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!!
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.
In the past few posts, I’ve been outlining the best ways to leverage yourself with networking. In addition to getting out there regularly and having a loaded business gun so you are ready to make the most of a new connection, you also need to have the proper, open-minded attitude. In other words, you need to toss preconceptions about what type of people you want to connect with or what kind of opportunities you’re hoping to find. Some of the best connections and opportunities arise where you least expect them.
For instance, a long, long time ago a candle maker and a soap maker found themselves married to sisters. As brothers-in-law, they saw each other frequently but never talked to each other about their businesses because they created two different things. It took their astute father-in-law knocking them over the head to realize that what they did was actually very similar—they both produced tallow and fat based products sold to the home retail market. They decided to go ahead and try combining their efforts by selling both products types at each sales call and putting their individual strengths where it would do the company the most good. Within a couple decades they were one of the largest companies in Cincinnati. The simple candle and soap makers became some of the richest men in the region, something they were not likely to accomplish on their own.
Now their company, Proctor and Gamble, is known around the world and boasts sales near the $40 billion mark. And to think that initially they didn’t believe they had anything to offer the other! Opportunities are plentiful. You just have to get past the standard assumptions, think creatively, and consider ideas from many angles.
So, the next time you’re introduced to someone or an idea comes your way that gives you that “not my thing” feeling, stop and give it a couple minutes and see if you can’t come up with a way you could benefit each other. You never know what you might come up with. Keeping an open mind gives you so many more chances to multiply your finances, as well as business partnerships and friendships. You’ll be surprised at how often positive things develop if you just give them a little consideration.
As I’ve mentioned, networking and constantly getting to know new people is absolutely imperative, but those efforts are practically useless if you aren’t set up to develop a chance meeting from a couple minutes chatting to a long term relationship. The ammunition you should have in your “gun” might include anything from professionally designed business cards to a well crafted tag-line. The key is to have it ready and on hand when you meet your next great connection.
A business card is a given but in this day and age you need to hand people more than just a phone number. They will expect an email, a website and other online information. If you haven’t done so already, build a solid online presence, even if it’s just a one page website with basic information and links to other things you or your business are involved in. I also suggest looking into getting a LinkedIn account, creating a Facebook page, starting a Twitter account, or writing a blog. You’ll need to investigate which options will work best for what you’re doing and then spend some time forging them into the ammunition you need.
If it makes sense for your business, consider investing in promotional items. It can be anything from pens, magnets, or small gadgets related to your business that are easy to carry and hand out so people have a reminder of you and what you do. When at shows or conventions, have informational materials ready for those times when you can’t get in much more than your tag-line.
In addition, be ready to give back and help others. The more you assist others in their personal or business goals, the better they will remember you and the more willing they’ll be to assist you in your endeavors. Nothing in your arsenal will have more of an impact than a little gratitude and a positive image. Put this together with a solid on-line presence and plenty of ready contact information and you will have a truly well loaded business gun.
Chance meetings have the most amazing potential for you and your goals but to take advantage of these, as yet, unrevealed prospects you need to get out there and give chance meetings the opportunity to happen. I once made a million dollar profit on an apartment building after receiving a call from a guy I had met briefly only once before. He couldn’t come up with the full down payment for the building and just happened to remember our conversation and so called me to see if I would like to take over the purchasing contract for him. Our meeting was completely unanticipated but turned into a million dollar profit!
What did I do to make this happen? I just put myself out there, willing and actively trying to connect with new people. It’s all about how you present yourself and the words and ideas you put out there that will stick in people’s memory after you’ve parted ways. Be confident, be attentive and let people know what you do. Let them see your passion.
In other words, just leverage yourself, making yourself available to meet new people wherever you are. Use your personality to make an impression and keep a keen ear open whether it’s at a party, a business function, or just standing in line at the grocery store. You never know what it will lead to or how it might help you achieve your goals that much quicker.
How often do investors think about what is involved in their investments besides money? If you’re handing your money over to a stock broker, the time it takes to invest is small but you also take on significant risk. In real estate investing, there’s both money and time involved in getting it into shape to sell or rent. In a small business investment, the common approach is to put in as little money as possible but all your free time. So considering everything, what investment makes the most sense?
The answer lies primarily in the risk level of the investment and how much your time is worth. For instance, investing through a broker takes little time but the pay back is either very uncertain or very small. Small businesses often take years to turn a profit and your time investment, which may seem cheap or free initially, can be very expensive if you consider how much you could have made working more hours or a second job. Just think, if you could have gotten $25/hour working a second job, then that 20 hours a week you spent over 6 months getting the business up and running cost you $12,500 in lost income! How long will it take you to recover that investment through your business?
In real estate, you invest both a significant amount of time and, sometimes, money (see last week’s post and page 184 in my book “How to Ignite Your Passion for Living” on how to get others to fund your investments) but the outcome is far less risky. The added bonus is that real estate will not continue to suck your time the way a small business often does, and the returns will inevitably be greater and more secure than stocks. This is why I really encourage you to look at real estate if financial freedom is a primary goal of yours.
I’m not saying you shouldn’t open that storefront you’ve been dreaming about or support your favorite budding green business with a capital investment—there are many factors beyond time and money to consider when deciding what investment is right for you—but just don’t pour your all your time and money into something that is not going to help you reach your financial goals in the near future. Keep an eye on the big picture. Because after you make your first million in real estate, you can pay someone to do all the hard work to get that business off the ground or invest in whatever you like. That’s the beauty of financial freedom.
Last week I talked about the 10% method for building the capital you need to get into what is today’s top investment opportunity—real estate. The only issue with the 10% method is that it will take some time to pull enough from your paycheck to have the seed money for your first real estate investment. So how can you take advantage of the great opportunities out there right now?
Simple. You have other people put the money in for you.
The best “super leverage” method I’ve seen is what I call the “Hansen model” after a particularly ingenious investor by the name of Dell Loy Hansen. You can read about Dell and his method in detail starting on page 184 of my book How to Ignite Your Passion for Living, but I’ll give you the gist of it here.
To start, you need a few people looking to invest in a safe, reliable project that will give them a regular and consistent return. Get them to collectively fund a down payment of 20% or more on the property you want to purchase and promise a reasonable return–say a 10% APR, an amount that is presently 500% higher than the best CD can offer. If you can put in some of your own money as well, it makes the investors feel much more secure as you’re backing your confidence in the investment’s potential by also putting your money at risk.
Then when you flip that house or rent those office spaces, get the best return possible and get the money back to your investors with a higher than expected rate of return. When they see that you not only lived up to but exceeded their return expectations, you will have created a enthusiastic group of investors for future projects as well as getting wonderful word of mouth that could bring even more money flocking to you.
There are plenty of people out there right now who have cash to invest but don’t want to bank on the unpredictable stock market and aren’t getting anywhere with the meager CD returns. So start working on cultivating those investor relationships and get access to the “leverage” you need to gain financial freedom sooner than you thought possible.