Monthly Archives: March 2012

Problems Never Get Better With Age!

I heard the other day that for the first time since the founding of this country that the next generation will not be as well off as the previous one. I’m not sure if this is true, but I could believe it if it was. Perhaps there was a temporary glitch in this during the great depression or maybe a war, but as generations are concerned this would be significant. For the sake of argument, lets just say it were true. What would cause this? There are many easy targets. Some would say bad leadership, maybe a slow down in global economy, each political party would point fingers at the other (That’s just their nature!) I’m not sure, but I think there is a clue a little closer to home. I truly think each successive generation in the last 50 or 60 years has placed less emphasis on teaching the upcoming generation about basic personal financial management.

Think about this. Most of us never really were taught the fundamentals of finance from our parents. We basically learned whatever we were exposed to. It this regard, we learned to do what we saw our parents and family do. Mixed with this was the constant influence of the market to get all of the things we wanted and not to worry about it because we could buy it now on credit.  When those two things are mixed together, what you get is a weakening of whatever financial discipline exists each generation. It’s like our financial gene pool gets diluted each successive generation. I’m certain there is an element of truth there. I know that’s the direction I went and that’s the direction my kids went. The difference is that when I woke up to this reality, I decided to try to change directions, at least in my family.

What did that mean for us? It meant relearning the basics of personal finance. For some it means giving up consumer debt and begin budgeting and saving. For us it meant giving up consumer debt and begin investing in income producing assets. We have turned the tide on our generational financial decline and have it going in the right direction again. You can do the same….but it will not change on its own! The government won’t change it for you and your job won’t change it for you. You have to do it and waiting won’t make the situation better.  Problems don’t get better with age! They get bigger.

The best time to start is now!

Anatomy of the Income Stream

There are 4 distinct types of income that are generated while owning an investment property. They pay off in different ways and at different times, but they are real and tangible. I’m not referring to any income from “house renovating and flipping”. Flipping doesn’t generate ongoing perpetual income. The income from flipping might be good, but it’s a one hit deal then you need to do it again…and…it will never generate the passive, long term income that I enjoy so much. The four types or “streams” of income I’m talking about all come from holding income producing real estate.

Income 1. Cash Flow – Every property owned and rented produces income each month. Of that income, a certain percentage must pay for the expenses. Early in the life of the investment one of the larger expenses of course is the mortgage. Even after all of the expenses, the investment should have a positive cash flow that is money in your pocket. My personal goal is that every property should produce no less than $125 per month in excess cash flow.

Income 2. Mortgage Pay Down – While mortgaged, each property has a dollar value of mortgage pay down each month. This varies depending on many variables, but over all there is a dollar figure that you gain every month that is easy to calculate. This income does not benefit you from a cash point of view each month but it’s like a big savings account that grows and grows every month. Some would view this income as the “I.R.A.” income. Our group of properties has a mortgage pay down each month of about $5,000. (I could never have saved that much money per month working any of the jobs I’ve ever had!)     

Income 3. Appreciation – Appreciation comes in two forms, natural and forced. Appreciation is the increase of value that happens to real estate over time. ( I can hear everyone groan right now….YEAH RIGHT! No value increase the last 4 years!) I disagree. True, over all housing values have decreased dramatically the last few years, ours have actually continued to very slowly increase. (This has been documented by across the board appraisals on all of our properties last year) The key is knowing what you’re doing when you buy. Anyway, natural appreciation happens on it’s own over time as property values increase. (Right now they are in the tank about as bad as they will get, so natural appreciation will pick up again) Secondly is forced appreciation, this happens when you forcibly increase the value through repairs, improvements and upgrades. If done wisely, the cost of forced appreciation can easily be less than the dollar value gained. This income shows up on your financial statement as a “savings account” figure you get to tap in the future when the property is either sold or refinanced.

Income 4. Tax Benefits – Passive real estate income is taxed so completely different that any earned income that there is no comparison. The rate is half that of earned income, it doesn’t have a social security tax, all expenses are deductible including expenses that really aren’t expenses ie: depreciation. Other non-related “earned income” can be partially sheltered. If planned right, excess expenses can be pushed into the future to shelter future profits. Capital gain taxes can be deferred indefinitely. On and on! This is an income that you can enjoy every year. If you are able to reduce your annual taxes by $6,000 it’s like giving yourself a $500 per month raise.

This was a longer than normal post but its one of the most important ones. Understanding this removes some of the mystery of investing. Implementing it all is an art and a science. To learn more, email me at conquest18@hotmail.com

Either You Can Or You Can’t

The other day I was discussing the merits and benefits of owning income producing real estate with a friend and they gave me one of the typical “why I can’t do this” answers. The answer…. “I’d love to do this but I just don’t have any money!” Well…..OK…..Isn’t that the point? I don’t know, is it just me or does anyone else see the irony here? I hated scratching out a living paycheck to paycheck where you run out of money before you run out of month. Where’s the nobility in that? I believe in hard work just like the next guy, but there comes a point where you have to say enough of this!

My friend is in a situation where his education and skills are beyond his employment position. A nice way of saying he’s under-employed. I’m not sure that will improve much for him. At least not more than incrementally. On the one hand he seems very frustrated about his situation but on the other hand he acts powerless to do anything about it. It’s as if the only option is to either get a raise (incremental solution) or get another job that pays better (also an incremental solution) And both of those options could easily be temporary. More importantly, both options leave his fate in other people’s hands.

Some say “I’d love to but I just don’t have the money” as an excuse. I said “I have to because I don’t have the money”. I guess the question is, do you buy investment property because you have the money or do you buy them because you need the money?  Do you focus on the “expense of the purchase” or on the “year after year income”. If you focus on the cost of the purchase, there’s never any spare money for that. If you focus on the never ending income, you tend to find a way to make the purchase happen.

It’s kind of funny, I don’t even know how to respond to that argument any more because to me it just seems so obvious.  If you don’t have the money…..find the money, save it, earn it, raise it, sell something you don’t need or don’t use, sell a bunch of stuff you don’t need or use, find a deal that doesn’t require any money, find a partner with money and you supply the labor, learn how to do “no money down” deals, etc…………  In reality, the biggest problem isn’t the lack of money or its availability. The biggest problem is the “I can’t do it because of whatever” attitude. If you are holding out for the next 75 cents an hour raise or the next job that pays 2 or 3 dollars more an hour…. well good luck and more power to you. But if you are tired of all that and are ready to take a little bit of your financial destiny into your own hands we can show you how. Conquest18@hotmail.com Just don’t tell me you can’t, because I believe you can!

Simple Math

At risk of sounding like one of the late night infomercials that run on TV about real estate investing, I’m going to start this post with a cheesy statement. Cheesy but true! You can become a millionaire in real estate investing in a short time. Its all just simple math…..and time.   FIRST……It’s important to make some definitions very clear. The first one is the time factor. When I say short time, I don’t mean overnight or even in a year or two. Time is relative to the size of the endeavor. Building a $5,000 vacation fund is a one year project. Becoming a millionaire is something 95% of us will never accomplish in an entire lifetime. So to set a 15-20 year millionaire goal is relatively short term thinking. To illustrate the possibilities though, I will use some very simple math. (you use whatever dollar goal you want and can believe in, $100,000,  $250,000,  $500,000 or  $1,000.000, the math is the same)

Real Estate Investing is all about addition and multiplication. For math’s sake I’ll use $50,000 for the average price of a 3 bedroom investment home. $50,000 x 20 = one million dollars. If you were to acquire 2 properties per year and put them on 15 year mortgages you would control $1,000,000 after 10 years and due to mortgage amortization you would be about half way to a millionaire. Continue with 2 properties per year and you would be a millionaire in 15 years with 30 properties that are being paid off at the rate of 2 per year. Not to mention that while mortgaged, they should be producing $100 – $200 per month each in cash flow. After pay off they will produce $400-$500 each per month in cash flow. Now its time to do the math that fits with your own goal. Maybe try 4 properties per year. All you have to do come up with a combination of time and properties that fits your goal. We have always done at least 2 properties per year and the most was 17 per year. Certainly its possible to build a million dollar portfolio is a “relatively” short time.

We teach it and you can learn it. The math is simple. The big challenge is buying the right investments. Anybody can do it. If you want more information how you can begin your millionaire journey, you can contact me at conquest18@hotmail.com   

A New Focus

I attended an REI (Real Estate investor) meeting a while back and discovered something interesting. In attendance were 2 or 3 actual invetors and the rest were realtors, bankers, house flippers, repairmen, dreamers, property managers, mortgage brokers, etc.  This may not seem very significant, but to me it represented something that deserves attention. Investors invest because they are trying to create a perpetual income for themselves and family. One thats not contingient upon job market, economy, employers or the limited number of hours any one person can work. For that reason, we investors think “one property at a time”, “build our portfolios consistently” and “don’t focus on the immediate income, instead focus on the long term benefits.” At the REI, thats how the investors think. Everyone else was there to market their services. This is fine because an investor needs all those services. (maybe with the exception of the dreamers.) The point is that all those other people missed the most important point. They were all there to try and land their next job or their next contract……basically, they were trying to land their next “paycheck”.

The irony?……..In a meeting where they could learn to create a perpetual lifelong  income they were completely focused on landing a deal that would keep them paid one more week. Then what? they would have to land the deal that would keep them paid the week after that. I became so amused that I really don’t remember what that particular meeting was about.

Heres what I see. That meeting was just a small representation of what I see around me every day. People tend to relate income to labor. I believed that way until I was about 44 yeas old. in a small way, its investing on the smallest scale. Each week you may invest 40 hours of your labor in exchange for some amount of money. More or less depending on your skills or education. Sadly, more or less depending on the job market. So really, investing is not a question of “do we work or do we invest?” Its a question of “How do we invest our time, energy and resources?” 

If you choose to invest your time, energy and talents for 40 hours to get a paycheck, and then do it again, thats fine. You have chosen to perpetually repeat that process for as long as you wish to receive a paycheck. From experience I can declare it take me about 20 labor hours to research, locate, negotiate and close an average real estate investment deal. It may take anywhere from 2 days to 3 weeks of labor hours to rehab or prep the property for service. After that, It provides income every month. Yes there is ongoing maint and management, but other people (that you can hire at most any REI meeting) can do that. When an investment is bought right, there is enough income to pay you and pay for maintenance and management.

Starting with this post, I’m shifting the focus of this blog to investing exclusively. If you want the “feel good” ecouragement stories go to the http://campfireconversations.wordpress.com/ blog. This blog is going to be Investing and why you should do it. You will also notice that I will be ramping up the conversation about the training process we offer. After 6 years and almost 50 properties I think its safe to say we are doing it right. If you read this and are interested in training you can email conquest18@hotmail.com

Until next time, think about this. Wal Mart is full of employees who chose to invest their labor in exchange for a paycheck their whole life. Now they find as they near retirement they have to keep investing their labor just to survive retirement. Perhaps a new focus would have changed that.

Mindset Is Everything

While browsing some old seminar notes, I ran across something that really made a lot of sense. It made sense in my investing business but also in almost everything else I can think of. It has to do with “mindset” or what you believe, or possibly how you see or perceive things. The specific statement said; “The wealthy have an entrepreneurial mindset, the middle class have an analytical mindset and the poor have a labor mindset.” As this relates to investing I’ve found it to be quite true. It doesn’t mean one person is smarter than the other or that one is better than the other. I believe it simply means that your mindset defines your comfort zone and governs your actions. I’ve taught real estate investing to hundreds of people and found that the few that jump in and make things work tend to have the “can do” “lets do it!” spirit. It really doesn’t matter if they are wealthy or not at the moment, but they will probably get there eventually. Then there are the ones who are semi-successful in life (middle class) who like the idea but are still analyzing whether it’s a good idea or whether the timing is right or whether the economy is right or whether the stars and moon are in the right position or what ever. Some have been stuck in this mode for years. Then there are those with a labor mindset. They tend to view everything from a “what do I get out of the time and effort I put in this week.” This mindset places them in a position of belief that their reward is directly linked to the quantity or quality of their labor.

We hear on the news that the middle class is disappearing and the population is either slipping towards the rich side or the poor side. (Most believe that the majority is slipping toward the poor side) I think that’s true whether we like it or not. The important thing is which direction are you heading and why? If the middle class is moving one way or the other, I would say their direction is determined by their mindset. If you believe that all you have to do is work harder or get a better paying job or a second job or cut your budget to a skeleton, by default, you will slide further and further in the poor direction. If you can hold your ground as best you can and somehow find a spark of  entrepreneurial spirit to build upon, perhaps you can move yourself in a wealth direction.

I challenge you to determine what your mindset is telling you. If your mindset is in conflict with the direction you want to go, something has to change.

Waiting For A Green Light?

I believe that opportunities are abundant in this country and that you only have to train yourself to see and recognize them. Every day there are small opportunities that pass in front of us almost on a continual basis. If we watch and listen close enough we consistently see bigger ones. Then every now and then there are the opportunities that are so big they may only happen once in a lifetime.

Right now is one of those times. Regardless of where the fingers point as to who is to blame for the housing market mess, there is one thing that’s certain. It’s here, its big, and its an opportunity like we may never see again. Those who engage themselves in this opportunity are likely to create wealth for themselves and family. Those who don’t will have to struggle to hold onto their place in the economy and try their hardest to keep from loosing ground. The two biggest problems that I see with “would be” investors are, first, being under-educated on how to do it, and second, being afraid to take the step.

We can help with the first problem. We train and educate on how its done. (and more importantly, “How Its Done Right!”) but that still leaves the all important step of doing it up to you. If you are waiting for your “Green Light”, this is it. It’s not going to get any more green than it is today.