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Preface ....................................................................................................... 2
Bob Andersen’s Success ............................................................................. 3
How Property Development Makes You Money ........................................ 5
3 Reasons Why You Could Be A Property Developer ................................. 8
Build Your Portfolio While Maintaining A Day Job ................................... 10
8 Great Benefits of Property Development ............................................. 12
Why Now Is A Good Time To Develop Property ...................................... 14
Eliminating Risks in Property Development ............................................. 16
The 9 Biggest Mistakes Made By First Time Developers .......................... 19
How a Developer Makes $116,500 More Than A Retail Investor............. 22
How to Create MASSIVE Wealth Through Property Development .......... 23
How to Earn $2,424 Per Hour From Small Development Projects ........... 26
How to get started with $80,000 Or Less ................................................. 29
How to make $8.58M in 10 years ............................................................ 30
9 Qualities Of A Good Mentor ................................................................. 35
Preface
Intelligent investors know that holding and accumulating well selected
residential real estate is a proven, tax effective wealth creation strategy.
Property investors these days are much more informed and astute than
their counterparts of the 1980's and 1990's, and many are looking for 'an
edge' to break them away from the pack and fast track their path to
financial independence.
Many of the country’s richest people made their fortunes from property –
not by paying retail price like most investors – but by creating their
investments at cost through property development.
Until recently this area was the domain of property developers and the
very rich. The great news is that no longer do investors have to be multi-
millionaires or full time property development experts to share in the
massive financial benefits that property development can deliver.
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All this has changed with the introduction of the Property Mastermind –
but I’ll tell you a bit more about that later.
By the late 1980’s I had learned a lot more about property investment.
Finally the light came on. What I should have been doing is keeping
some of my development product as a long term investment – obtaining
it at developer’s cost, holding for growth and deferring the tax.
3
Even while performing my own small developments I also had a corporate
life during the 1980’s and 1990’s when I held both state and national
management positions with some of Australia’s largest property
development companies. I have developed high-rise apartment buildings,
high rise CBD office buildings, shopping centres, retirement complexes,
resorts, student accommodation complexes, land subdivisions, spec
houses and townhouses.
So over the last two decades I have fine tuned my systems and models for
packaging and developing projects using a ‘develop and hold’ strategy.
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How Property Development
Makes You Money
WHAT IS PROPERTY DEVELOPMENT?
Property development is the improvement of a building or a piece of
land. The process becomes extremely profitable when considering
renovation of an existing building, subdividing a piece of land, building a
townhouse complex, building a shopping centre, or creating a master
planned community.
Before I go any further, let’s take a brief look at the various types of real
estate that may be developed.
COMMERCIAL
Commercial property development is the
development of real estate intended for use or
occupancy by wholesale business (eg. office
complexes). Commercial real estate falls
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somewhere between residential and industrial real estate.
INDUSTRIAL
Industrial property development is the
development of real estate intended for use
or occupancy by manufacturing or refining
business’ (eg. factories).
RESIDENTIAL
Residential property development is the development of real estate
intended for use or occupancy by individuals and not business’. Below are
the various types of residential property.
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RETAIL
Retail property development is the
development of real estate intended for use
or occupancy by retail business’ for the sale
of goods or services (e.g. restaurants,
shopping centres).
MIXED USE
Mixed use property development is the development of real estate for
use or occupancy by a combination of the above types. In recent times
there has been a move towards mixing residential with commercial or
retail. Several apartment projects close to cities now provide for
commercial or retail premises on the lower levels and residential
apartments on the levels above.
FAMILIARITY
We are all relatively familiar and comfortable with residential real estate,
having spent our lives living in it. Many budding developers also own one
or more investment properties and may have undertaken some form of
renovation.
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3 Reasons Why You Could Be A
Property Developer
You have searched the web for something to do with property
development and located my website, THEN requested the report you are
now reading – so you have now made your first step.
Firstly let me explain a few concepts.
Property development could be said to require a mix of 1) time, 2) money
and 3) experience. It takes time to find a site and develop it, it takes
money (some from you, most from the bank) and it takes experience to
know what to do.
TIME
One of the big misconceptions aspiring
developers hold is the time it takes to
develop a small project (say 2 – 4
townhouses). What you will see me
repeat time and time again is that
property development is all about
‘managing people and managing
processes’.
This means that in most cases you can still hold down a full
time job and develop a project in your spare time. But beware -
after one or two projects the full time job soon loses its appeal.
Particularly as the profit from a 12 month three townhouse
project could equal 4 or 5 times the average wage.
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MONEY
On a typical development loan you
would be expected to put in 25% of
the costs from your own sources
(cash or equity in other property) and
the bank will lend the other 75%. A
typical 3 townhouse project might
require you to put in $250,000 to $300,000 from your own
sources.
There are advanced strategies you can learn where your ‘put
in’ could be less or even zero.
EXPERIENCE
Experience comes from doing things – ideally successfully. But
you have to start somewhere. That ‘somewhere’ comes from
investing in your education in the subject of property
development and getting alongside someone of considerable
experience who can advise and guide you and who will let you
leverage off their experience. In other words a mentor.
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Build Your Portfolio While
Maintaining A Day Job
PART TIME PROPERTY DEVELOPMENT
Most novice developers, making the step up from investor to developer,
start developing on a part time basis. Property development is all about
managing people and processes.
It is not difficult to manage at least one small project while holding down
a full time job. This is particularly the case for investor / developers
wishing to build their investment portfolio while maintaining their day
job.
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Property development performed using a develop and hold strategy can
be a great way of building wealth by accumulating assets acquired at cost.
If you keep your day job and develop property part time you should be
able to keep your stock as an investment subject to meeting end finance
serviceability criteria.
If you are developing full time you might be able to sell some stock for
cash (income) profit and hold some for investment. This will depend to
some extent on the size of your developments.
Either way it can set you on your way to financial freedom and YOU
decide how much time you can afford to commit.
We were about to give up on our dream. After two years of work, two
DA’s from two different architectural firms and a not too favourable
valuation for our proposed student accommodation project we didn’t
know where to turn. But a chance meeting with a senior executive from
a major financial institution turned everything around. He gave us Bob
Andersen’s contact details.
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8 Great Benefits of Property
Development
Most investors buy at retail price and miss the opportunity to build a
substantial property investment portfolio through ‘wholesale’
development opportunities.
These are some of the benefits you can receive by becoming involved at
the ‘cost’ end of production and not at the ‘retail’ end like most investors.
PROFIT
You have the flexibility of either making a cash profit by selling
your property, or you can keep your profit in the property and
hold it as an investment.
DEPOSIT
You can use your development profit as a deposit to purchase
your completed investment.
CAPITAL GAIN
You do not have to wait for the market to rise because you can
create your own capital gain up front.
RENTAL YIELD
You can significantly improve your rental yield due to the lower
cost of acquiring your investment property.
TAX BENEFITS
You can gain the favourable taxation benefits of depreciation
on new property.
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HIGH RETURNS
You can obtain returns on funds invested of 80% - 100% p.a.
during the development, depending on gearing levels.
SPECIAL SAVINGS
You can save on stamp duty, GST, marketing costs, agent’s
commissions – and you get to keep the developer’s profit.
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Why Now Is A Good Time To
Develop Property
I’ve been involved in developing property since 1980 – that’s about four
complete property cycles. Each stage of the property cycle has its own
quirks to deal with but I’ve always made profits in all market conditions.
It might sound contradictory but I don’t like boom times. I have always
done better in non-boom times... in other words, in times like this
‘economic crisis’.
During boom times development sites are harder to find, are often
overpriced and often have to be purchased without suitable contract
conditions.
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The current state of the property market is very interesting. On the
positive side; sites are available, interest rates are below the long term
average, building prices have pulled back, finance is still available and
there is a national and worsening undersupply of accommodation which
has caused a substantial and continuing rise in rents.
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Eliminating Risks in Property
Development
Embarking on your first property development project carries greater
risks than purchasing your first investment property. The numbers are
bigger and more things can potentially go wrong. But the rewards are
significantly higher too… and risks can be managed and minimised.
INEXPERIENCE
A lack of knowledge, lack of education and failure to engage a
professional mentor / advisor particularly on the first one or two projects
will greatly raise risk and may affect the ability to borrow.
Always follow Rule #1 – align yourself with a mentor and get educated.
However, it’s not world shattering. Let’s say rates go up 1.5% gradually
during a 12 month four townhouse project. The actual increase in interest
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would be $1,500 per unit. Of course rates can also go down creating
more profit.
MARKET RISKS
Property values can fall as well as rise and there is no guarantee as to the
market value of your investment on completion or the demand for your
investment should you desire to sell it.
CONSTRUCTION RISKS
Construction costs can increase during construction because of disputes
or unexpected delays caused by labour or material shortages thereby
lengthening the construction period resulting in increased holding
charges.
Performing due diligence on the builder and using a lump sum fixed price
and time contract can help minimise problems.
APPROVAL RISKS
The obtaining of satisfactory development approvals can be subject to
time delays and unexpected costs. Councils could be slow or reluctant to
approve an application. Extra consultants might be required to supply
special reports and infrastructure charges might increase.
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FINANCIAL RISKS
Undercapitalisation (not having spare capital as a buffer if costs escalate)
or over gearing is a common problem with budding developers.
Bob saved my life and made me $400,000 profit when I thought I was
going to lose $400,000. In spite of what I had learned I got too gung ho
and bought a ‘lemon’ site – site unseen and interstate. Noisy, bad shape,
road widening resumption to name just a few problems. Staring down
the barrel of a potential sizable loss I joined Bob’s partnership program
to give myself the best chance of recovering my money. Using Bob’s
inner circle of associates (lawyer, architect, planner) and some great
negotiation with Council by Bob we achieved an outcome that even
shocked the planner. Bob is brilliant. He turned my lemon into
lemonaide.
Jack Pyziakos.Melbourne.
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The 9 Biggest Mistakes Made By
First Time Developers
STARTING OUT WITHOUT A MENTOR
Rule #1 – you must have a mentor and be educated. There is
too much money involved to hope for the best. This is a highly
profitable enterprise and the cost of education and a mentor is
negligible compared to what you could lose without one.
Adhere to Rule # 1 and you won’t make the other 7 mistakes.
NO STRATEGY OR PLANNING
Some new developers just go out and buy ‘a development site’.
Before you even start looking you need to know the type, size
and ideally the location of your proposed development and
what constitutes market value.
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OVER-PAYING FOR THE SITE
There’s an old property saying ‘You make your profit when you
buy the land’. While not technically 100% correct it reinforces
the importance of buying well. Market savvy, particularly
regarding site values and an ability to negotiate and structure
deals are great assets.
UNDER CAPITALISED
Before looking for a site you should know your borrowing limit
and work within it leaving a buffer. I have seen so many
beginners borrow to their full capacity and have no room to
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manoeuvre if interest rates went up, sales slowed or
construction took longer.
UNQUALIFIED FINANCE
Further to #8, I have seen people spend time nailing down a
deal only to have finance rejected and lose the deal to
someone more organised. Recently I bailed out someone who
had purchased a large site, spent over 2 years and $140,000
getting one DA then a second improved DA and then could not
finance the project.
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Example: How a Developer
Makes $116,500 More Than A
Retail Investor
As a property developer you have the choice of selling your product on
completion and realizing a cash profit or holding as a long term growth
and income investment – or you could do a combination of the two.
Developer Investor
Market value 500,000 500,000
Less development profit* 80,000 0
Less marketing costs 20,000 0
Purchase price 400,000 500,000
Plus stamp duty 0 16,500
Total cost of property 400,000 516,500
Net equity 100,000 (16,500)
* These numbers are based on a project showing a return of 19% on costs.
As you can see, if you were the developer you would have acquired your
own investment property $116,500 cheaper than a regular retail investor.
A basic triplex – three townhouse – project would save you $349,500.
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The rate at which you can expand your property investment portfolio
over time through property development is even more startling.
Regular retail investors build their portfolio by waiting for values to
increase organically over time. When they have built up enough equity
from organic growth they refinance, extract the spare equity and use it as
the deposit to purchase another property, subject to the financier’s
serviceability criteria.
As a developer you can create instant equity (profit) and can therefore
acquire more properties earlier. This means you can build a much larger
portfolio, and reach financial independence much more quickly through
being a property developer, because you are buying your own properties
at cost meaning your borrowings are less and your affordability is greater.
Developing your own property investments at cost simply means you can
massively enhance this proven strategy and build a bigger portfolio
sooner.
There are several ways of looking at this. Using our previous example of
paying $516,500 retail versus paying $400,000 by developing, we can
calculate that at an annual capital growth rate of 7%, the developer is
immediately accessing 3.6 years (1,314 days) of growth on day 1.
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That’s a fabulous start.
Let’s examine the capital required to purchase the same property by both
methods using 80% LVR finance.
The investor who paid retail price has to wait some years for the property
value to grow to a point when he can refinance and extract the increased
equity to put down as a deposit on the next investment property.
The investor who developed his own property has put in no equity into
the end purchase – the 20% deposit was funded by the project profit. So
he can immediately go and develop another project and repeat the
process – balancing the holding / selling ratio to suit his personal long
term financial strategy.
This ability to do one multiple investment deal, extract your cash, and
move on and use it on the next deal is what enables you to turbo charge
your acquisition rate and potentially build a massive property investment
portfolio quickly.
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THE COST OF HOLDING A TOWNHOUSE
So what would be your ‘out of pocket’ cost if you developed and held a
townhouse described above?
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How to Earn $2,424 Per Hour
From Small Development
Projects
What better way to illustrate a point than to use an actual example of a
typical investment.
One of the startling things new developers discover is that you don’t put
huge hours into a small development. Property development is all about
managing people and processes. It is your people (team) such as the town
planner, architect, engineers, builder and marketers who put in most of
the hours.
These are the hours I put into a recent 4 townhouse project. My architect
packaged the DA process by coordinating the other consultants.
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Stage Hours
Site location 22
Due Diligence 9
Finance 13
Acquisition 3
Development Approval 15
Building Approval 10
Tendering & Construction 47
Marketing, Sales & Settlement 13
Total 132
Based on the profit from the earlier project of $80,000 x 4 = $320,000 the
hourly rate earned during the project = $320,000 / 132
= $2,424 / hour
Sounds good? In fact it can be better. What if the project was an eight
townhouse project instead of a four townhouse project? What would be
the differences?
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TIME. This is where the saving is. Would you spend twice as much time on
the larger project? Definitely not. Most of the time elements would be
the same with the exception of construction which would be about 1.8
times longer.
PROFIT. The 8 pack profit would be two times the 4 pack profit.
4 Pack 8Pack
Stage Hours Hours
Site location 22 22
Due Diligence 9 9
Finance 13 13
Acquisition 3 3
Development Approval 15 15
Building Approval 10 10
Tendering & Construction 47 85
Marketing, Sales & Settlement 13 20
Total 132 177
So if the 8 pack profit from selling is $640,000 and the hours worked are
177, what is your hourly rate?
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I should point out that the curve does flatten out somewhat with larger
and more complex projects.
If a 4 pack is too big for you to get started, you could start on a duplex (2
attached townhouses). Your profit margin as a % of costs might be a little
lower, but it is the start of a long term wealth building strategy.
Let us take a look at how much equity you would need to get started in
what I would call an entry level development project – a duplex –
sometimes called a dual occupancy or semi detached. Basically it is two
attached townhouses or villas with a common wall. On completion the
two dwellings could be held on one title or separately titled.
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Regional areas could be less. On the other end of the scale I have a friend
developing an ocean front duplex on the Gold Coast with each dwelling
worth $7,500,000.
Let us say you own a house worth $450,000 with a mortgage of $150,000.
The available equity to put into a development, subject to serviceability,
would typically be $210,000 ($450,000 x 80% - $150,000).
Of course if you didn’t have access to the full $160,000 you could consider
doing a joint venture with a relative or friend, in which case your required
equity would be $80,000 or even zero depending on your negotiation
skills and you would get to keep one of the dwellings at cost.
s
Property investment is the vehicle but property
development is the supercharged engine that
drives the profits.
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YEAR 1.
Assume a three townhouse project where two are held and one is sold.
YEAR 3.
Assume a four townhouse project where three are held and one sold.
YEAR 5.
Assume a four townhouse project where three are held and one sold.
YEAR 7.
Assume a four townhouse project where four are held.
YEAR 9.
Assume a four townhouse project where four are held.
We will adopt the figures from the chapter ‘Developer Investor vs Retail
Investor’ using our standard $500,000 townhouse.
To refresh your memory those figures are:
Value of townhouse on completion - $500,000
Cost to develop each townhouse - $400,000 plus $20,000 selling cost
Profit if selling one townhouse - $80,000
Profit (equity) if holding one townhouse - $100,000
In the following table I have set out what the equity, debt and value
would be over a ten year period for each of the five projects being
developed in years 1, 3, 5, 7, and 9. I have assumed capital growth of 10%
per annum and interest only finance on the investments held.
I haven’t taken into account the profit made on the three townhouses
sold. I will assume that helped you drive a good car and enjoy some great
overseas holidays. Of course you could have used the after tax profit to
reduce the debt.
Your ability to hold stock will be subject to the bank’s normal lending
criteria.
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THE TEN YEAR PLAN
The table below shows us the equity, value and debt on our growing
portfolio over a ten year time span.
Year 0 1 2 3 4 5 6 7 8 9 10
E1 200 300 410 531 664 810 971 1148 1343 1558
D1 800 800 800 800 800 800 800 800 800 800
V1 1,000 1100 1210 1331 1464 1610 1771 1948 2143 2358
E2 363 544 744 963 1205 1471 1763 2084
D2 1452 1452 1452 1452 1452 1452 1452 1452
V2 1815 1996 2196 2415 2657 2923 3215 3536
E3 440 659 901 1167 1459 1780
D3 1756 1756 1756 1756 1756 1756
V3 2196 2415 2657 2923 3215 3536
E4 708 1062 1451 1880
D4 2834 2834 2834 2834
V4 3542 3896 4285 4714
E5 857 1286
D5 3428 3428
V5 4285 4714
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At year 10:
Total Value = 18,858
Total Debt = 10,270
Total Equity = 8,588
LVR = 54.46%
NPV* = 6,582
* Net present value. The value today if the equity in ten years time is discounted back by average
inflation of 3% per annum
At the end of each project you have an immediate 20% deposit. You don’t
have to wait two years for organic growth so you can accumulate
properties and equity so much faster.
Sure this might sound theoretical but how reasonable are the
assumptions.
I have used projects showing a 19% return on costs (ROC) which is fairly
average.
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You only need $300K to start – either your money or someone else’s.
So what if you only develop projects with a 15% return on costs and
growth only averages 7%? Well you’ll still be rich, a little less so perhaps,
but you would still have a great lifestyle and retirement. Of course you
could keep going and add another project in year 11 and so on.
In fact even if you stopped developing at the year 10 mark, by year fifteen
your position would be:
Value : $30,371,000
Debt : $10,270,000
Equity : $20,101,000
LVR : 33.8%
This is the principle I have used over the years to accumulate wealth.
These days I tend to do larger, high yielding projects with investors but
the principle is exactly the same.
Experience is the only skill you are lacking and this can be gained through
a mentor.
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9 Qualities Of A Good Mentor
A good mentor takes pride in your success and can mean the difference
between great profits, or none at all.
I have seen some real disasters where beginners have gone out under-
educated and with no ongoing expert advice. I have also saved a few from
extinction.
Look at any of the public property forums and you will see newbie
developers who have gotten into trouble, some seriously, seeking advice
from what is often equally dangerous and ill-informed individuals. If only
they knew the value obtaining expert education and mentoring.
To help you in your quest for the best property development mentor I
have set out below the essential elements you should be looking for. I
have also included a table where you can compare ‘applicants’ for your
mentoring position. It’s your money – don’t be afraid to ask the hard
questions.
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9 Essential Elements Your
Mentor Must Possess
LONGEVITY
It is important that your mentor has successfully developed
through the ups and downs of at least two full property cycles.
That means at least 14 years of property development
experience.
BE A REAL DEVELOPER
A real developer is someone who controls all stages from site
location, analysis, acquisition, design, approvals, finance,
construction and sales. Some would be mentors don’t even
develop property but make their money from seminars etc.
PAST DEVELOPMENTS
Your mentor should have at least 14 years experience as a real
developer and therefore should have an impressive portfolio of
past projects.
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PRESENT DEVELOPMENTS
Ideally your mentor should currently be involved in the
development of projects in order to be up to date with current
trends, designs, market intelligence, finance and marketing
strategies.
MARKET SPREAD
It is highly desirable that your mentor has rounded development
experience by having developed a range of products. For
example, residential (land subdivisions, townhouses, units),
commercial, specialised residential (student, retirement, resort).
INDUSTRY PROFILE
Your mentor should be well respected and an acknowledged
leader within the property development arena. He / she should
ideally have published books, reports and articles in the public
arena and be well connected in construction, finance, marketing
and professional consulting circles.
IMPLEMENTATION
Your mentor should have a specific strategy and level of
mentoring for the implementation of the education program into
a live property development project.
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PRIVATE MENTORING
A number of mentors act as a ‘front person’ role in the marketing
and promotion of their programs, then hand over the ongoing
contact to underlings (or even spouses) they call ‘team members’
who have very limited experience.
Your next move should be the research and consultation phase, selecting
a mentor to help you take your next step to building a profitable property
portfolio.
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You Too Can Be A
Property Mastermind
In 2007, I travelled the capital cities of Australia conducting workshops
about property development.
This course SOLD OUT in just 10 days. I’m scheduling a new release and
offer of Property Mastermind on the 19th of October, 2010. There will be
only 300 courses released, and once they’re gone I’ll be taking it off the
market. Look out for information and details in the next couple of weeks.
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Property Mastermind Developer Course
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Two: I want to ensure I have sufficient time and energy to focus on
helping purchasers get the most out of the course. I can only help a finite
number of people at one time.
The launch is scheduled for mid October. Before the doors open, I’ll have
plenty more case studies, examples and strategies to share with you. If
you have any interest in property, you’ll enjoy my new stuff.
Best wishes,
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Copyright: Copyright Bob Andersen 2010.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system,
communicated or transmitted in any form by any means without the prior written permission of the
copyright owners.
Disclaimer: The information contained in this report is provided on the understanding it neither represents
nor is intended to be advice and is provided as general information only which will require further
consultation by the reader to identify the applicability of the information to the reader’s specific
requirements, and is referred to by way of example only.
The author does not warrant the accuracy of the information or its appropriateness for the reader’s specific
requirements. The reader should obtain independent financial and legal advice in respect of their specific
requirements.
The author expressly disclaims all and any contractual negligence and any other form of liability to any
person in respect of the information contained in this book and any consequences arising from its use by
any person in reliance upon the information contained in this report.
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