Rich Dad Education Blog

There are numerous real estate millionaires and billionaires in this country who, for the most part, quietly enjoy their wealth out of the limelight. Many of these investors started with nothing or very little. Some graduated from college, and others either dropped out of college or skipped college altogether. Several investors have gone bankrupt (or at least have come very close), or at one time or another have lost properties to lenders. But they recovered and are now millionaires or billionaires. Why were these investors able to recover from huge losses, even bankruptcy? Because they had knowledge—knowledge of real estate, real estate markets, and of what it takes to make money in real estate. But it wasn’t just knowledge that created their success—it was also taking action and making it happen! The bottom line is that when you have real estate knowledge and the experience of putting that knowledge into action, you can lose it all and make it all back again.

What would you do if you had enough passively earned income each month to take care of all of your expenses, and that came to you whether you were at home or in Hawaii for a month? This is what investing in real estate can do for you, and it is why so many people come to real estate when they finally decide that their nine-to-five job is not very secure or that profitable.

“But,” you say to yourself, “look at the mess real estate is in today! Surely, this is not the time to get involved in real estate investing.” Yes, the real estate market has taken a big hit recently. Are people still making money in real estate? Absolutely! Many educated investors are making more money today than ever before.

The catch is that you have to know what you are doing. You can make a lot of money in real estate, but you can also lose a lot of money if you don’t know what you are doing. Up until a couple of years ago when the housing bubble burst and the bottom fell out of the real estate market, almost anyone could make money in real estate. Just buy a home, wait a few months, and sell it for tens of thousands more than you paid for it. Homes in many areas were appreciating at record rates. You could buy high, wait for appreciation to drive the price even higher, and sell higher. It was money easily made, and a lot of “investors” made a lot of money.

But there are two kinds of real estate investors: educated investors who build in their profits when they buy, and uneducated investors who buy relying only on appreciation for their profits. The educated investor will only buy properties that will make money no matter what the general real estate market does. If the market goes up and he gains some appreciation, that is just icing on the cake. But if the market is flat with no appreciation, money is still made because the property was purchased at a low enough price to assure a profit.

People who buy properties where appreciation is the only way to make a profit are not real estate investors, they are real estate speculators. Many of the bank-owned properties on the market today belonged to speculators that bought at the top of the market, paid top dollar, and got stuck with a property they couldn’t sell as real estate prices started to drop.

There are many different ways to make money in real estate. The first thing a person needs to decide is what type of a real estate investor they want to be: an active investor who makes real estate investing a part-time or full-time business, or a completely passive investor who just wants a good return on his or her portfolio.

For the person who wants strictly passive real estate investments, there are several options. People in this category already have money to invest and can opt to diversify some of their money into real estate type investments. These investments are run by managers; investors are not involved in day-to-day decisions. Options include, but are not limited to:

• Real Estate Investment Trusts (REITs) – A REIT is a corporation or trust that uses pooled capital from many investors to purchase and manage income property (equity REIT) and/or mortgage loans (mortgage REIT). REITs are traded on major exchanges just like stocks. REITs offer some benefits over actually owning properties. First, they are highly liquid—unlike traditional real estate, shares can be rapidly bought and sold. Second, they allow the small investor to benefit from various types of commercial real estate, from malls and hotels to large office buildings and apartment complexes. The right REIT can provide a nice monthly income, but, as with any investment, do your homework before you invest.

• Tenant-In-Common (TIC) Investments – Investors now have the option of investing with up to 35 other investors in a tenant-in-common type real estate investment. They can turn deeded and undivided interests in their smaller apartments (or any type of real estate investment) into partial ownership of high-quality, institutional-grade properties—formerly out of the common investors reach and only in the purview of REITs, pension funds, and major investors. Since investors are actually on the deed, these investments qualify for 1031 exchanges. Cash investors can also benefit and 1031 exchange out on the back end. For the investor who wants a monthly cash flow without any management responsibility, TIC investments make sense. But TICs are not all created equal, so do your homework.

• Hard-Money Lending – For those who want potentially big returns on their investments, helping fund a professional hard-money lender is an option. But it is not for the faint of heart. Big returns involve BIG risk.

• Limited Partnerships – A good limited partnership has the potential for a good return. As a limited partner, you are not involved in any decision making and your losses are limited to your investment. Again, do your research. Depending on the goals of the partners, the partnership may be very conservative or it could be very speculative.

A lot of new real estate investors have very little money to start with and are looking to real estate to create a good nest egg. Traditional real estate investing has many options, so it is a good idea to determine what type of investing you really want to be involved with. Real estate investing is not a one-size-fits-all business. Not everyone has the temperament to be a landlord, for example. Dealing with the three Ts (tenants, toilets, and trash) is not everyone’s cup of tea. Not everyone is cut out to deal with fix-up projects. Some might happily handle minor fix-up projects, but may not be able to handle the stress of a major fix-up. Things don’t always work out as well as they do on TV.

What are your capabilities to finance your real estate projects? A solid real estate education will open your eyes to the many ways to finance real estate, even if you have little or no money of your own.

Here is a list of several different financing options for real estate investors:

• Traditional Buy, Fix, and Sell Model – This is where most real estate investors start. Find a property that needs some work that can be purchased at a substantial discount, purchase the property, fix the property, and sell for an immediate profit. This model still works in today’s market, but you really need to make sure you understand property values in your area.

• Traditional Buy, Fix, and Rent Model – Similar to the buy, fix, and sale model, this is another basic way to make money in real estate. Instead of making your profit from a quick sale, you make your money over a period of time with monthly cash flow from the property. Over the years, the tenants pay off your mortgage, so you end up with a free-and-clear property (commonly called a cash cow). Also, over the long haul, property values have always gone up. Yes, there are up and down cycles and we are currently in a down cycle, but if you buy a property and hold onto it for a long enough period of time, you will most likely benefit from a good amount of appreciation. This is how millionaires are made.

• Wholesale the Property – This is an excellent way for someone with a little extra money to get started in real estate. You have to know how to analyze properties to determine your maximum allowable purchase price (just as with the above two models), and you have to know how to negotiate with the seller to get the property under contract. But rather than buying the property yourself, you find another investor and assign your interest in the property to them for an assignment fee. This can be an easy way to make a quick profit of $5,000 to $10,000. Your profit is based on your ability to find and negotiate a good deal.

• Lease Your Property with an Option to Buy – If you own a property that you can’t sell, you could lease the property and give the tenant the option to buy the property in the future. As long as you purchased the property at the right price, you can lease it for a positive cash flow and sell it in the future, probably for a higher price.

• Sandwich Lease Option – Rather than buying a property, in some circumstances you can negotiate a lease on the property with an option for you to buy it in the future. You then sub-lease the property to a rent-to-own tenant. You lease it to the tenant at a higher amount than your lease, and option it to the tenant for a higher price than your option price. You can make a positive monthly cash flow and make a profit when the tenant buys the property, all on a property you don’t even own. Not bad!

• Invest in REOs – REOs are properties owned by the bank (Real Estate Owned). These are properties that have been taken back through the foreclosure process and can usually be purchased at a discount. In today’s market, there are opportunities to buy bulk REOs for pennies on the dollar, but you usually have to pool your money with other investors to be able to buy a block of 100 to 200 homes.

• Invest in Foreclosures – With foreclosures, you will either deal with the homeowner prior to the foreclosure auction or will buy at the auction. It takes special skills to deal with people in foreclosure, skills that can be learned through proper education. When buying at the auction, you need to have done your homework and know what you are buying when you bid. Although some liens are eliminated at the auction sale, others are not. A title search on the property will show all current liens on the property.

• Short Sales – When a property is in foreclosure and the total liens on the property are greater than the value of the property, one of the ways to help the homeowner is to negotiate a short sale with the lien holders (banks, as well as other lenders and lien holders). Many times, the banks will accept an amount less than the current loan balance as settlement for the debt, which allows you, the investor, to buy the property at a price that will allow you to make a profit and allows the homeowner to get out of the situation without a foreclosure on their credit report. In this scenario, the bank loses less money than they would during the complete foreclosure process. This is truly a win-win-win situation.

• Land Development – Taking a piece of ground and improving its value through the various phases of development. The development process starts by determining the best use of the property, the determination of which is based on the zoning or proposed changes in zoning. Basic designs and layouts are then produced and presented to the city for approval and permits. Once permits are issued, ground preparation and improvements (water, sewer, etc.) start. After all improvements are made, building can begin. An investor can be involved at any or all of the stages. As each stage is completed, the land becomes more valuable.

• Investing in Tax Liens and Tax Deeds – When property taxes are not paid, cities and counties use various means to get the taxes for their operating budgets. Property taxes are always a lien on a property. One way cities get their tax money is to sell the tax liens at an auction. People who purchase the tax liens make a good interest rate on their investment when the property owner finally pays the taxes.

There are many other ways to be involved in real estate investing, but most are just variations of these basic models.

Real estate investing is a very good way to make a little or a lot of money. Your success really depends on having an excellent real estate education and taking action. Your success also depends on how much time and effort you are willing to put into your real estate business. With real estate, you don’t have to do it all yourself; you can leverage your money and your time by using other people’s money and other people’s efforts.

Just remember, not every wealthy person made their money in real estate, but most of the wealthy own a lot of real estate. It’s been said, “Invest in real estate, they aren’t making any more land, you know.”

Now is a great time to start investing in real estate. Get educated and get going. Even if you only buy one extra house in your lifetime, you’ll be glad you did! Real estate still is the best game in town.

Posted 01:59 PM | Permalink | Comments (0) | TrackBacks (0)

When venturing into the financial markets, it is easy to become overwhelmed by constant barrage of information and hot stock tips spewing forth from seemingly every media source. Financial television, websites, and newspapers all combine to create a cacophony of voices seeking to influence which stocks you invest in. Many an investor has fallen prey to entering poor trades based off of some third party's recommendation. By gaining the proper education about the financial markets, you are placing yourself in a more powerful position to make decisions about your investing and trading. As you gain confidence and experience, you should begin to tune out the noise from third parties and begin to use your own noodle in determining what’s an appropriate stock to trade.

All traders must eventually decide not only what to buy, but when to buy it. Although there are various methods used for answering these questions, the two schools of thought that dominate the trading arena are fundamental and technical analysis. The superiority of either method has been debated for years and there has been volumes written on the subject. The purpose in today’s article is not to sway you into one camp or the other; rather, I seek to present an objective overview contrasting the differences of either method. In the end, it is up to you to decide how much emphasis you place on either technical or fundamental analysis in your personal trading.

Fundamental Analysis

Fundamental analysis is the practice of assessing a company’s current financial condition and future growth potential. Fundamental analysts use a myriad of metrics, such as (P/E) ratio price to earnings ratio, (ROE) return on equity, PEG ratio, earnings per share, growth rate, and others, in an effort to determine the fair value of a company’s stock price. According to Investopedia: “The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security’s current price in hopes of figuring out what sort of position to take with that security.”

If based on your analysis you deem the stock to be undervalued (too cheap), then you would buy the stock. On the other hand, if you deem the stock to be overvalued (too expensive), then you would probably sell or sell short the stock. It seems logical that companies with minimal debt, consistent earnings, and enormous growth potential should experience a rise in their stock price over time. Conversely, companies that are laden with debt, have a poor earnings record, and have no potential for growth will probably see their stock price decline over time. Thus, a trader who utilizes fundamental analysis sifts through the thousands of publicly traded companies in an effort to find those that are fundamentally sound and poised for growth.

Although fundamental analysis may excel in aiding your decision of what you should buy, it often falls short in identifying when you should buy. Don’t fool yourself into thinking that a strong fundamental company will see its stock price rise immediately. In the short term, stock prices are driven by news, market sentiment, and a host of other factors. For example, if tomorrow the U.S. Department of Labor releases their monthly employment report and states the unemployment rate has risen to 10%, it’s a good bet that the stock market and the various fundamentally strong companies will sell off as a result of the bad news. Because fundamental analysis is more of a long-term metric, shorter term traders don’t tend to put as much emphasis on it as they do technical analysis. In short, fundamental analysis is usually used by longer term traders. After all, if you find a strong company that you believe has tremendous potential for growth, it’s going to take time for the growth and increase in earnings power to play out.

Technical Analysis

Many would say that technical analysis not only answers the question of what one should buy, but also excels in identifying when one should buy it. Technical analysis is the practice of assessing current and past price action in an effort to forecast future price direction. Those utilizing technical analysis can be referred to as chartists, as their primary focus involves analyzing charts. The price action consists of the trend, momentum, and support or resistance levels within the price chart. Next to price action, volume is another quintessential tool used by chartists. In addition to price action and volume, there are hundreds of secondary indicators that are used, such as moving averages, stochastic, MACD, and Chaikin Money Flow. It is important to realize that while it is impossible to predict future price movement, it is possible to gauge the probability of the price moving a certain direction.

Within the financial markets, there is always a definite degree of uncertainty. Thus, rather than speaking of trading as a world of certainty, we refer to it as a world of probabilities. Chartists use the aforementioned tools to assess the likelihood of an upward or downward move in price occurring. If based on their technical analysis they decide there is a high probability that the stock will rise, they may start buying stock. Conversely, if, based on their analysis, they decide there is a high probability of a downward move in price, they may sell short stock in an effort to profit from the expected fall in price. Many of Rich Dad Education's advanced courses focus on teaching the art of chart reading.

The reality is you don’t have to use only one method or the other. To exploit the advantages of both methods, some traders may use fundamental analysis to identify quality companies, then use technical analysis to properly time their entry. Regardless of which method you eventually use, it is paramount to become familiar with both to build a solid foundation for your trading. MachTrader software provides a plethora of tools for performing both forms of analysis. Thus, whether you live and die by the charts or focus solely on the fundamentals, the MachTrader can facilitate in your decision making.

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When it comes to understanding your life, whether you are focused on your career, a relationship, or a recurrent problem or theme, you have a choice: you can make it better, or you can make it worse. You and only you can assure your happiness, guarantee success, and face any adversity with determination and courage. Ultimately we each have the choice, to be the best and most positive product of our life experiences.

Isn’t it interesting that we humans go through the stages of awareness multiple times in life? As toddlers, we speak in the first person, totally aware of ourselves and the fact that our world revolves around us. In pure innocence, we think, we act, we try everything. Then we lose this confidence, after being told time and again that the world does not revolve around us, until we give up our first person understanding and step back into the masses with uncertainty and doubt.

Awareness usually surfaces next when we hit our young adulthood. Then, once again, the world revolves around us. We have infinite self-confidence, sometimes wrapped up in an immature belligerence. We know what we want to do, and how we want to do it. There are no thoughts of self-doubt; at this age, we are all action and very little thought. This time, we have a greater need to prove to others that we are right, so we move ahead without listening to the advice of others.

For our own good, most of us are destined to lose that confidence once again: when we misperceive the role of the world and our place within it; when the world doesn’t conform to our belligerent, thoughtless beliefs; when we get caught up in the man-made facets of life; when we get put in a seemingly limited place full of questions and doubts, rules, and games; when we listen to those questions and doubts, and follow those rules and games. We lose our focus, we lose our trust, and we start to believe those doubts and rules are real.

Then we enter mid-life and perform a reassessment. It’s not a crisis, but another awakening. A third and final awakening in which we either open our arms to our original child-like understanding of the universe and let go of the rest, or we close our doors and believe life has given us all it has to give. Often, this is an awakening to a realization that we don’t want to admit: we got lost, wasted precious time, and now must start all over again.

Or not. The truth is that everything is of perception, and we have the ability to choose that perception.

That’s how life works. There are ups and downs, gives and takes, positives and negatives. We are here to take the good with the bad and learn to strike a balance between the two. There is no reason to lament or regret anything. You did the best you could with what you had in the moment. Trust yourself, forgive yourself, ask more or less of yourself accordingly, but do it in that very moment.

If you desire a different outcome, then try a different path with different steps to produce that different outcome. If you are an analytical person, then try feeling your way through a situation, using your inner guidance system to better choices, rather than thinking your way through. Conversely, if you normally run on emotion, then try using a more logical approach to decision-making. Stop overfeeling or too quickly judging your situation, and give yourself time to think it out. Ask yourself to commit to better, kinder, more productive habits and follow through on that commitment.

If your perception is that you have failed, breathe through that perception and take another look. Take another try at it. Again, trust yourself. Gaining confidence requires knowing that you have the power to define who and what you are each and every moment in your lifetime. Understanding and believing this takes practice and conscious awareness. You must know when to ask for help, when to press on alone, and when to let yourself rest. It takes asking deep questions and answering them, sometimes more than once. It takes learning to adapt to who you are and what you are meant to be, not who you think you should be. Open up and really hear what your soul is trying to tell you.

Distractions are plentiful in our world, and we have become masters at being led by them—the most crafty distraction of all is our own ego. We follow our distractions, passing off our responsibilities to take care, heal, listen, consider, and take action for ourselves in exchange for the material world we have made so all-important.

But this world is not real. It’s merely a virtual classroom in which our mettle and beliefs are continually tested. It presses our buttons and pushes us to ever-lower craters of indifference and misunderstanding. It convinces us that we must suffer in order to get ahead and find happiness. It convinces us that what we are, and what we have inside of us, is neither valuable nor in demand, and that we must go outside of ourselves to find approval or a worthy skill or trade that will earn us what we want most in life. Our self satisfaction, for what we believe is a job well done, is not enough unless the world says it is.

The more we look outside, the further away our answers seem to drift.

But we can change it all. In a blink, a breath, or a moment of letting go, we can change it all when we glimpse that door of conscious awareness. If we grasp the truth and set aside our fear, our ego, then, and only then, will we begin to truly shine.

If we allow it, we begin to remember that our world revolves around us, and is full of magic and wonder, beauty and grace. It revolves around our confidence when we have confidence. It revolves around our happiness when we are happy. It revolves around our love when we are in love. Not the other way around. We do not revolve around the world. The world revolves around us. The cycle, or circle, of life comes back to what we knew in childhood; our existence, our true self, and our right to be here is complete.

We choose who we will be to ourselves and to others each and every moment, each and every day. It is a clear choice we have: remain mired in the tests, or earn our rewards.

Taking each other by the hand and discovering together is allowed. There is no reason to learn or struggle alone. We are all in the same classroom, receiving the same lessons through unique, individual experiences. Shame and fear have no place in defining yourself. These feelings only serve to hold you back in an ego state that wants to keep you from your reward.

Reach out—take your place in your life as your own leader, a leader with full trust and confidence in yourself and in the people around you. Believe that every experience, good or bad, is what you need to make you better, stronger, more aware, and more understanding. Every experience is given to you, by you, to prepare you for what is yet to come.

Opening yourself fully to all that is in your life means letting go of those things you don’t need, and embracing those things that you do need. Trusting that the world is working with you to provide exactly what you need, is the golden key to knowledge and understanding; the magic that turns the key and opens the door is called perception.

Taking life personally is a very difficult road to navigate. Everything hurts, is unfair, and people are always out to get you, take advantage of you, and catch you off guard. We find ourselves holding on tighter and tighter, when all we have to do is let go. We truly do not have to, nor are we supposed to, control every moment. There is a rhythm to life that flows naturally and beautifully. Relax and just let go. Take life less personally.

This is a much easier road to take because flowing alongside you is the truth of understanding, the truth that we are all here to learn from one another. Every encounter we experience is directly in tune with our ultimate path. It is matching us step-for-step each time we make a decision. If we choose poorly, we are corrected. If we choose wisely, we are rewarded. If we cannot make a choice, we are given frustration in our own inactivity. If we make too many unfocused choices, then we are often given multiple brick walls to lean upon and, with them, we are encouraged to stay still and contemplate.

Once we accept that the theme of life is that it is ours to live, we can ask the questions that need to be asked of ourselves: What am I trying to accomplish? Why do I so often find myself in the same predicaments or scenarios? How can I make better choices for myself? What changes can I make that will make my life more fulfilling, more enjoyable, more helpful to others? Who can I talk to in order to see my path with more clarity and understanding?

If I take out the superficial, manmade worries, expectations, and fears, what am I left with that truly matters to me? Who am I? And what am I here to do?

In trying to understand, to define yourself and your life, ask questions and give yourself time to find the answers. Asking questions leads to more questions, the answers to which can only lead to clarity.

All of our answers are within. All of our answers come when we let go of our fears, open ourselves up, and allow them to come with acceptance, not force; with understanding, not denial; and with awareness, not fear.

Posted 01:55 PM | Permalink | Comments (0) | TrackBacks (0)