Rich Dad Education Blog

One of the most enticing aspects about real estate is the variety of ways one can make money. Many new real estate investors start off with the traditional buy, fix, and sell model to turn a profit, while others purchase properties in order to generate cash flow by leasing or renting the property to others. The straightforward and profitable manner in which these deals can be done attract investors from all walks of life who are looking to either supplement their current income, start a new profession, or to generate cash flow that will eventually allow them to escape the rat race.

While all walks of life are attracted to real estate, not all individuals who start out in real estate are on equal footing. Some new real estate investors simply have more investment cash or access to funds due to good credit and contacts in life. For those that lack the initial financial resources to try traditional approaches, the wholesaling strategy can be a wonderful strategy that allows individuals to enter the real estate game without a ton of money upfront. Wholesaling can also be a great strategy for new investors with financial capital, as it allows them to get their feet wet and gain experience without tying up their precious resources. Even the most experienced real estate investor can encounter times when they run across a good deal but are cash poor. Wholesaling allows them to take advantage of the deal despite not having the current resources available.

Wholesaling is a straightforward strategy that utilizes all of the fundamental basics that other strategies do. The primary difference is that, instead of buying the property, you are obtaining and selling contracts to other real estate investors, effectively serving as the middle man. As the wholesaler, the amount of financial capital needed is very little, as you are not purchasing the property, and you are not paying for any repairs or external costs. The real estate investor you are selling the property to stands to perhaps make more money, but will also take all additional risk. As the wholesaler, you make your money up-front, and can move onto the next deal a little fatter in the wallet.

Despite its simplicity in function, wholesaling requires all of the fundamental skills that make up a great real estate investor. These skills are utilized in numerous real estate strategies, and serve as the building blocks for your real estate investments. In wholesaling, you still need to know your market, be able to analyze properties, and recognize good deals. You still need to be able to find motivated sellers, and be able to find methods to help them in their particular situation. Estimating accurate repair costs is also a valuable skill in wholesaling—underestimating your costs can be a critical, and deadly, mistake.

Far too many real estate investors do not put the time and energy into mastering the basics of real estate investing. This leaves them without the skill sets necessary to succeed at any meaningful level in the real estate business. Others aren't willing to put in the time or lack the discipline necessary to succeed in real estate. Finding motivated sellers can be a tedious and long process that requires leg work and numerous calls and offers before one is accepted. The nice thing about acquiring skills and knowledge is that once learned, they can be refined and mastered with repetition over time. Rich Dad Education provides numerous classes to go over the basics of real estate investing, including specific classes on wholesaling.

Even after you have become adept at the basics, there are little things that can be done to help maximize the chances of a successful wholesaling deal. Becoming adept at solving potential seller's problems is also critical in the wholesaling process. Being timely, professional, and taking care of much of the detail work for the motivated seller can go a long way to getting the deal done. There are numerous small things you can do on your end to maximize your chances of success.

Once all of the front work has been done, then comes the time to negotiate your deal with the wholesale buyer. Naturally, these don't just pop out of thin air; successful wholesalers have an active wholesale buyer's list that they have worked on and developed over the years. They are familiar with their investors’ buying criteria, price range, and profit range. Wholesalers realize that the other real estate investors want to make a profit to, so be familiar with which profit levels will attract a particular real estate investor—this becomes the basis of a nice business relationship.

It might be easy to understand why someone would be skeptical of why other real estate investors would want to share their profits with you. As mentioned, finding good real estate deals and motivated sellers can be a tedious and sometimes frustrating process. Having a deal where all of the up-front work has been done can be very attractive. They can focus on other areas (rehabbing, managing properties, etc) and solid long-term relationships can develop. In time, you may very well welcome your own wholesaling partners who do the ground work for you in exchange for your ability or desire to close the deal.

If you want to start building a wholesale buyer's list, start by looking at all of the signs and advertisements that focus on buying homes. Don't be afraid to join your local real estate club in your area. Wholesaling can be a profitable manner to enter the real estate investing world. Learn the basics of real estate investing, work on your wholesale buyer's list, and get to action. Start today as it is the foundation of your success.

Posted 04:38 PM | Permalink

Traders in the financial markets can loosely be divided into two groups. In the first group is the trader who relies primarily on fundamental analysis. This type of trader focuses on the fundamentals of a company - Price to Earnings Ratio (P/E ratio), Return on Equity (ROE), Price/Earnings-to-Growth (PEG ratio), Earnings per Share, Growth Rate, etc. - and attempts to ascertain whether or not a company's financial situation, future growth potential, and other considerations warrant investment in that company. Seldom does a trader in this area look at one simple fundamental, such as a company's P/E ratio, as the determination to invest is based on a multitude of criteria. Those that invest based on fundamental analysis are usually bent towards a more long-term investment view. Rarely would a fundamental investor take short-term profits simply because a stock went up after a few weeks.

Some of the richest investors in the world are fundamental investors. Investors like Warren Buffet have made a fortune by determining which companies are undervalued and have excellent growth opportunities, and avoiding companies that are overvalued, mismanaged, and/or simply lack the financial stability or growth opportunities that other companies have.

There is no shame in basing your long-term investing decisions on fundamentals; in fact, it may be foolish to do otherwise. However, there is a second type of trader, the technical trader, who bases their investment decisions on a completely different set of criteria. The fundamental investor determines what position to take when evaluating the security's current price with the other fundamental factors in their evaluation. The technical investor looks at both the current price and past prices to help determine the probability of future-price movement. In this analysis, the technical trader uses a wide variety of technical criteria to help determine what direction a particular security will go in the coming days, weeks, and months.

What is a Trend?

In this article, and in coming months, this newsletter will focus on the technical criteria that trader's use in evaluating whether to buy or short a security. The topic for the first of these articles is easily determined as the first thing almost every technical trader does—to determine whether the security they are looking at has been going up, down, or been moving in a stagnant direction. Perhaps there is no more basic tenet of technical analysis than to determine what direction the security has been going on a short, intermediate, and long-term basis. In technical analysis, the term used to indicate the direction a security has been moving is called the trend. In simple terms, if a security is going up, it is said to be moving in an up-trend; if it has been going down, it is said to be moving in a downtrend.

Standardization of Probability

The reason we care about the direction the security is headed relates to a simple word that you are going to here numerous times in the coming months—probability. When we flip a coin and it comes up heads three times in a row, we would never say that it has been trending heads as we know that a standard coin has a 50 percent probability of coming up heads and a 50 percent probability of coming up tails. This standardization of probability nullifies any "trend" that has developed by flipping the coin. Heads can come up heads 50 times in a row, and it still does not make the probability coming up either heads or tails any more than 50 percent.

The standardization of probability occurs whenever the exact probability of a certain outcome is determinable. This occurs in many areas (one reason Vegas makes a killing on us), but it does not occur in the financial markets. The financial markets are not a game of chance where securities have an equal chance of going up or down on any given day. While there is certainly an element of unpredictability, the technical trader relies on the probability of certain outcomes in determining whether to enter a trade. In simplistic terms, if a security has gone up X amount of days in a row, then it is more probable that it will continue to go up the next day then to go down. On the contrary, if it has gone down X amount of days, then the technical trader realizes the security has a higher probability of going down the next day than up. Naturally, it will eventually reverse course (and there are many technical indicators that can increase the probability of identifying these moments), but until it does, we stick with the probability of what is likely to occur.

The logic behind the probability of trends continuing relate to human action, emotion, and decision making. For example, fear and uncertainty are often the catalyst behind certain downtrends, and push securities well below where they would normally trade. On the contrary, hope, excitement, greed, and exuberance can often be the human emotions behind an uptrend. Whatever the emotion is, the technical trader uses a standard chart to identify the trend a stock has been heading. The chart below is that of an easily identifiable uptrend.

While, from the onset of the first green candle, there are 42 up days and 32 down days, determining a trend of a security is not quite that simple. For technical traders, an uptrend consists of higher pivot highs and higher pivot lows. Don't get hung up on terminology here, as a pivot is simply the high and low points of the candlestick which forms the support and resistance levels of a particular security. Next month's article will focus on pivots, and the concepts of support and resistance.

If you are not an expert at identifying trends, then take the time each day to pull up a few stock charts and identify what the trend has been for the last seven days, the last thirty days, and the last six months. Identify the highs and lows during this time, draw a line (called a trend line) connecting these highs and lows for the time period in question and go from there. In time, identifying trends will be an almost instantaneous reaction to the time frame you are looking at on the chart, and you can start applying additional technical analysis principles - which will not be as simple.

Posted 05:01 PM | Permalink

"The only difference between a rich person and poor person is how they use their time" ~Robert Kiyosaki

"The most life-destroying word of all is the word tomorrow" ~ Robert Kiyosaki

There are many things in the Rich Dad philosophy that are inspiring and edifying. Understanding how to make your money work for you, learning about cash flow, and the Cashflow Quadrant are just a few topics that have opened up a new world to the individuals that have taken the time to read Robert Kiyosaki's writings. In reading and learning about the numerous ways to maximize wealth potential, one area that often gets overlooked by the casual reader is the constant emphasis that Mr. Kiyosaki puts on maximizing your time; specifically, maximizing your time today.

When you combine the two quotes above, a very clear image is painted on the manner one should pursue their dreams. First, maximizing your time is a clear principle that separates the successful from those that fall short of achieving their dreams. Second, in managing your time, those things you put off to tomorrow have the potential to undermine everything you are attempting to do. In combining the essence of these two quotes, we receive a carpe diem, seize the day, sort of message. If this message is applied, productivity and success will soon follow.

How well do you use your time? What do you do with the first few and last few hours of each day? What do you do when you have a break between events? If an individual has not previously devoted some time to action, then he or she is probably unaware at just how much time slips through the cracks in a given day. Take a minute right now to write down on a 3x5 card, sticky note, or something you can carry with you the quote: "The only difference between a rich person and poor person is how they use their time." In the coming week, write down how you use your time during the course of each day. If you are like most people, you will find that there are large chunks of time in which you accomplish very little. Attempt to find the cause of the lack of production during these time periods. Is it an organization or motivation problem? Are your habits and hobbies taking more time than you realized? There are numerous ways this exercise can help you, but self honesty is critical to making the exercise meaningful.

Time management and maximizing one's time are important to productivity and success, but the choices we make in what we spend our productive time on are even more critical. For two months, I was the graveyard clerk at a gas station. I always kept a balanced till, cleaned the store, stocked the shelves, and even was able to study in my downtime. At the end of the day however, no matter how good of a job I did, I was capped in what I could earn. I could have been the most organized, most productive individual on the planet and never let a second go to waste but I still, unfortunately, would be poor. When you work for others that have businesses that require extensive time for minimal reward, you face a situation where you are capped in your financial potential because of the choices you make in how you spend their your time.

Indeed, there are many of us that are not doing what we want for a career, and it is far too common for us to think about the distant day in the future when we will be doing what we want, and basking in riches. This thought process, without the concrete action behind it, is what makes the word tomorrow the most life-destroying word of all. This doesn't mean go out and tell your boss to shove it, but it does mean you should be doing everything you possibly can today to allow for that day to come as quickly as possible. You should go to bed exhausted but satisfied each night because you put the time, energy, and studying into actualizing the next step in your life. Rome may not have been built in a day, but they were working on the buildings each day!

When you put off the work necessary to fulfill you dreams until tomorrow, you are committing a heinous crime against yourself. You are denying yourself the possibility of reaching your potential, achieving wealth and true security, and probably even happiness and health. Let's say someone dreams of owning numerous cash-generating properties that pave the way to wealth and freedom through real estate. Naturally, this cannot be all done in a single day as it comprises numerous steps, some of which are tedious, in order to even get the first property done. Because of this, far too many say they will make on offer on a property tomorrow, this weekend, or next week when the time exists today to do just that. If this was simply an isolated incident, it would not be so bad, but it is usually compounded with putting off the next and the next and the next thing. The unfortunate ending to this tale is someone who simply failed to achieve what they could and, more importantly, what they wanted to do in life.

Each morning when you wake up, ask yourself three questions. First, what is the thing on my actual or mental checklist that I have put off the longest? Second, what is the least favorite thing I need to do today? Finally, what is the most important thing I need to do today to allow me to achieve my dreams? If the first three things you do today are these three things, then you will have a special day. Your day will be free of worry, and you will make strides early in the day that can build momentum throughout your day. Success breeds success; failure breeds failure. Make the conscious choice each day which path you want to head down.

Go out and start building your Rome today.

Posted 04:30 PM | Permalink