer right but there’s always a strong correlation. Twelve words. You only need to know twelve words to do well in real estate. You need to know the difference between collateral and equity. If you don’t know that…it wasn’t me. If you don’t know that then you’re going to be at a disadvantage but it’s only twelve words. I ended up spending eight years at university. I did a PhD in electrical engineering. For those of you who know it’s not easiest course around and I’m telling you everything I’ve learnt, everything has been made redundant by new technology. And yet if 50, 60, 80, 100 years ago you’d learned the difference between collateral and equity and knew what a mortgage was and an assumable loan and the difference between a mortgagee and a mortgagor and understood why the bank is called the mortgagee and why you who kind of gets the mortgage you’re called the mortgagor, it would still apply today. That’s why I’m saying it’s so simplistic. There’s nothing to it.

You have to understand…by the way why is the bank the mortgagee? See folks if you don’t understand this…one person again in the front row. He…I don’t even need to look at him but he…true or not sir. You tentatively put your glasses forward a bit as if to say, “I think I might have an answer that might,” that’s what you were thinking right? And full credit cause he was the only one who made that subtle movement of acknowledgement that he might have an answer. The rest of you were looking at me as if to say, I hope you don’t pick on me. Until you figure out why it is that the bank is the mortgagee you will struggle getting money. I haven’t forgotten your question. I’m not that jetlagged but I’m going on a little tangent cause this important. If you go to the bank with the attitude please Mr. bank manager I’m kind of getting desperate now, if you don’t give me this money I’m not going to be able to buy anything anymore, my wife’s going to leave me and my kids are…well they don’t like me anyway really. So if you go in with that attitude you’re not going to get the money.

Samuelson economics 101, “One rule which woe betide the banker who fails to heed it, never lend money to anyone unless he doesn’t need it.” So if you go in there needy, if you go in there asking for, begging for a mortgage you’re not going to get it. Now here’s the good side of things. You don’t ask for a mortgage you offer a mortgage cause here’s how it works. Are you all listening? I’m I speaking too fast? Okay. You want to buy the property but don’t have the money or if you do have the money you choose not to use it right and the bank has the money and fortunately doesn’t want to buy the property. Why do I say fortunately because they’ve got all the money folks. If they wanted to buy all the property they’d buy it and leave us out. So you want the property and don’t have the money, the bank has the money and doesn’t want the property. Here’s what you do, you go to the bank and say, “Mr. Bank Manager, if you will lend me the money to buy this property, then I will give you a written pledge wherein I swear that I will faithfully pay interest every month and at some agreed upon basis I will pay back the principal.” So the transaction is the bank lends you the money and you give the bank a pledge that you will pay it back. That pledge is called a mortgage. You give the bank the mortgage in return for which they give you the money. That’s why you are the mortgagor. You’re giving them the mortgage and they are the mortgagee, they’re accepting that mortgage in return for which they give you the money.

Now another thing we can talk about is how you come up with what I call a proposal for finance. It’s available free on my web site you just have to find it I guess but in this document I show you how you don’t ask for a mortgage. In fact you…you know we have the fact that you need a photo on the front. A picture is worth a thousand words and make it a photo taken on a sunny day without any dog doing on the side or footpath or whatever because that doesn’t enhance the image of the photo. And then you open it up and it’s got the table of contents in and on the first page it’s got a summary because most people when they make an offer of anything they never actually ask for what it is they’ve come to ask. I have people come up to me, “Oh can I have half an hour of your time I’ve got this great idea,” and I sit through all the stuff and at the end of it they say well thank you for your time and they go and I’m thinking I don’t even know what they wanted. So in the summary you have to tell the bank what it is that you’re after and the way I work mine and these words have been crafted over years and years of figuring it out. I say, “A mortgage,” of whatever it is £95,000, £300,000. “A mortgage of £300,000 is offered on a property located at,” and then you give the address, “with a yield of 16%,” or whatever returns but did you notice I said a mortgage is offered? I didn’t say a mortgage is asked for or respectfully requested or begged or is desperately sought, I said a mortgage is offered. And not only that, in the next paragraph I say that I’m willing to offer the bank collateral in return for this mortgage and the collateral is actually the property that I’m buying. Do you follow me.

(Inaudible 0:38:11) that’s like going to the bank saying, please will you give me some money so that I can buy that property but now I’m offering them a mortgage and I’m offering them collateral. You know there’s a great psychologist called Chaldini, he happens to live in Phoenix as well, he wrote a book on the power of persuasion and he’s theory is if you give people something often enough and long enough eventually they’re going to want to give you something back. It’s an interesting thought isn’t it. So there’s a whole philosophy behind how you apply for mortgage money. All right so that’s when it comes to banks.

You can ask for a seller carry-back or vendor finance. Say all right I’ll buy this property but would you be willing to leave some money in. Can I have a show of hands, I’m genuinely curious of the last ten properties you’ve bought and if you don’t own ten or haven’t bought ten for the ones you have. Of the last ten or so how many of you have ever asked whether the seller would leave money in the deal? Just a few of you, thank you. And the rest of you, you’ve never asked, it never occurred to you to ask? So here’s another rule, rule number three for you Mr. five rule man. Always, how often?

Audience: Always.

Dolf DeRoos: Always ask the seller whether he’d consider leaving any money in. You’d be stunned at the answers. I was buying a place once it was for 800,000 from an elderly couple. It was sort of the home that they had raised their family in. It was a beautiful home overlooking the sea and I thought okay I’m going to ask it. So I asked them if they would leave in 300,000 and they were in their 80s and they looked at each other and they said, “Well could we think about this overnight?” Oh what I was going to say? I said of course that’s fine. Then I thought they’re not going to do it. They just didn’t want to tell me to my face. So I went back the next morning and they said, “Well listen here we’ve thought about it and we’ve raised our kids in this house and we still feel attached to it and the house we’re going to is only costing us 400,000 and we’re not sure what to do with the difference and we’d like to invest it back in our own home. Would you consider us leaving in 400,000?” You see folks, never ask and you’ll never know and none (inaudible 0:40:29) a yes you can get. So always ask for a seller carry-back. Can you do a combination? Yes you have a question.

Audience: Sorry, thank you.
Dolf DeRoos: Uh-huh, no. This is a British thing, I’ve got to squash it for the rest of it now. You do not need to say sorry. What are you sorry about?

Audience: Well interrupting cause it’s been really good and I didn’t want to stop your flow.

Dolf DeRoos: Well no this is part of the flow. If you interrupt me you’re injecting some energy into the room. Energy. Tell you what – I don’t know your name – but the lady in green the rest of them are all jealous that they didn’t have the gumptions so let’s give her a round of applause. [CLAPPING]

Audience: My name’s Vickie Wishay, very nice to meet you. You mentioned that the current home owners in that piece of the story said the sentence back to you they would like to invest the money in so I wondered what you did next. Did you give them an interest rate on that money, did you give them a share of the property? How did they grow because they actually used the word investment?

Dolf DeRoos: Right, that’s a great question. I think from their perspective they were in their 80s, they’d had a great run, they’d made a lot of money on their property. It was literally a mortgage. They had a mortgage interest, a registered mortgage on the property and I paid 6% interest which at the time was a very healthy return. I’m not trying to get them down on return I just want to not have to come up with the capital because I can deploy my capital more efficiently elsewhere and my returns were higher than 6% so I was making money on it anyway. Had they asked for a percentage ownership I don’t know if I would have done that because it just clouds the issue and they were in their 80s and the natural course, and this is really ten fifteen years ago, they would have predeceased me. So then I would have been dealing with their kids and if they were four – they were four kids but if they had different attitudes as to what they want to do it can give a mess. But in terms of how it worked it was literally a mortgage. They had a mortgage interest in it. They were second mortgagees on that property at 6%. But great question and that’s…you see there’s always an angle one that you wouldn’t have thought of. We all think we know what other people are thinking or how they’re reacting and they’re not and we don’t always know that. Any other questions? Yes, down at the back there. Big loud voice.

Audience: Yeah, I have a big loud voice. So you said just then that you…I’m Rob by the way. You said that you don’t like to put your money in property because you have somewhere else better to put your money than property so can you tell us where you put your money that’s better than putting it into property?

Dolf DeRoos: Okay that’s a fair question but unless I’m suffering from jet lag more than I realised I didn’t say that I had something other than property to put it in, I just said I had something better to do with it than keep that 400,000 in that house. I could use…I mean that 400,000 that I only had to pay 6% on to the elderly couple, I could turn around and buy four one million properties using 100,000 deposit on each of them and a 19% mortgage. So that’s a much better deployment of my capital. Now it means I’m highly leveraged. Is that risky? Oh yes it is but if you’re smart, if you don’t go with the flow too much then you’ll manage all right. The challenge we’ve got is that people got caught up in this big speculative bubble that appeared and it happens all the time. It happened in 1986 in London. Who remembers the bubble of 1986 in London when prices went through the roof and winners they say the milkman…we don’t have milkmen delivering milk. Are there any milkmen left in England?

Audience: Yeah.

Dolf DeRoos: Oh they only have a milkman and they put them in bottles or they’re in tetra-packs? Wow that is neat. Well the saying…the saying was when the milkman is talking about, you know, some investment deal it’s time to get out. And that’s not a slight it’s just when…so in a America what happened is everyone got fired up by the way it was going. The example for me was I was on a bus from Oakland airport going to the car rental place and, you know, if you don’t want to see something you can close your eyes but you can’t close your ears easily so you overhear stuff. I wasn’t eavesdropping but this guy who was bragging to this other couple on the bus said, “Well I bought a property in Phoenix not two months ago and it’s already gone up by more than $30,000 dollars.” I’m such a good investor I’m going to do more of this. And the truth of it is he’s not necessarily a good investor or bad investor but people deluded themselves that they were smart when all that had happened is the market was going up. So the consequence of that is when the market turns as inevitably it does. It always overshoots and undershoots, always folks you can rely on it. They don’t know why suddenly they’re smart activity is not resulting in any cash flow profit. Very interesting scenario.

So, you know, you’ve got to understand when the market is going well or when it’s not and for years when the market was going up I wasn’t in the market. Now is the time to give in and that’s what this whole weekend event is about basically. It’s to share why now is the time and give you tactics as to how to do it. And by the way I don’t hold back, I’m an open book. For what it’s worth I don’t make my money by speaking. I mean I’m not being paid to be here tonight right. And you say, what no it’s a preview for the weekend. I don’t get paid to do the weekend event. This is my way of sharing. Other people give to the local human society or the cat society or other great charities and I like to give back. I have a theory that if we can help enough people figure out how to get financially independent then we won’t be dependent on, well I don’t want to sound derogatory but, you know, we mentioned the speaker of the house and all their cohorts.

You know democracy is great. I don’t know a better alternative but it’s got flaws right. Democracy should be for the people by the people and yet a bunch of people are getting the power…let me give you an example. Do you know that in every western country the social welfare plan – what do you call it here, retirement, the pension. The pension for politicians is different from the pension for ordinary citizens right. Why should it be? Because they have the power to vote and say, you know what we’re going to give politicians are better pension than the average citizen, they deserve it for all the hard work they’re doing. Well what about school teachers and all the hard work they do, you know? So I don’t buy that argument. I don’t know what the numbers are here in Britain but in America politicians if you’ve been in Congress you retire on $750,000 a year for the rest of your life and if you die your spouse gets it. You can travel the world for 10% of the cost of the airfare and every country…New Zealand’s got it. Our politicians have a – what do they call it there – I forget now but a retirement plan that is way better than that of the average citizen because they can. They just vote it and in New Zealand it’s usually at 11 pm on the last day that parliament’s sits, “Oh let’s quickly put this through,” and they can. So that’s why it’s kind of flawed but it’s still the best thing there is out there. And yes you have a question at the back.

Audience: (Inaudible 0:47:30). Going back to the banking ticket because recently a lot of banks were given money supposedly to help small business (inaudible 0:47:37) but a lot of them don’t know that the government actually gave what’s called government loan guaranteed scheme. Could a group get together and do what you talk about?

Dolf DeRoos: Hello. Thank you very much, okay it works. A lot of people don’t realise that even if…

Audience: Sorry.

Dolf DeRoos: No don’t say sorry. It wasn’t your fault that he couldn’t run fast enough to (inaudible 0:48:08). It’s amazing you all say sorry.

Audience: I won’t do that again. The loan guarantees from the banks are not being used properly…not being used properly by the property investors because what we haven’t done is tested the banks lending provision. They’ve got the money from the government and (inaudible 0:48:34) back to charity. So what I think the idea you had about going to the bank and making an offer do you think that could be done by a few investors getting together and changing that loan which is supposed to be twenty billion pounds that’s gone to the bank but they’re not actually lending it on.

Dolf DeRoos: Yes. Next question. [LAUGHTER] No listen seriously yes. You don’t understand how banks work. You think they’re worried about your house. They’re not. Banks are only…can we adjust that.

Audience: No (inaudible 0:49:05) come away from the speaker.

Dolf DeRoos: Or turn that mike off that would help. Okay. They think that banks are interested in your welfare they’re not. All that a bank manager is concerned about and I’m being a little bit harsh here but there might be some bank manger in the room, is whether or not some at the end of the year you get 3% raise and whether or not you get your raise is likely dependant on how much bad debt you have created for you bank. True right?

Audience: Yeah.

Dolf DeRoos: Are you a bank manager?

Audience: I was.

Dolf DeRoos: You were. So I’m not speaking…here’s an ex bank manager who’s kind of confirming and how smart is this. I mean here’s an ex bank manager who had the guts to say give us five tips for a new property investor. You know, the saddest thing I have…and I have got to wrap up so I’ll talk faster but you can keep up. The human brain (inaudible 0:49:50) information about seven times the rate of normal speech. [LAUGHTER] Gone to a bank in New Zealand…bank in New Zealand for years and years and this guy went into retirement and three years later at the age of sixty eight he calls me and he says, “Dolf can I have an appointment with you?” and I say, “I don’t really take appointments.” And he said, “Come on I’ve given you all these mortgages,” no Mr. manager I have given you all these mortgages instead of I have accepted all these mortgages from you, “And I think I know what you’re doing. Will you teach me how you do it.” Here’s a sixty eight year old bank manager who’s spent his life advancing funds to investors and didn’t understand the game and here’s a man by all accounts who looks pretty young to me, I mean that in a complimentary way not demeaning, who has seen the light. I mean praise to the whomever because he’s seen the light and he’s stopped being a banker and he’s figuring out and he’s got the guts to ask give me five tips. He’s got the guts to ask how to do it in real estate. That’s what it’s all about.

So most bank mangers – he’s confirmed it – are very concerned about A not being fired. How do you get fired, with a lot of bad debt or B, still getting a raise. So if you go in and say Mr. Bank Manager I see you’ve got all these bad debts from these contractors, developers here is my plan. Here are the statements, here are the spreadsheets, here is the proposal as to what I would do if you would only let me assume those loans and here’s the cash flow that I will use to pay the interest. I think at the very least you’ll get a good hearing from the bank because you’re saving their back. Yeah final question because…oh hang on a minute though. Sylvia we did (inaudible 0:51:23). One more question. Who’s got a question? Yes sir.

Audience: Why is the UK not a place to invest?

Dolf DeRoos: Oh you know it is. I didn’t say that. Are you referring to what I say overseas. No I say the opposite. I mean if you really want to hear it I’ll tell it the way it is. You could go overseas and hear me say it anyway because England for most of us who don’t live here is a bit of an anomaly because we joke and say why would you go to England? Would you go to England because it’s the center of fashion in the world. [LAUGHTER]

Audience: Yeah.

Dolf DeRoos: Oh no that’s Milan right or Paris. Well would you come to England for the gastronomical delights?

Audience: Yes.

Dolf DeRoos: Well overseas they laugh. Well would you come here to sun yourself on the sunny beaches? [LAUGHTER] No, right. So would you come here because of the superb engineering? I mean the best cars in the world are English right. And that’s how (inaudible 0:52:18) and don’t take offense to this but it’s very interesting because the ending of the story is actually very laudatory towards England because when you look at all these factors by rights England should be bankrupt. [LAUGHTER] And you’re not, you’re not and here’s…well no more than any other country. I mean everyone is suffering so in relative terms and arranging of (inaudible 0:52:47) countries you’re not doing that badly whereas I’d assume no one give you a fashions label from here. You know if you want a good car you get a BMW or an Audi or Mercedes or some of the top Japanese cars. I mean I’ve had Jaguars. Listen I love them. I love the shape of it and everything but I think I spent more time under bonnet than actually behind the steering wheel. It’s just the way it is.

So why is Britain not bankrupt? Because in the last 150 years some very smart Brits went overseas and invested and I’m sure they faced a lot of flak because they’re fellow Brits would have said why are you being seditious, why are you taking your money overseas. Well here’s what happens when you take your money overseas and you invest it, don’t spend it on gambling or whatever.” Then you get rent on income or some form of income coming back in and when eventually you sell it you do that’s capital being repatriated back to the UK. It’s called invisible income. That’s why 70% of the insurance industry of the world comes from London through lawyers though and by the way most of the remaining 30% goes through Switzerland. I mean you’ve had some very smart people who’ve invested very astutely not in fly by night style operations or things that can go. Real estate is there whatever happens to the economy, however much (inaudible 0:54:02) and that sort of thing we still need homes that we live in and premises that we operate out of and warehouses that we distribute things. Do some warehouses become more popular than others? Yes. Half a century ago any warehouse by a sea port by South Hampton or something would have been very high rental and now it’s all gone, air traffic right. Even some heavy stuff goes by air these days so now a warehouse by a busy airport is more valuable than one by a seaport.

So those things change but it’s still there. Anyway that’s the whole story. All right that was the last question. Okay how many points have I given you?

Audience: Three.

Dolf DeRoos: Only three boy (inaudible 0:54:42). All right someone else what would you do as a tip to a new real estate investor. I can give 500, I often do. Pardon? Yeah have a strategy is a really good one. If you just think oh I’ve got to buy some property, I’m going to look at some property, oh here’s one let’s analyse this. Told me to analyse and it’s pretty ugly so you can’t tell me that I’m falling in love with this one. It’s not enough. Property is property but there are so many flavors of it. You’ve got commercial, residential, industrial, hospitality and just bare land which in my view isn’t an investment at all because to qualify as an investment you have to have income from it. That’s why buying gold is not an investment it’s pure speculation. You buy in the hope that when you sell it, it will have gone up and sometimes it does but sometimes it doesn’t. Land you could graze horses on them I guess but you’re speculating and I never like speculating. So you need a strategy. Do you want either residential or commercial? It’s probably one of the things we’ll discuss on the weekend. My take on it may surprise you and I’ve got very strong feelings on that. So yes you need a strategy, one that works for you. Does your strategy happen to be the same as this gentleman’s here, not at all. All different strategies work. So that’s number four. You’ve got to have a strategy. Someone else. Yes sir.

Audience: (Inaudible 0:55:57 – 0:56:07).

Dolf DeRoos: You need to…well the question is what are the main elements of having a strategy but part of it is finding out for yourself. You need to know why you want to invest in a particular kind of real estate or a particular geographical location to the point where you can justify it to yourself if not to anyone else. So I have a theory that real estate by a body of water be it the sea or a lake or a river goes up and down in a much faster rate than real estate or property that’s not by such a body of water. And that’s why for instance in Australia you have beach front property. Do you think beach front is on the sea? No, it’s near the sea because if it’s on the sea if you can go from your verandah into the sand it’s called absolute beach front. So if you cross Australia you go from absolute beach front to beach front to beach view if you can see it even in the distance, to beach walking distance, beach smell, beach bike and beach drive and beach flying (inaudible 0:57:03) [LAUGHTER] Beach driving, beach cycling, beach walking, beach smell, beach view, beach front, absolute beach front. That’s all the great (inaudible 0:57:13) because well it proves my theory. So your strategy might be to buy real estate that is near a body of water. That’s a good strategy and you can refine it. The more layers of refinement you put on it the better this whole strategy becomes. All right point number five and then I’m out of here.

Audience: Know your area.

Dolf DeRoos: Know your area. So you’ve got to become very familiar with it. If you can be taken around your area by an agent, real estate agent, what do you call it here? Estate agent, thank you. Estate agent and if they know more about the area then you do then you don’t know your area very well yet and it’s not hard to know more than the estate agent does. I mean that…there’s no meaning behind that. It’s easy. Just study it very well, learn the demographics, get some of the stats, do some research, go onto the Internet, talk to some people. Talk to some tenants there say, hey what do you like about this place. Find out what motivates them. Know your area. When you know your area you’ll be in a much better position than someone else who doesn’t know the area. There are many, many other things we can talk about but it’s…you’ve got to catch fire with enthusiasm folks. You’ve got to look in that mirror and you can tell the lives people lead by the expressions they have on their faces. Ever walk down a street and say this a happy person, this was miserable. Boy what’s happened to him or her, you know, just have a fight or something. Then look in the mirror and wonder what other people see when they see you. Do they see someone who’s happy with what he does, she does during the day? Who loves their work. Do you believe that being a landlord means that you’re capacious and racketeering and taking advantage of innocent tenants or are you providing a service that is needed. Statistically about 30% of Brits don’t live in their own home, they rent. They might as well rent from you. What’s your attitude because your attitude determines many things. Zig Ziglar says your attitude determines your altitude. How high do you want to fly? When you get wrinkles which almost in (inaudible 0:59:22) do you want them to be set in the form of a smile or frustration? It’s a good question folks. This is how you’ve lived your life. Are you having fun cause if you’re not having fun do something else. All right. I’m a seminar junkie. We put one on last weekend in Las Vegas at the Venetian Hotel. I was on stage essentially from 8 am till 10 pm both days. They couldn’t stop me and if you love something…they have a saying, if you love what you do you’ll never work another day in your life. Make sure you love what you do folks. I want to thank everyone. Want a great meeting we’ve got to fill a room like this but I want to acknowledge you for being here instead of watching a soap or whatever and I also want to acknowledge Sylvia for putting on such a great event. What a great meeting and seriously there is a lot of good energy I just want to ignite it. Who is the balloon man coming in the back there. Well a disguise. I couldn’t tell.

Anyway thank you so much and remember if you’re interested in what do something. Read…well you don’t have to read my books. I don’t think that even any of mine are available here in the bookstores. Read books. Read a book a week. 58% of people don’t read a non fiction book after leaving high school. Read. Readers are leaders. He who doesn’t read has no advantage over he who cannot read. Come to more meetings like this. Who was at the property magic live event last week. Wow some of you were. Talk to people with their hands and see if it was any good. And I’ll be here this weekend, I don’t know where here is yet, I don’t know where I am. [LAUGHTER] Because if you’re passionate abut something it just grows and you learn it easily. Do you notice that if you love a subject it’s easy to learn about it and what’s great about real estate property is you can apply what you learn almost instantly. All right thank you for your time you’ve been a great crowd. [CLAPPING]