Tuesday, September 28, 2010

Wall Street Woes Mean Main Street Opportunities

A hedge fund manager, Andy Kessler, recently opined in The Wall Street Journal that, "Wall Street firms are actually down close to 15% for the year" and "Wall Street faces headwinds that will force its hand. We are at the bitter end of a 30-year interest rate cycle. Declining interest rates are the ideal environment for economic growth." [What's The Matter With Wall Street?]

So, how are declining interest rates and a declining Wall Street turning into "Main Street Opportunities?" When the stock market has to rein in its wild claims of gains, ordinary investors do better. When the stock market is riding high, many people (and their money) are lured into investing in stocks by the promise of large gains, especially fast ones. Of course the reality is that the only people making large gains are those who bought the stocks before the big run up and are now selling them to the average investor and pocketing wads of cash.

If the market has to dial back its expectations, investors are more likely to turn away from the siren song that wrecks them and pay attention to investments that seem a lot less sexy, but which actually are consistently producing better returns for investors. I am talking here about private mortgages and private lending.

What Happens to Your Money in the Stock Market? About ten years ago if you had put $10,000 into a stock fund that mirrored the Dow Jones Industrial Average, ten years later, you would have about $9,540 in your account. Zero growth in ten years. How is that possible? Because ten years ago the Dow was at 10,000. After that it went down and stayed down. Only recently did it climb back up to 10,000 again. Which means you would have had a decade with negative or no earnings.

What Happens to Your Money With Private Lending? In contrast, if ten years ago you had put $10,000 with a real estate entrepreneur as a private mortgage at just a 7% interest rate, ten years later you would have about $18,385. That is 80% more than than you would have in your stock market account. Which would you rather have, a $460 loss after ten years or an $8k gain over ten years? Why the huge difference?

Investing in dull and boring real estate private lending actually harnesses what Albert Einstein called "the most powerful force in the universe," compound interest.

Keep It Simple Silly - most real estate entrepreneurs prefer to keep things simple. They like simple interest and they like interest only. That means when you lend $10,000 to a real estate entrepreneur, most of them prefer that the loan is interest only and better yet, interest is paid annually instead of compounding. It makes it easier for them to keep track of costs of funds and it lowers their outgo slightly. For you it means you have a simple interest income calculation on your taxes. Then when the loan is paid off, you can clearly see the gains and the return of principal. Then you can do it all again.

In many cases, real estate entrepreneurs are looking to use your money for a year or less. Some may put it to work for longer periods. You decide if you want to keep getting it back and putting it back in, or if you like having it sit there and earn steady money for you. Either way, you can be in control.

What Real Security Looks Like One of the best aspects of this kind of private lending is the security you get compared to stocks. When you buy a stock, the value can fall to zero. Just ask those who held GM stock when it went bankrupt and was bought by the government. In contrast, when you invest in real estate you get a mortgage or a deed of trust on a real house. And the house is insured with you as a named beneficiary. This means that if the borrower stops paying you back, you can take the house. You can live in it or sell it, as you choose. If the house is destroyed, the insurance will pay you back what you are owed. Either way, you have significant and real protection against loss and your investment is unlikely to become worthless. You have no such protection with stocks.

Banks Are Doing it With Your Money Right Now If you are putting your money into certificates of deposit (CDs) or other savings accounts at banks, the reality is that you are already taking all the risks of lending to real estate entrepreneurs and getting none of the returns. Lending to real estate entrepreneurs for centuries has been the lifeblood of the banking industry. They take your deposits, pay you a few pennies of interest, and lend them out to real estate entrepreneurs and make dollars of interest - for them, not you. In recent years bankers too were lured into wild and risky investing schemes using derivatives and other arcane and complex calculations. Soon they will return to their roots, robbing you of your earnings by lending your money out to others. I suggest you rob them instead.

Cut them out of the lending game and take the gains for yourself. Become a private lender today and turn Wall Street Woes into Main Street Opportunities. For some free info on how private lending works go to http://www.robthebanklegally.com/. But, before you do that, go back to the paragraphs above on "What Happens to Your Money..." and add a zero to the end of each number. Then you will see just how powerful this private lending can be.


Tom ~

Why Buy Retail?

http://www.buyahousebelowmarket.com/

See my latest blog about what we do at The Gold Seal Homes Group: http://www.youtube.com/watch?v=ACJx3wpKezQ

Thomas K Sheppard has been successfully investing in real estate since 2001. A veteran of the US Marine Corps and more than 17 years in the banking industry, he is focused on helping 100,000 families to find quality, affordable homes. He buys, sells, and rents homes in the Charlotte, NC metropolitan area, including Mecklenburg, Cabarrus, Rowan, Union, and Gaston counties. If you are looking to buy, rent, or sell a home, condo, or apartment in those areas, or would like to learn about how you can help 100,000 families find quality, affordable homes, contact him at tsheppard@adbproperties.com or visit his website http://www.buybelowmarket.com/.

Thursday, September 23, 2010

Meeting With Millionaires and Making Money With Friends

On September 11 and 12 I spent the weekend in Chicago meeting with millionaires. Really, lil ole me!

I went to an event called Mega Partnering hosted by JT Foxx. Several millionaires stood up on the stage over those two days and each shared the secrets of how they got where they are. In contrast with most celebrity-filled events, they didn't try to sell us anything. With very few exceptions, there weren't any books or tapes available for sale at the back of the room.

In addition to the millionaires up on the stage, there were many sitting in the audience. JT taught us how to network with them and then gave us the chance to do just that.

I met one guy who represents a hedge fund that invests in real estate. I met another who has created a deal exchange where deals and money come together. Some of these folks are looking for deals that start at $2 million and go to $200 million. Others are more in my zone, looking to fund purchases of single family homes.

Some of these are just money lenders. Others are looking to partner with quality people in select markets so that they can work together to make a lot of money in this crazy market.

Why would an experienced real estate investor like me be interested in working with these folks? The reality is that there are many more opportunities in the market right now than I can make happen. So, I need lots of money to be able to buy lots of homes at prices significantly below market so that I can sell them at a discount to people looking to buy a home for themselves but don't want to pay retail.

Why go to a private money source instead of the bank? There are several reasons why a private money source often works much better for buying real estate instead of using a bank.
  1. Right now banks aren't lending. I know the newspapers, the ads, and the TV commentators talk about how much the banks are lending. It is largely a lie. The number of loans that banks reject these days is at an all-time high. This means that more people than ever before are jumping through all the hoops the bank puts up only to find in the end that the bank has found some reason not to do the deal. I don't need that kind of frustration only to lose the deal in the end.
  2. Banks limit the number of loans they will make to one person, and sometimes they limit the number of loans the person can have regardless of where they got them. As a real estate investor, I have many loans. Don't get me wrong. I understand why banks don't want to make too many loans to one person. It is good risk management on their part. Still, it acts to limit the size and profitability of my business. I am not keen on having someone else tell me that I cannot earn more than a certain amount! I don't like the notion that someone else can tell me I cannot buy more houses than they think I should.
  3. Banks are restricted by government regulation. They have to jump through many hoops to lend me money, and in turn they make me jump through many hoops.
  4. Private lending sources don't have the limits I mention above. They look less at me and more at the deal. They aren't afraid for me to fail, that will just be an opportunity for them. Because of that, they will fund deals that the banks won't.
  5. Private lending sources use common sense - bank employees use policies and procedures.
I could probably go on about the benefit of using private lending sources for pages and pages. Let me leave you with one more reason to use private lenders.

Not all private lenders are millionaires. Most of them are ordinary people with a few thousand dollars in an IRA, a CD, or a 401K with a former employer. Working with these kind of folks, I am usually able to give them a return that is much better than what they are getting from their current investments. I like helping other people to succeed. When I can succeed with them, that is the best.

I have many friends who have let me use their money to buy real estate in my business. They have made tens of thousands of dollars in interest while sitting at the beach, letting me do the work. Private lending is a powerful tool to turn ordinary folks like you and me into millionaires like I met with in Chicago.


Tom ~

Why Buy Retail?

http://www.buyahousebelowmarket.com/


See my latest blog about what we do at The Gold Seal Homes Group: http://www.youtube.com/watch?v=ACJx3wpKezQ


Thomas K Sheppard has been successfully investing in real estate since 2001. A veteran of the US Marine Corps and more than 17 years in the banking industry, he is focused on helping 100,000 families to find quality, affordable homes. He buys, sells, and rents homes in the Charlotte, NC metropolitan area, including Mecklenburg, Cabarrus, Rowan, Union, and Gaston counties. If you are looking to buy, rent, or sell a home, condo, or apartment in those areas, or would like to learn about how you can help 100,000 families find quality, affordable homes, contact him at tsheppard@adbproperties.com or visit his website www.buybelowmarket.com.