,The great Jim Rohn has books full of thought provoking quotes but one that has really stuck with me since hearing it on a random podcast probably a dozen years ago is when he asked his live audience: “How do you make $100 an hour?”. Jim then paused to let everyone mull this over; was the answer going to be some kind of funny joke, maybe a brilliant secret formula for making more money, or a step-by-step plan for improvement. Instead, he simply stated “Do $100 an hour work”. At first this seemed like a huge disappointment to me. Where was the big secret in that? What about the detailed blueprint for earning these kind of wages? But as the words sunk in, I began to realize the simplicity and magic of what Jim had just said. Why would anyone pay me $100 per hour if they could hire someone else to do the same thing for $20 an hour? How would I create income for my business equivalent to $100 per hour if I spent my days performing basic low level functions? As simple and obvious as Jim’s answer is, it is also complicated and requires some thought. What exactly is $100/hour work and how does one apply for some of that? Here is how I broke it down and came up with my interpretation of Jim’s meaning: The first step is to get over the $100/hour number. I feel that this is really just a number that sounds good, is easy to relate to, and makes the point clear. Some people may already make more than this and others may not be currently capable (or willing) of producing this type of income. Focus on the process and don’t get caught up on a specific number unless that number really is critical to making this work for you. Next, brainstorm a list of skills, interests, and abilities that you have. Put it all down as it comes to your mind, you can edit later. What items on this list are you best at? What can you do better than most people? What are you excited about learning and practicing to become the best? Now match this list to the things that need to get done in your business or to the position descriptions provided by your employer. What specific areas align that you can focus on to be the absolute best? What are the activities that generate the most revenue? Focus on these revenue generating activities and spend the majority of your time doing them. Again, this is pretty common sense and seems so simple, but how many of us know this and still get caught up in spending our days replying to meaningless emails or wasting time with remedial tasks? It is common to put off the bigger, more important tasks until you can get all of the little “loose ends” tied up. Well, reality check, - there is an avalanche of “loose ends” and small tasks just waiting to backfill the void as soon as you clean up the current mess. Next thing you know, days turn into weeks, weeks turn into months, and you just wasted a year keeping things clean but not making any forward progress. How do we get around this?
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Real estate investing has been something that has excited me since I was fresh out of college and trying to make my way in the corporate world. I remember walking the streets of Denver every morning before work, paying close attention to all of the houses for sale or rent in my neighborhood, knowing that someday I wanted to own my own rental properties. Finally, in 2005, with some fresh motivation from Robert Kiyosaki's Rich Dad, Poor Dad book, I purchased my first rental property. Along the way I have learned a ridiculous amount and continue to do so every day. Here are a few lessons that would have greatly accelerated my investment success if I had learned them earlier.
Do you ever feel like it is impossible to get everything done and there just aren't enough hours in the day. We are all leading busy lives, trying to balance multiple priorities and meet looming deadlines. Just thinking about all of the tasks and fitting them in our schedules causes an extreme amount of stress. This results in unsuccessful attempts at multi-tasking our way through varying projects. At the end of the day, we end up with a bunch of half finished projects and no relief from the growing stress. Here are a few tips that will help organize your work, increase your efficiency, and ultimately reduce stress. These are not brand new, untested techniques, but rather tips that have been successfully implemented by top performers for decades. The primary concept is to spend some time planning your week by grouping and prioritizing tasks, then blocking out chunks of dedicated time for them. An easy way to explain the time blocking technique is to take you through an example. You can modify the technique in ways that will help it work better for you but here is how I use it:
A few tips that will help make this painless and keep you using the time blocking technique:
Congratulations! You saved your pennies and finally purchased your first home, shelling out a $63,000 down payment on your new digs that set you back $315,000 (the 2019 median home price in the US). You're all moved in and ready to start writing those monthly checks for the mortgage payments. With current interest rates hovering around 4%, those checks will be for $1203.00 per month, not including taxes or insurance. The first few checks are pretty painless as the excitement of actually owning your own home still has you smiling, but by month six it finally sets in that you are going to be writing these checks for the next 30 years. At that point, you vow to make your life's mission to get this debt burden off your back and pay that mortgage off early. You start paying every extra dollar that you have toward the mortgage in order to save some of the $180,803 in interest that you would pay if the loan goes the full 30 year term.
Is this a smart decision? Standard financial wisdom states that being out of debt is a great thing and avoiding paying all of that interest sure would be nice. In general, both of these statements are very true but there are a few caveats to consider before getting too crazy with those additional payments toward the mortgage.
Get any group of people together for a discussion on whether it is better to buy or rent your home and you will be sure to have a passionate debate on both sides of the argument. There are a lot of points thrown around as "set in stone" rules that all should abide by, but the truth of the matter, as in most debates" is - it depends. That sounds like a cop-out answer so let's dive in a little deeper and see what it depends on and what factors sway the decision. How strong are you financially? We'll start here because if you can't pass the financial strength test, there is no reason to dive deeper and torture yourself over the decision to rent or buy. Continue renting as frugally as possible until you can answer Yes to all of these questions:
How long do you expect to live there? Determining how long you expect to stay in your home is one of the most crucial factors. There are significant costs to purchasing and selling real estate including closing costs, loan fees, and realtor fees. You can reasonably estimate 2-5% of the loan amount in closing costs and 6% of the sale price at disposition. In most cases (but not always) you won't recover these costs through appreciation in less than a couple of years unless you are "forcing appreciation" through sweat equity like remodeling the home. Remember that you are most likely going to pay capital gains taxes on any profits unless you live in the home for two of the five years previous to sale. One other caveat is that the housing market is somewhat unpredictable and selling may not be an easy or profitable endeavor if you have to sell quickly. Bottom line: unless you have a specific strategy- it is better to rent if you plan to move within a few years. What is the growth rate of prices and rents? There are a lot of data sites such as City-data.com that will give you historical growth rates of median home prices and rents but you will have to make some educated guessed on where things are heading. If you expect rents to rise significantly over your time horizon and can lock in a fixed rate mortgage that you are comfortable with, that may be your best bet. What is important to you? It will take more than a financial analysis to help you decide if you should buy or rent. What is important you? The freedom and flexibility to move that comes from renting, the long term stability and pride of home ownership? Do you enjoy fixing things yourself and maintaining a property as your own or would you rather have someone else be responsible for repairs and maintenance so that you can spend your time (and money) doing other things? Here are a few myths that I hear a lot but don't believe to be true:
As we close out the decade and move into the 2020s, it seems appropriate to talk a little about goals and the goal setting process. I am seeing lots of social media posts from people announcing their goals for the next year and swearing that "next year will be way better than this year". Some of their goals are well written and well intentioned while others seem to be vague statements about "making things better". Any goal setting efforts are noble and a great start to getting where you want to go, but it seems that by the end of January, most people have fallen back into their daily grind and abandoned the goals that were so important to them only 30 days ago. In my early twenties, I started taking the goal setting process seriously and actually wrote down goals that I wanted to accomplish over the next 25 years, dividing them into categories based on time horizons. I am proud to say that I have either accomplished or am well on the way to accomplishing every one of those goals. Of course, the completion of each goal has led to new, loftier goals that keep me reaching for new heights and levels of success (and failure). Here is a quick break down of the process that has worked for me. Each person may have to tweak and change until they find exactly what works for them but you have to start somewhere. Step #1 - Your Big Why I think that this is the most important step but find that it is the step that is most often skipped. This has to be done first. Without a Big Why, there is no purpose to your goals and no reason(s) strong enough to keep you on track if you start to wander. Your Big Why is the underlying reason that these goals are important to you, in other words - what are you ultimately trying to accomplish?. Opinions on this vary, but I think that it is OK to have a couple of Big Whys, just not more than two or three. Your Big Why has to be something very meaningful to you and something that doesn't change on a whim as circumstances change. "To make a million dollars" or "sell more widgets" are not strong enough or specific enough. I will give you a personal example: Most of the men in my ancestral lineage have not lived to very old ages due to various health complications. I most certainly don't live every day of my life in fear of the same thing happening to me, but do have a heightened awareness of our time limitations. Because of this, one of the Big Whys that drives me is: "To be financially free in order to spend my limited time traveling and riding bikes with my family and friends". Step #2 - Where Do You Want to Go? Now that you have the ultimate destination in the form of our Big Why, you can start to map out the path to get there. I start with the higher level, longer term goals that I know need to happen to achieve the Big Why. These may have time horizons of 5+ years and seem almost impossible at the time of inception, but don't worry, we're going to break these down into more manageable steps. Since these are the highest level goals, you should only have a few. It is fine to have a couple of goals in different categories but my experience has been that if you have more than five or six, you will get lost and not accomplish any of them. If your head is full of dozens of ideas that you think are goals, take a closer look and see if you can lump some of them together into one larger, overaching goal and then use those smaller tasks later in the process. Back to my personal example: One of my high level goals is to - "be financially independent through passive investment income". These don't always have to be financial or business goals. Another one of my high level goals is to - "ride my bike on six of the seven continents". Step #3 - How Do You You Get There? You have your high level goals and your reason for working toward them. The next step is going to be to break these lofty goals in to more manageable chunks and turn those into easier goals with shorter time horizons. I think of this as being like building a pyramid with the big goal as the peak of the pyramid and all of the steps to get there being the base. What are the two or three big steps that have to happen to achieve your ultimate goal? What are the two or three things that have to happen to make those steps happen? Work down the pyramid and assign each of those things a goal with a time horizon. Items closer to the top of the pyramid generally have longer time horizons while the very bottom of the pyramid are things that you will be working on now. Write these out as your 3 month goals, 6 month goals, 1 year goals, 3 year goals, whatever makes sense for you. The accomplishment of each of these goals should take you a step closer to your ultimate goal. Step #4 - Stay the Course You should have a nice road map in front of you now, listing your major goals and the smaller step goals you need to accomplish to them. The next step is to make sure that you keep these goals front and center in everything you do and continually work toward achievement. Here are a few tips that work for me to remain focused on my goals:
Everyone knows that real estate investing has been a favorite tool of the wealthy for protecting and growing their riches. Billionaire industrialist Andrew Carnegie once said, "Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” But what is it that makes real estate so special? With the ongoing bull market in stocks and all of the constant media hype from Wall Street, why would someone choose to invest their hard earned dollars in real estate these days? A closer look at a solid real estate investment reveals some pretty amazing revelations that your stock broker may not want you to know. The common mindset around real estate investing is - buy a property in an upcoming market for $X, hold it for a bit, and then sell for $Y, profiting from the spread between Y and X that was created by appreciation in real estate prices. While this often happens and results in sizable profits, it turns out that there is much more going on behind the scenes of a good real estate investment. Here are five ways that apartment complex on Shady Lane can make you rich, along with a hypothetical (but realistic example of returns): 1) Cash Flow -- In simple terms your cash flow is the difference between the income from the property (rent) and it's expenses (mortgage, taxes, insurance, etc.). This is the actual cash that you put in your pocket every month. 2) Leveraged Appreciation -- Appreciation is the one that most people think about when it comes to real estate investing. This is simply the long term growth in the value of a property as market prices go up. The real benefit in real estate investing is that you can own the asset and benefit from 100% of the appreciation with only a small down payment. The bank loans you the rest, but they don't participate or benefit from any of the appreciation. I'll show how this really juices up your returns in the example below. 3) Amortization -- As long as you don't have an interest only loan, each month a portion of the loan payment goes toward pay down of the principal due. On an investment property, the tenants are technically paying down that loan with the portion of their rent payments being used to cover the mortgage. This means that each month, your equity in the property is increasing and the spread between the properties value and your loan payoff is growing (in a stable or growing market). 4) Tax Savings -- This one is a little trickier to put an exact measure on because everyone's tax situation varies, but in almost all cases, you will pay significantly less income tax on dollars earned through real estate than dollars earned from your W2 job. The US government encourages real estate investment through the tax code with benefits like; depreciation, expense deductions, and reduced capital gains taxes. 5) Hedge Against Inflation -- Inflation is actually a benefit to real estate investors with long term debt. As more dollars circulate, the pay down of your fixed mortgage becomes easier. Think of it this way; did a $50,000 loan seem like a really big deal 30 years ago? What about today? With long term fixed debt, the loan gets easier to pay back as inflation raises prices, wages, etc.. Example: Here is a hypothetical (but realistic) example of how these five components add up to really increase your wealth. To make the numbers simple, we will use a single family home here, but imagine this same example on steroids in a 200 unit apartment complex! You purchased an investment property for $100,000 using a $20,000 down payment, leaving a loan of $80,000 at 5% interest. 1) Cash Flow: Rental income is $650 and expenses are $500 (mortgage, taxes, insurance, management, etc.) This leaves $150 per month or $1800/yr. Divide that by your $20,000 down payment to get a: 9% annual Cash on Cash return. 2) Leveraged Appreciation: If the property appreciates in value by 5% (from $100,000 to $105,000), divide $5000 by your $20,000 down payment to get a: 25% return 3) Amortization: Some quick math will bring us to the conclusion that with 5% interest on our $80,000 loan, we (our tenants actually) pay down $1176/yr in principal. Again, divide that by our $20,000 down payment and we get another: 6% return 4) Tax savings: As I mentioned earlier, everyone will have a different tax situation but it is safe to assume that we will realize at least another: 3% return 5) Inflation: The Federal Reserve is mandated to try to maintain 2% inflation over the long term so we will use that number to add an additional: 2% return Wow!! Added together, we just got a 45% return on our investment! Of course, this is a simplified example and there will be unforeseen complications, additional expenses, and the occasional headache but even with some deductions from our 45% return, we're looking pretty good for a passive investment that we don't have to go to the office for 50 hours a week to earn. To learn how we can help you grow your wealth through real estate investments, join our investment club. |