Rich Dad Education Blog

Seems like things are going from bad to worse in today’s economy. Have you ever wondered why?

In the latest Conspiracy of the Rich bulletin, Robert Kiyosaki explores why yesterday’s entitlement programs, used to solve the Great Depression, are now leading the charge to a New Depression—and widening the gap between the rich and the poor.

"If you’ve read COR, you know that trying to save poor people only creates more poor people. Every time the government prints more money, the rich get richer and the gap between the rich and everyone else increases."

– Excerpt from Robert’s Conspiracy of the Rich bulletin

You don’t want to miss this!

Read Robert's Latest Post Here: http://www.conspiracyoftherich.com/read/current/

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Owning rental real estate can be very rewarding, but it can also be very frustrating, especially if you decide to manage your own properties. Rental real estate is really the perfect investment…that is, until you put tenants into the equation. Tenants – you may love them or you may hate them, but you can’t do without them. There is simply no way around it – you must learn how to effectively deal with tenants and become a super landlord.

Before you have to deal with tenants, you must first purchase rental property. The first, and most important thing you need to do when getting involved in rental real estate is to buy right. If you don’t buy right, then you may be doomed to failure no matter how good a landlord you might be.

What does it mean to buy right? Buying right requires you to be extremely selective about the properties you buy that you are going to keep as long-term rental properties. In his book, 7 Habits of Highly Effective People, Stephen Covey argues that successful people “always begin with the end in mind.” This is critical in the real estate investing business. You need to know what you are going to do with a property before you buy it. This is really quite simple if you keep this one thought in mind: If you are buying a property to keep as a rental, buy a property that will be easy to rent and easy to manage. Do your homework before you buy:

• Check the crime statistics in the area; avoid high-crime areas
• Find out the ratio of rental properties to owner-occupied properties
• Find out what the current vacancy rate is for rental properties similar to the one you are considering; a high vacancy rate means you will have a harder time finding a tenant and may have to cut the rent to attract new tenants
• Find out what the current unemployment rate is in the city
• Determine the proximity to schools, public transit systems, and shopping
• Know what you can charge for rent based on what similar properties are renting for, not what you are told by the seller or their agent

Once you have identified a property that will be easy to rent, you need to negotiate a purchase price that will provide you with positive cash flow. This is very important and easy to do. You simply take the monthly rent you can reasonably get from the property and subtract all of the monthly expenses (property taxes, insurance, utilities, and maintenance). Be sure to include a proper vacancy factor, a management fee (even if you plan to manage the property yourself), a maintenance fund fee (for future repairs), and the positive cash flow you desire to get from the property. The net rent you have left (after deducting all expenses and your desired positive cash flow) is the amount that you will have available to pay the principal and interest on a mortgage payment.

You then need to calculate in current interest rates and terms. Use a mortgage calculator to determine the dollar amount you can borrow that results in the payment amount available to service the loan. This is the amount you can afford to pay for the property in order to get the desired positive cash flow.

Remember, if the property needs repairs before it can be rented, the amount of those repairs needs to be subtracted from the purchase price that was determined by the cash-flow analysis formula described above.

If you buy the property right and have positive cash flow, you can more easily tolerate the problems you might face due to the occasional bad tenant. That positive cash flow every month will bolster your attitude when dealing with problems. However, if you saddle yourself with a negative cash-flow property, your problems will seem 10 times worse than they really are. Buy right or don’t buy at all.

Assuming you have purchased a good rental property, one that will produce a decent positive cash flow, the next step is to find tenants. If you purchased wisely, then you also set some funds aside to cover mortgage payments and expenses during the time it takes to find a new tenant. Don’t feel pressured to rent to the first person that comes along just to get a tenant in the property. You need to choose your tenants wisely. If that takes a little time, it will be well worth the extra effort. Trust me on this one: it is far better to have no tenant than to have a bad tenant!

Admittedly, it is hard to completely relax until you get the property rented, so getting it rented as soon as possible is something to strive for. Keep in mind, though, that a high percentage of tenant problems can be eliminated in the screening process. So from now on your goal should be not to just get the property rented, but to get it rented to a properly qualified tenant. And once you get that qualified tenant, you need to do everything you can to keep them as a tenant and take steps to make them even better tenants!

Screening and Qualifying Tenants
As a landlord, you must screen your tenants. If you don’t, you are just asking for trouble. Some landlords like to trust their gut feeling. You may luck out, but you might also get taken to the cleaners. Why take the chance when it is relatively easy to screen your prospective tenants properly? Here are eight steps you can take to help you with the tenant-screening process:

• Step 1 – In 1968, the Fair Housing Act was enacted. This law prohibits landlords from discriminating against applicants on the basis of race, color, national origin, religion, sex, family status, and disability. Get to know the details of this law. Fair housing – it’s not an option, it’s the law! Also become familiar with the laws in your specific state that deal with the relationships between tenants and landlords. Know the laws pertaining to tenant deposits, leases, month-to-month rentals, and evictions. The more you know, the easier it will be for you to stay out of trouble. A lot of professional tenants know the laws inside and out and, if you don’t, you can find yourself at a great disadvantage. Also, get a good attorney on your team who is a specialist in tenant-landlord law. If you ever have a question on any matter of law, consult your attorney immediately. This is not a time to guess at what is right or to use common sense; many times the law does not follow common sense, but it is still the law.

Hints for staying out of trouble:

1. Give all applicants the same information about your property, such as move-in costs or when the property will be available for occupancy.
2. Know the HUD guidelines for the number of occupants allowed in a certain-sized unit. Don’t tell applicants that the number of people in their family exceeds the limit for your rental if their family size is within the guidelines.
3. Process all applications. If you have found that seniors make good renters, for example, and only process applications from seniors, you could be in violation of the Fair Housing Act.
4. If you don’t want to rent to a particular person, don’t ever tell them that the property has been rented, if in fact it has not been.
5. Do not ask anyone about their race, age, country they are from, religious preference, sex, marital status, or disabilities.
6. Apply the same eligibility requirement and income guidelines to all applicants equally.
7. Do not say, “I don’t think you would be happy here,” just because you don’t want to rent to them.
8. You can screen people based on things such as income. Know the laws in your state so you can stay out of trouble.

• Step 2 – The first contact with a prospective tenant is usually on the phone. Start the qualifying process during your first conversation. Advise prospective tenants of the rent, deposit, and other facts about the property. Let them know if you allow pets and, if so, how much the pet deposit will be. Inform them what type of pets you allow (i.e., dogs, fish tanks, reptiles, birds, or cats) and the occupancy limit for your rental (make sure you are using the HUD guidelines). Tell them your fee for running the credit and background check. If you take just a few minutes telling people your guidelines, you will eliminate a lot of potential applicants, thus saving you a lot of time further screening a tenant who doesn’t meet your basic requirements.

• Step 3 – For those applicants that seem to qualify, fill out a prospect card with basic information: name, phone, reason for moving, number of people, number of children and ages, desired occupancy date, any pets, smoking, and present and past landlord references. If you experience any difficulties finding out this basic information, then they will probably not qualify for your rental.

• Step 4 – If the prospective tenant(s) qualifies based on your first contact, set up a time to meet them at the property and continue the qualification process. Note their appearance, which is an indication of how they will treat the property. Are they neat and clean? Take a look at their car. It doesn’t have to be a new car, but its condition and interior cleanliness is another indication of how they will treat your rental property. Their attitude and manners will indicate if they might be difficult to deal with in the future. Are they too critical of the property? Pointing out legitimate concerns is okay, but nitpicking too many things is an indication they may be problem tenants. Take time to tell them what your expectations are for your tenants and all of the critical items that will be in the lease, items such as yard-care responsibility, rent due dates, late fees, pet policy, and a guest-occupancy policy. If they have any concerns, it’s better to get them resolved now, before wasting time on someone to whom you won’t want to rent.

Step 5 – If you have gotten this far with a potential tenant, now is the time to start the application process. Start with a good rental application, one that collects all the information you will need to run a credit check and background search. The application should contain the legal verbiage that gives you permission to run a credit and background check and a place for the applicant(s) to sign. Have each individual adult fill out and sign an application. In the case of married couples, the application should have spots for both spouses’ data. Have them both sign the application. Let the applicant(s) know that they must fill out the application completely and that their application will be considered along with others, and that you will notify them once a decision is made. The application should spell out the screening fee you will charge for running the credit and background check. Check with your state to determine if there are any restrictions on screening fees. Collect the screening fee and run the credit and background checks. There are many companies that will run the checks for you. You can get easy-to-read credit reports, as well as criminal, eviction, sex-offender, and suspected-terrorist reports performed instantly and they are accessible 24 hours per day, seven days per week. An Internet search will give you plenty of companies who provide this service. Here are a few from a quick Internet search:

www.tenantscreeningblog.com
www.mrlandlord.com
www.landlord411.com
www.creditchecklandlord.com
www.landlord2landlord.com
www.accuratecredit.com
(Please note, we have not used these companies and are not recommending them. This list only provides a starting point for your research.)

Also, be sure to check with your local landlord association. They may give you the best price on running credit reports and background checks.

• Step 6 – Once you have chosen a qualified tenant, call them, congratulate them, and let them know that their application has been approved. Set a time and place for the lease signing. Let them know how much money they will need to bring, preferably in money-order or cash form, for the rent and security deposit (and any other deposits, such as pet deposits and mother-in-law deposits). If you accept a check, let them know that possession will be given after the check clears the bank. Many landlords require a credit card to pay rent, with an authorization for a monthly rent charge. This eliminates a lot of potential rent chasing each month and a lot of tenants like the fact that they never have to worry about late fees. Setting up a merchant account so you can accept credit card payments is fairly easy to do in today’s business world.

• Step 7 – The lease signing is still part of the qualification process. If the prospective tenant doesn’t agree to all the terms of the lease, you shouldn’t rent to them. Start with a good-quality lease that has all of the provisions you want to protect you and your property. You should have mentioned the most important items in the lease when you were showing the property, so there should be no surprises. It is critical to read the entire lease to the prospective tenant(s) and highlight on their copy the critical items. Have them initial every page, indicating that they have read and understand the lease and agree to all the provisions. Have them sign and date the lease, your copy and theirs, and sign the spot indicating that they have received a copy with all signatures, yours and theirs. If they argue with any of the provisions (other than minor items) and won’t sign, then politely thank them for their time and call your next applicant who qualified. Assuming all goes well, collect the money and give them the keys (unless they use a check that you want to clear before giving them possession). Remember, once they have moved in, if the funds don’t clear, you have to use legal processes to get them out.

• Step 8 – After a couple of days, send them a welcome letter telling them how excited you are to have them in your property. Thank them for their willingness to take care of the property and take pride in keeping it a great place to live. Have high expectations of your tenants and most will live up to those expectations.

There is no absolute right way to screen a tenant, but a good screening process will help you become a super landlord. So develop a screening system that works for you and use it on every new tenant. Never skip this step! You do not want to deal with any tenants from hell!

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The phrase that keeps the economic world running: The full faith and credit of the United States.

Unfortunately, that phrase is increasingly empty and hollow.

In his latest Conspiracy of the Rich bulletin, Robert Kiyosaki explores why Moody’s is ready to downgrade the US credit rating—and what that means for you and your money.

"Being downgraded is like taking a hit to your FICO score. If you have a poor FICO rating, you pay more for your debt. If the US doesn’t improve its own financial standing and the interest rates on our debt increase as a result, the US will suffer."

– Excerpt from Robert’s Conspiracy of the Rich bulletin

You don’t want to miss this!

Read Robert's latest post here: http://www.conspiracyoftherich.com/read/current/

Posted 01:44 PM | Permalink | Comments (0) | TrackBacks (0)

While there is a plethora of readily accessible information concerning effective communication, a disproportionate amount of counsel is devoted to the honing of one’s verbal communication skills. This is quite unfortunate, since it has been estimated that as much as 93 percent of communication is nonverbal in nature. If such statistics are to be believed, a meager seven percent of the message we present is comprised of our words, the remaining amount consisting of such things as eye movement, vocal tone, speed of speech, facial expressions, use of space, gestures, posture, inflection, eye contact, and body movement. To a business person who has predominately focused on verbal communication in his or her efforts to become more successful in his or her chosen field, this realization should be sobering. This is especially true because, theoretically, a person could have all the right words, and still fail miserably.

Fortunately, one can be taught to become an expert at nonverbal communication, though it will almost certainly require considerable effort since most of the mannerisms involved seem to be hardwired into our brains and subconscious behavior. The only solution is to take a thorough inventory of our habits and tendencies and begin to diligently work to eliminate those that are counterproductive, refine those that are ambiguous, and adopt those that are beneficial.

When undertaking this challenge, you may find it helpful to enlist the assistance of a friend, family member, or coworker. Practice giving the presentation you have been working on, stage a mock interview in which you are asked numerous thought-provoking and difficult questions, or role-play giving your sales pitch to a difficult and skeptical customer. Be as natural as you can possibly be, in order that your friend may be able to get a clear picture of the mannerisms people are likely to see from you in your business interactions, as well as in daily life. Have her or him jot down notes about your eye contact, facial expressions, vocal properties, and other nonverbal cues.

After the interaction has concluded, ask your friend to review the notes that he or she has taken and reflect on the emotional and intellectual impact that your cues produced. For example, “When I asked you why your competitor has had a higher rate of repeat business than your business does, you repeated the question back to me and then paused before answering after I affirmed that that was indeed my question. You also sighed, leaned back in your chair, swiveled your chair, looked at the ceiling, bit on your lip, and darted your eyes around. The explanation that followed was compelling and believable in and of itself, but I was not convinced because your nonverbal cues indicated to me that you were unprepared for this question and unsure of how to answer it. This gave me the impression that your answer was not truthful.” Your ten-minute explanation may have been enough to win over your prospective client, but it was sabotaged by your ten-second gut reaction to the question.

Posture

When one is seeking to learn effective nonverbal communication, one of the first things that he or she should address is his or her posture. Firmly plant both of your feet flat on the ground. Stand erect, but not rigidly so. Put your shoulders back, chest out and up, and chin raised. Obviously, it is possible to go overboard in one’s quest to have good posture, and end up giving off a different and unintended vibe all together. To practice the proper stance, stand tall and straight with your back up against a wall. Move your shoulders back until they are flat against the wall. This is the correct shoulder position to recreate. To determine how far forward to position your chest, take a deep breath in. Notice how your chest rises. Rather than pushing out your chest, focus on raising your rib cage. When determining the level to which to raise your chin, try to keep in mind that if you raise your chin too much you will exhibit the appearance of “looking down your nose” at your audience, and if you do not raise your chin enough, you will look submissive or uncertain.

When sitting, follow the same guidelines: feet flat on the floor, back erect, shoulders back, chest up. Pay attention to what part of your body is in the seat. You should be seated slightly forward so that your pelvis is flat on the seat, rather than sitting slightly backward on your tailbone, which puts much more of a strain on your back. Do not hunch over, slump, or lean, and keep your arms and legs uncrossed.

Proximity

Unfortunately, guidelines on proximity and use of space are not as clear-cut as those governing other considerations, and they vary widely based on culture and other factors. A good rule to follow is that if you are well-acquainted and amicable with an individual, two to four feet is acceptable; if you are moderately well-acquainted with a group, four to seven feet is ideal; and seven to twelve feet should be the aim when speaking to a group of people with whom you are unfamiliar. Try to read nonverbal cues; however, if your audience is leaning in toward you, you could close in the gap between you a little bit. If they begin leaning backward, crossing their arms and legs, tapping their feet, averting their eyes, or showing other signs of discomfort, take a few steps back. If you plan to be interacting with members of a much different culture, it would be wise to do a little bit of research on their customs for social interactions before the first meeting.

Eye Contact and Movement

It is actually a myth that honest people make and maintain eye contact, while dishonest people tend to avoid looking into another’s eyes. In fact, intensely unwavering eye contact may be just the opposite: it may indicate deception, probably because liars are making a focused effort to conceal their dishonesty. Eye contact is actually an indication of confidence and attentiveness, which is an equally important message to send. Besides, if enough people believe that eye contact is a measure by which a person’s trustworthiness can be gained, you would be wise to take heed of that, regardless of whether or not it is factual.

Therefore, you should certainly make every effort to make a reasonable amount of eye contact, but do not overdo it to the point that you seem as if you are staring at someone. If you sense that you are making someone uncomfortable, immediately reduce the amount of eye contact you are using. When you are giving a speech to a large group of people, be sure to look all around the room at your audience to be sure you are drawing everyone in, making everyone feel as if you are addressing them. Be aware of the natural tendency that many speakers and performers have toward paying an inordinate amount of time to those seated on their dominant side. You should pick a few faces in every section to focus on, in a large audience, making eye contact with them for five to 10 seconds before moving on to the next face. In smaller audiences, you should decrease the time to three to five seconds, as you will likely be looking at the same people numerous times and do not want to make them feel uncomfortable.

Avoid allowing your eyes to shift rapidly around. Be especially conscious of eye movements when you are being questioned. No matter what, do not roll your eyes, even jokingly, under any circumstances. Also avoid rapid blinking, which indicates to someone that you are not being forthcoming and honest.

Facial Expressions

Be expressive, but relaxed. Be careful not to squint, scowl, knit your brow together, or stick out your tongue. Make a conscious effort to relax the muscles around your eyes and mouth, the most common areas in which tension is expressed. Smile when appropriate, and make sure that your eyes smile, as well as your mouth. You may certainly raise your brow and widen your eyes when appropriate, but be conscious of these expressions and do not allow yourself to use them unless doing so helps you put a point across.

Gestures

Similarly, gestures should only be used for a specific purpose. Use them freely, but purposely. Never hide your hands, which is seen as a sign of dishonesty. This means you must avoid putting your hands behind your back, in your pockets, or under the table. Gesture with open hands that are outstretched toward your audience. Avoid pointing at people or in their vicinity. Do not scratch or rub your face, neck, or any other body part. Do not bite your fingernails, tap your fingers, or fiddle. In short, you should be totally mindful at all times of every gesture you make. Be calculating. If a gesture serves no purpose, do not make it.

Vocal Considerations

How often have you heard the expression, “That one is a real fast talker?” As you are probably aware, the phrase is used to describe someone as dishonest, manipulative, or sneaky. For this reason, as well as for the purpose of simply making yourself easy to understand, you should speak at a steady, moderately paced rate. Do not speak too slowly, or at the worst, you risk making yourself seem unintelligent or as if you perceive your audience to be unintelligent. At best, you will probably lose your listeners’ attention.

Speak in your natural pitch, if you must speak loudly to be heard, use your diaphragm to power your voice. Do not shout or speak in a higher pitch; do not sigh or unnecessarily clear your throat. Enunciate clearly and use a warm tone. Exercise control over your thoughts and feelings in order to not let irritation, boredom, insecurity, or other emotions seep into your message. Strive to really feel confident, interested, and appreciative, and to give a sense of camaraderie. Otherwise, all your efforts will be for naught.

These are the basics of nonverbal communication. In a future article, how to interpret the nonverbal messages and cues coming from others will be discussed.

Posted 10:24 AM | Permalink | Comments (0) | TrackBacks (0)

The Dow is quickly approaching the 10,725 barrier last reached on January 19, 2010. If the Dow breaks this barrier, it may be a sign that a recovery is on the way.

But that’s not the whole story.

Fed Chairman Ben Bernanke has changed his tone lately. In this latest Conspiracy of the Rich bulletin, find out what Big Ben’s been up to and how it may affect the markets.

Also, find out how you can still access the unprecedented FREE podcast between Robert Kiyosaki, Gold and Silver expert Mike Maloney, and former World Bank and IMF advisor Richard Duncan.

http://www.conspiracyoftherich.com/read/current

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You may have heard that one of the biggest obstacles to your success is yourself. We get in the way of our true potential in many ways. Fear and doubt are huge hindrances, but another is our lack of organization. When we are unorganized, outcomes are haphazard at best and efficiency is nowhere to be found. You will find that successful people are organized and efficient. They organize their tasks, workspaces, and the tools they use to get work done.

It all begins with knowing what you want (goals), then mapping out how to get there (a plan). One of the main reasons people do not take the time to organize their lives is they think it will take too much time. I can vouch from experience that it costs considerably more time to plow through life unorganized. When I fully organize my week and then each day, I achieve many times more tasks than on the days that I fail to plan. The same is true with my workspaces and the tools I use to get my work done. If my workspace is a mess or my tools are scattered, I spend more time finding what I need than actually doing the tasks.

Once you commit yourself to being organized, you will never be able to go back. The efficiency you will experience and the freedom of being able to put things in their place to deal with later are priceless.

In this article I will simplify all three areas that I feel need organization: tasks, workspaces, and tools. You can spend a lot more time learning how to organize all three of these areas, but this summary should definitely get you off to a good start. Once you are finished reading this, however, you may think that it sounds too easy. In a way it is, but it does require thought, time, and effort, but the payoff is worth it!

We will start with tasks. In organizing your tasks, here are some guidelines to being the most effective:

1) Create a list of to do items for the week, then each day.
2) Prioritize those items (let your priorities rule your day and not your list).
3) Set a realistic number of items to do each day.
4) Keep your planning system with you at all times.
5) Allow adequate time between appointments.
6) Allow time for unexpected items each day.
7) Use a system for retrieving information that works for you. I have not seen a system that is perfect for everyone. Examples of some planning systems include Franklin Covey, Palm, and Day-timer.
8) Do not retain unnecessary information.
9) Plan for large tasks weekly and small ones daily.
10) Schedule time for advanced planning.

Once you choose the system that you will use, learn as much as you can from the manufacturer and others on how to use the system most effectively. If you improve your efficiency by just one percent each day, by the end of the year you will have grown tremendously in that area.

What you need to address next to improve your productivity is your workspaces and the tools you use to get things done. First list all of the areas in which you work (i.e., the office, home office, Starbuck’s). Then you need to list all of the tasks and tools you need handy in each of those places. We will start with the example of organizing your office and some tools to get you started.

The list of tools may include a computer, a filing cabinet, pens, pencils, printer, envelopes, stamps, reference books, and educational books. Brainstorm a complete list of the tools you need accessible in each of the areas you work.

Once you have a complete list, the next step is to give each item a value from one to five. The values of this scale are as follows:
1- For items which you need frequently and will want within arm’s reach (i.e., pencils, computer, disk drives, flash drive input, and envelopes)
2- For items that you access frequently, however, you do not need to reach from your seat (i.e., printers and a scanner).
3- For items that you need maybe weekly, but not daily (i.e., filing cabinet and reference materials)
4- For items you need occasionally and do not want to go into storage to retrieve them (i.e., reference books and old notes)
5- For items that you seldom need access to but cannot throw away (i.e., old files, tax returns, extra paper, and ink)

Once you have given all of these tools a value, then organizing your office space is relatively elementary. Start out by thinking in terms of areas (i.e.,: value one is, of course, on or very near your desk, items with a value of five are probably in the closet or basement). You may even want to sketch out your office and define areas to get a rough draft of your space, not worrying about the details yet.

Once you have done this, the next step is fine tuning. I recommend working on one value set at a time, then moving on to the next one. For example, start with tools you need that have a one value and organize those items where they work best for you, then move on to items with a two value, and so on.

One of the byproducts of this process is that you will find several items that should not be taking up space on your desk and maybe not even in your office. Getting things out of your office that do not belong will free up a lot of space and enable you to be more efficient in a relatively small office.

Set aside some time in the next few weeks and once you have organized your space, you will be amazed at how much easier it is to get work done efficiently.

Posted 02:03 PM | Permalink | Comments (0) | TrackBacks (0)

Robert’s Latest Yahoo!Finance article

Dow 5,000 in 2010?

In my last column I predicted a “dead cat bounce” in the stock market and a possible Dow plunge to 5,000 this year. Obviously, many readers mocked my prediction. But the dead cat bounce is very important, especially in today’s market.

Read more: http://finance.yahoo.com/expert/article/richricher/

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The past year has been a wild ride in the real estate and financial markets, a ride that has produced record numbers of foreclosures and declines in residential home values. The financial backbone of the country has been shaken to the core. Multitudes of banks have gone under, and those that are left have tightened their lending criteria to the point that only those with excellent credit and large down payments qualify for mortgage loans.

Even with the massive government bailout package, the economy is still weak; the unemployment rate is at double digits in some areas of the country and the auto industry is all but bankrupt. However, there are signs that the depression is waning; a glimmer of light can finally be seen. Even so, the housing market is turning toward apartment living. Many people still do not qualify for mortgage loans, as many have high credit card debt, and others are dealing with the tough realities of bankruptcy.

We have an excellent opportunity to learn from history. Back in the late 1980s and early 1990s, the real estate market hit a few bumps. Real estate values took a downturn and the savings and loan industry went belly-up and was taken over by the federal government. Does this scenario sound familiar?

Throughout most of the 80s, the rental market had been strong and apartment building, fueled by tax incentives, was hot and heavy. Builders were putting up new units as fast as they could. By the late 80s, the number of apartment units finally caught up with the demand, but the building continued until there was a huge surplus of apartment units available with few new renters in sight. Full-page ads appeared, and some of the new apartment complexes even offered six-months free rent with the signing of a one-year lease. Vacancy rates in older units started to climb and investors started losing their properties to foreclosure.

At the same time, other investors who had purchased properties right were able to reduce their rents, keep their units mostly full, and weather the storm. Wise investors took advantage of the properties that were being sold at discounted prices.

Further into the 90s, the real estate market recovered and those who had weathered the storm and purchased properties at highly discounted values were happy campers. Rents increased, property values went up, and millionaires were made.

Those who were creative were able to keep their properties during the down cycle. One investor, who purchased an older apartment complex and obtained seller financing, saw his vacancy rate climb above 35 percent due to the newer, larger complexes offering huge concessions to new renters. This created a substantial negative cash flow for his property. He went back to the original owner and told him he was going to have to give the property back unless they could modify the terms of the note to allow him to reduce rents and the vacancy rate. The previous owner agreed and he was able to live through the down market.

We are approaching the fourth quarter in 2009; the real estate market is in another down cycle and properties are being sold at discount prices in many parts of the country. Many experts are projecting the apartment rental market may have record-breaking years in the near future. Below are some of the factors that indicate possible growth in the rental industry:

• Foreclosures – With foreclosure rates skyrocketing over the past couple of years, people who lost their homes just don’t disappear; they need to live somewhere. Although some people displaced by a foreclosure move in with family, most become renters. That is good news for the apartment industry. Higher demand and lower vacancy rates will soon equate to an increase in rental demands.

Despite efforts by the government to help homeowners keep their homes, foreclosures are likely to continue. Wise investors, who position themselves to fill the forthcoming housing need, will be well-positioned to take advantage of this growing market.

• Declining home ownership in the United States – According to the U.S. Census Bureau, home ownership had reached approximately 63 percent in 1965 and climbed to 65.5 percent by 1980. It then declined to an average of 64 percent until 1995. In the following years, homeownership climbed to its high of 69.2 percent in mid 2004.

The dramatic increase was fueled in part by the subprime mortgage market. Banks loaned to borrowers who had substandard credit, and thousands signed up for mortgages they could not afford. A buying frenzy occurred, with easy money and credit available. Now, those very same people are losing their homes to foreclosure, thus lowering the percentage of homeowners in this country.

U.S. homeownership is dropping at record rates. At the first of this year, an estimated 67.4 percent of Americans owned homes. A Chicago-based real estate blog recently estimated that the percentage of Americans who own homes fell 2.3 percent in the second quarter of 2009. That is a decrease of nearly two-million homeowners. Where are they going to live? In one study, Arthur Nelson, a professor with the University of Utah, estimates that home ownership will continue to decline over the next two decades or so and could drop to around 60 percent.

• An aging younger population – the children of the Post-World War II baby boom are now at the age at which they are settling down and looking for a more stable housing situation. Estimated to be 84 to 85 million in number, Generation X will be flooding the rental market over the next decade.

Unlike their parents, many have little or no savings, and do not qualify for a home with the new higher lending standards. Nowadays, having a co-signer or borrowing a large down payment from mom and dad is no longer an option. Today, many moms and dads do not have extra money and are concerned with their own financial security; the stock market drop, pension plans going belly up, and many close-to retirees being downsized just before eligibility for full retirement would have begun have all contributed to financial concerns.

• Uncertainty in the job market – The only thing sure about employment today is that you probably won’t have the same job in five years. Generations X and Y understand this and want to remain mobile so that if they get laid off, they can go to another city to find employment. This contributes to an even bigger demand for apartments and rental units.

• Modern apartments – Modern apartments are more like condos and townhomes, with nine-foot ceilings, bedrooms with lots of windows, big bathrooms, decks, fireplaces, island kitchens with granite counter tops, full-size washers and dryers in every unit, and exercise facilities.

Living in the modern apartment isn’t all that bad; in fact, for many, it may be much nicer than the homes that they could have afforded. Additionally, many of these new apartments are being built close to major places of employment. Younger generations do not like a long commute. Housing close to larger cities tends to be very expensive, even in today’s market. So why not rent, get all the perks, and have a shorter commute to work?

• An aging older population – Partly due to the down economy, but largely due to poor saving and investing habits, many baby boomers now reaching retirement age do not have enough money to retire and many, due to declining health, can’t continue to work. Many will have no choice but to live in apartments. Smart investors will prepare to meet the needs of our aging population.

A new report released by the National Apartment Association (NAA) projects new apartment building demands to be $1.1 trillion by 2030. Will you be part of the upcoming apartment boom? You can be, but you need to prepare now!

Posted 11:49 AM | Permalink | Comments (0) | TrackBacks (0)

Although we negotiate on a daily basis, whether we realize it or not, most people are not naturally gifted negotiators. It is a skill that must be learned and honed overtime.

According to Harvard Business Essentials, “Negotiation– whether brokering a deal, mediating a dispute, or writing up a contract – is both a necessary and challenging aspect of business life.” Unfortunately, far too few people are prepared for or equipped to handle this aspect of life. The purpose of this article is to give you a basic overview of the skill of negotiation, and some general tips for its use.

There are two-main types of negotiation: distributive and integrative negotiation.

Distributive Negotiation

Defined by Negotiations.com, distributive negotiation is “a type or process that normally entails a single issue to be negotiated. The single issue often involves price and frequently relates to the bargaining process. Also referred to as ‘Win–Lose’, or ‘Fixed–Pie’ negotiation because one party generally gains at the expense of another party.”

Distributive negotiation is generally a very uncomfortable, in-your-face method of resolving disputes or points of contention. Often, such sessions consist of each party strategically attempting to strong-arm the other party with the objective of persuading or forcing the other party to knuckle under and concede defeat. Rarely do both parties express satisfaction with the final outcome of such negotiations, and often, neither party is fully satisfied with the end agreement. The practice of using distributive negotiation is slowly, but steadily, falling out of favor with many professionals whose line of work calls for regular negotiation with others. However, there are still some situations in which utilizing this approach to negotiation may be your best bet. As a general rule though, it would be wise to consider another approach if the person with whom you are involved in a dispute is someone:

• with whom you will have continued interaction past the resolution of the current situation. One or both of you is likely to harbor bitterness and ill will toward the other, especially in circumstances in which the negotiations became particularly heated or one or both parties illustrated their willingness to play hardball. Even if both parties reach an agreement they can both live with, the end will not necessarily justify the means in the minds of either one of the participants, and lingering feelings of resentment are likely to remain.

• who has less to lose than you do. Never try to strong-arm someone who has more leverage. The old saying has always held true, and will continue to hold true: “The person who cares the least is in control.”

• who has the ability to tarnish your reputation. Do not go toe-to-toe with someone who is well-known and generally liked or respected in your community, organization, or industry. Successfully engaging in distributive negotiations requires many techniques that could be perceived by some to teeter on the borderline of being underhanded or sneaky. You do not want to anger or wound the pride of someone who can ruin your good reputation with the people whom you rely upon for success, such as customers, coworkers, associates, or other business contacts.

If there is nothing to discourage or prohibit you from playing hardball and the other party clearly has no interest in investing the time or energy in reaching a conclusion that benefits you as much as it does him or her, consider the following points:

Play it cool. Do not seem overly excited about what they have to offer. Coming across too eager makes you seem as if you are in desperate need of something that they have to offer. This gives them a very strong standing in negotiations.

Mum’s the word. Share as little information as possible with the other party. Make them wonder what you are up to. This tactic will generate anxiety and lead them to second-guess their position if used properly.

Don’t show any weakness. Be careful how you phrase things. Never, under any circumstance, begin a sentence with, “I don’t suppose you would be interested in…” or “I’m sure you wouldn’t want to…” Be confident, act aloof, and exude power and superiority. Do not undermine your position.

Search for weakness. Has the price of that vacation property you are eyeing been reduced three times in two months? Does that car salesman rigidly stick to a script and have absolutely no idea how to answer your more difficult questions? Have you been told that the businessman with whom you are interacting relies on his partner to be the bad guy because he has a hard time saying no and sticking to it? Look for any weakness that you can exploit in order to get the upper hand.

Portray yourself as a hot commodity. Tell the representative about the better, more appealing offer that their competition just extended to you. But if you are going to make something up, make it believable. If you get too greedy and demand a ridiculously good deal, a company is unlikely to even try to compete with the deal you claim to have been offered.

Create a fear of loss. Studies show that people are more likely to budge and be willing to compromise when they perceive that they are at risk for losing something they already have, rather than when they are being promised something that would benefit them in some way.

Express your willingness to walk away…but only if you really are. Be sure you really can walk away. They just might call your bluff, and, in fact, are more likely to do so if they sense that you are not serious.

Hire appropriate representation. In a situation which involves legal issues, whether criminal or civil, do not attempt to represent yourself, as doing so can potentially have devastating ramifications. Some studies have indicated that 85 percent of people believe they are in the top 10 percent of effective negotiators. Obviously, most people find it hard to accurately gauge their skills at negotiation. Do not open yourself up to liability by overestimating your ability to negotiate.

Integrative Negotiation

“Integrative negotiation is often referred to as 'win-win' and typically entails two or more issues to be negotiated. It often involves an agreement process that better integrates the aims and goals of all the involved negotiating parties through creative and collaborative problem solving. Relationship is usually more important, with more complex issues being negotiated than with Distributive Negotiation.”
-Negotiation.com

Integrative negotiation is much less adversarial, and more geared toward making sure that everyone walks away from the table at least somewhat satisfied. Whenever possible and practical, you should attempt to use this form of negotiation, as you never know what bridges will be burned and what will be lost when you rely on distributive negotiation.

While more effort goes into integrative negotiation than into adversarial negotiation, it is much less mentally and emotionally taxing since your objective is not to outsmart the other party, but brainstorm a solution that meets everyone’s needs as fully as possible.

Before your meeting:

Do your research. Find out as much as you can about the other party and his or her situation.

Put yourself in someone else’s shoes. Resist the urge to demonize the other party. Try to see the situation from his or her perspective. In so doing, you may begin to see that there is not a good guy and bad guy, or a right and wrong position.

Determine your ideal scenario. Explore your desires and goals. Ask yourself what you want and why you want it.

Put some thought into how you can best explain your position to the other party.

Determine what you are willing to give up – prioritize. Once you have set your goals, set your boundaries.

Determine where your absolute limits are: the absolute most you can pay, everything you can stand to live without, and the things you may definitely want but don’t really need. By the same token, identify what is a matter of values and what you absolutely can and will not compromise on.

The Meeting

Rid yourself of preconceived notions. Assumptions have no place in negotiations, and only serve to muddle everything and prevent everyone from achieving a good, solid understanding of the circumstances.

Set your sights high. Negotiation is all about a little bit of giving and a little bit of taking. Don’t state your bottom line right off the bat. From that point, it is virtually impossible to achieve an outcome that you can be happy with.

Practice good communication. Ask the right questions, and really listen to the answers. Read between the lines and, if necessary, keep asking questions until you are sure you have a clear and accurate picture of what the other party is looking for in the way of an agreement. If the other party seems willing to disclose information about his or her position and you trust that the information is honest, go ahead and meet in the middle by also practicing disclosure…selectively. There are times when both parties only seem to have a problem that cannot be solved, when in reality, the things they want do not exclude each other. There is a popular allegory contributed to the late social worker and author, Mary Parker Follett, that beautifully illustrates this point. Two sisters are fighting over one orange, which they both desperately want, and they both assert that they need the whole orange. At first glance, there does not appear to be any way to amicably resolve the issue. The sisters could resort to threats (attempting to tattle on the other), could ask their parents to arbitrate the dispute, or could trade the orange for something that the other also wants or needs. In the course of the negotiations, the sisters discover that one sister wants the orange to make orange juice, while the other sister needs the rind of the orange for a recipe that calls for orange zest. As you can see, in some situations, the issue is not what is originally seemed.

Learn to practice active listening in order to further minimize misunderstandings. However, if possible, avoid using the infamous phrase, “So what I hear you saying is…” and similar introductory phrases, and, instead, focus on speaking to them as you would speak to a family member or close personal friend in a situation in which you are trying to help solve a problem for them.

Don’t think of it as a winner/loser scenario. “Pride cometh before the fall.” Don’t get so caught up in winning that you deprive yourself of a mutually beneficial resolution to a problem. Ask yourself if winning is really all that important and what you stand to gain, as well as if it is worth the risk of losing.

Treat the negotiation as a brainstorming session. Approach the negotiation as a meeting in which two people with no hostility for each other are collaborating in the hopes of finding a solution that will simultaneously solve both of their problems.

He who speaks first loses. Make a proposition, then pause in silence as you wait for the other party to respond. Do not speak again until after he or she has given you something to respond to. Even if half an hour passes in silence—and it most likely is only a couple minutes and simply feels like an eternity—do not fill the silence with your voice. Do not fidget, clear your throat, or make any nervous body movements whatsoever. Remember those staring contests when you were a child? This is the same thing. Do not blink.

Be realistic. All your issues may not be resolved in one setting. Tackle separate issues in just such a manner – separately. Be willing to adjourn and meet again if either party becomes too emotionally involved or a stalemate seems imminent. And be open to the possibility that despite your best efforts, all attempts at amicably resolving the issue at hand may be to no avail, and you may have to play hardball after all.

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What is a business mixer? A business mixer is a networking event that offers business people a chance to meet and greet other professionals. The purpose of a mixer is to help business people make new contacts that can benefit their businesses in a number of ways at some point in the future. Hosting a party for your associates and peers may sound intimidating, but there are 15 easy steps to follow to make your event a hit.

1. Make a list of your business contacts. The list should include anyone with whom you have had business dealings in the past, as well as any professionals with whom you are even casually acquainted. Next, think of any people in your community who you know by reputation only who might be looking for an opportunity to network

2. Come up with a theme. Then invite local entrepreneurs and other individuals who would have a reason to be interested and involved with the theme you have chosen. Be creative. For example, if your theme was real estate, you should invite the owner of local cleaning companies, house painters, landscapers, moving companies, accountants, lawyers, Realtors, title agents, and various types of lenders.

3. Make a few phone calls. Call a few of your top contacts and let them know you are considering throwing a mixer to help your contacts meet some new people. Ask them if they have any suggestions for you and if there is anyone who they would like to meet. You might also want to ask if any of your top contacts would like the honor of co-sponsoring the event. In exchange for helping you with the cost of the event, you can offer them a 10-minute speaking opportunity on a relevant subject of their choice. If there is room, you might also consider giving them permission to set up a small table with some of their marketing materials at the event.

4. Choose a location and set a date. Choose somewhere that guests can mill around comfortably and not have to shout to be heard. An art gallery would be a perfect example of a place to hold a business mixer. Set a date. Send out attractive, quality invitations to everyone on your newly expanded list of contacts. Include RSVP cards, and send your invitations out a few weeks in advance. Midweek days such as Wednesday or Thursday are generally your best bet, and most mixers run from 6 p.m. until 8 p.m. Be sure to specify the standard of dress for the occasion, be it traditional business, business casual, or cocktail attire. For the typical business mixer, business casual is probably the standard of dress that you should request. If, however, you will be hosting your event at an upscale venue, serving finer fare, and serving some type of alcoholic beverages (or allowing guests to bring their own alcohol, such as bottles of wine), then you should consider requesting cocktail attire. Most people love the opportunity to get dressed up for an event, but you must make sure the occasion merits it. Approximately two weeks in advance, follow up by sending an Evite to everyone whose e-mail address you have. Evite, found at www.evite.com, is a wonderful resource for creating e-mail invitations and offers helpful party-planning tips. There are also numerous ways to use social networking sites to spread the word and remind people about your event. Be sure to encourage everyone to bring a friend, since this is the best way that you as the host or hostess will meet new people and forge new business relationships.

5. Follow up with VIPs. If there are any VIPs that you want to invite, follow up with a personal phone call a few days after mailing out their invitations.

6. Be up front about the cost of the event. Let everyone you invite know the cost per attendee (somewhere in the neighborhood of $20 is appropriate) and ask them to pay in advance or bring a check or exact change the night of the event.

7. Ask for contributions. You might also ask key players to bring a door prize valued at $50 or more. Let them know that they will receive an acknowledgment for their support of the event. Ask local businesses to donate small items such as pens, drink sleeves, or monogrammed golf balls at least a week before the event in order to make goody bags for your guests.

8. Plan food and drinks. Simple appetizers, bite-sized desserts, and other finger foods that can be served at room temperature are ideal for the occasion. You might see if a local restaurant, deli, or bakery would be willing to give you a discount rate for handling this portion of your event in exchange for getting some visibility in the community. Mention to them that many investors, Realtors, and business owners will be in attendance, as these individuals often look for a good deal on great food for open houses and office parties. As for beverages, bottled water, tea, coffee, and soft drinks should be considered the bare minimum. If you have the budget for it, offering beer, wine, cocktails, and mocktails will have a very positive effect on the success of your event. Before making those decisions though, consult with your attorney, as well as your local Alcoholic Beverage Commission, as there could be liability issues to take into consideration.

9. Don’t forget the prizes. If you have the budget for it, consider purchasing a prize to raffle off. Be sure to make it something that would appeal to your guests, such as a new PDA or a nice leather laptop carrying case.
10. Plan a short speech. If you would like, plan your own short speech on a relevant topic, making it slightly longer than the others given that evening. You want people to have the impression that you are the new expert in town, and that you are the person to do business with.

11. Last-minute follow ups. Make contact with everyone who RSVP'd on the day before or the day of the mixer to remind them of the event and again ask them to bring a guest.

12. Have everyone sign in. Have a sign-in table at the entrance to the event where the guests can all leave their contact information and specialty for inclusion in a master contact list that you will compile and mail out at a later date. Have blank name tags and black markers available at the table.

13. Mix and mingle. It is important to be social, but don’t try to insert yourself into every conversation and don’t try to steer the night in any particular direction. Let things naturally flow.

14. Be the last one to leave. Stay at the event until the last guest has left. Thank everyone for coming, and be sure that all the clean-up has been taken care of, whether by you or by someone to whom the task was designated. If alcohol has been served, call a cab for anyone who seems as if he or she may not be able to safely drive home. Not only is it the morally responsible thing to do, you could be liable if the guest became intoxicated at your event and had an accident after leaving.

15. Compile and send out the contact list. Include everyone who sponsored and/or attended the mixer. Be sure to include a personalized note thanking everyone for coming.
Remember to plan, plan, and plan some more. Don’t leave anything to chance. At the same time, do not allow yourself to become frazzled. There may be things that don’t go exactly as planned. If a problem pops up, don’t panic. Calmly address and resolve the issue to the best of your ability and keep your sense of humor. Enjoy yourself. Not only will this help your guests to relax and have a good time, but the people who are meeting you for the first time will get the impression that you are a professional who can get things done without even breaking a sweat. Everything may not be perfect the first time you throw a mixer, but the best way to learn is by doing. The day after your event, reflect on the experience. Think about what worked well for you, as well as what did not, and try to identify any ways you can improve for the next mixer or event that you host. If you keep at it, before long, hosting successful business events will be second nature to you.

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This series of articles on the basics of real estate investing discusses what an investor needs to know in order to take advantage of the current real estate market and build a profitable real estate investing business. To some, real estate investing may seem somewhat complicated, but it’s actually easier than one might think. This doesn’t mean you can just read a book or go to a seminar or two and gain all the knowledge you need to safely invest, but it does mean that with some effort, you can get the training you need to start investing. Rich Dad Education provides numerous courses (online and live) covering the basics of real estate investing. If you couple those courses with a personal real estate coach and a Mentor, you can gain the knowledge you need to start investing in record time.

Nothing will give a real estate investor more confidence than having a super buyer’s list. It helps to take away the number one fear that investors have—the fear of not being able to sell a property that they buy. This is especially worrisome for many investors in the current buyer’s market where it is more difficult to sell a property; however, with a good buyer’s list the property can easily sell.

There are two main components to a buyer’s list: 1. a list of other investors and rehabbers who may be interested in buying properties and 2. a list of buyers who are looking for a home to purchase as their primary residency.

This article will focus on building the investor component of your buyer’s list. The next article will discuss ways to generate the second type of buyer’s list—a list of people who are looking for their own personal home.

Building a Wholesale Buyer’s List

If you are planning to wholesale, you should spend time building a list of active buyers, usually other investors, who are looking for properties to buy. This is an ongoing process and an investor should always be searching for potential buyers. An ideal list for a wholesaler would have buyers for every type of property that one might find—contractors/rehabbers, landlords (for low-end, high-end, and average properties), multi-unit buyers, other wholesalers, cash buyers, new investors, and commercial buyers. An investor’s list usually starts fairly small, but grows over time into a list with hundreds of ready and willing buyers for numerous types of properties.

Here are a few suggestions to help you build a super buyer’s list:

• Search the newspaper for “Cash for Houses” or “We Buy Houses” ads. Many investors worry when they find numerous “I buy” type ads in their local newspaper. They think, “Boy there is a lot of competition for real estate deals in this area.” But if you are going to wholesale deals to others, the “I Buy” guys become your customers, not your competition. They are looking for property to fix up and sell or rent, and you may be able to supply them with that property, if you have negotiated a good deal.

Develop an information sheet that you can fill out each time you contact an “I Buy” guy. When you call, get to know them as best you can. At a minimum, get the following information:

1. Name and contact information (office phone, business cell phone, and e-mail address).
2. Find out what type of properties they are looking for.
3. Find out what areas of town they prefer to invest in and if there are any areas they don’t want to consider. Hint: If you are just getting started and are not that familiar with an area, this information can help you know in which areas you should look for property and the areas you should avoid.
4. Find out what price range they are interested in.
5. Find out how fast they can close on a property. If you have a property under contract that has a closing deadline in two weeks, you need to know who on your list can close in a relatively short period of time.
6. Find out how much profit they want in order to be interested in the deal. You will find that some investors will be satisfied with deals that produce $10,000, while others may not even look at a deal unless they have a potential profit of $25,000 or more.

As you generate your buyer’s list, categorize and group potential investors
based on the above data. That way you can save time and match the right properties with the right investors.

• Always be on the lookout for “I Buy Houses” bandit signs. Again, new investors may view the investors who use bandit signs as competition, but as a wholesaler, these people can become some of your best customers. Whenever you see a bandit sign, immediately write down the phone number. If you think, “I’ll get that number later,” you won’t remember where you saw the sign or the sign may be gone by the time you get back to that location.

• Search the Internet for “I Buy Houses” ads. Go to some of the popular advertising websites, such as craigslist.com and backpage.com, and look for “I Buy” type ads in your area. You can also try a search by typing in “I Buy Houses” along with your city and state. You will get more information than you really want, but start calling and add the names of interested investors or investment companies to your buyer’s list.

• Call on “For Sale” ads. Research your local newspaper for homes that are advertised for sale. Look for key words that might indicate that the home has been recently rehabbed. Words such as, newly remodeled, completely updated, or new interior can be indicators of rehabbed properties. Call on the ads and find out if they are investors. If they are, get their information and add them to your buyer’s list.

• Run your own ads in local classifieds. Experiment with the regular newspaper and the weekly free papers, such as the Penny Saver or Thrifty Nickel. Try running an ad that says, “Handyman Specials – Low Prices – Terms Available – XXX- 123-4567.” This should get your phone ringing. You are not advertising a particular property (unless you have a property under contract) and when people (usually investors) call, get their information and let them know you will be getting additional properties soon and will provide them with specific information. Get them on your buyer’s list.

• Run your own ads on several Internet classified advertising sites.

• Network at your local real estate investment club meetings. Most areas in the country have real estate investment clubs that meet on a regular basis. Plan to attend the monthly meetings for as many clubs as you can find. Gather cards from everyone you meet and follow up later in the week with a phone call to discuss what type of investing they do and add them to your list.

• Call on all the “For Rent” signs you see and ads listed in your local newspapers. Property owners who have properties they rent out may be looking for additional properties to buy, fix, and rent. If you have a property under contract at a high-enough discount that provides a positive cash flow, it should be easy to assign that contract to an existing rental property investor.

There are other techniques that can be used to build a wholesale buyer’s list. Be creative and your list will continue to grow.

So how many active buyers do you want on your list—50, 100, 200? You want as many as you can get! Don’t ever stop building your list. Investors with a super buyer’s list never have to worry about selling properties or assigning contracts. And if you have a super buyer’s list, you will find that other investors will come to you and ask for help in selling their properties. That can generate an additional income stream for you. A super buyer’s list is one of your most important assets.

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Rich Dad always said, “There are two sides to every table.” In order to understand this financial crisis, you have to understand your banker’s point of view.

In the first installment of his series, “Why This Crisis Doesn’t Make Sense to Normal People”, Robert Kiyosaki explains why your banker doesn’t want your savings – he wants your debt – and tells you why knowing this simple truth is essential to not only survive but also thrive.

"For people who believe in the old rules of going to school, getting a job, working hard, living below your means, saving money, buying a house, and investing in a government approved retirement plan, this brave new world of money can be very confusing. This is why the 8 New Rules of Money, detailed in Conspiracy of the Rich: The 8 New Rules of Money (COR), are essential for financial survival as well as financial success."

– Excerpt from Robert’s Conspiracy of the Rich bulletin

You don’t want to miss this!

Read Robert's latest post here: http://www.conspiracyoftherich.com/read/current/

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As the economic turbulence continues on a global scale, the unfortunate truth is that many people – those playing by outdated rules – will lose everything they have worked so hard for. Millions have already been affected by the housing market collapse, bank failures, the stock market crash, and layoffs. Robert and I don’t want you to fall into this financial trap. That is why we are doing all we can to help you learn the new rules and get smarter with your money.

On March 16th, 5pm (PDT) Robert is hosting a special free exclusive podcast with experts, Mike Maloney and Richard Duncan, in order to help you better understand the money system and how you can prepare yourself to benefit from this opportunity instead of becoming a victim.

This podcast is completely free because Robert and I want you to understand what is going on in the world today and how you can plan for your future and protect your money. Robert’s two guests are extremely knowledgeable, and Robert makes sure the concepts are explained so they are simple enough for all of us to understand. I hope you can join us.

I commend you for your commitment to furthering your financial IQ. Here’s to your financial success!

Kim Kiyosaki

Register Now: http://www.richdad.com/richdad/GvUSD-podcast/GvUSD-register.aspx

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The rich countries of the world – including the US – are edging closer to bankruptcy. If one falls, the world’s economy will fall with them, and millions will be wiped out.

Are you prepared to prosper even as the world economy crumbles?

In his latest Conspiracy of the Rich bulletin, Robert Kiyosaki talks about the precarious state of the global economy–and how you can survive and thrive.

"The world is in a precarious situation. I’m afraid the rich countries of the world will soon be the poor countries of the world, and when that happens, the world will go bankrupt... In the near future, only the strong will survive and thrive due to less competition. Unfortunately, this will mean more suffering for the weak or naïve."

– Excerpt from Robert’s Conspiracy of the Rich bulletin

You don’t want to miss this! Read Robert's latest post here: http://www.conspiracyoftherich.com/read/current/

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Many think creative financing involves complex, difficult strategies; however, it simply means finding an alternate way to solve financial problems. When faced with a challenge to finance a property, always use a simple solution.

In a previous article in this series, we discussed the importance of putting together an easy-to-understand loan-request package. With this package, you may get the best (and cheapest) financing available, whether your source is a traditional lender, like a bank, or a private lender.

There are situations, however, in which traditional financing is not available (or not practical), and an investor has to be very creative just to get the deal done. In this series of articles on creative financing, we will discuss numerous methods and techniques to get a property financed. The more methods you understand, the easier it will be to find solutions to sellers’ problems

Utilizing creative financing requires one to think outside the box for solutions that satisfy both the buyer’s and the seller’s needs. There are many places you can go to get help with financing for a property, other than a traditional lender. You may incorporate any one, or a combination of sources, in order to fund a project. With your own creativity, you will be able to add to the following list:

Sources of Creative Funding

• Other investors
• Partners
• Hard-money lenders
• The property itself
• The seller
• The realtor (if one is involved)
• The buyer
• The renters (if it is an existing rental property)
• Options and leases
• Underlying mortgages
• Special first-time home-buyer programs
• Down-payment assistance programs (for those who qualify)
• Your rehab contractor
• Your local city, county, or state government (special loan programs)
• Government grants
• Private grants (for special projects)
• Relatives or friends

This is not a complete list by any means, but it should give you a few ideas.

One of the most popular ways to finance a property (other than through a traditional lender) is to use the seller as a source of funding. If the buyer/investor has done his selection job well, he/she will be dealing with motivated sellers who will most likely be flexible with financing arrangements, as long as their needs are met. If the investor is in tune with the seller’s situation, they can develop a trusting relationship with the seller. The investor can then educate the seller as to the advantages of seller financing, and suggest ways to set up the financing that will create a win-win situation.

Here are a few ways that the seller can get involved in the financing:

1. Seller Funds the Whole Deal

If the seller owns a property free and clear, they can carry a mortgage for the entire purchase price of the property. This allows investors to get into the property for only enough money to cover their share of the closing costs. A sweet deal if you can get it! However, the investor may have to come up with some down payment. The amount would most likely be proportional to the amount of trust the seller has in the investor. Listen to the seller and find out what the needs really are and try to meet them.

Many times, especially for older sellers, the need is for a steady monthly cash flow and not for a lump sum of cash. Once they understand that it can be to their advantage to become the bank and they trust you, the deal is done. The buyer makes one mortgage payment directly to the seller. No banks involved.

2. Seller Funds Part of the Deal by Carrying a Second Mortgage

In the case where the seller has a mortgage on the property, but also has some equity, the seller may be willing to help with the financing by carrying a second mortgage on the property. For example, if an investor offers $200,000 for a property and the seller has a $100,000 first mortgage, the seller may be willing to finance all or part of their $100,000 equity by creating a new mortgage that will be in second position.

The buyer would obtain traditional financing in the amount of $100,000 to pay off the first mortgage. The seller would get a note (secured by the property) instead of cash at closing. If the seller is willing to carry all $100,000 dollars on a note, the investor would have close to a nothing-down deal. He may have to come up with money for closing and financing costs. Or the seller may require a down payment for enough to pay the closing costs and a real estate broker fee, if a real estate agent is involved in the transaction. Always ask for a 100 percent second – you just might get it. In this case, the buyer would be making two payments – one to the bank for the new first mortgage and one to the seller for his $100,000 2nd mortgage note.

3. Seller Funds Part of the Deal by “Wrapping” the First Mortgage

If the seller is willing to create a note and take payments for their equity, but the buyer can’t get a new first mortgage (or doesn’t want to go to the expense of getting a new first mortgage), the seller can create a new note for the entire purchase amount that “wraps” the existing first mortgage.

In states using trust deeds, an all-inclusive deed of trust is the document that is used to create a wrap mortgage. As in the previous example, if the investor is paying $200,000 for the property and there is an existing first mortgage of $100,000, a new note would be created for $200,000, payable to the seller. But the note and mortgage documents would indicate that there is already a $100,000 mortgage on the property. The payment on the new $200,000 note would be based on the interest rate and term negotiated. The buyer would make one payment to the seller, but the seller would have to take part of those funds and make the payment on the first mortgage. The prudent investor would set up payments going to an escrow company that would make the payment to the bank and send the balance of the payment to the seller.

The wrap mortgage benefits both the buyer and the seller. The buyer saves the origination expense of getting the new loan and usually gets an interest rate lower than he could get at the bank and gets into the deal for nothing down. The seller gets a quick closing (no waiting for any loans to be approved). If he’s smart, he will set up the interest rate on the new note to be higher than the interest rate on his original first mortgage. Thus, he will not only make interest on his equity, but make interest on the spread between the new note and the bank mortgage interest rates. This can be a great selling point to get the seller to accept the wrap-mortgage concept.

4. Seller Takes Second and Third, Keeps Third and Sells Second

In this situation, the seller wants some cash, or wants more cash than the buyer has to offer. For example, let’s say a buyer offers $200,000 for a home that has an existing $100,000 mortgage. The seller is willing to carry a second mortgage, but wants a minimum of $20,000 cash. The investor could get a new $100,000 first mortgage and then just pay the $20,000 and have the seller carry a note for $80,000.

What if the investor doesn’t have the $20,000? Is the deal dead? No. If you are dealing with a motivated seller, suggest that two notes be created –one for $25,000 and one for $75,000. The $25,000 note would be in a second position and the $75,000 note would be in a third position.

The $25,000 could be sold to a note buyer for $20,000, giving the seller the required $20,000. The seller would be getting $5000 less for the property but would be getting their $20,000 cash from the deal. The investor would now be making three payments, one to the bank for the new $100,000 loan that paid off the original first mortgage, one to the note buyer for the $25,000 second mortgage, and one to the seller for their $75,000 third position note.

For ease of management, payments could be set up through an escrow company, so that the buyer would only have to make one payment to the escrow company who would in turn pay the three mortgage holders. Second-position seller carry-back notes can be sold for less of a discount than third position notes; thus, the second position note was sold in this case.

5. Seller Carries a Second Position Note with a Balloon Payment

So far we have used examples where sellers were willing to carry notes that were fully amortized over the negotiated term of the loan with no balloon payments attached. But many times, sellers may be willing to carry notes, but not for 20 to 30 years. They may be willing to accept payments based on a 30-year amortization period, but they want the full balance to be paid off in a shorter period of time. This becomes another negotiating point in structuring the deal.

The seller may want a balloon payment of the entire balance in say, three to five years. This means that the buyer would have to sell the property or refinance in three to five years. Short balloons like these create high risk for the buyer/investor. Try to avoid balloon payments altogether, but if a balloon is the only way to save the deal, try to get at least seven to ten years before the balloon is due. Longer balloons give you more flexibility in finding the best long-term financing for a rental or give you a more saleable property if you sell and let your new buyer assume the existing seller financing.

6. Graduated Payments as an Alternative to a Balloon

Suppose you buy a property to keep for a long-term rental. The seller is willing to carry a note for some or all of the equity, but wants a balloon payment down the road. You may be able to eliminate the balloon (or at least reduce the balloon payment amount) by negotiating graduated payments into the deal.

For example, if the seller carries a note for $100,000 at six percent interest, amortized over 30 years, the payment for principal and interest would be $599.55 per month. If the seller insists on a five-year balloon payment, the payoff in five years would be $93,054.36. Now if you had to refinance for that amount to pay the balloon in five years, could you do it? Maybe, but it also might be a foreclosure just waiting to happen. Instead of taking the risk of a short-term balloon, why not try to negotiate graduated payments. Payments could go up $50 a month in the second year and subsequent years, the normal payment of $599.55 per month the first year, then $649.55 per month the second year, and so on. The increased rents should take care of the increased payments.

If you could get the sellers to take the graduated payments and put off the balloon till year 10, then the payments would be $1099.55 per month. The balloon payments due would now be only around $50,000. This is a more manageable amount to refinance, even if the property hadn’t increased a lot in value. This deal is much less risky for the investor.

As you can see, there are many different ways to structure a deal. The key is finding out what the seller really needs out of the deal and being creative in giving them what they want. Of course, the numbers have to make sense to start with and allow the investor to make a profit from a quick sale or a positive cash flow from a rental. The more creative techniques you are familiar with, the easier it will be to successfully negotiate a winning deal for all parties involved. We will discuss additional creative financing techniques in future articles in this series.

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