Network Your Way to Prosperity

And I don’t mean Social Networking

Networking

I am sure you have heard “It’s not what you know, but who you know” many times. This is an excuse as to why someone else might be more successful than we are. However, as with most adages, a grain of truth lurks inside.

Much of your business and financial success will be determined by your network — not just who you know, but much more importantly who knows you. All of this boils down to your network — people and businesses that support you and your business, and vice versa.

Many people mistakenly believe that quantity strengthens your network, but quality is more important. For example, I have know person who can get me in front of thousands of qualified prospects with his endorsement. His solitary efforts could be more valuable than 500 weak ones.

With the advent of social media, there is a huge myth that “friends” or “followers” equate to your network. The person I mentioned above is not even a social media friend, and yet that relationship could be worth huge money to my company. Social media (such as Facebook (FB), Twitter (TWTR), LinkedIn (LNKD), Google Groups (GOOG) and Pinterest) is just one small part of a solid network.

There’s Gold Out There

Social media is a modern gold rush. Some people have made a fortune finding gold and utilizing social media. However, bigger fortunes were created selling all the stuff to help you find your mineral or virtual fortune.

You should spend some time on selected social media outlets because there is no doubt that some good things can come from social media involvement. I know many people who have landed a job or gotten great leads from their social media accounts. Unfortunately, many of those same people totally ignore their non-social media networks.

Anywhere you go and almost everything you do can be a part of your network. Make a list of the top five places you visit every month. Your list could look like this:

  1. Supermarkets and other retailers.
  2. Gym (build your body and your contacts during the same time).
  3. Groups you or your kids belong to such as sports teams, scouts, clubs.
  4. Your workplace or place of business.
  5. Social groups, such as golf, cards, hobbies.

Within such groups is your next great job opportunity, your best new clients and life-saving people. The key is to know how to be a part of a network successfully.

Ditch the Pitch

Far too many people are trained to develop a 30-second elevator speech and shotgun it out to anyone who will listen. The results are dubious at best. Yes, you will occasionally get something. However, take that brief opportunity to expand your network to focus on what the other person does and how you can help. Consider this hypothetical conversion between you and me:

“John, what do you do for a living?”

“I have my own wealth strategy company.”

Wealth strategy? That’s interesting. What’s your specialty?”

“I show families how to create tax-free generational wealth without risk or a 401(k).”

“Great, John, give me your card, and while you’re doing that, tell me how I might be able to help your business in the next year.”

Give (Most Importantly) and Take

This approach will blow John away and show you are not just a taker, but you are first a giver. When you get back to your office, immediately send John a thank you note with your card. Mention that you would like to find out more about how you both can help each other’s business and you will be calling next week to set up a short chat. Don’t ask for any business.

By following this simple strategy every time, you are separating yourself from the crowd and showing that you are a professional and are genuinely concerned about the other person’s business and wellbeing. You are not machine-gunning them with your speedy pitch, but instead you are establishing yourself as a resource for them.

Try this simple strategy of asking your contacts what they do or what they need that you might be able to help with. If you can help, make sure you do, and you will develop future contacts for that perfect job or business and someone who will go the extra mile for you when the chips might be down. Get in the habit of finding out more about your contacts than they know about you. Focus on quality relationships with the right people rather than thousands of meaningless contacts that really don’t care if you live or die. “Dig Your Well Before You’re Thirsty” by Harvey Mackay is a required read for anyone serious about developing a powerful network.

Are Your Finances Running like a Well Oiled Machine?

If you can master these seven gears of riches you will own a rock solid financial fortress that runs like a well-oiled machine.

7 Gears of Wealth

Most of my clients are not balanced when we first meet. When you can appropriately balance these 7 gears they will feed off of each other and you could have a wealth creation perpetual machine. How are your 7 gears working together?

  1. Income from job and/or business is your life blood to live your life and pay all your bills. I don’t feel we were put on this earth just to live, pay bills, and die so this cash flow must be large enough to pay your bills and live a certain lifestyle with options such as vacations, nice home, automobiles etc. When your cash flow is weak you cannot plug up your wealth drains nor can you fill in the other 6 gears. You should be working toward a results driven income so you are not limited by other people’s opinions of what income you should make. One of my mentors told me years ago that profits are better than wages. He was so right and for many reasons.We will be exploring several ways to immediately increase your income in future articles. I want to give you several options to make extra money and for some of you that might lead to an entirely new career in the future. There are millions of families whose lives would be greatly influenced for the better if they just brought in an extra $1,000 to $2,000 of monthly income.
  2. Investments are the second critical gear and there is a seemingly endless supply of places you can invest money that could make you wealthy and other seemingly endless supply of places that could also take all your money and leave you poor. The secret is to find a few core investments that you understand very well and work those investments. Become an expert at even one or two solid investments and focus your efforts in those areas. One of the biggest mistakes people make is to put all or most of their efforts to just their investment gear and little effort into the other main gears or drains of their financial life.
  3. Cash on hand is seemingly self explanatory and is not a difficult concept. However, even though it is a simple concept many people focus on putting so much into investments that if a short term cash need arises they might not be able to satisfy that need. They also might be able to satisfy the need but at a cost of selling investments at losses or incurring penalties and fees to get their cash needs met. Cash set aside is usually thought to be low interest bearing but that does not have to be the case. There are great financial vehicles out there that will allow you quick access to cash while still giving you a decent return on your cash as it sits in the account.
  4. Guaranteed income is the income we can count on after our job or business income either goes away completely or drops significantly. Do you know how much income you need every month to live your current lifestyle? Would you like to live even better? Most retirement accounts such as IRA’s and 401k’s make no guarantees on how much monthly income they will provide in your retirement years. Do you have a pension? How much will you receive from Social Security? Will Social Security be there in the future for your retirement years? The Social Security Administration’s own web page says that if you retire after a certain year you will only qualify for 77% of the current amount given to you as your projected retirement account. A successful and abundant retirement will require safe and stable income.
  5. Debt elimination or reduction will be critical to a worry free life and retirement. If you have a $2,500 house payment and $2,000 of that amount goes toward principal and interest you will have $2,000 more net cash flow if you can pay that home off in full. You will learn how to do that faster and easier than you ever thought possible in future articles.
  6. Long term care or home health care in your older years. Most people’s plan for dealing with long term care boils down to one word……..Hope! Hope is not a strategy but there are strategies that are little known that can aid you should you ever need extra money for long term care or home health care. If this one gear falters it can systematically destroy all the other gears you have been working so hard to build. The average cost for care varies by state and even by city. Many times, by simply reallocating existing assets you can control the potential back breaker of long term care or home health care without expensive long term care policies
  7. Estate or legacy is what you would like to leave behind in this world after you move on to the next one. Would you like to give family more options in their lives as far as education or opportunity? Do you have a special cause or foundation you would like to help long after you’re gone from this life? Would you like to make sure that all your hard work doesn’t go to Uncle Sam after you pass away or to a greedy court system? A proper estate plan is critical to closing out your financial life and leaving a positive influence behind generations after you’re gone from this world. If you want to determine who is entitled to what than a simple estate plan is a must.

We are going to show you how to build out all your 7 gears of riches while at the same time plugging up your 4 main wealth drains.  You hold in your hands a completely new way to look at money and wealth. We can’t wait to continue to add more articles as the weeks and months pass!

Are Mortgage Loan Assumptions Dead?

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Not so many years ago, obtaining a mortgage was a local affair. You’d walk into your neighborhood bank, fill out a few papers, and get your loan — and the money would usually come from the institution you’d walked into.

But over the last 25 years or so, the banking industry has undergone a series of sweeping changes. Mortgage lending has become much more standardized and national, so your local bank is probably underwriting your loan based on Fannie Mae and Freddie Mac standards. Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.) supply cash to the primary mortgage markets by purchasing large blocks of loans originated by other lenders. Mortgages that don’t conform to their standards can’t be sold on the secondary market. The bank will hold these rare in-house loans on its books or possibly sell them to another bank directly.

What Is a Mortgage Assumption?

This article isn’t about Fannie or Freddie, but you need to know a little about mortgage lending’s history before we start to discuss mortgage assumptions, which allow new borrowers to assume the terms of in-place mortgages, such as payments, interest rates and pay-offs. Mortgage assumptions were the norm for many years.

There were two kinds of assumable loans: simple and formal. A simple assumption was simple because you didn’t need to qualify for the loan. Nobody ran a credit check (there wasn’t even standardized credit reporting back when simple assumptions were the norm); your income was not verified; and the now-standard mortgage qualifying process was not done. If you could pay the difference between the home’s price and the underlying loan balance, you could just take over that mortgage. It might have looked like this:

  • You agreed to buy a home for $80,000, and the current mortgage rate was 9 percent for new loans. The home you were buying had an underlying simple assumption mortgage balance of $50,000 at 6 percent, with 20 years left on the mortgage.
  • If you had the $30,000 in cash to give the seller, you could simply assume the lower-interest rate loan and be 10 years into the payoff schedule. You would have a significantly smaller payment than you would have had on a new loan, and more of that payment would be going to principal and less to interest.
  • If you didn’t have the whole $30,000, you could try to get the seller to carry some of his equity back in the form of a second mortgage and make a smaller cash down payment

Most mortgages were simple assumption loans. In formal assumption loans, you might be able to assume the underlying loan if you qualified financially, and the lender was allowed to change some terms. Up until the mid- to late 1980s, Federal Housing Administration and Veterans Affairs loans were simple assumption loans. Some people mistakenly believe that the simple assumptions went away because there was a high default rate caused by too many people taking over loans they wouldn’t have qualified for, and couldn’t really afford. In fact, it was much more about banks’ profits.

The Problem of the Reverse Spread

As interest rates went through the roof in the late 1970s and early 1980s, lenders faced a problem with what’s called “reverse spread.” If banks were making new mortgages at 14 percent, they might also be paying 10 percent on savings accounts. That’s a comfortable 4 percent profit margin. But if people were assuming older 7 percent mortgages, they’d keep paying the older, lower rate on those loans while the bank had to keep paying out 10 percent on deposit accounts. And that, obviously, equals a 3 percent loss.

To alleviate this problem, loans started including “due on sale” clauses in their mortgages that took away the automatic assumption option. This doesn’t mean that loans are not assumable today, but it does mean they aren’t easy to assume. Mortgages now state almost universally that the loan cannot be assumed without lender approval. You are free to approach the note holder about assuming an underlying loan. They are also free to tell you to forget about it.

If the loan is in default, you have a better chance of taking it over if the loan is current. And even if the lender sanctions the loan takeover, don’t be shocked if it wants to change the terms.

Many private loans (commonly referred to as land contracts, contracts or contracts for deeds) and mortgages can be written to be assumable if that is what the buyer (borrower) and seller (lender) agree because there are no banks in the middle of those transactions. Some investors also take over a property “subject to” existing financing.

Right now, with interest rates still near their all-time lows, there is, unsurprisingly, little desire among home buyers to assume mortgages. Why take over an older loan when you can get a cheaper new one yourself? But when interest rates rise dramatically again (and they will), you will see assumption come back into vogue. Once money starts getting expensive, buyers and sellers will have to get creative like they did 30 years ago.

Indexed Universal Life – A Ticking Time Bomb!

How would you like to put money into a financial product that lets you benefit from market gains, but never feel the pain of its losses? The money and growth inside the policy will be 100 percent tax-free for life. That’s the seductive pitch often used to tout an investment called indexed universal life insurance.

Based on that sales pitch, it would be no wonder if your response were, “Sign me up for that right away!” Unfortunately, all that glitters is not gold. The sales materials for your IUL policy will almost always be illustrated with unrealistic compounded rates of return. But as we all know, stock market growth does not simply compound over time. Sure, you can measure an “average rate of return,” but in the real world, prices oscillate, and performance can be a creature of timing much more than investing.
Bomb
In fact, an indexed universal life insurance policy will almost always leave you holding the bag.

Let me clarify first that these are entirely different investments than the “properly designed whole life policies” that I wrote about in February. When you invest money inside an IUL policy, you’re setting up a life insurance policy with an annual renewable term cost of insurance. The extra money placed in the policy goes into sub accounts, and those funds will generally follow an index (or indices) in some form when that index increases in value. This structure will cause the cost of insurance to rise every year, which is why most people let these policies lapse in later years.

One Man’s $50,000 Premium

A retired neurosurgeon at one of my seminars told me about his IUL nightmare. He invested substantial money in an indexed universal life insurance policy when he was 49. He funded this policy for 20 years, and the projected profits never seem to materialize. Among the reasons why:

  • The projections that were illustrated for him were not realistic.
  • The expenses of the insurance and many other hidden fees come out daily.
  • The guaranteed growth of 3 percent was only payable at policy cancellation.

Much worse was the bill when he turned 70. This policy was structured with a 20-year guaranteed term policy for the death benefit, and his premium hit almost $50,000 — and not one nickel was going into any cash value.

Surely, something must be wrong, you say? He assumed it was clerical error until he called the carrier and was told that is how those types of policies are built. In the 21st year of the policy, the premium was supposed to be almost 100 times the first year’s premium, and it was only going to rise further, since term insurance gets more expensive as people age. This man closed the policy down, which meant he no longer would receive the death benefit, and even the pitiful gains his investment had realized were now taxable because he’d lost the umbrella of the insurance policy tax structure.

Lousy Ideas, Without Clear Numbers

Welcome to the wonderful world of indexed universal life insurance. I can’t wait to see in this articles comments that somehow, one of you knows about a “special product” that has a “no lapse” guarantee or some other new (and yet old) wrinkle that allegedly makes these lousy policies better. These dogs with fleas are generally sold to those with high incomes, such as doctors, as a way to put loads of money away in a tax-free environment instead of the limitations of an individual retirement account or 401(k). The illustrations are not realistic and fail to speak plain English as to what is going to happen with these policies.

If you have been sold one of these policies, examine the illustration you were shown and notice the cost of insurance cannibalizing the cash value in the later years of the policy. Study the cost of insurance, which will never be plainly spelled out in dollars and cents (your first clue something is amiss) but rather in decimal points. Watch how that number grows in the later years.

If you have the misfortune of having one of these policies, you might still have an option to roll into a 1035 tax-free exchange. It would allow you (assuming you qualify health-wise) to exchange your cash value in your IUL policy into a properly designed whole policy with solid guarantees and fixed costs all disclosed up front.

For more free training and information on this topic, watch our video of the week and get free downloads.

Could Rental Properties be your Cash Flow Machine?

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After the real estate bubble burst in 2007, and property values in most areas of the country collapsed, many investors soured on real estate. But rental markets remained strong, thanks to all those people who needed places to live after they had given their homes back to the banks. In some areas, you were able to buy solid properties at prices from the 1960s while rents stayed at their modern prices or even went higher.

Most of these properties had strong positive cash flow, which made them solid deals just based on the rent-to-value ratio. Imagine buying homes in the suburbs of Detroit for $35,000 to $50,000 while renting them out for $850 to $1,000 per month. You could also buy homes or condominiums in Florida, Arizona, Nevada and Texas for prices not seen in decades. It was a bonanza if you had guts, access to cash and someone local to run the properties.

After several years of decline and stagnation, many areas of the country have experienced double-digit rebounds over the last few years, but there are still some great opportunities in to create your own cash flow machines. According to ABC News, the top five markets to own investment property are Detroit, Chicago, Houston, Minneapolis-St. Paul and Boston.

The rent-to-value ratio is king, in my opinion; the prospect of having nice appreciation in your resale value is strictly secondary. Remember, buying a rental property is about cash flow, not speculation about growth. To successfully invest in rental real estate, adhere to these rules:

  • The three most important things in real estate are not location, location, location; they’re cash flow, cash flow and profit. That location mantra? It’s for homeowners raising families, not for investors.
  • Location is still important because quality tenants will gravitate toward quality homes in solid blue-collar areas. Buy where the tenants you want, want to be.
  • Buy properties only in areas where a significant percentage of the homes are owner-occupied.
  • Make sure the property is in good repair and is clean to attract the best tenants. You (or your management company) pick the tenant. Quality tenants will fight over solid homes in nice areas.
  • Complete background checks are mandatory — not just credit checks. Just because someone has had a one-time financial bump that led to a foreclosure doesn’t mean they won’t be a solid tenant. Judge people by their overall background, not just by a credit score.
  • Offer small discounts on the rent for timely payment and enforce late fees. Set the tone early and often. Be fair, but firm.
  • Don’t over-leverage your investments. Doing so puts your empire at risk of crumbling during the next real estate downturn. Many investors are paying cash in the less expensive markets (such as Detroit, Buffalo, Indianapolis) or putting large down payments on their investments in the more expensive markets. Leverage can be a great thing, but has been over-taught and overused. Use leverage wisely or not at all in your next round of investing

A lease with an option to buy can be a very effective strategy if the property is in a solid location. The rent you charge will be more a month, but a portion of it might go toward the credits on the purchase price for the tenant/buyer. In return for an option to buy the home and the credits, the tenant might agree to handle small repairs, thus relieving you (or your management company) of some of the upkeep duties.

There are still big opportunities out there for people who would like to invest in rental properties, but it will take education and a strong team to help you become a successful real estate investor.

COULD SOME DEBT ACTUALLY CREATE WEALTH?

There is a big misconception in the financial world and among consumers today that all interest is the same: that, for example, a 6 percent mortgage is the same as a 6 percent line of credit. That’s not true, because the type of interest you are paying and how it is calculated are just as important.

Most U.S. mortgages are financed with fully amortizing loans. This means that a monthly payment to pay off the loan is based on the interest rate, the amount and the term. For example, if you borrow $200,000 using this kind of loan, your payment based on a 6 percent rate and 30-year amortization schedule is $1,075.

You may have heard that just one extra payment a year toward the principal of such a loan will pay it off about 10 years sooner. Homeowners have many reasons not to do this. They don’t want to tie up that extra $1,075 in their house. They receive no immediate benefit. They would rather keep their $1,075. They want to spend it on something they probably don’t need and won’t want three months after they buy it. They reason that they will sell their home in eight years anyway, so it doesn’t matter. Or they believe interest rates are so low now that they should borrow as much as they can, and invest all of their money rather than paying down debt, because they will come out ahead that way.

That last argument is seriously flawed.

HELOC

Reduce the Finance Charge

In home equity lines of credit — also called HELOCs — the interest rate is less important than the finance charge. Finance charges on lines of credit are figured on average daily balance for the month. For example, when the 30-day finance period closes, your bank calculates that you had an average daily balance of $50,000 and the interest was 6 percent, so you will pay $8.22 per day in finance charges. Your interest charges for the month total $247, so your total payment might be around $325 because the bank will also require some money toward the principal. Simple enough, right?

What happens if on the first day you pay $5,000 on the principal? Your balance is now $45,000, so your 6 percent rate now produces a finance charge of $7.40 per day or $222 for the month. You consider that $5,000 as a pay-down, but your bank considers that $5,000 as your payment for the month.

Where do we get the $5,000? How about if you used your paycheck? Too many Americans let their pay sit in checking accounts until they pay bills. Why let that money sit there earning zero (or very little) interest? Let that income sit in your revolving line of credit to reduce or cancel finance charges.

If the line of credit is properly set up, would you be able to access your funds by writing a check? Absolutely! Would you have immediate access to any extra loan pay-downs, such as the $5,000 in the example above? Absolutely! Would the time that your money sat inside the line of credit affect your finance charge to your favor? Absolutely!

Make Every Penny Count

Let’s go back to that example. You pay down $5,000 on your line of credit — but only for 20 days, until you need most of the money to pay bills. The money then gets withdrawn (borrowed again). Your average daily balance and finance charge have been reduced. This is making every penny count by earning or canceling interest every day.

The next step is to leave some discretionary income in the line of credit. Over time, your line of credit will fall dramatically and seemingly without effort. When you balance goes down to $40,000 and all the bills are paid for the month, you can borrow $10,000 from the line of credit and send it to your first mortgage as loan pay-down? You should and do it as often as possible.

You are systematically transferring your debt from front-end-loaded amortized debt to average daily balance debt. Every time you do this, your will increase the port of your regular mortgage payment that goes towards the principal and reduce how much goes toward interest. In this was, you can use the principles of interest cancellation (and some of your discretionary income) to pay off mortgages, cars and any other amortized loan in a fraction of the scheduled time. I’ve had many clients take almost-new 30-year mortgages, and using this program, put themselves on pace to pay them off in six to 12 years without it affecting their lifestyle.

Many Australians open big lines of credit to buy their homes and pay their mortgages off in a fraction of the time it takes most Americans.

WILL END OF LIFE EXPENSES DEVOUR YOUR ESTATE?

For aging baby boomers, long-term care and home health care are huge concerns, and these concerns form the last part in a series of articles covering what I call the “six circles of wealth.” These six circles break down your personal finance and wealth creation efforts. The goal is to have all of the circles spin at the same time, creating synergy and powerful momentum for your money.

Very few of my clients have all the circles covered, which means your wealth will take longer to grow and be open to much more risk than is necessary. So far, I have covered the first four: income and cash flow, investments, guaranteed income and cash and liquidity. This article discusses the last two: long-term care and your estate.

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The only circle that can cannibalize the others is long-term care. It is also the circle that is most neglected, and most people’s plan for dealing with it is hope and prayer. Most people say “I won’t get that bad where I need a facility or a nurse to come in and help me” or “my family will help me with all of my needs” and even “if I get that bad, just pull the plug or shoot me and put me out of my misery.” Do any of these sound familiar?

Long-term care facilities average $7,200 a month, and according to Genworth Financial, costs are increasing more than 4 percent a year. How long could your nest egg last paying out more than $80,000 per year in today’s dollars? Many people might consider buying a long-term care insurance policy. The American Association of Long-Term Care Insurance says a policy for a 55-year-old costs $723 to $1,590 a year, depending upon benefits — and these figures are from 2009. As with most insurance, if you never need it, your family will not get your premiums back after you pass away.

Asset Reduction Via Estate Planning

One alternative is estate planning, which needs to be done with a quality legal firm that specializes in estate planning and elder law. There are ways to structure your estate that will lessen any blow that you might incur from the cost of long-term care. These usually involve getting rid of assets via gifts and trusts — years before you need long-term care — so when you have to sell off assets before Medicare kicks in its contribution for long-term care, you don’t have many assets left to sell.

This type of planning is controversial because it is seen as pushing the tab on the government even if you have the ability to pay for yourself. So unless you were smart enough to have a quality life insurance product that you bought many years ago, you could be leave nothing behind for your family. Since the traditional financial world tells us to buy term insurance and not whole life, most people will stop paying for expensive term policies as they age because the cost becomes prohibitive. Thus when they are faced with long-term care issues, they must cannibalize their estate or reduce the estate before they have need long-term care. My job isn’t to pass judgment but to pass along the information and let your conscience be your guide.

Asset-Based Long-Term Care

Another alternative is to allocate some of your funds into products that are built to help you with the cost of long-term care. Asset-based long-term care might be as simple as putting some of your money inside of a properly structured annuity. Let’s say you spend $150,000 on a long-term care annuity where you were credited with a 3-1 benefit ratio. Your $150,000 buys you $450,000 of long-term care protection if and when you need the coverage.

What if you never need the coverage and pass away at home in your bed? Then the $150,000 in that account will be part of your estate and given to your family, plus a small rate of growth. Maybe only 3 percent growth, but remember you are not doing this for growth. You have other circles of wealth that are concerned with growth and returns. This is a long-term care and estate planning strategy. You sleep well at night and maintain control of your cash, and if you never need the benefit, your family receives the money plus growth.

Whole Life Insurance

Many of our clients in their 40s, 50s and even into their 60s also set up a high-quality whole life insurance policy. This provides the estate guarantee they want for their kids and grand-kids so if they need to sell off assets to pay for care, they still leave behind their legacy for their family.

One of my favorite books is by Harvey Mackay is called “Dig Your Well Before You’re Thirsty.” These words are even truer when dealing with long term care and your legacy.

Check out The Perpetual Wealth System to learn more!

Foreclosure Investing

Currently, over 928,000 properties in the country are in some form of foreclosure, according to RealtyTrac, and there lie opportunities for the savvy investor.

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The fact that a property is a foreclosure doesn’t make it a good or bad deal. A foreclosure is just a legal process that transfers title from the owner back to the lender due to non-payment of the debt obligation. There are four main stages:

  1. The pre-foreclosure stage usually begins when the first payment is missed from the borrower to the lender. That official clock starts with the notice of default. During this stage, you would buy from the owner and not the bank.
  2. The foreclosure auction stage is also called the sheriff sale or trustee sale, depending on if you live in a mortgage state or a trust deed state. The process is usually four to six months along and the property goes tot he highest bidder at a public auction, usually for all cash.
  3. Many states have a redemption stage, where the borrower can pay off the balance on the mortgage (or an amount agreed to by the lender) and get the property back out of foreclosure. This stage requires you to buy from the owner and not the lender.
  4. The bank-owned stage is also known as “real-estate owned” or REO.  Nobody won the bid at the auction (usually nobody bid), so the property reverts back to the lender, which can sell it to a private owner; either as an owner occupant or an investor.

Each stage offers a chance to buy a bargain property—and a different strategy. Let’s assume you find an opportunity to buy a property that is worth $100,000 for $70,000. Here’s what you need to know:

  • There is always risk when you invest in anything, and the way to lessen the risk is to be educated. Many quality books and seminars are available. Unfortunately, there are also overpriced packages sold by some people who have never really done much foreclosure investing.
  • Verify the after-repaired value of the property. This is done with comparable sales from the multiple listing service, online services such as Zillow or a list of recent sold comparable sales from a broker or title company. One of my earliest mentors told me “until you know value, you know nothing.”
  • Have a good idea of the cost of your funds, closing costs, repair costs, maintenance, utilities and selling or leasing costs. If you don’t account for those, you are in for a poor investment decision.
  • Understand your exit strategy (a lease or sale) and rehabilitate accordingly. A home kept for rental should not be as heavily repaired as a flip house.
  • Understand that you will rehab for profit, not for a “flip this house” series.
  • Understand the timetable of your state foreclosure process.
  • Decide which stage of the foreclosure process you will focus on. Generally, to save time and leverage other people’s assets, that will be the real estate owned, or bank-owned stage. In this stage, you will almost always deal with the REO agent who is generally a real estate agent with a niche business in dealing with banks to sell their foreclosure inventory. Develop a great relationship with the REO agent because they can be a constant source of good deals for your investment portfolio.

There are also several important “Don’ts”

  • Don’t take any broker’s or seller’s word for the condition, comparable homes or clear title; get pro’s to help you. As Ronald Reagan famously said, “Trust, but verify.”
  • Don’t get emotionally attached to any real estate investment, even if it is a foreclosure. Investing successfully in real estate is about numbers and nothing more.
  • Don’t spend all your time on one prospect. Make several offers at once and word your agreements with an easy out clause if you get more than one accepted (or be prepared to buy more than one).
  • Don’t forget you must know more than the other professionals involved to be successful. I know how to finance a property dozens of ways, so many times I can see a deal where many others don’t because they only know one or two ways.

Real estate investing, and more specifically, foreclosure investing, is a unique opportunity to acquire hard assets for deep discounts picking up instant equity that has the chance to grow or you could choose to covert to cash as fast as possible.

Learn a valuable lesson from the last real estate crash and don’t over-leverage properties. If you get stuck in another market crash, you could be on the hook with over-leveraged properties sucking you dry. Cash is king, but right behind that in real estate is “equity position.”

With some good education, foreclosure investing might be a great add0on to your wealth building efforts. Not everyone is wired to be a real estate investor but if you thing you are, move forward with education and action.

*If you are interested in working with John or are a real estate investor; check out Perpetual Real Estate Machine.

**John has a special training for those interested in foreclosure investing. Check out his Foreclosure Course and take advantage of John’s many years of experience in real estate sales, investing, flipping and more…

 

Cash is King

This is part four in a series on the Six Circles of Wealth. The first three circles are income, investments and guaranteed income. The next is cash, also known as liquidity.

Cash is an essential part of a solid financial fortress. Even the sound of the word evokes an all-over body tingling to most people. The adage that “cash is king” is true, and this is especially true if that cash is used to buy distressed assets at a huge discount. The longer the sales cycle for an asset, the more valuable cash becomes. When you sell stocks, the money usually clears the next day. There is no costly waiting time, as there is when you sell a property or even a business.

When you sell long-saMoney runles-cycle assets, then cash can become an invaluable negotiating tool, depending on the sales situation of the seller. Many people will tell you not to keep much money in cash because you will make no money on the cash (or at least very little). This is a shortsighted view. Having cash in a bank, in cash-value life insurance and even a safe deposit box is invaluable because you can access the money immediately without having to sell an asset at a loss.

A $200,000 House for $100,000 — Today Only

Let’s say you receive a call from your neighbor, who must sell his house immediately. You are familiar with the house and are very confident that it would sell for $200,000 on the open market given time. Your neighbor is pressed for time, due a new job, a new life or whatever. He tells you that he needs to close in three days, and if you can make that happen, he will sell the property to you for $100,000, which represents a 50 percent discount. (I have bought many properties at 20 to 50 percent discounts — as have many people all over the country.) Could you make that happen if you received that call today? If you had the cash, you could write up a purchase agreement and send it to a title company with a rush close. You then wire your funds to the title company and sign some documents and presto you own a $200,000 house for $100,000, which means you have a $100,000 equity profit. Equity profit is not cash profit, but it is real wealth that you can convert back to cash if you so choose.

That money in the bank or your insurance policy — earning .05 percent to 5 percent — has the chance to close to double in 60 to 90 days when you resell the property. Any real estate investor will tell you that to convert that house back to cash will require some holding expenses, a little fix up and selling expenses. When the home resells, you might net $80,000 of profit. The original $100,000 of seed capital goes back into the bank or your cash value life insurance policy along with some interest that you should pay yourself for the loan. Now you are free to do as you wish with the $80,000. Depending on what funds you used to close on the property, you will probably owe short-term capital gains taxes. You could also choose to hold the property and possibly obtain a mortgage from a bank or private lender to pull back out much of your cash. Then you could rent, rent to own, or equity share that property and sell out later for hopefully more money and at a more beneficial tax rate.

Fast access to cash — combined with some education on how to buy distressed assets — can pay off handsomely. If you had all your money tied up in the market or fixed-income assets, then you could not take advantage of that unique opportunity that came knocking on your door.

Waiting for the Opportunity

That $100,000 of cash will buy every $100,000 or less asset on the market (property or business for sale) and it will buy most $110,000 assets, some $125,000 assets, a few $150,000 assets and the occasional $200,000 asset because you can solve problems quickly with that fast cash. Rates of return are not always figured out inside of the product you are in but rather what can you do with that cash when the right opportunity presents itself.

What if it took two years for that opportunity to present itself? Would it still be OK to keep that safe money parked and available at a low rate of return? Of course it would! Never make the mistake of thinking that all your money needs to be invested or in fixed-income assets such as bonds or annuities. Maybe you could educate yourself on how the distressed real estate and note markets work and spend a little time and effort on taking advantage of that market.

Cash parked in a safe, easy-access place would also allow you to take advantage of the next stock market downturn. If you had cash and guts in 2007 and ’08 and decided to take that cash and invest in great companies that are way down due to more of the market than anything internal to the company, you would have made a killing. So when is the next market downturn? Nobody knows, but it is just a matter of time and those with cash and those who are willing to buy when blood is in the streets always create fortunes.

John Jamieson is the best selling author of “The Perpetual Wealth System.” Follow him on Twitter and Facebook.

BYOB – Become Your Own Bank

Life is not just about knowledge but requires action as well. Please complete this life changing exercise before you read any further. Add up all the payments you have ever made in your life to a bank or finance company on every debt you have ever had during your life. This is on cars, real estate, business loans, business equipment, student loans, boats; anything motorized, etc. Now whatever that figure is for you (it will be largely a figure of age and income) double that number. So if your figure is $1,000,000 in total payments your number would be $2,000,000. Why do we double that figure? By giving up control of all your money in the form of monthly payments for all those years you turned over the growing power of that money to the bank. Depending on your age, even if you had kept that money and received even a modest interest rate of 4% to 6% your money would have easily doubled once and for many of you doubled a couple of times. Now that we have your “money lost” figure you need to add up your “money kept and invested”. To get that figure simply add up all the money you have saved up in your IRA’s, 401k and other retirement accounts. Grab your most recent statements and add them up quickly.

Calculator

This entire exercise can be done in 10 minutes and I challenge you to do it before you read one more word or at least immediately after you’re done. How much have you saved and invested for retirement? Now which of those two totals is bigger, the money paid to the bank figure or the money for your retirement figure?   Now ask yourself who is getting rich with that personal finance model. The answer is very apparent and that is the banks and Wall Street who love this business model. You borrow money your whole life and don’t care as long as the interest is low. This keeps you in financial bondage to the banks. Then whatever money you are able to put away is put inside of qualified plans and then given to Wall Street. Wall Street is flat out drunk with money and has been for many decades.

When I do this exercise in front of a room it produces laughter from the crowd because they are realizing that the monthly payments have deprived us of most of the wealth in our lives. My average participant might tell me $2,000,000 given in payments and lost growth and $70,000 saved for retirement.   Which figure would you prefer to have for yourself? This is math that any fifth grader can do and makes sense to anyone who has an open mind.

Now to be fair very few people could afford to self finance their first car or house so the numbers get skewed because you most likely would not have the option of self financing those early items. However, that is not an excuse for not moving toward that goal of being self financed. Think of your life as a giant income wheel. Income comes into the wheel and most of it gets spit right back out the other side of the wheel. Your goal is to keep as much money as possible coming in on the wheel for your accounts and to stop the 4 massive wealth drains we all have during our lives. Yes, there are more than 4 wealth drains but these 4 are the biggest and must be stopped so you can grow wealth regardless of what happens to any market. We will be discussing these wealth drains in depth in future articles.

It’s important to understand that I am not advocating just paying cash for items like many gurus incessantly preach.   I am talking about using your capital just like a major bank would use their capital. If you took out a loan from the bank would they be alright with you borrowing the money and not paying it back? Would they be happy with no interest paid to them? (Don’t get fooled by those 0% loan pitches because there is always a cost of money but sometimes it is hidden in the actual price and not the finance charges) The answer to both of those is, of course it wouldn’t be acceptable to not pay them back or not give them interest. Then it stands to reason that if you are acting as your own bank, why would it be acceptable to not pay yourself back or without interest? It is never acceptable just to pay cash (especially for anything over $10,000) and not pay the bank back even if you own the bank.