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I saw this quote the other day:
"You must have long-range goals to keep you from being frustrated by short-term failures." -- Charles C. Noble
I don't know who Mr. Noble is, but he's on target with this. When you experience setbacks, stop long enough to figure out what you need to adjust in your plan, then keep moving toward your long-range goals.
The situation might seem innocent enough. You’ve got a property for rent that you’ve been advertising. You get a prospective tenant from out of town, maybe even from overseas, who pays the deposit and one or more months rent in advance using a cashier’s check. You deposit the check, then the tenant—who hasn’t moved in yet—asks you to return a portion of the funds via wire transfer because of a family emergency or some other reason. Because the original payment you received was a cashier’s check and you haven’t been asked for a 100 percent refund, you feel safe cooperating.
So let’s say the deposit and advance rent was $3,000 and the tenant has asked you to refund $1,500. You’ve deposited the $3,000 and you wire back the amount requested. And in a few weeks, your bank notifies you that the check was counterfeit. You are now out $4,500 (the amount of the original bogus check plus the money you sent) along with bank fees, and you have little chance of recovering any of it. Most of the time, the scammer is overseas and it’s virtually impossible for authorities to locate them for prosecution and restitution.
Do not be lulled into feeling secure because you have received a cashier’s check. Scammers have gotten very good at counterfeiting cashier’s checks, postal money orders, and other certified financial instruments, and it may take your bank several weeks to find out that a check is bogus.
This doesn’t mean you should refuse to accept cashier’s checks from tenants—but if you do and are asked for a refund of all or a portion of the money, say no until you are able to absolutely verify that the check is legitimate.
A very important point to remember is this: Just because your bank makes the funds available does not mean that it has confirmed that the check it valid. The Expedited Funds Availability Act stipulates the maximum number of days a bank can hold a deposited check before making the funds available. This rule was developed to prevent banks and other institutions from placing overly-long holds on deposited funds. In addition, though there are some exceptions, banks are generally required to make funds deposited via cashier’s check available on the next business day if certain conditions are met. However, the check is still subject to final clearing and charge-back if the item is not honored.
If you accept a cashier’s check for payment of any kind, you can verify that the check is genuine by calling the issuing bank. Use the phone book, the bank’s website, or directory assistance to locate a telephone number—do not use a number printed on the check because it could be a hoax.
You’ve set your financial goals, but do you know how far you have to go to reach them? And how will you know when you’ve made it? A net worth statement will tell you.
Do you want to be a millionaire? A billionaire? Or do you just want enough so you can retire comfortably? Regardless of what your goal is or how you intend to reach it, you should know your net worth. This information lets you know where you’re starting from and helps you measure your progress. If you’re going to be in control of your financial future, you need to know where you are today.
Basically, your net worth is your total assets minus your total liabilities. It has nothing to do with lifestyle or appearances. If you are managing your finances and investing wisely, it’s entirely possible for you to have a higher net worth than someone living a far more luxurious lifestyle. In fact, it’s not uncommon for people who live quite modestly to have a significantly higher net worth than some people who choose to live lavishly.
A net worth statement is snapshot of your current financial situation and can help you decide where you should concentrate your financial planning efforts. Complete a net worth statement at least once a year so that you know where you stand and have reasonably current information available should you need it. For example, there may be times when you’ll need a personal financial statement to support applications for loans, insurance, and other reasons, and your net worth statement gives you most of the information you need to complete that document.
For purposes of net worth calculation, you don’t need to distinguish between types of assets and liabilities. However, for your own financial management and planning, you need to be aware of the difference between liquid and non-liquid assets, as well as immediate liabilities and long-term debt. Liquid assets are cash or something of significant value that can be sold or other wise turned into cash quickly. Non-liquid assets are accounts or other items of significant value that cannot be sold quickly, or if they are, would be subject to penalty. Immediate liabilities are debts you must repay within two years, such as automobile loans and credit cards. Long-term debt is payable over a longer period and typically includes financing on real estate and business loans.
Allow yourself plenty of time to complete your first net worth statement. Most people have more assets than they realize and you may forget to list at least a few of them the first time through. If you have a lot of debt—particularly credit card debt and obligations for money borrowed for depreciating assets—you may find this exercise depressing and frustrating. Just remember that knowing where you are is a key part of getting where you want to be.
By Jordan Taylor
In most situations, tax liens are not good news for real estate investors; they can cloud titles and reduce profits. But tax liens are good when you want to buy tax lien certificates, because you are not investing in property but rather buying the rights of a taxing authority.
“Tax lien certificates are one of the most predictable, certain, and secure real estate-related investments available,” says Thomas J. Senatore, a trainer with Wealth Intelligence Academy. “You buy them from the government, you get paid by the government, and the local tax collector does all the work.” Senatore says you can earn anywhere from 12 to 24 percent interest the first year and as much as 24 to 50 percent in the second year, depending on individual state law, the bidding system, and the period of redemption. Those rates are part of state statutes. They are totally legal and can be changed only by the state legislature.
How do these opportunities get created? Cities and counties need a way to encourage people to pay their property taxes on time and penalize them when they don’t. These local jurisdictions also need a way to borrow the funds that haven’t been paid so they can continue to operate and pay their own expenses. They do this by selling tax liens or tax deeds. As an investor in tax liens and deeds, you are performing a valuable service by lending money to governments so they can pay employees and provide services.
What’s the difference?
A tax lien is basically a loan that can be turned into a deed if not repaid after a certain period of time. A tax deed is a deed (which is ownership) to the property that may or may not have a redemption period.
Tax liens and tax deeds are created when a property owner doesn’t pay his taxes. At a certain point dictated by law, after the taxes become delinquent, the particular governing taxing unit (usually the city or county) places a lien on the property. A certificate for that lien is sold to an investor for the amount of tax owed plus penalties and interest due at the time the certificate is sold.
Most of the time, the property owner will eventually pay the amount paid for the certificate plus additional interest to the county. The tax collector notifies the investor, who returns the certificate and collects those funds. If the taxes aren’t paid within the time set by the taxing jurisdiction (typically one to three years, but sometimes longer), the owner of the certificate gets the property.
When you buy a tax lien certificate, you’re essentially paying the delinquent taxes on a property and buying the rights to collect those taxes plus additional interest from the property owner. You aren’t foreclosing or forcing anyone out of their home. In fact, it’s unusual for property owners to forfeit their real estate for the taxes. If a property owner wants to sell, most buyers are going to insist that the tax lien be taken care of before they’ll do the deal, so you’ll get your money then. In the unlikely event that the buyer overlooks the tax lien, you’re protected because it stays attached to the property until paid.
How the process works
Tax lien certificates are usually sold at a public auction and the details of the bidding process vary by state. Most tax collectors provide complete information on how the process works in their jurisdiction. As with any type of auction, it’s a good idea to attend a few tax certificate auctions when you have no intention of bidding just for the experience.
For most people, the biggest challenge of investing in tax lien certificates is understanding the bidding systems, which aren’t like those of a general merchandise auction where you bid a dollar amount on a particular item. In a certificate auction, some states require that you bid the amount that is owed the government plus a surplus to acquire the certificate. In other states, your bid reduces the interest rate, and the bidder who is willing to accept the least return gets the certificate. In still other states, the highest bidder gets the certificate. It all boils down to simple arithmetic—you just need to understand how to do the calculations necessary to make a profitable bid in each state, and state laws will tell you that.
Don’t ask other bidders for advice and information—they may know less than you do but don’t want to admit it, or what they think they know may be wrong. Get facts from reliable sources, such as the state statutes, the printed material furnished by the taxing agency, and individuals recognized as experts who provide certified training programs.
Think about this question: Are your friends putting you in debt? Of course not, you probably say. But think a little more.
Have you ever taken a trip, gone to an expensive restaurant, or done something else that you couldn’t afford because that’s what your friends were doing and you wanted to be a part of the group? Peer pressure is a powerful thing, and it doesn’t end with childhood.
If you’re on a serious wealth-building plan, you’ll sabotage it if you succumb to pressure from friends to spend money on consumables that you don’t need at the point in your life when you should be focused on building resources for the future.
Do you really need to do the old “keeping up with the Joneses” thing? No! And remember this: you have no idea how much debt “the Joneses” are in.
Economic inequality is a fact of life. It’s not easy, but you should acknowledge the economic disparity between yourself and your friends—whether it’s a disparity based on what you actually have or just how you’re willing to spend what you have.
Two important lessons here:
One, don’t spend what you don’t have on entertainment just to be with your friends. Suggest alternatives. Or recognize that not all friendships will last forever, and maybe it’s time to move on or at least take a break from this one.
Two, when you have achieved your own financial goals and can afford the luxuries you’ve always wanted without going into debt, recognize that not all of your friends may be in the same position and be considerate of their financial situation when making suggestions and issuing invitations.
How do you deal with this issue? Please share your comments.
Hear Robert and Kim Kiyosaki on Doing It Right Radio™. Click here to hear Robert speak on entrepreneurship and Kim on the importance of financial literacy for women.
I recently saw this quote by Logan Pearsall Smith: “There are two things to aim at in life; first to get what you want, and after that to enjoy it. Only the wisest of mankind has achieved the second.”
We talk a lot about goal-setting, planning, and implementing the plan so that you can reach your goals. It’s a good idea to remember that your plan should include a defined way that you will enjoy the fruits of your labors.
Jackie
Here’s an alert issued by the Texas Attorney General that’s worth knowing regardless of where you are located.
Landlords are being targeted by a scam that involves paying deposits and rent with counterfeit checks, then the “tenant” asks to have part of the money returned. It might take a bank some time (weeks or even longer) to realize that the check is counterfeit, but when it does, the victim will be out the amount of the check plus any money sent to the scammer.
Here’s the full notice from the Texas Attorney General:
Consumer Alert: Landlords, Roommates Can Fall Prey to Counterfeit Checks
Texans who plan to get a roommate or rent out their house or apartment in the new year should beware of a new version of an old counterfeit check scam.
The U.S. Postal Inspector recently warned that some property owners are being duped by con artists using counterfeit checks. Managers of large apartment complexes and owners of a single rental property are targeted by the scam. A landlord should not trust a prospective tenant who responds from overseas to an online advertisement, pays a deposit with a cashier’s check (possibly even offering to pay several months’ rent in advance), and then asks the landlord to wire back part of the money. The checks often turn out to be clever counterfeits.
People who advertise seeking roommates should be careful of this scam as well. Roommates abroad who send large deposit checks and then ask to have some funds returned to them because of a “family emergency” or similar reason are simply trying to profit from the prospective roommate’s trust.
To provide further reassurances, the scammer might even telephone the person who places the advertisement. But the result is invariably the same: They want to separate consumers from their money.
Many consumers mistakenly believe it is possible to get back their money, but the con artists behind these ploys are almost always in other countries. Even with the assistance of international law enforcement authorities, these thieves are nearly impossible to catch because they are constantly on the move.
Landlords and roommate seekers who are contacted with one of these offers should simply say “no.”
In a post on ProgramCritque.com, Mark says, "I for one can testify fully that these courses work. I'm living proof." Click here to read his message.
On Dec. 20, 2007 President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007. The goal of the legislation is to help Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages.
Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed. The Act creates a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness they receive.
In his remarks at the signing, President Bush said, “The bill I sign today will help this effort by ensuring that refinancing a mortgage does not result in a higher tax bill. Under current law, if the value of your house declines and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as money that can be taxed. And of course, this makes a difficult situation even worse. When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans -- and it will allow American families to secure lower mortgage payments without facing higher taxes.”
Foreclosure investors need to understand this legislation and what it will—and won’t—do for homeowners facing foreclosure. It will help homeowners who negotiate with their lenders to refinance using tactics similar to a short sale by eliminating income tax on the amount by which they reduced the loan.
Here’s an example: Let’s say Joe bought his house for $350,000. He secured 100 percent financing with a three-year ARM. Now his mortgage is adjusting, his payments are going up, and the value of his house has dropped to $300,000 but he still owes $330,000 on it. He can’t afford the new payments and he can’t sell the house for what he owes on it. Instead of walking away from the house, he goes to his lender and asks the lender to refinance the house for $300,000 under terms that would allow him to afford the payments and forgive $30,000. The lender may agree to avoid the expense of foreclosing. But prior to this new legislation, if the lender did agree, Joe would have to report the amount of forgiven debt on his tax return and the IRS would consider it as income for tax purposes. Now, that won’t happen.
There are plenty of other foreclosure circumstances that this legislation won’t help. If you are using foreclosure investing strategies, make sure you—and the homeowners you are working with—understand this legislation completely and don’t count on it to do something it wasn’t designed to do.
Jackie
By Jordan Taylor
In 2006, a real estate agent working at an open house in McKinney, Texas, was brutally murdered. An agent in St. Petersburg, Florida, was attacked, robbed and her car stolen by a young man armed with a gun and a 12-inch hunting knife who had posed as a customer. Within 11 days in DeKalb County, Georgia, three different real estate agents were robbed by an armed couple in incidents authorities believe were connected.
These alarming confrontations bring the issue of personal safety for all real estate professionals to the forefront. It is a sad fact that many of the activities necessary for successful real estate investing, such as showing properties to potential buyers or renters, have some degree of risk. You may often be alone with people you don’t know, creating a potentially hazardous situation.
While statistics by occupation have not been kept, real estate agents have been murdered, sexually assaulted, robbed, and carjacked in the course of doing business. It’s logical that a real estate investor could fall victim to the same crimes, but with awareness and by taking some simple precautions, you can protect yourself.
Keep these safety tips in mind:
Whenever possible, meet prospective buyers and sellers in a public place. Fast food restaurants are great places to review paperwork. The meeting also gives you a chance to find out as much as you can about the prospect, including where they work, what they do, how much they earn, and so on. This helps you qualify the individual as a potential buyer or seller as well as giving you a sense of whether they are legitimate or not.
Don’t assume that because the prospective client is a woman that she means no harm. Increasingly, women are being used to set up a victim for a male perpetrator—or women are actually committing the crimes. Be equally cautious with both males and females.
Always carry a cell phone and keep it accessible. Carry it in your hand, clip it to your belt, or keep it in a pocket—don’t leave it in the car or let it drop to the bottom of your purse or briefcase. Program emergency numbers into your speed dial. Keep your cell phone charged. Carry a car charger to use if necessary.
Invest in a cell phone with a GPS feature so that emergency responders can find you if you are unable to speak or relay your location.
Always take your own car when showing or inspecting property, and lock it when you leave it, even if you’re only going to be a few steps away. Also, keep it locked at all times while driving.
When showing a property, follow rather than lead the prospect through the house, and don’t let him get between you and the door. Avoid going into the basement or other confined areas with someone you don’t know well.
Let someone know where you’ll be. If you are inspecting or showing properties, or meeting with prospects, be sure someone knows where you are and when you expect to return. Have a plan ready in case you don’t return on schedule. For example, if you don’t return or check in with a designated person by a certain time, that person should call police.
Set up a code word to let others know you are in trouble. Decide on a word that you can say to a business associate or someone on your office staff that lets them know to immediately call the police, no further questions asked.
Carry pepper spray and know how to use it. Remember that pepper spray and similar chemical defense items may be regulated, so check with local authorities to find how what and how much you can legally carry. Consider taking a personal safety course so you’ll know what to do if you’re attacked.
Dress for safety. Don’t wear expensive jewelry. Wear clothing appropriate for the weather. If your car breaks down or you need to escape a dangerous situation on foot, you may find yourself exposed to harsh weather conditions for an extended period, so keep a coat handy in the winter. Choose shoes that will allow you to move quickly if necessary.
If anything makes you uncomfortable, get away from the situation. No deal is worth your life. Remember, no one has ever died from embarrassment—better to feel a little foolish than to become a crime victim.
Important information for foreclosure investors:
Consumer Alternatives to Foreclosure
If you’re investing in foreclosures at the preforeclosure stage, it’s important to know all the options homeowners have.
By Jordan Taylor
You’re a real estate investor, not a consumer counselor—so why do you need to know what options a consumer who is facing foreclosure may have? Because the more you know, the more effective you can be as an investor.
The basic preforeclosure strategy involves buying the property during the period when the homeowner is in default and the lender has begun, but not yet completed, the foreclosure process. The investor typically works with either the homeowner or both the homeowner and lender to negotiate a discounted price for the property. If the process is successful, the homeowner avoids foreclosure and may even come out of the deal with some cash; the lender saves the time and cost of the foreclosure proceedings and recovers either all or a significant portion of the balance due on the loan; and the investor has a property purchased for a good price that can be either sold or rented out for a profit.
One of the key challenges of preforeclosure investing is that you are usually dealing with homeowners who are in distress because they are facing a financial crisis. They are often confused and frightened, they may not understand the process or their rights, and they’re probably getting conflicting advice from well-meaning but not always well-informed sources.
When you present your offer as a solution to their problem, it will likely be better received if you are knowledgeable about the alternatives the homeowner may have so you can discuss them if they come up. Does this mean you might lose a deal because you told the homeowner what he could do to avoid foreclosure? Possibly. Why should you do that? Because it’s the right and ethical thing.
When a homeowner gets behind on payments
Ideally, when a homeowner is behind on payments, he should contact the lender as soon as possible. Once the loan goes into default, fewer foreclosure prevention options are available.
Some lenders will consider a repayment plan that allows the homeowner to add a portion of what is past due to his regular payment so that the loan is brought current in a fixed amount of time. If the homeowner’s financial problem is temporary and he’s only missed a few payments, this may be a manageable option.
Borrowers may also ask for payments to be reduced or suspended for a specific period, after which regular payments resume and a lump sum or additional partial payments are made to bring the loan current. This is known as forbearance and may be an option when a period of financial distress has a foreseeable end. Forbearance doesn’t help when the borrower is in a home he can’t afford.
Homeowners may also seek to change one or more of the terms of the existing loan agreement to make the payments more manageable. This is known as loan modification and could include lowering the interest rate, extending the term of the loan, or adding missed payments to the loan balance.
The key to effectively using any of these foreclosure prevention strategies is to communicate with the lender early and often. If you are dealing with a homeowner whose loan has already gone into default, it is unlikely the lender will agree to one of these strategies. Certainly you should not discourage the homeowner from trying, but provide a gentle and firm dose of realism. If the foreclosure process has begun, most lenders will insist on full reinstatement to stop the foreclosure. However, many lenders will work with a homeowner who is attempting to sell the property, whether it’s on the open market or to an investor through a short sale.
Of course, the last resort for financially-distressed homeowner is bankruptcy. A Chapter 13 bankruptcy may allow the debtor to keep certain property, such as a house or car, under a court-approved repayment plan. The homeowner should seek legal counsel before making a decision about bankruptcy.
Know the scams
In addition to knowing what legitimate foreclosure alternatives are available, it’s a good idea for you to know about common scams in case you encounter a homeowner who might be a potential victim. Such scams include phony counselors who charge outrageous fees for “assisting” the homeowner; however, their “services” don’t work, the process delays the homeowner from seeking qualified help, and exposes their personal financial information to a fraudster. Another known scam is a bait-and-switch deal where homeowners are tricked into signing over the deed to their home when they think they are signing documents to bring their mortgage current. Victims often don’t know they’ve been scammed until they get an eviction notice. If you suspect that someone is a target of a scam, suggest that he contact the Federal Trade Commission at www.ftc.gov or 1-877-382-4357 immediately.
Happy Holidays – Now What?
The holidays are over, the New Year is here.
What are you going to do now?
You’ve probably already made your New Year’s resolutions and maybe even broken a few by now. Resolutions are a wonderful tradition, but a more effective approach is to set goals and put together a plan for reaching them.
Goal-setting is a great way to articulate what’s important to you. If something is irrelevant or a distraction, it doesn’t belong on your goal list. Be sure your goals are your goals, not someone else’s or something you just think sounds good. You’re going to have a hard time getting motivated and doing the necessary work to achieve a goal that isn’t something you really want.
As you think about what you want to accomplish next year, set SMART goals—that is, goals that are specific, measurable, attainable, realistic, and time-bound. Use positive language; phrase your goals in terms of what you will do, not what you won’t do. Be explicit by including dates, times, and amounts so you’ll know when a particular goal has been reached. Be sure your goals are attainable and realistic. Don’t make them too easy—but don’t set them so high that they’re impossible to even partially achieve.
Beyond business
It’s easy to focus goal-setting in the business and financial areas of our lives and just let everything else happen without a plan. But you should also have goals related to your family, home, and relationships; your health; your faith and spiritual development; and your personal educational development.
All of your goals need to be integrated to create a balanced, fulfilling life. Every goal you set must be consistent with your values. If it’s important to you to spend time with your family and time volunteering with a community service organization, don’t set business goals that will require you to work 18 hours a day. And keep in mind that all the material success in the world won’t matter if you are not mentally and physically healthy.
Write down your goals and your plan
Until they are written down with a plan to achieve them, goals are only wishes. Putting your goals in writing gives you the opportunity to analyze them to be sure they are specific and measurable. As you develop your plan, you can evaluate how realistic your goals are and make modifications if necessary. Prioritize your goals so that you deal with the most important ones first.
Your plan should list the steps you need to take to achieve each goal, when those steps need to happen, and what you need to do to make them happen. Goal-setting and planning is not a quick process; it takes time and thought. Some people find it helpful to set aside a weekend or at least several evenings to think through their goals and create a plan. And remember, this is not something you should do alone; the people involved in your plan—such as your spouse, family, and business partners—should be part of the process.
As your plan takes shape, you’re likely to become aware of additional goals. That’s great—work them into your plan. For example, you may realize that you don’t have the knowledge to reach a particular goal, so you need to put education into your plan. Or you may realize that the action items required to reach a personal goal conflict with those necessary for a business goal. When that happens, adjust your goals and your plan to remove the conflict.
Focus on the future
If you had a written plan for 2007, refer to it as you plan for 2008. If you didn’t achieve all of the goals you set for yourself this year, that’s okay. Don’t beat yourself up over the money you didn’t make, the weight you didn’t lose, or the bad habit you failed to break. You can’t change the past, so don’t waste time dwelling on it. Instead, look back long enough to figure out what you need to do differently to have better results next year, and move on.
Once you have achieved a goal, allow yourself to savor the accomplishment. Reward yourself appropriately. And then get back to work on the next item on your list.
Jacquelyn Lynn (www.jacquelynlynn.com) is the author of Entrepreneur’s Almanac and a contributor to Real Estate Investor’s Newsletter.