Friday, February 24, 2017

The rich get richer because they can spot an opportunity better


Most people never get wealthy simply because they are not trained financially to recognise opportunities in front of them. The rich have learned how to recognise opportunities as well as how to create them.



Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Wednesday, February 22, 2017

Keeping up with the Jones is tiring


People think that working hard for money and then buying things that make them look rich will make them rich. In most cases it doesn’t. It only makes them more tired…And if you notice, the Joneses are exhausted.



Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Monday, February 20, 2017

Australia Housing bubble


Foreign investors are queuing up to buy anything they can get their hands on. This is causing average Australian punters to think they need to start buying now. It has created a bubble. It's pretty bad when the Australian property market is making news all over the world.

Tuesday, February 14, 2017

How to finance your real estate investments


When I discuss the idea of OPM or Other People's Money, most people are on board with it-excited even-about the possibilities. But then they become intimidated by the idea of how exactly to find and use OPM.

This is normal for people. When we learn new ideas, our mind does its best to create reasons why the idea is wrong or it won't work. Our mind tells us things like, "No one would ever give you money," "You can't find good enough investments to attract OPM," or, "Using OPM is taking on too much risk. Better off just putting money into your retirement account."

In reality, the hardest part of OPM is knowing how to find the right real estate investment to attract money, but even that isn't difficult if you take the time to learn how to do it.

Once you have the right property, getting OPM becomes quite easy-if you know where to look. And when you begin to build your real estate portfolio, it gets even easier.

Below are six solid sources of OPM you can put to work for you and your real estate investments.

Banks
This one should be obvious. If you own a house, you know what it's like to go to a bank to apply for a mortgage. Most people don't think of it this way, but a mortgage is a form of OPM. Generally, with a single-family home, a bank will cover up to 80% of a home's value. You, as the purchaser, will pony up the other 20%.

This isn't always the case, however. For first-time homebuyers, an FHA loan can cover up to 97% of the purchase price with the buyer only having to contribute the other 3%. Of course, there are stipulations on this, such as you have to live in the home for a certain number of years before you can rent it out.

When it comes to real estate investing, when a property gets to a certain size, it no longer is viewed as a residential property but instead as a commercial property. This means that any bank looking to make a loan will base the loan criteria on the operating income of the property, not on the "market value" like they do for a home.

Often times, if you can make the business case for a loan to cover not only a portion of the purchase price, but also for the execution of the business plan to grow the property's value, you can fund a lot of your capital costs with the bank's money.

Banks are notoriously conservative, so if you're looking to have little-to-no money in a deal, a bank might not be your best option. But it can be a good place to start.

Private lenders
While banks are generally public institutions that have high regulatory requirements, you can work with private lenders and equity firms that are willing to invest in real estate. These could be angel funds, investment groups, and more. You'd be surprised how many institutions are out there with the sole purpose of finding good investments to pour money into. You can find these lenders by either asking other investors you know or by doing some searches on the internet, where you can find things like private lender associations. These loans can be a bit more expensive with higher interest rates, so weigh your options.

Seller carryback
A seller carry back is where the seller of a property acts as the lender. There are a number of reasons why a seller might do this. Perhaps they are tired of the work required to operate a piece of property, or maybe they are looking for a steady return by collecting set interest on their money rather than rely on rental income ups and downs.

Because it is a private transaction, there are many options for seller carrybacks, and it just depends on your negotiating skills. The seller could finance all or part of the property. The rate could be at market or it could be higher than market depending on risk. The seller could participate in part of the profit in exchange for a lower rate and you doing the work and management to execute the business plan. The options are nearly limitless.

You never know if a seller will be willing to carryback, but as with all things, it never hurts to ask.

Investors
If you have a good investment property, it will be easy to line up private investors who will want to provide the equity money for the property. Often times this is how you can raise the money for the percentage of the purchase price that a bank will require you to pay.

So, for instance, if you are buying a four-plex and the bank requires you to put down 25%, you would use private lenders to raise most or all of the equity money needed for that 25%.

This means you need to put together a solid investment prospectus that shows the potential of return for the investors. Ideally, you would have done that for the bank as well, so it should be ready to shop.

This is how Rich Dad Advisor Ken McElroy does his deals, and he has grown his portfolio from one apartment building to thousands of units in multiple states.

Government Tax Credits
If you are interested in doing investing in properties that the government subsidies, like affordable housing, you can utilize a slew of tax credits to help fund your real estate investment. These types of investments require a high-level of financial intelligence, so you don't want to just jump in. But if you do the work to become a pro, you can make a very good living.

Additionally, you can find tax credits for building or retrofitting properties with environmentally friendly enhancements. It varies from marketing to market, so do your homework and see what you can get.

Cash flow on operations
This is where things get very fun and why I believe real estate is one of the best ways to accelerate the velocity of your money. Once you have a good real estate investment property and a plan for growing its value, you can utilize that property itself as a means to generate cash out of thin air for other real estate deals.

I hit on this in my last post when I talked about how to improve a property for greater cash flow and value:
    As an example, let's talk about Rich Dad investor Ken McElroy. Ken, as you may know, is a real estate mogul specializing in apartments-a real estate class called multi-family housing.

    What Ken and his partners do is find apartment buildings that under-perform. Because the value of a commercial real estate asset like an apartment is based off the Net Operating Income (income after expenses), any opportunity to increase NOI is an opportunity to see a healthy return.

    For Ken and his team, a variety of factors could help with this. For instance, the current landlord could be renting units well-below market rates. Turning those units and raising the rent could dramatically increase NOI. Or perhaps retrofitting units with washers and dryers, as well as a cosmetic facelift could increase rents by anywhere from $25 to $50 a month. Multiply that by hundreds of units and you'll see a lot of lift in income.

Since the bank values a property on the Net Operating Income, not on "market value", a lift in income is a sizable lift in value. You can use this higher value to do a refinance, pull money out of a property tax-free, and then redeploy it into another real estate investment. Continuing the cycle over and over again over many years exponentially grows your portfolio-and your wealth. And it's all done with OPM.

Monday, February 6, 2017

Being a millionaire may not be all it seems

There's no doubt about it, from an early age we teach our children the value of saving money. "A penny saved; a penny earned," we chime. And when they are a bit older, we spin tales of the magic of compounding interest. Save enough, children are told, and you'll be a millionaire by the time you're ready to retire!

Of course, we don't tell them about historically low interest rates, or the power of inflation to eat away at the value of money over time so that being a millionaire is worthless by the time you retire. Those are inconvenient financial truths.

It seems as if the "wisdom" to save your money is timeless, in that it won't go away, even though it's proven to be wrong. Even today you find "financial experts" who push the save to be a millionaire myth.

Playing with numbers

Take for instance a video shared on Business Insider, "How much money you need to save each day to become a millionaire by age 65". Breaking it down by age, it gives the following amounts:

    Age 55: $156.12 per day / $56,984 per year
    Age 50: $73.49 per day / $26, 824 per year
    Age 45: $38.02 per day / $13,879 per year
    Age 40: $20.55 per day / $7.500 per year
    Age 35: 11.35 per day / $4,144 per year
    Age 30: $6.35 per day / $2,317 per year
    Age 25: $3.57 per day / $1,304 per year
    Age 20: $2.00 per day / $730 per year

If you're in your twenties or thirties, you're probably feeling pretty good about these numbers. You might even be tempted to think it's worth it to start saving your money. After all, who doesn't want to be a millionaire by the time they're 65? If you're in your forties or fifties, you're probably looking at those numbers and feeling a huge pain in your stomach. I don't know many middle class families with an extra $10K to $56K to save each year.

Now, here's the kicker, at the end of the video, the following assumptions (or should I say disclaimers?) are given:

"For simplicity sake, the calculations assume a 12% annual return and don't take taxes into account."

That indeed is some magical compounding interests-and mythical too. Let's break this down a bit.

What's a realistic return?

In the last 30 years or so, there has only been one time where interest rates on CD's reached 12%. That was for a 5-year CD in 1984. Over the last decade, the S&P has only returned 8.65% on average. In the same time period, the 3-month T-bill has returned 0.74% and the 10-year T. Bond has returned 5.03%. In fact, if you look at this chart by Aswath Damodaran, you'll see that since 1928, you'll be hard-pressed to find any standard investment or savings vehicle that returns 12% over a sustained period of time.

Perhaps you're ready to concede the point that 12% is lofty in terms of return assumptions, but maybe you're still pretty comfortable with the idea of a 10%, 8% or even a 6% return. The problem is not only does the video assume a high rate of return that most people will never achieve, but it also does not factor in taxes, which can eat up significant portions of your returns. For instance, savings account interest is taxed at a marginal rate. This simply means that it is taxed at your income bracket. So if you're taxed at a 25% rate for your income of say, $65,000 a year, you're savings interest earnings are also taxed at that rate.

You can begin to see how this pop financial advice begins to quickly fall apart.

Savers are losers, but who is the winner?

For years, I've preached that savers are losers. Hopefully the examples above will open your eyes as to why.

But the question becomes, why would financial advisers continue to push savings? As always, follow the money. The traditional vehicles by which most people save allow for financial institutions to charge fees. These fees can be especially devastating to a retirement account like a 401(k). Take this example from "USA Today":

    Let's say, for instance, you save $10,000 a year for 30 years in your 401(k). If you average 7% returns annually and pay 0.5% in annual expenses, you'll finish with about $920,000 saved. However with 1.0% in annual fees, that total drops to a little less than $840,000 - and if you suffer 2.0% in annual fees, your finishing total is just under $700,000.

Adding them all up together, lower returns that most models assume, losses to taxes, and payouts to financial institutions in the form of fees completely decimates the assumptions made by the Business Insider video, and frankly, most savings models out there. Savers truly are losers, and it's the financial institutions that win.

Bad debt vs. good debt

So, if savings isn't the way to become rich, what should you do?

The short answer is go into debt.

Maybe that answer surprises you. After all, you've probably been told since you were a child that debt was bad. And it can be. But it can also be good-very good.

Let's take a moment to define what I mean by bad debt and good debt.

Bad debt is money that takes money out of your pocket. It makes you poorer. This can be credit card debt from purchases for things like clothes or TVs. And it can even be the mortgage for your personal home. In short, if it's not making you money, it's bad debt.

Good debt is another story, and most people aren't even aware that it exists. Good debt puts money in your pocket month in and month out. "How can this be?" you might ask. Glad you asked. Let's talk about a concept called OPM or Other People's Money.

How good debt works, aka (OPM)

The rich know how money works. They understand that the best way to get a high return is to have as little of their own money in a deal. Rather, they spend their time finding the best deals and then present them to investors who are willing to use their money to fund the deal. When structured right, OPM allows an investor to secure a valuable, high return, cash-flowing asset for little-to-nothing.

As an example, let's talk about Rich Dad investor Ken McElroy. Ken, as you may know, is a real estate mogul specializing in apartments-a real estate class called multi-family housing.

What Ken and his partners do is find apartment buildings that underperform. Because the value of a commercial real estate asset like an apartment is based off the Net Operating Income (income after expenses), any opportunity to increase NOI is an opportunity to see a healthy return.

For Ken and his team, a variety of factors could help with this. For instance, the current landlord could be renting units well-below market rates. Turning those units and raising the rent could dramatically increase NOI. Or perhaps retrofitting units with washers and dryers, as well as a cosmetic facelift could increase rents by anywhere from $25 to $50 a month. Multiply that by hundreds of units and you'll see a lot of lift in income.

Once they have a solid business plan in place, Ken and his team to investors and raise the capital they need to purchase the property (OPM). Once the asset is secured, they execute on their plan, as well as bring their considerable management expertise to the table.

Already, both Ken and his investors enjoy a good return from the property income since they only purchase cash-flowing assets. This can often be in the double digits. But here's what separates the rich mindset from the poor one.

Once the property is substantially increased in value from the business plan, say over a course of three years, Ken and his team refinance the property, pay back all the investors their original capital plus a generous return on that capital, and still have ownership in the building that cash flows each month. And the beauty for Ken and his team is they create this wealth with a little bit of their capital and a bunch of capital from other people. So their returns are higher the whole way through.

At this point, Ken and his investors are enjoying income with no money in the deal. That is an infinite return. And that is why debt infinitely trumps savings.

The good news is you can begin to invest like this. It might now be with large apartment buildings at first, but it can grow into that. My wife, Kim, invested with OPM for her first investment-a rental house in Portland, OR. Today, she owns thousands of apartment units. She used this method of good debt to increase the velocity of her money from one small house to a huge portfolio. And you can too. It starts with thinking differently about money, increasing your financial intelligence, and getting to work today.

Monday, January 30, 2017

Rules of success inspirations - interview footages




Click on the video above or link to watch the full interview

Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Sunday, January 22, 2017

How to be a real estate investor and succeed

Many people want to be successful real estate investors. The problem is that the average person starts at the last step of the investment cycle rather than at the beginning. Because of this, they often fail.

What is the last step? The property.

It seems counterintuitive, but the property is actually the least important part of becoming a successful real estate investor. In fact, you could have one of the best properties in the world, but if you don't complete three crucial steps prior to buying that property, chances are that, for you, the property will be a huge disappointment.

Here are the four essential steps needed for being a successful at real estate investing.

Step 1: Establish your personal investment philosophy
As my friends Robert Helms and Russell Gray, the Real Estate Radio Guys, often say, "There are no problem properties; there are only problem owners."

There is always a right owner for any property, which is why it's key to determine what kind of owner you are before you ever invest any of your hard earned (or your investor's hard earned) dollars into an investment property.

Investing is a lifestyle, and you have to determine what kind of lifestyle you're looking for.

Some important questions to ask:
    What do you want real estate to do for you?
    Where do you want to go in your investing journey?
    Who do you want to work with?
    What do you want to spend your time doing?

The Real Estate Radio Guys share a story about a C class apartment investor that netted $1 million a year. They were excited to meet him because many of their students aspired to have that kind of income from a property. But when they met him, their whole paradigm changed because he was working 16-hour days, 7 days a week, and he hated his life. Money wasn't the problem. His personal investment philosophy did not match the reality of the property and location he picked.

There are other investors, however, who live to work on and invest in C class apartments. It's all about what you're looking for in life. Your mission as a real estate investor is to make sure you understand clearly who you are, what you want out of real estate, and then make sure that what you acquire fits that mold.

Step 2: Determine what market you want to be in
Another saying I like from The Real Estate Radio Guys is, "Live where you want to live; invest where it makes sense."

Many people think they need to invest in their own backyards. While that may be a good idea, it's not a necessary one. Rather, you should find a market that meets the needs of your personal investment philosophy.

For instance, if your personal investment philosophy were to invest for monthly cash flow, it would make no sense invest in a number of properties with an aggressive, highly leveraged debt ratio that allowed for no cash flow. Nor would it make sense to invest in a high appreciation market where prices didn't pencil out for positive cash flow.

Rather, you would need to find the right market that provided affordability and cash flow, even if it didn't appreciate much. For cash flow investors, that's a great market. For flippers or appreciation investors, it's a nightmare market. But you only know that if you understand what kind of investor you want to be.

Step 3: Assemble your team
As rich dad said, "Business and investing are team sports." In order to be successful in any market, especially ones that you don't live in, you need to have the right team.

This team should include an attorney, a CPA, a bookkeeper, and a real estate agent and/or broker, and you should rely on them heavily to give you expert advice about your market and the properties you'll be looking at.

Without a team in place to give you expert advice, the chances of you making a huge mistake are high.

Step 4: Purchase the right property
Finally, and only after determining your personal investment philosophy, finding the right market, and assembling your team, should you start looking at properties.

And if you do steps 1-3, it won't be are to find the right one.