Most of us would like to believe we can have both security and freedom. But in Rich Dad® terms, these are two opposing values. My rich dad said, "Freedom and security are not the same ideals. In fact, in many ways, freedom and security are exact opposites. The people who have the most security are people in prison. Prisoners have the least freedom and the highest security. People in prison do not need to provide housing, food, recreation, health care, or education for themselves. They have a lot of security but at the price of their freedom."
One advantage of living in a free society is the freedom to make choices. There are two big choices according to my rich dad: the choice of freedom and the choice of security. Both choices have appeal, both have strengths and weaknesses, and both come with a price. If you choose freedom, the price is paid up front, at the beginning of your life. If you choose security, you pay a huge price in the form of excessive taxes and interest payments. Often the price is paid later in your life.
Look at the bankruptcy debacle of Enron, one of the world's largest corporations. The price the loyal, hard-working, security-seeking employees paid is very high: they lost their jobs and their retirement plans. Unfortunately, many are paying this price at the end of their working years, just when their options diminish because of age or health.
Security vs. Freedom: It's Your Choice
Today, many employees are learning their jobs are not secure and neither are their retirement plans. In the coming years, 75 million baby-boomers may discover that their stocks and mutual funds were not as secure as they thought, forcing them to retire to a lower standard of living that their parents enjoyed. With the prospects of downsizing looming over their heads, some have taken the initiative to start their own businesses. Should you be one of them?
My rich dad said, "Somewhere along the way, people become more desirous of security and have paid the price by selling their freedom. You may have noticed that schools today focus primarily on job security rather than financial freedom. The problem is most people do not know that the cost of that security is their freedom." He continued to say, "If you choose security, someone is always telling you what hours to work, how much you make, and even when you can eat your lunch. That is the price of security."
Freedom means having more choices, not security. You have a choice to be poor, middle class, or rich. If you choose to be rich, then you need to learn a whole new game. But it requires a different mindset and financial intelligence. You will be free to work or not to work. Your knowledge will bring you freedom from work because you will learn how to make your money work for you. The choice is yours.
Sunday, May 24, 2009
Recycle the Real Estate Oink
The grandparents from my mother's side of the family had been in the butchering business for over fifty years. As a kid I visited their butcher house with great curiousity. The amazing thing they showed me was how virtually every part of the animal gets processed into some salable product. There's a saying in the slaughterhouse business--"We use everything but the oink." I will relate how all of this fits into your real estate business in a moment. Indulge me, please.
In the meat processing business every single by-product and meat part gets used (if you are a militant vegetarian stop reading now). The bones are sold to fertilizer factories where they are ground into powder and dried. Ditto for most of the blood. Blood makes fine fertilizer. The hides are obviously sold to leather tanning companies where they too are processed. The best cuts of meat are sold as steak and roasts, while the lesser grade cuts are ground into hamburger with a little blood added for color enhancement. The inedible entrails are typically sold to petfood companies where they are mashed and cooked into a nutritous dinner for North America's pets. Some of the more unknown organ meats are sold to Asia as various food delicacies, while some are sold to pharmaceutical companies to extract life-saving medicines or chemical substances. I could go on, but I think you get my point.
In your real estate business (rentals, flipping, or management services) you need to model yourself after the butcherhouse model. How? By taking all of the materials and supplies that you use and not waste a scrap. This means saving all end of can paints, screws, nails, carpet pieces, vinyl scraps, wood, and 100s of other things used in rehabbing and maintenance.
For instance. I saved about a 4X5 foot scrap of leftover vinyl used on a house 5 years ago. That house developed a hole in the vinyl. All I had to do was take the "scrap" piece to my handyman and have him splice it into the hole area! Same thing works with carpet--ever have tenants burn holes in carpet? Things you should save: celing tiles, miscellaneous hardware, outet and switch covers, nails, screws, cabinets, roofing supplies, glass panes, etc.
Next, with this philosophy, start stopping and picking up unwanted stuff left by the curb as junk by homeowners. This means old cabinets, windows, doors, storm window glass, vanities, etc. As you know, if you have read my book, Perpetual Income, that I am a dumpster diver. I root through job site dumpsters. People throw out lots of good stuff. I have carpet in several of my properties that was gotten for free or almost-free prices.
To have long-term success in real estate you need to be frugal. Being strategically cheap is fun. Frankly, when I use some supplies I have either found for free or have stored in my inventory, I get a lot of kicks out of it using them.
Do this: Save everything remotely usable. Inventory the stuff so you know what you have. Check out buildings that are scheduled to be torn down. Strip them (with permission). Stop and pick up freebies. Be cheap!
This works once you get going with it. You will need some storage. Buy or build a small barn or garage out behind your house, if possible. The costs of a small out building are extremely low--especially if you do it yourself with the many kits available. This will payoff big in your housing business.
In the meat processing business every single by-product and meat part gets used (if you are a militant vegetarian stop reading now). The bones are sold to fertilizer factories where they are ground into powder and dried. Ditto for most of the blood. Blood makes fine fertilizer. The hides are obviously sold to leather tanning companies where they too are processed. The best cuts of meat are sold as steak and roasts, while the lesser grade cuts are ground into hamburger with a little blood added for color enhancement. The inedible entrails are typically sold to petfood companies where they are mashed and cooked into a nutritous dinner for North America's pets. Some of the more unknown organ meats are sold to Asia as various food delicacies, while some are sold to pharmaceutical companies to extract life-saving medicines or chemical substances. I could go on, but I think you get my point.
In your real estate business (rentals, flipping, or management services) you need to model yourself after the butcherhouse model. How? By taking all of the materials and supplies that you use and not waste a scrap. This means saving all end of can paints, screws, nails, carpet pieces, vinyl scraps, wood, and 100s of other things used in rehabbing and maintenance.
For instance. I saved about a 4X5 foot scrap of leftover vinyl used on a house 5 years ago. That house developed a hole in the vinyl. All I had to do was take the "scrap" piece to my handyman and have him splice it into the hole area! Same thing works with carpet--ever have tenants burn holes in carpet? Things you should save: celing tiles, miscellaneous hardware, outet and switch covers, nails, screws, cabinets, roofing supplies, glass panes, etc.
Next, with this philosophy, start stopping and picking up unwanted stuff left by the curb as junk by homeowners. This means old cabinets, windows, doors, storm window glass, vanities, etc. As you know, if you have read my book, Perpetual Income, that I am a dumpster diver. I root through job site dumpsters. People throw out lots of good stuff. I have carpet in several of my properties that was gotten for free or almost-free prices.
To have long-term success in real estate you need to be frugal. Being strategically cheap is fun. Frankly, when I use some supplies I have either found for free or have stored in my inventory, I get a lot of kicks out of it using them.
Do this: Save everything remotely usable. Inventory the stuff so you know what you have. Check out buildings that are scheduled to be torn down. Strip them (with permission). Stop and pick up freebies. Be cheap!
This works once you get going with it. You will need some storage. Buy or build a small barn or garage out behind your house, if possible. The costs of a small out building are extremely low--especially if you do it yourself with the many kits available. This will payoff big in your housing business.
Real Estate Investing is Just Like Weight Loss
It takes a lot of effort on your part (but a guru or two can help)
It amazes me how many people get started in real estate investing, only to fail when the going gets tough. As soon as someone discovers they can’t get rich in a week or two, they are on to the next “hidden guru” secret. It’s the same as weight loss - everyone talks about it, many try it, but few succeed. There are thousands of “get rich quick” and “get slim quick” gimmicks. No wonder both the real estate investing information and weight loss products industries make BILLIONS!
Weight loss isn’t easy… ask anyone who has tried it. However, the concept of weight loss is very basic - burn more calories than you ingest and your body will react accordingly. Unless you have a medical disorder, this formula works for just about anyone. Simple as it may be, the formula is HARD, meaning it takes a lot of DISCIPLINE AND HARD WORK. So, the weight loss industry has offered us thousands of ways to make it easier. Many of these solutions do work, but they only work if you put forth effort.
Now, let’s start with the premise you don’t need any of these “solutions” to make real estate OR weight loss work for you. You can eat less calories, go walking or jogging every day and you will lose weight. But, having knowledge of the caloric content of different foods is relevant. Also, for many people, knowing the carbohydrate content is relevant. Having the advice of a physician, dietician and personal trainer will help you prevent injuries and maximum your effort.
Same principle applies to real estate - you can go out and make hundreds of offers to motivated sellers and find a good deal. However, having information about how to solve the seller’s needs and construct an offer will help. Having an attorney, real estate agent or “guru” to assist you with constructing the offer and the paperwork will make it easier. Having advice from other people who have already done hundreds of deals will also make it easier for you to learn from other people’s success (and failures).
However, whether it’s weight loss or real estate, the bottom line is not just knowing, but DOING. You can’t blame the diet if you don’t stick to it. Many people have successfully lost weight using the ZONE, WEIGHT WATCHERS, ATKINS and other similar plans. Many people have succeeded with the famous “guru” plans, but many have failed, likely because they didn’t give the required effort, NOT because the plan isn’t effective.
Both real estate investing business and weight loss are simple, but neither is easy. It takes a lot of work. Having a proven “system” or plan helps, but only if you stick to it. If the diet plan says, “exercise 3x times per week”, you can’t be sloppy about it and expect results. It’s like the people reading a book on the treadmill at the gym - if you can read a book, you’re not working HARD ENOUGH. Likewise, people call newspaper ads and say “hey, you wouldn’t want to sell me your house cheap, would you?” This is not DOING it is TRYING. You have to give 100% to a particular plan or formula before you say, “this stuff doesn’t work.”
Many people who are interested in weight loss join a gym or hire a personal trainer. From personal experience, I can say that both are great for weight loss. But, the weeks I didn’t show up, it was a BIG WASTE OF MONEY! The same thing goes for a real estate training system or mentor program - if you don’t put forth any effort, it won’t work! And, of course, you’ll likely get bitter about all the money you spent and blame the guru. After all, it can’t be YOUR fault!
That brings us to another topic - the “scam” side of the real estate and weight loss business. Sure, the “magic pills” that melt off fat are probably a scam. These snake oil salesman are offering the lazy and desperate people a solution - no work and results. Hah! If you bought into this scam you deserve to be parted from your money. Likewise, any real estate guru who promises riches with no work is also a scam. My favorite promise is “no selling involved” - that’s the biggest lie ever told.
No business can be successful without a certain amount of selling of their product or service to customers - period! So, while there is a dark side to the weight loss and real estate investing information businesses, I assert that most people fail at both because of their own lack of action, not the fault of the “systems.” If you aren’t willing to work, another weight loss program or real estate seminar won’t get you any more results than you are currently getting - save your money and take MORE CONSISTENT ACTION with what you are currently doing.
However, if you are willing to work hard and take a lot of consistent action, a guru or program will likely give you more results. If you bought a book, course or program and already have results, another program, course or book will likely give you tools to get MORE RESULTS. I often hear about successes people have with my real estate programs, but a lot of them are not FIRST TIME successes. They are most often people who have already been successful, and, using my tools, became MORE successful.
If someone asks me whether my program will make them successful, I ask, “what other programs have you bought?” If they have already spend thousands on other programs and have done NOTHING, I discourage them from buying mine. These people are looking for the elusive “holy grail” that all the other programs left out. More than likely, the missing element is lack of action on their part.
If you aren’t willing to take action on a massive scale, you won’t get more results by buying more products. If you have the discipline to work hard and take consistent action, then products and services will help you get there faster. Whether you are looking to get rich or lose weight, the bottom line is YOU!
It amazes me how many people get started in real estate investing, only to fail when the going gets tough. As soon as someone discovers they can’t get rich in a week or two, they are on to the next “hidden guru” secret. It’s the same as weight loss - everyone talks about it, many try it, but few succeed. There are thousands of “get rich quick” and “get slim quick” gimmicks. No wonder both the real estate investing information and weight loss products industries make BILLIONS!
Weight loss isn’t easy… ask anyone who has tried it. However, the concept of weight loss is very basic - burn more calories than you ingest and your body will react accordingly. Unless you have a medical disorder, this formula works for just about anyone. Simple as it may be, the formula is HARD, meaning it takes a lot of DISCIPLINE AND HARD WORK. So, the weight loss industry has offered us thousands of ways to make it easier. Many of these solutions do work, but they only work if you put forth effort.
Now, let’s start with the premise you don’t need any of these “solutions” to make real estate OR weight loss work for you. You can eat less calories, go walking or jogging every day and you will lose weight. But, having knowledge of the caloric content of different foods is relevant. Also, for many people, knowing the carbohydrate content is relevant. Having the advice of a physician, dietician and personal trainer will help you prevent injuries and maximum your effort.
Same principle applies to real estate - you can go out and make hundreds of offers to motivated sellers and find a good deal. However, having information about how to solve the seller’s needs and construct an offer will help. Having an attorney, real estate agent or “guru” to assist you with constructing the offer and the paperwork will make it easier. Having advice from other people who have already done hundreds of deals will also make it easier for you to learn from other people’s success (and failures).
However, whether it’s weight loss or real estate, the bottom line is not just knowing, but DOING. You can’t blame the diet if you don’t stick to it. Many people have successfully lost weight using the ZONE, WEIGHT WATCHERS, ATKINS and other similar plans. Many people have succeeded with the famous “guru” plans, but many have failed, likely because they didn’t give the required effort, NOT because the plan isn’t effective.
Both real estate investing business and weight loss are simple, but neither is easy. It takes a lot of work. Having a proven “system” or plan helps, but only if you stick to it. If the diet plan says, “exercise 3x times per week”, you can’t be sloppy about it and expect results. It’s like the people reading a book on the treadmill at the gym - if you can read a book, you’re not working HARD ENOUGH. Likewise, people call newspaper ads and say “hey, you wouldn’t want to sell me your house cheap, would you?” This is not DOING it is TRYING. You have to give 100% to a particular plan or formula before you say, “this stuff doesn’t work.”
Many people who are interested in weight loss join a gym or hire a personal trainer. From personal experience, I can say that both are great for weight loss. But, the weeks I didn’t show up, it was a BIG WASTE OF MONEY! The same thing goes for a real estate training system or mentor program - if you don’t put forth any effort, it won’t work! And, of course, you’ll likely get bitter about all the money you spent and blame the guru. After all, it can’t be YOUR fault!
That brings us to another topic - the “scam” side of the real estate and weight loss business. Sure, the “magic pills” that melt off fat are probably a scam. These snake oil salesman are offering the lazy and desperate people a solution - no work and results. Hah! If you bought into this scam you deserve to be parted from your money. Likewise, any real estate guru who promises riches with no work is also a scam. My favorite promise is “no selling involved” - that’s the biggest lie ever told.
No business can be successful without a certain amount of selling of their product or service to customers - period! So, while there is a dark side to the weight loss and real estate investing information businesses, I assert that most people fail at both because of their own lack of action, not the fault of the “systems.” If you aren’t willing to work, another weight loss program or real estate seminar won’t get you any more results than you are currently getting - save your money and take MORE CONSISTENT ACTION with what you are currently doing.
However, if you are willing to work hard and take a lot of consistent action, a guru or program will likely give you more results. If you bought a book, course or program and already have results, another program, course or book will likely give you tools to get MORE RESULTS. I often hear about successes people have with my real estate programs, but a lot of them are not FIRST TIME successes. They are most often people who have already been successful, and, using my tools, became MORE successful.
If someone asks me whether my program will make them successful, I ask, “what other programs have you bought?” If they have already spend thousands on other programs and have done NOTHING, I discourage them from buying mine. These people are looking for the elusive “holy grail” that all the other programs left out. More than likely, the missing element is lack of action on their part.
If you aren’t willing to take action on a massive scale, you won’t get more results by buying more products. If you have the discipline to work hard and take consistent action, then products and services will help you get there faster. Whether you are looking to get rich or lose weight, the bottom line is YOU!
Real Estate Investing Crystal Ball
Now that the year 2001 has rolled around... it’s time to take a look at our Real Estate Investing Crystal Ball. If you know what to expect out of the coming economy, you can position yourself to take maximum advantage of the opportunities. It’s almost like having the winning lottery numbers a few hours before the drawing. With that in mind, let’s gaze into the future...
Some Interesting Facts
Consumer spending drives the economy. We as consumers are highly predictable. When large numbers of us earn and spend more, the economy grows.
People spend, save, work and mature in predictable patterns as they age.
Newborns don’t spend anything. 18-22 year olds are just moving into the work force and have very little economic impact. Spending for Baby Boomers currently peaks around age 49. Spending demands fall as the maturing work force moves into the power structure of business and industry.
The Baby Boomer generation is the largest in history at 80 million strong.
The Baby Boom generation is defined by those born in the above average birth years between 1946 and 1964.
The most concentrated surge in property buying comes at age 43 when most people buy their largest home. Home buying declines as buyers approach their peak spending age of 49... then drops off dramatically.
Housing is a key factor in the economy. Housing leads the way out of recessions.
The Baby Boom birth wave peaked between 1950 and 1957. This should put the 43 year housing peak from late 1993 through the year 2000.
How Interesting...
The above information is powerful. Most of it was compiled by our own government via the U.S. Bureau of Labor Statistics, Consumer Expenditure Survey and the U.S. Census Bureau.
The reason this information is so powerful is that it can be used to predict what will be happening in our economy way into the future. This kind of stuff will turn you psychic. No kiddin’.
Think about it. If you agree spending is what drives our economy... then the shear number of people spending is where the real impact comes into play. This has been going on in commercial real estate for years. If you put a McDonalds on a street with a high traffic count... assuming easy access... it should outperform a McDonalds on a street with a low traffic count. Make sense?
This has been referred to in Real Estate as location, location, location. In McDonalds’ case... the hungry crowd is bigger in the high traffic location. Every thing else being equal... which location do you think has the higher probability of success? Which would you rather invest your hard earned dollars?
But you see... this is exactly the same impact we can expect from the Baby Boom generation. More people in their peak spending years. As a matter of fact... the most people in the history of the United States reaching their peak spending years as a group.
The Boom Economy
Right now... we’re on the leading edge of a Boom Economy. Because of the tremendous size of this Baby Boom generation... this will be the strongest and healthiest economy we’ll see in our lifetimes. In fact, this boom economy should take us well into the 21st century in grand style... lasting until 2010 to 2015.
Get ready! Position yourself to take maximum advantage of this unprecedented opportunity.
Now... Let’s Take A Closer Look At Your Tea Leaves...
What can you expect from this economy? Come closer and I’ll tell you... First of all, let’s talk about inflation. Inflation has made a lot of real estate property owners rich. In fact... there have been times in the not so distant past... when all you had to do was own real estate to become wealthy.
So... what causes inflation? Some say it’s the devaluation of our currency by our Government via the printing of more and more money. Let’s see if we can’t take it a little further. How about this... Inflation occurs when we have a high requirement for investment and low productivity to help finance that investment. In other words... it’s the economy’s way of financing periods of high investment.
Historically... inflation has accompanied periods of war. High requirement for investment... low productivity to help finance that investment. Inflation also accompanies transitions in technology. Each generation brings with it new ideas and technologies as it enters the work force. The Baby Boomers were far from the exception.
Think of the expense of training this enormous work force (high requirement for investment) compared to their productivity during the training process (low productivity). Add to that the expense of retooling for the new technology they brought with them. This... no doubt... is the formula for inflation. A workable formula we can use to predict inflation.
Pass the Windex
There is no question... barring the possibility of all-out war... this boom economy is going to be one with little... if any... inflation. We will even see many items go down in price. This has already happened to housing prices in some parts of the country like Southern California. It may have even happened in your part of the world.
If you are buying real estate property with the hope you’ll be the recipient of a great transfer of wealth because of inflationary times... you may want to re-evaluate your thinking. Real Estate prices... in the next 10-15 years... will be pushed into higher ground only by the laws of supply and demand. Well located... quality real estate property will be the appreciation play.
O.K. Mr. Hotshot... Know-it-all... Psychic Real Estate Man... What About Interest Rates?
Well... let me ask you. What have you noticed as the trend with interest rates in the last couple of years? Been coming down a bit... haven’t they? Every time you turn on CNBC they’re talking about pressure on the "The Fed" to lower interest rates. "The Fed" is making an effort to protect us from inflation. It is their contention... if you lower interest rates... the economy will heat up... bringing with it inflation.
The reality of the situation is this... every time they have lowered interest rates... the economy has improved without any inflation. In fact... as we have already seen... quite a few items have actually gone down in price.
Interest rates are nothing more than a symptom of inflation. With inflation in check... interest rates will continue to seek a lower level. Look for 30 year real estate mortgage rates to continue to drop... possibly reaching as low as 5-6% by 1998.
"What’s It All Mean... Alfie"
It’s time for Chicken Little to go back inside. With inflation gone... and with deflation in prices in a broad range of categories... interest rates at the lowest levels in decades... we can expect our purchasing power to increase dramatically.
Think about this: If you could afford to pay $1,000 a month on your primary residence with 100% financing at 10%... you could afford to live in a $114,000 home. With interest rates at 5%... you’d be living in a $186,000 pad. Not too bad... but consider this... with a somewhat deflationary trend in Real Estate Property values... that $186,000 house might actually be the equivalent of yesterdays $200,000 - $225,000 crib. Oooh, Baby! That’s goood.
Couple the above with the fact all other consumer items will stabilize in price (or even drop slightly)... savings will increase... spendable income should increase... and you may actually be able to afford $1,500 a month for a house note... moving you into the $280,000 price range. Wow! Can this really be true?
"I Can See Clearly Now... The Haze Is Gone"
What’s this all mean to you and me as Real Estate investors? Well... first of all... we can’t count on inflation to make us rich for a long, long time. We have to buy property based on it’s economic value today. We’ll need to re-negotiate interest rates on our existing debt to bring them in line with lower market rates... increasing our cash flow. Lock in on fixed rates where possible. This may also be the best buying opportunity of the century.
Listen friend... take advantage of this boom economy. There will be numerous opportunities to become truly wealthy in the next 15-20 years. It’s in your tea leaves. But be warned... it won’t last forever. Don’t allow yourself to be caught in the trap of linear thinking. Just because it’s good now and it’s getting better every day... doesn’t mean it will always be that way.
Things are cyclical. The shear numbers of Baby Boomers reaching their peak spending years are what fuels this incredible economy. This was put into play some 49 years ago. There’s not much that can happen to change this direction. However... behind the Boomers is a serious drop in the birth rate. What will happen in 2015 when the number of people supporting our economy falls off dramatically? Will it be worse than the Great Depression? Probably so!
Your future will look bright if you plan accordingly. Entering into a 30 year mortgage won’t have you debt free before the bottom drops out. Consider limiting yourself to 15 year financing or less. The lower interest rates will help. Having large cash reserves will not only help you weather the storm but will also put you in a position to profit from those who don’t have their own Real Estate Crystal Ball.
Some Interesting Facts
Consumer spending drives the economy. We as consumers are highly predictable. When large numbers of us earn and spend more, the economy grows.
People spend, save, work and mature in predictable patterns as they age.
Newborns don’t spend anything. 18-22 year olds are just moving into the work force and have very little economic impact. Spending for Baby Boomers currently peaks around age 49. Spending demands fall as the maturing work force moves into the power structure of business and industry.
The Baby Boomer generation is the largest in history at 80 million strong.
The Baby Boom generation is defined by those born in the above average birth years between 1946 and 1964.
The most concentrated surge in property buying comes at age 43 when most people buy their largest home. Home buying declines as buyers approach their peak spending age of 49... then drops off dramatically.
Housing is a key factor in the economy. Housing leads the way out of recessions.
The Baby Boom birth wave peaked between 1950 and 1957. This should put the 43 year housing peak from late 1993 through the year 2000.
How Interesting...
The above information is powerful. Most of it was compiled by our own government via the U.S. Bureau of Labor Statistics, Consumer Expenditure Survey and the U.S. Census Bureau.
The reason this information is so powerful is that it can be used to predict what will be happening in our economy way into the future. This kind of stuff will turn you psychic. No kiddin’.
Think about it. If you agree spending is what drives our economy... then the shear number of people spending is where the real impact comes into play. This has been going on in commercial real estate for years. If you put a McDonalds on a street with a high traffic count... assuming easy access... it should outperform a McDonalds on a street with a low traffic count. Make sense?
This has been referred to in Real Estate as location, location, location. In McDonalds’ case... the hungry crowd is bigger in the high traffic location. Every thing else being equal... which location do you think has the higher probability of success? Which would you rather invest your hard earned dollars?
But you see... this is exactly the same impact we can expect from the Baby Boom generation. More people in their peak spending years. As a matter of fact... the most people in the history of the United States reaching their peak spending years as a group.
The Boom Economy
Right now... we’re on the leading edge of a Boom Economy. Because of the tremendous size of this Baby Boom generation... this will be the strongest and healthiest economy we’ll see in our lifetimes. In fact, this boom economy should take us well into the 21st century in grand style... lasting until 2010 to 2015.
Get ready! Position yourself to take maximum advantage of this unprecedented opportunity.
Now... Let’s Take A Closer Look At Your Tea Leaves...
What can you expect from this economy? Come closer and I’ll tell you... First of all, let’s talk about inflation. Inflation has made a lot of real estate property owners rich. In fact... there have been times in the not so distant past... when all you had to do was own real estate to become wealthy.
So... what causes inflation? Some say it’s the devaluation of our currency by our Government via the printing of more and more money. Let’s see if we can’t take it a little further. How about this... Inflation occurs when we have a high requirement for investment and low productivity to help finance that investment. In other words... it’s the economy’s way of financing periods of high investment.
Historically... inflation has accompanied periods of war. High requirement for investment... low productivity to help finance that investment. Inflation also accompanies transitions in technology. Each generation brings with it new ideas and technologies as it enters the work force. The Baby Boomers were far from the exception.
Think of the expense of training this enormous work force (high requirement for investment) compared to their productivity during the training process (low productivity). Add to that the expense of retooling for the new technology they brought with them. This... no doubt... is the formula for inflation. A workable formula we can use to predict inflation.
Pass the Windex
There is no question... barring the possibility of all-out war... this boom economy is going to be one with little... if any... inflation. We will even see many items go down in price. This has already happened to housing prices in some parts of the country like Southern California. It may have even happened in your part of the world.
If you are buying real estate property with the hope you’ll be the recipient of a great transfer of wealth because of inflationary times... you may want to re-evaluate your thinking. Real Estate prices... in the next 10-15 years... will be pushed into higher ground only by the laws of supply and demand. Well located... quality real estate property will be the appreciation play.
O.K. Mr. Hotshot... Know-it-all... Psychic Real Estate Man... What About Interest Rates?
Well... let me ask you. What have you noticed as the trend with interest rates in the last couple of years? Been coming down a bit... haven’t they? Every time you turn on CNBC they’re talking about pressure on the "The Fed" to lower interest rates. "The Fed" is making an effort to protect us from inflation. It is their contention... if you lower interest rates... the economy will heat up... bringing with it inflation.
The reality of the situation is this... every time they have lowered interest rates... the economy has improved without any inflation. In fact... as we have already seen... quite a few items have actually gone down in price.
Interest rates are nothing more than a symptom of inflation. With inflation in check... interest rates will continue to seek a lower level. Look for 30 year real estate mortgage rates to continue to drop... possibly reaching as low as 5-6% by 1998.
"What’s It All Mean... Alfie"
It’s time for Chicken Little to go back inside. With inflation gone... and with deflation in prices in a broad range of categories... interest rates at the lowest levels in decades... we can expect our purchasing power to increase dramatically.
Think about this: If you could afford to pay $1,000 a month on your primary residence with 100% financing at 10%... you could afford to live in a $114,000 home. With interest rates at 5%... you’d be living in a $186,000 pad. Not too bad... but consider this... with a somewhat deflationary trend in Real Estate Property values... that $186,000 house might actually be the equivalent of yesterdays $200,000 - $225,000 crib. Oooh, Baby! That’s goood.
Couple the above with the fact all other consumer items will stabilize in price (or even drop slightly)... savings will increase... spendable income should increase... and you may actually be able to afford $1,500 a month for a house note... moving you into the $280,000 price range. Wow! Can this really be true?
"I Can See Clearly Now... The Haze Is Gone"
What’s this all mean to you and me as Real Estate investors? Well... first of all... we can’t count on inflation to make us rich for a long, long time. We have to buy property based on it’s economic value today. We’ll need to re-negotiate interest rates on our existing debt to bring them in line with lower market rates... increasing our cash flow. Lock in on fixed rates where possible. This may also be the best buying opportunity of the century.
Listen friend... take advantage of this boom economy. There will be numerous opportunities to become truly wealthy in the next 15-20 years. It’s in your tea leaves. But be warned... it won’t last forever. Don’t allow yourself to be caught in the trap of linear thinking. Just because it’s good now and it’s getting better every day... doesn’t mean it will always be that way.
Things are cyclical. The shear numbers of Baby Boomers reaching their peak spending years are what fuels this incredible economy. This was put into play some 49 years ago. There’s not much that can happen to change this direction. However... behind the Boomers is a serious drop in the birth rate. What will happen in 2015 when the number of people supporting our economy falls off dramatically? Will it be worse than the Great Depression? Probably so!
Your future will look bright if you plan accordingly. Entering into a 30 year mortgage won’t have you debt free before the bottom drops out. Consider limiting yourself to 15 year financing or less. The lower interest rates will help. Having large cash reserves will not only help you weather the storm but will also put you in a position to profit from those who don’t have their own Real Estate Crystal Ball.
Quality Deals
I’ve been meaning to write this article for quite some time and those who have heard me speak in the last couple of years have already gotten an earful of this. This topic isn’t about a neat investing technique or new idea, but about a mindset. It’s my mindset and one that I believe will make many other people successful.
Back in 1998 when I took my first step into real estate investing, I was strongly influenced by others around me who believed you had to be a dominant force in your market to make real money. They stressed doing as many deals as possible and beating out the competition. The world around me was saying that the person who does the most wins. More deals lead to more profits which ultimately leads to greater success – all going hand-in-hand.
As a newbie, I took the teaching to heart and did over 100 deals in my first two years. I was proud of my accomplishments and knew many around me were impressed with my successes. However, when stopped to look at the big picture, I was doing a lot of deals and making more money than ever before, but I had little control elsewhere. My time wasn’t my own and the deals truly controlled me. In short, I wasn’t living a life that felt fulfilling.
I’ve talked with many investors across the country and always ask what draws them to real estate investing. The answers vary, but typically can be summed up in one sentence, “I want a better quality of life.” Over my years of investing, I have come to realize that QUANTITY does not lead to QUALITY. If you want real estate investing to provide you with a good quality of life, you need to pursue good quality deals, not a good quantity of deals.
What are quality deals? They’re deals that contribute to the advancement your goals. They get you moving in the direction that you want to go. Many investors start buying homes with no idea of what they really want to accomplish with investing. As a result, they buy anything that looks like a deal and, all too often, get pulled in directions they never intended to go.
Your goals should drive your decision making. For example, a person who needs money today and buys a property to keep it as a rental is contradicting or not fulfilling the original goal. Rental properties will not reap quick, fast cash today. Let’s say your goal is to free up your time so that you can do other things important to you. If you only want to work 20 hours a week and are taking on deals that require 40 hours a week, you’re not doing quality deals. You’re focused on quantity.
We need to make sacrifices to achieve the success that we desire, but need to be careful not to sacrifice the important things in life. If you are pursuing investing to achieve a better quality of life, focus on quality deals and not quantity.
Back in 1998 when I took my first step into real estate investing, I was strongly influenced by others around me who believed you had to be a dominant force in your market to make real money. They stressed doing as many deals as possible and beating out the competition. The world around me was saying that the person who does the most wins. More deals lead to more profits which ultimately leads to greater success – all going hand-in-hand.
As a newbie, I took the teaching to heart and did over 100 deals in my first two years. I was proud of my accomplishments and knew many around me were impressed with my successes. However, when stopped to look at the big picture, I was doing a lot of deals and making more money than ever before, but I had little control elsewhere. My time wasn’t my own and the deals truly controlled me. In short, I wasn’t living a life that felt fulfilling.
I’ve talked with many investors across the country and always ask what draws them to real estate investing. The answers vary, but typically can be summed up in one sentence, “I want a better quality of life.” Over my years of investing, I have come to realize that QUANTITY does not lead to QUALITY. If you want real estate investing to provide you with a good quality of life, you need to pursue good quality deals, not a good quantity of deals.
What are quality deals? They’re deals that contribute to the advancement your goals. They get you moving in the direction that you want to go. Many investors start buying homes with no idea of what they really want to accomplish with investing. As a result, they buy anything that looks like a deal and, all too often, get pulled in directions they never intended to go.
Your goals should drive your decision making. For example, a person who needs money today and buys a property to keep it as a rental is contradicting or not fulfilling the original goal. Rental properties will not reap quick, fast cash today. Let’s say your goal is to free up your time so that you can do other things important to you. If you only want to work 20 hours a week and are taking on deals that require 40 hours a week, you’re not doing quality deals. You’re focused on quantity.
We need to make sacrifices to achieve the success that we desire, but need to be careful not to sacrifice the important things in life. If you are pursuing investing to achieve a better quality of life, focus on quality deals and not quantity.
Planning For Success
As Lonnie Scruggs says, "The opportunities are everywhere. There is no reason to be poor unless you choose to be."
So, why do some educated, hard-working people always have to struggle to keep up with their bills? And why is it that everything some people touch seems to turn to gold? Is it just luck? Or, does it have something to do with their frame of mind?
There are two questions you should ask yourself: Are you comfortable with your present income? Are you satisfied with the amount of money you have accumulated to date? If your response to either question is no, you will find answers in the following pages.
Today's American adults are some of the luckiest people in the history of the world. Just think about it. If you were born between 1940 and 1980, you grew up during the most prosperous period in history. You have seen the birth of modern technology and enjoyed the benefits of the space age, the computer age—and, for the most part, a period of peace. Those of us who have good health are indeed lucky. So, why shouldn't we have a positive outlook?
The optimist says, "My cup runneth over, what a blessing."
The pessimist says, "My cup runneth over, what a mess."
Granted, the economic future for some Americans may not be as bright as it could be. Yes, the country still has political and economic problems and some families are experiencing a decline in their standard of living.
But, we should keep in mind that "the flip side of a problem is an opportunity—for those who are prepared to find and implement solutions."
Successful People Have a Lot in Common
People who understand the importance of keeping their money working for them are usually more successful financially than those who fail to appreciate this fact. If you have a lot of money, it is important to keep it working because you have a lot to gain or lose, depending on how well your money is working for you. If you have very little money, it is even more important to keep what money you do have working. It can be the seed that grows to become great wealth. Once you begin wisely investing your money, efforts, and talents, you will be on your way to becoming financially independent.
Yet, those who have been successful in accumulating wealth through their own efforts have more than money in common. They think and plan "long-term." They believe in the planning process, set financial goals that are carefully thought out, put their plans into writing and then into action. They form good economic habits by saving and investing. They study, think, plan and learn from others and by doing. They make adjustments where necessary, continuously reinvesting. They never stop trying—and they always maintain "a winning attitude."
Successful people don't allow negative feelings to linger. They quickly get rid of the feelings by taking steps to solve their problems or by doing something positive.
"Don't be surprised to discover that luck favors those who are prepared."
You, Too, Can Be Financially Independent
Tenacity is also a most important quality. It is difficult to succeed without consistently focusing on the things we want to achieve—and by taking action each day to get closer to where we want to be. We must be willing to do whatever it takes if we are to get the results we want.
Lonnie Scruggs, the "father" of mobile home investments, says "the toughest thing for a lot of people is to actually get out and do that first deal. They let fear of making a mistake keep them from improving their lifestyle and financial position."
The first step in succeeding is that we must believe in what we are doing. If we don't believe strongly enough in the service we are performing, we will not succeed. We shouldn't think, for example, that because we have lived in a nice single family home, that manufactured homes can't play an important role in today's housing market.
Efficient manufacturing methods, low maintenance, and lower utility costs make it possible for millions of people to have a better place to live. For many, it is a way to build an equity that can be used later to make a down payment on a conventional home.
The Miracle Of Compound Interest
When asked to name the seven wonders of the world, Baron de Rothchild once said, "I cannot. But, I know the eighth wonder is compound interest."
Throughout the ages, the constant use of compound interest has made the difference between those who have become wealthy and those who stayed poor. In simple terms, compound interest means earning a return on both the money invested and on interest that was previously earned, but justify in the account to grow.
If you don't understand the concept of compound interest, learn it thoroughly and keep it in mind when planning your investments. If you will continuously use the power of compounding your money at a reasonable rate of return over a period of years, you will almost certainly become wealthy.
The higher the return on your money, the sooner your net worth will double. Once you double your net worth, the same rate of return will double your income. To illustrate the importance of earning a higher return, the chart in Table I below shows how long it will take to double your money at various rates, compounded monthly.
Table I
Time required to double your money,
depending upon the rate of return
Compound Rate Months Required
40% 21
30% 28
20% 42
15% 56
10% 84
6% 139
3% 278
We know that most banks will pay 2% to 5% interest on our money. But, before dismissing 20% to 40% returns as wishful thinking and, no doubt unsafe, bear with me a little longer and I will show you how.
First, there is another important concept that we should understand and keep in mind: The time value of money. We all understand the importance of avoiding losses when investing our money. However, most people don't realize that the profits we could have earned had we taken the correct steps, is just as real as the loss of money when we make a bad investment. The longer our money is allowed to sit idle—or invested at rates that are too low—the more money we lose.
To show the dramatic difference, let's look at the results achieved by our two hypothetical investors. After keeping $10,000 in savings at 6% for ten years, Mr. DeLay discovered he could earn 20% on his money. At the end of ten years he invested the accumulated $17,908 at the higher rate for the next ten years. Now, at the end of twenty years, his $10,000 investment has grown to $110,882 ($10,000 compounded at 6% to $17,908 over the first ten years; then compounded at 20% for ten years).
Mr. Timely, on the other hand, discovered at the outset that he could earn 20% on his money. During the same twenty year period his $10,000 grew to $383,376. Besides earning $272,494 more than Mr. DeLay, what did Mr. Timely do different? He allowed his money to grow at the higher rate for a longer period of time. He understood the concept of compound interest and the time value of money. Other important lessons can be learned by studying the following examples:
Table II
Results of Compounding a $10,000 Investment
at Varying Rates of Return
Compound Rate 2 Years 5 Years 10 Years 20 Years
40% $19,600 $ 53,782 $289,255 $8,366,826
30% 16,900 37,129 137,858 1,900,496
20% 14,400 24,883 61,917 383,376
15% 13,225 20,114 40,456 163,665
10% 2,100 16,105 25,937 67,275
6% 11,236 13,382 17,908 32,071
3% 10,609 11,593 13,439 18,061
Before going any further with this theory, let's get rid of some of your skepticism by reviewing a typical transaction, involving the purchase and sale of a used manufactured home. It was one of my wife's first transactions, done while she still worked as a nurse.
SITUATION
The manufactured home owner was a registered nurse who had just contracted to purchase a house. She had maintained her home in good condition and paid off the loan. Her asking price was $5,000 cash.
My wife had discovered it was relatively simple—and much more efficient—to buy and sell used homes that were already set up in a park and didn't need to be moved.
PROBLEMS
The owner was already under contract to buy a house and needed to get cash for her mobile home to help with the down payment. But, most prospective buyers don't have the cash—and banks wouldn't finance older mobile homes. She also needed to be relieved of her obligation to pay lot rent of $158 per month.
SOLUTION
The owner agreed to accept our cash offer of $3,500, with the understanding that she would be allowed to stay in the home for about three weeks until she could close on the purchase of her new home.
After the seller moved out, Janet resold the home within two weeks for $6,250. Our buyer paid $750 cash down and agreed to finance the $5,500 balance at $189.32 per month, including 14.5% interest for 36 months.
The financial results were as follows:
Selling Price $ 6,250
Less Down Payment from Buyer 750
_______
Net Receivable $5,500
Cost of Mobile Home $3,500
Sales Tax (6%) & Transfer Fee 245
Thorough Cleaning 50
Lot Rent (one month) 158
______
Total Cost $3,953
Less Buyer's Down Payment 750
_______
Net Investment After Sale 3,203
_______
Net Gain (65%) $2,297
Months Investment Annual Return Monthly Income
Receivable 36 $5,500 14.5% $189.32
Net Investment 36 $3,203 57.9%
ADVANTAGES
The owner received $3,500 of the cash needed for her new home and was relieved of $158 per month in lot rent. She no longer had to be responsible for the mobile home and was free to move at her convenience.
Our buyer was able to move into a neat home for only $750 down and $347.32 per month, including lot rent. His cash requirement and monthly payments were about the same as it would be had he rented a comparable apartment. But, unlike renting an apartment, the home will be paid for in three years. After that, he would have only lot rent to pay.
The park manager was happy to have the home stay in the park and to be able to continue collecting lot rent.
On a net investment of $3,203, my wife received $189.32 per month for the next 36 months—a net yield of 57.9% per annum.
Keep in mind, however, that we earn this kind of return by dealing in manufactured homes as a business—not a passive investment. While almost anyone can find ways to buy and sell manufactured homes, it does take a little time and effort.
Rules For Setting Effective Goals
To become financially independent, we believe it is necessary to set effective goals. Here are some rules you may want to follow:
1. Your goals should be written. An unwritten goal is merely a wish that you probably won't achieve. When you write your goals down, they become a commitment you have made to yourself. Since your situation today and your goals for tomorrow are both unique, your plan must be personalized.
Ask yourself, "How will I know if I am accomplishing my goals?" If you can't answer that question, you should rewrite your goals.
2. Financial goals should be specific. State your financial goals in terms of numbers and dates. For example, you might decide to have investments worth $250,000, producing an annual net income of $25,000 within five years.
Break your goals down into smaller sub-goals. If the value of your investments don't increase by at least $50,000 each year with an increase of $5,000 in income, you will know that you are behind schedule and should take steps to do better.
3. Focus on the things you want to achieve. Setting your priorities is of utmost importance. Keep a daily or weekly list of things that you need to do. Arrange them in order of importance. Ask yourself: If I could accomplish only one of these objectives, which one should it be?
Once the list is arranged in order of importance, take some action each day that will get you closer to where you want to be.
4. Your goals must be challenging, but attainable. Excitement and challenge are important ingredients when setting goals. If your goals don't demand your best efforts and push you beyond where you have been before, the lack of challenge may cause you to lose interest. However, if it becomes apparent as you get more involved that your goals are unrealistic, adjust them to a more realistic level. If you don't believe you can achieve the goals, you won't be willing to pay the price. When they begin to lose their challenge because they are too easy, adjust them upward.
5. Review your goals regularly. This is another reason it is important to have written goals. In a world that constantly threatens to overwhelm us with alternatives, reviewing written goals will help you stay on course and make adjustments when appropriate.
6. Evaluate your progress regularly. Without the satisfaction of reaching some of your goals for long periods of time, you may lose interest in your long-term goals. It may be helpful to reward yourself when achieving one of your sub-goals. Such things as new clothes, a new car, or a vacation could be a part of your goals. Don't spend any more of your profits than necessary. The more you spend, the less you have justify to work for you.
7. You must want to achieve your goals. The stronger the desire to reach those goals, the more willing you will be to pay the price for achievement. Spend a little time visualizing yourself possessing the things you want to acquire—then go out and do it. A plan that is not implemented is really no plan at all.
Obstacles You Will Need to Overcome
To become financially independent, it is essential to know the obstacles you will face, and then devise methods of overcoming them. Three major obstacles which need to be considered are:
1. The fear of taking a risk: The inability or unwillingness to take risks is a major handicap to financial success. Those who will not take risks often become spectators in the economic world and eventually blame everyone but themselves for their lack of wealth. Most people, in their desire for safety, choose methods that are familiar, rather than keeping an open mind and considering new ideas.
2. Procrastination and indecision: The best opportunities are usually brief and do not wait for those who are unprepared. How many times have we missed an opportunity by waiting too long? Almost everyone procrastinates to some extent. The difference is one of degree and only a small degree of difference can separate the successful from the unsuccessful.
3. Taxation: Our income tax system tends to punish the uninformed and reward those who are informed—provided they plan ahead and then take action. While the existence of taxation is beyond our control, there are many ways to minimize taxes, while working within the system.
Avoid Making Decisions By Indecision
If you are like many others, one of the big problems facing you is indecision. Usually, indecision is based upon a lack of information. When you are faced with making important decisions that you are not sure about, why not talk to people who are in a position to help? Ask each to list all the advantages and disadvantages.
Once you have the information necessary to make an informed decision, evaluate that information and then take appropriate action. The best decisions are made by design and systematic planning—not by acting on impulse.
You probably learned in school that Benjamin Franklin was famous for making wise decisions. If it was the right thing, he wanted to be sure to do it. If it was the wrong thing, he wanted to be sure to avoid it. His simple method of making decisions is used by many astute people today.
Taking a sheet of blank paper, Benjamin Franklin would draw a line down the middle. On one side he would list all the reasons for taking the action. On the other he would list the reasons not to take the action. When he was through, he counted the reasons on each side and the decision was made for him.
However, some reasons are more important than others. To be more precise when making important decisions, we could give each reason a weighted number on a scale of one to ten. When the totals on one side out-weigh the totals on the other, the right decision becomes more apparent.
Some decisions, such as buying or selling a large property, involve many different considerations. How will it affect your monthly income? Will cash be available to meet obligations? Do you have capable management? Will it result in additional taxes or tax savings? Is the property likely to increase or decline in value? Such decisions may be too complex to be made by approaching it as one decision.
Complex decisions should be broken down into "bite-size" pieces with each consideration listed as a separate issue. Then focus your attention on one issue at a time. When in doubt, get advice from people who are experienced in that area. When one issue is resolved, go to the next. When you are finished, the right decision will be clear.
Just Do It!
Knowledge, ideas, and good intentions will not pay the bills—until we decide to make it happen. Why do so many capable people fail to take action? They talk, read and think about all the great things they would like to do. And, then they fail to take action.
In his outstanding tapes, "Personal Power," Anthony Robbins explains that our actions are based on pain and pleasure. We have allowed our sub-conscious minds to believe that we can get more instant pleasure by sitting in front of the television set than by taking action. We are pained by the fear of making mistakes, failing to get the desired results, or what others might think about us. So, rather than take a chance, we procrastinate.
But, that same fear and pain can be turned to our advantage. Spend a few moments thinking about the pain you will have if you miss the opportunity to enjoy the benefits because you failed to use the talents you have. Then think about all the pleasures that come from achievement; the personal satisfaction of knowing that you are a person who can make a decision. And, think about the security, peace of mind and freedom from financial worry when you become financially independent.
Change the way you look at failure. And always remember that failure is a condition—not a person. The first time you tried to ride a bicycle, you probably had a few falls. You picked yourself up and kept trying until you got it right. Then you "practiced" riding the bicycle until you got very good at it.
You can avoid any feelings of fear or rejection when dealing with buyers and sellers by reminding yourself that you are just "practicing." Don't be shy about asking for more than you expect to get. If you don't get the desired response, you won't be discouraged. You simply discover one of the things that didn't work with that particular person. As adults, we practice in our trade or profession. Lawyers practice law and doctors practice medicine.
Start with the easy deals first and "earn as you learn." In the years to come, "we regret what we fail to do much more than what we have done."
So, why do some educated, hard-working people always have to struggle to keep up with their bills? And why is it that everything some people touch seems to turn to gold? Is it just luck? Or, does it have something to do with their frame of mind?
There are two questions you should ask yourself: Are you comfortable with your present income? Are you satisfied with the amount of money you have accumulated to date? If your response to either question is no, you will find answers in the following pages.
Today's American adults are some of the luckiest people in the history of the world. Just think about it. If you were born between 1940 and 1980, you grew up during the most prosperous period in history. You have seen the birth of modern technology and enjoyed the benefits of the space age, the computer age—and, for the most part, a period of peace. Those of us who have good health are indeed lucky. So, why shouldn't we have a positive outlook?
The optimist says, "My cup runneth over, what a blessing."
The pessimist says, "My cup runneth over, what a mess."
Granted, the economic future for some Americans may not be as bright as it could be. Yes, the country still has political and economic problems and some families are experiencing a decline in their standard of living.
But, we should keep in mind that "the flip side of a problem is an opportunity—for those who are prepared to find and implement solutions."
Successful People Have a Lot in Common
People who understand the importance of keeping their money working for them are usually more successful financially than those who fail to appreciate this fact. If you have a lot of money, it is important to keep it working because you have a lot to gain or lose, depending on how well your money is working for you. If you have very little money, it is even more important to keep what money you do have working. It can be the seed that grows to become great wealth. Once you begin wisely investing your money, efforts, and talents, you will be on your way to becoming financially independent.
Yet, those who have been successful in accumulating wealth through their own efforts have more than money in common. They think and plan "long-term." They believe in the planning process, set financial goals that are carefully thought out, put their plans into writing and then into action. They form good economic habits by saving and investing. They study, think, plan and learn from others and by doing. They make adjustments where necessary, continuously reinvesting. They never stop trying—and they always maintain "a winning attitude."
Successful people don't allow negative feelings to linger. They quickly get rid of the feelings by taking steps to solve their problems or by doing something positive.
"Don't be surprised to discover that luck favors those who are prepared."
You, Too, Can Be Financially Independent
Tenacity is also a most important quality. It is difficult to succeed without consistently focusing on the things we want to achieve—and by taking action each day to get closer to where we want to be. We must be willing to do whatever it takes if we are to get the results we want.
Lonnie Scruggs, the "father" of mobile home investments, says "the toughest thing for a lot of people is to actually get out and do that first deal. They let fear of making a mistake keep them from improving their lifestyle and financial position."
The first step in succeeding is that we must believe in what we are doing. If we don't believe strongly enough in the service we are performing, we will not succeed. We shouldn't think, for example, that because we have lived in a nice single family home, that manufactured homes can't play an important role in today's housing market.
Efficient manufacturing methods, low maintenance, and lower utility costs make it possible for millions of people to have a better place to live. For many, it is a way to build an equity that can be used later to make a down payment on a conventional home.
The Miracle Of Compound Interest
When asked to name the seven wonders of the world, Baron de Rothchild once said, "I cannot. But, I know the eighth wonder is compound interest."
Throughout the ages, the constant use of compound interest has made the difference between those who have become wealthy and those who stayed poor. In simple terms, compound interest means earning a return on both the money invested and on interest that was previously earned, but justify in the account to grow.
If you don't understand the concept of compound interest, learn it thoroughly and keep it in mind when planning your investments. If you will continuously use the power of compounding your money at a reasonable rate of return over a period of years, you will almost certainly become wealthy.
The higher the return on your money, the sooner your net worth will double. Once you double your net worth, the same rate of return will double your income. To illustrate the importance of earning a higher return, the chart in Table I below shows how long it will take to double your money at various rates, compounded monthly.
Table I
Time required to double your money,
depending upon the rate of return
Compound Rate Months Required
40% 21
30% 28
20% 42
15% 56
10% 84
6% 139
3% 278
We know that most banks will pay 2% to 5% interest on our money. But, before dismissing 20% to 40% returns as wishful thinking and, no doubt unsafe, bear with me a little longer and I will show you how.
First, there is another important concept that we should understand and keep in mind: The time value of money. We all understand the importance of avoiding losses when investing our money. However, most people don't realize that the profits we could have earned had we taken the correct steps, is just as real as the loss of money when we make a bad investment. The longer our money is allowed to sit idle—or invested at rates that are too low—the more money we lose.
To show the dramatic difference, let's look at the results achieved by our two hypothetical investors. After keeping $10,000 in savings at 6% for ten years, Mr. DeLay discovered he could earn 20% on his money. At the end of ten years he invested the accumulated $17,908 at the higher rate for the next ten years. Now, at the end of twenty years, his $10,000 investment has grown to $110,882 ($10,000 compounded at 6% to $17,908 over the first ten years; then compounded at 20% for ten years).
Mr. Timely, on the other hand, discovered at the outset that he could earn 20% on his money. During the same twenty year period his $10,000 grew to $383,376. Besides earning $272,494 more than Mr. DeLay, what did Mr. Timely do different? He allowed his money to grow at the higher rate for a longer period of time. He understood the concept of compound interest and the time value of money. Other important lessons can be learned by studying the following examples:
Table II
Results of Compounding a $10,000 Investment
at Varying Rates of Return
Compound Rate 2 Years 5 Years 10 Years 20 Years
40% $19,600 $ 53,782 $289,255 $8,366,826
30% 16,900 37,129 137,858 1,900,496
20% 14,400 24,883 61,917 383,376
15% 13,225 20,114 40,456 163,665
10% 2,100 16,105 25,937 67,275
6% 11,236 13,382 17,908 32,071
3% 10,609 11,593 13,439 18,061
Before going any further with this theory, let's get rid of some of your skepticism by reviewing a typical transaction, involving the purchase and sale of a used manufactured home. It was one of my wife's first transactions, done while she still worked as a nurse.
SITUATION
The manufactured home owner was a registered nurse who had just contracted to purchase a house. She had maintained her home in good condition and paid off the loan. Her asking price was $5,000 cash.
My wife had discovered it was relatively simple—and much more efficient—to buy and sell used homes that were already set up in a park and didn't need to be moved.
PROBLEMS
The owner was already under contract to buy a house and needed to get cash for her mobile home to help with the down payment. But, most prospective buyers don't have the cash—and banks wouldn't finance older mobile homes. She also needed to be relieved of her obligation to pay lot rent of $158 per month.
SOLUTION
The owner agreed to accept our cash offer of $3,500, with the understanding that she would be allowed to stay in the home for about three weeks until she could close on the purchase of her new home.
After the seller moved out, Janet resold the home within two weeks for $6,250. Our buyer paid $750 cash down and agreed to finance the $5,500 balance at $189.32 per month, including 14.5% interest for 36 months.
The financial results were as follows:
Selling Price $ 6,250
Less Down Payment from Buyer 750
_______
Net Receivable $5,500
Cost of Mobile Home $3,500
Sales Tax (6%) & Transfer Fee 245
Thorough Cleaning 50
Lot Rent (one month) 158
______
Total Cost $3,953
Less Buyer's Down Payment 750
_______
Net Investment After Sale 3,203
_______
Net Gain (65%) $2,297
Months Investment Annual Return Monthly Income
Receivable 36 $5,500 14.5% $189.32
Net Investment 36 $3,203 57.9%
ADVANTAGES
The owner received $3,500 of the cash needed for her new home and was relieved of $158 per month in lot rent. She no longer had to be responsible for the mobile home and was free to move at her convenience.
Our buyer was able to move into a neat home for only $750 down and $347.32 per month, including lot rent. His cash requirement and monthly payments were about the same as it would be had he rented a comparable apartment. But, unlike renting an apartment, the home will be paid for in three years. After that, he would have only lot rent to pay.
The park manager was happy to have the home stay in the park and to be able to continue collecting lot rent.
On a net investment of $3,203, my wife received $189.32 per month for the next 36 months—a net yield of 57.9% per annum.
Keep in mind, however, that we earn this kind of return by dealing in manufactured homes as a business—not a passive investment. While almost anyone can find ways to buy and sell manufactured homes, it does take a little time and effort.
Rules For Setting Effective Goals
To become financially independent, we believe it is necessary to set effective goals. Here are some rules you may want to follow:
1. Your goals should be written. An unwritten goal is merely a wish that you probably won't achieve. When you write your goals down, they become a commitment you have made to yourself. Since your situation today and your goals for tomorrow are both unique, your plan must be personalized.
Ask yourself, "How will I know if I am accomplishing my goals?" If you can't answer that question, you should rewrite your goals.
2. Financial goals should be specific. State your financial goals in terms of numbers and dates. For example, you might decide to have investments worth $250,000, producing an annual net income of $25,000 within five years.
Break your goals down into smaller sub-goals. If the value of your investments don't increase by at least $50,000 each year with an increase of $5,000 in income, you will know that you are behind schedule and should take steps to do better.
3. Focus on the things you want to achieve. Setting your priorities is of utmost importance. Keep a daily or weekly list of things that you need to do. Arrange them in order of importance. Ask yourself: If I could accomplish only one of these objectives, which one should it be?
Once the list is arranged in order of importance, take some action each day that will get you closer to where you want to be.
4. Your goals must be challenging, but attainable. Excitement and challenge are important ingredients when setting goals. If your goals don't demand your best efforts and push you beyond where you have been before, the lack of challenge may cause you to lose interest. However, if it becomes apparent as you get more involved that your goals are unrealistic, adjust them to a more realistic level. If you don't believe you can achieve the goals, you won't be willing to pay the price. When they begin to lose their challenge because they are too easy, adjust them upward.
5. Review your goals regularly. This is another reason it is important to have written goals. In a world that constantly threatens to overwhelm us with alternatives, reviewing written goals will help you stay on course and make adjustments when appropriate.
6. Evaluate your progress regularly. Without the satisfaction of reaching some of your goals for long periods of time, you may lose interest in your long-term goals. It may be helpful to reward yourself when achieving one of your sub-goals. Such things as new clothes, a new car, or a vacation could be a part of your goals. Don't spend any more of your profits than necessary. The more you spend, the less you have justify to work for you.
7. You must want to achieve your goals. The stronger the desire to reach those goals, the more willing you will be to pay the price for achievement. Spend a little time visualizing yourself possessing the things you want to acquire—then go out and do it. A plan that is not implemented is really no plan at all.
Obstacles You Will Need to Overcome
To become financially independent, it is essential to know the obstacles you will face, and then devise methods of overcoming them. Three major obstacles which need to be considered are:
1. The fear of taking a risk: The inability or unwillingness to take risks is a major handicap to financial success. Those who will not take risks often become spectators in the economic world and eventually blame everyone but themselves for their lack of wealth. Most people, in their desire for safety, choose methods that are familiar, rather than keeping an open mind and considering new ideas.
2. Procrastination and indecision: The best opportunities are usually brief and do not wait for those who are unprepared. How many times have we missed an opportunity by waiting too long? Almost everyone procrastinates to some extent. The difference is one of degree and only a small degree of difference can separate the successful from the unsuccessful.
3. Taxation: Our income tax system tends to punish the uninformed and reward those who are informed—provided they plan ahead and then take action. While the existence of taxation is beyond our control, there are many ways to minimize taxes, while working within the system.
Avoid Making Decisions By Indecision
If you are like many others, one of the big problems facing you is indecision. Usually, indecision is based upon a lack of information. When you are faced with making important decisions that you are not sure about, why not talk to people who are in a position to help? Ask each to list all the advantages and disadvantages.
Once you have the information necessary to make an informed decision, evaluate that information and then take appropriate action. The best decisions are made by design and systematic planning—not by acting on impulse.
You probably learned in school that Benjamin Franklin was famous for making wise decisions. If it was the right thing, he wanted to be sure to do it. If it was the wrong thing, he wanted to be sure to avoid it. His simple method of making decisions is used by many astute people today.
Taking a sheet of blank paper, Benjamin Franklin would draw a line down the middle. On one side he would list all the reasons for taking the action. On the other he would list the reasons not to take the action. When he was through, he counted the reasons on each side and the decision was made for him.
However, some reasons are more important than others. To be more precise when making important decisions, we could give each reason a weighted number on a scale of one to ten. When the totals on one side out-weigh the totals on the other, the right decision becomes more apparent.
Some decisions, such as buying or selling a large property, involve many different considerations. How will it affect your monthly income? Will cash be available to meet obligations? Do you have capable management? Will it result in additional taxes or tax savings? Is the property likely to increase or decline in value? Such decisions may be too complex to be made by approaching it as one decision.
Complex decisions should be broken down into "bite-size" pieces with each consideration listed as a separate issue. Then focus your attention on one issue at a time. When in doubt, get advice from people who are experienced in that area. When one issue is resolved, go to the next. When you are finished, the right decision will be clear.
Just Do It!
Knowledge, ideas, and good intentions will not pay the bills—until we decide to make it happen. Why do so many capable people fail to take action? They talk, read and think about all the great things they would like to do. And, then they fail to take action.
In his outstanding tapes, "Personal Power," Anthony Robbins explains that our actions are based on pain and pleasure. We have allowed our sub-conscious minds to believe that we can get more instant pleasure by sitting in front of the television set than by taking action. We are pained by the fear of making mistakes, failing to get the desired results, or what others might think about us. So, rather than take a chance, we procrastinate.
But, that same fear and pain can be turned to our advantage. Spend a few moments thinking about the pain you will have if you miss the opportunity to enjoy the benefits because you failed to use the talents you have. Then think about all the pleasures that come from achievement; the personal satisfaction of knowing that you are a person who can make a decision. And, think about the security, peace of mind and freedom from financial worry when you become financially independent.
Change the way you look at failure. And always remember that failure is a condition—not a person. The first time you tried to ride a bicycle, you probably had a few falls. You picked yourself up and kept trying until you got it right. Then you "practiced" riding the bicycle until you got very good at it.
You can avoid any feelings of fear or rejection when dealing with buyers and sellers by reminding yourself that you are just "practicing." Don't be shy about asking for more than you expect to get. If you don't get the desired response, you won't be discouraged. You simply discover one of the things that didn't work with that particular person. As adults, we practice in our trade or profession. Lawyers practice law and doctors practice medicine.
Start with the easy deals first and "earn as you learn." In the years to come, "we regret what we fail to do much more than what we have done."
Partnering On Real Estate Deals For The Right Reasons
My personal investment strategy has constantly changed over the years as I've discovered what works, what don't and how to "tighten-up" my deals to maximize cash flow. I've always felt that investing alone is better than splitting the pie and sharing my profits! However, I have had several excellent partnership ventures over the years. And I must tell you this, when they work, you can achieve your financial goals many times faster than doing deals alone. But remember, I said when they work - that's the tricky part.
Partnerships are like marriages - there are some good ones that last a lifetime and many that don't last till they're paid for! Like marriages, partnerships stand a much better chance of working and lasting if the partners are selected for the right reason. When I talk about partnership investing, I don't necessarily mean you should form a legal partnership. I'm talking co-ownership or two investors owning real estate together for the purpose of making money.
Why Would Anyone Want a Partnership?
There is only one good reason I know of to take on an investment partner. It's when you don't have enough financial horsepower to do the total deal by yourself. Most often, it's financial assistance you need. However there might be other legitimate reasons. Equity sharing and timeshare contracts are two examples of partnership investing. Both arrangements are specifically designed for investors who can't purchase the whole "enchilada" themselves, or at least they don't think they can!
Do Not Take on a Partner Because You want Companionship!
Always ask yourself these questions: Do I really need a partner or do I just think I need one? Is it wise for me to split my profits with someone else? The answers should be very clear before you look for a partner. Every so often I hear about a "lonely investor" who apparently doesn't have enough confidence to buy real estate by himself. Generally this type of person lacks courage. He wants a partner for moral support. That's not a good reason to form a partnership. It's like the guy who thinks he's better oft crashing in an airplane with 100 people aboard rather than crashing alone. Take my advice here, do not take on a partner because you want companionship. Partnerships are tough enough when you have a good reason.
Partnerships Must Be Based on Mutual Needs
Consider the want-to-be investor who knows just enough about real estate to be dangerous. He has more guts than it takes to fight a mountain lion, but not enough cash to use the pay toilet at the bus depot! Nine out of ten times, this joker will attempt to convince someone with money that by simply joining together, they'll both end up millionaires. Nearly always they both end up broke instead! Stay away from people who have million-dollar ideas, but no money!
My first thoughts when anyone approaches me with a partnership proposition are -
What's in the deal for me?
What's the risk to me and what assurances do I have that a partner will do what he says?
One question you should always ask yourself is -
What's the most I can lose if I do this deal?
Naturally, I'd be very concerned that my partner and I shared equal risk!
Partnerships Can Solve Your Money Problems
Developing partnerships to pool individual resources, knowledge and experience can provide an excellent vehicle for acquiring wealth at a much faster pace than would otherwise be possible. I've discovered that in most successful partnerships, the partners themselves will often have very little in common with each other except their desire to make money together. Sometimes an accountant will team up with a carpenter or handyman. A doctor might select a contractor, or a school teacher with extra hours and mechanical skills might work very well with a real estate broker.
Sometimes the best way to find investment partners with the particular qualifications you need is by advertising in the Help Wanted ads of a local newspaper. Many folks would like to create a profitable partnership, but don't have any idea where to start! The first thing you must determine is what can you provide to the partnership! Will it be investment capital, your time or the specialized skills you possess. Write it down on paper, then advertise for a partner. There are many people looking for what you have to offer, but if they don't know you exist you must speak up and let them know.
The Courting Period Requires Honesty
The biggest mistake for no money partners to make in trying to entice a person with money is to oversell and overstate the benefits the money partner is supposed to receive. If I were to show you all the proposals offered to me and added up all the profits I've been promised over the years, I'd need to rent the Bank of America headquarters building to store all my money. Fortunately or unfortunately, whichever way you view it, I didn't invest my money, so I'll never really know for sure. I can tell you this much however, a very high percentage of the deals went bust!
Jay's Rules for Finding a Money Partner
My "no-compromise" business rule for finding an investor with money when I need financial help is the same rule I use for landlording. I call it my 60/40 rule. It means I'm willing to give more than I take! I've always felt that broke investors should be willing to give up at least 60% of the partnership benefits in order to attract the money. This means if I'm the broke partner, I'll be content with taking 40% of the deal for myself.
Always ask yourself this question about the partnership. Who could most likely make it on their own - the partner with or without the money? I think it's clear - the party with the money will always have a much greater opportunity than the one who's broke.
Partnerships are like marriages - there are some good ones that last a lifetime and many that don't last till they're paid for! Like marriages, partnerships stand a much better chance of working and lasting if the partners are selected for the right reason. When I talk about partnership investing, I don't necessarily mean you should form a legal partnership. I'm talking co-ownership or two investors owning real estate together for the purpose of making money.
Why Would Anyone Want a Partnership?
There is only one good reason I know of to take on an investment partner. It's when you don't have enough financial horsepower to do the total deal by yourself. Most often, it's financial assistance you need. However there might be other legitimate reasons. Equity sharing and timeshare contracts are two examples of partnership investing. Both arrangements are specifically designed for investors who can't purchase the whole "enchilada" themselves, or at least they don't think they can!
Do Not Take on a Partner Because You want Companionship!
Always ask yourself these questions: Do I really need a partner or do I just think I need one? Is it wise for me to split my profits with someone else? The answers should be very clear before you look for a partner. Every so often I hear about a "lonely investor" who apparently doesn't have enough confidence to buy real estate by himself. Generally this type of person lacks courage. He wants a partner for moral support. That's not a good reason to form a partnership. It's like the guy who thinks he's better oft crashing in an airplane with 100 people aboard rather than crashing alone. Take my advice here, do not take on a partner because you want companionship. Partnerships are tough enough when you have a good reason.
Partnerships Must Be Based on Mutual Needs
Consider the want-to-be investor who knows just enough about real estate to be dangerous. He has more guts than it takes to fight a mountain lion, but not enough cash to use the pay toilet at the bus depot! Nine out of ten times, this joker will attempt to convince someone with money that by simply joining together, they'll both end up millionaires. Nearly always they both end up broke instead! Stay away from people who have million-dollar ideas, but no money!
My first thoughts when anyone approaches me with a partnership proposition are -
What's in the deal for me?
What's the risk to me and what assurances do I have that a partner will do what he says?
One question you should always ask yourself is -
What's the most I can lose if I do this deal?
Naturally, I'd be very concerned that my partner and I shared equal risk!
Partnerships Can Solve Your Money Problems
Developing partnerships to pool individual resources, knowledge and experience can provide an excellent vehicle for acquiring wealth at a much faster pace than would otherwise be possible. I've discovered that in most successful partnerships, the partners themselves will often have very little in common with each other except their desire to make money together. Sometimes an accountant will team up with a carpenter or handyman. A doctor might select a contractor, or a school teacher with extra hours and mechanical skills might work very well with a real estate broker.
Sometimes the best way to find investment partners with the particular qualifications you need is by advertising in the Help Wanted ads of a local newspaper. Many folks would like to create a profitable partnership, but don't have any idea where to start! The first thing you must determine is what can you provide to the partnership! Will it be investment capital, your time or the specialized skills you possess. Write it down on paper, then advertise for a partner. There are many people looking for what you have to offer, but if they don't know you exist you must speak up and let them know.
The Courting Period Requires Honesty
The biggest mistake for no money partners to make in trying to entice a person with money is to oversell and overstate the benefits the money partner is supposed to receive. If I were to show you all the proposals offered to me and added up all the profits I've been promised over the years, I'd need to rent the Bank of America headquarters building to store all my money. Fortunately or unfortunately, whichever way you view it, I didn't invest my money, so I'll never really know for sure. I can tell you this much however, a very high percentage of the deals went bust!
Jay's Rules for Finding a Money Partner
My "no-compromise" business rule for finding an investor with money when I need financial help is the same rule I use for landlording. I call it my 60/40 rule. It means I'm willing to give more than I take! I've always felt that broke investors should be willing to give up at least 60% of the partnership benefits in order to attract the money. This means if I'm the broke partner, I'll be content with taking 40% of the deal for myself.
Always ask yourself this question about the partnership. Who could most likely make it on their own - the partner with or without the money? I think it's clear - the party with the money will always have a much greater opportunity than the one who's broke.
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