- WEALTHY: What intelligent investing is all about (Justin Ford)
- HEALTHY: Your plate programs your fate (Kelley Herring)
- WISE: Calvin Coolidge on realizing your potential
ALSO IN THIS ISSUE:
- How I enticed a reporter to write the story that “made” my business (Paul Lawrence)
- A success secret that’s entirely in your control (John L. Herman Jr.)
- It’s Good to Know… about flying without ID
- Add “macerate” to your vocabulary
Start Collecting Enormous Passive Income Checks from the “Paycheck Portfolio”
You can get as many as 75 checks, sent automatically to your account. It’s the single best way to make sure you never run out of money…
The “Paycheck Portfolio” is ready to unleash a steady flow of work-free income directly to you…and you can get on board with the next scheduled payout on September 15, 2008!
~Calvin Coolidge
The Art & Science of Bear-Market Real Estate Investing
By Justin Ford
“Something is worth precisely what someone else is willing to pay for it.” So said a stock-market analyst to me one fine bull-market day many moons ago.
A statement like that can seem profound, but it’s useless. Yet it is the mantra of many investors in all fields. In bull markets, the sellers say it. In bear markets, the buyers say it. But it is about as helpful as saying, “Wherever the sun shines, there it is daytime.” So what?
It tells you nothing about why the sun is shining or, more important, when the sun may stop shining… and how long it will likely be before it shines again.
Intelligent investing is all about the why and how. It takes some thinking… not cheap aphorisms.
And so we turn our thinking to real estate investing and we ask the questions everyone has been asking…
“How low can the real estate market go? When will it bottom?”
Here’s the short answer: I don’t know. Here’s the longer answer: I don’t know but…
I’m still finding some excellent opportunities. And, regardless of where the market heads the next few years, I can buy at prices today that assure me of respectable returns over the long run… and could well provide exceptional returns in the near to medium term.
It all boils down to understanding what is art and what is science in your investing… and paying due respect to each.
The Art of Judgment: How Not-So-Dumb Luck Can Help You Succeed in Real Estate
I’ve made the bulk of my real estate profits because of a force I cannot control: market appreciation. You buy under market in the sweet spot of the appreciation curve and – thanks to leverage – you can grow your investment five or 10 times or more in the space of a few years.
I have six key criteria for identifying good value and growth markets. I’ve written about them in ETR several times. Using those criteria, I’ve chosen markets I thought were undervalued and that were experiencing growing demand.
It turns out I was right. So I enjoyed much more than the standard 3 percent to 4 percent appreciation a year on my properties. I bought where the markets ended up appreciating 10 percent to 15 percent a year. And, because of leverage, I made many times that. And I even did this while some markets were imploding!
Understand that not all value and growth markets that you identify and buy into are going to go straight up. They can stay flat or fall for quite a while before they recover. And yet, even when that happened, I was able to make a decent return on my investment
That’s because choosing a market or a neighborhood to invest in is an art. You base your buying decisions on your best reading of the facts. But, ultimately, it’s a judgment call. You can get very good at it, but you can’t force it. Your reasoning may be perfect, but the market could suddenly refuse to accommodate you.
That’s why you have to pay even greater attention to the science of real estate investing.
The Science: Crunching the Numbers and Doing Rigorous Due Diligence
By “the science of real estate investing,” I mean all the measurable numbers and criteria that can help assure your success. In other words, before you buy an investment property, you have to know the answers to all of the following questions…
- How strong is the rental market? Okay, you just saw a couple of two-bedroom apartments in the area rent for $750. But you’re looking to buy a 20-unit building with all two-bedroom apartments. Is there enough demand? Can you rent them all out at $750?
- Will the property cash flow at market rent? Will it cash flow at a 15 percent to 20 percent discount to market rent (in case the market softens or you have to lower your rents to remain competitive)?
- Are you fixing your interest rates? By doing so, you don’t become hostage to another economic factor over which you have no control.
- Are you buying at a discount to the average $/square foot for that type of property in that area? When you buy at a discount to start, you have that much greater a margin of safety going forward.
- Have you thoroughly investigated what your operating costs will be? Don’t take the seller’s numbers at face value. They often understate costs – especially real estate taxes. (Your taxes may rise significantly if you’re paying a lot more than what he paid years ago.) The key point is: You must know your costs well in order to have a reliable idea of what your net operating income and cash flow will be.
- Have you considered deferred maintenance and any major expenditures that will be yours in the next few years? From a new roof to repaving a parking lot, significant expenditures of this sort can eat up cash flow and even cause a property that is not sufficiently capitalized to go into the red.
- Do you have honest and competent management set up for the property? Properties that look good on paper can quickly turn bad when you have poor management.
- Are you buying near or below replacement cost? This is especially important in a bear market.
These are all factors over which you have significant control. And when you get good at doing this kind of due diligence, you can scoop up bargains in a bear market – without caring that you may not be buying at the absolute bottom.
How to Make Money Even When You Make a Mistake
After all, if you have a fixed-rate amortizing loan on a cash-flow property, you’ll eventually own the property free and clear, regardless of price fluctuations in between. Buy a $1 million property with $200,000 down and you’ll eventually pick up $800,000 just from using the rents to pay off the debt.
In the meantime, you’ll also pocket net rents (the money left over after paying operating costs, the mortgage, and leaving a little something for reserves). So in a very bad case scenario – where the market goes nowhere for the next 20 years – you could end up making over a million dollars from a $200,000 investment. And, of course, if the market soon bottoms and improves, you could end up making a million or even millions much sooner.
So in a bear market, focus on buying cash-flow properties at below market value in areas that you believe are promising and where you are confident you can put in good management. At the same time, for added bear market protection, buy near or below replacement cost whenever possible. Here’s what that means…
Replacement Cost: A Great Reality Check for Real Estate
Let’s say that 20-unit building is 15,000 square feet, and to build that structure brand-new would cost $100/square foot – or $1.5 million. But, of course, the building isn’t new. If you were to bring it up to the standards of new construction (for its class), let’s say it would cost you $500,000. So that means, to stay below replacement cost, you’d want to buy it for less than $1 million.
In other words, if you spent $1 million on the property and $500,000 to upgrade it to brand-new status, you’d be spending no more than anyone else who was willing to construct a brand-new competitive building in the area. In fact, your cost would still be under theirs, as you would have gotten the land along with your purchase of the building.
Staying near or below replacement cost isn’t always possible – especially in increasingly popular, higher-end neighborhoods. But in today’s bear market, it is becoming easier in every kind of neighborhood.
And buying below replacement cost is not a guarantee of success. After all, if you buy into a neighborhood that’s in serious decline, you may find no one willing to build there in future years at almost any cost. However, that is an extreme case. And you’d certainly be worse off if the neighborhood went into serious decline after you had paid far more than replacement cost.
So at the very least, buying near or below replacement cost will greatly reduce your risk on every type of real estate purchase. That – and your insistence on buying at prices that cash flow with a good yield – will help you be a shrewd buyer in a bear market.
Your success will not hinge on your ability to guess the bottom. Go ahead and make that judgment call along with others – including the best markets and neighborhoods to invest in. But get the numbers right first and buy cash flow, undervalued on a $/square foot basis and on a replacement cost basis, and your rare mistakes can still make you money in the long run… while your more frequent successes can make you (and your investors) a fortune much more quickly.
[Ed. Note: Despite the gloom and doom surrounding the current real estate market, you can make money as a real estate investor. Apply Justin's 6 criteria for buying right, and you'll be on your way to earning extra income. For more strategies on growing your wealth, check out the DVD library from ETR's Profits in Paradise conference. You'll get some of the biggest wealth-building secrets from 14 experts in making money. Learn more here.
Once you discover how to find the best real estate deals in the best markets, you can make an absolute fortune - for yourself and your investors. Real estate expert Justin Ford can show you exactly how to do that, no matter what condition your local market is in.]
$3,012 in Online Income in Just an Hour?
If you are ever in a situation where you can’t wait weeks – and especially not months – before you see money coming in, then you’ll want to follow this easy, paint-by-numbers program for pulling in money FAST.
Now, to be fair, you may have to wait a few days or more in some cases to get paid. But the “work” – if you want to call it that – takes as little as an hour.
If you are in the same boat and need money quickly, then head on over and check out all the exciting details for getting started today!
Break Out of the Crowd to Get Free Publicity
A big article about your business in a publication (online or offline) – or even a brief mention on television – can catapult you to a whole new level of success. That kind of exposure just can’t be bought at any price. As a result, there are hordes of businesses trying to attract the media – and that makes it difficult for you to stand out from the crowd. Difficult… but not impossible.
For example, let me tell you about a technique I used to catch a reporter’s attention and get enough free publicity to transform myself from a starving ballroom dance instructor into one who was completely booked with a waiting list several hundred names long.
I sent the reporter a letter inviting her to watch one of my dance lessons – any one that she wanted to see. I also told her that I had so much confidence in my ability that I would happily take on the challenge of teaching her any dance she wanted to learn… no matter how complicated and no matter how many “left feet” she had.
The reporter was intrigued by my proposition. She came. She saw. She learned how to dance the tango. And she wrote a great feature article about me for her paper. The rest is history.
If you can come up with an idea that a TV or newspaper reporter might be able to turn into a good story, you can practically guarantee that you’ll become “newsworthy.” And with exposure like that, you’ll have customers knocking down your door.
[Ed. Note: Getting publicity for your new business can be tricky. But Paul Lawrence has dozens of secrets to getting the media to pay attention to you. Get the details here.]
The Bitter Taste of Failure… or the Sweet Smell of Success?
I have spent a lot of time and money on deals that I didn’t get. So what? I always gave every deal my best shot – and, knowing that I had done all I could, I believed that, over time, the numbers would come back my way. My efforts would pay off.
Let’s say you know the sales closing rate is one out of three and you make $100,000 per deal. If your goal is to make $1 million, then you’d better go see more than 30 prospects. Visit 22 instead of 30 and a funny thing may happen. You may go six for 22. And you may go four for eight on your next eight calls.
Businesses fail for all sorts of reasons, many beyond our control. But if you don’t put forth the effort and do everything you can to make yours a success, the only person you can blame is yourself. And the bitter taste of “If only I had…” will last a long, long time.
[Ed. Note: Your best chance of making a business succeed? Getting "insider secrets" from experienced business-builders.
Author and businessman John L. Herman Jr. ("Herman"), who has owned more than 20 companies, has become an expert on why businesses fail. The above article was adapted with permission from Hermanisms: Axioms for Business and Life.
For more information about Herman and his business writing, please visit Hermanisms.com.]
Culinary Choices, Chemical Signals
What if you could send a list of requests to your body to keep it healthy? Your list might read: Keep blood sugar stable, Maintain memory, and Keep cells cancer-free.
These aren’t crystal-ball wishes. They are actionable tasks. The truth is, you can (and do) send these requests to your body… with every bite you take.
When it comes to keeping your cells cancer-free, for example, most risk factors are related to hormone levels. Hormone levels drive cell division and increase the chances for random DNA copying errors to occur. These errors lead to mutations in genes and promote cancer cell growth. And there are two ways your diet affects those risk factors.
First, what you eat influences levels of the hormone insulin. By choosing foods that are high on the glycemic index, you boost blood sugar levels. When this happens, the insulin rushes in to shuttle the sugar into cells. And high insulin levels promote tumor growth.
Next, and more obvious, we get hormones from foods containing hormones. Not only will your body absorb hormones from meats that have been “fattened” with recombinant bovine growth hormone (rBGH), but also from fruits, veggies, and grains treated with pesticides and from other chemicals in the environment that are known ”hormone-mimics.” That’s why I always recommend that you choose organic foods.
So, take charge of your health! Choose a low-glycemic diet to keep your blood sugar stable and opt for “wild” and organic foods clean of hormones and hormone-mimics to help stay cancer-free.
[Ed. Note: Choosing low-glycemic, organic foods doesn't mean that you have to eat rabbit food. In fact, nutrition expert Kelley Herring has created a super-healthy dessert - that's sinfully delicious. Learn more here.
And be sure to sign up for ETR's natural health newsletter. You'll discover tons of healthy recipes and the latest breakthroughs in nutrition and fitness.]
It’s Good to Know: Flying Without ID
You get to the airport for your 7:20 a.m. flight to Denver and realize you forgot your driver’s license. Don’t fret. You can fly within the United States without identification… but you will be subjected to intense scrutiny by the Transportation Security Administration.
There will be a bag search and a thorough once-over by the metal-detecting “wand.” And, thanks to a rule that went into effect June 21, agents will also quiz you about personal details that appear in public records, such as your old addresses, when you were married, or your license plate number.
(Source: Wired and Consumerist.com)
If You’ve Ever Set a New Year’s Resolution – Listen Up…
Some people ONLY set goals on New Year’s Day.
But I’m going to let you in on a little secret…
January 1 is just an ordinary day. There’s nothing that makes it the “perfect” day for setting your yearly goals.
And here’s something that may shock you…
You can set goals ANY DAY OF THE YEAR.
And the sooner you get started, the sooner you can live the life you’ve always dreamed of.
Word to the Wise: Macerate
To “macerate” (MAS-uh-rate) – from the Latin for “weaken” – is to soften or flavor a fruit, usually by soaking it in liquid. It’s similar to marinating meat.
Example – as used in this recipe: Macerate 5 cups of mixed fresh berries in 1 tablespoon of sugar, 3 tablespoons of fresh lemon juice, and 3 tablespoons of Grand Marnier. Cover and refrigerate at least two hours, stirring occasionally. Serve over vanilla ice cream or with plain yogurt.
[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.]
Copyright ETR, LLC, 2008
Similar Articles:
- Issue #2438 The Art & Science of Bear-Market Real Estate Investing – “Something is worth precisely what someone else is willing to pay for it.” So said a stock-market an…
- The Seeds of a Real Estate Harvest – I grew up in a small farming town in Alberta, Canada. For 17 years, I was surrounded by farmers – an…
- The First Step to Becoming a Millionaire Real Estate Investor – Thanks to real estate investing, I no longer have to work full-time. If I want to go hiking in the m…
- Why Current Market Conditions Shouldn’t Stop You From Buying Real Estate – Seven years ago, the real estate market where I live – the west coast of Canada – was in a serious s…
- The Biggest House-Buying Tip Ever – In Stephen Covey’s best-selling book The 7 Habits of Highly Effective People, he recommends that you…
- A Little Negotiating Trick for Real Estate Deals – When negotiating to buy a property, I increase my chances of getting the exact deal I want by giving…
- A Short, Real-Life Lesson on How to Bank 6 Figures in a Bear Market – A title company wired just over $97,000 into one of my bank accounts this afternoon. Once I get the …
Thank you for this informative article. I hope never forget my id. But it is good to know we can still fly without it. Also, it is true what you say about to send positive thought to your body. It is the best cure. Keep the good work. I love your site.