Are Cryptocurrencies a Scam and a Bubble, or Are They The Future?

By Jan B. Brzeski

We have reached a very interesting moment for those of us with a strong interest in finance and economics. In recent weeks, some of the leading minds in the investment and finance business have opined about Bitcoin and other cryptocurriences. Jamie Dimon of JP Morgan Chase called Bitcoin “a fraud” and Howard Marks has referred to it as a “speculative bubble” or “pyramid scheme”. He then revised his view, noting that it could be used legitimately as a medium of exchange, so long as enough people agree to accept it.

At the same time, if you ask a young person what he or she would do with $1 billion, don’t be surprised if the answer is to put a significant portion of it in Bitcoin and/or other cryptocurrencies. Silicon Valley is betting billions on the emergence of a sophisticated ecosystem centered around cryptocurrency. What is going on here?

I think the answer is a combination of three trends:

  • Decreasing trust in nation-states and in the U.S. in particular
  • Disillusionment with the established economy and today’s intergenerational bargain, and
  • Cynicism about banks and other financial companies

Many young people have good reason for their disillusionment and skepticism about traditional currencies and other trappings of our existing financial system. Given this backdrop, we may be witnessing a very historic moment where the smartest people in our current establishment just can’t see what is really happening–which explains why they are so out of synch with proponents of cryptocurrencies.

Lack of Trust in the U.S.

After World War II, the U.S. was widely viewed as both an economic superpower and a force for good in the world. When he left office, Franklin D. Roosevelt’s approval rating was 70%. By comparison, after his perceived positive handling of a string of hurricanes, Donald Trump’s approval rating has risen up from the high 30s to 40% as of September 2017. In the most recent Gallup poll, Congress enjoyed only a 16% approval rating, with 79% disapproving and 6% having no opinion.

Young people might reasonably ask, if the U.S. is one of the most democratic countries in the world, and the best we can do is to elect this President and Congress, why should I put any faith at all in government–or in the U.S. as a nation, or democracy as a system? And what about residents of other countries such as China, India, Russia, France, England, Brazil or Japan? In each case there is ample reason for younger people to feel very disillusioned about their parents’ generation and the outcomes wrought by their current political system.

Disillusionment with the Economy and Intergenerational Bargains

Today’s young people lost a lot of faith in our economic system during the last financial crisis. Millions saw their parents lose their homes to foreclosure. Today homeownership is totally out of reach for many urban coastal residents. Because a variety of factors, a small group of elites seems to be receiving a disproportionate share of the rewards that our economy produces, while the vast majority of people see stagnant income and rising health care and housing costs. With each passing year, one can feel the frustration building.

Furthermore, Moody’s has estimated that state’s unfunded pension liabilities stand at $1.75 trillion. This is the difference between the promises made to state public employees such as police and fire professionals, and the amount of money set aside to meet those promises. A further liability exists in the area of public infrastructure, where many highways, roads and bridges were built generations ago and have not been kept up. The American Society of Civil Engineers graded our infrastructure a “D+” with a cost of $4.6 trillion to bring it up to a “B”.

Together, these liabilities represent selfish behaviour by baby boomers and other older Americans at the expense of today’s younger Americans. Without knowing all the details, today’s teenagers and young adults understand what has happened. Their future has been mortgaged to support more consumption by their parents’ generation.

Cynicism About Banks and Other Financial Institutions

During the financial crisis, banks are widely perceived as having benefitted from originating and selling mortgages they knew were destined to fail. Bankers made huge amounts of money, and the world financial system came very close to collapsing. The public purse (taxpayers) had to bail out the entire banking system, and yet no bank executive was ever really punished. All of this is well-known and is resented a great deal by the average American, who makes a fraction of what bank executives get paid. One could argue that Donald Trump’s election was as much as anything a protest against elites who protected and coddled Wall Street and big banks, which banks in turn paid political elites large sums of money in the form of campaign contributions and speech fees.

While cynicism about banks and Wall Street has existed for a long time, we may have reached a tipping point. A recent Gallup poll noted American’s confidence in banks had dropped 22 percentage points in 10 years, from 49% in 2006 to only 27% in 2016.

Conclusion

So what are we to make of Bitcoin and other cryptocurrencies? Are Jamie Dimon and Howard Marks right to question their legitimacy? Or is Silicon Valley right to say, as one company CEO said recently, that the blockchain technology behind cryptocurrencies is the single most important innovation since the Internet?

It may be that both groups are right. The value of Bitcoin and Etherium may drop dramatically or even go to near zero. True, there is nothing behind these currencies–nothing “real”–other than an agreement and trust among a group of investors that they should have value.

The larger question is, what happened to the trust Americans had in the foundations of our current society and our world? What is the future of trust in national currencies, elected governments, democracy and our other institutions? And how much do young Chinese and Russian people trust their governments to act in their best interest?

Maybe cryptocurrencies are best seen as a revolt and a rejection of traditional institutions. Many young people are embracing the idea of system that is independent of any country or any elites. This seems like a trend that is likely to gather steam rather than peter out. Whether it is Bitcoin or Etherium or something else, there may be a real need for a new vessel for our trust and confidence, that is “outside the box” and outside the control of world leaders, elected officials and the traditional financial and economic system. Bitcoin and Etherium were designed specifically to bypass all of our current institutions, and at the moment, they seem to have arrived at the right place and the right time, to attract support from a generation that is largely unhappy with the way things work today.

Jan Brzeski
Managing Director and Chief Investment Officer, Crosswind Financial/Arixa Capital Advisors

Mr. Brzeski is the Managing Director and Chief Investment Officer of Crosswind Financial and Arixa Capital Advisors, LLC, which together are one of California’s leading private real estate lenders. Previously, Mr. Brzeski worked in commercial real estate acquisitions, lending and asset management for a leading Southern California real estate family office. He began his career working at Goldman Sachs & Co. as an investment banking analyst.  Mr. Brzeski holds a M.A. in philosophy, politics & economics from Oxford University, a B.A. in physics from Dartmouth College, and is a licensed California Real Estate Broker.

Why Banks Do Not Lend on Certain Loans that Appear Conservative

By Edward Brown

Ever wonder why banks shy away from loans that appear to be relatively conservative?

There are numerous reasons banks avoid making loans that, in general, one would think have a high likelihood of paying back. According to a banker who works for a well known bank, during the mortgage crisis of almost a decade ago, one thread seem to run through all of the bad loans on the bank’s books; late payments on even the smallest of items, such as a department store credit card. This type of information led banks to steer away from otherwise good borrowers [after the mortgage meltdown], since the banks did not want to have borrowers who tended to be late or default on mortgages. Thus, a borrower who never missed a mortgage payment but may have been late on a small credit card was seen as a bigger risk for a future default on a mortgage should there be instability in the economy.

Banks are not in the business of taking over property and do not want to be seen as predatory lenders. Even if a borrower has a “good story”, banks would rather not even entertain a loan, which, on its surface, appeared to be more likely to fall into default. Banks are very cash flow oriented. They do not want to lend to borrowers where there may be a question of how a mortgage will be serviced. In commercial real estate loans, banks use a ratio called DSCR [Debt Service Coverage Ratio]. The DSCR is a measure of the cash flow available to pay current debt obligations [principal and interest in cases of a mortgage]. It shows the ability to produce enough cash to cover the mortgage payment. In previous years [before 2007], most banks required a DSCR of at least 1.1. For example, if the mortgage payment [including principal and interest] was $10,000 per month, the net cash flow [after paying normal expenses and before the mortgage] needed to be at least $11,000 per month. This was not usually an undue burden, as most real estate investors would have expected to have at least a break even cash flow after paying the mortgage. However, after 2007, almost every bank in the nation tightened up their standards to where they insisted on a DSCR of at least 1.25 and as high as 1.35. Although this may not seem excessive, the extra 15 to 25 basis point requirement severely restricted one’s ability to borrow. The investor found would have to put down a much larger down payment [thereby a lower loan needed] on the property in order to satisfy a much higher DSCR. Many real estate investors did not possess the mandated down payment and found they could not qualify for the new higher DSCR.

Another aspect that impacted banks’ ability to make loans to less than stellar borrowers is that they are similar to corporations in that they rely on their good ratings [from S&P and Moody’s for example] in attracting either deposits or floating paper themselves [through Wall Street’s ability to attract bond financing]. From a deposit standpoint, although deposits are FDIC insured up to $250,000, many banks that have lower than AAA ratings find they have to pay higher yields to depositors in order to attract money. From a bond offering standpoint, the higher the rating, the lower rate the banks have to pay their bond holders. If a bank makes loans that appear “questionable”, they risk having their rating lowered and it ends up costing them in the long run. They find it better to avoid loans that may potentially give the bank a blemish, even though they would have earned a higher yield on the mortgage being provided to the borrower who appears to be below triple A in terms of ability to repay.

Most banks work off of a fairly slim arbitrage [due to competition], so it is not worth having loans in their portfolio that appear riskier. When a loan goes onto a “watch list” or goes into default, more of the bank’s resources are tied up and not available to be deployed into new loans. Loans that are put onto the “watch list” would be those loans in which the loan to value is not as strong as the bank had originally determined. Although the borrower may not be late on any mortgage payments, the value of the property may have declined to where bank auditors have determined that there is a more than likely potential default. For example, if the bank made a loan on a property two years ago for $100,000 on a property that had a value of $150,000 at the time the loan was made [67%], the bank would set aside a certain amount of reserves as prescribed by the FDIC. However, if the property declined in value to $117,000, the $100,000 loan [presuming the loan was interest only] now stood at over 85% LTV [Loan to Value]. Under this scenario, the bank would be required to set aside more reserves. This creates a problem for the bank in that this means less money for the bank to lend out, as the extra reserves ties up more of the bank’s capital and less is available to make loans. If the loan actually goes into default, substantially more reserves are needed to be set aside. After the mortgage crisis, stringent guidelines were handed down to banks, as the Federal Government did not want to bail more banks out. Thus, most banks found it was just not worth using their resources for potentially non-income earning activity.

There is a lot of activity in the lending arena as the economy has strengthened, and interest rates are still attractively low. With the numerous requests for loans, many banks are finding that they do not need to attract borrowers. They do not want to spend time having to explain to auditors [or even bank board members] why certain loans are being made when they have many “slam dunk” loans that are “cookie cutter”. Banks are finding that they cannot charge enough to the borrower to justify the extra time, expense, and risk to make a typical “non-bank” loan.

An alternative to conventional financing can be found with private lending companies. Private lending companies do not have the same reserve requirements and will generally provide loans with much less hassle and more expediently. These private lending companies are more interested in “equity based” lending, meaning that they are more interested in how much equity is in the property at the time they make the loan as compared to the DSCR or credit issues of the borrower. This provides the private lending companies an opportunity to fill a gap where the banks have left off – loans that are not generally considered risky but still need funding. However, the price of capital is higher because the private companies do not have the same access to capital that banks do. They cannot provide FDIC insurance to their capital resources; thus, they have to pay a higher rate than depositors of banks. In conjunction with higher access to capital costs, these private lending companies must charge the borrowers a higher [than bank] rate for the money. The benefit to the borrower is the access to otherwise unavailable capital; in addition, the borrower usually does not have to jump through as many hoops as applying with a conventional bank and will almost certainly be able to borrow in a shorter time window. Many borrowers find borrowing from private lenders worth the extra cost.

Of course, if time is not of the essence, a borrower should first attempt to obtain funding from a conventional lender; however, borrowers should not be dismayed if they are turned down by banks. Alternative sources of capital are available for funding requested loans. One only need to do a little research. Many mortgage brokers, who deal with banks, also know of private lenders. If the borrower is able to go direct with a private lender, there may possibly be a cost saving to the borrower as there is one less mouth to feed; however, many times, the mortgage broker can assist the borrower with expertise as to the pricing of private loans and which companies are reputable and which are not.

In bring a deal to a private lender, the borrower should be careful not to do a shotgun approach, which is to say that it may hurt the borrower in the long run to try many brokers at the same time for the same request. One may think this is the best way to obtain financing at the best price due to attempting to force competition, but, many times, it backfires on the borrower, as some brokers broker to other brokers. What often happens in this scenario is that there may be a chain of brokers involved, all adding their fee into the loan. A two point deal may turn into a four point deal because, by the time the loan reaches the final funding so many brokers claim they had a hand in the deal and all want to get paid. The borrower may find that a better plan of action is to find one good broker who is well connected with an array of lenders. Many times, this broker will know ahead of time what terms the borrower can expect and communicate this with the borrower, so there are no surprises. Some brokers specialize in construction loans [as due some lenders]; some will not touch personal residence loans due to the Dodd Frank regulations. It is best for a borrower to seek out a broker who is well versed in the type of loan that the borrower seeks.

 

Edward Brown

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company. Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns.

 

3 Unique Ways to Turn Your Property Into a Money-making Machine

By Ashley Lipman

Almost any property is capable of turning a viable ROI if managed with savvy and foresight. Even bare vacant land can turn a profit if you know where to look for the right kind of customer.

Making money through real estate is as old as real estate itself (which is to say, “as old as dirt”), but we want to present here three often un-thought-of ways you can turn a profit from your land and/or building.

  1. Contract With a Cell Phone Company

There are some 300,000 cell towers in the US at present, and that number is growing by around 10,000 new towers per year. If you have vacant land in a strategic enough location, given the right zoning requirements are not an obstacle, you can make a lot of money by letting a cell phone company build a tower on your land and then collecting ongoing rent for the use of your land.

If a cell phone company approaches you with an offer, that makes it a lot easier (and gives you more “negotiating clout”), but you can also advertise or contact companies to make offers.

But don’t cut yourself out of a solid profit margin needlessly. Rent is this niche area varies greatly, from $100 to $50,000 per year (not month). In fact, you’re better off talking to an expert consultation firm to find out how to get the most cell tower rent before making any final decisions and signing on the dotted line.

  1. Run Your Rental “Empire” Smarter

Owning rental property is about as common a business venture as you’ll find, but the fact is, many landlords aren’t getting the full benefit out of their investments. There’s quite a learning curve involved in taking on land-lording, and so, it isn’t surprising if new landlords (and even experienced ones) have significant room to improve their profit margins.

The number one reason that property owners lose money on leases is, harsh as it may sound, that they lease to the wrong people. Having a unit sit empty can be frustrating, but you’re much better off being patient and upholding high standards. You need to combine two elements: an attractive “deal” to draw in good tenants and a thorough screening process to keep out bad tenants.

That means you make it clear that you will promptly respond to legitimate tenant complaints, make all reasonable and necessary repairs, don’t invade tenants’ privacy, provide (if possible) a tenant-only laundry facility and a game room/social lounge, and of course offer only well renovated and attractively decorated units. You charge slightly more than your target ROI, then you grant a year’s-end discount for paying rent on time or otherwise reward reliable, timely payers.

But also have strict rules for not disturbing other tenants, not destroying your property, and as to late fees and eventual evictions. Also monitor tenants for illegal subletting and other ploys. If all that sounds like work, don’t be afraid to hire a property manager: with the right policies in place, you can still do well. And you can still afford to be reasonable, patient, and generous with tenants with legitimate reasons for occasional late rent. It’s all a matter of having reliable, good renters in general, not perfect renters who never have a problem.

  1. Use Your Home to Generate Extra Cash

Another angle for homeowners is to simply use their home itself to generate extra cash. There are many ways to do this, so we can’t quite be exhaustive here. But here are a few prime ideas:

  • Set up a home office. Renovate, say, your attic or basement, or simply use a spare bedroom. If you can work from home even part of the time, you will save lots of money on transportation expenses. You’ll need a computer and Internet connection, but most people already have that anyway, so it’s not an extra cost. And you can typically deduct the cost of your home office from your taxes each year as well.
  • Offer storage and/or parking. Storage facilities are very popular these days, and they charge a hefty price monthly in many cases. If you have an extra shed, garage, or room, (or if you’re willing to put a new outbuilding up for the purpose), you may be able to attract people willing to pay a much-lower-than-normal monthly storage-space rental fee. Or, if you live in a neighborhood nearby a sports stadium, concert hall, or other popular venue, you may be able to advertise cheap, convenient parking and frequently get takers.
  • Take on a roommate. Anyone with a spare bedroom and bathroom, and who is willing to share their kitchen and living room with a “reasonable person,” should consider taking on a roommate. It’s easy to advertise online, in the newspaper, or on local bulletin boards, and you can save your new roommate money with lower rent at the same time you make extra money yourself and maybe gain a new friend.

 

Invest for Success!

By Dr. Albert Lowry

You no doubt want to be a successful investor, but you need to know how to move beyond the wishing stage. I have some tips to help you get started and learn what to do to keep yourself on the right path. We’ll take a step-by-step look at how you too can go from just a dream of being a real estate entrepreneur, to having your own real estate portfolio that is your key to financial freedom for life.

First, you must set goals. Don’t just think about them, but instead put them in writing. The act of writing has the effect of making your goals more real and getting them into the subconscious part of your brain, so that they are always there in the background, motivating you.

Another important point to understand to prepare yourself for success, is that risks and sacrifices are involved. You already know that just about anything that has big potential rewards means that you need to push yourself out of your comfort zone, and this is no different.

Simply put, if you don’t make the effort, you won’t experience the reward. Here’s the level of effort that I suggest: at least one hour per day devoted to studying real estate investing concepts and their real-world applications.

On weekends especially, you have the opportunity to explore the real estate market in your own area by touring neighborhoods, looking at houses, networking with people, and building up a base of knowledge about prices, amenities, desirable areas, and more. You’ll sacrifice the time that you would have spent napping or watching TV, but the potential payoff is long-term financial independence for yourself and your family.

As I mentioned, there is risk involved. Any investment that can make money for you can also lose money. That’s a fact of life, but there are ways to tip the balance sharply in your favor. You can protect yourself by ensuring that contracts are written to your advantage, by paying attention to both what is in a contract, and also what’s not. It is imperative that you read and understand everything that is contained in the contract, including all clauses, and also foresee any contingencies that are not mentioned. You may even choose to have a real estate attorney to help you review property contracts to be sure that there are no “gotchas.”

Now, I promised that I would provide you with step-by-step instructions to Invest for Success. This is a quick thumbnail sketch of the 7 steps involved in the process and important points to know. You’ll tailor a plan for yourself, but this will give you a good start.

  1. Develop a simple plan. Keep your real estate portfolios local and plan to focus on single family homes at the beginning.
  2. Learn your market. We touched on this earlier because it’s important to know prevailing costs per square foot, develop the capability to assess quality, and have a good working knowledge of which amenities are desired in your area. That will give you the ability to spot bargains. Using a mentor who has succeeded in real estate investing can help you fast-track this process.
  3. Think like a businessperson. Like any business, you will want to buy at wholesale and sell at retail. You’ll make businesslike assessments of each property to determine whether it should be held for rental income or sold for resale profit.
  4. Learn to identify hidden bargains and act quickly. Acting quickly does not mean acting impulsively, though. You still will carefully structure your contracts with contingencies and the option to assign the contract, which will protect your interests and profit potential. If your plan is to flip, be sure beforehand that no “major surgery” on the property is required. Any improvements you plan to make should be visibly beneficial and have the potential of raising the rental price or the resale value.
  5. Learn landlording. Even if you plan to turn the task over to a professional management company, you still need to know the fundamentals of how to manage properties and tenants. Otherwise, how will you know whether a management company is doing a good job for you, or not?
  6. Establish trade accounts with companies such as building supply stores. This will enable you to save money, get into the loop with local tradespersons and other real estate professionals, and build your line of credit. It will also help you establish good bookkeeping, which gives you a sound basis for business decisions on your properties. I suggest keeping a daily log for your expenses. You’ll be glad you did when you’re doing your recording keeping, and at tax time.
  7. Borrow money for your investments. You can use banks, 50/50 partners, or private individuals. When you use seller-assisted financing, creative financing terms are often possible, such as shared future appreciation on the property or no-money-down deals.

In summary, decide what you’d like to do, and ensure that you have the proper knowledge and formula for success to make it happen. Remember that nothing at all happens for you unless you take action, so why not get started on your dream today?

Your partner in prosperity,

Dr. Albert Lowry

The Solution to the Investment Guru Gap

By Russ Keith

How did you get started in real estate investing?

Maybe someone else…a friend, family member…or even your spouse, was bitten by the property investing bug and you caught it.

Or maybe you were invited to a weekend property investing seminar and found yourself thrilled with all of the prospects for financial freedom that property investing holds.

There’s no doubt about it…investing in real estate can be a real life changer, but what happens when all of the energy and excitement you felt after the seminar begins to fade?

After all, investing in property is no cakewalk…if it were, everyone in the world would be doing it.

And as fun and educational as a property seminar can be, what happens when everyone packs up and goes home, and you’re left with the feeling of “what now?”

Maybe you start by watching the videos on the guru’s website. But what happens if confusion begins to set in after watching them? Or maybe you understand what you need to do, but you can’t get answers to specific questions about your market.

What do you do then?

More than just an education in investing

Through their investment meetup group called Crush It, REI Systems Academy founders Russ Keith and his wife Kim noticed a trend.

Some investors would come to the meetings for about 8 months or so, but then would simply disappear. When Russ called them up to find out how they were doing, he discovered these investors had run out of money or just got frustrated, disheartened and then quit.

When he drilled down further into what was going on, Russ discovered that once the “new” had worn off from the investment seminars these people had attended, they were left without a compass.

The videos, website and other material left by the property investing guru couldn’t really help the investors with the mental shift they needed to move from an “employee”  to a “business owner” mindset.

Nor could it address the particulars of the investors’ marketplace.

Filling the guru gap

REI Systems was created with the goal of filling in the gap between the education investors receive at property seminars and the day to day investment decisions every investor needs to make.

What makes REI Systems different?

Investors receive a real education in property investing, from real educators who have been teaching high school and university level students for more than two decades!

Russ and Kim have also flipped properties for nearly 30 years, earning between $14,000 and $80,000 profit on each homestead flip.

How does it work?

You’ll meet with Russ and up to 9 other investors in a classroom setting once a week for three hours over a 16 week period. At the end of each class you’ll be given homework and told what to do, step by step.

If you have any questions between sessions, Russ is always available to help. He’ll answer your question(s) and if he thinks it can help the rest of the class he’ll share the information with them at the next class.

When you begin putting your knowledge to the test, Russ will be there every step of the way. He’ll even walk with you as you inspect a potential investment property.

In fact, if Russ hasn’t heard from you in a while you can expect to receive a phone call to find out what’s going on.

Your success is that important!

Bottom line, you can pay tens of thousand of dollars for one 30 minute call a week and a bunch of videos with a travelling investment guru, or spend much, much less and be mentored by local investors – and educators – who know the market and know what it takes to succeed in that market.

It’s your call.

 

 

Are There Too Many Lawyers in the United States?

By Randy Hughes, Mr. Land Trust

Supreme Court Justice Antonin Scalia said, “…there are too many lawyers in the United States…” He went on to say, “I do not mean to criticize lawyers, just the need for so many lawyers. Lawyers do not dig ditches or build buildings. When a society requires such a large number of its best minds to conduct the unproductive enterprise of the law, something is wrong with the legal system.”

Something is definitely wrong with our legal system and everyone in America knows it. What does this have to do with real estate and using Land Trusts to hold title to investment real estate… a lot. I think that lawyers serve a valuable service to our society. In fact, I use a lawyer in every one of my real estate transactions (to protect my interest with an insured closing). But, Justice Scalia has a point.

Some say that there are more lawyers in law school right now than current practicing attorneys. And that the United States has 95% of the lawyers in the world! The Illinois Bar Journal says that over the next ten years the USA will graduate 60% more lawyers than there will be legal jobs available to them.  How are all these multitude of lawyers going to make a living?

I predict that lawyers are going to find new and creative ways of suing people like us (real estate investors). After all, real estate investors hold title to hard assets. Lawyers want to know that they can collect after winning a lawsuit against someone. Therefore, real estate investors that hold title to their investments in their own name are easy prey for the contingency fee lawyer.

Legal theory has progressed exponentially in the last few years. Who would ever think that a business owner would be sued because a burglar sustained injury while breaking into the owner’s business? Or that a manufacturer would be sued because he failed to warn a consumer not to drink battery acid? Or that a real estate owner would be responsible for dog bite on his property (the dog was not the property owner’s or his tenant’s dog and the person bit was not the property owner’s tenant).

With the legal system reeling out of control it would behoove you to find a way to avoid being a target. The best way to avoid lawsuits is to have no assets (or at least appear to have no assets). Keep a low profile and don’t own ANYTHING in your own personal name (especially not real estate)!

Lawyers did not get through law school by being stupid. Any good lawyer (when deciding whether to take on a new case) will investigate the assets of the proposed defendant. A smart lawyer will only take on cases that he/she feels confident that he/she can win AND COLLECT ON! Therefore, one of the first steps a lawyer takes prior to filing a lawsuit is to check the public records to see if the potential defendant has any “hard assets” (i.e. real estate).

So, your first line of defense is privacy of ownership. And, if you are a smart real estate investor, the least expensive form of privacy is the use of a Trust to hold title to your investments. Please learn all you can about Land Trusts and how to use them. You will be glad you did!

Randy Hughes, Mr. Land Trust

If you want to learn more about the wonderful world of trusts, please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347

Property Value: The Capitalization Approach

By Dan Harkey

When arranging a loan or investing in real estate, understanding the use of capitalization approach (“Cap Rates”) is critical to the decision-making. This subject is important to commercial realtors, lenders, developers, and investors.

Definition of Capitalization Rate (Cap Rate)

Cap Rates represent the ratio of Net Operating Income (“NOI”) to the property asset value (NOI / Value = Cap Rate). The income capitalization approach does not consider whether the property is free and clear with no debt service. NOI is simply gross rents, less a vacancy allowance, less operating expenses. If you have similar properties with similar characteristics in a similar geographical location that have recently sold in arm’s length cash transactions, you can calculate the comparison cap rates. Also, cap rates may vary, even in the same geographic location, depending upon the multiple types of properties.  Examples are, Class A vs Class C office, industrial, apartments, new modern styles with amenities vs older dated properties.  Additionally, the strength of the tenancy from national credit tenants with long term leases, vs a mom and pops’ month to month tenancy would result in a different cap rate. Most likely the mom and pop tenancy would reflect a higher cap rate. An exception would be where the national credit tenant locks a lease/rental rate that does not increase as the market dictates or anticipates, reflecting what is referred to as below market rent. The mom and pop, on the other hand, could be converted to a market lease relatively quickly, by either acquiring a new tenant or by renegotiating the lease with a higher rent

Market rents should be used rather than actual rents.  In most cases, actual rents are lower. When there is a lease up period, such as with new construction of an income producing property, future cash flows need to be estimated to the point of income stabilization, then the future stabilized income is discounted, utilizing an estimate of a capitalization rate, and a discount rate. Work with a good appraiser on this?

Once the market Cap Rate has been determined, you can apply it to the NOI and cap rate analysis of the property under consideration to indicate the probable market value.

At this point, I want to credit competent commercial appraisers, who can assist us to find the correct Cap Rate. I would not try to do it myself, without the assistance of an appraiser with local experience.

Let’s say for example that: The market Cap Rate for a commercial property with triple net leases (“NNN”) has been determined to be 6.5%. The 10,000 square foot multi-tenant property under consideration generates monthly rents of $1.50 per foot. After applying a 10% vacancy collection and loss factor and expenses of 5% for management and reserves, the NOI is $153,900.

10,000 sf X $1.50 = $5,000 Per mo. X 12 Mos. = $180,000 gross income

$180,000 – $18,000 10% vac. = $162,000 – $8,100 5% exp. = $153,900 NOI

$153,900 NOI / .065 Cap Rate = $2,367,692 asset value

From an investment standpoint Cap Rates can also indicate a prevailing rate of return before debt service and can help a lender/investor to measure both return on invested capital and profitability based on cash flow. An informed lender/ investor should understand that there may be dramatic variations in a property’s value when unsupported or unrealistic Cap Rates are applied.

Why do we use Cap Rates?

The capitalization approach is used as a “comparative method” of valuing property based on similar geographic locations, similar properties, and similar risks that would yield a comparable rate of return. Once the value is established, the loan to value ratio can be calculated to determine if it falls within loan underwriting guidelines.

Of course, Cap Rates are only one metric. They represent a snapshot of the market at the time of investment and they do not take debt service or financing costs into consideration. Therefore, if a borrower is going to finance his investment, as most people do, then further analysis such as cash on cash return would be useful. Sophisticated loan underwriters and investors will also do an Internal Rate of Return calculation. These calculations assist in establishing that the collateral property is not only income producing but a worthwhile investment.

Cash on Cash Return

Cash on cash return is a quick analysis that can be done to determine the yield on an initial investment. It is developed by dividing the total cash invested (the down payment plus initial cost), or the net equity into the annual pre-tax net cash flow.

Assume the borrower purchased the property which costs $1,200,000 and provides an NOI of $100,000, with a $400,000 down payment representing the equity investment in the project. The cash on cash return for this property would be:

$100,000 / $400,000 = 25%

If the borrower were to purchase the property for all cash, his cash on cash return would be:

$100,000 / $1,200,000 = 8%

It is clear from this formula that leveraging or financing real estate transactions will yield a higher cash on cash return, provided the transaction is financed at a favorable interest rate.

Internal Rate of Return

The internal rate of return (“IRR”) refers to the yield that is earned or expected to be earned for a given capital investment over the period of ownership. The IRR for an investment is the yield rate that equates the present value of the future benefits of the investment to the amount of capital invested.  The IRR applies to all expected benefits, including monthly and yearly cash flow and the proceeds from resale at the termination of the investment. It can be used to measure the return on any capital investment, before or after income taxes. Ideally, the IRR should exceed the cost of capital.

Is there an ideal Cap Rate?

Each growth/investor should determine their own risk tolerance that will reflect the ideal for their portfolio. A lower Cap Rate means a higher property value.  A lower Cap Rate would mean that the underlying property is more valuable but that it may take longer to recapture the investment. Whichever Cap Rate is targeted will represent the annual return overtime (before financing costs and taxes) an investor can expect to make on the investment at the time the property is acquired. If investing for the long term one might select properties with lower Cap Rates. If investing for cash flow, look for a property with a higher Cap Rate. It’s valuable to look at historical Cap Rates and Cap Rate trends on the specific property type in a specific geographical location. Declining Cap Rates may mean that the market for your property type is heating up. A Cap Rate that is either at the top of the range or at the lower end of the range is likely to change and it may be wise to adjust the analysis and/or investment strategy accordingly. And make certain, when comparing Cap Rates, to compare the same geographical locations and property types, apartments to apartments.  For Cap Rates to remain constant on any given investment, the rate of asset appreciation and the increase of NOI it produces will occur in tandem and at the same rate.

Below are examples of the affect changes in NOI and/or Cap Rates on asset values:

As NOI increases and Cap Rates remain the same, asset value increases.

NOI CAP RATE ASSET VALUE

$300,000 / .06 = $5,000,000

$350,000 / .06 = $5,833,000

$400,000 / .06 = $6,666,666

$450,000 / .06 = $7,500,000

The effect on Asset Value when the Cap Rate varies.

NOI CAP RATE ASSET VALUE

$500,000 / .03 = $10,000,000

$500,000 / .04 = $ 8,333,333

$500,000 / .05 = $ 7,142,857

$500,000 / .06 = $ 6,250,000

Cap rates are driven by property type, geographic location and market sentiment. During the recent recession, as property values fell, Cap Rates increased dramatically for some property types in certain areas of the country. The improving economy has reversed that trend.

Correlation Between Cap Rates and US Treasuries  

The US Ten Year Treasury Note (“UST”) is deemed to be the risk-free investment against which returns on other types of investments can be measured. Interest rates on UST have been on a broad decline for many years but have recently began to rise.  There is now concern that as interest rates begin to rise, so will Cap Rates will rise and consequently there may be reduction in asset values over time? With so many uncertainties in the market, and growth projections constantly being revised, the spread between UST and Cap Rates have not remained constant.

Also, the discussion of the above, affect of cap rates resulting from artificially low interest rates, inflationary expectations, and anticipated increased interest rates need to be discussed in another article.

Summary

Cap Rates are a good starting point in analyzing a property’s value, but they should not be the only analysis. It is prudent to look at the cash on cash return and the internal rate of return as well. Factors such as changes in NOI, vacancy rates, and changes in neighborhood property values are just a few other considerations. Also recognize, that Cap Rates may vary widely in different geographic areas. Property appreciation, perhaps one of the greatest reasons for investing in real estate, is not part of the Cap Rate calculation. For investors, the tax benefits of owning commercial real estate may, in and of themselves, be the driving force to make such an investment. If the property is to be leveraged, then there may be write-offs for loan fees, interest expense, depreciation and investment expenses. Taking all these factors into account can help achieve the basis for making a sound business decision.

As interest rates go up, will this automatically cause Cap Rates to rise, and values to go down. Not necessarily in the short term. Remember that increased debt service based upon higher interest rates is not considered in the capitalization approach.  But, over time as interest rates go up, borrowers will feel the sting of higher debt service payments.  Some property transactions may become less appealing financially.  As purchasers and borrowers elect not to purchase, that may compound and create more unsold inventory.  Some sellers may get desperate and reduce price to sell quicker.  The lowered price would result in an increased cap rate.  On a macro level, this could result in lowering all real estate prices.

How dramatic can lowered real estate prices be over time? As we witnessed 10 years ago that the contagion effect could spread and result in dramatically lower values, and substantially increased Capitalizations Rates.

Dan Harkey is a business and private money financial consultant. I have been active in the real estate and financial services industry since 1972. I have taught courses on private money lending and underwriting of commercial/industrial properties at over 350 educational seminars. This and many other articles I have written are available to read on my website Danharkey.com

You may also reach me at my office (949) 521-7115 or by e-mail at [email protected] you can also find me LinkedIn.

Dan J. Harkey

Business and Private Money Lending Consultant

Mobile: 949.533.8315

Office: 949.512.7115

[email protected]

 The article is for educational purposes only and is not intended as a solicitation

 

Molding a Million Dollar Marketing Mind Set

By Kathy Kennebrook (The Marketing Magic Lady)

When you are getting started in the real estate business, I know that putting a solid marketing plan in place is going to be one of your first priorities. This will be the main strategy that will separate you from your competition.

Decide what your focus is going to be regarding the type of properties you initially would like to purchase in your Real Estate Investing business and create a plan of action that will begin to bring in motivated sellers in droves and create deals for you. If you don’t know what exit strategies to use, make getting educated one of your top priorities. Getting a good education in the buying and selling of real estate will quickly separate you from most of your competition. You can check out my website at www.marketingmagiclady.com for some really powerful tools for your Real Estate Investing business.

Don’t be afraid to do what those around you will not. Dare to be different and consistent in your marketing efforts and the results will be amazing. Niche your marketing and become an expert in your market place. Become educated within your market place so you know what your property values are and what your personal target market is going to be.

The first step that I take is to find out what my real estate market is doing. Are there a lot of pre-foreclosures? Do you live near a military base where a lot of people are being transferred? Are you in an area where there are a lot of ugly houses you can purchase inexpensively and then wholesale? Have you run demographics to find out what kind of income levels there are within your market area? Is the market slow and are there a lot of houses for sale?

If this is the case, then you know that it is a buyer’s market and there are a lot of good deals to be had. You just have to learn to be a little more creative in the way you sell your properties. If there are very few houses for sale and they are high priced, then it is a seller’s market and you need to adjust your marketing strategies accordingly. This is all part of discovering your niche within your market. Don’t allow yourself to be influenced by various advertisers or those who profess to be real estate experts in your area, take the time to discover what works best for you in your marketplace and stick with it.

The next step I suggest is to figure out what your marketing budget is and which marketing strategies will reach the highest number of sellers within your budget. For example, your budget may include signage, business cards, direct mail, flyers, ads, websites or a combination of all of these.

You should always have between three and five marketing strategies in place at any given time so you are reaching the largest segment of your market in a variety of ways. This way a higher number of potential sellers will see your message. For example, you may reach sellers by using direct mail that would never see your message in any other way.

I continue to test and track my results just as you should so you can make sure the marketing dollars you spend bring in the highest number of quality leads. If necessary drop the things that don’t work well and put that money back into the marketing techniques that are working well for you.  This is also how you will learn which marketing strategies work best for you.

Track your real estate market changes so you can change your marketing accordingly as you go along. Using this strategy in your real estate investing business will assure that you always have the highest number of quality leads possible coming in. More quality leads mean more deals and more dollars coming into your business.

Be aware of the special problems of your market. Are there a lot of layoffs? Are there a lot of folks who are part time residents? Is yours a very high end market with a lot of luxury homes? Discover these special differences and market directly to these folks. Figure out what it is that everyone before you has done and then you do it differently. Believe me when I tell you that this one strategy alone can make you big profits in your business.

For example, in my market almost no one does direct mail on a consistent basis, so I have made this my personal niche. By doing this, there is virtually no competition for properties whatsoever. Figure out what your niche is by figuring out what your competition is not doing and do more of it yourself. We created specific direct mail campaigns targeting specific sellers who are more likely to work with us. Then we send out our message on a residual basis and watch the deals continue to come in.

Make sure you take the time to begin to build your dream team along the way. These are the people who are going to be helping you to locate deals and get them closed and then sold. This is how you make huge profits in the real estate business, by surrounding yourself with team players who want to see you make money so they can make money as well. There are many ways to use your vendors as “bird dogs” to find deals for you that you have virtually no marketing cost in whatsoever until you actually purchase the deal. At that point you would probably want to pay them a finder’s fee. This is a good way to keep them motivated to help you find even more deals.

I suggest that you make sure that you take a portion of the profit from each deal that you do, especially in the beginning, and put it back into your marketing so you can continue to grow your business. At the point at which you decide you have enough deals coming in each month, you will be able to determine exactly what your monthly marketing budget needs to be in order to bring in the number of deals that works for you.

Remember to set specific goals for your business and yourself and strive to meet those goals each and every day. By doing this, you are planting seeds of success for today and for your future. You won’t be able to see a clear picture regarding where you began or where you are going unless you do this. This is one way to keep focused and keep your business on track.

For everything you need to know about locating motivated sellers, buyers and lenders for your real estate investing business and creating a business plan to buy and sell properties quickly, visit Kathy Kennebrook’s web site at www.marketingmagiclady.com. While you are there be sure and sign up for our FREE monthly newsletter!

Kathy Kennebrook

Kathy Kennebrook is the ultimate success story. She spent over 20 years in the banking industry before discovering the world of real estate. After attending some real estate seminars this 4 foot 11 mother of two got really excited and before you know it she’d bought and sold hundreds of properties using none of her own money or credit.

Kathy holds a degree in finance and has co-authored the books- The Venus Approach to Real Estate Investing, Walking With the Wise Real Estate Investor, and Walking With the Wise Entrepreneur which also includes real estate experts Suze Orman, Robert Kiyosaki, and Dr. Wayne Dyer.

She is the nation’s leading expert at finding highly qualified, motivated sellers, buyers and lenders using many types of direct mail marketing. She is known throughout the United States and Canada as the Marketing Magic Lady. She has put together a simple step-by-step system that anyone can follow to duplicate her success.

Kathy has been speaking throughout the country and across Canada for over 14 years and has shared the stage with Ron LeGrand, Dr. Phil, Dan Kennedy, Mark Victor Hansen, Ted Thomas and Suze Orman to name a few.

Kathy is going to share with you how she generates a seven figure income by mailing a handful of letters throughout the year to highly selected targets by knowing exactly what to send them, who to send them to and exactly how to deliver her message. She will teach you the secrets of pre-screening and automating your marketing and follow up systems to put your entire Real Estate business on auto-pilot.

 

8 Simple Steps To Riches In Real Estate Or In Any Other Field, For That Matter

By Reggie Brooks

Before I got involved with real estate I tried various other potential money-making ventures.  I created a company called Advanced Video Productions, and spent the first 4 weeks designing the all important ‘logo’.  I might have thought that my income was totally dependent on a well designed, slick logo. I hadn’t learned anything about time management yet.

I created another company that sold satellite systems. This was way back when satellite dishes were huge.  They could have been mistaken for UFO’s.  My  success?  I sold 1 satellite system, period.  And that one system was sold to a friend.  I hadn’t learned anything about marketing. 

Another time, I got involved with a Multi Level Marketing group and ended up with a garage full of water filters.  Well, it really seemed like a good idea at the time…..

Through the many successes and failures that I’ve either experienced over the years or witnessed others experience, I’ve identified 8 steps you can take that can put you on the fast track to wealth.  These are  simple, powerful steps that really work!!

The 3 Cornerstones Of Success

I’ve taken a lot of seminars and classes over the years, and I’ve learned that personal and financial growth requires an investment. You must be willing to invest your money and your time. Then you must make a commitment to discipline yourself. What good is having a superior knowledge  of creative real estate if you don’t discipline yourself to use it?  Many successful real estate investors have invested many thousands of dollars in their creative real estate education.  Their libraries are bulging with books, tapes, CD’s, DVD’s, and any other form of media necessary to put money-making techniques into their heads.  They understand the power of “The 3 Cornerstones Of Success”.

The 3 Cornerstones Of Success are like a 3 legged stool. As long as there are 3 legs, the stool will support your weight. However, if you loose just 1 of those 3 legs, you’ll crash to the floor.  This is a perfect parallel to the 3 Cornerstones Of Success.

  1. The 1st Cornerstone Of Success is continued education. As successful investors, we make our money buying distressed property from motivated owners. In order to do that, we must learn how to creatively solve the problems that owners have with their properties.  None of us were born with this creative knowledge. We have to invest our money and our time into our education, and we have to learn the smart, money-making principles and techniques.  Then, we use these smart, money-making principles and techniques as tools to creatively structure win-win deals. This is why we continue to read books, listen to tapes, and take classes.  This brings us to the 2nd Cornerstone Of Success.
  1. The 2nd Cornerstone Of Success is discipline. You must discipline yourself to use the smart, money-making  principles and techniques that you’ve learned.  This doesn’t necessarily mean that you have to spend 15 hours each day to work your business.  It could mean that you simply discipline yourself to write that offer, or send that letter out, or talk to that owner or neighbor, or anything else that you been procrastinating about.  So much of the time we’re so close to success, but we give up just before we achieve it.  Most of the time we give up because it is to scary or to painful to proceed on.  Anticipating an owner who says no instead of yes can be both scary and painful.  Dig down as deep as you need to and find that spark of passion that you can use to generate the discipline that you need.  Use it like a magic carpet to fly above the pitfalls to success.
  1. The 3rd cornerstone is productive action on a daily basis. You must continue to learn, you must discipline yourself to use what you’ve learned, and now you must put it to work on a daily basis.  It may be that the productive action of the day may only take 15 or 20 minutes. Success comes to the person who has made him/herself worthy of the success that they seek.  And you make yourself worthy by following the 3 Cornerstones Of Success.  Then, you’re prepared whenever opportunity comes along.

People sometimes ask me, “Come on, Reggie, tell me”.  “What’s the secret to being successful in real estate”? There is no one individual ‘secret’  that will make you an instant millionaire in real estate.  It’s more of a matter of doing a whole lot of little things correctly that empowers us to create a tremendous wealth.   Doing smart things systematically toward your goal every day will breathe life into the 3 Cornerstones Of Success.  There is nothing on this earth that can stop you if you simply follow the 3 Cornerstones Of Success. Here are a few other ideas that can help you to achieve your own level of success.

  1. Don’t Take Your Financial Advice From Broke People

When I first got involved in real estate, I let everyone know that I was launching into a new career.  I told them that I was studying courses on how to perform creative real estate deals that would make me rich.  I told them I was learning  about no money down deals, how to get owner financing, how to rehab to increase profits, and so much more.  I was so excited about my new real estate career that I had real trouble shutting up about it.  As a matter of fact, I think that I got a little cocky.  I’d tell anyone who would listen to me about the wealth that I was going to build in real estate.

I finally realized that I was sharing my excitement with the wrong people.  I was sharing my dreams with people who had no respect for them.  They would find ways to tell me that my dreams would never work. “There’s no such thing as a win-win deal”.  “When someone wins, someone else has to loose.”  They also said things like, “You can’t do no money down deals because there’s got to be some money in the deal someplace”.  They never stopped to think that the money doesn’t have to come from you.  It can come from the seller, the lender, the realtor, from private sources, or a great number of other places. It doesn’t have to come from your pocket.

This is when I realized just how important it is to share your ideas with the right people, and not the wrong people.  Share your ideas with other investors or students who are of like mind – either doing deals and making money or learning and growing in creative real estate education.  If you share your dreams with people who are not educated or not experienced in creative real estate techniques,  you leave yourself wide open for opinions.  When you get opinions from people that you respect, you have a tendency to believe them.  This can be especially hazardous for new investors.

Always ask yourself the question, “By what authority does this person give me this advice.  Has he/she been trained in this field?  Has he/she worked in this field and made money?”  If the answers are no, don’t listen to him/her.  No matter how much you love or respect the person, you have to protect your financial future from well meaning people who are not qualified to give you financial guidance.

If you have a new born baby, you wouldn’t dare even think about exposing that baby to the harsh elements that could make your baby sick.  You wouldn’t leave your new born baby outside in the rain or the snow.  You wouldn’t leave your baby in the heat of the sun, or with unsavory characters as baby sitters.  Treat your new real estate business just as you would your new born baby.  Expose your baby to the people who can help it grow big and strong, but keep it away from those who will do it harm.  And the difficult part is that for the most part, our uninformed friends don’t mean any harm.  But if you let their unfounded opinions influence you, it can be fatal to your business.

If you will continue to learn the right things – the things that create win-win situations between you and the owner – the things that make you money, now you’re ready for the next lesson.

  1. Don’t Get Greedy

My friend and mentor, Dr. Albert Lowry tells his students that it’s OK to be a bit of a pig (I call it good negotiating). It’s OK to structure a deal where you make a lot of money.  But don’t be a hog. You can blow a good deal by trying to hog all the profits. Don’t forget about the seller’s needs.  Dr. Lowry says, “Pigs get rich, but hogs get slaughtered”.  Makes sense, doesn’t it?  Keep this phrase in mind.  We’re going to talk about a principle that was so important in changing my life.  As we discuss this principle, keep in mind that you can get rich faster by doing a lot of $20K to $30K deals than holding out for that big $100,000 deal. So, without further ado, I present to you “The Win Principle”.  Caution: This principle works best when used with The 3 Cornerstones Of Success, which we talked about earlier. Here’s how it works:

The “WIN”  Principle stands for “What’s Important Now”.  Once you’ve educated yourself in creatively investing in real estate, you’ll know what you should be doing at any given time.  Whether it’s using what you’ve already learned, or, if you’re a little short on knowledge, maybe taking in a seminar, workshop, bootcamp, or listening to books and tapes.  It may be that you need to take a break, or the rest of the day off, or even a vacation.  Whatever it may be – you know deep inside exactly what you should be doing at any particular time.

If you will discipline yourself to do What’s Important Now, you WILL accomplish your financial goals.  What do you want?  Do you want to be rich??  You can be rich!!  If you will diligently exercise the 2 principles that I’ve outlined above, you will accomplish your financial goals!!!  Does it sound easy?  It does to me.  I think it’s a simple thing to do, but it’s certainly not an easy thing to do.

  1. Failing To Screen Your Sellers

As investors, we make our money when we buy property from motivated sellers.  I had to find that out the hard way.  Very early in my career I found an little old lady that lived in a huge old house in Hollywood, California.  Her name was Alice Jordan and she was part of a big mailing campaign that I was working at the time. When she responded to one of my letters, it felt like my heart was going to jump out of my chest an on to the floor!!  My  palms were sweaty, and my voice trembled.  She said that she wanted to sell her house!!  We immediately made an appointment to meet at her house the very next day.

It was sheer agony having to wait until the next day to meet with the lady in the big house.  The thoughts running through my head were non-stop!  Will she contact someone else?  Will someone else contact her?  Maybe a family member.  What if she changes her mind?  Am I really ready for this?  This is a huge step!  What if it doesn’t work?  What if I fail?  I don’t want to loose any money.   Does any of this sound familiar to you?  I think we all suffer with Uncontrollable Thought Syndrome.  There’s nothing like doing a good deal and making yourself $20,000 to $40,000 to make all those negative thoughts disappear.  You might still have those uncontrollable thoughts running through your head, but they’ll be a little different.  Let’s see, I wonder if we should go to the Bahamas, or if we should go to Hawaii?  Should I go for the Mercedes, or should I go for the BMW?

Back to the little old lady.  For three weeks, we went back and forth.  Every time I thought we were close, she’d throw some garbage into our deal that would bring negotiations to a halt.  Then I’d call her after a few days, we’d reach what I thought was an agreement, and we would resume.   This would happen over and over.  You’d think I’d have gotten a clue about this one, but I didn’t.

I happened to be talking with a friend who was a fellow investor, and I mentioned Ms. Jordan, the lady that I was dealing with, and how frustrated I’d become.  He looked at me with a little sly smile on his face.  He said, “You mean Alice Jordan”?  I said yes.

Needless to say, I was stunned.  The uncontrollable thoughts started again.  I quickly took control by feebly asking, “Uh, how do you know Ms. Jordan”?  His answer cut like a knife.  “Everybody knows old Alice.  She gets lonely and calls on someone’s newspaper ad or direct mail piece.  That’s how she entertains herself.  She never leaves the house.’

I was crushed.  I was merely an old lady’s entertainment.  Everyone else knew about Ms. Jordan. I didn’t.  My friend even called her by her first name!!  That’s when I learned how important it is not to waste time on sellers that are not motivated.  By the time you make an offer based on your profit criteria and you get a counter offer back from the seller, you’ll know whether  you have a motivated seller or not.

  1. Lack Of Focus

There are so many different ways to make money in real estate.  You can buy, fix up and sell.  You can buy and hold for cash flow.   You can wholesale to other investors.  Come to think of it, you can even make money without ever owning the real estate.  You can buy mortgages, and you can lend money and charge hefty interest rates.  And this is just to name a few.  It’s easy to see how a new investor can jump from one strategy to another.  A new investor is usually excited about the prospect of getting money worries out of the way, and as a result they’re usually more than just a little impatient.  The expectations are high, but the patience is low.

Success in real estate investing is directly dependent on your ability to take action, analyze your results, make your adjustments and take action again.  It’s a sweet little cycle that you use to get rich.  A success cycle, if you will.  The best way to capitalize on this cycle is to focus on a system that is simple and easy to work, like Creating Wealth With Abandoned Properties.  As you begin to work your system of choice, make sure you continue to learn from your results while you fine tune and tweak your business.  This is how you become a master of your investment system.  This is how you get RICH!!

You must stay focused on your goals.  I read a book that my wife gave me when we first got together, called the Peak To Peak Principle.  This was another one of those life changing experiences.  I say experience because that’s what it was.  It wasn’t just ‘reading a book’.  It was the experience of learning a principle that could help make me rich.

Here’s how the Peak To Peak Principle works.  Visualize yourself as a mountain climber doing what you do – climbing a mountain.  If  your goal is to reach the top of this mountain, then you’ll do well to keep your focus on your goal – the peak of this mountain.  However, if your goal is to conquer other peaks then, before you reach this peak, you must shift your focus to the next peak.  If you don’t shift your focus, you allow the first peak that you reach to become a plateau.  It will take a lot of energy to get your momentum moving in the right direction again. 

When you relate this principle to your real estate business, your plateau becomes a comfy little haven where you’ll find yourself sitting and relaxing.  You might eat a sandwich, read a book, or listen to the radio.  You might be so comfortable that you decide to spend the night, or the week, or the month, or the rest of your life.

Since you have your momentum going in the right direction, go with the flow.  If you apply the Peak To Peak Principle to your real estate business, you can get to your goals a lot faster.

I THINK WE’VE JUST FOUND THE SECRET TO GETTING RICH!!   It’s a matter of learning these and other ‘wealth-building’ principles and using discipline to operate my real estate business under those principles.  For the first time, I can see the how of getting rich!

Having the scientific type mind that I have, that just made this revelation even more powerful.  I can actually see in my mind’s eye exactly how I’m going to get rich!!  I floated around on cloud 9 for a long time after that.  As a matter of fact, I’ve never come down, and I never will.  It’s almost like having a ‘secret weapon’ that most other investor don’t know much about.  Learning and using the wealth-building principles can give you the edge over your competitors.

  1. Managing Your Fears

Every human being on the face of the planet has experienced fear in some form or another.  I’d even be willing to bet you that every animal, insect, rodent, and every winged creature as well, has experienced fear.  Fear definitely has a useful place in our lives.  It’s purpose is as a early warning system.  To alert us about possible dangers so that we can modify our path and create a solution to eliminate the danger. Fear was never meant to scare us into non-action.

Here’s an interesting idea.  I believe that there is a purpose for every living creature on earth.  Beavers build dams, humans solve problems.  If you take a careful look around, you’ll see a whole lot of stuff that was created by the human species.  If you look deeper, you’ll find that the purpose of each one of these inventions was to solve a problem.

It has been said that we learn better by doing, rather than by reading.  In other words, at some point, you’re going to have to get out there and get your feet wet – you’re going to have to get started.  I know, I know…  It’s scary.  Whenever you launch into something so big and significant that it can change your life, you’re going to get a little scared.  Here’s a good way to handle your fears:

This solution to handling your fears is so simple that even I was able to master it.  First of all, arm yourself with an abundance of knowledge about the situation.  Be careful not to over-analyze the situation.  You only need enough facts to make an intelligent decision.  If you have a fear of writing your first offer, you may have to pick up a book, or take a seminar.  You might have to make a bunch of copies and practice writing offers. Do what ever you have to do in order to arm yourself with the knowledge that you need.  Then, keeping the WIN principle in mind, you simply take action.  Isn’t that simple?  It really is.  The one antidote for fear is action.  Intelligent, systematic action will not only make fear disappear, it can also make you rich.

Sometimes we have a certain type of fear that robs us of an important part of our growth.  We’re afraid of making mistakes.  Even though we’ve only been involved in real estate for 5 minutes, we have this crazy notion that we shouldn’t make mistakes.  After all, we did take that 1 ½ hour seminar last year, we should be rich by now.  If you have a problem admitting and accepting mistakes, you’re missing out on one of the greatest tools that you could have in the creation of wealth.

I was in my early 20’s when a 17 year old kid taught me something that will be with me for the rest of my life.  He taught me that mistakes are our friends.  He said that every mistake that we make has within it a lesson for us to learn.  Some people are so busy trying not to make mistakes that they totally miss the lessons in the mistakes that they do make.  By learning these lessons, then making the correct adjustment in our paths to success we can get to our goals at a very fast rate of speed.

What if you were able to look into the future.  You might see that, in order for you to become a millionaire, it will take you making 175 mistakes, learning the lessons in each of those mistakes, applying those lessons to your business, and moving on to the next mistake.  You might find yourself jumping out of bed and hurrying to meet the day!  You can’t wait to make the next series of mistakes, because you know that at the end of your mistake making, lesson learning day, you’ll be closer to your goals!  If you only made 5 mistakes yesterday, you’re going to kick it up today.  You’ll make 10 mistakes today!!  And, by the time you learn your lessons and apply the changes, you’ll be surprised at how quickly you can be very far along in reaching your goals.

You’re A Winner – Read On, And I’ll Prove It To You!

Always remember the winner that you are!  You came into this world to create.  So, create!!  You have an ability within you to create whatever solution you need to overcome whatever problem that you think is standing in your way.  If you will follow the principles that I’ve outlined in this article, you can do much to accomplish every one of your financial goals.

You are a winner. Remember?  Three and a half million sperm chasing one egg.  You won!  You’re here!  That’s evidence of the winner in you.  Peace and prosperity to you and your family.

 

Reggie Brooks, is an international speaker, author and educator, dedicated to inspiring others to achieve personal success through real estate investment. He is also the #1 Vacant, Abandoned & Distressed Property Specialist in North America.

Having risen above a life of poverty, he has achieved what many people consider to be impossible. He went from making $36,000 per year at the local telephone company, to making over $40,000 per month in his real estate business. Today, Reggie delivers his personal philosophies for success at major business venues and expositions throughout the United States. Reggie attributes his success to faith, dedication to success, and to the invaluable coaches he has had along the way.

 

The Easy Way to Make Money Online Today – Affiliate Marketing

By Lex Levinrad

Do you want to know a little secret about one of the easiest ways to make money online today that takes very little work and effort?

You can make a lot of money relatively easily in a short amount of time with affiliate marketing. My motto with all of my real estate students is to “stop trading your time for a paycheck”. Affiliate marketing is one of the easiest ways for you to do this.

I will give you a great example of affiliate marketing and how I use it every day at work. I like to buy books and I read a lot of books (about 3 a week mostly ebooks). I also like buying electronic gadgets, computers etc.  And the place that I do most of my shopping is online since I don’t have the time or inclination to do retail (remember don’t trade your time for a paycheck).  I buy a lot of stuff on www.amazon.com. When I say a lot I mean every single day I buy mp3’s, ebooks, movies on demand, gifts, books, electronics you name it and I buy it online mostly on Amazon.

I noticed that Amazon had an affiliate account and so I signed up as an Amazon Affiliate. Once you are an affiliate they give you access to your affiliate account where you can get links to products that are listed on their website. You can paste these links anywhere online. You can put these links on your blog, Twitter, Facebook or anywhere else online.

So how is this useful? Well let’s look at some ways that you could utilize this to make money. Let’s say you had a real estate web site or blog. You could add a page called “real estate books”. You could then put together a list of your favorite real estate books on that page and you could have affiliate links set up for each one of those books.

If anyone clicked on any of those books and ultimately purchased them from amazon you would get paid a “commission” or referral fee. The fee is small (4% to 15%) but what is important to note is that once you have set up your page once you never need to do anything ever again. And any time in the future if anyone clicks on any of those books and then buys it from Amazon you will get paid. This is called passive income which is way better than trading your time for a paycheck.

This is just one example of affiliate marketing. Here is another. Sign up as an affiliate on our website at the following link:  http://www.lexlevinrad.com/Affiliate.html It takes less than 2 minutes to sign up as an affiliate. Set up a free real estate related blog using www.blogger.com or www.wordpress.com and put some real estate information on your blog (add a real estate news feed and a few real estate articles you can use mine). Then add one or two banners to different products that we offer on your real estate blog. If someone clicks and then buys the product you get paid an affiliate commission.

That affiliate commission is called passive income and that is what affiliate marketing is all about. I highly encourage you to seek out multiple affiliate opportunities in your niche (real estate or elsewhere) since this is one of the easiest ways to make money online.