I  wrote this blog post almost exactly two years ago and this topic came up again when an old high school classmate asked me if I could suggest a financial advisor for her.

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Here is what I wrote on April 29th, 2011.

I will never be financially free if I follow the
plan of most financial advisors.

The truth is ever since I read Rich Dad Poor Dad
at the age of 20, I created my own financial plan
that I have followed.

That plan has served me very well thus far and
I started to wonder if it would continue to do so
given the exciting changes I have coming up.

In two months I will be marrying Alexes,
(one of the most amazing human beings I have
ever met and the love of my life) and we are
planning to have children in the next few years.

So, I thought it might be time to update my financial plan.

After meeting with numerous “financial experts”
what I discovered shocked me.

Rather than bore you with the details of the meetings
with the different financial planners lets cut right to the chase
and talk about one of the meetings in particular.

This financial planner asked me when I want to retire
and how much money I want coming in.

I told him I never plan to retire ( I love what I do) but
for the purpose of his exercise I said I want to retire in
the next 10 years and make $250,000 each year after taxes.

He ran his computation (not including existing assets) and told me that I would need to create a nest egg of over $1.6 Million dollars in the next ten years to achieve my goal.

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With that nest egg I could then invest in the stock market, mutual funds, annuities and other financial products to achieve my annual retirement income goal.

Lets take a look at this plan in 4 parts.

1. Coming up with an extra $1.6 Million
2. Risk of Income
3. Risk of Investments
4. The Alternative

1. Coming up with an extra $1.6 Million
Most people if they had to save an extra $1.6 million dollars over the next 10 years would do what they know how to do…work harder.

That means I would need to save an extra $160,000 / year for the next ten years. This amount wouldn’t even include the money I need to live, to feed my family, to have some fun etc. But for the purposes of this example and to be ultra conservative, let’s say that I managed to live extremely frugally and lived off of $40,000 so my needed income would be an even $200,000 after taxes.

That means I would need to make $240,000 / year to net approximately $200,000 after taxes.

This is not realistic for most Americans given the median household income in the US is $46,326

But, even if you can make $240,000 / year busting your a$$ at a job, why would you?

As we’ve discussed, earned income is the highest taxed type of income AND you are putting in lots of time to achieve your goal. That time you lose, not spending with your family, not doing the things you love to do, you cannot get back.

2. Risk of Income
How are you generating this income? Even if you have gotten resigned to paying high taxes, how secure is your job? Is your job going to be safe with the economic changes we are undergoing and will your job be necessary in the new global economy? If it is, then you should do ok. But I would argue that very few jobs will really be safe with the changes that are coming. If you know your job is not going to be safe, now is the time to start looking at new ways to produce income.

Make sure to get a free copy of “The Freedom Report” if you haven’t yet to ensure your freedom in the new economy. If your job is safe then keep on producing income, because that is only the first step of the plan. The next step is then investing that money.

3. Risk of Investments
I find it mind boggling that the majority of Americans
work so hard for money and then they turn their money
over to the “so called” experts without doing much
diligence.

Most financial advisors want you to put your money into the stock market, mutual funds etc and hope to get a 10 or 15% return on your money.

This sounds crazy to me for a few reasons. First off, I think 10-15% return is extremely low. There are ways to get higher returns with less risk. Second, you have absolutely no influence over how your investment performs.

It doesn’t make any sense to me to work hard your entire life and then “trust” your retirement to strangers. Does that really sound like a safe and secure plan to you?

I know many people who lost at least 50% or more of the value of their retirement accounts after the mess of 2008.

How much influence did you have to actually affect the value and profitability of your retirement account when the financial storm hit? If the answer is not much, it may be time for you to change your investment strategy, especially because the worst is still yet to come.

And yet this is what is scariest to me. Lets say I had taken the financial advisors’ advice 10 years ago and had found a way to save $1.6 million dollars in my retirement account and then after the subprime mess of 2008 that account dropped to $800,000. What would I do then? I busted my a$$ for 10 years, did everything I was supposed to and because I had limited influence over my investments, when the financial storm hit I ended up only halfway towards retirement instead of being able to retire.

The unfortunate thing is that today lots of potential retirees find themselves in this exact position. Yet today when I sit with most financial advisors they give me the same advice that they have given in the past.

Do you think that potential retiree who can’t retire now would endorse the plan that the financial advisors gave me?

The problem now though is that potential retiree has been practicing how to make earned income for the past 40 years and that is the only thing he/she knows how to do. And since he is now $800,000 short to retire he has three choices.

1. Cut his lifestyle for the last years of his life
2. Continue to do what he has been doing the past 40 years, work for earned income
3. Learn an entire new skill set and take control of his investments and learn how to create passive income.

Unfortunately at this age, most people aren’t willing to even consider number three as an option so they resort to 1 or 2, neither of which is very appealing.

4. The Alternative
After meeting with financial planners and listening to their options I’ve come to the conclusion that the plan I first created after reading Rich Dad Poor Dad, when I was in my young 20′s is still the best plan for me and my “new, soon to be” family.

I realize this plan isn’t for everybody, but for me, it’s the only one I have confidence in because I am able to influence the results and am 100% responsible for how it goes.

It’s a simple plan, but it takes hard work. The exciting news is that the harder you work upfront, the less work you have to do on the back end and the more money you make.

Like Robert Kiyosaki says, acquire income producing assets.

Specifically I acquire assets that:

1. I control/influence
2. Are tax friendly – Allow me to make money and pay zero taxes or very little taxes (less than 10%)
3. Provide steady cashflow and capital gains appreciation
4. Allow me to use leverage ( I don’t use my own money)
5. Protect principal (allow me to recoup my initial investment in 12 months, if I use my own money)

The truth is at the end of the day, risk is always a part of any financial plan…nothing is guaranteed.

The question is which financial plan makes the most sense for you and will help you achieve your desired goals?

I believe I am able to reduce my risk by increasing the influence I have over my investments. In addition the more I educate myself, the more investing experience I get, I further reduce my risk. Not only do I further reduce my risk, but I also increase my financial returns.

This makes sense for me.

This also requires courage, especially at the beginning.

When I read Rich Dad Poor Dad at the age of 20, I learned a new way to create wealth and make money but it is one thing to know how to do something and to actually do it.

When I purchased my first piece of real estate 7 years ago at the age of 22, I got in the game. For the past 7 years I have continued to educate myself in the “virtual classroom” by attending seminars, reading books, etc as well as getting real world experience by actually doing what I’d read.

Each year I develop skill sets that enable me to increase my income producing assets, make more money, pay less in taxes and have the time to do the things I enjoy most with the people I love.

Stay tuned because in my next post I will be sharing in detail how my real estate assets are able to achieve the results I mentioned above.

Join the conversation and let us know what your plan is by leaving a comment below.

 

I remember attending my first real estate seminar and having that “aha” moment when I was able to understand how I could actually achieve financial freedom through real estate. At that time I was a broke college student with a negative networth and yet I was so excited and lit up to start investing in real estate.

aha titleMy passion for financial education has only increased, not only for myself as a student, but also as an educator & coach.

I started teaching courses on how to invest in real estate just a few months

after I purchased my first investment property.

Of course, I could only teach someone how to buy their first investment property as that was all I had done at that point.


I loved teaching that “Real Estate 101″ weekend course.


It was so fulfilling to see the students go out and take action and make the leap and become real estate investors.


And it was also really frustrating to see the other students, who had access to the same information not take any action.


I decided to reach out to the non action takers and ask why they didn’t take action.


I got a variety of responses but basically it boiled down to fear…fear of making a mistake, fear of losing money.


To
overcome this fear some students asked me to work with them 1 on 1, hold their hand and walk them through their first deal.

This was the birth of my initial real estate coaching program.


Out of all of the content and programs I have created, the
1 on 1 coaching program has always been my favorite.

I love being able to work intimately with other like minded people who have a strong commitment and desire for financial freedom.


Being able to work with individuals, one on one, I get to see them overcome obstacles they once thought were insurmountable. I get to witness them taking intentional action that is in alignment with
their dreams. I get to see them face their fears head on and have the courage to move forward even when they want to give up. I get to watch them transform and become the person they want to be, that produces the financial results they are looking for.

Being a catalyst for this process really is a privilege and is one of the things I am most grateful for
in my life.

Next week I will be releasing a 4 part training series designed for you to get the year started off right so that you can achieve your real estate goals in 2013.


This training series also gives you a glimpse into The REI Accelerator, which is my 1 on 1 coaching program.


At the end of the 4 part training series, for those of you that are interested in working 1 on 1 with me there will be an opportunity to fill out an application for the REI Accelerator.


And for those that are not interested, you
will still get tremendous value from the free 4 part training series.

If you haven’t signed up for our newsletter/mailing list yet make sure you do, so you receive the free training next week.  


A big mistake investors make is that they get so caught up with the newest and latest strategies that they run in too many directions and lose focus. Strategies are important but in order to succeed, your strategies must be aligned with your Investment Principle.

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Principle is defined as a fundamental law or truth from which others are derived. In order to build a stable foundation and stay out of trouble it’s important that you create an investment principle that you follow. Creating an investment principle helps you focus and follow a specific path towards success.

For example, my investment principle from day one has been: Invest In Cashflow. Sticking to my investment principle helps me identify which deals to look at further and which ones to ignore. If a deal will not produce positive cashflow I won’t even waste my time and energy looking at it because it isn’t aligned with my investment principle.

When I first started investing , I was living in NYC and because I was clear on my investment principle I knew I was not going to be investing in NYC because prices were very high compared to rents to produce the positive cashflow. I then started looking into other markets where I could find income producing properties. It is because of this investment principle that I survived the real estate crash when many so called real estate investors went bankrupt. This investment principle has allowed me to create passive income and wealth in both an up and a down market.

Strategy is defined as a plan, method or series of maneuvers for obtaining a specific goal. Once you are clear on your investment principle you now can choose strategies that are aligned with your principle. Although I am primarily a buy and hold investor, the advantage to investing in cashflow is that it gives you numerous exit strategies to choose from.

Buy & Hold – My primary purpose for investing in real estate is to create wealth and passive income and investing in cashflow real estate allows me to achieve these goals.

Wholesaling – This should be a last resort because although it is risk free and a quicker way to make money, it’s typically considered earned income so you are taxed at your ordinary tax rate and subject to self employment tax. But, income producing assets are always in demand, even if the property needs some renovations to get it into rent-able condition. What makes wholesaling so appealing is that you can make some nice cash with putting a small deposit down and not putting that money at risk due to the contingencies you include in the agreement of sale. As a result, you can wholesale a property to another investor to make some quick cash, but make sure you are aware of your tax bill on the transaction.

Flipping – Similarly, investors are always looking for income producing assets. Since I have taken the time to acquire and renovate the property and have filled it with tenants, the property cashflows from the moment the end buyer purchases the property. Because I have made this investment turn key for the end buyer they are willing to pay retail price because of the passive income and tax benefits they receive from this property. If you chose to flip you want to make sure that you are holding the property for over a year so it is considered long term capital gains or you may want to look into doing a 1031 exchange to defer paying taxes now. In addition, if flipping becomes your full time job, this income can then be taxed at your ordinary tax rate and be subject to self employment tax.

There is no right or wrong answer for the investment principle that you chose. I personally chose investing in cashflow because focusing on cashflow allows me the flexibility to invest for not only cashflow but also for capital gains.

Investors are typically classified by either the income they make and/or their net worth. While this is certainly important criteria to measure, we’ve found that your level of experience is an equally important criteria. Without the proper knowledge and experience, “a fool and his money are soon parted”.

Many investors jump into real estate investing without first figuring out what level investor they are and identifying their immediate needs and goals. Similarly many investors, when it comes to real estate, need a combination of time AND money.

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Financial

Level 1

Level one investors have few or little assets, do not have enough income to live off of and have no money set aside to invest in real estate and are looking for ways to produce more income.

Level 2

Level two investors produce a sufficient income to live off and have a small amount of money set aside to invest in real estate and are concerned with producing more income as well as growing their “nest egg” substantially.

Level 3

Level three investors have a lot of earned income and/or substantial investable assets and are concerned with generating passive income, creating wealth and reducing their tax liability.

Level 4

Level four investors have enough passive income to cover their expenses.

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Experience

Level 1

Level one investors have never purchased a piece of real estate before

Level 2

Level two investors have purchased real estate before but they have been one off deals.

Level 3

Level three investors consider themselves in the real estate business and are actively doing deals.

Level 4

The level four investors’ primary business is real estate. They are actively doing deals each year and their primary income is derived from this business.

Identifying what level investor you are in terms of Financial & Experience is important because it lets you know where you are currently at and also sheds some light on your immediate needs that will help you achieve your longer term goals.

Please share with us below what level investor you are in terms of Financial & Experience and let us know some actions you are taking to get to the next level.

There are many different ways to invest in real estate and many reasons why individuals choose to invest in real estate.

You can often tell why an investor chooses to invest in real estate by how he invests and the assets he acquires.

In this post I’m going to share with you our philosophy on investing in real estate and specifically why we invest in real estate the way we do.

There are 6 primary reasons why we invest this way and more importantly it’s the synergy of these 6 reasons that make it an extraordinary investment.

Why We Invest In Real Estate
1. Control – we can directly improve the value of our investment
2. Demographics – we provide a solution to a problem
3. Tax Benefits – we make money and pay zero taxes or very little taxes (less than 5%)
4. Cashflow & Appreciation – we receive steady cashflow and capital gains appreciation
5. Leverage – we use leverage (the bank will give us 7 or 8 dollars for every 10 we need)
6. Infinite Wealth – we  protect our principal and recoup our initial investment in 12-36 months

Control
We invest in distressed real estate assets where we control the asset. With control ,we don’t have to rely on outside sources to increase the value of the asset. We are able to directly add value by making improvements to the property which enable us to increase rent rolls and maximize the value of the asset.

Demographics
We only invest in real estate assets where demographics reveal a problem that we are able to provide solutions for. For example, one favorable demographic we have been providing solutions for is the Student Housing demographic. Colleges and universities can only house 30% of its current enrollment and over the next 10 years 80 million echo boomers will be turning the age of 18 and ready to enter college. Clearly the demographics show a current need for housing college students and that it will remain a need for many years to come.

Tax Benefits
One of the best tax advantages of owning real estate is the phantom depreciation you are able to write off each year. On paper, you get to depreciate a portion of the building each year, as an expense and reduce your taxable income. In our case where we are acquiring properties that actually produce positive cashflow and make money, we are able to receive all or a portion of that money tax free, thanks to the phantom expense of depreciation.

Cashflow & Appreciation
Newly renovated buildings and effective property management combined with favorable demographics is what allows for both steady cashflow and appreciation. By renovating the properties and bringing them up to their most efficient use we are able to increase the cashflow as well as create appreciation, as opposed to hoping for appreciation.

Leverage
The beautiful things about real estate is that banks like lending to real estate investments and typically lend 70-75% of the value of the asset. Leverage allows us to maximize our cash on cash returns while reaping 100% of the depreciation expenses and appreciation benefits.

Infinite Wealth
We structure our investment to produce the results of the Infinite Wealth Triangle. The end goal of our real estate investments is to receive an infinite return on our money. We acquire the asset, improve the building, raise the rents, increase the value and then re-finance and recoup the initial cash investment. Once this cycle is complete the end result of the investment looks like this.
1. 20-30% Equity in the deal
2. Cashflow coming in every month
3. All partner capital returned = None of our capital in the deal = infinite return of investment

Infinite Wealth Process

November 29, 2012 — Leave a comment

The Infinite Wealth ProcessTM was designed to give you greater clarity & confidence when it comes to your wealth and your money. It’s a process that allows you to be in control, create extraordinary returns with your money and time and use the tax laws to keep as much of your money as possible.

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The Infinite Wealth ProcessTM has 4 phases:

  • Asset Criteria – Infinite Wealth TriangleTM
  • Asset Acquisition
  • Value Maximizer
  • Re-Finance

Here is how we have specifically applied the Infinite Wealth ProcessTM to real estate:

Asset Criteria – We start with the end in mind, making sure that our asset will produce the results mentioned in the Infinite Wealth Triangle. For our real estate deals we want to make sure that the property will create cashflow and that we have a minimum of 25% equity in the deal. We use the Investing In Cashflow Tool to help us analyze our real estate deals to determine whether or not the deal fits within the Infinite Wealth Triangle.

Asset Acquisition – During this phase we deal with everything that has to do with acquiring the asset. This will include everything from simply finding a deal, to putting it under agreement, doing our due diligence, arranging financing all the way through closing on the piece of property.

Value Maximizer – The purpose of this phase is to do what we can to maximize the value of the asset. Often times with real estate we are able to maximize the value of the asset by increasing income. This can include renovating the building and putting in tenants at market rent. It can also include adding coin laundry facilities or other amenities that will enable you to increase your Net Operating Income.

Re-Finance – Once you have maximized the value of the building, you should have created enough additional value that you can re-finance and receive your initial capital contribution back.
Now you own the asset, are receiving cashflow every month, have equity in the asset and don’t have any of your own money in the deal.

As if that weren’t good enough one of the things I love about real estate are the tax benefits you receive.  When you combine the Infinite Wealth ProcessTM  with real estate, we are able to receive tax free money every year, thanks depreciation.  I will get more into the tax benefits of real estate in a later post.

In the meantime, would love to hear how/why the Infinite Wealth ProcessTM would be helpful or not helpful to you in your current endeavors.   Leave your comments below.  Feel free to share your struggles as well as your successes.

The Infinite Wealth Triangle

November 27, 2012 — 3 Comments

Have you ever chose between options, when you really wanted all of the options? Unfortunately many people have done this with their investments and/or businesses.

wealthtriangle

You may have been evaluating a business or investment opportunity or you may have been talking with a financial advisor when you got caught in the dreadful either/or conversation that sounds something like this:

  • Are you interested in Wealth Preservation or Wealth Creation?
  • Are you interested in protecting your money or receiving a higher return on your money?
  • Umm…how about ALL of the above?

If you could be, do and have anything what would your life look like? If you could live the life of your dreams on a daily basis, would you? How good are you willing to have it?

I believe the greatest gift we have in the world is freedom. And that is why I chose to be an investor and entrepreneur. When I was introduced to real estate investing & entrepreneurship I saw a clear path of how I could be 100% responsible for my life and create the life of my dreams.

freedom

Initially I saw how I could make a lot of money doing it. After having early success and selling my first two businesses in college, I realized two things. I was working really hard, making money and the only way that money would keep coming in, was if I continued to work. If I stopped working, the money would stop shortly thereafter.

Secondly, I realized there was more to life than making money. I remember at the age of 22, when I sold my first company, holding the check in my hand and having this empty feeling in my stomach and thought to myself, “Is this all there is?” Don’t get me wrong, I like making money, but after making money I realized that making money by itself wasn’t enough for me. I also realized that there are millions of ways to make money. So if there are so many ways to make money why don’t I choose a way to make money that allows me to have it all… that allows me to make passive income, create wealth, spend my time as I wish and make a difference. I call this living your Ideal Lifestyle.

The following illustrates the process for living your ideal lifestyle. And like anything else in life, regardless of what you are building, the structure is only going to be as strong as its foundation.

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The Foundation

CharacterDictionary.com defines character as the qualities of honesty, courage, or the like; integrity. Perhaps the importance of character is best illustrated, where it is missing. Lack of character has lead to both political and financial corruption and has lead to public distrust of some of our largest businesses and highest offices in government. As a result, perhaps more than any other time in our history, character is more important than ever. In my experience, I have found character to be the most important thing in choosing the people that I work with. Furthermore, I’ve found that character is not stated or spoken.

Character is illustrated by actions. I’ve found that the greatest opportunity to display your character is when your back is against the wall, when things aren’t going the way you would want them to, when you are facing what seems like insurmountable obstacles. Do you give in to the pressure and create a quick fix solution that compromises your character or do you honor your character, make some tough decisions and create a long term sustainable solution?

Mindset – One of the greatest books ever written about a successful mindset is the classic Think and Grow Rich by Napoleon Hill. In his book, Hill studies 100 millionaires in the early 1900’s including Rockefeller, Carnegie and many more and shares the principles and thinking these men lived by. Almost 100 years later, these principles remain true and remind us that at the core of our success lies a successful and empowering mindset. Having a winning and successful mindset is required to live your ideal lifestyle. Your own personal growth is critical to developing a successful mindset. Living your ideal lifestyle is a journey and therefore Constant and Never ending Improvement (CANI) is a must. In fact, I would argue that your business can only be successful to the extent you are able to grow and develop personally.

Financial Literacy – The first two foundational pillars have to do with what’s going on with you internally. This final pillar gives you the opportunity to create a strong financial foundation, to build a financial empire as big or as small as you would like. Having a solid understanding of financial literacy will empower you in making important financial decisions. While I could talk for days on this topic, there are 4 Financial Literacy lessons that are critical for building a solid foundation.

  • Assets vs. Liabilities

One of the greatest things about being an entrepreneur and building your own business is that you have an opportunity to have it all.

Entrepreneurship allows you to make money and make a difference.

You get to build something bigger than yourself and have the business be a self expression for who you are in the world.

While we will discuss many facets of business, we are most passionate about the Entrepreneurial Mindset and in particular the essence of an entrepreneur.

Here is our purpose and self expression:

We create fulfilling, profitable businesses and investments that allow us to live our ideal lifestyle and make a lasting impact on the world.  We value freedom above all else.  We’re not interested in quick fixes.  We’re focused on creating sustainable solutions that allow us to have it all. We stay true to ourselves and often go against conventional norms.  We face our fears daily, work hard and efficiently.  We are action takers.  We are constantly growing, learning, living outside our comfort zone, taking our game and life to the next level.  We don’t make excuses.  We make the world a better place.  We don’t enable, we empower others.  We take 100% responsibility for our life.  We operate with integrity and keep it real.  We transform old paradigms and make the impossible, possible.

Cashflow 101

September 20, 2012 — 3 Comments

According to dictionary.com cashflow is defined as the sum of the after-tax profit of a business plus depreciation and other noncash charges: used as an indication of internal funds available for stock dividends, purchase of buildings and equipment, etc.

Put simply cashflow is literally the actual cash that flows to you.

Cashflow can come from a variety of sources and the categories of income we are going to look at are

Earned Income
Portfolio/Capital Gains Income
Passive Income

In particular our focus is cashflow derived from Passive Income.  Our focus is going to be on passive income because that is the least taxable income (meaning you get to keep more of the money you make) and we subscribe to Rich Dad’s definition of Financial Freedom…when your passive income is greater than your expenses.