How to Keep the Goose Alive, FOREVER: Sunday Morning Thoughts 31 March 2013

Let’s recap last week’s post about a steady income flow during retirement.  To keep the goose alive and producing golden eggs, you must have at least one stream of steady income into the goose, also known as your retirement account, or life savings.  Please understand retirement does not mean you quit your lifestyle, but that you no longer go to a job/work/run your business.

But all play and less business/work can lead to poverty.

We all live on a fixed income, regardless of retirement status.  We make a budget of fudget, encounter surprise expenditures, and maximize the money we have.  So working on your retirement before you retire is the ideal, but everyone always puts it off until later.  Set up your retirement account, also known as your golden goose, to continue to have an income when you have gone into retirement.

How do you keep an income, when you are no longer working?

Have your non-earned streams of income continue to work for you, such as private lending.  With a private lending contract the work is minimal.  The deals literally come to you.

You examine each deal to ensure it will give you the return you are looking for, and for the period of time you wish to be involved.  Remember; never place all of your eggs (investment money) into one basket.  Diversify your types of lending investments.  You can invest in a few SFR’s, a few small and/or large multifamily units, offices, and businesses either start-ups or businesses which are already generating a steady income.

The only way the goose will remain alive is to feed it a steady income.  If you live off of the money you put away without adding to it, it will eventually run out, become depleted, and the end result is  a dead goose, and no more golden eggs.

But, the goose can live forever, if you plan for it.

So how do you make your goose live forever?

Private lending is one way.  But, before you dive in, get an education on private lending first.  We have an on demand webinar and will be adding two more educational webinars soon.

Ask questions, we will answer your questions.  So take a moment, bookmark our Facebook webinar page and watch Private Lending 101 at your leisure.  Private Lending 102 and 103 coming soon.  May your goose live long and give you prosperity.

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The Golden Goose Must Never Die: Sunday Morning Thoughts 24 March 2013

1 in 3 Americans cannot retire comfortably.  With that in consideration, when you retire you no longer have the same income as when you worked, so saving for your retirement is crucial while you are still working.  But, once you retire, you no longer have an earned income.  You will be living off of your investments, and if you are not adding to your investments while living on the investments then you are hoping to not out live your money.

Most people out live their money, and if you do a reverse mortgage you may out live that as well.

So what can you do to protect your retirement future?

The simple answer, the goose must never die.

So how do you live off of what you set aside for the future and still increase or at the least replenish your investment.

One way is to become a private lender and live off of the interest payments you receive.  This way you still have a retirement investment which will still grow, and wantfully you will not outlive.

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Strategies of a Private Lender a Case Study: Sunday Morning Thoughts 27 January 2013

For many new private lenders it is overwhelming to think about the many ways to create streams of income.  The most effort is in analyzing deals, and then thinking of conventional and unconventional ways to create at least three different streams of income on one single deal.

There are many ways to make income on one deal.

First the sale of the deal, which will be the end result for most deals, eventually.

Second the open of the deal, how much equity will the property come with, how far below market can the deal be purchased, and how much interest to be paid, the cost of money, for funding.

The third is how long will the investing money be tied up in the deal?  The longer the time the money is tied up in one deal may limit the ability of funding other deals.  But that really depends on how much capital you are working with, if the interest on one deal is enough for you, then the one deal is enough.  Of course the more deals you fund the more income.

Let’s take a closer look at the art of being a private lender.  You have a deal brought to by an investor.  The investor tells you that they need $100,000 to purchase a single family residence (SFR) in a middle class area which is showing signs of growth.  The average time on the market for comparable houses has been two months, without aggressive advertising.  The comparable homes in the area are going for $190,000 plus.  The investor also states that they will need $40,000  for repairs, so all total the amount of requested funding is $150,000 which will also cover the holding and the closing costs.  The investor stands to make close to $40,000 once you, the lender, are completely paid.

For arguments sake, let’s say you have done business with this investor before and you will take a one lump sum payment, with interest, at the completion of the deal, which will garner you a higher interest rate on the loan.  The investor also tells you they will pay you interest for a minimum of three months if the deal should close in less than three months.  So the initial loan will be $150,000 at 5% interest for a period of 1 year.  The interest on your money will be $4093.47 if the loan is held for the entire year and compounded monthly.  If the investor keeps a tight schedule and sells the deal in 4 months then your interest paid will be $1565.75 if compounded monthly.

Now let’s say that the investor has found many qualified buyers/borrowers but the borrowers are having problems attaining conventional financing.

As a private lender this down fall could be yet another opportunity to make money.  Not a foreclosure on the investor, but something much easier, nicer, and much more business savvy.

The investor has sold the property for $210,000, which is within the average for the area, and the borrower is able to secure a conventional loan for 65% of the purchase price which is $136,500, and has a down payment of 20% of the purchase price which is $42,000 for a grand total of $178,500.   You, the private lender, and/or the investor can hold a second on the property for the remaining $31,500 at a reasonable interest rate for a 3-5 year period.  Either way, your initial investment of $150,000 has been returned with at least $1565.75 compounded interest within a 4 month time span.  I wonder if a CD can do that.

Remember this is a scenario of how deals can be made and worked to have more value than just face value, there is not a guarantee of return on investment.  The working example of 5% compounded monthly interest is for our top level investors.

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Backing the American Dream: Sunday Morning Thoughts 23 December 2012

As a private lender of mortgage notes, one can find a way to make the American Dream of Home Ownership a reality once again. 

The banks are still having tight credit restrictions, and good people with good credit are finding it hard to get a purchase loan whether first time buyer or second purchase.  Although on the flip side of the coin, at present, refinance and reverse mortgages are a booming industry for the banks; which makes this a lucrative time for small lenders and lender groups to capitalize on a much-needed product, single family purchase loans.  There are considerations to make such as usury laws, which are the interest rates a lender can charge.  The average institutional bank interest rate for a 30 year mortgage is 3.125% and for 15 year loan the rate is 2.75%.

When considering lending to consumers and investors, usury laws prohibit going above a set limit for some states.  In general, the set limit for most states is 10% for other states the limit is a little less at 8%.

Many hard money lenders are within the guidelines of lending but they are navigating in tricky waters.

With real estate showing signs of a slow recovery in many areas, and institutional lenders implementing tougher credit restrictions, the time for private lending is now.

So, where do you find qualified borrowers?

Believe it or not, people who had the interest only loan and lost their homes after the loan reset.  Many of the families with the interest only loan were banking on being able to refinance the loan into more reasonable payments than the reset payments.  But the problem, a story we all familiar with by now, the value of homes had dropped drastically in most areas, and most home owners were faced with one added dilemma, being upside down on their mortgages.

Under water mortgages, loan resets, and the added frustration of denied loan modifications only has made private lending necessary and lucrative for a real estate recovery.  Getting involved is easy, fill out the form at the bottom of this article for more information on becoming a private lender.

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Investing Strategies for a Struggling Real Estate Market: Sunday Morning Thoughts 09 December 2012

What subprime crisis? Affordable houses are everywhere. (Photo credit: woodleywonderworks)

It should not matter if the glass is half empty or half full, it has something in it.

So in a flat real estate market, how can you make money?

Having control over a property and not owning the property can prove to be a fast way to improving your bottom line, but what about another option?

Becoming the bank, becoming a private lender; some of the benefits:

• You don’t own the property

• You don’t have to pay the property tax

•  You don’t do maintenance and repairs

•  No dealing with tenants

Private lending is a way to be involved with the real estate recovery, but without the risk that a property owner would have.

As a private lender you can invest a sum of money for a specified period of time, at a nice rate of interest.  You do not spend time mowing the lawn, or fixing the minor or major problems, you lend money secured by real estate and collect either a monthly payment or a lump sum after a specified holding period.

Being a private lender is a viable option in a buyer or seller’s market.  A private lender can lend money to buyers and refinance sellers, so it would not matter the type of market, your investment could appreciate.

In our current financial economy, the buyers are looking for money sources since many lending institutions are having trouble with lending.  Sellers are looking for private lending sources to refinance or sell their property.

No matter what type of real estate market, your investment can still earn.

For more thoughts on lending read our other articles.

Private Lending Retirement Investing Part I

Private Lending Retirement Investing Part II

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Real Estate Retirement Investing Part 2: Sunday Morning Thoughts 09 September 2012

Retirement (Photo credit: Wikipedia)

Instead of wracking your brain over how long your retirement will last, why not give a lot of thought to understanding how you can use other non-conventional investments to make your money for retirement work for you.

Everyone either understands or pretends to understand how their 401k works. 401ks have been an investment vehicle for a long time, but there are many options for your 401k investment.

You can invest aggressively, moderately, or very cautiously, but will you still be able to have returns that will be viable when you retire?

Not necessarily.

You have to consider all of your fund options, and a diverse account is normally the best route.

What about if you are already in retirement, and your account is not going to last you for much longer and your greatest fear is out living your money?

No one should be afraid to live.

Precautions before your money runs out is best, whether you are safe guarding what you have, or you are trying to make what you have grow larger; sound investments are your key to living in a happier state of being, without the worry of your money running to low or out altogether.

Diversifying your portfolio to include real estate investments may prove to be a great option for growing and/or maintaining your retirement nest egg.

Being a private lender, also known as being the bank, is a way of earning interest without the risk of owning a property.

As a private lender you are investing in the vision of someone else, but only the vision is backed by real property, something tangible, sellable, and if calculations are done properly can also be profitable.

So even if a borrower defaults on the loan you have given them, you will still have an asset that you can resale or keep for yourself as an investment.  Of course, you will already know from the documentation given to you in the initial evaluation of the loan, if the property is worth equal or more than your initial investment.

Retirement does not have to be bleak future/present if prepared for and maintained properly.

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Real Estate Retirement Investing Part 1: Sunday Morning Thoughts 02 September 2012

With the recent economic downturn many people have seen their retirement almost go up in smoke. From 401k to savings accounts to buying stocks and bonds, this recession-depression has taken its toll on all investments. Many people who have already entered into retirement have noticed the sharp decrease in the money they use to have.

Racking their brains with, how long will my funds last? Can I sustain my lifestyle?

So how do you recoup your retirement in a down turn economy?

The easy answer, make better investments.

Money market and 401k accounts depend on a fund manager to make decisions for you for a certain type of product. So if the fund is invested in for instance, green energy or emerging markets then that’s the only type of investment the fund is allowed to invest in, without regard of market performance.

So if another type of investment would prove to be more lucrative for you, the fund manager is not allowed to change the investment strategy but is bound to the specific type of fund investments.

So, you will never receive a call telling you that there is a better investment on the horizon. This is why many funds can be poorly producing funds when compared to individuals who invest in stocks on their own.
But what about investing in real estate?

Some people believe that real estate investing is a thing of the past and has seen its prime, but as long as there are people on earth, real estate will always remain a sound investment.

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What’s Your Investing Strategy: Sunday Morning Thoughts 19 August 2012

strategy (Photo credit: Sean MacEntee)

What strategy do you use to put your money to work for you?

Some people may say they invest in a mutual fund, have a 401k with a fund manager they have never spoken to directly.  Or some people having a distrust of banks and the banking system may actually put their money in a mattress.

Putting money to use to make money is a strategy as old as time.  Some people believe that working for money is the best way to make more money, but near the end of the week, they always seem to be waiting for the next paycheck.  In essence living from pay check to pay check, but never seeming to save enough money.

Then there are those that invest in the stock market.  They buy stocks based on a tip someone gave them, or they invest based on someone else’s opinion of how a stock will perform.  From day trading, expiration trading, buying stock, dabbling in options, etc.  But if you are a novice then you may not know the land mines which await you when you enter the battle field of the stock market.

Isn’t that what the banks were doing with the money you placed in the bank before the system took a down turn, they even charged you fees for the privilege of leaving your money with the bank.  Well, they do keep it safe, don’t they?

Why is real estate investing a great investment option even for a novice?

Most people can look at an area and decide if the area is good or otherwise.

There are many strategies in real estate investing but one of the best strategies, is do you feel the investment is sound?

The other questions you can ask yourself:

• What can you do with the property to improve it?

• If you need to sell it how much and how fast do you want to sell it?

•  Can the investment sustain itself and give you cash flow?

With real estate investing one golden rule, never attach yourself to a property.   You will come across many good deals in real estate investing but never hold on to an alligator just because you love it.

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Separating a Winning Deal from the Alligator: Sunday Morning Thoughts 30 July 2012

Alligator eating Money Sculpture 14th Street – New York Subway (Photo credit: Annie Mole)

With so many great deals out there and even more on the horizon, how do you pick a winner?

Analyze.

For each type of invest there are hard and fast rules of analysis to apply.

For instance you would not analyze a residential deal the same as you would analyze a multi–family deal.  Even within residential evaluations, a two bedroom one bath is not analyzed the same as a five bedroom 4 bath.

But there are similarities of analysis for all properties. The A, B, C’s of evaluating properties.

So how do you tell the difference between an alligator and a profitable investment?

An alligator is an investment which someone tries to sell you on with the promise of making a profit somewhere down the line, somewhere in the future.  The typical time period is five years.

So while you are waiting for the profit period to finally happen, the investment costs you money out-of-pocket to hold on to.  This is also negative leverage with a negative return on initial investment.

It may be better to not make that investment.

In real estate if the cash flow of the investment does not cover the maintenance costs and debt service, then it is classified as an alligator;  A losing money investment.  Which means it would no longer be an investment but a liability.

When investing in real estate you can make an investment positive by having a positive return on investment, also known as a positive cash flow property.

If your deal does not bring you a positive cash flow from you take over the property then you may want to reconsider or restructure the investment.

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The A, B, C’s of Real Estate Investing: Sunday Morning Thoughts 22July 2012

 

 

now renting? sweet! can I get the one with all the broken windows plz? (Photo credit: tray)

 

With so many great deals out there and on the horizon, how do you pick a winner?

 

 

 

Analyze.

 

 

 

For each type of invest there are hard and fast rules of analysis to apply.

 

 

 

For instance you would not analyze a residential deal the same as you would analyze a multifamily deal.  Even within residential evaluations, a two bedroom one bath is not analyzed the same as a five bedroom 4 bath.

 

 

 

But there are similarities of analysis for all properties. The A, B, C’s of evaluating properties.

 

 

 

“A” classified investments are located in high-end areas.  Generally people with higher incomes and educations reside in “A” type areas.  The area can be all residential or mixed with multifamily units.

 

 

 

Generally, these types of properties are considered prime real estate, have a low cap rate, normally around 2-4%, they also have a higher tenant turnover if it is a rental property.  Most often investors purchase “A” properties for equity and cash flow.

 

 

 

 

 

 

 

“B” and “C” class properties make great rentals and are in middle class type of areas.  Investors tend to refer to these types of properties as ‘bread and butter’ investments.

 

 

 

Rental turnover is normally low to moderate for properties which are well-managed.   These type of properties can have cap rates ranging from 5%-13%, have great cash flow, and moderate equity.  Equity gains can be increased with improvements and minimal to moderate rental increases.

 

 

 

“D” and “F” properties, well just like in school you may want to avoid these types, but why?

 

 

 

“D” and “F” property investments coupled with strategic planning on improving can be a lucrative investment.  Keep in mind people who live in “D” and “F’ areas may not have a checking account and may work lower blue-collar jobs.  They may also receive some form of government assistance.

 

 

 

 

 

 

 

This does not by any means, mean for a person of more wealth to take advantage of someone by becoming a slumlord or slum investor.  Where you are not making improvements, or taking care of maintenance issues.  People of all walks of life deserve to live a happy life regardless of circumstances.

 

 

 

So which type of investment are good, better, and great?

 

 

 

All are profitable with the right types of strategies.  Remember entry strategy, holding strategy, and exit strategy, are all phases of a great investment.

 

 

 

 

 

 

 

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