Thing on My Plate

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The past couple of weeks, since the seminar and my determination to get this business going, have been CRAZY! On my list of things to do:

• Research, research, research!! Not only research the market, but also how to start a business, where to invest, what to invest in, hard money lenders, networking groups, how to obtain information, HOT spots, and as you can imagine a plethora of other topics.
• Learn. I've read two books since the seminar. Taken two online classes: one about foreclosures, and another about setting up a business plan.
• Get the biz set-up. This is perhaps the most difficult and perplexing thing on my plate right now. We live in Hawaii, want to invest in Utah, Nebraska, and Oklahoma. Which location do I set up the business? The place where I live now, the place(s) we'll live in the future (Utah and Nebraska), both locations? I don't know. I'm talking to attorneys and accountants in Hawaii right now, but when I go to Utah in a month and a half I'll be talking to attorneys & accountants there to figure out where we'll end up setting up the biz. Either way, we'll have to do business long distance.
• Set up my POWER TEAM! I need to ask around, find, call, interview, and research the following people to put on my team for EACH STATE we plan to invest in. Attorney, accountant, tax professionals, real estate agent or broker, mortgage broker, contractors, property management companies, commercial broker, insurance broker, appraiser, architect, environmental consultants, engineers. The most immediate and important at the moment being attorney, accountant, real estate agent, & mortgage broker. The rest I can slowly add to the team depending on what I'm going to invest in (most likely I'll need a good contractor and property management company soon).
• Network. I've already joined a couple of real estate investing groups online for both Utah and Hawaii, now I just need to go.
• Find funding. I don't even want to think of this one yet...but I am. Since I'm new and haven't done much networking yet, I don't know all the investors (let alone what to say to them or how to work with them). I also don't have a mortgage broker set up; really important for funding. Yikes!! I'll get it done, but for now it's a huge stressor.
• Find properties. This is mostly done online right now since our immediate investments are on the mainland (more affordable to get into in order to start creating cash flow and earned income). Also, what we are looking at right now is mostly research. Looking at the markets, then the properties available for those market, performance expectations for various areas, which locations are better for which investments, cap rates, ROI, REO's, pre-foreclosures, etc. I need to know as much as I can about these markets now, so that when I go there (in the next month or so) I'll know what's a good deal, what's not, what I'm looking for, etc. Basically all the facts so that when I find something I can hop on it, then bring it to an investor, or get the funding from a broker.
• Schedule. I need to, and actually have, set up my class and traveling schedule for the next couple of months. This is what I have so far. Sept 12th, Honolulu, Rich U class. Sept 25th, Wholesale class, Bakersfield. Oct 9th, Foreclosure class, Dallas. Oct 18th, Mobile Home class, Utah. Oct 30, Lease Options class, Denver. Nov 13th, Rehabbing class, Las Vegas. Dec 4th, Creative Financing class, Honolulu. Unconfirmed, Dec 11, Commercial Properties class, Atlanta. I'll also be in Utah, my first investment area, from Oct 12-Nov 11 (fly out and attend classes periodically). That's 8 confirmed classes with one pending. Not bad. Plus for much of that time I'll be where I want to invest. Awesome!

As you can see, I have a lot on my plate right now. I work every day towards my goals and cross off things every day as well. That doesn't, however, diminish the fact that I still have A LOT to do!!! Wish me luck, give me advice, give me a contact, or just read this blog.

Why Real Estate?

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Ok, nothing too flowery. Real Estate is, hands down, one of the best tools of investment out there. Want to know why?

• Take a look at some of the largest companies out there. Walmart. Company revenues = $3.2 billion. Real Estate Asset Value = $78.7 billion. Sheldon Anderson (Las Vegas Sands Cooperation). Company revenues = $589 million. Real Estate asset value =$2.6 billion. Ray Kroc (McDonald's). Company Revenues = $4 billion. Real estate asset value = $29.9 billion. Ray Kroc was quoted as say that he is "not in the hamburger making business, but [that he is in] the real estate business." Ask yourself this after looking at the numbers. Which would you rather own, the business or the land?
• Cash Flow! When you own real estate you can easily generate passive income that pays for itself and then puts money in your pocket. Rental properties, land, leasing, etc. are all examples of how a real estate investment can generate enough income to pay itself off and then have excess money that goes into your pocket every month after all expenses paid.
• Control. When you own stocks, bonds, mutual funds, etc. you generally give control over your investments to a broker or financial advisor. With real estate you have a tangible asset. You can visit it, fix it up, manipulate the operations so as to increase value and performance, etc. You aren't being reactive to market conditions (buy or sell), you are being proactive.
• Appreciation. The average yearly rate of appreciation for the United States is 6%; that means that higher performing markets appreciate at much higher rates, and some markets perform lower. Find the market and pick your rate. Not only does your property increase in value over time, but if it cash flows, that increases over time as well. Consider this. You buy a $200,000 property with 20% down ($40,000) and a mortgage of $160,000. You only have $40k of your own money in the investment., and you get $1,000 a month in cash flow after all expenses paid. Over 30 years time (standard mortgage term) your property pays for itself through cash flow (so the property, not you pays off the mortgage), you then have $1,083,678 in total asset value (if you use the standard 6% rate of appreciation), and your monthly cash flow increases over time to $3,243 a month ( based on average rental growth of 4% a year). So, your initial $40,000 investment is now worth over $1 million, and you still get over $3k a month from it.
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  Stocks vs. Real Estate Over 30 years
  Orig Invest Amt	Appreciation/Growth	Real Estate Value	RE ROI	Stocks	Stock ROI
  $40,000	6%	$1,083,678	2709%	$216,736	542%
  $40,000	8%	$1,863,455	4659%	$372,691	932%
  $40,000	10%	$3,172,619	7932%	$634,524	1586%

  
  *ROI is Rate of Return/ ROI% = return on investment ÷ original investment

• Leverage and Other People's Money (OPM). Basically what that means is that you can put little to none of your own money down and still get a great return. In that last example all you did was put 20% down while the bank (other people's money) took care of the remaining 80%. Some banks will finance 90-100% of the worth. With stocks you can still use OPM by buying on margin, but you can't borrow more than 50% of the stock's worth.
• Depreciation. Basically you can use the yearly expected deterioration & wear and tear on your property as a tax deduction. For residential investments it's 27.5 years, while commercial property it's 39 years. The equation looks like this: (total asset value - land value) ÷ depreciable years = Annual depreciation amt. Land is not depreciable because it's not an actual structure. Here's an example of a residential asset that's worth $19.7 million (land value $3 million). ($19,700,000 - $3,000,000) ÷ 27.5 = $607,273. If, after all expenses and debt this property has a cash flow of $300,000 that means that (depreciation - cash flow = 307,273) you can show depreciated value of your asset to be $307,273, so you don't have to pay taxes on the $300,000 cash flow. Now, that's a lot of mula. (You must beware though, once you sell the property the total amt depreciated through the years you owned the property will be due. One way to avoid this is to do a 1031 exchange.)
• Refinancing. You buy a property, it increases in value, you borrow from the bank the difference between the amount paid and the current value. The money is tax free and all yours. Example: bought property for $9 million, 5 years later it's worth $15 million. The property covers the increased mortgage amount and you pocket or reinvest the $6 million.
• Asset Protection. First, you can insure your investment; in fact, you are required too, and your asset pays for the insurance, it's tax deductable, and you get money left over. You can own properties through LLC's and other coorporate entities that protect your investment. Also, there are a variety of other tax and legal advantages to owning real estate that other investments just don't compare to at all. Check with your attorney or tax accountant for more about that.
• 1031 Exchanges. You buy a property, it increases in value, you sell it, take the profit and reinvest it in another property TAX FREE!! Of course, you have to do it right and have a 1031 specialist to help you through it, but this is a great way to contiually build your asset value.
• Hedge against inflation. Since 1913 the average yearly inflation amount is 3.5%, or 4.1% if you factor out the great depression (the only time inflation was in the negatives). Savings bonds get you 2-3%, real estate gets you 6% PLUS a plethora of tax advantages AND cash flow.
• It's physical. When you own real estate, you own an actual physical asset. You can visit it, fix it up, force appreciation, etc. Stocks and the like, come and go at the touch of a button and can go from a great investment to zero in seconds, while real estate changes value at slower rates that allows you to, if you watch market conditions, etc., easily avoid pitfalls and depreciation.

*information from this article was taken from Ken McElroy's book The Advanced Guide to Real Estate Investing (a Rich Dad advisor book).

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Rich Dad Seminar

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Wow! Last weekend was more than information packed, but inspiring and life changing. Nick and I had the chance to attend a Rich Dad seminar in Honolulu all about the in's and out's of investing in real estate right now. I learned a ton, but I thought I'd share a bit about what went on.

Fundamentals & Rules of Investing

• You need to have an exit strategy planned and set up before you buy a property. Exit strategies can be anything from renting, re-selling, lease options, rehabbing, etc.
• In real estate you make money when you buy a property and collect when you sell.
• You buy and sell to create cash, buy and hold to create wealth.
• The more you KNOW, the more you BUY, and the more you MAKE.
• You need more skills in order to buy more expensive.
• DOVETAILING!!! In order to maximize income/profit you need to use multiple strategies for each deal. Example: buy WHOLESALE with OTHER PEOPLE'S MONEY, do a REHAB, then use a LEASE OPTION to sell. 4 strategies were used in this example. The more strategies you use, the more money you are likely to make.
• What you don't know WILL cost you money. For example, if you don't know how to use lease options and you rent or sell instead of using that strategy that would have made you more money, then you lost money because of lack of knowledge.
• If you want to be financially free you must first go into debt in order to get out of debt. Just play Kiyosaki's Cashflow game to get an idea of how that one works.
• Knowledge builds confidence and destroys fear.
• The value of a commercial building is directly proportionate to the income it generates.

Some of My AHA! Moments

• If you own both the land and building that a commercial property is on, lease the land and sell the building. You receive money from the sell of building and continual cashflow from the land you lease. It's a win, win situation.
• You can't make profit on a deal you don't do.
• Self directed IRA/401K's can be used to invest in Real Estate.
• Every time you use OTM (other people's money) and you profit, you're rate of return (ROI) is INFINITE!
• Over borrowing can be good. Over borrow to cover expenses on loans, mortgages, expenses, until you profit from a deal, then pay it all off and keep left over.
• Never pay off good debt in a lump sum! It pays itself off. Good debt is debt that makes you money. Example: a mortgage on an apartment building that brings in a steady cashflow after all expenses are paid is good debt. The investment pays off the mortgage and you still earn money. Bad debt is debt that does not pay itself off, but takes money out of your pocket. Example: you bought a new car; that car does not make you money, it takes money out of your pocket. Therefore it is bad debt. You can turn it into good debt by using the car as a company car, and a marketing tool by putting magnets on it to promote your business.
• When it comes to commercial deals banks look at the deal itself and not your personal income. If the deal sells itself and will bring in money.
• Contract Assigns: you purchase a property from an owner and have it say on the contract "and/or assign," meaning that you can assign the contract over to someone else (your buyer) and you don't have to pay a penny on it! You do, however, make money.

I did, obviously, learn a lot more at the three-day seminar, but these were some of the most eye-opening learning tools I gained. I am so excited to keep learning more about real estate investing. The more I learn, the more opportunities I see, the opportunities I see, the more money that can be made, the more money that can be made, the closer I am to living the life that I want.