What Level of Risk Fits?

I’ve become very interested in how some people are so comfortable risking everything and others will play it safe no matter what.

I was speaking with a friend the other day regarding real estate investing. We were talking about where a great place to buy inventment property would be. Over the course of the conversation I mentioned that I was recently enjoying the show Flipping Out which follows the life of a Los Angeles real estate investor named Jeff Lewis (excellent name I must admit.)

I said that I was getting motivated by the show because it made me want to get out there and throw my money into more creative real estate. My friend said that although he loved the idea of investing in real estate, he would prefer to have it closer to home so he could get there quickly in case of emergency.

I like the idea but I also feel that a lot of great investment opportunities are outside of my area. Exploring places that may require a flight rather than a drive could lead to huge equity growth.

I guess it comes down to what I am ready to take on. If I choose a proper property manager it should be very easy to manage from afar; however, there is always the potential for disaster!

Maybe I’ll fall out somewhere in the middle: invest in property away from home but in places that I can visit with less than 4 hours notice and with a flight less than $500!

Is it time to make way for a new RSS?

How Do You Make Your $89,000 Each Year?

I read an article online in a Canadian newspaper today that had the headline:

$89,000 puts Canadians in top 5% of tax filers

Of course, I had to stop and read this article because it interested me so much.

The information comes from the latest Canadian statistics data (Census 2004) showing the percentage of tax filers at different income levels. For comparison, the Median United States household income in 2006 was $48,201 (from Wikipedia)

Where’s the Money?
When I read this article the first thing that jumped out at me was that there was no mention of exactly how these top 5% made their income. Did they pull it in from real estate investment income or was it pure salary from one job or another?

Depending on the method of declaring this money two different people who each have a total income of $89,000 could lead very different lives.

The Salary
Consider that a salaried employee who receives $89,000 (including bonus) per year will pay approximately $25,000 in taxes which leaves a staggering $64,000 to play with ($5,333 per month). Depending on their lifestyle choices, this may result in a small positive or negative saving each month. After a number of years of 40+ hour weeks, they are able to retire with a nice investment account, reduce their monthly expenditures by half and live their remaining 30 years slowly reducing their life savings.

The Cash Flow
Canadian #2 has made some great investments in positive cash flow properties and businesses. Although his annual income is $89,000 he then includes a significant number of deductions each year. Here is a short list of his annual expenses that are claimed before he pays taxes on income:

• Travel to and from his rental properties on the Texas, California and Florida coasts: $5,000
• 15% of his household expenses are declared for home office use: $1,000
• Pens, paper, printers and computers are all declared: $1,400
• Vehicle expenses repaid: $500
• Property depreciation: $6000

All in, the investor pays approximately $21,000 in taxes and has approximately $4,000 more due to the business deductions. That’s over 6% of the total that Canadian #1 has coming in. The best part is that each of the items on the list are things that the investor wanted to do anyways. Travel, have a home office and supply it. All paid by legal government deductions.

Retiring young
The definition of retirement that I promote is that once your passive income is greater than your monthly expenses, you officially don’t ever have to go to a job again. After reading the above examples you may say that $4000 isn’t enough. Consider this: Canadian #2 doesn’t go to an office each day. She probably puts in 4 hours per week in maintaining her properties or businesses and spends the rest of the time playing, volunteering or doing whatever else she loves.

Also, upon ‘retirement’ the investor will actually have more income than they did before because of appreciation and the ability to refinance and remove thousands of dollars from their equity - tax free.

Canadian #1 spends 2 hours commuting on a dirty train each day and gets a solid 2 hours of quality time with his kids each work day. Do you know anyone who spends more time with fellow commuters than their own family?

Now which one is more attractive?

I wrote an article recently called Automate Your Multiple Steams of Income that looks at creating a lifetime stream of income that will allow you to fulfill your financial goals. Have a read and really think about where you are dedicating your energy. Is it to creating wealth for yourself, or for someone else?

* Given the recent explosion in value of the Canadian dollar $89,000 CDN is almost exactly $89,000 USD. Back in 2004 it was more like $65,000 USD but let’s not dwell on the US dollar…

If you want to automate your way to $89,000 consider my Full Feed RSS.

Investing Tactics For High Real Estate Markets

I was talking with my brother today and he told me about an excellent way to be able to invest in rental property, live in an up-scale neighborhood and add additional cash flow into your wallet each month without a high level of income.

He knows a girl who traveled across the country for a job only to find that the real estate market was a little outside her price range. She wants to have a nice home, close to downtown and work but could never afford something like this on her own.

Her solution is ingenious.

Invest Where You Can
Let’s say that this girl saved herself a $10,000 down payment for her home. In any city market, $10,000 is not going to amount to much of a down payment - especially in a market where prices are in the $350,000 to $500,000 average range. What this girl did was to look for property in the range that she could afford in the town that she had just moved out of.

With $10,000 cash, she was able to purchase 2 properties for $50,000 each (putting 10% down on each one) and now rents them for a positive cash flow of about $150 per month each. (I’m not sure of the actual figures but these are about right.)

Rent What You Want
Since she was already planning to spend about $600 per month on rent (based on a $100,000 mortgage) and adding in the two monthly deposits of $150, she can now afford to spend about $900 per month on her rent. That’s the difference between finding a little apartment on the fringe to finding a nice apartment downtown!

She’s able to live much more comfortably than her colleagues who are also aiming to spend the $600 and she’s making about $200 in equity each month plus any appreciation on the property. At the end of a year, she will be over $5400 dollars wealthier than her equally ‘rich’ colleagues (assuming an appreciation of 3%) After ten years she’ll have an extra $54,000 in equity!

Buy Assets That Generate Cash Flow For Material Purchases
In my posting What To Think About Rich Dad I talk about buying Assets that generate cash flow to pay off the purchase of Depreciating Liabilities. This is a prime example. Rather than paying the $600 per month towards a poorly located apartment, she is creating enough cash flow and equity growth from the investments to support her desired lifestyle.

Get your money to work for you. It’s not doing anything just sitting in a bank.

As I mentioned previously, I’m going to be removing some equity from my home to do the exact same thing. I’ll keep you posted on my progress.

If You Love Real Estate As a Cash Flow Generator, consider my Full Feed RSS.

What To Think About Rich Dad

I’m not sure how to start this post.

I originally wanted to write a review of the Rich Dad, Poor Dad series by Robert Kiyosaki and detail all the pros and cons that I have found throughout the book and series. As I read more articles, and found a growing skepticism of Kiyosaki and his work, I started to analyze my own thoughts on what I’ve learned from the books.

One article that really changed my direction is a scathing review of Kiyosaki, his Rich Dad, Poor Dad series and his entire history. You can read it (please set aside 30 minutes or more) at johnreed.com/kiyosaki.html.

To give you a quick summary, Reed writes:

There are probably many ways to became a financial genius, but Kiyosaki has certainly chosen an unlikely route:

* flunked sophomore year of high school and had to repeat
* U.S. Merchant Marine Academy
* 3rd mate oil tanker (or was it “Love Boat” type cruise ship as he said in one of his books?)
* Marine helicopter pilot (or was it fighters?)
* refused to return to ship when it was ordered to return to combat (or just missed the boat)
* Xerox salesman
* failed businessman (nylon surfer wallets)
* failed businessman (rock and roll memorabilia)
* failed author (1993 book If You Want to Be Rich & Happy, Don’t Go To School?)
* failed MBA applicant
* homeless person
* bankruptcy (or maybe not)

Kiyosaki tries to make a virtue from all his failures and false starts—saying that’s how you learn and you have to get back up and all that. Fine. But couldn’t we see a little more actual success after all these great lessons were learned? And how did all this screwed-up stuff happen to a guy who had the benefit of “Rich Dad’s” brilliant wisdom back at age nine?

Investment Advice Means More At Different Times
I’ll admit that I’ve read most of Rich Dad’s early books. At the time that I was reading them, I still had a limited financial education and these books seemed to say exactly what I wanted to hear - get rich quick, book smarts make you poor (although I hold a Bachelor of Commerce degree), working will never make you rich. Maybe it’s just because I’m on the cusp of Generation X and Y but not working hard for a lot of money sounded pretty good straight out of school!

Over the past few years, as my financial education level has grown, I’ve quit reading the Rich Dad books because I realized that much of the same information is being recycled in each new title. In fact, many of the same stories are repeated through a number of different books. As you know, I have a strict requirement for adding value to what I do. Telling me a story that I’ve already heard twice is not adding value. It wastes my time and money.

I also began to realize that the advice that I was getting was not always in the best interest of me or my family. Although I agree that the education system in North America needs to implement a much better personal finance and wealth management aspect, I will never agree that working for a university or college degree somehow makes you less likely to become wealthy. According to Kiyosaki, I’m already a lost cause because I have a degree!

The Lessons Are Written Between The Lines
Although it looks like there is evidence that Kiyosaki may be a bit of a fraud, I still don’t want to discount everything that I learned from reading his books.

Prior to my financial awakening (Changing My Belief Systems) I thought nothing of spending everything I had and using the credit card to supplement my lifestyle. I no longer believe that. I now know that in order to have a successful life you need to have plans and live within your means. What that means is up to you. For me, it’s saving 10% of my income for early retirement.

What the Rich Dad books gave me was a push in the right direction for the investment portion of my plan. The entire series is basically focused around one theme (as I see it):

1. Assets are things that make you money, Liabilities are things that cost you money.
2. Focus your efforts on buying Assets and do your best to reduce the Liabilities.

It’s that simple. If you disregard everything else that he writes about the limited value of school education, mutual funds being a poor person’s investment or the repetitive stories about his childhood memories, this rule still holds value.

Buying assets just makes sense. Whether it’s in stocks, mutual funds, notes or real estate, buying things that will create wealth for you is crucial for a secure financial future. If you are able to filter out the rhetoric within the books I think that you will find some stories that can motivate you and information that will help you succeed.

The Story I Still Enjoy
One Rich Dad story that I think is valuable is the one about his new Porsche purchase. As the story goes, Kiyosaki found a Porsche that he really wanted to buy. On the advice of his wife, rather than simply buy the car outright, he bought an asset that would create the monthly cash flow to support the car.

Although I would much prefer an Audi R8 I still like this story as a way to think about wealth. If you create an entire life plan for yourself, you will be able to make decisions from a position of power and know how each decision will affect your future. Knowing your financial goals, your personality and your family expectations is important as you make these decision. It also helps to track where your money is going and what it is costing you to spend it on material things.

Back To Rich Dad
The more I read, the more I believe the negative press on Kiyosaki; however, I still think that his original Rich Dad, Poor Dad book is an important read. Grasp onto the pieces of information that will help you move forward in your financial education and leave the rest behind. If you’re serious about one of the strategies that Kiyosaki talks about, do a lot more research and find out what will work for you. If nothing else, you can speak intelligently to the millions of other people who read and follow his teachings.

Do It On your Terms
One last piece of advice is this: Don’t quit your day job on someone else’s terms. If you’re ready to exit the rat race to start your own venture then only do it once you are totally confident in your prospects and your family is ready for the change. If you blindly follow the advice of an author, mentor or colleague you are living according to their situation, not yours. They may be financially secure, completely comfortable with risk or any number of different things. You need to make decisions based on your own goals so you succeed. Simply use the advice from the rest as a way to move forward.

If you would like to buy this book, please visit Rich Dad, Poor Dad

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Tags: rich dad, real estate, real estate investing, robert kiyosaki, investing guide, book review, make money online, multiple streams of income

Apply Creative Thinking To Real Estate Investing

Here is a quick video about applying creative thinking to a real estate opportunity. I like this video (definitely not for the quality) because it expands your thinking a little regardless of the industry you are in.

Once you know your business, you can dramatically increase your wealth by simply brainstorming for the numerous opportunities available to you. As this video points out, even $1 can make you $150,000 if you are creative enough.

I am still maintaining my commitment to the ideas I outlined previously in Take The Challenge And Create Success. I think this video fits right in.

Enjoy…

I guess they couldn’t find the before picture!

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Tags: real estate, creative investing, dollar property, flip houses, blog, blogging, real estate video, multiple streams of income

How Often Should a Blog Stay On Topic?

I was thinking about this question two nights ago as I sat down to write a posting on Real Estate Investing. I had most of it written when I realized that Real Estate Investing has very little to do with the main topic for my blog. While I am not a full-blown ‘Make Money Online’ blog, I have chosen to write about investing, personal growth, motivation and of course making money. Through the journey I’ve had for the last month, and the great articles I continue to read on other blogs, my money making postings tend to focus on web based subjects.

As I sat at my computer waiting to Publish the article, I realized that I’d probably lose the interest of a large number of readers who want to learn how to make money through the internet. As you can see I did not decide to post the Real Estate article. Instead, I decided to start a new blog at RealEstateStarttoFinish.com to write about my experience in Real Estate Investing as well as buying/selling property and mortgages. It was originally a little site I started in early June before I began LewisEmpire.com so I reposted many of the articles as blog posts (and of course backdated the timestamps.)

My motivation for today’s post was from an article posted by Nate Whitehill called Analyzing My RSS Subscriber Growth. The article talks about the success that Nate has had with building his RSS to 443 readers (as of July 27, 2007) and the jump in readership that happened at 3 months and beyond. The part that really caught my eye was a comment by another reader David Wilkinson of Techzi.net who said:

Fantastic article! My RSS has been up and down of late. My blog commenters seem to prefer the tech stuff, my RSS readers seem to prefer the business/entrepreneur stuff and whichever I’m doing, I’m getting a faceful of ‘angry’ comments.

Maybe I need to start a new blog…

While the sample group is very small, this may have confirmed my decision! Starting a new Real Estate blog will allow me to write about a topic that has a very specific audience - one that may not attract people interested in making money online. I want to make sure people reading my site know what they are going to receive each day. While a random humorous post, video or personal story works in a blog, there needs to be focus in the overall theme and create value for the reader’s time.

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Thanks For The Bad Advice Fools

I just read an article by the guys over at The Motley Fool on investing in stocks versus investing in Real Estate. The article is called What Happens When The Boom Goes Bust?

They give a great example on how a person who bought a house in 1980 for $76,400 would have a current value of $295,100 - resulting in $218,700 in equity (apparently the mortgage was interest only). The positives end there. They correctly point out that the annualized return on the price of the home was 5.6% over the period. Now let’s move on to the stock market…

The Fools (this is what they call themselves) point out that the stock market (S&P 500) average over the same period ends up at about 10.3% You’re probably saying to yourself, “Wow, thanks for pointing this out, maybe it’s time to sell my house and dump it all in the market!”

This article fails to point out two MAJOR real estate investing rules:

• Use Leverage (Other People’s Money) to move your investment further than your own cash could ever get you
• Have other people pay off your expenses by renting the property

Using the example by the Motley Fools, a person who invested $10,000 in 1980 would have approximately $115,981 over a 25 year period - an amazing return. Now look at the 25 year value of a $76,400 property purchased in 1980 - that’s right $295,100! After the renter pays off the mortgage and interest, the real estate investment would be worth $295,100 or a sweet $179,119 more than the stock market investment. Even with zero cash flow, you still have twice the money.

The next best part about the Motley Fool article is their fictional character Sal. Sal has flipped properties and made a million dollars. The Fools then say

And even if Sal did make a million in 2003, is he set for life? Certainly not. In order to make that nest egg last, Sal can only withdraw about $40,000 a year. Our guess is that Sal wants to live better than that.

I’d agree that Sal is probably going to want to live better than $40K per year. I’m also guessing that if Sal is smart enough to flip real estate and make $1,000,000 dollars that he’s also smart enough to diversify his accounts. Does a stock investor just pull out all their money when they hit the $1,000,000 mark? Earlier in their article the Fools say that the S&P 500 averages 10.3% per year. Doesn’t that mean that Sal could just throw it all in the market and live off the $103,000 in yearly growth?

Oh, I forgot, for the purpose of this article, people are not allowed to do crazy things like invest in real estate AND the stock market. I understand where the Fools are going with their article…they sell investment advice and want to continue to sell investment advice.

Until today I had actually enjoyed the Motley Fool website and their stock investing advice. Their book The Motley Fool: You Have More Than You Think was one of the first personal finance books I read. It helped me see a different side of controlling your costs and investing for the long term. After reading this article, I’m off their mailing-list.

Finding a Mentor and Increasing Wealth

When dealing with success, one sure way to move yourself forward is to find a mentor that will move you forward. When I say this, I don’t mean that you need to go out and hire a high priced personal or professional coach. What I mean is that you need to find people that are succeeding in the area you are and model their success!

When I started looking at real estate investing I really needed a good real estate coach. After looking through all the available authors, I stumbled upon Robert G. Allen. The best part was that he had a summer place in the same area as I did. In fact, I had actually met him a number of times before I realized who he was!

I decided to take him on as a mentor. I read everything he wrote and listened to free seminars. I even attended a few of his events. Through it all, I was pushed forward and learned so much just from modeling a expert in the field.

In your area of success, I would suggest that you do the same thing. If you are interested in real estate investing then get advice from the likes of Robert G. Allen or Raymond Aaron. If you prefer to make your money online with blogging, try someone like John Chow at John Chow dot Com. Read what they have written and follow their advice.

Remember, a mentor does not need to be someone who sits next to you each day and holds your hand. A mentor is any person who, through their actions or lessons, help move you forward towards your goals. If you can successfully integrate mentors into your investing or wealth creation, you will have a jump start on others who falsely believe they need to do it on their own.

Discussion with my Mortgage Broker

The other day I had a great conversation with my mortgage broker. She detailed some of her recent investments and the continuous upgrading that she and her husband have performed.  I got a great deal of information from this meeting on buying investment property.
A few years ago, when I began looking at real estate investment, I was still working under the old theory of fixed, medium to long-term mortgages with 25 year amortization. The problem was, while I continued to read recent books, I missed the information current investors had. On key piece offer is the interest-only (or close to) mortgage and 40 year amortization period.

Comparing the two, a $100,000 mortgage at 5.25% with a 25 year amortization would cost about $599 per month. The same mortgage with a 40 year amortization and interest only would cost around $437 per month. That can add a lot of needed cash flow to your property and even make it viable in the process.

The only thing to keep in mind with this method is 1) you are banking on high appreciation 2) rents must keep going up.  With the current situation across the States and a general down-turn in most areas, this method has resulted in a record number of foreclosures in the past year.