WIAcademy EducateBlog

What is the value of your corporate data? What would your business be worth if all your data suddenly disappeared?

Imagine that you have just walked into the office on Monday morning to discover a memo from the technician who manages your office network. Upon reading the memo, you learn that there was a catastrophic failure of the corporate database, and your entire network is down. He explains that since you ignored his suggestion for a regular backup system, the hard drive that just failed took the last copy of your business data along with it. What are you going to do?

How would you manage your business for that day, and the days following, if you couldn’t access any of your business records, inventory, e-mail archives, or customer-contact information? Obviously you couldn’t just report your loss to the insurance company and have them replace it. Buildings and equipment can be rebuilt or repurchased, but data lost is lost forever. Can you imagine the potential damage to your business as a result of this one-time event? In fact, you may not be able to operate at all.

Here is a plan for your business data to survive almost any catastrophe.

As a business owner, you are ultimately responsible for the survival of your business data, including your e-mail system, business records, customer-contact lists, inventory, etc. You need to make sure your corporate data would not suddenly disappear should your business suffer a catastrophe, whether a hard-drive failure or an actual physical threat to your business premises such as a fire, flood, tornado, earthquake or hurricane.

Visualize your worst-case scenario, and prepare for it.

Let’s picture for a moment that a sudden tornado has destroyed the roof of your main corporate office. The resulting water damage has disabled and corrupted your office records and e-mail system, which were residing on your central servers in the upstairs office. The water has penetrated all parts of your office network equipment, and you are informed that to recover that data would be a forensic nightmare, and very expensive. Believe it or not, you can prepare for even this level of destruction.

What if your technology department had set up a proper backup system? What would have happened that Monday when the hard drive failed? Your computer tech would have reported that you had a hard-drive failure, but that he had already initiated a system restore and you would be up and running in a few minutes.

That may be fine for a Monday-morning disk crash, but what about that tornado? A really diligent technology department can foresee and prepare for this contingency by setting up an off-site remote backup which is performed over the Internet on a regular basis. For instance, your office in Atlanta can maintain a backup copy of the records for your office in Philadelphia.

Many online services are available that provide secure remote storage for your data, protected by your password. Extremely sensitive data can be encrypted before storing it on a third- party backup service so that its contents cannot be viewed without access to the private key.

Gspace is a service provided for free by Google that turns the 2GB of your Gmail account into free online storage. By using this, you can access your files everywhere, and also have a quick backup handy should your laptop be stolen, or its hard drive fail unexpectedly while traveling. There are many different services available that provide remote storage, with a wide range of fees and capabilities.

These kinds of disasters do happen in the real world.

In 1997, during a fire at the headquarters of Credit Lyonnais, a major bank in Paris, system administrators ran into the burning building to rescue backup tapes because they didn’t have offsite copies. Crucial bank archives and computer data were lost.

In 2008, an e-mail server crashed at TeliaSonera, a major Nordic telecom company and internet service provider. It was subsequently discovered that the last serviceable backup set was from December 15, 2007. Three hundred thousand customer email accounts were affected.

Now let’s all say it together: This probably won’t happen to me.

Here’s a good rule of thumb: if it isn’t backed up on two hard drives and one physical form such as a CD, it doesn’t exist. Your business shouldn’t be depending on that data, since you can’t be sure it won’t disappear permanently and suddenly.

The physical copy can be important if you have an electrical surge, lightning strike, or flood that destroys all of the hard drives in the building. Storing the copy hard drive near the original is unwise, since the same fire, flood or electrical surge is likely to damage the backup at the same time. Your backup hard drive may have been in the same building, but the backup CD or DVD would probably survive those threats. Again, having an off-site backup would provide even better protection of your data.

Your backups must be protected from unauthorized access.

Each copy of your backups, whether on a physical CD, DVD or the backup server, must be treated with security in mind. Identity thieves have targeted many corporate backup systems to penetrate security protocols and gain access to personal and corporate information. Privacy Rights Clearinghouse has documented 16 instances of stolen or lost backup tapes (among major organizations) in 2005 and 2006. Affected organizations included Bank of America, Ameritrade, Citigroup, and Time Warner.

Small businesses can invest in a large-capacity external hard drive and set it up with data-protection software to make regular copies of critical files. This can be done for as little as two hundred dollars if you are backing up only a business laptop. The external hard drive, such as the Western Digital MyBook used by this author, is plugged directly into the USB connector of the laptop. The new hard drive shows up under My Computer, and is accessible to the data protection software to save the files you’ve chosen for backup.

Which data protection software should I use?

Choosing a suitable backup program can be a bit tricky since there are so many of them. One can start by looking at Download.com, which offers downloads of a satisfying selection of programs, and choosing one under backup software in the utilities section. Larger corporations would leave the choice of software to their information technology department, but this author chose SyncBack by 2BrightSparks, with a very attractive price of free and an editor’s review of five stars. For the simple cost of reading the manual and setting it up, you can have true peace of mind, and where can you find that nowadays?

Posted 03:10 PM | Permalink | Comments (0)

There are many benefits to a partnership, not the least of which is the old adage of, “Two heads are better than one!” In order to maximize the benefits while minimizing the drawbacks, it is necessary to clearly address many aspects of the partnership arrangement in advance. One such aspect which is crucial in nature is the defining of roles and division of responsibilities of the partners. Thoroughly exploring this area is one of the biggest steps you can take to avoid many potential pitfalls of partnerships.

Partnerships can be a great way for investors to build upon or expand a business, especially if they have a particular need, such as liquidity, credit availability, or a specialized skill, such as that of property management, which is the example we will focus on.

One definition of a partnership is:

A business organization in which two or more individuals own, manage, and operate the business where all owners are equally and personally liable for the business debts.

Partnerships come in several forms:
• General partnership
• LLC
• LLP
• S-corporation
• C-corporation

How often have you heard another person complain about a business partner? My guess is that we have all heard such lamentations frequently. As is the case in many areas of life, if we take care to put the right systems in place, take the appropriate precautions, and properly evaluate people and situations, we can increase our potential to avoid many of the pitfalls of partnerships.

So often, we go into relationships—business and otherwise—wearing rose-colored glasses which make it nearly impossible to identify obstacles or areas of concern. The newness and promise of the newly-founded venture makes all the negatives seem easily dealt with, or even non-existent. Proper planning for important roles and responsibilities are overlooked and left to be dealt with as they arise—this is a recipe for disaster and failure.

The more systems you have in place for addressing potential issues, the better the chances the partnership will survive when disagreements arise, and the less chance there is for a meltdown between the personalities within the partnership.

What roles and responsibilities should be addressed?

How will properties be acquired?

While this question may seem to be quite basic, a lot of thought and discussion need to go into this aspect of the partnership. Questions such as who puts the deal together and who gets the loan or brings in the cash are essential, and need to not only be asked, but answered satisfactorily.

What criteria does the property need to meet in order to qualify for acquisition by the partnership? Criteria such as location, structure type (single family house, duplex, four-plex, etc.), the equity going into the deal, the expected cash flow, and more must be established upfront. That doesn’t mean the criteria must be set in stone. Build some flexibility in, but guidelines must be in place.

Who will manage the property?

Once a rental property is acquired, someone must manage it. You may want to employ the services of a management company; however, if you choose to self-manage, both partners must agree on who will be the property manager, and both partners should participate in developing the criteria for tenant qualification.

The following are just a sampling of the issues that need to be considered:

• Will tenant selection be done by the designated partner/manager, or will the selection process be done by committee?
• Will one partner be the contact person for the tenant or other party in the event that any issues arise?
• How will repairs be handled?

Who will do the bookkeeping?

I cannot over-emphasize the importance of competent recordkeeping. My recommendation is for the partnership to employ a third-party bookkeeper to do the books. If the partnership is so undercapitalized that a bookkeeper is not in the budget, perhaps the partnership should be reconsidered.
Still, if one of the partners wants to do the books, establish his or her experience with bookkeeping, and ask yourself some key questions:

• What is the individual’s background?
• How does this individual propose to do the books: manually or with accounting software?
• Does he or she have the time and self-discipline to do them properly?
• Are you willing to be held fully accountable for the job that he or she does?

The partners also need to predetermine when reports will be generated.
Will the profit and loss statements (P&Ls) be issued monthly or quarterly? Will there be reserves? If so, in what amount, and when is it acceptable to access the reserves? It is also a good idea to issue copies of the bank statements with the P&Ls. Transparency is a must!

What will the property/entity ratio be?
Do you want to create a separate entity for each property, or allow one entity to possess multiple properties? Each of these methods is legal, and is done regularly. The comfort and risk-tolerance levels of the partners will determine whether or not a single entity will be permitted to possess multiple properties and, if so, what the ratio of the two will be.

In a perfect world, one property/one entity would be the way things are done, but the reality, in my opinion, is that this is an unrealistic proposition, especially if you are planning to own several properties. Why? For two simple reasons: logistics and expense.

Each entity has to have its own bank account and tax return. If you have numerous properties and each is its own entity, you will end up maintaining numerous bank accounts.

One property/one entity is also a poor way to manage cash flow. Most commonly, you will at times have properties that are positive cash flow and properties that are negative cash flow. If each is its own entity, you end up coming out of pocket to fund the negative cash flow properties while the positive cash flow properties build good cash balances.

I can hear the asset-protection fans screaming, “Exposure!” at the idea of holding multiple properties under one entity, but is minimizing exposure not the reason for which we have liability policies on our properties and businesses? Is that not why we have mortgages and lines of credit? These encompass and protect our properties’ equity.

With the one-property/one-entity option, the banks make money, the accountants make money, and you bang your head against the wall while trying to juggle everything.

I have talked about just a few of the many subjects that need to be addressed by partners before committing to any shared-property ownership venture. Have no fear! Getting started is not as complicated as it sounds. The best way to start is for all partners to sit down and write what I call a “business plan lite.” Long before any properties are acquired, this document will address the questions of:

1. “Who?”
2. “What?”
3. “When?”
4. “Where?”
5. “Why?” and
6. “How?”

With this document in hand—and remember, it should be dynamic, not static, and should be used as a guideline—you can pioneer a partnership in which conflict and dangers are minimized from the start. When proper planning is utilized from the beginning, it is much easier to prevent the occurrence of costly situations down the line.

Posted 12:50 PM | Permalink | Comments (0)

Approaching someone to inquire about the property they have listed as “for sale by owner” may seem as daunting a challenge as climbing Mount Everest. However, you need to remember that it only feels that way. These people have already put up a sign in their yard that either means “I want to move,” or, “I need to move.” The only job that you have is to determine whether the move is a desire or a necessity. If it is truly a need, you have an opportunity.

“For Sale by Owner” is often abbreviated as “FSBO” and used as a noun to refer to a property or the owner of a property that is for sale in this way. Some jokingly insist that the abbreviation actually stands for “Fastest Source of Business Opportunity.” When I entered the realm of real estate 14 years ago, a prominent trainer told me that the National Association of Realtors did a study on FSBOs. The statistics are dated, but they will help emphasize my point: 70% of FSBOs at the time of the study ultimately listed their home with a real estate agent. This means that they tried to sell their home on their own, then realized they didn’t want the headache and listed the property with a Realtor. What this indicates is that 70% of FSBOs are not motivated enough to take a low offer. 10% of the FSBOs gave up and told friends and family that they didn’t want to move, and had just been testing the market. Again, these people weren’t motivated. They were typically asking more for the property that it was worth; they didn’t need to move. 10% of the FSBO’s actually sold the property for what they were asking for it and 10% sold the home at such a discount, that they would have saved money working with a Realtor.

Here is what these boring statistics mean to you, the investor: 90% of the time, a FSBO isn’t motivated. However, 10% of the time they are very motivated. Again these statistics are dated; in the current housing crisis, you will find more motivated sellers. However, we are going to continue with the premise that 90% of the FSBOs are not motivated enough to work with an investor. This means that you need a quick technique for sorting through FSBOs to determine who is motivated and who is not.

There are two quick questions that you can ask the seller to determine if they are motivated or not: “Why are you moving?” and “By when do you need to be there?”

Before we ask these questions, however, we need to have the seller tell us about their home. Therefore, we are going to start by saying, “Tell me about your home.” If they don’t offer up the description you are looking for, follow that up with, “Take me on a verbal tour of your property.” There are two reasons for this question. The first is that it will give you a minute to restart your heart. The second is that the seller is expecting you to ask them about their house. They are going to do everything in their power to get you to come and see their home. They want, or perhaps, need to move. They will try to interest you in the property enough to make an appointment to come see it. The good news is that this sets up our first question perfectly.

The first question to ask to determine if they are motivated is, “Wow, your house sounds amazing. Why are you moving?” Typically, they are not going to say, “The neighbors throw the loudest parties and I just can’t stand one more sleepless night.” They won’t say anything negative about the property because they want you to be interested in the home. Their answers will generally fit into one of three categories:

• Unmotivated Sellers: Those Who Want to Move. The answers will sound something like, “We are thinking of moving across town.” “We thought it would be nice to get a bigger home.” “We thought that it would be nice to…..” In each of these cases, their wording establishes that there is little or no motivation. They want to move. They want to get as much out of this house as they can before they go on to the next house.

• Motivated Sellers: Those Who Need to Move. “We got transferred out of area.” “We built another home.” “We bought this as an investment, but we can’t sell it.” “We’ve been stationed somewhere else.” In each of these cases, they are establishing that they must move. If they aren’t having financial difficulties yet, they soon will if they do not sell.

• Unknown. The answers that you are going to hear are that put one into this category are along the lines of, “We thought it would be nice to downsize.” One possible translation is, “All of the kids have left home and we want a smaller house.” Another possible translation, however, is: “We are going to lose our home to foreclosure if we do not sell soon and find something less expensive,” or “We just got downsized at work and have to adjust everything accordingly…and soon!” The first person isn’t motivated, the other two are. This is why we may need to ask a follow-up question to determine their motivation. We have to determine which category they should be in: motivated or not motivated. Who wants to confess to a complete stranger that they are losing their home? I wouldn’t, would you? It is an embarrassing situation for most people to find themselves in. Keep that in mind when you are approaching people who are in foreclosure.

The next question that we are going to ask of someone in any of the three categories concerns the time-frame in which they need to move. This type of question can be awkward to try to fit into the conversation. Don’t make yourself obviously uncomfortable, but try to come up with a way of establishing if they are motivated. Perhaps you already know the home is vacant, so asking them when they need to be out doesn’t fit. Obviously, they don’t need to move out of the home, but they still need to unload the debt of the home. In that case, try phrasing the question in such a way as, “By when are you hoping to sell the home?” I know that is a “duh!” question. Obviously, they probably want to get rid of it immediately, but what if they don’t? What if they paid cash for it, so there isn’t a hard-money lender demanding payment?

Unmotivated sellers will answer something like, “Well, whenever we sell the property; there isn’t any rush.” Remember, this is the answer that you are going to hear about 90% of the time. In this case, we don’t need to know about their mortgage information; we don’t need to make an appointment to see the house. Unless we can infer that they are way under value in their price, we just need to get off the phone. “Thank you so much for talking with me. I don’t think that your home is quite right for me and my family, but good luck with finding the perfect buyer.”

Motivated sellers will say something like, “We start the new job in two weeks.” “My spouse has already left; I am just waiting for the home to sell.” “We need to sell as soon as possible.” Sometimes you will even hear, “The bank says that they are going to foreclose if we don’t do something quickly.” These are the answers that we are looking for. This is what we are going to hear about 10% of the time. We need someone who is showing that they are motivated and therefore, willing to work with us. In this case, make an appointment to see the home. You want to set the appointment up for later that same day, early the next, or as soon as possible while still allowing yourself enough time to do research on the area and the property.

While different veteran investors have different opinions on this point, I personally feel that you don’t need to tell people that you are an investor at this point. To a seller, the word “investor” means someone who will try to buy the property for next to nothing. While truly motivated buyers may not have the luxury of discriminating against you, there is no point in having them dislike you before you even get there. New investors tend to give away too much information over the phone. Don’t make your battle any harder than you need to. You are just like any other buyer.

If the Category Three sellers still haven’t sorted themselves into categories of “motivated” or “unmotivated,” then say, “Thank you for telling me about your house, but it doesn’t sound like something that would work for me.” If they start backpedaling or trying to keep you on the phone, then they may be motivated sellers after all. “Is it the price? We are negotiable on the price.” “What don’t you like about the house; maybe if you came and saw it you would change your mind.” If you think that they may be motivated, go ahead and make an appointment and then do your homework. If you then do not think they are motivated, just walk away.

Before you go to an appointment, you need to do some homework. You want to make sure that you go into the situation well-educated. What are homes like this one selling for once they have been fixed up? How long does it take a home in the area to sell? Are there a lot of homes for sale in the area? By the way, if there aren’t a lot of comps, that may be a good thing. This may be an area where people move in and stay put, and there may be more of a demand for homes in an area that is harder to get into. If that is the case, you will want to know what you can rent that home for. If you have all your exit strategies laid out before you arrive at the appointment, you won’t have to do as much thinking on your feet.

These questions are designed to help you determine if this person is motivated. Sometimes, overcoming the fear of picking up the phone requires a little motivation. If you were to call 10 FSBOs a week, you should find one motivated seller a week, at a minimum; this translates to 52 potential deals a year. Assuming that you can only get 10% of these motivated sellers to work with you, that is still 5 deals a year. If you assign each of these contracts for $5,000, you will have made $25,000 a year as a result of making 10 phone calls a week. If you rehab each project yourself and sell it for a $15,000 profit, you will have made $75,000 a year.

Let’s make sorting FSBOs even easier. Another sorting tool can be utilized by strategically planning when you call. If you call Monday mornings at 10 a.m., how many people will be home? Very few. This means that you may leave 7-8 messages and talk to 2-3 people. Calling when you know that you are going to leave a message most of the time will help you stay calmer and shortens the time period necessary for making the calls. If you get the voicemail, leave a message: “I saw your ad/sign, and am calling to get more information about your house. My name is ______, and my number is (555) 555-5555.” That is all that you have to say. If they don’t call you back, they are obviously not motivated; move on!

This method is a quick way to sort out the motivated people from the unmotivated people. You can call 10 FSBOs in 20 minutes a week. That is $24 a minute, and $1,440 an hour, if you are assigning contracts. You can handle that.

So where do you go to find FSBOs? The first place you should look is the newspaper. You will notice that the supply of owners advertising in the newspaper is dwindling, but don’t be concerned. The next place to look is the internet. Do a Google search “For Sale by Owner” and your city or county. There are several different FSBO websites and you should also try Craigslist. Incorporate looking for FSBOs into your daily driving. If you need to go to the store, pick a random block that you can drive around. On the way home, pick a different block. You will get to know the neighborhoods and you will see the FSBOs. Write down their contact information.

Because people will change their advertisement from one medium to another, you will need some kind of tracking system to prevent you from making multiple calls to the same seller. One of the best ways to do this is to keep track of prospects by telephone number. Create a spreadsheet. Write down the phone number, the date that you called, and the reason they gave for moving. This is an easy way to see when the last time you contacted them was. If it has been 6 months since you spoke to them and they are still advertising the property, maybe they are more motivated now. Consider calling them again.

The Exit Strategy Review

Now let’s review some possible exit strategies.

• Wholesale or contract assignment. How could you make assigning this contract to another investor desirable for both parties? What could you offer? When you calculate those numbers, assume the home is in perfect condition. Then the only thinking you have to do on your feet is to assess the expense of the repairs that need to be done. Once you have an estimate on repairs, you will subtract that from your original offer. Wholesaling is a great way to get into properties with little out-of-pocket expense.

• Rental or lease/option exit strategy. You need to know how much you can charge to rent this home, and how much you can offer the seller based on the rents. There are a lot of people who owe what their home is worth. They don’t want to ruin their credit, but they still need to move. Offer them terms that work for you. If you know that you can rent the property for $1,200 a month, offer them $1,000 a month. This is a way for you to control the property with cash flow. In our current market, properties are not appreciating and people don’t want to ruin their credit, making this a perfect strategy for the times in which we live.

• Rehab the property yourself. Again, you need to determine the maximum amount you can offer before repairs. Then calculate the repairs and adjust your figures accordingly prior to giving them an offer at the home.

The Appointment

Before you get to the property, make sure that you have all the paperwork that you might need. Make sure that you have a lease/option contract, as well as a purchase contract. Always carry extra documents and addendums with you so that you are ready no matter what happens with the seller.

When you get to the house, strive to create some kind of a relationship with the seller. Most people don’t want to sell their home to someone that they don’t like. There will be times when the seller doesn’t care about the house. However, most people get attached to their home. They may have been there for a long time, and they want to make sure that it is left in good hands. Remember the sentimental factor.

Find something that you can talk about before you jump into your tour. For example, comment on a beautiful flower bed; notice a nice piece of furniture or a great car. Be careful not to comment on the views or the home itself. You don’t want the price to suddenly jump up. Yes, this will feel forced and awkward the first few times you go through it. Eventually you will realize that these people are just like you, except you actually know more about real estate than they do. I know that it may not feel that way.

Once you have established the emotional connection, pull out a clipboard and start walking through the house. Ask them about any repairs they have made or have considered making to each room as you are in it. Between rooms, ask them about the “guts” of the house. How old is the plumbing? Have they updated any of the electrical? Do they have GFI outlets (the plugs that work like a blow-dryer and shut themselves off before they electrocute anyone) near all the water sources? How old is the roof? How old is the furnace? How old is the water heater? If necessary, remind them that there are parts of the house that are expensive to fix. Each time you ask them about something that is outdated, the price of the home will go down in their mind.

The last time that you looked at a home with an agent, were you asked something like, “Would your furniture fit in this room?” If so, the agent was trying to get you to imagine living in the house. We are going to do the same thing, but in reverse. We want the owner to see us as the new owner of the property. Pick a room and role play this with your partner. For example, if you are standing outside the bathroom one of you can say, “Wouldn’t that vanity we saw the other day look fantastic in this bathroom?” Your partner should reply, “It would look great! We can put in that tile that I liked; it would really be beautiful.” Now the homeowner can visualize you living in their home and remodeling it. On a subconscious level, they will feel as if they have already sold you the property. If they are going to have a hard time selling you their property, it is wise to bring that to the surface before you pull out the contracts.

FSBOs provide great opportunities for a real estate investor. Don’t ignore them; don’t be afraid to talk to them. You can make money in real estate, and FSBOs are a great way to do that. These people are just like you. Don’t allow fear to keep you away from the “Fastest Source of Business Opportunity!”

Posted 01:59 PM | Permalink | Comments (0)

By Dick Pexton

About a year ago, I was invited to attend a meeting of a fairly new real estate investment group. The room was set up with tables in a “U” shape, and I took a seat away from the crowd against the far wall, and waited for something to happen. When the room was almost full, a young lady left her seat and walked around the inside of the “U,” introducing herself to each person with a handshake and a business card. I thought, “Why didn’t I think of that?” After she returned to her seat, I walked over and said, “I only have two business cards with me, but this one is especially for you.” That’s how I met Carolyn Anderson.

Carolyn was a Realtor, but her interest was in investing. She had been researching areas all over the country that were likely to show better-than-average growth and appreciation, where properties were still selling at prices people could afford. After selecting an area on which to focus, the hard work began. Her kitchen became her home office. Maps and papers were spread everywhere, and she had a phone and a laptop within reach at all times. Using zillow.com, craigslist.com, and other resources to locate realtors or For Sale By Owners (FSBOs), Carolyn picked up the phone and started “dialing for dollars.” Her question for sellers was, “Will you consider accepting an offer with nothing down from someone with no credit?” She was told no at least a hundred times before she changed her question to, “Would you consider providing owner financing to a buyer who places five percent down?”

She called the same list again, then called at least 200 other owners or realtors and some interesting things began to happen. She had to educate a lot of people, including Realtors, about owner-assisted financing, but she eventually found 47 owners who were willing to look at an offer such as she described. She put 14 of these properties under contract, subject to her inspection. All of her offers had assignment clauses in them. Carolyn hadn’t seen any of the properties in person. In fact, she had never visited the communities in which she was making offers.

After the Thanksgiving holiday, she traveled to the area and began her inspections. She spent three days renegotiating twelve of the offers, and was successful in lowering the purchase price of five or six of them. Of those five or six properties, Carolyn ended up owning two, the founder of the investment club bought two or three, and the remainder were wholesaled or assigned to other members of the club.

Carolyn worked from 9 a.m. to 5 p.m. for three weeks making those phone calls. Sometimes she was tired. Sometimes she was afraid. Sometimes she even cried. But she stuck with it. Now she has a network of Realtors, property managers, and bird dogs who call her. When I asked her how she does it all, her response was, “Every day, I get up, get ready, and go to work.” This simple answer contains valuable keys for success.

While I realize we all can’t cut out a three-week period to work full time on nothing but launching our investing careers, we can do something each day that moves us closer to fulfilling our goals. Our goals should be the driving force that pushes us to succeed.

When I was in college, I managed the men’s department of a local J. C. Penny store. I was married with two children, and had another on the way. Our second child was in the hospital several weeks at a time over a period of two years. The quarter he passed away, I was carrying 18 credit hours, maintaining a 3.75 grade point average. I was doing better than I had ever done. Despite being totally devastated by this personal tragedy, for the sake of my family’s future, I simply could not afford to lose my focus. I somehow managed to remain determined and committed to growth and self-improvement.

Each year at J.C. Penny, there was a week during which we had to take a moment every 15 minutes to record how we had spent our time. As you might imagine, I became very aware of the value of time. Later in life, I became very aware of the time value of money. Both of these bits of knowledge have served me well. Time-value awareness helps me to plan effectively so that each aspect of life—family, social, recreational, physical, and financial—is served. An awareness of the time value involved with money awareness helps me to get busy now, not later, at building my real estate portfolio and managing my investments.

I encourage you to have a planning meeting with yourself for a few minutes every morning or evening. Plan your activities, write them down, and prioritize them. Assign each task a value: A, B, C, D. Break them down further: A1, A2, A3, A4, B1, B2, B3, B4. Accomplish as much as possible on A1, then move to A2, and continue to work your way down your list. Don’t be tempted to skip ahead to the easier 2s, 3s, and 4s, as this will almost certainly keep you from obtaining wealth. Have a special meeting with your spouse, significant other, or your partners, and set some long-term, intermediate, and short-term goals. Make them reasonable and attainable, and give yourself a small reward when you achieve one of these goals. As you consistently perform tasks like picking up the phone and talking to a seller, your confidence will grow and you will become more skilled and will be able to do more in less time. You will learn to collapse time frames, which is an important concept to master. Why look at five houses a week with your Realtor when by planning and taking a more efficient route you could look at ten? Why make one offer a week when you could make two, or three, or four?

Do keep in mind, however, that pursuing wealth through real estate can become an addiction that monopolizes all of your time and energy. I strongly recommend that you guard against this tendency.

Now you are on a roll. Life is good. Enjoy it.

Posted 03:10 PM | Permalink | Comments (0)

By Jacquelyn Lynn

Charging order protected entities are some of the strongest and most acceptable asset protection tools available, but to be effective, they must be properly structured and carefully drafted according to your particular requirements and the laws of your state.

Suppose that you get sued personally and lose. The judgment creditor (the entity that won the suit and was awarded a judgment against you) decides to go after your business and investment assets. Or perhaps you have a retail store plus several real estate investments, and you get successfully sued for something related to the store and the judgment creditor decides to attach your real estate. Maybe someone owes you money. You sue to collect and win, but the debtor offers you pennies on the dollar to settle. If you refuse, the debtor just laughs, and you don’t get your money because the debtor’s assets are protected. In each of these potential scenarios, you can cry, “Unfair!” all day long, but it won’t matter if you have not taken the appropriate asset-protection steps.

An asset-protection tool that is frequently discussed is the charging order. By definition, a charging order is an order issued by a court to a judgment creditor, and essentially compels an entity of which the debtor is a partner or member to redirect to the creditor any distributions that would otherwise have been made to the debtor, until such a time as the judgment is satisfied (paraphrased from Asset Protection: Concepts & Strategies for Protecting Your Wealth by Jay Adkisson and Christopher M. Riser, McGraw-Hill, 2004).

This means that if you have an interest in a Charging Order Protected Entity (COPE) [entities for which creditors are limited to using charging orders as remedies in collecting debt, such as a Limited Partnership (LP), a Limited Liability Company (LLC), and certain others] and a creditor obtains a charging order compelling an entity to pay the creditor any money that would have gone to you, the creditor has no rights with respect to the ownership or management of the entity and, in most states, cannot force the entity to make a distribution.

The idea is to balance the rights of creditors with those of the non-debtor partners. The Uniform Partnership Act and LLC Act describe charging orders as “in the nature of a garnishment” from a business. Essentially, they are an assignment of a partner’s economic right to distributions from the partnership. Non-debtor partners are protected because the charging order does not allow the creditor to seize partnership assets or get involved in the affairs of the partnership.

Charging orders do not come into play with assets such as stock in a corporation or personal property, but in an entity such as an LLC, creditors of the individual investor/owners are treated differently than the creditors of the business itself. Legislators have taken steps to prevent creditors from attaching partnership or membership interests and essentially becoming partners or members themselves, because such a change in ownership could disrupt the operations of the entity. In the case of a Single Member LLC (SMLLC), state law varies, but case law [In re Albright, No. 01-11367 (Color. Bkrtp. April 4, 2003)] presumes that SMLLCs do not provide charging order protection because there are no non-debtor members to protect.

Where you do not have charging order protection by state law, consult with your attorney. You may be able to create a comparable level of protection through your business’s operating agreement.

How the debtor is protected

As long as the creditor has the charging order, the LLC can simply neglect to make any distributions and the creditor should not receive any money. For example, let’s say a visitor to your home slipped on the sidewalk, sued you, and won. As a judgment creditor, he decides to go after all of your assets and gets a charging order against the LLC that owns your real estate investments. He or she typically can not collect anything until the LLC makes a distribution, and you and the other members of the LLC are perfectly within your rights to decide to not make any distributions for as long as you like. Because of this, creditors with charging orders are often willing to negotiate a settlement to get at least a portion of their money and be done with the situation.

Another issue that often prompts judgment creditors to settle charging orders quickly is the potential for tax liability. If the creditor is entitled to the distribution at the time it is made, he may also be obligated to pay taxes on that income even though it hasn’t yet been received. It is possible for the members of the LLC to issue a K-1, which is the tax form used to report a member’s share of an LLC’s income, potentially making the creditor liable for taxes on profits even though he hasn’t received any money. Because case law is not definitive on the issue, creditors may be reluctant to take a chance that they could be held liable for taxes on profits they haven’t received and may never receive.

The protection offered by charging orders may be circumvented in a number of ways, depending on the state in which the entity operates and your individual circumstances. If judges suspect defendants are attempting to abuse charging order protection, they can make exceptions to the statutes and the protection can be set aside.
Be aware that simply forming a partnership or LLC does not automatically protect your assets. Charging order protected entities are some of the strongest and most acceptable asset protection tools available, but to be effective, they must be properly structured and carefully drafted according to your particular requirements and the laws of your state.

If you find yourself in the position of a creditor attempting to recover monies owed from someone whose assets are in COPEs, consult with an attorney experienced in the representation of creditors in situations involving charging orders before you proceed with legal action.

Jacquelyn Lynn (www.jacquelynlynn.com) is a business writer and speaker, and the author of The Entrepreneur’s Almanac.

Posted 04:52 PM | Permalink | Comments (0)

By: Mike Kleinhenz

There is presently nothing more ominous in our economy than the impending housing crisis that has affected our nation throughout the last 18 months. It’s a problem that affects us all, and it’s a problem that we could have seen coming with proper foresight and regression analysis.

The diagnosis of this issue takes us through several turns, but the crux of the matter, unfortunately, lies in the lap of our political leaders, who have tried for decades to pander to specific blocks of voters in order to gain more political power. It could be argued that these political maneuverings are extremely similar to the Machiavellian politics that have been looked down upon for centuries as unethical and immoral. It’s an unfortunate aspect of our Republic; an aspect which nearly all of us have been silent about as it has rolled through our nation from the top down.

There are several long-running macroeconomic relations involving “interest rates, equity, prices and exchange rates suggested by arbitrage in financial and goods markets” (Dees, 2008) that have an impact on any economic situation found throughout major economic setups.

As if an imploding housing bubble and energy price super spike weren't damaging enough, our ailing financial system decided to slide into full cardiac arrest. And while the White House, Congress, and the Federal Reserve have all shifted to an extreme level of apparent earnestness to try to deal with the exploding credit crisis, even the perfect mix of fiscal and monetary policies seems unlikely to now prevent the worst recession in a generation. As JP Morgan Chase summed things up in a note to its clients, "The fat lady sings." The whole financial fiasco has moved far beyond liquidity problems on Wall Street. It has certainly started to affect the average citizen on a day-by-day basis.

The prospect of a downward spiral of house prices depresses the value of mortgage-backed securities, and, therefore, the capital and liquidity of financial institutions. “Experts say that an additional 10% to 15% decline in house prices is needed to get back to the pre-bubble level. That decline would double the number of homes with negative equity, raising the total to 40% of all homes with mortgages. The mortgages of five million homeowners would then exceed the value of their homes by 30% or more, which could prompt millions of defaults” (Feldstein, 2008). This is the cold, hard reality of the matter which we should all come to recognize, respect, and fear accordingly.

This is one of the biggest reasons that our economy has slipped into such a large, downward spiral. Many don’t fully understand how much of our economy is tied to the housing market, as millions of people call on their personal home equity to provide liquidity for their many needs. When home values are plummeting, it’s not just the real estate brokers who suffer, but rather, the entire nation. Suddenly, an emotional depression (rather than an economic depression) starts to nest inside the minds of young Americans as they finish college, get married, start a family, or look for their first real job as a trained or educated worker. This is important because the economy is merely a reaction or reflection of the mass emotion held by the people. When negative emotions are allowed to control spending habits, consumerism officially begins to dwindle.

As mentioned in previous articles, nearly 70 percent of the U.S. economy is made up of consumer spending. Yes, Americans have never been known for their ability to save money, but we have been known as a people who have a knack for creating money and money opportunities. If the pipeline of consumerism dries up, then much of what we call the “strong and vibrant U.S. economy” tends to follow.

Economists and politicians have eagerly proposed policies aimed at stopping the decline in housing prices. “The government can't and shouldn't be trying to stop price declines” (Glaeser, 2008), according to Edward Glaeser of Harvard and Joseph Gyourko of Wharton. This artificial floor that Glaeser suggests the government is trying to secure could be one of the reasons for such a massive decline in the housing market. On one hand, we have an economy that is supposed to be strengthened by the fact that there is little fiscal manipulation to interfere with the free markets. On the other hand, some would argue that without a little bit of Keynesian economic manipulation, people would lose jobs, homes, and money.

The unsettling trend that is beginning to emerge from American politics is that there is always something “they” can or should do to stop the negative things that happen inside a free market. Somehow, the idea that everyone deserves something has manifested itself and taken root in the offices of Washington, DC leaders. The truth of the matter is that business cycles are in existence for a reason, slowdowns and expansions occur because of innovation and failure, and learning and wisdom take hold out of the reaction to natural events. When governments begin to water down the natural events of a free market, they unfortunately begin to increase the likelihood that unnatural events will take place, unnatural events which none of us have ever seen before, and are therefore unprepared to deal with.

“If we think the housing bust is bad then we should probably prepare for worse to come. Business Week says national home prices could plummet an additional 25% over the next two or three years” (Coy, 2008). An additional decline of 25 percent would be devastating to home equity lenders and even more devastating to people who have borrowed against their home equity. Houses that were selling for $400k just two years ago are already being sold for fifty-cents on the dollar, but as mentioned by Coy, an additional 25 percent decline could be on the horizon.
This greatly affects people who are in homes right now, but it’s not a bad situation for people who are currently looking to buy their first home. With the bad comes some good, and this is one of the few good things about a housing market that is fading away into the background. It’s certainly a buyer’s market right now, but unfortunately, this has a devastating impact on the gigantic industry built on selling real estate.

Calling this year’s turmoil on Wall Street “the worst financial crisis since the ’30s” and “the most dramatic event in a lifetime,” Harvard’s often reserved economic experts did not mince words in describing the ongoing financial crisis that has seen the disappearance of three of the nation’s five major independent investment banks and the government rescue of one of the world’s largest insurers. Professor of economics Kenneth S. Rogoff echoed the sentiments he expressed at an April panel discussion at Harvard, in which he said that the ongoing economic crisis “looks like a really bad one.”

How did all of this begin, and where did it come from? Could we have avoided this fiasco? Answers to these questions will be attempted, but first, it is important to classify and understand our current situation in more detail.
On October 13, 2008, the chief executives of nine large American banks were called to a meeting at the Treasury Department. At the meeting, Secretary Henry Paulson offered them $125 billion from the federal government in exchange for shares of preferred stock. The chief executives accepted his terms. “In some accounts of the meeting, Secretary Paulson is described as playing the role of the Godfather, making the banks an offer they could not refuse. But in one important respect, he was more Santa Claus than Vito Corleone: the agreement allowed the banks to continue paying dividends to common shareholders” (Scharfstein, 2008).

Would it have been more beneficial to the U.S. economy if these banks were allowed to live and die according to the demand of the free market? I think that if this is the question we are asking, we are way off base. It’s not a matter of benefit, nor is it a matter of what is right versus what is wrong. Instead, it’s a matter of what we are prepared to deal with in terms of ramifications. It’s a matter of what we are capable of achieving if things don’t go according to plan!

Chrysler was an excellent example of how businesses can repay their obligations to the tax-payer, but the mere fact that the automobile industry is right back where it found itself so few years ago is a telltale sign that we’ll never be able to do enough. We will never be able to stop the negative things that happen in a free market. It is the opinion of this writer that the efforts expended to avoid the negative things of a free market are supporting the poor precedent that was unfortunately set so many years ago. Political innovation and problem solving has taken a back-seat to political precedence.

In future installments, I will be analyzing some specific incidents in recent history, in an effort to help all of us make more sense of what is going on and what we can do about it. Looking at the situation in this way will help us know what to expect. As a wise man once said, “Those who are unable to learn from the mistakes of history are destined to repeat them.”

Posted 01:25 PM | Permalink | Comments (1)

Real estate investing can be simplified into four-basic steps:

• Find It
• Fund It
• Fix It
• Finish It

Traditionally, finding real estate opportunities has been challenging; however, in today’s real estate market, it has become the easiest aspect to real estate investing. Foreclosures are on every street, REOs (bank owned) are at all-time highs, and motivated sellers seem to be everywhere. Anyone who is willing to put in a little effort can find more deals than they can handle. But what about funding the deal? This can be an investor’s nightmare.

Lenders have been going bankrupt in record numbers this past year. The list of lenders on the out-of-business list not only includes numerous sub-prime lenders, but many traditional lenders as well. The remaining lenders have modified their lending criteria to the point that it is very difficult for most people to get a loan. This is especially true for a real estate investor.

Have you tried to get a loan from a bank recently? Full documentation loans with large down payments are now the norm for investors. Gone are the days of “no doc” loans and low or no down payment loans. Additionally, the time it takes to receive loan approval has gone from long to very long. If you need money quickly in order to close a deal, you will most likely be out of luck using traditional bank financing.

The basic sources of funding for most real estate investors include:

• Traditional banks and finance companies
• Mortgage brokers
• Hard-money lenders
• Home equity lines of credit
• Savings
• Credit cards
• Partners
• Business loans
• Private lenders

Especially in today’s market, it’s important for investors to have power team members who are capable of leading them to private lenders. Many successful real estate investors use private lenders to fund their deals, thus simplifying their business transactions.

It is necessary to understand the difference between private lenders and hard-money lenders. Many times these words are used interchangeably, but they are two completely different categories. Hard-money lenders are many times called private lenders because they are private individuals who lend money. They are in the business of lending money, and they control the terms of the loan and who they lend to. They prepare the documentation needed to complete the loan and they make sure that they are protected with mortgages or trust deeds. Hard-money lenders are an important part of the power team, but they are usually expensive, and are becoming more cautious, requiring more documentation from the investor and sometimes requiring the investor to have some of his or her own money in the game.

True private lenders are individuals who are not in the lending business, and may not have loaned money before. They could be neighbors, your doctor, your dentist, family members (be careful there), co-workers, friends—almost anyone! It could be the guy down the street who you don’t know yet, but who has a $500,000 IRA or 401k and is scared to death of the stock market. Private lenders are everywhere. As investors, we just need to find them and let them know we have a great business opportunity for them that will yield a good return on the money they invest.

When we find potential private lenders, we must educate them about real estate investing, show them what we are doing, and offer them an opportunity to share in the wealth. We will talk about how to cultivate these relationships shortly, but first, here is a list of the advantages of working with private lenders:

• No long qualifying process to get a loan
• No loan-to-value (LTV) limits
• No documentation required
• Quick access to funds
• No personal money in the deal
• Get excess funds for all fix and rehab expenses
• No points just to originate the loan
• You negotiate the interest rate
• No prepayment penalties
• No appraisal required
• No credit check
• Loans don’t show on your credit report
• Quick closing
• No payments until the project is completed (sold or rented)
• The ability to negotiate bigger discounts on properties based on cash offers and quick closings
• Increased confidence in making offers, since you know you can fund the deal

Now you can see the importance of having several private lenders on your team.
The private lender solves most of your funding challenges. But how do we find private lenders, especially since many have no idea that they can be private lenders? It takes a little effort, but your efforts will pay off. Here is a partial list of ways to attract private lenders:

1. Advertise yourself by word of mouth. Ask yourself this question: If you were accused of being a real estate investor, would there be enough evidence to convict you? Many new investors spend a lot of time finding properties and making offers, but fail to let the world know what they are doing. Let everyone know that you are in the real estate investing business and are looking for financial associates to help you expand your business. Many people with money would love to be in the real estate investing business, but don’t have the know-how nor the time, but you do. Just open your mouth and tell people what you are doing.

2. Run simple ads in the local paper. “Real estate investor looking for financial associates to help expand thriving real estate business. Please call Joe Investor at 1-800-SUCCESS.” When you get the calls from interested parties, arrange a time to meet them face-to-face to describe what you are doing. In your meeting, remember that you are selling yourself. Let the investor know that you are working with a large team of individuals who are experts in the various aspects of real estate investing. Once you have done a few deals, you can create a “credibility book” with certificates from the real estate education classes that you have attended, testimonials from those you have done business with, and before-and-after pictures of homes you have rehabbed. Pictures go a long way in building your credibility.

When someone shows interest in working with you, get information as to how much they would be willing to invest and let them know that you will add them to your growing list of private lenders. When you get a project under contract, contact all your lenders with the details. The first lender to commit to the project gets the deal.

3. Another technique to attract potential investors is to hold a luncheon. You
can obtain a list of certificate of deposit (CD) holders from a list broker and mail out postcards or run an ad in the paper. Ads and postcards could say something like, “Discouraged by low CD rates? Free lunch seminar May 4th, Somerset Hills Country Club. Call Joe Investor at 1-800-SUCCESS for a reservation.”

Build credibility by having the luncheon at a nice location. When people check in at the luncheon, hand them your credibility package with your bio and before-and-after pictures of some of your rehab projects. During the presentation, have a power point or some good overheads that tell your story and what you have to offer. Spend most of your time telling them “WIIFT” (what’s in it for them). Remember, you are not asking them for a loan, you are offering them an investment opportunity. Toward the end of the presentation, direct them back to the credibility package and have them take out the interest form and fill it out. Try to get an interest form from everyone, even if they are not interested now, and also ask for referrals. You can generate lots of good leads in just one luncheon.

There are many different ways to attract private lenders. Be creative. Talk to your doctor and dentist. Talk to everyone you know. Even family members can become your financial associates, but let them come to you. Use caution when involving friends and family.

When dealing with private investors, remember that you are the expert. Unlike every other lender out there who will protect themselves with the proper paper work, you need to make sure that your investors are protected with the proper mortgage notes, mortgages, and trust deeds.

Make sure that everything is in writing and everyone knows the terms of the deal so that there will be no surprises down the road. Agree up front on interest rates, payback periods, estimated rehab time, etc. Have backup exit strategies just in case “Plan A” runs into trouble.

Each successful deal you complete with your investors will build their confidence level, leaving them anxious to work with you again. Develop relationships with several private lenders, and you will no longer have any funding problems. If money is no longer an issue, how many deals can you do this year?

Posted 11:36 AM | Permalink | Comments (0)

By Mark Gilliland

Now that you have started your business, how do you make it grow? Water and fertilizer will not help here, but careful attention can make all the difference in the world. Good businesses are created and nurtured; they do not pop into existence, supplying a lifetime of income as easily as growing a Chia Pet. Furthermore, without your careful attention, your business could likely shrivel up and die. Getting into the B (Business owner) or I (Investor) of what Robert Kiyosaki calls the cashflow quadrant will take some resolve and step-by-step planning. In this article, we will discuss 10 steps needed to grow your business.

1. The Business Plan. Probably the most important and possibly the most difficult step is creating a strategic business plan. In this plan, you need to outline goals and benchmarks as well as a method for keeping yourself (and staff) accountable for achieving these goals.

2. Adjustments. We must be ready and willing to make adjustments frequently. The time period needed will depend on your specific business, but semi-annually is average for making large adjustments. Generally, do not wait for annual reports to make changes. The market does not wait that long to change, and neither should you.

3. Your New Role. Transform yourself from a technical expert to a master strategist. The S (self-employed) quadrant is much better than the E (employee); however, if you do not transform yourself from a technician to a strategist, you will have just built yourself a job and are now a glorified E.

4. Maximize Numbers. Drive the numbers higher. As often as possible in your business model, drive the numbers higher and higher until you reach the limit of what your buyers or tenants will pay. As a landlord, my leases automatically increase by two to five percent every year, depending on the area in which the property is located and the current inflation rates. When I have a vacancy, I check the paper and other listings to see if I can push the numbers even higher.

5. Education. Increase your financial IQ and develop your financial operational reporting system so you can track all your critical numbers. If you don't understand it, you can't measure it; if you don't measure it, you can't manage it.

6. The Review. Review key numbers weekly, or daily, if you have a large product flow. This review should be done with all key personnel. If it is just you and your spouse making the decisions, make sure you set a consistent time each week to review your key numbers.

7. Budget. Control costs by budgeting percentages instead of dollars. As your business increases, your expenses should not increase in an unbalanced manner.

8. Audience. Identify key customers or referral partners so that you can create incentives for them to help you grow your business.

9. Innovation. If you have an established business, throw out the old management model that you started with and create a new one. Think fresh and new; start from scratch and you will be surprised at how many new ideas you come up with. Be innovative and streamlined in your thinking to separate yourself from the competition.

10. Victory. Play to win. We do not go into business to lose, we go into business to win. Business is a championship sport, and must be played to win!

As your business grows, you also want to think about your management style and how you make decisions. You need to think like a successful corporation--not like a Mom-and-Pop organization, even if that is all you are.
Here are some key differences to look at in order to understand your management style and help you move toward the direction of a successful corporation:

Mom-and-Pop (M&P) managers are reactive; whereas successful corporations (SCs) are proactive. M&Ps are disorganized; SCs have things planned out. M&Ps fly by the seat of their pants; SCs make informed decisions. M&P owners are hands-on; the SC owner delegates. With a M&P, there are no consequences in place for actions, but with SCs, there is accountability. In a M&P, everybody does everything; a SC has defined tasks, even if one person is responsible for multiple tasks. M&Ps have a hard time measuring results, but a SC has a measurement system in place. M&Ps have vague or subjective incentives; SCs have objective incentives. In a M&P, people are trusted; a SC has tight systems and controls in place. With a M&P, the company dies with the owner; a SC survives the owner. A M&P shows favoritism; a SC has systems for more fair treatment of people. A M&P is difficult to sell; a SC is easier to sell off or transfer ownership to family members.

The bottom line is to remember that your business will not build itself, and you do not need to do everything. Your main job as a business owner is architect and builder of the business, not the day-to-day activities. Set your business up to meet your goals and lifestyle, and stay within your limitations.

Posted 01:21 PM | Permalink | Comments (0)