CHAPTER 1

Part 1Follow the Rules

As the clock struck 11:00, Brian pushed open the door to the Coach's office andgestured to his wife to walk in. As the door swung closed behind them, the Coachappeared from his inner office, smiling.

"Good to see you two," he said, hand outstretched. "Come on into my office andtake a seat."

Brian glanced over to Sarah as they entered; he clearly liked what he saw.

The Coach took a seat at the large round table that filled half of the ornateoffice. His new clients followed his cue and seated themselves. It was just aswell that it was a comfortable office, Brian thought. They were going to bespending a lot of time here.

Brian could immediately tell that the Coach was highly organized. He watched asthe Coach picked up a manila folder from a neatly stacked pile on the desk andhanded it to Sarah. Together they read the label on the front cover.

Follow the Rules

"You know," the Coach began, "it always amazes me how many people just divestraight in and buy their first investment property before they have stopped tothink about the big picture. I mean, most people seem to just want to get a footin the market before they even have a half reasonable idea of what theyultimately want to achieve, how they are going to achieve it, what structuresthey need to set up, and what principles they will use to guide them. And thereal scary thing is that most of them don't even seem worried that they haven'tgotten the basics in place first. If the truth be known, they probably wouldn'teven know what the basics are."

He stopped and cast a careful eye over his new students, eager to see whetherwhat he was saying was making an impression.

"If there's one thing I want to impress upon you today it's this: Don't,whatever you do, fall into this trap and make the same mistakes that the vastmajority of so-called investors do."

He paused to let that sink in.

"My main message today is to follow the rules. Follow the rules and you'll findit's really quite simple."

Sarah nodded as she glanced over to her husband.

"Now you both have good incomes, right?" the Coach paused as they both said yes.

"So, does a good income equal rich or even plain old wealthy?"

Sarah jumped in, "Probably not, but it helps."

"Great answer, income rich doesn't mean you have wealth behind you. You see,simply put, the aim of working is to not have to work."

The Coach went on before they could ask any questions.

"You make money from a job and should put some aside to invest over time; themore you put away and the better you invest determines how long you have to workbefore your investments will pay for your lifestyle."

"But Coach, we have no surplus; we are always paying our bills," Brian feltembarrassed as he said it.

"Brian, that's exactly why you need to start investing. Put simply, you don'tneed to be rich to invest, but you have to invest to be rich."

Sarah was busy taking notes but lifted her head to ask, "So, you're saying wecan retire early?"

"Great point, Sarah. Retirement is a function of money, not age. If you haveenough invested you can retire at any age; problem is people would rather buythe latest shoes or watch or perfume on a credit card than buy an investmentproperty. That, my friends, is going to have to change."

Brian knew that they could easily cut back in a few areas. In fact, he'd thoughtabout it before but really had no goals that meant he had to do it.

"The basic idea of becoming wealthy is to first develop your cashflow throughyour job or your own business, and then to turn it into physical assets that inturn produce a cashflow all of their own."

As Sarah turned the page in her folder she noticed the Coach had already printedsome notes for them.

"We all think we know what an investment is," the Coach began. "We use the termalmost every day. People talk about investing in property, shares, art, stamps,coins, antiques, and vintage cars. But which of these are really investments?"

Brian looked up quizzically.

"What do you mean, Coach? Surely if you buy something with a view to selling itsometime in the future for a profit, then that's an investment."

The Coach settled back in his chair and ran his fingers through his neatlygroomed hair.

"It really all comes down to what we do with these things we 'invest' in," hecontinued, emphasizing the word invest.

"What do you mean?" Sarah asked.

"Understand this: Most people focus on only the first part of my definition foran investment. As long as it appreciates in value, then they regard it as aninvestment. They are concerned only with the projected capital value of the itemthey have bought. But here's the real point. A true investment must also producecashflow along the way. It must produce an income stream while it's increasingin value. See, most investments only increase in capital value slowly. There areexceptions, of course, but in general, this is a longer, slower process."

Brian nodded; he could see where this was leading.

"One other thing: most people who regard themselves as fairly familiar withinvesting also make the mistake of believing it's just about a return oninvestment. They seem to think that as long as their investment is producing acashflow of, let's say, 11 percent a year, they are doing well. But I say youneed to ensure you get a return of investment first. You need to be sure yourinitial outlay is safe before you begin receiving a return on your investment.Far too many people have invested in dubious schemes based on a healthyprojected return on investment, only to find they lost their initial outlayafter they had banked the first few returns. Does that make sense?"

Both Brian and Sarah shook their heads. Again Sarah found the Coach's notefirst.

The Coach stopped Sarah from jumping ahead in their notes as they discussed thenext lesson.

"It's important to clearly understand why you want to invest in property in thefirst place," the Coach said. "If you don't, then you run the risk ofdisappointing yourself."

Sarah was thinking she knew what the Coach was talking about; it had been herone concern about entering the real estate market...