Cashflow Blog

Last night I happened to catch an episode of “Larry King Live” which included a feature on the current housing crisis along with a panel of participants including Robert Kiyosaki, author of ‘Rich Dad Poor Dad’, and Donald Trump.

While the stats by now are known to most people - The Shiller Home Price Index was down 15.5% for April ‘08 vs April ‘07, and over 1 Million foreclosures have been filed with many many more expected, the real overarching questions were a) is this a good time to sell and if you have to sell then what can you do to sell, b) what do you do if you are a homeowner facing foreclosure, and c) is this a good time in terms of opportunities to buy and invest?

The unanimous consent amongst the parties was pretty much as follows

a) This is not a good time to sell obviously and if you do not have to sell then you shouldn’t. If you do have to sell then you can sell if you price your property appropriately. This means first of all IGNORE what other homes are listed for, the only thing that matters is what homes have actually SOLD for recently as a valuation bench mark. If you must absolutely sell then discount your home 20% below current market value and you will find that it sells very rapidly. The bottom line is that it is not that there are no buyers, it all boils down to the numbers.

At our business we have been working diligently for the past 2 years, communicating to our sellers that the one thing that is more important than anything else in determining whether or not a listing will sell is price. We have some listings that have lingered without activity for a year where sellers simply refuse to face the realities of the market, and then other listings that are selling in a week, because in those cases the sellers are realistic and follow our advise. The Sarasota real estate market is what it is and if you ignore market realities then you simply will not sell.

b) If you are a home owner in trouble the resounding agreement was that the very worst thing you can do is ignore the lender when you get your notice. Lenders do not want to own your home, and they are willing to work out loans with home owners and today you have a lot of leverage as a owner in renegotiating your loan. The only predicament today is unfortunately that lenders will not discuss your loan until you are at least a couple of months late. Once you are late however you will find that you have the ability to get the lender to agree to work with you so you do not lose your home.

In our business we are working with a lot of short sales and I do see many lenders making amazing concessions. Some lenders are of course better than others. The worst unfortunately in terms of communicating is Countrywide and it is well possible that Countrywide’s own internal upheaval is contributing to this. Hopefully once the acquisition by Bank of America is finalized this will change.

c) Is this the time to buy? The panelist were in full agreement that we are either at or very near the bottom of the market. And yes, this is a great time to buy, as the best time to buy in any market is when prices are down and everyone is selling.

That being said, the days of real estate as a get rich quick scheme is over. You have to know what you are doing. Just because something is a foreclosure or bank owned property and priced at a seemingly amazing price does not mean that it is a great investment.

I tend to agree. If you are looking to buy a home as your residence then definitely now is the time to strike. Sellers are super motivated and there are a lot of opportunities to snap up a property that simply was unheard of in the past. And 5 years from now your property will certainly be worth more than you are paying today. If you are an investor then you need to understand how to evaluate a property as an investment. If you buy something in hopes of a quick flip then you will get most likely hurt. This is not the time to flip properties.

Overall I felt this was a very informative segment with a lot of optimistic view points. I would love to hear your views on the aforementioned 3 points, particularly with respect to the Sarasota Real Estate Market.

All the best…

Thomas Heimann, President & CEO
Bravo Real Estate Solutions
http://www.bravobrokers.com/

Excerpt from:
Housing Market Crisis Opportunity?

There’s been a lot of posts on leverage lately in the blogworld so I didn’t think it would hurt to have one more…

Also - I’m in no way advocating anyone use leverage for investments unless they are comfortable with the extra risks.

Leverage is an instrument that almost everyone uses when they buy their house. Although most people buy a house to live in, not as an investment, it’s an example of where people are using leverage and they might not even realize it.

If you ask people on the street about how they feel about borrowing to invest they might give you a lot of negative feedback. I suspect this is a holdover from times when margin accounts were the only way to borrow for investing. The problem with margin accounts is that if your investments drop in value enough then you have to come up with cash to pay the difference which is why certain investors were running out of windows in 1929.

My opinion is that leveraged investing can be a useful tool but definitely entails extra risk. However it occurs to me that sometimes the idea of leveraged investments can be a question of semantics.

Consider the following:
Person A gets a $200k mortgage on his house with a 25 year amortization. After five years, his mortgage is $185k and he also has $10k in cash that he has saved. This person decides to invest the $10k into a dividend stock, let’s say…BMO. So now he has a $185k in mortgage and $10k of stock.

Person B also gets a $200k mortgage on his house with a 25 year amortization. After five years, his mortgage is $175k but he has no extra cash to invest because he has been making extra mortgage payments. This person decides to borrow $10k from his secured line of credit and buys $10k of BMO as well and gets the tax rebate on the interest paid.

According to popular wisdom, person A is the epitomy of responsible investing using good old cash to buy his stock. Person B on the other hand has made a deal with the devil and plunged into leveraged investing.

So what’s the difference between the two? The only difference I can see is that Person B can write off his interest on his investments and Person A can’t. Obviously there are interest rate differences but I’m ignoring those since they shouldn’t be too significant.

Moral is - if you don’t make extra payments on debt and use cash to do investments then you would be better off to put that cash into the mortgage and then borrow it out again for those investments and get the tax rebate.

And yes, I realize that this logic was the genesis of the Smith Maneuvre but rest assured that I don’t recommend that particular strategy.

~ http://www.four-pillars.ca ~

A fine line between good and evil…

1. High Dividend Stocks

There are a lot of stocks that paying quarterly or yearly dividends. Over time, the power of compounding (with a little help from inflation) can substantially increase the value of your dividends. My mother bought the Indian subsidiary of Unilever (Ticker: UL) called Hindustan Lever about 20 years ago. She’s being reinvesting most of her dividends and today her annual dividends are larger than the value of the original stock purchase. American Capital Strategies (ticker: ACAS) has been growing its dividends approximately 10% every year. According to The Dividend Investor,

If we invested $100,000 in ACAS on December 31, 1997 we would have bought 6906 shares. Your first quarterly check would have been $1,726.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $17,095 by December 2007. For a period of 10 years, the quarterly dividend has increased by 300 %. If you reinvested it though, your quarterly dividend income would have increased by 890%.

Yes, reinvesting the dividends in companies that have historically kept increasing their dividends is key. Even though you might get only 2.5% return today, eventually with the increase in stock price and rise in dividends, your annual return should be greater than 12%. This concept is very well explained in Prof. Jeremy Siegel’s excellent book, The Future for Investors, which I highly recommend.

2. Oil & Gas Royalties

While there is a lot of fraud and speculation in direct oil drilling programs, they can be very, very lucrative for investors. Charlie Munger invested about a $1,000 in such an oil drilling program in the 60s and he’s estimated that its paid out over $500,000 in royalty payments since then. Apparently it still pays out $2,000 a month. Of course, most people NEVER see these sort of returns, but for the average person, investing in Canadian Oil & Gas Royalty Funds (or Income Trusts) is the next best thing. I’ve invested quite a bit of money into both the direct oil wells and the Canadian Income Trusts (or Canroys) and the overall result has been pretty positive in both (which is in excess of 12%).

3. Royalties on Books and Patents

Royalties on Books and Intellectual Property Rights can be even more lucrative. However writing a best-selling book or creating a something thats worth patenting can extremely time consuming and expensive. For most authors and inventors, its a labor of love - something that they would pursue even if there was no monetary reward to it. But many ebook writers who sell get-rich-quick books about “making money online” are getting very wealthy. Most of these books are garbage and the only people getting rich are their authors and resellers. Not a very ethical way to make money.

4. Rental Income on Properties Bought at the Bottom of a Real Estate Cycle.

If you bought rental buy and hold property in California, Nevada, Arizona or Florida during 2005 and 2007, my heart goes out to you. A lot of smart people got suckered into buying at the top of the market and are paying for it. However, if you buy correctly, preferably at the bottom of a real estate cycle, real estate can provide excellent passive income and fantastic tax advantages as well. According to Charlie Munger at the 2008 Wesco Financial Annual Shareholder meeting, “most real estate investors don’t pay any income tax, except once every 20 years or so“. Bought correctly (that is based on value, not speculation), rental properties can provide a steady stream of cashflow that is somewhat inflation-indexed. I say somewhat, because in the short-term anything can happen, but over a long period of time, real estate is going to match the rate of inflation.

5. Investing In Timber

Similar to Canroys, there are companies that grow trees specifically for timber and pay pretty decent dividends. There are also direct tree-planting programs where you can invest a minimum of $5,000 and own a portion of a timber operation. The company does all the work for you and supposedly cuts you a check once a year after a specific time interval. The endowment funds of Harvard and Yale have apparently been investing in timber for several years now with great returns.

Read the original here:
5 Best Ways To Earn Passive Income

Besides money, a wealthy woman has some qualities that serve as guideposts to make sure she’s always walking toward wealth rather than away from it. This month’s readers each had one or more of these traits out of alignment.

Here are the eight qualities and how they can translate into financial success:

Harmony and balance. Harmony is the agreement between what you think, say, and do. Balance is the state of stability in which you’re able to make sound judgments that will enhance your financial security. When you use a loan for in vitro fertilization that will leave you so deeply in debt that it would be difficult to care for your new child, you forsake harmony. Aligning your thoughts, words, and actions will put you on a path to balance—and emotional and financial well-being.

Wisdom and courage. The ability to make (not just think about) sensible decisions that respect your needs takes wisdom, the voice of experience that’s inside each woman. Courage, the catalyst that creates harmony by uniting our thoughts with our actions, is what lets us assert our opinions confidently. To tell your mother that you love her but can’t ruin your financial life to save hers requires wisdom and courage.

Generosity and happiness. True generosity must benefit both parties. No woman can control her destiny if she doesn’t give to herself as much as she gives of herself. That’s why I so often caution you not to cosign loans or deplete your emergency cash savings to bail out someone. While those acts seem helpful, they leave you financially at risk. Happiness manifests itself through generosity—when, for example, a woman makes donations that help others yet don’t deplete her.

Cleanliness and beauty. Removing clutter and chaos from our lives brings clarity, which makes it easier to achieve what we want. From emptying closets of unused stuff to streamlining your wallet, cleanliness is a sign that you’re in control. And by bringing the first seven qualities into your life, you feel beautiful.

When you commit to finding harmony and balance, you have the courage to make wise decisions that are as generous to you as they are to others. This leads to deep, unwavering happiness and brings beauty into your life. I wish this for the women who wrote to me this month, and I wish it for you.

Adapted from Suze Orman’s latest book, Women & Money: Owning the Power to Control Your Destiny (Spiegel & Grau)

View original here:
8 Qualities of a Wealthy Woman

~ by Pocahontas ~

I’m a teacher by trade…so let’s take it back to school for a second, ladies, shall we? Raise your hand if you were ever told any of these things growing up:

“Get a good education and a college degree.”
“Work hard and move up the ladder.”
“Save your money in the bank because investing is too risky.”
“Get a good job with benefits and a pension.”

Now do any of you whose hands are up know people have done all these things but are still struggling financially?

Here’s a better question…do you think this is what the Rockerfellers or the Rothschilds are teaching their children?  Since my sistahs are without question some of the most astute women in the world, obviously you can surmise the answer to that is a resounding, “No”.

Granted we all believe in the value of a first-rate education, but just because you have X many degrees and/or letters after your name does that really guarantee your financial success?

As I said, my sistahs today are savvy enough to recognize that the wealthy are giving their kids something most people are not…and that is the “REAL” keys to financial freedom (after all, aren’t “they” the ones able to play golf at 9 am on weekdays while the rest of us grit our teeth through rush hour to go to a J-O-B? Clearly, they know something many of us do not).  

So what IS it that they teach their kids? They tell them to own their own business so they can be in total control of their time and their income. Easier said than done, you think? Well, ask yourself this, “Can you honestly say you’d want your little one to grown up and do the job you’re currently doing?” Actually, do you own your job to be able to pass it down to your kids even if you wanted to after your retire from it like you could a business?

Truth be told, most people would rather be the boss than answer to one, but they just have no clue how to make that happen. So allow me to share a few books with you that might give your “entrepreneurial spirit” a prick. First, you may want to invest in “Rich Dad, Poor Dad” and “Cashflow Quadrant” both by Robert Kiyosaki. The former will certainly change your life and the latter will definitely shed some light on the common mistake novice entrepreneurs make in distinguishing between self-employed and business owner.

One book I will highly recommend for your children if they are in middle or high school and you want to start them off right with the rules of money is “The ABCs of Making Money 4 Teens” by Alan Lysaght & Denis Cauvier. It features many inspirational stories from teens who found success yet gives your child practical advice like how to escape credit card traps, how to reduce debt, and how to invest wisely.

Arm your children with the knowledge you may not have had at their age. After all, isn’t your goal for them to have more than you were able to?

Originally posted here:
What you don?t know can hurt your kids