Archives For Cashflow

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.

invest

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.

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.

assets

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 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.

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 MillionMost 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 IncomeHow 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 InvestmentsI 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 AlternativeAfter 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 our 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’ve 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.

If you are interested in doing the same, leave a comment below and let me know why.

$100,000 Tax Free

August 12, 2012 — Leave a comment

In my last blog post, The Truth About Money and Freedom, I discussed the difference between Absolute Income and Relative Income.

I started with this because at the end of the day, I believe it all comes down to lifestyle which is really measured by your relative income, because your lifestyle is given by both your time and your money….one without the other doesn’t work.

The most efficient way to increase your relative income is by simply keeping more of the money you make.
This is really all that matters. Most people get caught up in how much money they make.
The only thing I care about is how much money I keep.

When I read Rich Dad Poor Dad at the age of 20, it was the first book that introduced me to 3 different types of incomes.

  • Earned Income

You ever notice people get funny over money? And often times are willing to do just about anything to get it.

When I hear personal incomes being thrown around I’m always left wondering “how did they make their money?”

And I don’t mean, were they a doctor, a teacher or some other profession.

I want to know if they had to work hard for their money (earned income) or did their money work for them (portfolio or passive income)?

In the cases of the rich and wealthy it usually is the latter.

But this post isn’t about earned, portfolio or passive income.

It’s about two other types of income that the Rich have mastered.

I have had the opportunity to learn from not only the Rich, but the greatest teacher of all…personal experience.

In college I planned to become an investment banker and make lots of money until one day an alumnus came back to share his experience as an investment banker. He had been working at the bank for 6 months, worked 18-20 hour days and his 3 year relationship had ended because he had no time for anything other than work.

Ever since that day I continued to want to make a lot of money but not at that cost. The reason I wanted to make a lot of money was to have the freedom to do what I wanted.

I”m assuming that you feel the same way. Yes you desire to make a lot of money, but that is a means to an end. The end is having the life you want, the time you want, the freedom to call your own shots in life.

In the example I mentioned above, an Investment Banking job was the hot job on wall street when I was in college because you could graduate college and make $100,000 your first year out of school. So in the business school, everyone wanted this job.

Everyone wanted this job because they measured money in terms of Absolute Income. Absolute Income only considers the amount of money you make, and gives no consideration to anything else.

At that time, the Investment Banking job was the highly coveted job because there was no other job where an undergraduate was going to earn $100,000 upon graduation.

What I’ve found though is that the wealthiest people in the world focus on relative income. The wealthy focus on relative income because relative income takes into consideration our most valuable commodity…our time.

Relative Income is measured by the income you make and the time you spend working.

So lets figure out how much the Investment Banker makes in Relative Income.

Lets use the lower end of the amount of hours he said he typically works -18 hour days.

18 hours x 5 days = 90 hours / week

$100,000 / 52 weeks = $1,923 / week

$1923 / 90 hours = $21.36 / hour.

$21.36 per hour. All of a sudden that $100,000 income doesn’t seem as attractive (and we haven’t even spoken about how earned income is taxed at the highest tax bracket yet, which means he keeps even less, but that is another blog post).

Let’s compare this to an Entrepreneurial Investor, who runs his own business, controls his own destiny, and understands the value of his or her time. This investor is willing to work hard upfront. This Entrepreneurial Investor understands he may make less money than his peers initially, but thats ok because the best is yet to come. This investor is willing to invest the time now, because he knows doing so will give him the needed leverage to make more and more money with less and less of his time as the years go on.

And his first year the Entrepreneurial Investor works hard, building his business and investments and also puts in 90 hour weeks but only makes $50,000 .

90 hours / week

$50,000 / 52 weeks = $961.53 / week

$961.53 / 90 hours = $10.68 / hour.

$10.68 per hour is certainly not much money. But the difference is how the Entrepreneurial Investor spends his time. The Entrepreneurial Investor spends his time learning about business, real estate, cashflow investments that will produce passive income. So the Entrepreneurial Investor is ok that he put in 90 hour weeks and only made $10.68 / hour his first year. Not only is he ok with this but he is super excited because he is acquiring assets and building teams and systems that will continue to pay him passive income and allow him to work less and less.

And each year the Entrepreneurial Investor spends his time acquiring assets and building teams and systems. He is working HARD. Yet he sees his friends and buddies working who may or may not be working as hard as him, but making more money than him, buying fancy cars and fancy houses.

The fruits of the Entrepreneurial Investor’s labor takes time to fully blossom to reap the sweet benefits.

And after a few years though, things begin to change. The Investment Banker is making even more money now. He got a 50% raise to $150,000. His relative income is now $32.05 / hour . But he is working harder than ever. After being at his job for 5 years he hates it. He is tired of the long hours. he wants to quit, but he finds himself in the same position he was before he took this position…needing money. He now has the fancy cars, the big house and if he quit his job, he wouldn’t have the money to continue to pay for this desired lifestyle.

The Entrepreneurial Investor on the other hand now is starting to see the benefits of his hard work. He too is making $150,000 / year but instead of working 90 hours per work he is working only 60. His relative income is now $48.07/hour (50% more than the investment banker).

Over the next 5 years, the Investment Banker decided to stick with his job because he needed the money and he got another raise and now makes double the amount of money he did 5 years ago, $300,000 which in relative income is $64.10 / hour.

The Entrepreneurial Investor has continued to acquire more assets by leveraging the systems, teams, businesses and investments he has been acquiring. The Entrepreneurial Investor now makes $500,000 and works just 30 hours / week which is $320 / hour in relative income.

So at the end of 10 years, the Entrepreneurial Investor not only has higher relative income but he also has higher absolute income.

So you may be wondering how the Entrepreneurial Investor ended up with more absolute income if his focus was on relative income. That’s because when you focus on relative income you have to focus on things other than yourself because the way to maximize your relative income is to leverage other people, other money, other systems etc.

And when you use leverage effectively, not only does your relative income increase, so does your absolute income.

The rich focus on relative income and that’s what has their absolute income skyrocket.

This is why they are rich.

I share this example with you because this has been my personal experience. Now I’m not at the point where I make $500,000 working 30 hours / week yet, but it’s coming.

When I first started this journey my friends and colleagues I graduated with were making a lot more money than me. Today, years later, in some cases I have exceeded what they currently make and others still make more than me.

But I have a more valuable commodity than money… Time. I have the time to do the things I love such as travel the world and spend time with the people I love most. And each year I continuously work on freeing up more and more of my time and acquiring assets that make me more and more money.

I’ve had lots of set backs and obstacles along the way and I will face more moving forward. I’ve lost money, spent lots of money and made some huge mistakes. And as we all know, we learn the most from our biggest mistakes. The difference is I keep going go and never stop no matter the mistake. The mistakes that I’ve made in the past and the new mistakes I will make in the future all have me be a more successful business person, investor and human being.

I realize this lifestyle isn’t for everyone and the process of how I got here certainly isn’t for everyone either. It’s been hard work. I’ve busted my ass and guess what… there is still a lot more to go.

I’ve realized that this game doesn’t end. There is always what’s next. No matter what you do, what you accomplish there is always something else. Me personally, I love that. That’s what gets me up in the morning. Knowing that there is something else, a new challenge, something else to learn. Getting up each morning excited to get the day started.

I can’t live my life any other way. For me this is the only way.

P.S. I’d love to hear your thoughts and feedback by posting a comment below