Unless you’ve been living on Mars, you’re almost certain to have heard about the so-called sub-prime credit woes besieging both US borrowers and world-wide financial markets.

Many of the angles to this crisis have been covered, however one perspective that’s been largely overlooked is the likely impact for property investors.

Read on to discover a no nonsense Aussie
perspective to understanding the sub-prime debacle.

If you can spare me five minutes, then I’ll tell you everything you need to know as well as provide you with four tips on how to protect your investment nest egg, and perhaps even capitalise on any uncertainty.

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The Problem

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Many in the media have spruiked a convenient tale that US loans were being handed out to the financially destitute like lollipops to children. However, spend 32 seconds scanning the internet and you’ll quickly discover that’s not what’s really happened.

In fact, if that was the problem then there would be an easy solution - regulate mortgage lending and hey presto you’d have a quick fix. No, the issue here is both wider and more alarming than simply assuming the wrong people were given the wrong finance.

If you always try to make a financial killing,
then you constantly risk being killed!

The problem was that people forgot the simple rule that when you spend more than you earn, you’ll eventually end up broke - particularly if you borrowed the money to begin with.

What happened in the US was that the economy grew fat on equity fuelled spending, so that when house prices stopped growing and began declining, the debt was left without the value.

For example, when you use debt to buy depreciable items (like plasma TVs and I-pods) then the value of the purchase quickly depreciates once you start using it, yet the debt is a lot harder to work off.

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Sub Prime Hiccups

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Sub-prime debt is a fancy way of describing second class loans. Here in Aus we tend to use terms ‘non-conforming’, or ‘no doc’ loans to describe fringe mortgages.

Without wanting to oversimplify the problem, the crux of the issue stems from average Americans over-borrowing. That is, when the prime mortgage market restricted how much they could borrow, borrowers hopped over to the sub-prime alternative where more money was being offered at higher interest rates.

Not used to consuming under their means, the greed mentality meant that as much house was bought as the maximum amount that could be borrowed allowed.

A comparison can be drawn with Aussie loan products. Some in the second tier advertise up to 105% of the purchase price of a home can be borrowed, yet the big four banks usually take a more conservative approach where lending is capped at approx 80% of an independently verified valuation. Beyond that, mortgage insurance is needed.

Most Loans In
The US Are Fixed.

Unlike here, the majority of home loans in the US are fixed for the life of the debt - even up to 25 or 30 years. The variable rate alternatives are called ARMS or Adjustable Rate Mortgages.

Now, because the US mortgage market is quite sophisticated, there are many different types of adjustable rate mortgages on offer. However, a common variety is a 2/28 ARM. Under this loan, the interest is usually heavily discounted and set as interest-only during the first two years, but thereafter resets to market plus a healthy interest margin.

And here’s where things go wrong.

The US Housing Market
Was A Lot Different Two Years Ago!

The US housing market was a lot different two years ago. Prices were going through the roof and people were doing just about anything to get a foot in the property door. Remembering that the initial ARM interest rate was often heavily discounted, one popular strategy used by borrowers was to get a cheap 2/28 ARM with the view of refinancing to a fixed term loan when the debt reset after the two-year intro period.

Sadly, as interest rates rose and the general property market softened, today many find themselves in the poo because the value of their house has gone down the toilet, their loan has stayed constant (interest-only) and their interest payments are due to rise sharply as the rate is adjusted to market plus a margin.

If you’re wondering why people would ever think about doing such a thing, here are two common-day similar instances that happen here:

Two-Year Interest Free: Many furniture sellers offer two-year interest free periods. People think they’ll comfortably pay it off but lenders know a good percentage won’t and will be slugged up to 24% interest.

Credit cards offering up to 55 days interest free. Pay on the 56th day and you will get charged interest from day one at up to 19% per annum!
The sub prime mortgage market isn’t full of dud borrowers.
It’s full of properties where the debt is greater than the value.

The truth of the matter is that the sub prime mortgage market isn’t full of dud borrowers. It’s full of dud properties where the loan is greater than the value, and hence people are considering walking away rather than paying top dollar for a dud.

Remember too that going bankrupt in the US holds little, if any, of the public disgrace and shame that it does here. It’s more of a case of ‘oh well - I’ll downsize and start again.’

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World Wide Problem

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Now that we know what went wrong (namely negative equity when loans were due to reset), the next issue to chew though is to try and understand why this is a world wide problem.

The answer is: loan syndication.

The second tier mortgage market is characterised by the fact that the loan funds do not originate from a deposit base. Instead, the money must first be borrowed (from financial institutions, fund managers and big players via money markets), and then subsequently on-lent via mortgage originators and brokers through to the end customer.

Taking another perspective, the loans were bundled up in the US and then sold to foreign investors as first-mortgage security.

That’s great, but when the economy takes a dive then accounting standards require that the value of the debt be written off to current realisable value. If there are any doubts then it must be written off entirely.

Enter panic. As more lenders are forced to write off their debts, questions about the solvency of companies holding the assets are called into question. Lenders start to become a little jittery, and so to compensate for the extra risk, they demand higher returns on their money and this is achieved by raising interest rates.

This is the fear for those holding RAMS loan products. I’m led to believe that a lot of the money lent under the retail RAMS product range is money sourced on world markets. As their cost of finance increases, those charges will be passed on regardless of what the RBA decides to do about their cash target benchmark.

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Beware October!

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Without the intervention of billions of dollars of support by Federal Banks around the world to prop up confidence, we’d probably already be in the midst of a major financial correction. Certainly a recession, perhaps a very deep one.

We all know that bad news travels fast. Pictures of people queuing outside Northern Rock branches in the UK wanting to pull out their savings before their bank accounts are frozen hardly instils maximum confidence.

Could it happen here? Why not? Are you old enough to remember Pyramid, Tri-Continental, or the failure of the State Bank of Victoria (bought out by the Commonwealth Bank)? What about so-called safe insurers like HIH?

Imagine the carnage if the housing industry collapsed and mortgage insurers went bust! Game over red rover. Truly though, that’s a very extreme possibility, certainly highly unlikely.

What is known though is that October is likely to be a rollercoaster month.

First of all, October is traditionally a shocking time for share markets. Secondly, according to one source, up to 660,000 US ARM loans are due to reset in October.

It doesn’t take much imagination to see that an ounce of bad news could quickly escalate into a trend of negative sentiment. If severe enough, panic could result.

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Axel’s Tips

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One of the benefits for those in my R.E.S.U.L.T.S. mentoring program are the regular detailed written investor volumes I send out that are chocked full of information about how to become a more sophisticated and strategic property investor.

As part of my market update for an edition due out soon, I tackled the US sub prime mortgage issue and provided several tips to prepare in advance for what might happen. Here are four of them:

1. Build cash reserves - don’t max out!

Cash represents both buying power to snap up bargains and also liquidity protection should the banks start calling in loans.

2. Take profits on marginal property deals

Considering the increasing volatility and likelihood of higher interest rates, marginally profitable deals are more likely to become loss makers. There is no shame in converting equity into realised profits to build a superior financial position.

3. Push Timeframes Hard - Manage, Manage, Manage!

Now is not the time to be complacent and given the uncertainty in the current climate, you’d be very smart to push through on your project timing and avoid delays like the plague.

4. Think Hard About Good Deals That Hog Cash

Good deals are becoming more common, but rather than jumping in, make discerning choices about what you buy.

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Summary

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The sub prime mortgage market is not a problem that sprung up overnight. It took years to eventuate and it will take some pain before it is healed. With the traditionally scary month of October only weeks away, now is not the time to make a major play on the property market which sees you bet the bank on a speculative deal.

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Axel Henriksen
“The Wizard Of Wealth”

Your House Won’t Pay for Your Retirement . . . but these Seven Winning Strategies for Retirement Investing WILL
by Philip A. Springer

A first look between the covers of the soon-to-be-released book Trump University Wealth 101

Don’t make the all-too-common mistake, popularized in recent years, of thinking that your home is your best investment and that it will pay for your retirement. Your home may well be your biggest asset, and it contributes a lot to your peace of mind. But just because the price you can get for it today or in the future may be much higher than you paid, it doesn’t mean you’ve made a big profit. Reason: A home costs much more to buy and operate - out of pocket, year after year, aside from tax benefits - than most people realize because of mortgage interest, taxes, insurance, repairs, renovation, and so on. Plus, home prices don’t always go up over time.

Seven Smart Ways to Invest for Retirement

So if your home cannot reliably pay for your retirement, what is your fallback plan? I want to put you on the right path toward achieving a wealthy lifestyle in retirement - whenever that may be. For over 26 years, I’ve been helping people build a strong financial foundation for retirement. All too often, I’ve seen them make mental mistakes that lead to all sorts of financial fiascos.

Here are my retirement rules for steering clear of disasters:

1. Don’t “play the market.” Investing for your financial security is serious business. In my view, the first and most important step to take is to adopt the right attitude. By that I mean how you view the world of investments and the financial markets.

2. Learn to manage risk. Recognize what can go wrong. Actively lower your risk exposure when necessary, but also get more aggressive when market conditions turn very favorable, which means risk is low. Controlling risk - not trying to beat the market - should be your guiding objective.

3. Control your emotions. Investors who get into trouble typically become too enthusiastic when prices are rising and/or they panic when prices are sinking. Things are rarely as good as the blind optimists say, and almost never as bad as the professional pessimists would have you believe.

4. Recognize that the investment markets themselves are not always rational. They incorporate the knowledge and feelings of the world’s investors on a daily basis, so they reflect the ongoing battle of those two all-too-human emotions, greed and fear.

5. Pay close attention to the message of the markets themselves, and much less to the news headlines, market pundits, or TV talking heads. How the markets react to external developments is much more important that the instant analysis of the “experts.”

6. Accept the fact that investing is more art than science, and that you’ll often be wrong. But try to learn from your inevitable mistakes so that you don’t make the same ones over and over.

7. Focus on the long term, not on daily fluctuations. The longer your time horizon, the more likely it is that you’ll stay calm and be right about an investment. The shorter your investment time period, the less likely you are to make and keep investment profits.

The Art of Negotiation
by Donald J. Trump

Power is the ability to convince people to accept your ideas. Negotiation is a form of convincing. Power is ability. Ability is the result of practice and application. Think about these things carefully and let them sink in. After you have, remember this one: If you have them by the balls, their hearts and minds will follow. Sound tough? That’s right–that’s how negotiating to win can be. But as an art, there are nuances and finely honed techniques and rules to be aware of. Here are a few of them:

1. Know what you’re doing. Sounds simple, but I’ve seen a lot of instances where I couldn’t believe how much the other side didn’t know. I immediately knew I could have a grand slam and fast, just based on their apparent lack of preparation. My father used to tell me, “Know everything you can about what you’re doing.” He was absolutely right, and I’m giving you the same advice. Follow it.
2. He who has the gold, makes the rules. Another tough one, but that’s life. You’ve got to know who has the upper hand and proceed accordingly. Power is not just about calling all the shots, it’s about ability. Sometimes ability is having the discernment to see into a situation and realizing the power isn’t all yours. Know where the other side is coming from–do your homework thoroughly and carefully.
3. It takes a lot of smarts to play dumb. This is a good way to see how much your negotiating partners don’t know. It’s also a good way to see if they are bulldozing you.
4. Never let anyone know exactly where you’re coming from. Keep them a bit off balance. What they don’t know won’t hurt you, and that may help you down the line. Knowledge is power, so keep as much of it to yourself as possible.
5. Trust your instincts. There are a lot of situations that will not be black and white in negotiating, so go with your gut. Combine this with your homework and you’ll be ahead of the game.
6. Don’t be confined by expectations. There are no exact rules, and sometimes I’ve changed course in the middle of negotiations when something new has occurred to me. Remain flexible and open to new ideas, even when you think you know exactly what you want. This attitude has provided me with opportunities that I would not have thought about before.
7. Know your limitations, and know when to say no. This has become instinct for me by now, but I think we all know when that buzzer goes off inside. Pay attention to that signal.
8. Be patient. I’ve waited for some deals for decades, and it was worth the wait. But make sure what you’re waiting for is worth it to begin with. To speed up negotiations, be indifferent. That way you’ll find out if the other side is eager to proceed.

Let’s face it, the world isn’t always full of delightful characters. If someone screws you, screw the scoundrels back. Make sure they don’t come back for more at your expense.

In the best negotiations, everyone wins. This is the ideal situation to strive for. You will also be laying the groundwork for future business deals with people who know what integrity is.

In summing up, I can say that negotiation is an art. All the arts require discipline, technique, and a dose of imagination to take them beyond the realm of the ordinary. Don’t be an ordinary negotiator when you can be an extraordinary one. Devote time to this art and it can bring you enormous rewards.

Marketing Secrets for Real Estate Success
by Gary Eldred

“I don’t just build to a market. I create the market. I deliver to my customers more than they expect.” - Donald J. Trump

The secret of marketing properties all comes down to three letters: MVP. If you make the property you have to sell into an MVP, you will sell it quickly and profitably.

So what is an MVP? Simply put, it is a Most Valued Property that delivers to its target customers the specific features that they want, and that they are willing to pay for.

To be a true MVP, your property must be more attractive than anything the competition is offering at a competitive price.

How to Build Your MVP Power

You create an MVP by following these three steps:

Step one: Get to know your customers. You might already know what they want. If you don’t (or if you might be making the wrong assumptions), talk to tenants or property-buyers who fit the demographic of your target consumers. Conduct focus groups to learn what they are looking for. Interview realtors and other professionals in the area and ask them what buyers and renters are looking for. Don’t spend money on the wrong things, like installing a roof patio when what tenants really want is a state-of-the-art security system.

Step two: Study your competition. Tour competing properties and note what you see. Then check your list against my list of Key Property Differentiators (which follows below) to identify the features that can make your property an MVP.

Step three: Include non-physical benefits too. An MVP also includes exta assets, such as a spotless lobby, a well-staffed sales or management office, a cheerful doorman or superintendent, good security - and an upscale, service-oriented level of service for buyers or renters.

And now for my list of the key property differentiators that can make your property in an MVP. Offer as many of them as you can - especially those that are not being offered in competing properties - and you will leave your competitors behind.

* Appliances (quality, quantity)
* Attitude, dress and skill of sales or rental staff
* Carpeting/floor coverings
* Ceiling height
* Cleanliness
* Closet space
* Color schemes/aesthetics
* Decks/patios/balconies
* Electrical outlets
* Emotional appeal
* Energy usage/efficiency
* Entryway convenience
* Fireplace
* Furniture (in lobbies, rental offices, model units)
* Heat/air-conditioning
* Image/reputation
* Kitchen functionality
* Kitchen pizzazz
* Landscaping
* Laundry facilities
* Lighting (exterior, common areas)
* Living area floor plan
* Natural light
* Parking
* Physical condition
* Quality of finishes
* Quiet/noisiness
* Room count
* Security
* Speed of tenant approval
* Square footage
* Storage space
* Types/style of windows
* Views
* Window coverings

Market cool yet demand remains

Contrary to recent reports, the New Zealand residential property market cooled its heels in June, with signs that the market may be in for a period of consolidation, according to the Real Estate Institute of New Zealand Inc (REINZ).

REINZ National President Murray Cleland this week reported a fall in the latest national median price from May’s milestone figure of $350,000 to $347,500 in June, but warned that that these figures may be clouded by a change in the reporting systems applied by the Institute to its members.

Rather live here than anywhere

Just what we’ve always believed; New Zealand is a better place to live than Australia! Wellington was ranked the least expensive city (at 111th place) to live in, throughout the Australasian region in Mercer’s recent Worldwide Cost of Living Survey. Auckland moved up one place from last year to 99th but was nevertheless ranked less expensive than Adelaide, Australia’s least costly city.

Still more expensive to live in than any other city in the Pacific region, Sydney is the only Australian city in the top 50.

Topping the world’s list for most expensive city for the second consecutive year is Moscow, with London coming in a close second. Asuncion in Paraguay is the least expensive city for the fifth year running.

The 2007 Worldwide Cost of Living Survey from Mercer Human Resource Consulting covers 144 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment.
More News

The Institute has tightened the reporting deadline for sales from June with the result that an earlier cut-off point has reduced June reported sales and may have affected some median prices.

The Institute estimates that the impact, based on past average sales for June, may be around 8 per cent or 600 sales.

But Mr Cleland said that there was no doubt the market, contrary to reports earlier this week that it continued to boom, was easing back from the frantic pace of the first five months of 2007.

“The reports earlier this week of the market sustaining its run are based on sales effectively for May which was a record month in anyone’s terms and reported by us last month. The difference being that those figures are based on property settlements whereas our figures are based on unconditional sales so by definition our figures are four to six weeks more recent and are right up to 5.00 PM on the last business day of June.

Mr Cleland said that 7,474 sales were recorded in June, a big drop on the strong May figures of 9,285. However, taking into account the changed reporting system actual June figures were likely to be around 8,000 sales, which was very comparable with June 2006 sales of 8,428 and June 2005 sales of 8,025.

“The other factor is that we are now well into winter and that has a heavy influence on people’s inclination to transact property”, Mr Cleland said.

“So how much of the decline in June is due to seasonal factors, and how much the Reserve Bank can take credit for with its OCR increases, are key questions”, he added.

Spend Your Marketing Dollars the Smart Way

by Michael Sexton

Great advertising doesn’t have to be expensive. Consider these low-cost, highly effective marketing strategies that Prof. Don Sexton teaches in his Marketing Mastery Program at Trump University:

Identify your competitors’ weaknesses and target them directly. Be the only car dealership dealer in your region that offers Saturday service hours or wifi in your waiting room - or be the only health club in your region that has a babysitter on staff. Then trumpet that advantage in your ads.

Deliver your marketing message through tightly focused media. If you are targeting young families in just a few towns, putting handbills or posters in daycare centers can give you much more bang for your marketing buck than running newspaper ads that might reach your target audience - or might not.

Become part of the community where you do business. Sponsoring a sports team, cleaning up a park or donating a piece of equipment to a local hospital weaves your enterprise into the fabric of your community. Your activities will also be covered in local newspapers, radio and television.

Brand your products strongly and consistently. Develop strong product names, memorable taglines (”The Smile Doctor,” if you are a dentist), a distinctive product logo - and use all those elements consistently and often.

Those are only a few ideas for getting the most from your advertising dollars. Remember that there is never any point in throwing away thousands of dollars on unfocsued marketing efforts that don’t bring the right customers to your door.

Announcing! An Easy Guide to the Eight Best Ways to Still Make a Fortune from Scratch in Australia and New Zealand Today

If you really want to have the odds stacked in your favour, identify the areas of ‘highest probability’ and concentrate your efforts there!

High Probability Area of Opportunity #1

Own and develop an extraordinary business.
It is my opinion that the best way to make a fortune is to own a business. And the type of business you choose will determine the speed with which you achieve your goal. However, there is one area where I differ from most when it comes to owning a business and that is - I believe you will never make anywhere near as much money owning a business as you will selling a business.

It’s not so much lateral thinking that will propel you towards success in business, as being able to recognise a successful business opportunity and model it. I would much rather be a wealthy copier than a broke original thinker.

High Probability Area of Opportunity #2.

Be exclusive and have control of your product.
Massive wealth is most often linked to exclusive ownership. Simply, if someone else has control of your destiny, they can change the economics of your business, alter your marketing rights, impede your creativity, sell the parent company or otherwise unexpectedly interfere in your business, you don’t really own your own business.

High Probability Area Opportunity #3

Serve Serve Serve
This particularly equates to the Baby Boomers born 1945 – 1965. They represent the greatest single opportunity any one of us is ever going to be fortunate enough to encounter. They will earn more and spend more than any group of people in the history of mankind!
Most of the jobs being created in Australia today relate to service, and on closer inspection, service to the Baby Boomer. A great example of this is the explosion of home services (cleaners, ironing, gardeners, and handymen)

High Probability Area of Opportunity #4

Duplicate & Multiply. Find or create a system, a methodology that produces a profit, even a small one and duplicate, duplicate. I call it the ‘cookie cutter’ principle.
When you have a business that works in one place, there is almost always another dozen, hundreds or even thousands of places where it will work. Once there was only one McDonalds, one Subway, one Target, and one Woolworths … even one BP Garage.

High Probability Area of Opportunity #5

Profit from the Age of Information
Most likely in your parent’s time, it was the Industrial Revolution, which determined the pursuits of one’s working life.
Today, of course, it’s the Age of Information. The most valuable commodity of our time is not real estate, nor precious gems, gold or oil. It is “specialist information”. People with lots of money will pay you well to ‘know what you know.’

High Probability Area of Opportunity #6

Go Direct.
Define your message to market match and go direct to that niche.

A recent survey conducted of 100 mixed businesses, in relation to their use of direct marketing, revealed a meagre 18% using direct marketing, yet 90% of that 18% described it as the most effective sales and marketing method they had.

High Probability Area of Opportunity #7.

Create Widgets by Creative & Clever Combinations
McDonald’s have made a fortune doing just this. Creating combinations of products and giving them generic names which people can use to simplify their ordering process. The end result is that McDonalds create a new advertising program with little or no disruption to business and they up-sell clients by increasing the sale.

You can take virtually any product or service, add other products or service, give it a title, then market it to your clients.

High Probability Area of Opportunity #8

Become Famous because fame and fortune do go together.
The best way to become famous, for the average individual, is to be provocative and predictive. If you are in real estate sales, write a book, called “How to Buy a Home With Little or No Money Down and Sell it For Thousands More $$ Than You Paid For It.”

People would be pretty interested in that and, more importantly, so would the media. The secret is to be outrageous or make predictions. People love predictions, just look at the boom in the ‘horoscope’ industry.

My recommendation is that you combine as many of the “8 Best Ways to Still Make a Fortune in Australia from Scratch” as you can.

Committed to Multiplying Your Profits and Guilty of Conspiracy to Create Capitalism,

Mal Emery

We’re still on the topic of “How To Be Your Own Consultant” and in your last Success Marketing Strategy I gave you a couple examples of how companies look for a new way to package their product or a new type of product or service that would appeal to their existing clientele. I also pointed out that another good strategy it to find an entirely new way to market a product or service you already have.

Now I want to switch gears a bit and talk about thinking. More specifically, thinking to succeed.

There’s an excellent scene in an old motivational film by Doctor Eden Rowell titled, ‘You Pack Your Own Chute,” that illustrates the problem with most thinking and the way you have to think to succeed. Doctor Rowell draws a 1 and an ‘X’ in the sand and challenges a friend to turn it into a six with one line. He tries several possibilities, putting a one behind the ‘X.’ Finally she draws an ‘S’ in front making the drawing into the word ’six.’

Her friend protests saying that she indicated it had to be done with a line but an ‘S’ is nothing more than a curved line it’s just that we think of a line as being straight. We need to be able to step outside the confines of conventional, habitual thinking.

A classic example of the problem, of course, is the railroad industry. They mistakenly thought they were in the railroad industry instead of seeing themselves in the transportation industry.

What business are you in? As your business grows and prospers you’ll probably redefine that business many times. McDonald’s, for example, began as a hamburger stand. Today among other things McDonald’s is a huge and powerful commercial real estate company investing and building a property empower with franchisee’s leases as funding.

Continual frequent rethinking of what your business is, should be, can be and will be is a great success strategy. Regardless of the redefinition though the most important strategy of all is playing simple excellence. The book ‘In Search of Excellence,’ has been very good for American business. It has caused many companies and business people to do better thinking about the quality of what they do and produce.

As I travel this country, fly airlines, stay in hotels, rent cars, eat in restaurants, deal with many different vendors supplying the five different corporations I have interest in, I’m most often disappointed by the lack of excellence and the lack of concern for excellence apparent in most businesses. But thrilled by the occasional examples of real commitment to quality.

Fortunately the American consumer and the business client is, I think, growing gradually more demanding and those firms that invest as much time, effort and money in fostering quality and products and customer service as they do in advertising, are going to see real dividends from their decisions.

In my opinion the way for a hotel chain to become number one is to cut their ad budget and invest in better people and more training for their front desk staffs. A car dealer could prosper by making their service departments better rather than getting a better ad agency. The excellence movement sparked by that book is a good positive, productive encouraging one. I think every business person should read ‘In Search of Excellence,’ ‘Passion for Excellence,’ and other books about quality and think of quality as a marketing strategy.

One of the things you’ll find discussed in these books and present in the companies they profile is what Peters and Waterman called a “bias fraction.” We’ll pick up our discussion right there in just a couple of days when you receive your next Success Marketing Strategy.

Dedicated To Multiplying Your Income,

Dan Kennedy

Using Your Property as a Wealth Creation Machine
Keith Jenkins
Used properly, your property and your mortgage can be used to create long term wealth and financial security. Over the years, we have found a a proven formula for using property to help create wealth. Please take the time to read this entire article, as we will explain our core values and concepts. At the end of the article, you will find an actual case study. With this information, you should be able to “put the pieces together” to find you the best possible plan for you to create wealth in Real Estate.

Our 4 pillars of Real Estate Investment provide a foundation to start creating wealth in Real Estate. These four key concepts, combined with training and support from a few key professionals will enable you to do two things. First, you will be able to take care of any immediate negative financial situations you may be facing. Secondly, you will be able to start creating wealth and financial security at the same time.

The 4 Pillars of Real Estate Investment
1. Have a plan.
2. 5% AEA.
3. Cash Flow is King!
4. Never Sell a Property…unless you have to.

Let’s take a few minutes and discuss each of these Pillars:

1. Have a plan.

We can not stress enough how important it is to have a long term plan. Taking the time to work out a strategy and a plan for wealth creation with a professional could be the best time ever spent. Take a look at where you are now financially, and where you would like to be when you retire. Perhaps you would like to have your house paid off. Maybe you would like to own some cash-flow-positive investment property.

If you are like most Californians, you are likely to refinance, or move every 2-7 years. Without a strategic plan for investing, this can be extremely costly as well as undermining your long-term profitability. Let’s start treating our house like a business, and learn how to create the maximum amount of profit out of it. Take a few minutes to talk about your plan with a pro.

2. 5% Annual Equity Appreciation

The 2nd pillar of Real Estate Investing is 5% A-E-A. For the last 40 years, property values in California have risen about 5% per year (or more). This percentage will generally compound each year by this amount. At the time this was written, April 2007 we are currently seeing somewhat of a “slowdown” in the market, but consider property values have always been cyclical. If we look back over the last 40 years or so, we can plainly infer that property values have continued to increase substantially over all.

For example, if you had purchased a 3 bedroom, 2.5 bath, typical suburban property 7 years ago in San Diego County, you would have paid approximately $250,000. Today’s market value for that same piece of property would be approximately $450,000-$500,000. This is an increase of well over 5% per year compounded.

Another example: A family member purchased a property in Los Gatos, California in 1966. The cost for the property at the time was $30,000. The payment on that property was $438.00 (wouldn’t that be nice today??) 40 years have passed, and recently that same piece of property sold for almost $1.2 million. If you look at the compounding factor, that property increased in value (over the long term) well more than 5% per year. 5% Annual Equity (over the long term) is a fact, even with current market fluctuations, and current conditions.

3. Cash Flow is King!!

This is probably the most misunderstood aspect of Real Estate investing. There are several different aspects to Cash Flow. Cash Flow comes from many different sources. Working with a prof, they can help you identify all the possibilities from where you can generate additional cash flow. Here is a short list of often overlooked sources of Cash Flow to fund your Real Estate investing, and help you to start creating wealth through Real Estate investment.

1.Income from your jobs
2.Overpaid taxes that could be accessed with good planning
3.Cash back at closing when purchasing property
4.Savings from debt consolidation
5.Lump sum Cash from Refinancing
6.Arbitrage investing
7.Rent and depreciation from Rental Property

Understanding “the big picture” Cash Flow is vital to your financial security. Here is another widely misunderstood concept about Cash Flow: ACTUAL COST

Actual cost is the true cost of what it takes to purchase something. Strange as it sounds, when we look at the Actual Cost of something, we look at what we have to take out of our pocket on a monthly basis to pay for it. In other words, something only costs you what you have to pay for it on a monthly basis. This is how companies are able to afford costly equipment. And this is how most Americans pay for their cars, houses, and credit card bills. This is also why in some cases interest rate may not be as important as most people realize.

Here is a hypothetical situation for you to consider: Imagine someone was going to loan you $1,000,000 cash. When you died, the loan was forgiven and you only had to pay $100.00 per month for your payments on that loan. The only problem is that the interest rate is 25%. However, you don’t pay an interest rate every month, you pay a payment.

Often times we get so caught up in the interest rate on a mortgage loan that we do not even consider the long term ramifications of what the “payment” would allow us to do. With a smaller payment of only $100.00 per month, we could use the $1,000,000 to earn us much more than the payment that we are paying. This in turn makes the interest rate and even the payment not so important, right? Something only costs you what you pay for it on a monthly basis. This is the foundational concept of CASH FLOW IS KING.

4. Never Sell… Unless you have to.

I am aware of several situations where the property actually made more money than the occupants did at their jobs. This was especially true during the boom years from about 1999-2003. There are several reasons you want to avoid selling a piece of property.

1.You create a taxable event.

2.You may have to pay commissions to buyers and sellers Agents (Realtors).

3.Your property rarely sells for the Appraised Value.(Usually less)

4.You may have to pay recovered depreciation.

5.You are selling an appreciating asset.

Recovery of Depreciation.

When you sell a piece of property that you previously claimed depreciation on, you will be required to pay a tax on that. Capital Gains Tax. Depending on your situation, you may have to pay a Capital Gains Tax on your proceeds. Many times to get your property sold, you may have to list it with a Real Estate agent. This can cost as much as 4-6% of the sale price.

A property may not sell for its appraised price. During the buying/selling process, people will generally negotiate down from their original list price. This could be due to several factors such as finding a qualified buyer who is ready to purchase, or a buyer willing to work with the seller’s timetables. Typically, this further reduces that profitability of a piece of property because it is being sold for less than what it actually may be worth. Worst of all, as already illustrated, selling an appreciating asset is not generally in your best interest, especially if it is not necessary. There are always times when people must sell. This is normally a result of Cash Flow problem, where the payment simply cannot be met any longer.

Case Study

Here is a case study of an actual active client that we are currently helping C. N. is about 3 years from retirement after working the same position for nearly 25 years, and living in the same house for 23 years. She has considerable assets set aside in her retirement program. She had wanted to get out of her current house because it was too big and getting to be too much trouble to take care of. She found another house for sale across town that was about the same price, but was smaller, easier for her to care for, but in a much nicer neighborhood.

She came to us to list her existing home, so she could purchase the smaller, nicer home. We consulted with her and suggested an idea which ultimately gave her a better end result; keeping both houses, thereby doubling her potential Annual Effective Appreciation.

After careful consultation with a professional, this is how what C. N. decided to do looked on paper.

House #1 Value 525,000
House #2 Value 500,000
Owed 97,000 — Down Payment 200,000
Old Payment 937 — New Loan 300,000
New Loan 300,000 — New Payment 1,000
New Payment 1,000 — Rent 1,800

Her decision was to refinance her current home, fix it up and rent it out. By including extra cash-out in the refinance of House #1, she was able to purchase the nicer home she wanted. Now C. N. controls both pieces of property. If you look at what she was paying before (Cash Flow) she was paying about $937.00 per month for one house. When C. N. only owned one piece of property, she was paying $937.00 per month for her house.

Now she is paying $200.00 for 2 pieces of property. She has the rent coming in of $1,800.00 per month, and 2 payments of approximately $1000.00 each. Plus she was able to care for some deferred maintenance in House #1. She is actually saving about $700.00 per month over what she was paying prior to purchasing the other piece of property. This is a classic case study of CASH FLOW. Now she has over $1,000,000 worth of property.

Applying Rule #2 (5% AEA), she will now earn $50,000 per year worth of appreciation on both properties, instead of $25,000 on her one house. Even if the market drops slightly during that time, she would still has about $400,000 worth of equity in the two properties.

In addition she saves $700.00 per month (not to mention the tax benefits of owning two properties). If she were to keep this situation for about 3 years her NET Saved is approx. $30,000. Assuming she put that into a retirement plan earning 8% how much would that be worth? You do the math…

“Having a plan” and understanding “The 4 Pillars of Real Estate Investment” will make a true difference in your financial life.
Cant Afford To Get Into The Property Market “You Are Wrong!” www.millionairemakersinternational.com Millions Members

No-Fail Financing Strategies for Today’s Market

by Michael Sexton

When history books are written, the year 2007 will probably be called “The year of real estate upheaval.”
First there was all the talk about the real estate bubble. Then came the subprime lending crisis, followed by a surge in the number of foreclosed properties hitting the market. Then just last week, there were widespread reports about falling prices and a surplus of newly constructed homes across the country.
What does it all mean if you are trying to get your first mortgage and get started in real estate?
There’s some good news. Despite all the uncertainty in the markets, you can still strategize your way to a great first mortgage by following these very basic tactics:
Strategy One: Build or rebuild your credit. Educate yourself with some good basic information about how credit reports work. If you don’t know your credit history, make an online visit to Experian or Equifax. If you don’t have a credit history established yet, start by getting a credit card, using it, and making your monthly payments in full. Then take the next step by getting a loan and paying it back reliably. In less than two years, you can establish a record of excellent credit-worthiness.
Strategy Two: Work with the down payment you have. Shop around and compare programs online to find one that is right for your financial situation. Many current mortgage products are targeted at first-time buyers who don’t have tons of money to put down on a property. One warning? Don’t take a mortgage with a monthly payment you cannot reasonably expect to make. As a lot of unfortunate people discovered in the last six months, over-borrowing is a recipe for losing a home.
Strategy Three: Give yourself a mortgage education online. You really can learn a lot in just an hour or two, using one of the many excellent mortgage calculators you can find online. Plug in the price of the property you are considering, play with different down-payment numbers and you can quickly get up to speed about how far your money can take you. And please don’t fail to investigate the many excellent courses at Trump University.
So those are the strategies. But let me include one other piece of advice too . . .
Don’t forget smaller local banks
Their personalized attention and service can make them a great choice. As our Executive Editor Barry Lenson recalls, “The first mortgage I ever got was through a small regional bank, American Bank of New Jersey. After about a year, I made a mistake and dated a check for the wrong year. I got a call from a woman at the bank who said, ‘You’ve never made a mistake before, Dear. I’ll hold your check until you can bring me another one today or tomorrow.’”
That bank was obviously trying to build its community. Try getting that kind of service from a bank that is half the country away!
Now Heres the RUBB this is the total opposite to Australia nad New Zealand where we have an accute shortage and no relief in sight!!!!