One of the great debates that I hear constantly among my investor friends and colleagues is the argument of stocks vs real estate. I am going to use a very realistic example below to show why based on historical averages and pure return numbers, real estate is the clear cut winner. Now, I'm not saying stocks are bad and that you shouldn't invest in them. They have the advantage of being very liquid, easy to invest in, and a good way to diversify. What I am saying is that dollar for dollar, real estate is going to provide a quicker path to wealth than the stock market. The number one reason that I can say this with confidence can be summed up in one word - LEVERAGE. Let's take a look at what I mean.

For this example let's assume that I have $100,000 to invest and a 15 year time horizon. A March 2021 article in the Motley Fool shows the historical returns of the S&P 500 at 9% and the average US home appreciation rate since 1940 has been 5.5%. Wait a minute, didn't I say that real estate provided better returns? This is where that leverage part comes in.

**Stocks:**

**Real Estate:******Wow! Our $100,000 investment has turned into an asset that is worth almost $893,000! The home is fully paid off so we could sell and take the cash or allow it to continue appreciating plus:

Sure, this is a bit of a simplified example but I did use very realistic numbers that reflect long term historical averages. There are probably arguments over expenses, fees, and other small details. If the numbers were remotely close, I would say - "let's dig deeper" and see if the advantage switches. But this isn't even close so it would take a lot of "ifs, buts, thens" to turn this around. Plus the cherry on top of collecting passive cash flows from rents once the asset is paid off makes real estate the no brainer choice for me.

]]>For this example let's assume that I have $100,000 to invest and a 15 year time horizon. A March 2021 article in the Motley Fool shows the historical returns of the S&P 500 at 9% and the average US home appreciation rate since 1940 has been 5.5%. Wait a minute, didn't I say that real estate provided better returns? This is where that leverage part comes in.

- Purchase $100,000 in stocks
- 9% compounded return over 15 years =
**$364,248**

- Purchase $400,000 of real estate - remember leverage, we can put down 25% and borrow the rest on a 15 year mortgage that will be paid off from collected rents (as well as all other expenses)
- 5.5% compounded return over 15 years =
**$892,990**

- Receive
**annual cash flows of $40,000+**(assuming very conservative rents less expenses) - Receive tax benefits of owning rental real estate

Sure, this is a bit of a simplified example but I did use very realistic numbers that reflect long term historical averages. There are probably arguments over expenses, fees, and other small details. If the numbers were remotely close, I would say - "let's dig deeper" and see if the advantage switches. But this isn't even close so it would take a lot of "ifs, buts, thens" to turn this around. Plus the cherry on top of collecting passive cash flows from rents once the asset is paid off makes real estate the no brainer choice for me.

Today I would like to dispel what I think is one of the greatest myths in real estate investing. There will no doubt be many who disagree with me and will say that I am an idiot, but bear with me until you see the numbers. Of course, people have different goals and reasons for investing so some of those that disagree me will be correct for their specific situation.

The great myth that I am referring to is: "Invest for cash flow not appreciation. Any appreciation is just gravy on top of the cash flow." This statement has been worded in many different ways but in some form or another is drilled into beginning investors by the gurus as gospel. I truly believed in this for years until really delving into the financial returns of my investments and realizing that appreciation was the largest driver in BUILDING WEALTH. Monthly cash flows are great for creating passive income and allowing you to retire from your W2 job but if you have a longer view of things and are trying to build true wealth, I would say invest for appreciation and the cash flows are the gravy on top. Another way of looking at is; cash flows are how you hold on to the property but appreciation is how you make your money.

Let's look at a quick example to illustrate why I believe this to be true. Two markets that I have some experience with are Memphis, TN and Denver, CO. Memphis is known for it's affordable, high cash flow properties. Denver is known for it's high prices and difficulty cash flowing.

**Memphis:****Denver**

This is a very simplified model and does not include things such as rent increases, depreciation and many other factors but the point is that it takes a lot of those $230/month cash flows from the Memphis property to make up for the huge difference in appreciation of $316,665.

Personally, I would still never invest in a negative cash flow property but am willing to take a lower cash on cash return since my time horizon is longer and I feel confident in choosing markets that will continue to outpace the national average of home price appreciation. If you need the money now, the higher cash flows are your best bet, if you have a longer time horizon to build wealth, look at the long term market appreciation.

]]>The great myth that I am referring to is: "Invest for cash flow not appreciation. Any appreciation is just gravy on top of the cash flow." This statement has been worded in many different ways but in some form or another is drilled into beginning investors by the gurus as gospel. I truly believed in this for years until really delving into the financial returns of my investments and realizing that appreciation was the largest driver in BUILDING WEALTH. Monthly cash flows are great for creating passive income and allowing you to retire from your W2 job but if you have a longer view of things and are trying to build true wealth, I would say invest for appreciation and the cash flows are the gravy on top. Another way of looking at is; cash flows are how you hold on to the property but appreciation is how you make your money.

Let's look at a quick example to illustrate why I believe this to be true. Two markets that I have some experience with are Memphis, TN and Denver, CO. Memphis is known for it's affordable, high cash flow properties. Denver is known for it's high prices and difficulty cash flowing.

- Property purchased for $72,000 with a 20% down payment + closing costs, appraisal, etc. = $19,000 total investment.
- Monthly rent of $785 less PITI, management, vacancy, reserves, etc. = $230/month or $2760/year cash flow
- Cash on Cash return = $2760 / $19,000 =
**14.5%**

- Total home price appreciation in Memphis since 2000 is reported at 38.57%.
- If that $72,000 home was purchased in the year 2000 it would now be worth $99,360 which is a gain of $27,360. Based on our $19,000 investment that is a return of
**144%**.

- Cash flows = $2760*20 years=$55,200
- Appreciation = $27,360
- Total gain = $82,560 / $19,000 =
**434% return on your invested capital**

- Property purchased for $250,000 with a 20% down payment + closing costs, appraisal, etc. = $65,000 total investment
- Monthly rent of $1800 less PITI, management, vacancy, reserves, etc. = $216/month or $2592/year cash flow
- Cash on Cash return = $2592 / $65,000 =
**4%**

- Total home price appreciation in Denver since 2000 is reported at 137.61%
- If that $250,000 home was purchased in the year 2000 it would now be worth $594,025 which is a gain of $344,025. Based on our investment of $65,000 that is a return of
**529%**.

- Cash flows = $2592*20 years = $51,840
- Appreciation = $344,025
- Total gain = $395,865 / $65,000 =
**609% return on your invested capital**

This is a very simplified model and does not include things such as rent increases, depreciation and many other factors but the point is that it takes a lot of those $230/month cash flows from the Memphis property to make up for the huge difference in appreciation of $316,665.

Personally, I would still never invest in a negative cash flow property but am willing to take a lower cash on cash return since my time horizon is longer and I feel confident in choosing markets that will continue to outpace the national average of home price appreciation. If you need the money now, the higher cash flows are your best bet, if you have a longer time horizon to build wealth, look at the long term market appreciation.

In Part 1 of What Are All Those Acronyms? we went over six very important financial measures used to analyze the performance of a real estate investment. This week we will go over six more acronyms and their formulas, including the one that I think is the most important measure of the bunch. Understanding these terms and what they mean makes the difference between a newbie investor and someone that is able to truly look at a deal for it is worth.

Net Income/Cost of Investment

or

Investment Gain/Cost of Investment

Net Income/Equity

Loan Amount/Value of Property

Net Operating Income/Total Debt Service

Total Operating Expenses/Gross Revenue

(Annual Cash Flow + Annual Asset Appreciation + Annual Paydown of Debt)/Initial Cash Invested

All of these calculations will give you a slightly different look at an investment's performance or help you in underwriting the deal to see how it is expected to perform. It isn't really necessary to memorize the formula for each one but at least have a spread sheet that will calculate the metrics based on your inputs of the variables. This allows you to compare different investments and ensure that you are on track to meeting your goals. After you analyze enough deals, you will get good at "ballparking" some of the important calculations to see if it is worth your time to delve deeper into the deal.

If you have been looking at investment properties, you have probably seen a whole list of letters such as NOI, IRR, CoC, etc. listed in the marketing packages. These are all acronyms for various economic return variables that are used to compare investments. If you have gotten to my blog, you probably know the meaning of at least some of these, but here is a quick list and explanations for the most commonly used terms. We're going to split this into a two part series to keep our brains from melting due to mathematical overload.

**GOI** -** Gross Operating Income** = GRM is simply how much income the investment brings before any expenses or debt service are subtracted.

Potential Rental Income

__ - Vacancy & Credit Loss__

=Effective Rental Income

__+ Other Income__

** **__= Gross Operating Income__

**NOI - Net Operating Income** = NOI is the Gross Operating Income minus all of the operating expenses. NOI does not take into account debt service so this number is before your mortgage payment is made. Operating expenses are all of the expenses (except debt service) that are incurred to operate the properties. These include; insurance, taxes, utilities, repairs & maintenance, management, etc.

Gross Operating Income

__- Operating Expenses__

**= Net Operating Income**

**CCR (or CoC) - Cash on Cash Return** = CCR is a measurement of the investments performance or the yield on the cash that you have invested. CCR is a relatively good metric for comparing investments across different asset classes, i.e. stocks compared to real estate. It is the percentage of pre-tax cash that you earn on the amount of cash you invested.

**CCR** = Annual Pre-tax Cash Flow/Total Cash Invested

**IRR - Internal Rate of Return** = IRR is another measurement of the investments performance. IRR is often the gold standard of comparison between different investments because it takes in to account the initial investment costs, cash flows, and sale proceeds. So instead of just looking at the monthly cash flows you get a better measurement of the overall profitability or loss. A higher IRR is better. The IRR calculation is complicated enough that it is best left to a financial calculator or computer program where you input the data and it spits out the IRR number.

**Cap Rate - Capitalization Rate** = Cap Rate is probably the most used analysis term in real estate. Personally, I think cap rates are a little over-rated because they don't factor in items such as equity growth through appreciation and paydown of the loan, but I'll save that argument for another day. The cap rate is simply an estimate on your returns used to compare different properties or markets. As cap rates go up, the return on your investment goes down (when you are the seller). As a buyer, you want a higher cap rate.

**Cap Rate** = NOI/Property Value or Cost

**GRM - Gross Rent Multiplier** = The easiest way that I have found to explain GRM is that it is the number of years of gross income that it would take to pay for the property in full. So if a property is listed for $500,000 and the annual gross income is $100,000 the GRM would be 5. There may be a few caveats to that definition but here is the formula:

**GRM**= Market Value/Annual Gross Income

It is very important to understand these numbers and how to calculate them. Even if you don't start out memorizing all of the formulas, write them down somewhere or create a spreadsheet with the formulas. Knowing the metrics is the key to successful investing and without a working knowledge of these comparison tools, you are blindly searching for a good property.

Next week we'll go over six more important calculations and you'll be on your way to becoming a underwriting master mind!

]]>Potential Rental Income

=Effective Rental Income

Gross Operating Income

It is very important to understand these numbers and how to calculate them. Even if you don't start out memorizing all of the formulas, write them down somewhere or create a spreadsheet with the formulas. Knowing the metrics is the key to successful investing and without a working knowledge of these comparison tools, you are blindly searching for a good property.

Next week we'll go over six more important calculations and you'll be on your way to becoming a underwriting master mind!

I think that most people will agree; losing hard earned money in a bad investment is a very painful experience. There is a strong stigma that goes along with coming out on the wrong side of the equation so we tend to take it very personally and do everything possible to avoid a negative outcome. Warren Buffett is quoted as saying "There are only two rules to investing: #1 Don't lose money; #2 Never forget rule #1. While I absolutely agree with the principal that losing money is not an outcome to strive for and you should take extraordinary efforts to MAKE money, I think that is worth reconsidering our reaction to losing money. If you are in the investing game long enough, you are bound to rack up some war stories of getting thumped and facing some financial setbacks. The big difference between mega-successful investors and those that are flatlining along is how they react to these losses and continue to move forward. Here are my recommendations on how to pick yourself up and actually improve yourself after suffering an unexpected loss.

]]>**Take 100% full responsibilty for the outcome.**You must start by admitting that what ever happened, you had a hand in determining the result. Got screwed by a bad contractor? How well did you vet them before hiring? Home prices take a downturn and you couldn't achieve your needed After Repair Value? How much cushion did you leave as a safety net on the purchase?**Understand what you could have done different.**Once you have accepted responsibilty, the next step is to look back and say; what could I have done that would have altered the outcome in a more positive way? It is easy to blame others and say that it was out of your hands but a true winner will dig deep enough to find where they went wrong.**Get over it!**Give yourself a reasonable amount of time to scream, rant, and kick yourself but then make a focused decision to**Document a process, system, or check/balance**that will prevent the exact same mistake from happening again. Making a mistake and losing money is a tough blow but probably not the end of the world. Keep making the same mistake over and over and you may have some bigger issues.**Share your mistake with others**. If you have a good network, each person should be sharing their successes as well as their mistakes. Maybe your mistake and learning moment can save your buddy from doing the same thing and his mistakes can save you some $$. There is power in sharing knowledge and learning from your network.

With all of that being said, here is the macrodata on the top 10 rent growth metro areas in 2020. This data comes from Zillow so take it with a grain of salt as the saying goes. I am happy to be operating in 3 of these top 10 markets and have definitely benefited from rising rents.

]]>

Now that we are finally getting some clarity into the political environment over the next 4 years, questions are arising about what the new administration and Congress will mean for real estate investors. There is a lot of talk about Joe Biden and the Democrat controlled Congress eliminating the 1031 Exchange for real estate investors. This got me thinking more about the 1031 Exchange process and how beneficial it actually is. This post will leave politics on the side and just focus on what a 1031 Exchange is and some of the requirements to transact the exchange.

**What is a 1031 Exchange? **

The most basic definition of a 1031 Exchange is the swap of one investment property for another investment property that allows capital gains taxes to be deferred.

**How does it work? **

To complete a 1031 Exchange an investor would engage the services of an agency that is authorized to handle the transaction. During a 1031 Exchange the investor decides to sell a property and use the proceeds to purchase another "like kind" investment property. The agency handling the transaction will manage the transfer of funds to ensure that the investor never takes possession of the money since that would nullify the tax deferral.

**What is the fine print? **

As with anything that allows for a tax reduction or deferral, there are some rules to follow. Here are a few high level requirements for a 1031 Exchange.** Definitely engage the help of a 1031 professional before trying to do this.**

**What are the timing requirements? **

There are some very specific timing requirements to legally transact a 1031 Exchange.

**What are the financial benefits of a 1031 Exchange?**

The financial benefits of a 1031 Exchange are quite astonishing! The current capital gains tax rate for most investors is going to be 15-20%. So in essence each time you exchange up you have 15-20% more money to invest that would have otherwise been paid to the IRS at the sale of your previous property.

**Example: **Assume that you have an investment property that you bought for $400,000 and you are selling for $500,000. In a normal transaction, you would pay $20,000 in taxes and have only $480,000 to invest in your new property. With a 1031 Exchange, you get to invest that full $500,000. Where it starts to really get good is when that new property appreciates. If your new property appreciates by 10% the 1031 exchanged property would be worth $550,000 while the normally exchanged property would only be worth $528,000. Do this a few times and the difference really starts to add up.

An extreme example of this technique is how George Soros used a similar tax advantage to reinvest investor fees in his fund rather than pay taxes at the time the income was earned. Had he paid the taxes when the income came in and only reinvested what was left, his original $18 million would have grown to**$2.4 billion**. Instead, that original $18 million has grown to approximately **$12 billion**!! I don't think anyone will scoff at earning an additional $9.5 billion.

**Will you ever have to pay taxes on these earnings?**

Yes, the 1031 Exchange is a tax deferral technique, not a tax elimination. Eventually, you will have to pay the piper and settle up with Uncle Sam. There is still a great advantage here because you are growing your net worth at a significanty increased rate. Even when you settle up, you should have way more money in your pocket. There are advanced estate planning techniques to step up the basis on these investments when passing on to heirs and thus minimize taxation but that is a whole separate topic.

**Conclusion**

You may have thoughts and beliefs on the appropriateness of these tax provisions and whether to utilize them or not. Whatever you decide is best for you, it is important to at least know what options are available and make the best possible decisions.

]]>The most basic definition of a 1031 Exchange is the swap of one investment property for another investment property that allows capital gains taxes to be deferred.

To complete a 1031 Exchange an investor would engage the services of an agency that is authorized to handle the transaction. During a 1031 Exchange the investor decides to sell a property and use the proceeds to purchase another "like kind" investment property. The agency handling the transaction will manage the transfer of funds to ensure that the investor never takes possession of the money since that would nullify the tax deferral.

As with anything that allows for a tax reduction or deferral, there are some rules to follow. Here are a few high level requirements for a 1031 Exchange.

- The properties involved in the exchange must be held for investment or business purposes. You can not do this on your personal residence or second home.
- The properties involved in the exchange must be considered of "like kind" by the IRS. This is a pretty broad definition. In most cases you could exchange things like a single family residence for an apartment complex, or a vacant lot for a commercial office building. Again check with your 1031 professional on this one.
- There is currently no limit on how many or how frequently you can perform a 1031 Exchange.

There are some very specific timing requirements to legally transact a 1031 Exchange.

- The 45 Day Rule - Within 45 days of the sale of your property, you must designate your replacement property to your 1031 intermediary. You can designate up to three properties as long as you purchase at least one of them. You also have the option of identifying more than three properties as long as their combined market value does not exceed 200% of the value of the property you sold.
- The 180 Day Rule - You must close on your replacement property within 180 days of selling the old one. This timing runs concurrent with the 45 Day Rule so you only have 135 days from the expiration of your identification timing deadline.

The financial benefits of a 1031 Exchange are quite astonishing! The current capital gains tax rate for most investors is going to be 15-20%. So in essence each time you exchange up you have 15-20% more money to invest that would have otherwise been paid to the IRS at the sale of your previous property.

An extreme example of this technique is how George Soros used a similar tax advantage to reinvest investor fees in his fund rather than pay taxes at the time the income was earned. Had he paid the taxes when the income came in and only reinvested what was left, his original $18 million would have grown to

Yes, the 1031 Exchange is a tax deferral technique, not a tax elimination. Eventually, you will have to pay the piper and settle up with Uncle Sam. There is still a great advantage here because you are growing your net worth at a significanty increased rate. Even when you settle up, you should have way more money in your pocket. There are advanced estate planning techniques to step up the basis on these investments when passing on to heirs and thus minimize taxation but that is a whole separate topic.

You may have thoughts and beliefs on the appropriateness of these tax provisions and whether to utilize them or not. Whatever you decide is best for you, it is important to at least know what options are available and make the best possible decisions.

I have gotten some positive feedback on recent posts about topics on mortgages and basic personal finance so would like to throw a few more posts out there keeping this theme. This week let's look at the difference between a 15 year mortgage and a 30 year mortgage. Most of us understand the basic difference being that a 15 year mortgage generally has a lower interest rate but higher payment due to the shorter amortization period (length of time to pay off). There is a lot of mixed advice out there regarding whether the 15 or 30 year mortgage is better. Some sources highlight the lower total interest cost of a 15 year mortgage and the quicker buildup of equity. Other sources say always take the 30 year mortgage for the lower payment and pay extra when you can.

As with most financial advice, there isn't a definitive right or wrong. Each individual's best path will be determined by their financial goals, risk tolerance, and personal situation. This analysis is merely a hypothetical scenario to see what the actual differential in costs would be to allow you better insight as to which choice might be right for you.

In this scenario, we'll use realistic numbers based on where the markets currently are in December 2020. Here's the scenario:

Jack and Jill are looking to purchase their first home and trying to make sense of the numbers. The house that fell in love with is a 3 bedroom / 2 bathroom home in the suburbs. They have saved up some money for a 20% down payment and are trying to choose a mortgage.

Home Price =**$319,000** (median national home price in 2020)

Down Payment (20%) =**$63,800**

Mortgage Amount (Home Price less Down Payment) =**$255,200**

They have been offered the following interest rates (for simplicity, I am not including points, fees, etc,)

30 year fixed mortgage = 2.9%

15 year fixed mortgage = 2.3%

Based on the loan amount, interest rate and loan period, their Principal and Interest payments would be:

**30 year mortgage payment = $1,062/month**

15 year mortgage payment = $1,678/month

At this point, the big question becomes; do Jack and Jill want to pay $616/month to get their home paid off in 15 years instead of 30 years. Obviously, this will depend on their goals and current financial ability to pay the higher payment. But what if they took the 30 year mortgage and paid the 15 year mortgage payment, applying the extra payment amount to reduce the principal but reserving the option to pay the lower payment if they ran into some difficulties or needed those funds for a better opportunity?

__30 year fixed rate loan with additional $616/month principal paid__

Loan Payoff = 190 months (15 years and 10 months)

Total Interest Paid = $63,280

__15 year fixed rate loan with $0 additional principal paid__

Loan Payoff = 180 months (15 years)

Total Interest Paid = $46,790

With the true numbers in front of them, Jack and Jill can now make an educated decision as to what is best for them. If they think that making the higher payment could become difficult in the future then the 30 year loan makes more sense even though the overall cost of doing so will be $16,500 over the life of the loan.

Another argument that I like to consider is the opportunity cost of the funds used to make the higher payment of the 15 year mortgage. Borrowing money at 2.9% (30 year loan) is so cheap that I don't mind paying the additional interest in order to keep $616 per month in my pocket to invest elsewhere. My other investments can easily earn a minimum of 8-10% per year (often much higher than this) so it makes sense to invest that extra money, pay the mortgage loan interest, and keep the profits cycling into new investments.

By having a well thought out financial plan and taking a little time to run through the calculations, decisions like choosing a mortgage term become much easier. Compare the outcomes of different variables to see how they align with your goals and you can jump with confidence.

Next week I will analyze the potential earnings of investing that $616/month savings and compare that to the additional interest cost of the 30 year mortgage.

]]>As with most financial advice, there isn't a definitive right or wrong. Each individual's best path will be determined by their financial goals, risk tolerance, and personal situation. This analysis is merely a hypothetical scenario to see what the actual differential in costs would be to allow you better insight as to which choice might be right for you.

In this scenario, we'll use realistic numbers based on where the markets currently are in December 2020. Here's the scenario:

Jack and Jill are looking to purchase their first home and trying to make sense of the numbers. The house that fell in love with is a 3 bedroom / 2 bathroom home in the suburbs. They have saved up some money for a 20% down payment and are trying to choose a mortgage.

Home Price =

Down Payment (20%) =

Mortgage Amount (Home Price less Down Payment) =

They have been offered the following interest rates (for simplicity, I am not including points, fees, etc,)

30 year fixed mortgage = 2.9%

15 year fixed mortgage = 2.3%

Based on the loan amount, interest rate and loan period, their Principal and Interest payments would be:

15 year mortgage payment = $1,678/month

Loan Payoff = 190 months (15 years and 10 months)

Total Interest Paid = $63,280

Loan Payoff = 180 months (15 years)

Total Interest Paid = $46,790

Another argument that I like to consider is the opportunity cost of the funds used to make the higher payment of the 15 year mortgage. Borrowing money at 2.9% (30 year loan) is so cheap that I don't mind paying the additional interest in order to keep $616 per month in my pocket to invest elsewhere. My other investments can easily earn a minimum of 8-10% per year (often much higher than this) so it makes sense to invest that extra money, pay the mortgage loan interest, and keep the profits cycling into new investments.

By having a well thought out financial plan and taking a little time to run through the calculations, decisions like choosing a mortgage term become much easier. Compare the outcomes of different variables to see how they align with your goals and you can jump with confidence.

Next week I will analyze the potential earnings of investing that $616/month savings and compare that to the additional interest cost of the 30 year mortgage.

As we near the end of a pretty crazy year, this is the time that a lot of us are evaluating our progress on existing goals and formulating new ones for 2021. How did you do on your personal goals? A lot has been written on how to formulate goals and why you need them but I want to talk about some tips for achieving those goals. Instead of just writing goals in a notebook and tucking them away in a drawer until next year, here are seven things that help me achieve my goals.

Try these seven tips and watch the progress towards your goals completion accelerate. Once you learn what works best and what doesn't work well for you, tweak your program to fit you. The important thing is to find what motivates you, keeps you on track, and makes accomplishing your goals enjoyable.

]]>

**Understand the true motivation behind your goal(s) and why they are important to you**. Dig deep here and keep peeling back layers until you get to a meaningful motivation behind the goal. "To make more money", or "get in better physical shape" are not meaningful enough to keep you on track when the going gets tough. What will you do with that extra money and why is that important to you? How does being in better physical shape equate to your overall quality of life and how will that make you feel?**Break your goals into manageable chunks.**Big goals can seem overwhelming and deter you from taking action to get started. Take that big goal and break it down into the tasks that you need to complete to get there. Tackle each task as it's own separate goal and watch the momentum build.**Schedule frequent and consistent check-ins.**Instead of waiting until the end of the year to pull that goals notebook out and realize that you are almost out of time, consistently gauge your progress. I have an ongoing calendar reminder in my phone that schedules a couple of hours every month to review goals progress and schedule activities for the upcoming month to drive me toward completing those goals.**Keep your goals visible as a daily reminder.**This tip goes hand-in-hand with scheduling frequent check-ins. If you can start out everyday with a reminder of what your goals are, you are exponentially more likely to achieve them. I have my goals stuck to the side of my printer at my desk so I am forced to stare at them everyday. Minds tend to focus on what is in front of them so make sure that your goals are always in the forefront.**Visualize success.**If you have no confidence that you can achieve your goals or can't visualize what that success will feel like, you aren't very likely to stay motivated. As part of my morning routine, I spend 3-4 minutes with my eyes closed, visualizing the joy of completing my goals and what that looks like. If you haven't read The Miracle Morning by Hal Elrod, I highly recommend it. Every successful person that I know, has some type of morning routine that gets them mentally and physically prepared to be their best that day. Find out what works for you.**Network with others who have similar goals.**One of the most powerful motivators is your peers. Don't try to take on your goals all by yourself and be solely responsible for your motivation. Find others that are trying to accomplish similar things and talk to them regularly. Push each other to new levels and help each other through the difficult times. Again, the successful people that I know are all part of a peer or mastermind group that is vested in the success of all members.**Celebrate successes.**Achieving lofty goals takes hard work, dedication, and sacrifices. If you don't take the time to celebrate successes along the way, your motivation will quickly wane. The goal achievement process should be fun and exciting, not boring and monotonous. I go as far as attaching pre-planned rewards to the completion of smaller goals leading up to my master goals.

Try these seven tips and watch the progress towards your goals completion accelerate. Once you learn what works best and what doesn't work well for you, tweak your program to fit you. The important thing is to find what motivates you, keeps you on track, and makes accomplishing your goals enjoyable.

With home mortgage interest rates still hovering slightly below 3%, it is a very attractive time to take advantage of these all time lows. It is pretty easy to get lured into the slick marketing and promises of a lower payment but how do you know if a refinance really makes sense for you? The math is pretty simple but you will have to make a few assumptions regarding how long you plan to keep the property and what combination of rate/points is best for you. Here's a quick rundown of the math to help you decide:

I generally use a breakeven analysis to decide if a refinance is justified and how many points to pay. Basically, I am determining how much lower my payment will be and how many months of that savings it will take to cover the upfront fees and expenses. The easiest way to show this is through a hypothetical example.

Let's assume that my current mortgage is a standard 30 year fixed mortgage at 4.5% interest. The original loan was for $150,000 but the remaining balance is exactly $100,000. This makes the current Principal and Interest (P&I) payment $760.

Now let's assume that we can refinance the remaining $100,000 loan balance into a new standard 30 year fixed mortgage at 3.0% but it will cost us 1 point (1% of loan amount to reduce interest rate) and $1500 in fees for paperwork and an appraisal. The new payment would be $422.

Now here's the math to determine the breakeven:

Current payment $760

Less new payment__ -$422__

Equals monthly savings $338

Now add up all of our loan costs:

1% point paid $1000

+ fees__$1500__

Equals loan cost $2500

For the final step, divide your loan cost by the monthly savings: $2500/$338 = 7.4

What this tells us is that in**7.4** months the savings of the new payment will cover the expenses of acquiring the new loan and we will be in the gravy after that. If you plan to keep the property for more than 8 months you should recognize a savings from refinancing. If you plan to sell before 8 months the loan expenses will exceed your savings and you will recognize a loss.

Another thing to consider is that a refinance resets the amortization table and extends the loan out another 30 years. This means that your payments for the first part of the loan will be primarily interest and you will be growing your equity in the property at a slower pace. To offset that you could refinance but continue with the $760 payment (or somewhere in between $422 and $760). Any additional payment over the $422 will go toward principal paydown and can significantly reduce the repayment term of the loan.

If you haven't already refinanced but are considering doing so, use this calculation to see if it is worthwhile for you.

]]>I generally use a breakeven analysis to decide if a refinance is justified and how many points to pay. Basically, I am determining how much lower my payment will be and how many months of that savings it will take to cover the upfront fees and expenses. The easiest way to show this is through a hypothetical example.

Let's assume that my current mortgage is a standard 30 year fixed mortgage at 4.5% interest. The original loan was for $150,000 but the remaining balance is exactly $100,000. This makes the current Principal and Interest (P&I) payment $760.

Now let's assume that we can refinance the remaining $100,000 loan balance into a new standard 30 year fixed mortgage at 3.0% but it will cost us 1 point (1% of loan amount to reduce interest rate) and $1500 in fees for paperwork and an appraisal. The new payment would be $422.

Now here's the math to determine the breakeven:

Current payment $760

Less new payment

Equals monthly savings $338

Now add up all of our loan costs:

1% point paid $1000

+ fees

For the final step, divide your loan cost by the monthly savings: $2500/$338 = 7.4

What this tells us is that in

Another thing to consider is that a refinance resets the amortization table and extends the loan out another 30 years. This means that your payments for the first part of the loan will be primarily interest and you will be growing your equity in the property at a slower pace. To offset that you could refinance but continue with the $760 payment (or somewhere in between $422 and $760). Any additional payment over the $422 will go toward principal paydown and can significantly reduce the repayment term of the loan.

If you haven't already refinanced but are considering doing so, use this calculation to see if it is worthwhile for you.