Making Money by Spreading the Wealth
Issue #2144
- WEALTHY: Why paying your buddy $50K is good for your bank account (Justin Ford)
- HEALTHY: Why you should holler like you’ve never hollered before (Dr. Matthew Anderson)
- WISE: Thornton Wilder on money
ALSO IN THIS ISSUE:
- How good a leader are you? (Michael Masterson)
- A common order-form mistake (David Cross)
- It’s Fun to Know… about making bones with inkjet printers
- Add "ombudsman" to your vocabulary
Confidential Report: Disillusioned Trader Opens "Money-Floodgates" to YOU…
Rob Banks Legally… With an Inside Job!
Are You Ready for a "Smash and Grab" on the World’s "Hidden" Money-Mountain?
Great! The getaway car’s leaving…
"Money is like manure; it’s not worth a thing unless it’s spread around encouraging young things to grow."
Thornton Wilder
Checks I Love to Write: Making Money by Spreading the Wealth
By Justin Ford
I just wrote a check to a doctor friend of mine for $54,073. Thankfully, it wasn’t for a medical procedure. I was returning his $30,000 investment and distributing a $24,073 profit to him - in just over a year.
My oldest sister has worked most of her life in theater, and her primary interests have been family, friends, the arts, and her animals. She is not particularly educated about - or interested in - investments. Yet she realizes she now has to make progress on building up a nest egg.
Last month, I was able to write her two checks totaling about $37,000 - almost doubling her investment in about 14 months’ time.
My mother-in-law has turned $50,000 into over $105,000 with me in three years. A friend turned $28,500 into $60,000. I soon expect to write $98,000 in checks to three business associates. A brother has made roughly $117,500 on a single property with me.
And the list goes on…
As a real estate investor, the more investors you have willing to help fund your investments, the more quickly you can act on those rare deals that truly represent exceptional value. And that means more money for you and your investors. And it’s not hard to build and gradually expand your own reliable group of friends, family, and associates who invest in your deals - as equity investors or private lenders - once you learn a few fundamental principles for putting together a successful partnership.
You have to put together a clear, accurate, and compelling presentation. You must make sure the partnership is structured so that your investors’ interests and yours are 100 percent aligned. And you have to make sure that all transactions are transparent and that you have regular reporting to your investors.
Learn to do these few things, and you’ll be ready for a much higher level of investing.
Give Money, Get Money
Whether it’s a payout to an equity investor or a high-yield quarterly payment to a private lender, I love to write each one of these checks. It’s like financial karma.
The money goes out to investors in the form of very good returns on their investment … then it comes right back to me, as new capital for new investments. And since their investments with me have grown their wealth, the amount these investors are willing and able to invest grows at the same time.
These friends, family members, and associates have made returns far greater than they would have in the stock market, and with far less volatility. Yet, for all intents and purposes, with just as passive an investment. That’s important to bring out in your own investment offerings.
My investors write a check to become a limited partner in one of my real estate partnerships. They receive documentation securing their investment - then they ultimately get a bigger check back. That’s the extent of their "work."
They do NOT have to…
- Identify the best property markets to invest in…
- Search for the best deals in that market…
- Negotiate and conduct due diligence once a good deal is found…
- Sign the purchase contract…
- Seek the best mortgage, sign for it, or have any liability at all for it…
- Handle marketing, leasing, and renewals…
- Handle property management or have any general liability for the property…
- Oversee rehabs, additions, or any other strategy to increase the value of the property…
- Take care of the distribution of dividends to the partners…
- See to the bookkeeping and regular reporting…
- Handle the cash-out refinancing for a rapid return of investors’ capital…
- Handle the final sale and distribution of capital and profits to investors…
As the general manager, all these things are handled by my office. The limited partners have no more management responsibility or liability than they would have from owning shares in a public company.
Give Your Debt Investors a High Yield and a High Level of Professionalism
In case you’re not familiar with the terms, you’ll basically deal with two types of investors in your real estate partnerships: private lenders and equity investors.
For private lenders, it’s pretty straightforward. They lend you money for the purchase, rehab, or development of a property. You give them a mortgage (a recorded lien against the property) and other important docs (such as beneficiary status on title and property insurance policies). You then pay according to the agreed-upon schedule.
I currently offer my private lenders rates of 9 percent to 11 percent, secured by cash-flow-producing real estate that typically has equity 30 percent or greater than the loan. I also provide my lenders with an amortization and payment schedule and a statement with each payment, so they know exactly what they’re getting and when. Finally, I pay them compound interest, not just simple interest.
They get, in effect, the professional treatment and reporting they would get if they bought a CD at a major financial institution. But they’re getting collateralized returns of two to three times the amount they’d get with a CD.
For Equity Investors in Partnerships, Try to Under-Promise and Over-Deliver
Passive equity investors in real estate partnerships take more risk than private lenders. Because they’re limited partners, they have no personal liability (their risk is strictly limited to the amount of their investment) - yet, they get paid after lenders do.
If, for instance, a property had to be liquidated, the private lenders would have to be paid in full before equity investors would get a single dollar of their capital back. Equity investors accept that position because they can make much higher returns.
The investors I’ve mentioned, for instance, have made annual returns of 25 percent, 50 percent, and more on investments with me. Yet, even though they’ve done very well, I never project these kinds of results in my offerings to them. I prefer to under-promise and over-deliver.
My friend the doctor, for instance, just made 80 percent in just over a year. Yet in my original offering, I listed prospective returns of 10 percent to 30 percent a year.
Those were not random projections. They were based on comparable values and the discount at which we were buying the property, on the income the property would produce once we rehabbed and repositioned it, and on a range of projections of appreciation for the overall local market. (This was a value market with solid cash-flow fundamentals, and it was a market that was experiencing growing demand - not a bubble market heading for a peak.)
In my projections today, in fact, my typical projections for market appreciation in value markets range from 0 percent to 5 percent a year over three to five years. I don’t look out only one or two years, and I don’t project the heated appreciations of the recent past into the near future. This more conservative approach tends to result in projected returns for my passive equity investors of 10 percent to 30 percent a year, with the most likely outcome expected to be somewhere in the middle - in the high teens to low 20 percent range.
And since we look to buy value-added plays, we can make investors good returns even should markets turn flat. Purchase a property, reposition it and increase its income by 40 percent, and you can increase its market value by about 40 percent. And since you’re using leverage to buy it, the returns for your passive investors can be even greater.
Let me not digress into strategy. The point is, when you make your investment offering, show the key numbers: purchase price, current market value, the discount you’re getting, the after-repair value, and future values (based on various modest market scenarios). Then lay out a strategy for creating additional value in the property. And make your projections for investment returns realistic, not pie-in-the-sky promises.
Then, execute your plan. And when the day comes to pay your investors, chances are good that you’ll surprise them on the upside.
Good Partnerships Are Formed When Interests Are Fully Aligned
A final point for good partnerships; Structure your deals so your interests as the general manager and the interests of your equity investors are 100 percent aligned.
For instance…
- I invest my own capital in every deal I offer to investors. If it’s good enough for their money, it’s good enough for mine.
- Investors’ capital comes out first. I don’t get a dollar’s worth of dividends, capital gains, or refinancing proceeds until my investors do.
- If I’m going to a financial institution for financing and the mortgage requires "recourse" (i.e., a personal guarantee), that comes only from me. That means I will pledge my net assets if necessary to secure the best loan for the partnership. (So I never just do a deal because investors are throwing money at me.)
- I provide regular reporting, with P&L, balance sheet, and general ledger - as well as a plain-English review of what’s going on with the property, including photos.
I didn’t always handle things this formally, of course. Initially, friends and family put money with me because they saw the success I was having and they knew I don’t take speculative risks. (I only buy under-market-value, cash-flow properties.) But, as more investors became interested in my deals, it simplified my life and theirs to formalize the initial offer and subsequent reporting process.
[Ed. Note: Justin Ford is the editor of Main Street Millionaire, a deep-value real estate investment home-study program. This November 16-18, he will be hosting the Real Estate Wealth Builders Summit at the 5-star Doral Golf Resort and Spa in Coral Gables, FL. Justin will be joined by private-money expert Alan Cowgill, commercial-property expert Toby Unwin, short-sale "queen" Dwan-Bent Twyford, and six other nationally known real estate investment experts. To secure a special rate and even get $1,100 worth of live training with "Apartment House King" Dave Lindahl FREE, click here.]
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Quiz Yourself: How Good a Leader Are You?
How good a leader are you? Answer the following questions by giving yourself a score of one point for every "inadequate" answer, two points for every "competent" answer, and five points for every "masterful" answer:
- How well do you know the important secrets of your business?
- How good are you at sharing that knowledge with your key people?
- How effective are you at inspiring others to follow your ideas?
- How demanding are you in terms of getting others to reach their goals and objectives?
- How good are you at following up?
- How strong are you at coming up with useful, new ideas?
Now tally up your score.
If you scored more than 20, you are a natural leader. Work primarily on your greatest strength. Try to fix your greatest weakness.
If you scored between 10 and 20, you have great potential. The most important thing you can do to be better is commit yourself to being so - make it a specific goal. Then start paying attention to what good leaders do and listen to what we say about leadership in your daily ETR messages. Don’t pay too much attention to the "regular" stuff on leadership. It’s mostly wrong - written by people who have never really led.
If you scored below 10, well… you have your work cut out for you.
Whatever your potential… the most important thing a leader does is come up with a compelling idea about what needs to be done. If you can do that, you can do all the rest.
[Ed. Note: Get Michael Masterson’s insights into becoming successful in your business and personal life, achieving financial independence, and accomplishing all your goals on his brand-new website. You’ll find updates on all of Michael’s books, news on upcoming ETR events, Michael’s blog, and room to send in your comments and questions. Check it out today.]
You Are Ordering From Afghanistan
By David Cross
Having a website that’s user-friendly is key to the success of your online business. By making the entire process of navigating through your site simple and seamless, you help your potential customers do exactly what you want them to do: buy your product. But many online businesspeople make a seemingly small mistake in their online order forms that could mean the difference between making a sale and losing a frustrated customer.
For example, I’m amazed at the number of websites with order forms that default to Afghanistan as the country the customer is ordering from - simply because it comes first in an alphabetical listing of all countries. Based on the sites I order from, I’d estimate 15 to 20 percent of all websites default to Afghanistan, despite the fact that very few online customers order from there.
This is a question of understanding your customers and knowing who they are. If you market mainly to customers in the U.S. - as most Internet entrepreneurs who are reading this do - your order form should default to the U.S. If you market mainly to customers in another country, your order form should default to that country.
Fortunately, it’s easy to make that change. Simply have your Web developer add the word SELECTED in the HTML code next to the name of the country you wish to have selected by default. (You can also have him change the order of the rest of the countries listed on your order form, placing those your customers order from most frequently at the top.)
If you’re not sure where your customers are ordering from, you can determine that, with a high degree of accuracy, through their computers’ network (IP) addresses. You can then use that information to help you select the default country on your order form. Plus, a number of companies, including Maxmind and IP2Location, offer software to help pinpoint a customer’s geographical location (even at a ZIP code level).
Remember, anything you can do to sweeten or simplify the ordering process on your website will help to improve the total number of customers who complete checkout and pay, which means more sales for your business.
[Ed. Note: David Cross is Senior Internet Consultant to Agora Publishing in Baltimore. Learn more money-saving, time-saving, business-building Internet marketing techniques from some of the world’s top business-building experts at ETR’s Info Marketing Bootcamp Making a Fast Fortune on the "Other Side" of the Internet. Sign up today.]
Surviving Hell: Scream When You Need To
Jennifer was a 40-year-old, very successful entrepreneur who was in the middle of a messy divorce. She came to me because she was having severe panic attacks, the kind that make you think you are dying and need to call the paramedics.
She told me, "I’m scared. I’ve always been in control, in charge of my emotions. What’s happening to me?"
Without realizing it, Jennifer was describing the major cause of her problem. She was under extreme stress - with business booming and a divorce in progress - and she was using an outdated coping technique: emotional repression. What had "worked" for her in the past was not adequate for the intense stress she was experiencing.
The solution: Jennifer, like many of us, needed to allow her deeper, more powerful emotions to flow. She needed to practice identifying and expressing her feelings - even screaming, when necessary - rather than acting cool and "together."
Does screaming really work as a stress reliever? Yes. One study, conducted on 1,000 volunteers, found that giving a loud scream can reduce stress up to 25 percent.
This is not a license to abuse other people with your emotions. But you need to find a safe place where you can regularly let out what is pent up inside. You will not only feel better, you will be better.
Jennifer took my advice. Soon, her panic attacks subsided. Join her. Stop holding in what needs to be let out. Scream when you need to.
[Ed. Note: Dr. Matthew Anderson, author of The Prayer Diet, is a counselor and national columnist/expert on weight loss, motivation, self-management, and relationships. Read more of his articles on healthy living at ETR’s natural health e-letter. Tofind tough-minded, outside-the-box guidance for taking charge of your life and/or your weight, click here.]
It’s Fun to Know: Making Bones With Inkjet Printers
Using specially modified inkjet printers, Japanese scientists have been able to create artificial bones for use in facial reconstruction surgery.
The procedure starts with a 3-D model of the bone, based on data from X-rays and CT scans. That information is then sent to the printer, which shoots out a water-based polymer adhesive onto thin layers of material, repeating the process until the artificial bone is complete. The result is accurate to the millimeter, and the artificial bone easily fits into the patient’s surrounding bone.
Tests in human and animal subjects have so far been positive, but more testing is needed before this procedure is made widely available.
(Source: The Chemical Daily)
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Word to the Wise: Ombudsman
An "ombudsman" (OM-budz-mun) is an independent official who investigates complaints by individuals against abuses by those in authority, including government agencies, employers, professional organizations, the media, etc.
Example (as used by ABC News): "The Workplace Ombudsman says his new office will be making sure that all workplaces and employees are treated fairly."
[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