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Steps Towards Confidence

January 25, 2013 by  
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The last few weeks we’ve been focused on creating your fortune through real estate, leverage and compounding. You’ve seen the numbers. You know it could work. But have you taken your first steps?

I know the steps you have to take sound daunting at first but they aren’t that difficult at all. Things we’ve never tried before tend to seem huge and perhaps impossible but it’s only because they are unfamiliar. So try this … go ahead and go through the 2nd and 3rd step–start building capital and making low ball offers on property. Remember, during these steps, you aren’t committed to buying just yet. Putting away money is easy and it’s a great idea no matter what you do in the end. And making low ball offers … well that’s just chatting with someone. The thing is, once you’ve starting talking to property owners and realtors, you’ll realize it’s actually pretty easy. Then when someone does accept your offer, you have only one more step to take.

Just starting the process by putting money aside and making offers will do so much to boost your confidence. By the time you are ready to jump into step four–which is just an inspection and crunching numbers to find out if the property will get you the return you want–you’ll be feeling pretty good because of your successes with the previous steps.

And don’t worry if you go through Step 4 and don’t end up with a property. Just go back and repeat Steps 2 through 4 and do it over and over and over again—don’t stop. Each time you do this, you’ll have learned a lot just by going through the process. Pretty soon, the process will not seem daunting at all. It will be exciting and motivating! So go out there now and knock yourself out!!

Crunching Numbers

January 18, 2013 by  
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Okay, so we’ve gone over the first 3 big steps you need to take towards creating your fortune. I did want to reset the order a bit so if you are just starting, start with writing out your goals. These will keep you energized and motivated. Step #2 will be building and acquiring your beginning capital; Step #3, start making low ball offers on ‘dirt bag’ properties and get one legally tied down.

So now we come to Big Step No. 4 …

Let’s say that after you’ve made about 2 dozen very low offers, you get one back that is accepted. So now what do you do? Well, there are three things …

1. Conduct a very thorough inspection

2. Do your calculations as to the cost of the fix up or face lift.

3. Calculate your overall investment and potential profit to see if it will give you the return that you need.

Let’s say there’s a small house that was listed at $187,500. You offered $144,000 but received a counter offer of $160,000 which you are happy to conditionally accept. (Hey … they were motivated sellers since the house had been on the market for over a year.) After inspection you’ve been able to determine that $16,000 plus your hard labor over about 6 months will complete the face lift and the bank has agreed to finance it with 20% down ($32,000). You check for comparable properties in the vicinity that are in really good shape (go to Zillow.com to do this) and estimate you can sell it for, say, a net of $204,000 dollars.

Now you crunch the numbers to see if going through with this deal meets your “rate of return” goal.

$204k less your purchase price of $160k and less the money you put in to fix it would give you a profit of $28,000 dollars. Here’s where the magic of leverage comes in—you used $32k as a down payment and the $16k to improve it for an out of pocket investment of $48k. Even though you improved the property value by 27.5%, the return on your money, the money you used to invest in this, would actually be 58.3%. And if you borrowed the $16k your return on your money would be even higher.

So does a 58.3% rate of return in 6 months or so give you enough compounding? Go check a compounding table and see what would happen to that 58.3% in a few years if you keep doing this! Are you getting excited? If so, read my book “The Next Step to Waking up the Financial Genius Inside You” to really get you on track. In fact, I will give the first 10 motivated readers the book for free! I’ll even pay the shipping. Just write to me at freebook@reincome.com with your shipping address so I can help get you moving towards creating your fortune.

The Power of Leverage and Compounding

January 11, 2013 by  
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So now that we’ve gone over the first 3 big steps to building your fortune, it’s time to get to the very important Big Step No. 4. But before I lay that out, I thought we ought to talk about the power behind what you are about to do, the power of leverage and compounding.

My first introduction to leverage and compounding was as a stockbroker in the 70’s. I wanted in the worst way to make a fortune and do it quickly. I knew that there were seemingly ordinary people making millions of dollars in a matter of a few short years. What I didn’t understand was how that was possible. My thinking was stuck in the mindset of trading my hours for dollars and with only 168 hours in a week even with a decent hourly rate of $25 it would take 20 years to hit a million and that’s with the ridiculous assumption that I would not spend a dime or pay taxes!

Then I was introduced to leverage and compounding by Larry Rosenberg, a new brokerage client of mine and soon to be mentor. At that point I was becoming quite adept at bond trading and was shocked early on when I figured out I could make 100% return in a matter of weeks. I could buy $100,000 worth of bonds with only $5,000 or my own money, borrowing the rest from the brokerage firm. That’s using leverage. So if the bond price moved up just 5% the bonds would be worth $105,000 turning my 5k to 10k! Eureka! I had just discovered a money machine! But the bad news is that I could just as easily lose all my money if the bonds dropped 5%.

Larry Rosenberg introduced me to a safer, more consistent and more controllable asset: improved real estate. With this you could make a 100% return in 6 months to a year and do it with consistency and very little risk. But what Larry made me see that got me super motivated was what a 100% return per year will do to even a very small amount of money. $1,000 dollars at 100% compounded return will grow to the incredible sum of more than a third of a billion dollars in just 35 years! Although a consistent 100% may be hard to sustain, I did it for a while and reached my first million net worth in 47 months with only a couple thousand dollars to start.

This may all just sound like numbers now but in the next few weeks I will go into more detail with specific examples of improved real estate deals you can make so you can put these powerful concepts to work.

Writing Down Your Goals

January 4, 2013 by  
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Since we’ve just started a new year I must say something about renewing and re-dedicating ourselves to our life goals. And there is one super strong and time proven aid I would strongly suggest you use to increase your odds of hitting your goals. It’s something I talk about in my book “How to Ignite Your Passion for Living” but I have another source to show you just how powerful it can be.

For Christmas my son David gave me a book called “The Power of Habit” by Charles Duhigg and WOW what a great book. Duhigg relies on scientific studies to dissect what it takes to form a new habit or dump a habit that you don’t like. In future blogs I want to talk more about “The Power of Habit” but for now I want to address one simple but profound Scottish study that is Duhigg addresses.

In this study a psychologist recruited 60 patients that just had hip or knee replacement surgery. Having personally experienced double hip replacement in the same surgery I know just how painful this kind of surgery can be. Most people don’t want to even move afterward, let alone start walking even though their rehabilitation requires it. This psychologist gave each patient a booklet after their surgeries that detailed their rehab schedule, and in the back were 13 additional pages –one for each week–with blank spaces and instructions:

“My goals for this week are ________________? Write down exactly what you are going to do. For example, if you are going to go for a walk this week, write down where and when you are going to walk.”

Patients were asked to fill in each of those pages with specific plans. After their rehabilitation period the psychologist compared the recovery results of those that filled out the pages and those that did not. Duhigg notes that “It seems absurd to think that giving people a few pieces of blank paper might make a difference in how quickly they recover from surgery.” But it did. Those patients that wrote down their goals recovered much faster than those who didn’t write down a thing.

The great lesson and a lesson that I’ve preached to myself and others for years is we greatly improve our chance of success many times over if we simply write our goals down!  Financial goals, physical goals, family and social goals … it works on all of them. I would also add that you shouldn’t forget to put down the date by which you want to accomplish those goals.

You can read more about goal setting and how written goals can help you in my book  “How to Ignite Your Passion for Living” which is on sale right now on my website.