You ever see those “ret rich quick schemes” about real estate on TV at like 2:00 AM? Here’s an even better question: have you ever bought the “get rich quick scheme” system at 2:00 AM? I have to admit that I actually purchased one expecting the worst. I just wanted to read the first three chapters just to see how much credibility these “professional courses” actually had. And to my surprise(sarcasm) it was just total crap. It was more of a semi-inspirational course that really didn’t get you motivated enough to go out and buy real estate. I give it two thumbs down! I returned the program just because I really didn’t feel like paying Carlton Sheets and, because it was a complete scam. Another thing that I would like to point out is how much trustworthiness these people even have if they have an infomercial at 2:00 AM. I mean they are competing for airtime against some “5 minute ab work-out” infomercial and “Girls Gone Retarded”! Now back to the point. The one thing that I have learned about real estate is that it requires time and comprehension. It is not some kind of get rich quick scheme because if you are in it for the short-term you are going to lose big time. It requires you to be diligent and get as much knowledge in real estate as possible.

Step one: Develop your game plan.

Before you dive into the uncharted real estate waters, you need to develop a game plan. Figure out whether you want to invest in property, or just have a comfortable lifestyle (no more than two properties). This step is crucial because it makes your house hunting much different. Many factors come into play that you would probably overlook if you were just buying it as your residence. Examples would be the renting culture (how many homes are already being rented in the neighborhood), apartment prices (to stay competitive), proximity to grocery stores, malls, etc. (area renting incentives).

Step two: Already nice, or fixer upper.

Are you going to shop for foreclosures, houses that need some repairs, or homes that are already nice and ready to move in? These are some things you must read up on. Don’t just decide you’re going into the foreclosure market and fixing up the house without looking at cost analysis of the repairs (materials, labor, and time). This can get you into a lot of debt very quickly if done incorrectly. Buy Low, Rent Smart, Sell High is a great book that explains the costs of “fixer up’ers”.

Step three: Financing. Buying stuff with none of your own money!

Find your financing. I usually recommend finding your money source before you starting buying everything in sight. You can’t make a bid for a house without the Benjamins (money). When you are an early investor there is nothing else better than using other people�s money to buy stuff that makes you a profit. It�s a beautiful thing called leverage.

Step four: Advertising time baby!
Use as many free resources as possible before you start pumping money into other promotional devices. Use Craiglist’s to advertising your new property before it goes on the renting market. You always need to start displaying ads before you buy the house, but make sure the deal will be going through. After exhausting your free advertising resources, use other online services (Rent.com), and local newspapers to announce an open house for rent. Use words like “New low price, Free Rent, Move-in Specials“.

Step five: More to come later on this week…

Books eFIPO recommends for Real Estate

Buy Low, Rent Smart, Sell High

The Automatic Millionaire Homeowner

The Beginner’s Guide to Real Estate Investing

Blogs eFIPO recommends for Real Estate

Mind 2 Money

Real Estate Blog

The Real Estate Blog

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Through pages less traveled I arrived here: The World’s Smallest Political Quiz and apparently I am Libertarian. I did some digging to find out if I should get out my checkbook and donate.

The Libertarian Party is dogged by the age-old saying, “any press is good press.” And frankly, they don’t get any press. They do, however, have an itemized list of issues and their stances which is quite refreshing amid the deluge of Blue and Red doublespeak. As a former Conservative who wondered what happened to personal freedoms and small government, is the Libertarian party the last refuge for the classic American Federalist system?

In the upcoming weeks I will present parts of the Libertarian platform for discussion. Don’t worry, I am not in agreement with all of them - no lobbying here! In the meantime, what does your political compass say? Any suprises?

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A few weeks ago I was introduced to a young woman, Marie, who had invested $5000 into her friend’s music production startup. The terms of her investment were as follows:

1) she would receive 1% of the company’s gross revenue ad infinitum, paid quarterly

2) she would be guaranteed to recoup her $5000 in a lump sum payment after 6 years if it had not been paid back through quarterly earnings

Her question: “My friend’s father has been urging me not to call the $5000 note next year. He says that the company is posed to take off. It just needs a little more time.
What should I do?”

Before responding lets go over the details again and see if it makes sense. We are about to enter the world of company valuation. She paid $5000 for a 1% stake in the company on day 0. So what is the company’s market value? If 1% of the company was valued at $5000, then 100% of the company would be worth $500,000. A company’s initial valuation is not set in stone, rather, it is negotiated between the owners and the investors. By agreeing to the terms, Marie confirmed that, to her, the startup was worth $500,000.

Next we need to define what stake she has in the company: is it debt or equity? Debt implies a liability and enforcement of repayment. Equity implies ownership and offers no promise or reimbursement. Which does Marie have? The promise of 1% of gross revenue in perpetuity tells us that it is equity. The promise to repay in year 6 is a clear liability. So in reality she has both equity in the company and a $5000 receivable.

So should she call the receivable? For the following five years, the record studio posted the following earnings:

Can you dissect these results like a financial archaeologist? What happened? The owner’s father appealed to her, “we are looking at getting some venture capital money. We just need to keep things going until then.” What should she do?

The “solution”

The story told is a typical one in the music production industry. The entrepreneur had a friend with some money who needed an album, but after that the connections dried up. For the next four and a half years the business limped by doing off-the-street recordings for walk-ins. Growth is flat. Total earnings have been about $25,000. This company has no future.

As for getting VC money, that too is impossible. The company’s financial structure is toxic to VCs. With Marie receiving 1% of the company’s revenue in perpetuity, no matter how much they invest she will benefit. For example, even if they pump $50M into the venture and make it a powerhouse doing $40M / year in recording, Marie would still be entitled to $400,000 of that income. This company is “unfinancable.”

The correct way to structure a startup involves shares. An investor buys X shares for Y dollars. Dividends are then paid on shares. This allows future investors to come in and be properly compensated. I will talk about raising capital for startups in a future article.

So what does the future hold for Marie’s investment? The prospects look bleak. The company has barely made enough in 5 years to service her debt and, if she only owns 1% of the company, how will it service all of its notes? It is no coincidence that the owner’s father is courting people not to call their notes. Doing so would bankrupt the company. I advised her to contact the CFO immediately and attempt to settle the note for $2000 - only 40% of its face value. If she waits until next year, she will receive nothing along with her fellow investors.

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Let me tell you about my day. It was a beautiful morning in Georgia. It wasn’t too hot and it wasn’t too cold. There was sunshine gleaming through the trees in my front lawn, and the birds were singing a good tune. It was just perfect. But then…. I was getting ready to go to work and I noticed that my car had a flat tire!

(I inverted the colors so you can see that I did not have to pay for anything!)

Most people hate having flat tires, but I hate them even more. Want to know why? Well maybe it’s the fact that I have had over 12 flat tires in less than one year and eight months. Or maybe it’s the fact that I have had to get ten patches, and two tire replacement. It might also be the fact that I have had to spend over $400.00 on stupid patches! But luck was on my side. The general manager at Big 10 Tires, Bill, gave me a free patch because I am their best “patch-up” customer.

One of the tires that I replaced was purchased at Big 10. I bought hazard insurance because you know luck will strike again in the future (But then again. My luck shined and decided it wouldn’t be on the tire I have insurance on!). Get hazard insurance on all your tires, because the road is your enemy and it wants to send pieces of sharp metal right into your tire. I wish I could get it on all my tires, but that will have to wait till I get new ones on all my wheels, which according to my calculations should be in three months.

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Welcome to eFIPO.com Carnival members! This is my second Personal Finance Carnival! My post, How Short Term Goals Make Long Term Results, will be posted on Canadian Capitalist. Check out my article (I’m article number six)and many other really great personal finance articles. There are tons of great blog writers so please check out their posts and comment and register if you like their content. Help us out and spread the word about personal finance websites!

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On a weekly basis (usually Saturday or Sunday) I will recap my retirement account performance.

This was a pretty hard week in the stock market. You would think with oil prices down stocks would increase, but there were a few variables that were thrown into the middle of the week that had severe changes in stock prices. The first thing that changed the market was the statement made by Wal-Mart wanting to sell generic drugs for $4. This had a huge impact on many different markets. Pharmaceutical companies, retail stores, drug stores, and even Wal-Mart saw a huge decrease in stock price (as much as a 9% drop! Don’t know why Wally’s World stock decreased though…). This had an affect on my portfolio, but not a drastic one because I don’t like investing in the pharmaceutical sector of the market. I don’t know much about it so I choose not to put my money there. Maybe when I start taking prescription drugs in the future I will have more familiarity about that sector (I won’t be getting a Viagra prescription any time soon), so for now I will stick to things I know about.

Mutual Fund Performance (All grouped together)

Monday, September 18, 2006 – Full value $10,325.18
Wednesday, September 20, 2006 – Full value $10,287.72
Friday, September 22, 2006 – Full value $10,087.94
A decrease of $237.24 which is a 2.35% loss. Not bad when you look at what happened to the S&P 500.

Individual Stock Performance (All grouped together)

Monday, September 18, 2006 – Full value $2273.59
Friday, September 22, 2006 – Full value $2168.21
A decrease of $105.38 which is a 4.86% loss.

Notice that in a mutual fund there is less volatility which means you usually won’t loose as much money as in individual stocks. I lost two times more (in terms of percentages) in my individual stock fund.

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By Phil T. *not an admin of eFIPO.com*

Why are illegal immigrants still living in America? That would be like letting killers and rapist walking the streets and not arresting them. I know what you all are thinking. But I had to use an extreme example to demonstrate my point. They are still breaking the law. Not only are they not paying taxes, but they expect the American tax payers to shell out money for their medical bills. You know that this would not fly in any other country. Why should we be the ones to tolerate this illegal behavior? Another thing that makes me mad about the whole immigration thing is the fact that they do not want to learn to speak and write in English. This is America and we speak English. If you want to speak Spanish stay in Mexico! I have no problem with Mexicans that come to America legally. I welcome them and would love for more legal immigrants to come to this country.

For illegals there shouldn’t even be an argument for their side. They are not Americans. They are criminals that are evading paying taxes (last time I checked that is EXTREMELY ILLEGAL), and crossing our borders without our consent.

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Grassroots advocates can submit statements for the record!

A subcommittee of the House Ways and Means Committee, the congressional body responsible for the income tax code, is holding a hearing on September 26th to let House Members describe tax proposals they favor.

The Ways and Means Committee is also accepting written statements from the public that will appear in the official public record. Like our tax forms, the process for submitting statements has been made complicated but please endure the two-step process described below to support the FairTax.

FairTax.org is asking every FairTax supporter to e-mail a short statement of support for HR 25 and the FairTax to the House Ways and Means Committee for inclusion in the public record. Please submit statements before September 26th.

FairTax supporters are asked to make brief written statements describing one or two favorite reasons for passage of the FairTax. Please be respectful and mindful that others will judge both the strength of our support and the character of our campaign by the nature of these comments.

Sample: A written statement could be as brief as, “I support fundamental reform of the tax system by passing HR 25. A national retail sales tax to replace the income tax system will greatly improve the nation’s economy, help to increase the national savings rate and bring simplicity and fairness to the federal tax system.” This is just a sample statement. You decide the best few arguments that you most favor for passage of the FairTax and trust that your fellow citizens will cover other important points.

To submit a statement to the Ways and Means Subcommittee on Select Revenue Measures click on this link . After completing this form an e-mail will be sent to you within 24 hours soliciting your statement. This follow-on e-mail is your “doorway” to the subcommittee record. Be sure to identify yourself in both the form and the statement as a “FairTax supporter.”

Thank you for helping write American history and for all that you do to win enactment of HR 25.

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Have you looked at your stock/mutual fund portfolio in disgust? Are you not getting the returns you deserve? Wondering where you should cast the blame? Want to take revenge on the person that is giving you skimpy returns? Walk to the closest mirror and slap yourself in the back of the head. You don’t control the market, but you do control your financial decisions even if you are with a broker. It amazes me how long people will stay with their financial planner or broker while getting substandard returns on their portfolio. Would you keep your job if you knew about an identical position with another company that paid three times more? Doubt it! So why are you staying with your broker/financial planner? I’m not saying to leave the company after a couple of bad years, but I would recommend looking around if you’ve had five consecutive years of poor returns.

Shopping around shouldn’t just be for clothing and electronics. Finding a good place to have your investment/retirement accounts is key for financial independence. I currently have two different investment portfolios. My first portfolio is with a mutual fund company that holds 82% of my retirement account. The rest of my portfolio is for purchasing individual stocks using an online broker. Since the inception with my mutual fund company I have received an average of ~18% return a year.

1st year was ~21%
2nd year was ~19%
3rd year was ~12%
4th year was ~17%
This year since January 06 ~8%

My stocks have increased ~11% since January ‘06. How have I received such high returns on my investments? I have to admit to one thing about my mutual fund return. I was really really lucky the first two years. I just picked small and large value mutual funds and lucked out. After year three, I studied what other great investors were doing. After reading Rule #1, The New Buffettology, and The Four Pillars of Investing I had a new insight on investing. Those books all had different strategies to build wealth using stocks, but there was one parallel between all of them and that was long term growth.

Like the world’s greatest investor, Warren Buffett, once said “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” Buying the “hot” new stock is a fad that he does not like getting involved with. Buffett has always liked buying stocks at a value that he can predict getting a great return because of the way the businesses do business. Check out what securities are included in Berkshire Hathaway.

One of the dumbest things you can do is go into the stock market uneducated and expect a high return, or even a return at all. “The first rule is not to lose. The second rule is not to forget the first rule.” That statement is the formula that Warren Buffett has lived by for over 40 years and it has really paid off. Realistically, I do not expect to receive his 23% return a year for the next 40 years, but I do expect to obtain over 15%. It is an achievable goal that if you purchase and hold securities correctly you can get an extremely high return. Always look at the big picture when it comes to retirement because you end up living half of your life in it!

Recommended reading list for this article

The Intelligent Investor

Rule #1

The New Buffettology

The Four Pillars of Investing

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Welcome to eFIPO.com Carnival members! This is my very first Personal Finance Carnival! My post, Making of a Rough Budget, will be posted on Free Money Finance. Check out my article (it’s the 16th from the top) and many other really great personal finance articles. This is one of the best ways to promote my site so we shall see how much traffic I receive from it.

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