Roger's World...

Dirt Rich, Paper Poor

In this economy, it’s more and more clear that you can't buy a piece of paper to make you rich. Everyone I’ve spoken to over the last 10 months has lost money in the market. That’s obvious.  What interests me is how other people have been making money given these challenging times.

The people I’ve been encountering, the ones still doing well, are investing in real estate.  As you may know, I’ve been espousing this for quite sometime.  My philosophy has always been to buy something with inherent value, such as land, property, or something with an attached asset - like a deed of trust.  Even gold and silver are a much wiser investment than a stock.  Some won’t agree with me on this.  I don’t care. It’s proven itself over and over again. Those of you that disagree - have fun waiting 5 years to get back to where you were a year ago.  Those of you that agree with me, you already know why.

OK - now that we’ve got those people out of here, let me explain a few things.  First  - we need to learn our lessons - sometimes the easy way, sometimes the hard way. And we need to remember that no investment is ever 100% safe. Even T-bills? Not even T-bills, and I can tell you why.

As of today, the long term T-bills rate is somewhere between 2% - 2.17%.  And according to some accounts, the rate of inflation in 2008 was 3.85%.  So if you had $1000 invested in a T-bill last year hoping to earn $20 -$21.70, then you’re a bit sad, because after trying to be safe, your $1000 is now only worth $983.36. (I used the 2.17% to compute)  So those people ‘investing’ in T-bills have lost about $17 for every thousand.  So do you think it's safe?  No, it's Paper Poor...

Where does that leave us?  You need to buy tangible assets. Gold, silver for the smaller investors. Coins - not bullion.  For the larger investor - ones known as accredited investors - you should have diversified your portfolio into several sectors, and real estate should make up the most.  And I’m not speaking of REITs.  Actual property that is making money - positive cashflow - not negative (not a vacant lot that you may want to build a house on someday.  Remember: Cash-flow is KING!)  THIS is how you get yourself out of this economic mess the world is in.  Become Dirt Rich...

There are many avenues to do this.  You can go educate yourself about buying properties with strong cash-flow. You can learn how to find these properties. You can then learn how to make an offer, do the due diligence and study the financials of a property. You can learn which markets in the USA are still doing well.  If you’re lucky enough to find a building and buy it, you can learn to manage it.  Then learn to manage it well.  Hopefully, your money is still yours, and your learning curve hasn’t depleted what you had.

If all of this sounds a little overwhelming, not to worry.  Partner with someone doing it.  I started doing real estate deals in 1996, and have some hard-fought experience under my belt. I’ve been doing all of those things I just listed for quite some time, and have learned many lessons and pitfalls to watch out for in the process. Take your time and read, listen and learn. You'll succeed if you're smart about it.

The last few years have been a challenge for all of us.  But the future can be and should be one of great change - Change that can turn loss into gain!

My offer...

On Friday, I set over a LOI (Letter Of Intent) to the seller of a building here in Palm Springs.  It's the first offer I've put to a seller on a property in some time. But I did it, lowball as it may be.

While I understand that it's going to be a challenge to the seller to accept, it does get the ball rolling again.  It felt great, too, and after analyzing it for several months, I determined that it could be a good investment - IF purchased at the right price.  So, as time presses on, I'll be updating you of my progress.

Sometimes we get the 'Analysis of Paralysis' where we keep punching in the numbers, and never taking action.  I made certain to move beyond that limiting pattern - tough as it can be at times - and sent it over. I feel better about my  progress, and by doing this, I've sent a message to the universe telling it that I'm ready to have this be a part of my life.

One thing I made sure to do, was to include a letter of explanation describing exactly why I needed to offer them such a low price, and that it was nothing personal - Just how I need to run my biz, that's all. That way, it adds a bit of a personal touch to a biz transaction. 

Just how I need to run my life!

And yes - you CAN wish me luck!

The last story...

Here's Tony Robbins on GMA this morning.  As always, he's inspirational and is coaching people on the value of re-directing the focus of our minds - focusing on 'What can I pull from this challenge to make me stronger' type of thinking.

What I found most fascinating about this clip is the last story:

Let's all remember this, and use it when the times are tough.  If I can do it... you can, too!  It's only a new way of thinking - it's not impossible! 

Cheers!

Miles Davis...

I need to start this off by telling everyone about one of my all-time favorite recordings - a double record by Miles Davis, entitled My Funny Valentine & Four and More.

Recorded live, this was widely known as ‘The Bible’ amongst jazz musicians for decades, due to the high level of interaction between the rhythm section consisting of Herbie Hancock, Ron Carter and Tony Williams - who was just 19 when it was recorded.

 

Because of a last minute announcement by Miles, the band was especially fiery this night of this recording.  Miles told the band members that they were playing without pay that evening, as the money was being donated to a charity.  It is a remarkable display of deep listening, genius, and is considered to be George Coleman's best recorded performance.

This is a true classic.  Enjoy!!

A New Prospect...

I've been looking at this 23 unit multi-family building here in Palm Springs for a few months now.  Its been interesting speaking with the seller, getting the financial information, trying to figure out if its a good prospect or not.

The thing I'm most amazed with is the way people are running their small businesses.  It turns out that they're coming out of pocket to pay their mortgage each and every month which means they're running at about a 12% vacancy (for 2008).  How does somebody do that?  How does someone not require the management company to actively pursue getting tenants into the units? How does someone decide to keep that manger on this project?  This is your money, and they're throwing it away!

I may have the answer: Lack of Education.  They didn't know what is required to 'manage the manager'.  They didn't take the time to properly interview the manager and set the parameters and expectations of the manager.  I'm not sure they even know what this is truly costing them, both in the short and long run.

By not educating themselves, they've lost any equity that they've had when they purchased (the down payment is gone!) 4 years ago.  They're losing money - several hundred thousand dollars.  That's the high price of ignorance.

And it continues: Because of the management challenges, and the subsequent loss of value, they're trying to sell this property for much more than its true value is. And the sad part is that the sellers have no idea. And they're hoping to unload it to someone just like them.

That's why its A New Prospect.  The lack of education on their part might benefit me and my investor partners over the coming years.  Because I'm constantly education myself - attending classes, reading books, meeting other investors, I'm in the position to determine the projects' value and to decide if it's the best, most conservative property.  This information helps prevent mistakes... mistakes that could have made the sellers lots of money.

I probably won't pick this one up.  They're upside down in the mortgage, and the expectations are too high to make it a good deal. Plus, Palm Springs isn't known as having a hot new job market coming anytime soon!

Remember, CASH IS KING!  Positive monthly cashflow is how lenders determine true value. And we never buy with negative cashflow!