Guru Interest Rates

I am often astonished at the real estate “Guru” who charge outrageous (unpublished) interest rates for their products. As if their astronomical pricing isn’t bad enough, they offer time payment plans that are nothing short of usurious, making high credit card interest rates seem reasonable in comparison.

I recently sat through a yet another long-winded video pitch for an over priced product. At the end of the pitch (interspersed with assertions of the “good life” with easy riches), the price tag came in at $497 for a single payment, or three monthly payments of $175. You can choose to pay on your credit card $497 now, or three payments of $175 totaling $525. That seems reasonable, right? A $28 finance charge for the convenience of spreading out your payments doesn’t seem so bad, when you consider it’s a $497 product. Yeah, right!

First, why would you need to spread out the payments when buying on a credit card? Most credit cards allow paying off a purchase over time. Is your credit card maxed out? Then why are you buying yet another guru product when you can’t even manage your own personal finances?

Next, what is the effective annual interest rate on that time payment purchase? Three payments of $175 with the first payment now, leaves $322=$497-$175 to pay over the next 2 months. Get out your financial calculator, plug in 2 payments, Present Value $322, periodic payment -$175, Future Value zero, and solve for the interest rate. That comes to 68.92% annual interest rate! You would be better off just paying the full price and paying off your credit card at a 20% annual interest rate (less than one-third of the guru interest rate).

The guru is preying on financially illiterate folks who are desperate for a solution to their money problems. (Hint: They have money problems precisely because they are financially illiterate!) This is one of the ways that I filter out the greedy online marketers. Is their price reasonable considering the amount of real content versus puffery? Are they truly committed to their customer’s success? Or are they just trying to squeeze out every last penny from anyone desperate, foolish or naïve enough to fall for their latest pitch of easy riches?

If you are truly focused on getting out of personal debt, then take a look at my Excel 2007 spreadsheet Power Debt Plan by clicking here.

What if you are so broke that you can’t afford Microsoft Excel 2007? Just buy a $7 thumb drive (also called a “Flash Drive”) at Best Buy or Staples to hold your computer files, go to a public library and plug into one of their computers that already has Microsoft Office 2007 or later. Buy my product, download it and save it on your thumb drive. Then run the numbers on the public computer. I show you how to do it with several mp4 video tutorials. You can download a free mp4 video player for your Windows or MAC computer from QuickTime.com.

Financial literacy is the key to financial freedom. Take the first step by understanding what your personal debt is really costing you, then make a plan to get out of your personal debt by clicking here.

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Capitalization Rate and Cash on Cash Return

I just added a new article on the correct way to calculate the Capitalization Rate (CAP) according to the cost and structure of financing.

An income property is generally valued on its cash flow, either the current cash flow or the anticipated future cash flow after repositioning. The valuation of the cash flow is calculated according to the cost and structure of the available financing at the time of purchase or refinancing.

The fundamental equation that is used (and abused) is:…

You can read the article by clicking here.

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Generate a PDF syndication package or a loan request package

I just made a major update to the very affordably priced “Introduction to Income Valuation and Syndication” course. With the sophisticated macro-enabled Excel 2007 ProFormaStabilized.xlsm spreadsheet, you can now generate a multi-page PDF presentation package for syndicating to your private financiers or for submitting a loan request to a commercial lender. There are several tutorial videos showing how to use the spreadsheet and its presentation worksheets. Generating the package is just a point-and-click away!

Customers with active purchase plans will receive free download links via email for the update. If your purchase plan has expired or you want to learn how to get paid to buy income properties with Other People’s Money, then you can buy the course (click here for the sales page). Watch the YouTube versions of the tutorial videos on the sales page!

There’s even a bonus “mini course” with tutorial videos on taking over income properties with the Master Lease and Option strategy for no money down. It’s included at no extra cost!

This update proves my commitment to your success by updating my courses with the latest features and educational content. My students have already reported earning several thousands of dollars by using the strategies and techniques that I teach in my downloadable courses.

You won’t pay thousands of dollars like those Guru want to charge for their courses. I don’t want my prices to be a barrier to your success! I always offer a 60-day money back guarantee. If you’re not happy, then I’ll immediately refund your money with no questions asked. My refund rate is the lowest in the industry, because my customers recognize the awesome value of my courses. They cannot get my educational content or sophisticated software anywhere else at such a low guaranteed price! This is software that I personally use for my own real estate investing!

Watch the YouTube video by clicking here.

Buy the affordably priced course by clicking here.

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New Video: Master Lease and Option RUBS

I added a powerful spreadsheet for calculating and generating invoices for the Ratio Utility Billing System (RUBS). There are 2 video tutorials showing how to use the spreadsheet and how to generate the mail merge templates. The spreadsheet supports unlimited number of residents, you can bill pro-rated for electric, gas, water, sewer, or any combination thereof (selectable at the resident record). The spreadsheet calculates the pro-rations by square footage, or the number of persons occupying the unit, or both. You can generate a mail merge worksheet for Microsoft Word to generate invoices for printing or PDF files for emailing.

You can watch the YouTube versions of the tutorial videos by clicking here and here.

The “Introduction to Income Valuation and Syndication” course is available by clicking here.

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New Video: ProFormaStabilized Spreadsheet – Finance Package Tutorial1

I just uploaded a major update to my course “Introduction to Income Valuation and Syndication” (at http://bit.ly/itivas-1) that updates the ProFormaStabilized.xlsm spreadsheet and a new video tutorial for generating a PDF finance package.

You can watch the YouTube version of the video by clicking here.

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Low Interest Rates

Low interest rates are very enticing. I want to suggest caution, because an increase in interest rates will dramatically affect the value of real property. Real estate is a “borrowed money” business. The cost and structure of financing determines the income valuation of the property. Similar to bonds, the value varies inversely to the yield (interest rate). As rates go up, the value goes down.

Suppose you buy a house for $200,000 and put down 20% ($40,000), and finance the 80% balance of $160,000 at 3.5% fixed rate over 30 years (360 payments of $718.47). The days of fully assumable residential loans are probably long gone, so your buyer will be forced to bring in new financing at a higher cost, which means a lower purchase price. Suppose rates jump to an astronomical 5.5%? The increase of just 2 percentage points will drop the serviceable debt load to $126,538. Divide by 80% to calculate $158,173, which is what the next buyer can afford to pay for the house at the same monthly payment of $718 and 20% down payment. That’s a whopping 21% price decline and your equity investment is wiped out. That’s a true real estate crash.

If rates are expected to go up, then calculate what your refinance or resale value will be in the future and work backward to determine what the property can afford to pay today.

Hedge funds are heavily investing in foreclosed houses and they are paying all cash to get a minimal 6% annual yield. After a few years and an increase in loan rates, those hedge funds will try to recover their equity by selling the houses to buyers that must obtain debt financing. Either the hedge fund must offer seller financing with long term, low interest rates or they will take a haircut (price reduction) for a buyer that must obtain higher cost institutional debt. Hedge funds that now are paying all cash for low yields may become the next wave of motivated sellers when interest rates increase.

Always consider your prospective investment according to what it costs to get in and what it costs to get out.

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Yet Another Housing Bubble?

I just posted an article on the 2013 apparent housing bubble.

April 2013, the more things change, the more they stay the same. It seems like Deja Vu all over again.

There are very few listed houses, multiple offers, bidding wars, double digit price inflation, and listed houses are on the market for a very short time. Seems like all of the ingredients for yet another housing bubble that is about to burst, even when considering most owner-occupant buyers are putting down 20% or more of the purchase price and surviving very onerous bank qualification criteria.

Appraisers are still getting their fair share of criticism. Instead of appraising high (like just before the 2008 housing crash), appraisers are now under very strict guidelines imposed by new federal and state regulations that are forcing appraisers to estimate low comparable sales values. This disconnect between appraised value and what highly motivated buyers are offering is causing contracts to fall out of escrow or causing the buyers to come up with more down payment…

You can read the full article by clicking here.

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Thank You for your well-wishes!

In early January 2013, I became very ill with Labyrinth-itus, which is a viral infection of the inner ear that affects balance. I was very disoriented and nauseous. A family member is a doctor in another state and she said my symptoms were consistent with Labyrinth-itus and it may take up to eight weeks to recover.

My illness was so severe, that I couldn’t get out of bed. A couple weeks later, I awoke one morning to find my entire right side was numb and useless. I had suffered a stroke to compound my problems. During my worst days at home, my family provided supportive care while I lay for hours at a time in a dark room without moving. I couldn’t tolerate lights without extreme nausea and vomiting bile from an empty stomach. My daughter Genevieve provided daytime care for me while my wife Margaret went to her office.

Then I got the horrible news that my wife was in a bad car crash and taken to the emergency room and her car was totaled. She was in the hospital for several days, with large black bruises all over and a cracked spine. She was released to go home and she was able to walk slowly and painfully, and resume caring for me.

After another week of little improvement, I was taken to a doctor and he immediately sent me for emergency hospitalization. After 4 brain scans, the team of doctors confirmed my stroke. Another doctor confirmed the Labyrinth-itus. Margaret stayed full time with me in my hospital room for 3 nights. I was also diagnosed with high blood sugar (the initial stage of diabetes). I was in very bad shape.

I was transferred by ambulance to a therapy center in Longmont CO, just a few minutes from my home. The numbness in my right leg was gone and I could stand and walk with a walker. Margaret visited me every day and reviewed my emails and helped me to respond to my clients and customers. I greatly appreciate all of your well wishes for me.

After a week, the doctor reviewed my physical skills and certified that I was well enough to return home (I was very eager to go home). The Labyrinth-itus is mostly gone now. My right hand and arm are still very numb and almost useless, but I can walk and maintain balance for a few minutes at a time. I am performing regular exercises to burn new neural paths in my brain. I am naturally right-handed, so they say that re-learning to use my right should be easier compared to re-learning my left hand.

I am not yet back to normal. I seem to feel better each day, yet regaining good use of my right hand will take a few months. I was unable to work on my products or respond to my customers for almost two months, so I am granting to all of my customers an extra 3 months of free updates for their purchased products.

There is something else that I want to share with all of you. I provide private consultation to wealthy persons (accredited investors) on a private referral basis. One of my current clients must refer you to me for consideration and the cost is significant. Also, many of my customers have asked for mentoring and I do not offer such services. I provide support for getting a product up and running, and I answer “simple” questions about the general business of real estate investing. One of my private clients has expressed an interest in teaming with me to start up a private group mentoring company. It is still in the planning stage. It will be a monthly fee-based membership website with online classes, downloadable videos, etc. There will be a private discussion forum where the members can exchange ideas, but we will absolutely not tolerate any spam or solicitations. If you screw-up just one time, then you’re banned without refund. There will be monthly meetings online and live (depending the number of interested folks who will pay for the meeting room at a local hotel) where we can freely exchange ideas and assist each other on our current projects.

Also, I was planning a new project to start in January 2013 with a documentary video to show how to create wealth and retire in 2 to 3 years with significant passive cash flow by following my new course “How to Pyramid Your Equity to Create Wealth and Financial Freedom” (at http://bit.ly/pyecw-1). That project will be delayed for a few weeks, but I still have every intention for it.

Thank you for your support.

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Non-Credentialed Interlopers

I added an article about “non-credentialed interlopers”. This a serious problem of folks fraudulently misrepresenting themselves as an owner, broker, or some other form of legal relationship with the principal party.

The problem of “non-credentialed interlopers” is growing. I am talking about folks who advertise properties for sale, especially apartment buildings, and when I request the operating data, rent rolls, debt structure, etc., they send what they call a “confidentiality agreement” (CA). Then I read the CA to learn that it is actually a “non-circumvention non-disclosure agreement” (NCND) that prohibits me from speaking directly to anyone that was introduced to me by the other party without first paying a “consulting fee”…

Read more by clicking here.

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Investing in Rental Properties

I just watched yet another “Personal Finance Guru” on cable TV who recommends NOT to invest in rental income properties, but instead to invest in municipal bonds, claiming that such debt instruments are paying 5% to 6% tax free and are much safer than rental properties. To use the guru’s favorite retort, “Are you kidding me?!”

With long-term interest rates at historic lows and property prices at affordable lows, the guru says investing in rental real estate is bad idea. By the guru’s illogic, when is rental real estate a good investment? When interest rates are at “Jimmy Carter” double digit highs and property prices are sky rocketing? What nonsense is that? Since when has “Buy Low And Sell Higher” (BLASH) been bad advice?

Low interest rates mean that you can pay down your debt much faster, according to your rental income and operating expenses, and your debt is based on a low purchase price. So, you start with less debt (compared to prices a few years ago) and you can pay down that debt much faster.

Then the guru says that you need at least 12 months of mortgage debt service in a savings account to handle vacancies, because your tenant can lose his job and it takes forever to get him out of the property, while municipal bonds are safe, tax-free and management free.

Here are my thoughts in no specific order:

  • You don’t need 12 months of debt service, but you need some cash reserves to handle vacancies and capital repairs (like a new roof every 10 to 15 years). Your tenant’s rent covers expenses, routine maintenance and debt service, and your tenant’s security deposit covers damage and unpaid rent while you evict the deadbeat.
  • If you rent out a single family home and it becomes vacant, then you have 100% vacancy. Well, you can try my favorite rental property: A multiunit property to reduce the impact of vacancies. A 4-plex can have 1 vacancy and still service its debt, taxes and insurance. A 12-plex can tolerate 3 or 4 vacancies and still service its debt, taxes and insurance. The greater number of units per property means the less impact that a vacancy will have on your net cash flow.
  • You can “ease into” the rental property business by using a well-structured “sandwich lease” and “option to purchase”. You can lease the entire property (with option to purchase) from the owner, and then rent out the individual units at a higher rental rate. This is a kind of “deedless transaction” that gives you control without ownership liability. You make money from the rental spread without a down payment and without getting a new loan. If income drops too severely or expenses rise too much, then you can get out of your lease with the proper contract clauses. If the property performance improves, you exercise your option to buy at the contracted low price or sell your option to another investor. Where’s the risk?
  • You (or your professional manager) can qualify your tenants for good credit and require first, last, and a sufficient security deposit to cover lost rent, damages and eviction fees.
  • A flat-fee eviction attorney can get a non-paying tenant out in 30 days in most jurisdictions. In jurisdictions that enforce longer eviction periods, then you can require larger security deposits.
  • For a nominal fee, a licensed experienced real estate broker can manage the property and qualify tenants for good credit, and handle contracts and repairs.
  • Net rental income after paying expenses and interest on debt can be tax-sheltered through the IRS depreciation allowance. You can get tax-free passive income that you can manage and grow. Can you manage and grow your income with a bond? You must depend on the expertise and skills of the bond fund managers (who take their “cut” first); you have no control with a bond.
  • You can get much higher yields with rental properties compared to bonds when you understand how to structure correctly the financing. With no down payment, your effective yield is infinite.
  • If you make a down payment, then that is an equity investment that can grow by your tenant paying down your debt and by proper management of income and expenses. You don’t need to make a down payment when you understand proper financing structure.
  • If you prefer to be a lender rather than an equity participant, then you can offer private loans for real estate investments. A commercial debt syndicator can combine your private funds with the funds of other private lenders to achieve leverage, and you are paid first before equity investors. You have full access to the property performance data and to the business plan for generating double digit returns on your investment, and to the exit strategy to redeem your investment.
  • You can “participate” with other equity investors or private lenders to share the risk and rewards by using a “group investment” structure (syndication) to achieve leverage.

Real estate is a “borrowed money” business. The value of an income property does not depend on the down payment, but rather on its cash flow. Both debt and equity have “yield requirements” that determine the property value based on the cost and structure of financing.

Investing in rental properties is not about capital gains appreciation, but rather it’s about net cash flow. With a long-term, low fixed rate, no balloon mortgage debt on cash flowing rental property, it doesn’t matter what happens to interest rates. The property can afford to pay for its expenses, debt service and your net cash flow. Capital gain is just a nice bonus when it happens, and long term capital gains tax can be deferred with an IRC 1031 tax-deferred exchange when you want to “trade up” to larger better income property. You can legally defer taxes forever and pass your income property to your heirs on a stepped-up capital basis.

Investing in any kind of bond must be focused on the use of that investment to create value. Investing in a bond to finance operating expenses is insane. If an entity, either a corporation or the government, must borrow to pay for operating expenses, then that entity is INSOLVENT. When you lend to an insolvent entity, just say goodbye to that money. You must find a Greater Fool to buy your bond just to get the return of your principal and forget about a return on your principal. I humbly recommend that you NEVER LEND MONEY TO AN INSOLVENT ENTITY. That money will just go to paying operating expense and you’ll never see it again. That should be common sense, but common sense is so rare these days.

When bond yields (interest rates) spike, the price (principal) of those bonds will drop dramatically. Government entities running huge deficits and borrowing just to pay for general operating expenses and lavish pensions (paying folks not to work) will eventually collapse bond prices. You don’t want to be caught without a chair when the music stops.

Everyone needs a roof over their head and to keep the wind, rain and snow off of their stuff. When approached professionally as a business, rental real estate is the surest path to wealth and financial freedom.

You can learn more about investing in income properties, with or without a down payment, with my course “Introduction to Income Valuation and Syndication” at http://bit.ly/itivas-1.

I teach many strategies for investing in income properties, with or without the deed, to create wealth and financial freedom. You can learn how to retire in 2 or 3 years with massive tax-sheltered passive income with my course “How to Pyramid Your Equity to Create Wealth and Financial Freedom” at http://bit.ly/pyecw-1.

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