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Building wealth

30 Jul 2009
Written by: Richmond

THE REAL ESTAE WAY
The One Property Market Just Starting Its Boom Cycle

Achieving Personal and Financial Success in Real Estate

You’re tired of being in debt. You’re tired of grinding away at your job. Most people are looking for vehicles to provide them with more money, more freedom, and quality time to spend with their families and friends.

I talk to hundreds and hundreds of people every year who tell me they bought into the “go to college, get a good job, and life will be rosy” idea, but today they’re stuck in jobs they don’t like and are worried about losing what they have. They’re struggling to pay bills, and they’re searching for a way to get more out of life.

    THERE’S A BIGGER REASON FOR WEALTH THAN THE MONEY

Having money makes your life easier, and having lots of money makes your life a lot easier. You must have a burning desire, they say, a wrenching feeling in your gut that drives you to acquire wealth. Just fantasizing about a bigger house, a sleeker car, and a membership at the country club won’t get you those things. There’s got to be a reason for wealth that’s bigger – much bigger – than the money itself.

Some people find their jobs tolerable, but the vast majority do not like what they do to make a living. Most people have a job for which they’re paid just enough not to quit, and they work just hard enough not to get fired.

When making money becomes your hobby, getting up early is no longer a chore. Staying late doesn’t matter because you’re enjoying yourself. In fact, you’ll be having so much fun that you’ll toss out the time clock. You won’t need it. And when you find the right vehicle that lets making money become your hobby, you’ll find yourself generating significantly more dollars in much less time than you’re spending on your job right now.

At any moment, someone is getting wealthy, and a lot of other people are staying poor. In any given community, small or large, at any place on the globe, you will find people who are successful and people who are not.

You can’t control everything that happens, but you can control your attitude about it. If you are negative in your attitude, it will control your circumstances. Force positivity to control your attitude, and you will enrich not only your own life but lives of people around you.

A long time ago I found the more I pretended to be positive, the most I liked how I felt when I was doing it. The more I liked how I felt, the more I did it. Pretty soon, it wasn’t uncomfortable anymore, and it wasn’t long before I realized I had experienced a metamorphosis. I had unwittingly transformed myself from someone who was totally committed to negativity to someone who was positive, happy, and on a continuous search for bright things and the overall good in life.

If you’re thinking that it’s easy to have a positive attitude once you’ve got a lot of money, you’re right. But it’s not easy to get wealth without positive attitude. I’m sure there are some wealthy negative people out there, but I’ve never met one of them – and I’d be willing to bet that their wealth was inherited, not earned.

Mind feed is simply feeding your mind daily with nourishing material that will make you healthy, happy – and wealthy.

The first step in becoming wealthy is the ability to break free of the shackles of a workaday job; it’s the recognition that money rarely comes in windfalls but rather in steady, planned, increasingly larger increments. Learn how to set up short-term and midrange goals and make them work for you. Willing to forgo luxuries early on for financial independence is a small one. This secret is creating just enough regular income to allow you to quit your job.

I have always believed that intelligence means you can learn from your mistakes, but true genius means you also learn from the mistakes and experiences of others.

Dear old Arnold Schwarzenegger before being elected governor of California, made millions in movies, but he was also an extremely savvy real estate investor. He was buying and fixing up run-down properties in California while he was still an obscure bodybuilder. In fact, that’s what he did while he was training for the competitions that would ultimately make him famous.

For Schwarzenegger, real estate was the initial stepping-stone toward financial independence and the freedom it would provide him to pursue his acting career, other wealth-building opportunities, and eventually politics. Not bad for someone who many regard as dum! He is not, he’s smart!

Bob Hope will be remembered as a gifted entertainer, but he was also a savvy California real estate investor who earned the nickname Mr. Real Estate because he owned so much land. His pal Bing Crosby also invested in real estate. Actress Jane Seymour is a multimillionaire, and she didn’t earn it all from television mini series. A major portion of Seymour’s fortune came from buying California real estate, restoring houses, and reselling them for a considerable profit. Cable news pioneer Ted Turner is Time Warner’s largest individual shareholder and has a number of other business interests – but since he is the largest private landowner in the United States (some 1.8 million acres in ten states), it’s probably safe to say that he receives a substantial portion of his income from real estate. German billionaire Josef Schorghuber bought a sheep pasture in 1954 and turned it into the first of thousands of office and housing developments in Munich. He later diversified into other businesses, including breweries and travel agencies, but real estate remained a strong portion of his wealth portfolio.

When Taikichiro Mori died in January 1993, at the age of eighty-eight, he was known as the richest private citizen in the world. He made his $13 billion fortune in Tokyo real estate. The Hunt family of Texas is best known for oil money, but their real estate holdings are major. When billionaire Ross Perot disclosed his financial holding during the 1992 presidential campaign, his portfolio included a significant amount of real estate in addition to tax-free state and municipal bonds and other relatively risk-free investments.

Simple means anyone can do it.
Simple means it does not take complex formulas to figure it out.
Simple means anyone with common sense can go out and do it if he or she has any initiative at all.

Not easy, on the other hand, means you may have to make some phone calls. You might have to get up early. You might even have to so some paperwork.

Not easy means that anything worthwhile in life is not going to be tossed in your lap because you just happen to be a nice person. Our service gives you easy and simple.

Imagine a typical house in Any City, Australia. In places like Adelaide or Brisbane, this house might sell for $300,000. In Sydney or even Melbourne, the price might be $600,000. For the purpose of explanation, the actual price doesn’t matter, but we will assume that every house in the neighborhood sells for a comparable amount.

The owner was very motivated to sell the property because she wanted to move closer to her children, who lived in another city. She was more interested in a steady income than in a large, lump-sum payment that would have cost her thousands in capital gains taxes, so she agreed to take a small down payment and hold the mortgage.

The house has five bedrooms upstairs. Downstairs there is a living room, a dining room, and another large room. You leave the living room alone but hire a carpenter to turn the other large room and dining room into four rooms. It costs $500 and the price of plywood and pre-hung doors from the local building supply store. Then you put the following ad in the newspaper:

     Cozy rooms for rent - $180 per week.

Now, $180 was about $10 below what other rooms in the area were renting for, but everything else was comparable – size, furnishings, the number of bathrooms (this house had three the tenants shared), etc. – so it took you less than two weeks to achieve 100 percent occupancy. You had ten rooms to rent out, which meant each week you were bringing in almost as much as you would have in a month if you had rented the house to a single family.

Rental Income

10 rooms @ $180 each per week - $1,800 per week
$1,800 x 4.3 weeks = $7,740 per month
$7,740 per month x 12 = $92,880 per year

Monthly Expenses

Mortgage = $500
Other expense* = $200
* Insurance, taxes, utilities, garbage collection

Summary

Total rents = $7,740
Less mortgage = $500
Less expenses = $240
Net monthly profit = $7,000 per month! – Passive Income

Your profit, or net positive cash flow on this house, was more than $84,000 per year. Even after subtracting my initial costs, this is a tidy sum to earn by doing little more than making bank deposits.

Your next property could be a large house that you were able to convert into thirteen rooms.
This would give you around 20% net extra after cost or $100,000 per year!

If you had a little more information on the details and put a little pressure on yourself, could you make one small rooming house deal in the next 90 to 120 days? Sure you could. You might even stretch it to two deals, because that will give you your first taste of financial independence – and believe me, nothing tastes sweeter.

Conrad Hilton, who founded the Hilton hotel chain, got his start by renting rooms in his family’s New Mexico home. The point is, we can start this process for you now.

People are always blaming their circumstances for what they are. I don’t believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can’t find them, make them.
- George Bernard Shaw

I made my first fortune in real estate in upstate New York. I bought run-down properties, fixed them up and turned them into steady moneymakers. I was financially independent because of the income my properties and businesses generated.

South Australia is growing by leaps and bounds. There are rapid increases in demand for houses in and around Adelaide and the Adelaide Hills. If you are going to investing in real estate, you want to do it in a growing area like Australia.

Inner City and Adelaide Hills are great places to begin investing in real estate because the properties are usually affordable and they generate decent cash flow. This is a vibrant growing area for other business opportunities.

Calculating net Profit

Monthly gross rents (4 units at $500 each)
$2,000
Annual gross rents (12 x $2,000)
$24,000
Monthly expenses
$800
Annual expenses (12 x $800)
$9,600

Gross annual operating profit
$14,400
Debt service (12 x $596.75, the monthly mortgage payment)
$7,161
Net overall operating profit
$7,239

Your first-year ROI is the net profit divides by the cash out of pocket it took for you to buy property, which is $7,239 divided by $3,700, or 196 percent return on investment.

Appreciation – If you know your market, you will be able to estimate how much specific improvements will increase the value of your property. Appreciation turns into a cash profit when you sell or refinance.

Original purchase price of property
$75,000
Cost of improvements
$1,300
Revised appraised value of property
$130,000
Forced appreciation
$55,000

Appreciation ROI on this property was 1,486 percent (the amount of appreciation divided by the investment, or $55,000 divided by $3,700). In this example, I used forced appreciation only – that is, I forced the value of the property up by improving it. When adding in natural market appreciation, contact a real estate agent for the figure that applies in your area.

The Power of Compounding Returns

Let me illustrate. Suppose I offered to give you a temporary job to help you acquire seed capital for your business, whether it’s real estate or something else. We agree on your duties and that you will work for me for thirty-five days. But then I offer you your choice of compensation plans: I will pay you either a straight $1,000 a day or a penny a day, compounded daily at 100 percent. That means you pay rate will double every day.

Which would you choose?

The arithmetic on the first plan is simple: thirty-five days times $1,000 a day equals $35,000. Not a bad sum for five weeks’ work, and it could well be just what you need to get you on your way to financial independence.

The arithmetic on the second plan is little more complicated and is based on the principle of compounding. That means the money you earn immediately starts to earn more money for you. Let’s see how the numbers work out:

Day	Daily Amount
1	$.01
2	.02
3	.04
4	.08
5	.16
6	.32
7	.64
8	1.28
9	2.56
10	5.12
11	10.24
12	20.48
13	40.96
14	81.92
15	163.84
16	327.68
17	655.36
18	1,310.72
19	2,621.44
20	5,242.88
21	10,485.76
22	20,971.52
23	41,943.04
24	83,886.06
25	167,772.16
26	335,544.32
27	671,088.64
28	1,342,177.28
29	2,684,354.56
30	5,368,709.12
31	10,737,418.24
32	21,474,836.48
33	42,949,672.96
34	85,899,345.92
35	171,798,691.84
Total earned	$ 343,597,383.68
	(over $300 million)

When I present this position to investors, most people choose the penny-a-day option, but only because they suspect a trick. When I ask them to tell me how much money the penny will turn into in thirty-five days, they never even get close. They guess $100,000, or even $1 million, or occasionally as high as $10 million, but no one has ever guessed $343 million.

You may be thinking that investing your money so it will double – and double quickly! – sounds good, but that it’s not really possible. On the contrary, it happens every day. In another article on the website I used a real property I purchased to show you how to calculate a return on investment – and my ROI on that property was 1,706 percent! That was a good deal, but it wasn’t unusual deal. Those kinds of properties are out there all over the place, in every city and town in the country, just waiting for us to pick them up for you and make money.

As a simple example, let’s say you put a $20,000 down payment on a $100,000 piece of property. A year later, it appreciates 5 percent (which is realistic in most markets), and you sell it for $105,000. Your initial $5,000 investment has earned you a profit of $5,000, which is a 25 percent return on your money in just one year. We do this on a regular basis - 6 months or in the case of the Gold Coast every quarter.

Do you see now that it is possible to double your money in a short time? Getting a good return on an investment is compounding in action, and compounding is one of the main keys to building wealth.

Have you ever thought about how nice it would be if you could charge something and have someone else make the payments? That’s how buying income-producing assets work, because the cash they generate makes the payments. And when those assets go up in value, it’s your net worth that has increased with someone else’s payments.

Sub-division can be a great way to go

Let’s say you found a five-acre tract of land on a corner for sale with an asking price of $300,000. Two of the other corners are already built out; on the fourth corner is a thirteen-acre tract that sold six months ago for $900,000. There are no other vacant five-acre tracts in the area for you to use as a price comparison, so instead you calculate the per-acre price for the thirteen-acre tract to get a sense of the market values. When you do the math, you’ll see that the thirteen-acre tract sold for $69,000 an acre. The seller of the five-acre tract is asking $60,000 an acre. If your other research into what you expect the market to do confirms potential growth, the five-acre tract is probably priced below market. Note that I said probably – there might be reasons for the lower price, such as zoning limitations, no water or sewer, or an endangered species of animal or plant on the property that will restrict what you can do with it. Find out before you make the purchase.

Re Zoning Works

Let’s say you find a parcel of land that’s zoned for commercial, but it’s on narrow road and does not have city water or sewer service. You check the comprehensive plan and see that the road is scheduled for widening in one year and the property is scheduled to get water and sewer service in two years. These will generally force up the value of the land. You could buy that property, hold it for two years, and make a substantial profit when you sell.

Keep in mind that most countries and cities have already determined what their planners believe to be the highest and best use of each parcel as part of their master plan. The actual rezoning may not yet have occurred, but you can see from the future land-use plan what it will likely be. If you want zoning different from what the future land-use plan indicates, you are going to have to go through the rezoning process.

The key is to win often and never lose big – In Stocks, Funds or Property

You don’t get to choose how you’re going to die, or when. You can only decide how you’re going to live. Now!

It has long since come to my attention that people of accomplishment rarely sit back and let things happen to them. They went out and happened to things. – Elinor Smith

Borrowing: it’s good when whatever you’re borrowing for will appreciate in value and ultimately make you more money than the amount you borrowed; it’s bad when used for consumable items or depreciation assets. The key is to make credit work for you rather than against you.

Live like a Millionaire

Don’t confuse lifestyle with wealth. People who live glamorous, big-spending lifestyles may have big incomes but may not necessarily have a significant net worth. There are plenty of people who earn $200,000 a year and owe $205,000. One lost paycheck could cripple them economically. One unexpected bill would bankrupt them. By contrast, many millionaires live below their means because they would rather invest their money in wealth building vehicles than in depreciating assets. Most millionaires do not have significant credit card debt; in fact. they would rather do without than charge.

What do you really want to do?

What would you do if money weren’t an issue? How would you spend your time if you didn’t have to concern yourself with paying bills?
I don’t mean what you’d like to do on your vacation – I like to snow ski in the winter, but I wouldn’t want to do it all the time – but what would you do with the majority of your waking hours if you didn’t have to earn a living? Whatever it is, look for a business idea related to it.

Start A Financial Plan Today

Saving $ 1,000 a month, restructure your retirement fund, buy income producing assets that appreciate.

Define the Problem – Make sure you have a clear understanding of what the problem really is.
Identify the Cause – Once you understand the problem, track down the root cause.
Determine How to Correct the Cause

I could quote you a whole string of cute and catchy clichés about the concept of failure, but you’ve probably heard them all already. Notice I use the word concept, because that’s all failure is. Failure is a state of mind. It’s not real; it’s just an attitude and a way of thinking that you have the power either to accept or reject.

What is a wealth mind-set? It’s the ability and willingness to identify, focus on, and take action on a wealth-building vehicle. It’s staying open to new ideas and new opportunities. It’s flexibility and creativity. It’s doing what it takes so you can enjoy the rewards.
Once you’ve had a taste of success, once you’ve made some money in business or real estate, then you can decide if you want more.

We know that money makes money and success breeds success. I believe that if you have just one financial achievement under your belt, you’ll want more, and you’ll get more.

Start today by contacting me on gb@richmondhk.com