Category Archives: Real Estate

Phantom Cash Flow, Fast Word #2

Let us continue on our journey of exploring the language that accredited investors use to build wealth quicker by using Fast Words. We are now on Fast Word number two.

Phantom Cash Flow

This is an interesting term, have you heard it before? Phantom Cash Flow is something you might overhear a sophisticated investor using. Phantom Cash Flow is basically referring to income or cash flow your making, but you won’t actually see the cash itself, because it is kind of Phantomish.   Let me explain using real estate as a teaching example.

If you own a piece of real estate as an investment, that real estate is like a mini-business, it has income and expenses.  And at the end of the year you have to file a profit/loss also called a ( P & L) at the end of the year.  You got to file taxes.

One of the great tax deductions that real estate offers is called Depreciation.  Depreciation allows you to write off a percentage of the value of your building each year over a certain amount of time.  Basically if you own a building Depreciation is a nice write-off that you can declare as an expense and reduce your net taxable income for a long time.  See the government made this tax rule that if you own a building, they recognize that your building is sorta falling apart over time and is depreciating in some what, so they let you incur this as an expense that you can write off, which will reduce your net taxable income.  If you reduce your net taxable income, you of course pay less in taxes. 

Let us say that an apartment building you own brought in $200,000 in revenue this year.  And that your building depreciated about $20,000.  So now on your taxes you can put an extra $20,000 of depreciation on your apartment expenses.  This is basically an expense that you can write off.  So what happens is your net taxable income was originally $200,000 is now $180,000 because you just wrote off $20,000 worth of depreciation expense.  See the deductions again; lower your net taxable income.  This in return will make you pay less tax at the end of the year. 

See, this is an example of Phantom Cash Flow.   You were able to decrease your net taxable income by $20,000 by using depreciation as an expense. This reduce in net taxable income means you essentially make more money at the end of the year because your paying less in taxes.  So this is extra money in your pocket that you are going to receive, more as a savings because you are paying less int axes.  But it is still money extra your earnings/saving, this is why its called Phantom Cash Flow. 

If we can reduce you from paying $50,000 in taxes to only having to pay $30,000 in taxes.  You basically just gained an extra $20,000 in cash flow because that was extra money you saved!   You kept an additional $20,000 in wealth, but you diddn’t really get the cold hard cash to say, but it is extra income because you just saved a bunch of money on taxes.  Money you earned but your not really seeing.  This is why it is called Phantom Cash Flow.  Cash Flow that is being earned, but you don’t see it, thats why it’s sorta Phantomish as I like to say.

Now you know what Phantom Cash Flow is.  If you were with us last time you learned what an accredited investor was.  Till next time, let us keep using fast words.  If you change the way you think and talk, you will change your life.   Is this the first time you’ve heard the term Phantom Cash Flow?

October Overview – Progress Towards $10,000 a month and much more.

October Income – Progress to $10,000/month

Well things have been a rocking, and those who have taken the advantage, the people who are action oriented know what is going on.

I’m still on my goal to making $10,000/month and everything is going planned, how did I do for October? My goal in affiliate marketing was $1000/month by Sept 30th, [accomplished], it was $2,500/month by October 30th, and $5,000/month by November 30th.

To accomplish big goals, its good to break things down, breaking down goals into smaller goals to reach an objective is how to make a big task, seem easy with little tasks.

Well even though my of my campaigns were deactivated so I could switch them over to Tracking202, I still haven’t got them done, but I still pulled in past my goal. This month roughly:

  • Rent: $1625
  • RotaryEngineIllustrated.com & RebuildingRotaryEngines.com ~ $500
    • adsense
    • direct ad sale
    • kontera
    • TLA
  • Prosper ~ $100
  • Dividends ~ $33
  • Affiliate Marketing : $3423 personal commissions

So I’m pleased, it puts me around $5600 + this month in gross income. Which means I doubled my income in 2 months. Although its easy to double income when the income is low. In the affiliate marketing world people would probably laugh at my commissions, but hey, from starting only on 8/23/07 and to 10/31/07 with a total commissions at $4393 in a little over 2 months, for just starting?

Prolegic Enterprises

This friday I’am signing more of the prolegic enterprises ownership over to my partners who are going to run with the business, this will free me up as I mentioned in my previous post to work full time on my web 2.0 project. On friday I’m signing over the bank accounts, and the domain names over to the business partners, and then I’m almost 80% out, but I still have some help I need to aid in before I’m completly out. What takes long time to get in, more often than not, takes a long time to get out of.

My House

Just today, I have officially signed over my house to a property management company here in Portland, they will be taking care of everything they charge $130/month to manage my house, and 1/2 of the 1st months rent of a new move-in when someone moves in. I have 4 people renting my house, unfortunately on paper only 2 of the bedrooms are legal bedrooms, because the basement windows are egressed. I will be doing some work to the house should be a couple thousand dollars to legalize the windows downstairs. With a property management company they cannot legally rent out a 4 bedroom house, if on paper its only two, unforuntately, I’m going to take a hit here.

Affiliate Marketing Mastermind Group

The affiliate marketing group we’ve been working with is seriously doing incredible. I’m quite in awe how well everyone is doing. Every who has started, and actually DID WORK, I mean did SOMETHING, that attended our online conference has already made more than $100 within 2 week period.

There is basically a 100% success ratio for everyone who has started, everyone who is doing it, is already making money. Several of the guys were doing $10/day pretty quickly, now there up to $20-$30/day, and some are even at $50/day ALREADY. within about 2 weeks.

That is incredible, to generate an extra PASSIVE INCOME STREAM of $50/day commmissions within less than 2 weeks work?

The reason they are able to move fast is we have a 2-3 hour conference explaining everything, how it works, the tools, a support team, help, a collaboration center to aid out. We are able to move much faster when someone who is already doing something can help us out. Having a mentor can dramatically increase your learning curve by several years.

So everyone is doing awesome, I may be closing off the group soon, if your still interested you can contact me if you wish to join. However I’m getting pretty full and not sure how much I will be able to do the introduction soon. What I’m mostly interested in is making a real mastermind group with a group of 10-20 people, which is about how many people who are in the group now, all contacted, via instant messenger, to make $10,000/month individually, a powerhouse of association.

Law of Association – You become the combined average of the five people you associate with the most, and the books you read.

San Francisco and Silicon Valley

I’m currently back in Portland right now finalizing my business with prolegic enterprises, and my house [done]. I attended the Silicon Valley CodeCamp, the first of many networking events I will be attending down in Silicon Valley.

I did successfully find a place it took awhile, I needed a place that didn’t require a 1 year lease, and that had parking. Parking is not very available in San Fran, and EVERYONE wants a 1 year lease. But I did find a place downtown, check this out. $1500/month for a studio, included is parking, on a 3-month lease. 15 hundred a month for a studio. I love it, it costs more, because there is a lot more money to be made there, its all relative.

Here are some pictures from codecamp, you know your at codecamp when u see free parking by google. “I must be in the right place!” Thanks to my buddy Steven Truong, who told me about this event. He is another internet entrepreneur and has a blog. check him out too.

http://i2.wp.com/wesmahler.com/wes-pictures/IMG_5418.jpg?w=625

My black honda s2000 all the way down to Silicon Valley from Portland for the win!

http://i0.wp.com/wesmahler.com/wes-pictures/IMG_5419.jpg?w=625

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http://i1.wp.com/wesmahler.com/wes-pictures/IMG_5423.jpg?w=625

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http://i1.wp.com/wesmahler.com/wes-pictures/IMG_5429.jpg?w=442

http://i1.wp.com/wesmahler.com/wes-pictures/IMG_5427.jpg?w=625

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http://i1.wp.com/wesmahler.com/wes-pictures/IMG_5439.jpg?w=625

I met a lot of people there, unfortunately there wasn’t as many entrepreneurs as I expected. Most of them were microsoft .net programmers, working for big companies. But I did manage to meet 3 other entrepreneurs. One had a software product they sold to big financial companies for $100,000 every quarter, they had a bunch of clients, so he was making money. He programmed it himself, marketed it, now they have referrals and he has employees program it, he is still the lead developer. [awesome, i met someone who does what I want to do].

Alot of people have linkedin profiles, not facebook profiles, so I’m going to be making a linked in profile soon. I did meet another gentlemen I’m getting together with when I move down to san fran permantently next week, he moved from New York, New York, to Silicon Valley to start a web business. The strangest thing ever too, so he just moved like 2 weeks ago to DO EXACTLY what I want to do, start a web company in silicon valley moved his whole family down here, hes interested in adsense so were getting together. We started talking because we had the same laptop, I HAVE NEVER met anyone with the same laptop as me, it is a really unique laptop an ultra-portable one that was pretty expensive, and it was so interested first time I meet him he has the same laptop, that none else has, and were both moving to the silicon valley in the same month to start an internet company, and now were meeting together. Incredible.

You know what a FREAKIN AWESOME BLOG TIP is, that I have never seen, and don’t really care to much because I don’t wana be another wannabe blogger who copies what other people do. But

PICTURES, make a good blog, I bet u don’t see that tip. why, A PICTURES SAY A THOUSNAD…..

WORDS.

Try more pictures in your blog. ps: if your not blogging, ur missing out, its the greatest networking tool 2nd to facebook and social networking sites.

Wes, Why are you moving to San Francisco?

I’m actually surprised at how many times I get this question. Silicon Valley is absolutely the best place to start an internet company, all of the resources are down there all of the big names. I get asked this so much, yes, I could start a internet business out of my house in Portland. Yes I could even do it in Alaska.

There are SO MANY networking events in Silicon Valley for internet entrepreneurs, the angel investors are down there, alot of money is floating around, almost 75% of the startups you’ll see making it big on the internet are located in silicion valley, the big events are always down there. Google is down there, apple is down there, facebook is down there, alexa.com [I drove by it without even knowing] is down there, prosper.com is down there, techcrunch is down there, digg.com is down there, meebo is down there. There all freakin down there.

So I’m there eating in some random restaurant, and guys are talking web across the table. Everyone drives around in BMWs and porches, or higher-end cars, when most of the housing in san fran is over 1 million, people have spendable income more than Portland.

In short if you still don’t understand, you really should check it out, just look around and see all the successful entrepreneurs on the internet, and MORE OFTEN THAN NOT there in the silicon valley.

You can gamble in most states, but Las Vegas is where the action is. MAJOR DIFFERENCE
if you want to be an actor, there is probably a studio in your town too, but LA, AND HOLLYWOOD is where u want to be.

TECH IS NO DIFFERENT, even though its on the WEB. u can gamble anywhere, but LAS VEGAS is where the action is at. Silicon Valley is where the action is at for web 2.0 internet entrepreneurs, period, ask any big web 2.0 entrepreneur and I bet they’ll agree with you. I plan on meeting many people who have very successful internet businesses, and I forgot to mention, there are TONS of programmers down there. You can even go into an internet cafe and its loaded by wifi programmers. This one company went in, asked if anyone knew PHP or something like that, a couple people stood up, and hired them on the spot in a freaking wifi cafe.

Silicon Valley, is the spot for internet entrepreneurs. I’m going to make it happen, so I’m there.

Decision, the death of all other options. I’m going to do it right this time, I’ve failed enough I’m almost ready, maybe not quite yet, but getting to the point with activitiy knowledge, learned knowledge, books, conversations, education, networks, that I’m ready or almost ready, to build a company to over one million dollars a year in sales like Ryan Allis.

If WesMahler doesn’t convince you, heres the first blurp on silcion valley on wikipedia:

Silicon Valley is the southern part of the San Francisco Bay Area in Northern California in the United States. The term originally referred to the region’s large number of silicon chip innovators and manufacturers, but eventually came to refer to all the high-tech businesses in the area; it is now generally used as a metonym for the high-tech sector. Despite the development of other high-tech economic centers throughout the United States, Silicon Valley continues to be the leading high-tech hub because of its large number of engineers and venture capitalists.

Notable companies

See also: Category:Companies based in Silicon Valley

Thousands of high technology companies are headquartered either in or near Silicon Valley; among those, the following are in the Fortune 1000:

Adobe Systems

Adobe Systems

Advanced Micro Devices (AMD)

Advanced Micro Devices (AMD)

Apple Inc.

Apple Inc.

eBay

eBay

Google

Google

Hewlett Packard

Hewlett Packard

Intel's headquarters, the Robert Noyce building

Intel’s headquarters, the Robert Noyce building

Intuit

Intuit

Oracle

Oracle

Yahoo!

Yahoo!

Additional notable companies headquartered (or with a significant presence) in Silicon Valley include (some defunct or subsumed):

Silicon Valley is also home to the high-tech superstore retail chain Fry’s Electronics.

So Whats Next, For November

Here comes November, well, on the 1st I can move into my new apartment, so in early November, I will officially be moved into my new apartment down in San Fran.

I will generate more than $5,000 / month via affiliate marketing in November, to reach my goal of $10,000/month income by the end of the year.

There is already some web 2.0 entrepreneur networking events that I have planned for November this month.

I may be diluting two of my Corporations, TempName ONline, Inc and Jingyee, Inc, and converting them both into an LLC. And then creating a new C CORPORATION, in CA or OR, I haven’t decided yet which state, to build a big business out of.

The affiliate marketing group most members will be at about $500/month+ easily this next month, and we will be going on stage 2 of our conferences, which is more in depth dynamic keyword insertion, tracking keywords, optimization, utilizing landing pages, and much more fun stuff.

I just got an iphone so in San Fran, I won’t get lost anymore. My dad just ran into my s2000, so were getting it repaired on wednesday, and then on thursday November, I’m in San Fran.

I found abunch of events in san fran, by simply tools like Meetup.com Eventful.com, everything is at your finger tips, if you haven’t looked, there are probably events in your area already that ur missing out in. I went to events in Portland, but in Silcion Valley its like x20.

Oh I’ll include this, they just sent me another check, I thought I had switched over to direct depoists, this is income earned from 10/1/07 to 10/15/07.

want to get some checks like this, AIM me at chinkeyez 09. Don’t email me, please. You can join our group for a little bit longer. Its going to be cut off soon, if you hate AIM, use meebo. if u refuse to use aim, sry, you can’t join our group then!Oh and I guess last thing, my dedicated server is now all set up, I’m going to be switching tracking202 over to dedicated hosting, came just in time. Anyone using tracking202 I’ll send out a mass email before we switch over to new server, there should only be LIMITED downtime, at unpeak hour, for sure. You’ll be notified so you know when it’ll happen.

Week 4 Progress – Month 1 Results – Goals, The Double Edge Sword

I’am in Columbus, OH right now, it is 8:21AM, I haven’t been able to get much work done here because I’ve mostly been visiting with family.   However, I may be doing a real estate deal with my uncle now, and canceling one of the ones I had in Corvallis due to difficulty of renting it out in a college town when everyone has found a place to stay in.

 

So how was week 4, lets run the numbers.

 

  Adsense: $72.72

CPAEmpire: $425 [~100% increase from last week]

Kontera: $9.47

TLA: ~$13

Prosper:~$23

BeaverRent ?? [not even going to count it any more]

Overall everything is going pretty goal, I hit my first objective to obtain $35/day gross income via affiliate marketing, I have accomplished that for September, next month is to obtain $85/day gross income via affiliate marketing.   Shouldn’t be to hard, I was able to hit over $100+ in one day this week so I know it is not that far away.

 

For the month, here is the income, I’am no longer including BeaverRent income into my goal to $10,000/month, more so because I’m not sure if it is even making what I projected earlier this week, so I’m going to just going to leave it out.

 

Income for Sept 2007

 

COPEAC: $4.75

GetClicky: $19.99

TLA: ~$45

Kontera: $52

Propser: ~$100

Adsense: $313 [A huge drop lately]

CPAEmpire: $941

Rent: $1625

Total it comes out to about $3,100/month passive residual gross.   Cool, so this first month I was able to almost generate an additional $1000/month via AM.   Next month, I will hit $2500/month via AM, which will boost my monthly income to $4,500ish.   The following money after that, my AM income will grow to $5000/month, and will put me around $7000/month passive income by the end of November.

 

The other $3000/month I have determined I will achieve via rental properties.

 

Goals the double edged swords. One of my goals is to own/co-own three (3) pieces of real estate by the end of the year.   I’am all ready to go to purchase a building down in corvallis, however, I’m looking at them, and I could potentially buy one right now and fulfill my goal of having 3 buildings but it would seriously handicap me.   Because of the market if I was to buy right now in a college town I would be sitting on a vacant house for sometime, in that my goal to purchase one house down there before the end of the year would put me in a financially bad situation.

 

Sometimes trying to hit a goal, can cost to much. In that you may hit something, but at what cost, was it worth it?   There are many goals that can hinder you, and goals that you hit but at the cost of not having any family interact, or the cost of not taking care of your health, or at the cost of buying a building just to own 3, even though it would be a negative outcome for your finances?

 

So I’m running into the dilemma, 3 months left, and my house in corvallis is not going to work.   It would be easy to say, and have a lazy mind, turn it off and say wes, this just isn’t going to work, maybe I just won’t buy three because…… No, shut up, is what you gota say to yourself, and instead I need to find another way.   It will be difficult, but hard, I always have the how can I attitude, so you can immediately take a situtation and look for ways to make it work.   It is going to now be extremely hard for me to purchase 3 buildings before the end of the year, but I’m going to make it happen.

 

Keeping an open mind, I’m here in Ohio and I actually just spoke with my uncle, and together we now may just purchase a house in Portland, OR and do a 20% downpayment, the investment will cost around 40k down payment, I will split the down payment between us.   This will give me the abilitly to get prequalified to purchase a non-owner occupied investment property at 20% down, and buy something in a even more appreciating market with a market that it is easier to rent it out in.

 

I’m calling my mortgage broker today and see what I can do, my other friend from the military just arrived in Portland today, I will meet with him on Wednesday, and we will be getting going with him to purchase a house between us, and another friend, which will be the 3rd.   So always keep an open mind, so goals can be a double edged sword, they can do good, but they can also do bad.

 

Here is a tip: If you set goals, and you don’t hit them, it can hurt you.   Setting goals and not hitting them is like lying to yourself, making commitments and not following through.   Have you ever set a goal, missed it, and then set it again next month, only to miss it again.   See everytime you miss a goal you become a goal failiure in someone who is unable to set goals, and misses them everytime and then just doesn’t ever seem to hit goals.   The goals are elusive and they escape from you, setting a goal you can’t hit, might as well not set a goal at all.   Everytime we fail a goal it throws off our pysche, and it becomes a negative, because we look back at all the times we have failed to hit our goals, and it becomes what we do best, failing goals.   That is why we need to have a goal process that we have developed ourself in a way that you can hit your goals 100% of the time every time, I have set my goals in that way I’ll blog about it later.

 

It is bad to set goals and not hit them, because it starts the process of failing your goals everytime.   Its not a positive, its a negative, and can, and does hinder from ever being able to confidential believe in yourself to be able to hit goals and accomplish them.

 

So this month went great for AM, it went horrible for my real estate goals, first buying a building that I couldn’t rent out, so we pulled out, and then come to the realization that for my past 2 months effort to buy something in Corvallis, another city, if I do it now before the end of the year, its going to hurt me.   So I have to re-change my plan and now shoot for reorganizing goals, new game plan, and take immediate action.   Massive activity to produce massive results.

Putting Together a Real Estate Deal For Someone Else

This is a long post, you may or may not want to read it.

One way to be an owner in a real estate transaction is to simply retain a percentage of the building for doing all of the work, and have another party invest the money. You would then receive a % of the building for the work you put in. Now technically this may or may not be illegal depending on if the person who is invested, is an accredited investor. Next post will be on accredited investors.

So one of my family members is interested in real estate investing, he lives in another state and is considering moving here. So I see the opportunity and he is interested in doing a deal with me. I will put the deal together, do all of the work and receive a cut off a building. The following is a proposal I sent to him, with many typos but he likes the idea, and its not the typos its just a general sum of information about real estate investing. But before I get here, I want to stop and take a look at one philosophy.

  • A lot of people believe it takes money to take money, that isn’t necessary true. What I found out, is it takes a number of things to make money, and they are the following three commitments: Skill, Time, or Money.
  • See if you have a lot of money, you can have someone invest all your money for you and make money.
  • But if you are low on money, and you have a lot of time, you can invest someone else’ money and get paid for your time.
  • If you are very skilled at putting together deals and you can quickly put the deal together with investors and the wrokers, you can make money, so its three concepts, you need skill, time and money.

In order for it to work, you either need alot of one commitment: ie: a lot of money, or a lot of time, or if you have a little bit of both you can make it happen and make some money on investments.

So this idea, and this propsal Im showing you that I wrote out for a family is someone coming from me having skill and time to invest, and the other party having money. In this case, once the deal is complete I will technically be owning part of a building with no money down, but I did put something down, I put down my skill and time.

Seriously, we need to stop saying we don’t have enough money to invest. When you have time or skill you can invest. If you just had alot of money, and u diddn’t know how to invest you’d suck anyways.

The following is the letter I send to my family member, names of the other party have been removed for privacy, but you can see what the heck wes mahler is doing with real estate investing.

Memo

Hey John Doe,

Here are some thoughts I have jotted down on this letter. Please realize I haven’t gone through and proof-read everything. So I apologize in advance for things that don’t make sense, I’ve never facilitated a real estate deal for someone else as of yet, (although have been trying to do that for 5 months now). So I created this document while you were here, and finished it today. It is some just notes on the transaction, what types of returns, how long it would take, the money required, what it would cost, and how it would sort of all play out. This should be a good start into the real estate investing into Portland deal. Again, not the most professional paper here, but it should get the job done.

You can call me at anytime on my cell at xxx.xxx.xxxx.

Warmly,
Wes

Real Estate Investment for John Doe

Idea: To facilitate a real estate investment in Portland, OR for John Doe through purchasing a residential rental property, 4 units or less and managing it for a long-term investment. Property would be located in inner Portland, it would be 4 units or less, and be nice enough to be a potential place for John Doe to move in-to at a further date if necessary.

Investment: The investment on the building would be 10% down, the investment can go up or own depending on the sales price of the building. The estimated sale price on a building that may be of interest to us, a single family house or duplex, will be approximately in the range $200,000 – $250,000. $250,000 would be on the higher end, this would be located in the inner Portland district, and have at least 2 bedrooms 1 bath per unit, preferably one unit with more bedrooms for John Doe if he decides to move in at a later date. With the proposed sales price, which is based off a rough estimate of the median sales price for what we are looking for, it will be approximately at $20,000-$25,000 investment for a down payment.

Although there would be additional costs in purchasing a building, the down payment would be the bulk of the money. There will be some closing costs associated with closing on the property, estimated around 2% of the sales price, so on the estimated sale price on an investment it would be fair to estimate around $4,000 in closing costs. Now of course we would most likely be negotiating with the seller and have them contribute the money towards the closing cost in negotiation.

Additional fees and services would be minimal, there would be a home inspection, which will be around $250-$400 to have someone come in and inspect the foundation. If there is an oil tank on the property it will be an additional $150 roughly to inspect for an oil tank leaks, the only other inspection that would potentially really be necessary would be a sewer inspection, other than that, theses inspections would be the cost on doing the due diligence on the property.

The rest of the remaining cost would be associated with general maintenance, although we would do our best to find a property that is a rock solid investment, and do our due diligence to make sure no work is needed any time soon, and if needed, we have the seller pay for the repairs before we purchase.

How it could be put together

The real estate transaction could be put together in several months; the proposed time from starting to finish (closing on the property) would approximately take around 4 months as a rough estimate. The two (2) weeks would be spent getting all of the lending requirements done, getting pre-qualified for a “residential investment property loan at 10% down.” Once we had pre-qualification and a good faith estimate on what the monthly payments would be and percentages, we could then start to look at properties and run numbers to make sure they fit the right parameters necessary to make a good investment.

Finding a property could take considerable time, much of it would be determined by the current market conditions. Currently today (August 2007) it is a good time to purchase real estate because it is a buyer’s market, from what I know a buyer’s market is when real estate is sitting on the market for more than 6 months. There is plenty of real estate for sale and there are many properties that could fit our investment parameters.

Finding a building, I (Wes Mahler) would be working with my realtor, who is a real estate investor themselves and would locate a building that would make sense on the numbers. We would determine the net operating income (the rental income, minus vacancy loss, minus property tax, minus insurance, minus maintenance, minus utilities, and minus and property managers) and then only purchase a property where our NOI (net operating income) is equal to, or greater than out monthly mortgage payments. In short, we would only buy an investment that would at least break even on the cash flow (even with vacancy, maintenance, and everything factored in) or find something that is positive cash flow even after maintenance. We would do our best to get it right on, unfortunately because the housing prices are going up; it has been becoming increasingly difficult to find a property with 10% down to break even or cash flow, so it will be most likely that the property investment will be breaking even.

So finding a property would take time, estimate around 1-2 months in order to find a good property worth investing in. After that we would proceed on making offers on the building, we would be making offers on several buildings, lower offers, get rejected a couple of times and make sure we are getting a good deal when we buy. My philosophy is, if they accept your offer, we are paying too much for the building. So we offer a little less, get rejected a couple of times to find a better deal, with a motivated seller.

Making offers and running through negotiations should take around a month in time, we will probably get accepted on several offers and then run the due diligence on them, due diligence will take approximately 2 weeks in order to complete. Some buildings will fail the due diligence process so we will be looking at several properties and being very selective on what we buy. We are not needy or emotionally attached to any deals, we just look at the numbers and the numbers will tell us what to do.

We will run through the several inspections as mentioned above, and once we find a property then we will begin to close. Closing will take approximately one week, and it will require the owner of the property to be around to do the signings, unless a power of attorney is used to allow someone else to act in his or her name. Regardless of what route is chosen, closing is fairly easy, at this time, we have already spent money on due diligence (paying inspectors) and at this time will be simply providing the down payment for the property, which will included payments for the taxes and insurance for each year.

At time of closing then the property would need to get rented, we would be able to put the property on craigslist and rent the property out immediately upon closing. We have the documents and contracts necessary for doing the rental applications and would be able to get the properties filled. We understand that we don’t want any one, and that it is better to have no one renting the property than a bad person renting the property from us.

Management would be full-awareness task, not necessarily full-time, but full time available in the incident that someone is needed over at the property. It could be done two ways, that either I would be able to manage the building, or finding a company that could manage it for you that would still produce a break-even monthly cash flow or better.

In the time that a large repair needed to be made we will work together in order to fix the problem, if we do it correctly we should have bugged in expected maintenance into our cash flow equation.

At the end of each year taxes and accounting work will need to be done. We will our accountant go ahead and work on the tax filings, what would probably happen is we would place the real estate asset into an LLC (limited liability company) because it is one of the best entities for real estate investments due to the accessibility of the cash flow and relatively ease to set it up and operate it. The costs associated with starting an LLC would be approximately $100/year for the entity, and having the accounting do the work would cost approximately around $500-$700/year depending on how complicated the finances are.

What the returns might be

If we take the above proposed example of investing in a building around $200,000 I can give some rough estimates on the return on investment.

· 10% down payment

· $20,000 down to control $200,000 worth of real estate.

For the last 5 years Portland has appreciated about 13% each year, although it wouldn’t be surprising if it continued to appreciate by around 10% each year, let’s just say conservatively it appreciated 5% the near year.

During the 1st year, with a 5% appreciation figure, your building would now be worth $210,000.

There is now an extra $10,000 worth of equity due to appreciation growth.

With in respect to appreciation, your $20,000 investment just earned $10,000 in equity appreciation, a 50% ROI in 1 year with just appreciation figure.

With amortization on a $200,000 year loan, taking into consideration that the first payments are more interest heavy, that is they are primarily more interest than paying down the principal. It is safe to assume the mortgage is paying down approximately $150/month on principal in the first year. This would result in amortizing the loan around $1,300 for the 1st year.

The cash flow from the rent would be breaking even, although, we would have a considerable tax deduction by writing off the depreciation of the building, potentially carrying over to another tax return.


What it might cost to put it together

I wasn’t exactly sure how much to do the deal for, so it took awhile to figure it out.

The proposed plan would be doing all of the work, everything, from helping setup the finances for the loan, to finding the building, to analyzing buildings, make offers on the buildings, due the due diligence on the building, closing on the buildings, forming the LLC, advertising the property go get it fill, managing the property, getting the accounting done, and filing the necessary tax returns at the end of the year for the LLC, and of course be available 24/7 incase on site assistance is needed at the property.

I came to the conclusion that it would work at a 20% for putting everything today.

Well, I also must clarify what the 20% of it means, it would just means for instance, that if we invested $10,000. For putting together everything and managing it, my ‘work’ equity would have interest in $2,000 of the down payment.

So if we purchased a $100,000 building with $10,000 down. (Our equity in the building would only be 10k, because the mortgage would be $90,000). I would ask for 20% basically of the equity in the building that we owned. I hope that makes sense, it is basically like me getting interest in 20% of the down payment for the work that I would be putting into the transaction.

Here is why I figured 20%, I was thinking 10% would be too low because for instance, if we purchased a $200,000 building with 10%, or $20,000 down. If I was to get 10%, I’d only have $2,000 at the start.

If the building appreciated 10% in one year, resulting in our building being worth $220,000, our equity in the building would now be, $40,000 (our original down payment + appreciation equity). If I was at 10%, that means after 1 year of appreciation growth (while I was managing the whole time) I would have earned an extra $2,000 for one years of work. $2,000 in one year of managing a property when I looked at it like that was just not enough money; it would be less than minimum wage for a whole month of working at McDonalds.

I came to conclusion that 10% is just not worth it for me, and 20% would make it worthwhile for me to put in a significant time investing and you would still make a large return on investment. If for example in the above situation, if the building appreciated 10%, and you put 10% down on a building, you would have earned $8,000 in one year, off a $10,000 investment. Or a 80% ROI (if our building went up 10%, and we put down 10%). Hope that makes sense.

The 20% would be a lot higher than a stock broker would charge on a commission for a stock transaction, but this is completely different. Whereas a stock broker can get a commission for a buy recommendation or whatever, I’m going to be putting in many hours of work, running around, negotiating with sellers, working with mortgage brokers, on call, a long-term residual person who works for you throughout the whole deal, I’m going to be doing 100x the work of a stock broker, and I’m going to make more money than the stock broker can be.

Real Estate Vs. Stocks

Here is why I don’t like stocks.

If a stock plummets to $0/share you are screwed, if your building burns down you have insurance.

If you want to liquid your stocks you have no real way of avoiding capital gains, with real estate you can defer your capital gains by doing a 1031, and pay NO capital gains on your real estate appreciation.

With stocks you always have to buy a stock at what its current value is, with real estate you can buy a house less than the appraised value and immediately have equity in your pocket. In other words, with real estate, you can make money immediately when you buy it right. In stocks, you can’t do that.

In stocks there is practically no leverage in the portfolio, (unless you do some sort of risky options). But if you have $10,000 in stocks, and you get 10%, that’s not that great. Whereas in real estate, with $10,000 as a down payment, u can control $100,000 worth of real estate, and get a 10% ROI on the $100,000.

If you got a 10% return on $10,000 in stocks, you would have made $1,000 in a year. You would have only made a 10% ROI on your 10k.

If you got a 10% return on a $100,000 building, you would have made $10,000 in a year, or a 100% ROI on your 10k.

Then there are also no every year tax benefits to holding stocks, but there is in real estate. Every year you can deduct the depreciation of the building, and the expenses, and mortgage interest off of your taxes, you can dramatically reduce the taxes you pay every year just by owning a building.

The banks will loan you most of the money you need to buy real estate, let’s try asking a bank to loan us money because we heard of a great new stock tip. Not happening.

With real estate you can make your building be more valuable with sweat equity, with a stock, there is almost nothing you can do to increase its value.

In real estate, you do not even have to sell your property to get the money out of it, like you are familiar with you can always put up equity as a line of credit or re-financing your mortgage. With stocks you are forced to sell and pay capital gains.

With real estate, they are not making any more land, as population continues to rise, most of real estate in specific places will continue to rise.

As the economy gets worse and more people lose their home, and as the depression come, there will be more renters, and renting demand is increasing and the price to purchase a home is going up.

Why should you have more than one line of credit, or credit card.

I was eating dinner with my old boss and other business associates I work with on RebuildingRotaryEngines.com, when it came time to pay the bill I pulled out my wallet.  They said you sure got a lot of credit cards, they didn’t see half of them.

I asked them if they had credit cards, they did, most of them had one personal credit cards.  Their reasoning was I already got one credit card, if I need it I’ll use it.  I would 100% agree with that, there is no reason to have lots of credit cards, unless of course you want to be a stronger borrower when you purchase a piece of real estate.

When you go to apply for a real estate loan they’ll of course run your credit.  If you have a high score thats credit, but then the next question is how stable is your credit. Bankers would ideally like to see three (3) lines of credit.

A line of credit is for example one of the following:

  • a car loan
  • a student loan
  • a credit card
  • a business loan
  • a house mortgage

A line of credit is basically any type of money you are borrowing and paying back.  Make sense?

So what they would like to see is three (3) lines of credit with at least a one (1) year history ideally. 

Keep in mind, if you have a student loan and are not currently making payments on your loan, it is probably not affecting your credit score for the positive.  They are looking for three lines of credit with history showing that you are able to make your credit payments, so they know you will be able to make payments on your house mortgage.  Make sense?

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So if you want to be a stronger borrower, keep in mind you can still get a mortgage without three lines of credit, but ideally three lines of credit with a one year history on each of them is going to probably help out the process, and potentially get you a lower rate.

Have one credit card, or one line of credit, you may consider getting another one if you are serious about purchasing a piece of real estate and going to be getting a loan. 

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I did not know this when I got my mortgage, had I do it all over again I would get three lines of credit immediately when I was 18, not just one.  I got a credit card immediately when I turned 18, that helped a TON, I had 2 years of history on that line of credit.  But what I did not know, is they want to see a good credit history on three lines of credit.

If you like to apply for personal credit cards, you can visit my affiliate site at http://apply-for-personal-credit-cards.com.

So remember, we want three (3) lines of credit with at least a one year history ideally. 

Of course, history with LOW or NO balances on the credit cards, and PAYMENTS ONTIME in full or more than the min balance.  Three credit cards with late payments for one year will hurt you, obviously, so be smart, three is what you want with good history on each other them ideally.

My New Earth Moving Machine, 1st Deposit and New Company!

So I purchased a new vehicle today, it runs on disel.  I heard if you dig far enough into your soil sometimes you can find treasure.  Which I of course would sell on ebay, so shoot, sounds like a great idea.

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I could be a comedian hu! 🙂 Um, because the oil tank was leaking, we had to decomission it and put in a new gas furnance system (was able to negotiate seller covering all costs!!!)  So the guys were out today putting in the gas line, the contractors were putting in the Furnance.

I also was able to open the bank accounts for my new real estate holding company, which is under a single member LLC.  And I was able to receive my first rent deposit today, the guys are moving in on the 5th of june.  Asking $1,625/month for rent, month to month, they pay utilities, except for garbage and I take care of grass.  Mortgage payment is $1,600 a month.

Not bad! I’am not in process of trying to raise some capital and purchase a 4plex for $369k, I need to contact the seller and get things moving.  The goal is to own/co-own three pieces of real estate by January 1st, 2008.

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Ack! Oil Tank

Well we did our inspections on yesterday, the house was pretty good except for the oil tank.  The oil tank is leaking and it needs to be decommissioned which is going to cost around $2,300.  Um, it may cost more though, it was higher on the levels of fuel in the ground and now its going into a second testing, they potentialy could have to remove the soil which would be around $10,000.00.

I would of course make the seller pay for that in the subject to’s.

Um, but thats just to remove/decommission the first tank.  Then we have to install another one, which is around $2,300 also or put in a gas furnance which is around $4,500-$6,500, plus the piping which would be aorund another $300 or so.

If your purchasing a property with an oil heating system, be sure to get the oil tank TESTED, aprox $150-$200 to test.  Home Inspection was $345.

Ggreeatt!! More negotiating, gota love problems!

First day at the RISE Conference | Stocks Vs. Real Estate Investing

Well today was an exciting today at the RISE Conference, there was a ton of spakers.  Including some of the ones I enjoyed the most were Peter Coors, CEO of the Coors brewing company, Ralph Avarzes, CEO of McDonald, and abunch of other analyists and economists.  This conference is definintely for Finance Majors, idk if I would go again, we still have acouple of days but its not really entrepreneurship.

I didn’t find myself networking a terrible alot because everyone is focused on getting jobs as portfolio managers, stock analysits, and finance sort of stuff.  Nothing wrong with that, but when I talk to abunch of people all oriented going that different just not something I’m that interested in.

Like the Richard Parson’s visit from the CEO, I had front row seat, infront of 1,200.  Front-row seating, I could see everyone, eye contact with the speakers, just arriving early.  The information in the front is different than the back seats.   Always sit in the front if you can, I had the straight, middle seat, in the front row infront of everyone.  It was awesome!

Well as much as there was interesting information it is really interesting to see peoples’ views, everyone here it seems like is very biased in stock portfoilios.  I’d personally have real estate portfolios for tons and tons of reasons over stocks.  While stocks are good, I’d like to emphasize a couple of key points why real estate is potentially a superior investor for most people.

They were talking about how house prices may go down, and the housing bubble.  And yes, theses people probably know alot more than me, but in the last 40 years, how many years have the medium house price gone done?  That would be none.  Even if housing prices are bad, just like the real estate deal I’m doing right now.  I’m purchasing it below price because you can negotiate.

Theres one main thing I want to impact on though, and those that participated in the real estate club will understand this factory.  Everyone is saying stocks are better investment that real estate, although what I found out what they were saying is stock investing vs. REITs, or real estate investment trusts, or basically stocks that invest into real estate.  But they were even talking about the real estate market.

They are like well on average you may be getting 5% appreication on your houses.  Compared to 15%ish on the stock indexes.  Well, like theres a big difference there, and there is.  But for most of the students they don’t get it. 5% appreication on your house, compared to 15% on the stock, of course the stock sounds better.  But here is what MOST students don’t understand, and most people don’t understand why real estate is actually in some cases alot better.

Say ok, well you get 5% appreicaiton on your house, will a little bit of homework, you can easily get probably 8%+, 5% is really low.

But here is the difference.

Lets say I have $100,000 in stocks, ok, great, that goes up 15% lets say.  I know have $115,000 I grossed $15,000.  Pretty good

and my piece of real estate was $100,000 and it appreicated say only 5%, so my property is worth $105,000, so I grossed about $5,000.

But heres the catch, see in real estate, what if you just put 10% down to controll that $100,000 piece of property.  Like in my example, I’m putting 10% on a downpayment.

So then recaculate here, if I put 10% down on $100,000 property, that means I’m putting $10,000 down.  Well, my house appreciated 5%, my $100,000 house appreciated 5%.  Ok so my house is worth $105,000.  I made $5,000.

Well, wait a minute, I made $5,000.  I invested $10,000.  How much did I gain, I made a 50%!!! return on my investment compared to a 15% ROI on my stock transactions.

SEE THE RETURNS IN REAL ESTATE ARE MAGNIFIED BECAUSE OF THE LEVERAGE OF USING OTHER PEOPLE’S MONEY.  I MAY ONLY GET 5% ON APPREICATION, BUT I’M GETTING APPRECIATION ON THE MONEY THE BANK IS LENDING ME.  I’AM MAGNIFIYING MY RETURNS BECAUSE OF THE LEVERAGE FACTOR.

And btw 5% is garbage, north portland is appreication 16% a year for the last 5 years.  With 10% down, that means I’m getting a 160% return on my investment each year.  Stocks beat that, banks won’t lend u money to do that with stocks now will they.

So thats just one example, don’t be fooled when people tell u well real estate appreicates less, and the housing market is going to crash.  They are obviously not real estate investors, and most people don’t understand how leverage works.

There really isn’t any leverage in stocks unless u do options and stuff.

And to top that,

not to mention the tax beneifits, 1031 tax-exchanges, you can save all ur money on capital gains.  Can’t really do that with stocks unless u have an IRA.

More tax benefits depriciation, you get writeoffs because of depreciation of your building.

Amoritization, you have a rental income, you got that mortgage.  The renters are paying for that.

Had if your stocks crash, you’ll loose all ur cash.  My building burns up, I have insurance to cover it, and besides I still own the land.

You have to buy stock at its current going rate, in real estate, you can negoitate and get a steal deal.

Those are just a few of the reasons I prefer real estate over stocks, yes stocks are good, I’ll do stocks, I do stocks right now, but I’m going to do MAJORITY by FAR in real estate.  Leverage, Leverage Leverage, used properly will make you rich.

Your thoughts

This is why you want to be in Silicon Valley for web companies

My uncle sent me this article,

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/03/11/MNGKKOCBA645.DTL&hw=neo+nomads&sn=001&sc=1000

You don’t have to read the whole thing it is so amazing. I knew it was good down there, but not this good. You goto theses coffe shops and there are like 20-50 people with laptops programming, startup theses internet startups letft and right. I can’t wait to get down there, skim through that and you will be amazed. This is crazy web 2.0, that is the place to be.

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Although I’m ging to be switching my plan alittle bit, so I can go down there with some momentum. I’m going to go down there but tweaked my plan.

Instead of going down there immediately, I’am going to get this real estate internet buisness for Corvallis established that should take 1-2 months, in meanwhile I’m going to purchase an investment property in N Portland. So I have an equity producing machine.

N portland appreciated 16% last year, that means if I had a 300k proeprty, I would have made 45k off appreciation alone. I can’t miss this.

I appreciate the input from my friends and I like the idea, exhaust all of the resources where you are currently and then move to the next destination. In otherwords, there are opportunities all around us, I’m going to take what I can, do what I can, get the real estate transactions going, so if my internet buisnesses fail crash and burn, which I’m sure some will, I will have a real estate buisness steadily growing on the side of everything.

I do this, get the property, get the company down in corvallis established which I haven’t mentioned on here yet, focus on that, then go down to San Fran with some serious entrepreneurship momentum, and then rock it down there with the web 2.0 project. I’am still working on it, but putting it on a quick hold for this week and focusing on the real estate buisness, and real estate purchase.

Although I’m going downt o san fran this week, and going to talk to the family down there, and plant that seed. So San Fran 6 months to a 1 year, did you look at this article: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/03/11/MNGKKOCBA645.DTL&hw=neo+nomads&sn=001&sc=1000

I can’t miss out on that, but I’d like to already have some 2 etablsiehd websites, and a real estate producing equity propert,y and then go down there, I’ll have an edge, momentum, focus, and really blow it up down there.

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Theses guys above got mommentum, this will be us!  Come down there rocking, and make it happen, alot of compeition down there, and lets blow them away, do what they aren’t doing.  Have access to more resources up here, take advantage of that learn the process of using up what you can, and take it down there, and really blow it up.I’m excited too beacuse the web 2.0 company I’m developing is basically a system which allows theses guys to get help from one antoher!! Wow.

Great Deals Move Fast & The Secret

Yeah, looks like I was to slow on that 9plex for $505,000.00 that would have been a great deal.  Someone made an offer on it and I’m a little late to the party.  Well thats great, I’ll use the same techniques, to find another one, and this time I’ll beat them to the deal.

scaledimageaspx.jpgWell, I do have a backup property.  There is a small one in Corvallis, one block away from I live.  Not nearly as exciting, it brings in $17,500/yr GROSS compared to $50,000… its $236,000 compared to $505,000.  Intersting though isn’t it, the one for half a million, is double the price, but brings in 4 times the cashflow…. What a deal that was!

Here is the property.  Anyways, tommorow we are throwing out an offer for $210,000.  Hopefully that will go through, I have a prequalification letter going out with this one.  If you want your offer to look more appealing, and stronger, more serious, make sure to include a  document showing that you have been prequalified for the loan amount, to buy that certain property.   That is what might have killed my 3plex deal, no prequalification letter.

And today we had an awesome gathering at the real estate club, we watch the Secret, one of the best personal development movies I have ever seen.  http://www.thesecret.tv