A Way to Turn Good Deals Into Great Deals

Issue #2002

• WEALTHY: Get 1,900% returns (or more) on your real estate investments (Justin Ford)
• HEALTHY: Lose fat, stay young with a single supplement (Dr. Al Sears)
• WISE: Benjamin Franklin on borrowing money

ALSO IN THIS ISSUE:

• How to make $3,400 from a tiny little ad (Bob Bly)
• 18 "starter" red wines for $30 or less (Michael Masterson)
• It’s Fun to Know… about words ending in "-gry"
• Add "vin ordinaire" to your vocabulary

== Highly Recommended ==

He’d Have Called Them Crazy - Or Worse!

With the Internet, it’s now possible to spend no more than a few dollars, write a couple of very basic ads, and have instant access to millions of potential customers all in a matter of minutes.

If anyone had told Jim Sheridan he could bank thousands in just 24 hours… without any product of his own… without spending a penny on getting it or promoting it, he’d have justifiably said they were nuts.

But Jim made a decision that he would overcome his skeptical nature and give it a go. Boy, is he glad he did! That one deal alone banked him $187,296 in one day.

The great news is - you can copy Jim’s plan exactly. The program is called Instant Internet Income and I guarantee it does exactly what it says it does.

Take a look at how Jim brought in over $175,000 in a single day!

- Patrick Coffey

 "If you’d know the power of money, go and borrow some."

Benjamin Franklin

Bridge Financing: A Way to Turn Good Deals Into Great Deals

By Justin Ford

The two most important elements to a successful real estate investment are buying right and financing right. In that order. I’ve talked about buying right in these pages many times. Let me talk about borrowing right. The best way to borrow is not always as obvious as you might imagine.

What do you want in a loan? Lowest interest rates? Okay. Longest possible term? Maybe. No points (loan charges upfront) or just a modest amount? Probably. But here’s what you really want: the kind of financing that is going to give you the biggest bang for your buck.

By "bang," I mean return. And by return on your buck, I mean ROI. That’s French for "king." In English, we call it "Return On Investment."

So doesn’t that always mean the cheapest money? In the long run, yes. But in the short run, not always. And that’s today’s lesson. You’re going to learn when to use short-run money - a.k.a. "bridge financing" - to make far greater money in the long run.

To show you what I’m getting at, let’s take a property where you’re buying at a good discount to market value and with plenty of cash flow. (This technique only works when you buy right - but that’s the only way you should ever buy.)

To be specific, we’ll imagine you’re paying $1 million for a property that needs $100,000 in repairs and that will have an After-Repair Value (ARV) of $1.5 million. Not only that, but once it’s fully repaired and leased out, it will have a Net Operating Income (NOI) of $135,000. The NOI is the money that goes to you after vacancies and collection losses and after paying all expenses - taxes, insurance, maintenance, management, utilities, etc. - but before any debt-servicing costs.

Well, how do you get the money for this great deal? There are a couple of ways you could go about it.

Let’s suppose you have good credit (or a qualifying partner has it). So you go to a bank and they say they’ll give you a loan with a high LTV (Loan To Value). Instead of the typical 75 percent or 80 percent LTV for commercial properties, they’ll lend you 85 percent of the purchase price - $850,000.

Great. This means you only have to come up with $325,000 to do the deal. Why $325,000?

Well, you need $150,000 for the down payment (15 percent of $1 million). Then you need the $100,000 for repairs. Then you need $25,000 for closing costs. And let’s set aside $50,000 for reserves to make sure you have enough cash on hand to handle any contingencies that come along until you get the property "performing" (cranking out rents like a Pez dispenser).

If you don’t have the $325,000, don’t fret. You can get together equity investors. Maybe you’ll give away 50 percent to 60 percent of the deal. No harm there. Forty percent of a good deal is better than 100 percent of no deal at all. Plus, you’ll make your investors money and you’ll have a source of capital for future deals.

But let’s say you have a source of ready cash for the entire deal - purchase, repairs, closing costs, and reserves. It could be from a credit line or credit lines. It could be from seller financing. It could be from private lenders. It could be from a combination of these and other sources. The potential sources are many. And once you learn how to utilize them, your ROI could be much, much higher.

Now you might turn just $25,000 into more than $450,000 - or even $0 into more than $400,000. How? As follows…

You take the $850,000 bank loan. And let’s say it was at a competitive seven percent on a 30-year amortization (not unheard of in today’s market). This means your debt payments will total about $68,000 a year. Since your net income is $135,000 a year, your cash flow after debt service should be about $72,000 a year.

But you bought in the right market - one in which values rise a whopping five percent in a year. Now the $1.5 million property is worth $1,625,000 after 12 months. And your $850,000 loan balance has dropped to $841,000. Your equity is now $784,000. Add the net income of $72,000, and you have pretax equity and income of $856,000.

That’s awesome. You turned an investment of $325,000 into $856,000. That works out to a 163 percent return!

Now… how would you like a return on equity of more than 10 times that? That’s what bridge financing can allow you to do. And the counter-intuitive part of it is that you’re initially borrowing more money and at a higher interest rate. Yet you’re ending up with a much greater ROI. Here’s how…

Let’s say you don’t borrow $850,000 at seven percent. Instead, you borrow $1,150,000 at 10 percent. Now you only come $25,000 out of pocket to cover everything. Of course, your payments are higher… but let’s see what happens.

At 10 percent on a 30-year amortization, your payments on a $1,150,000 loan are about $121,000 a year. That only leaves a comparatively slim $14,000 in net cash flow. But you still have the $1,625,000 value after a year. And you got it while only putting a small fraction of the money to work. Your loan balance is now about $1,139,000. So your equity is about $486,000. Add the $14,000 net cash flow and your total pre-tax net is $500,000.

And that’s on an investment of just $25,000. That works out to a 1,900 percent return, vs. "just" 163 percent the "traditional" way!

Better yet, you can now go to an institutional lender and have that high 10 percent money replaced by competitive market rate seven percent money. So now, if you decide to hold onto the property, your net cash flow goes up from $14,000 to about $43,000… even though you got into the deal with only $25,000.

That’s like a 172 percent annual yield on your cash investment - on top of the hundreds of thousands you’re making on your equity.

Not to press the point too hard… but the $25,000 is just to give you a base. In some circumstances, you could do this kind of deal with zero dollars out of your pocket.

A caveat: When using bridge financing, be sure to get your lower-rate, long-term financing in place as soon as possible. That will allow you to use higher LTVs on undervalued properties with strong cash flow (i.e., less money out of your pocket). It will also allow you to act on special situations you couldn’t take advantage of if you had to wait for traditional financing. Especially in the environment of rising foreclosures we’re facing, this can be a very valuable tool.

I’ve done these kinds of deals on the residential side, and I’m now working on them on the commercial side. The key - as you know from my broken-record mantra - is to buy right first. But once you learn how to do that and borrow right to boot, you can regularly turn good investments into great investments returning hundreds of percent for every dollar invested.

[Ed. Note:If you want to learn the true secrets to maximizing your return on every dollar you invest in real estate - while still keeping your risk extremely low - check out Main Street Millionaire, Justin Ford’s deep-value real estate investment program.]

== Highly Recommended==

This is like Holding Front Row Tickets to the Rolling Stones

Wouldn’t it be fun to be a scalper for a day? You get your hands on tickets to the hottest show in town, and when the big day comes people are falling over themselves to pay you $500 a piece?

Well, I can show you how to use obvious temporary imbalances to make money in the stock market that is easy as selling $50 tickets for $500 bucks. But instead of just two or three big events every year… I can show you how to do this month after month.

P.S. We have extended the sale for our most popular trading product through the end of the week. Don’t miss the chance to save over $500!

An Inexpensive Way to Test Your New-Product Concept

By Bob Bly

You’ve come up with a brand-new, breakthrough information product. At this point, most information marketers want to immediately mail thousands of direct-mail packages or place full-page ads. That’s fine if you can afford to risk $5,000 to $25,000 on an untested idea. But you could save tons of money by starting small. I prefer to test with small classified ads first. By doing so, I can determine the product’s sales appeal and potential for under $200.

Your ad should seek inquiries, not orders. All requests for information should be immediately fulfilled with a powerful direct-mail sales letter, circular, order form, and reply envelope.

What should all this cost? A successful classified ad will bring in inquiries at a cost of 25 cents to $1 per lead. A good sales package will convert 10 percent to 35 percent of those leads to sales. I have run classified ads that pulled up to 17 times their cost in product sales.

[Ed. Note: Learn how to market your business quickly, cheaply, and easily with ETR’s Direct Marketing Masters Edition. And get free tips for doubling your response rates with Bob Bly’s Direct Response Letter (bly.com/reports/).]

Reader Feedback: "I can’t tell you how happy ETR has made me."

"Thanks for all for this wonderful information. I am glad I found the ETR website. It’s like ETR exactly knew what I was looking for. Can you believe every morning I rush to my inbox to see what you have sent me before I even read the home online news? Thanks again. I can’t tell you how happy ETR has made me." 

- Renee Robinson
Kampala, Uganda, East Africa

[Ed. Note: How has reading ETR helped you - maybe even changed your life? Send your comments to ReaderFeedback@gmail.com. Include your name and hometown… and we may print your e-mail in a future issue.]

Anti-Aging Tip: Chromium: The Safe and Natural Fat-Loss Supplement

By Al Sears, MD

A non-prescription version of the weight-loss pill Orlistat is now available over the counter. But before you run off to buy it, there’s something you should know: It’s expensive, ineffective, and has some troubling side effects.

At $1 to $2 a pill, Orlistat is designed to block fat from being absorbed in your gut. But over 50 percent of those who take it suffer from gastrointestinal problems. And Dr. Sidney Wolfe - director of Public Citizen’s Health Research Group - found studies linking the prescription version of the drug with precancerous lesions of the colon.

The idea of blocking fat is flawed to begin with. For one thing, trying to block fat does nothing to help control blood sugar and insulin, the real keys to fat loss. Plus, you need plenty of good fats to stay healthy - and, as we age, we have more trouble absorbing the fat we need.

The natural trace mineral chromium helps you control blood sugar and improve your sensitivity to insulin. Since insulin sensitivity declines with age, reversing that decline with chromium reverses that aspect of aging. Studies from three universities show that chromium also boosts muscle mass while burning off excess fat. Even those who took chromium without exercising burned fat without losing any muscle.

You can get chromium from foods like broccoli, turkey, seafood, eggs, and cheese. For faster and more impressive results, take a chromium supplement. The best form is chromium picolinate. I recommend 600 mcg once a day with a meal.

[Ed. Note: Dr. Sears, a practicing physician and the author of The Doctor’s Heart Cure, is a leading authority on longevity, physical fitness, and heart health.]

Living Rich: Starting Your Wine Collection, Part 2 - Red Wines

By Michael Masterson

Yesterday, I gave you my recommendations for a starter collection of white wines. Today, let’s talk about the reds. All of the following have a Wine Spectator ranking of 86 or above. Price estimates come from local and online stores and Wine Spectator.

Category Two: Red Wines Subcategory: Young, Grapey Reds

Beaujolais is the first name that comes to mind in this category. It has always been popular in Europe as vin ordinaire, but lately has found favor in America too. Like white wines, they get their zest from acidity rather than tannins.

When looking for Beaujolais, know that you will find Beaujolais Nouveau, which comes out every November and is meant to be drunk immediately, as well as Beaujolais-Villages and the higher quality Cru Beaujolais. The latter two tend to have more complex flavors than Nouveau and both can improve with age. Serve at "cave" temperature (about 58 degrees).

Any wine sold as "nouveau, primeur, or novello" is likely to be a young, grapey red. Examples:

• From France, some Bordeaux, Rhone wines, and Cabernets from Anjou and Touraine
• From Italy, Valpolicella, Bardolino, Lambrusco, and Dolcetto

Quantity: If you like these, I’d recommend 10 to 20 bottles. Here are a few specific young, grapey reds to consider:

• Georges Duboeuf Beaujolais Nouveau ($10)
• Clos Roche Blanche Touraine Cot 2004 ($15)
• M. Chapoutier Cotes du Rhone Belleruche 2005 ($12)
• Michele Castellani Valpolicella Classico Superiore San Michele Ripasso 2003 ($20)
• Claudio Alario Dolcetto di Diano d’Alba Costa Fiore ($16)

Subcategory: Medium-Bodied Reds

This, for K and me, is a major category. Here you have most of the great red wines:

• From France, the wines of Bordeaux, Burgundy, and the Rhone Valley
• From Spain, Portugal, and Chile, the Riojas
• From warm climates like California, Australia, and Chile, the medium-strong Merlots and Pinot Noirs
• From cooler climates like New Zealand, Italy, Oregon, and Washington, the lighter Cabernets
• From Italy, the Tignanellos and Chianti Classicos

Quantity: I recommend 50 to 60 bottles. Here are a few medium-bodied reds to consider:

• Bird in Hand Merlot Adelaide Hills 2005 ($26)
• Adelsheim Pinot Noir Willamette Valley 2005 ($30)
• Byron Pinot Noir Santa Maria Valley 2004 ($25)
• Bodegas Ramon Bilbao Tempranillo Rioja Crianza 2003 ($10)
• Concha y Toro Merlot Peumo Marques de Casa Concha 2004 ($19)
• Antinori Chianti Classico Peppoli 2004 ($25)

Subcategory: Heavy-Bodied Reds

Here is where you can spend some serious money. And here, too, is where you will want to buy, carefully store, and age wines for the recommended time (usually seven to 10+ years). Serve them at cave to room temperature. Decant them if they need it. The wines to look for in this category are:

• From California (particularly from Napa Valley), good Cabernets and Zinfandels
• From France, rare vintages of Bordeaux (1961, 1982, and 2000)
• From Italy, Barolos and Brunello di Montalcinos
• From Australia, Shiraz

Quantity: I recommend 20 to 40 bottles in this group. Here are a few heavy-bodied reds to consider:

• Chateau Carignan Premieres Cotes de Bordeaux Prima 2000 ($30)
• Buehler Zinfandel Napa Valley 2004 ($16)
• Robert Mondavi Cabernet Sauvignon Napa Valley 2003 ($25)
• Marchesi di Barolo Barbera d’Alba Ruvei 2003 ($16)
• Abbadia Ardenga Brunello di Montalcino 2001 ($27)
• Shingleback Shiraz McLaren Vale 2004 ($22)
• Greg Norman Estates Shiraz Limestone Coast 2003 ($15)

Next week, I’ll cover the remaining three categories that you should include in your collection: Pink Wines (Roses), Sparkling Wines, and Fortified and Sweet Wines.

[Ed. Note: For more about starting your own wine collection, read Michael’s article "A Start Up Collection for New Wine Collectors."

And learn how you can be part of an exclusive group of 25 to 50 ambitious businesspeople that Michael will be leading through an elite 5-day program that can help you dramatically increase the profitability of your business here.]

It’s Fun to Know: About Words Ending in "-gry"

"Angry" and "hungry" are the only English words commonly used today that end in "-gry." The Oxford English Dictionary includes other "-gry" - such as "aggry" (colored glass beads from Africa) and "conyngry" (a rabbit warren) - but those words fell out of use years ago.

(Source: the AskOxford website)

== Highly Recommended ==

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Word to the Wise: Vin Ordinaire

"Vin ordinaire" (van or-dee-NARE) is the French term for inexpensive, everyday table wine.

Example (as I used it today): "[Beaujolais] has always been popular in Europe as vin ordinaire, but lately has found favor in America too."

[Ed. Note: Become a more persuasive writer and speaker … build your self-confidence and intellect … increase your attractiveness to others … just by spending 10 VERY enjoyable minutes a day with ETR’s new Words to the Wise CD Library.]

Michael Masterson
Copyright ETR, LLC, 2007