HOPE FOR EARLY RETIREMENT PART 3: A SIMPLER AND BETTER IDEA

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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A Simpler Way

In part one and two of this mini series (this is the third and concluding post) I used numbers and math to show people how they can retire using traditional methods of thinking about saving and investing.Today I would like to present something so much simpler than the above methods. I will still give some numbers, but want to present an option that most people simply don't know. My desire is to educate as many people as possible to make their futures exciting rather than scary.

One More 25 Year Plan

In my former examples I stated you would need to be saving and investing from $15,000-$40,000 each year for 25 years in order to retire well. Here is a way to invest less and yet have more at the end of the 25 years.

In the first year I would recommend using $15,000 to purchase a $300,000 bungalow with a basement suite. This can easily be done in Calgary (although you won't be living in the wealthiest of neighborhoods). You could live in this house for 4 years and rent out the other suite (which would make it much easier to save up money for the next 4 years). In this scenario, you would simply have to save another $4,000 each year and at the end of 4 years you could purchase another property with 5% down and move in. I'm skipping a step here to make things simple... but for those who understand newer CMHC rules this can still be done quite easily, trust me.

Now, if you repeated the process and did this a total of 4 times you would own 4 suited properties and be living in one of them. You would now be 12 years in the future and each property would have some debt in the form of mortgages. At this point you would stop saving up $4,000 each year and simply use the extra money from the rent of the other 7 suites to pay off the mortgages quicker for the next 13 years.

What Would You Have at The End of 25 Years?

-You have own 4 properties with no debt!
-These properties would be worth (in normal markets) around $2.5 million! Which is way more than you had saved in either previous scenario
-These properties would be bringing in the equivalent of around $7,000 each month in rent after all of your expenses are paid! This means you could work your job for one more year, purchase another house for yourself with no suite, and then make $8,000/month for the rest of your life which totals almost $100,000 each year. This is a much higher number than either scenario as well.
-This is not the last point. But it is the last I will make today. You will also not have to pay full taxes on the $100,000 you make each year which means you would be able to keep much more of it and continue to invest or simply enjoy the money for the rest of your life!

Summary

If you want the same retirement as those around you, do the same things they are doing. That means that if you want to work at Walmart as a greeter, don't think about your retirement at all. If you want to scrape by and make ends meet with the help of family members, invest in RRSPs and hope in CPP, OAS, and your company's pension plan. If, however, you want to retire well and enjoy the rest of your life... start doing things that others don't. Know that the above scenario would take discipline and sacrifice! So did the other scenarios! Do something to take action and take charge of your future today!



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

HOPE FOR EARLY RETIREMENT PART 2: HOW YOUR FINANCIAL ADVISOR MAY 'ADVISE YOU'

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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What Are You Most Likely to be Told?

I've written about financial advisors before and will give a brief summary here. Basically, I believe that, like every other field on the planet, most financial advisors do an ok job, some do a terrible job, and a few do a fantastic job and actually advise you on financial matters in your best interest. Here is what my experience has been with financial advisors (my experience hasn't been good).

If your experience with a financial advisor is like mine you will most likely be asked for the amount of money you want to retire on, then will need to figure out how much you will need to save every year in order to meet that goal. Let's use an example. Let's say you would like to retire on $50,000 each year for the rest of your life in retirement, you are now 35 years old, and you want to retire when you are 60 years old (doesn't sound like early retirement, does it). You will have to decide on how much interest you will likely achieve each year in your retirement. The going wisdom right now is that you would make about 4-6% in safe investments (that's actually high for going wisdom, but let's play along). Let's use 5% for this example. You will need to save $1,000,000 before the age of 60 in order to retire on $50,000 each year at 5%. You have 25 years to save $1,000,000. That means you will need to save an average of $40,000 each year to have $1,000,000 by the age of 60. Some may argue that you don't have to actually save this much because you can invest it, but even at an average annual return of 9.25% (including the cost of money managers for mutual funds and inflation of 3%) you will need to save $25,000 each and every year until you retire. If you want an actual early retirement, you will need to invest $48,000 each year with the same returns to retire by the age of 50.

Problems With This Scenario

The most you can invest in an RRSP for 2015 is right around $25,000, but in order to be able to put that much away, you would need to make $140,000 (you can only contribute up to 18% of your annual income).

Mutual funds require you to pay the money manager before you take out any money. The average tends to be around 1.25% of your portfolio. That means for every $1,000,000 saved you will be paying the money manager around $12,500 even if your portfolio losses money that year. If your portfolio makes 5%, then after your payment to the money manager AND the erosion of your money to inflation (let's say 3%), you will have made only 0.75% on your money. The reality is that you will need to make much better returns than you think you will need to. In retirement you may actually need to make about 9.25% in order to have the $50,000 each year you originally wanted.

You are taxed fully on each dollar you 'make' in retirement. So, under this year's tax requirements you would lose about $9,350 to taxes if you live in Alberta. That means you only have just over $40,000 left to live on.

Inflation eats away your money's worth each year. What this means is that in 25 years you will need more than $100,000 each year to equal the amount $50,000 buys you this year.

The average financial advisor makes money only if you invest in certain mutual funds. This makes it difficult to make the best decision for yourself because you have limited options.

Summary

While this post isn't that much different than my first in this mini series, it illustrates how difficult it is to retire early for most Canadians. In my next post I will give an alternative where you have to invest less and you will retire with more than either of these first two posts.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

HOPE FOR EARLY RETIREMENT PART 1: A SIMPLE WAY TO RETIRE IN 24 YEARS (or less)

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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Is it Realistic to Retire at 35?

Yes and no. While it is completely possible for the average person to retire in her/his mid-30s, it is not easy. Having said that, it is actually quite simple and not too difficult to retire in 24 years. Today's post is dedicated to show how you could realize early retirement whether that is 24 years from now or 20 or even 10. This is the first post in a mini series focusing on educating people on how to understand some basic rules of planning for retirement. If you want examples without all the math, then just skip to the bottom of this post where it says "For Those Who Hate Math".

The Rule of 72

There is a rule of thumb for making it simple to understand about how long it takes money to double. It is called the 'rule of 72' and work like this: if you want to know how long it will take money to double when invested at an interest rate of 10%, you simply divide 10 by 72. The answer is that it will take about 7.2, or 7 years and just over two months, to double. Another way to do this is by figuring out how long you want your money to double in. For example, if you want your money to double in 12 years, you can divide 72 by 12 and know that you will need to make an average 6% return over that time in order to reach your goal in 12 years.

Note: The rule of 72 really works best when using interest rates between  6-10%. Higher interest rates will become less and less accurate. Keep in mind this is simply a help to do quick calculations in your head. If you want to use a more accurate rule for lower percentages, try the rule of 69.3. While still not perfect, this will give you a number so close to perfect that you don't have to spend a load of time setting up a spreadsheet to know how long it will take to double your money.

Some Assumptions (this gets a little technical)

I am assuming certain things in the numbers I will be using in today's post. The first is that these numbers will allow you to retire with the same amount of income you are making right now. The second assumption is that the interest you receive on your investments are calculated annually. If you are able to receive interest payments at 3% every 6 months it will speed the process. If you receive a flat 6% at the end of the 24 years, it will take much longer to reach your goal. I won't go into details about how this works right now. Third, I assume that you are comfortable with a base retirement income the same as your income at 20 years old (if this isn't the case... as it isn't me, then you can simply increase the interest rate, the amount you invest, or wait a little longer). Fourth, I am not adding in taxes right now. While they are an important part of every retirement plan, I will explain how to not worry as much about taxes in a later part of this mini series. Fifth, I am assuming that there is no deflation, which is ridiculous on many levels... Again, I'm simply attempting to make a point that helps people understand a basic concept. Lastly, I am assuming you begin when you are young and have a lot of disposable income. The older you get, the more you get used to a certain lifestyle and the more difficult it is to put money away into an investment account rather than spend it. At 20 years of age, it should not be difficult to invest 25% of what you make each year, but it will be really difficult to invest 25% of your income if you are maxing out your income at 35 years old with a partner and a couple of kids! I will present a few options to help explain other ways to do this based on your ability and willingness to invest money.

How it Works (this gets even more technical)

Example 1: At 20 years old, you begin to invest 25% of your income each year. If you realize a return of 6% on that money it will double in 12 years and then double again in another 12 years (total of 24 years). What this will provide is an annual retirement income the same as when you were 20. Not only that, if you continue to invest 25% of your income in retirement you will continue to have the same income forever!

Maybe you say: That's great Mark, but I want to retire in less than 24 years or I want to retire with more than 75% of what I was making at 20 years old or I want to invest less than 25% of my income each year. Fair enough... I'll give a couple more examples.

Example 2: If you want to retire in less than 24 years you have two options. The first is to invest more each year, the second is to increase your ROI (return on your investment). I'm assuming here the first option isn't exciting, so I'll work with the latter option. If your investments make 8% each year instead of 6% you will now retire on your current income in 18 years (72/8=9 years to double, then double again in another 9 years). This also fixes the problem of wanting to retire with more money. If you wait 24 years at 8% returns you will retire with 160% of what your income was at 20 years of age. For example, if you are making $45,000 (and living on 75% of that; $33,750) at 20 years of age, you can then retire on a lot more money for two reasons: your money has increased faster and you you don't have to invest as much each year in retirement. In 24 years you would have $71,100 each year. With that money you would only have to invest 16% of your income ($11,376) for the rest of your life to maintain an annual spending income of almost $60,000 ($59,724 to be precise) which sounds a lot better than living on the $33,750 you were living on before. Another factor here is that you will most likely increase your income over your working years and this extra income you could simply enjoy spending on your family or whatever else you have as a priority and still enjoy the $60k in retirement for the rest of your life.

Example 3: If you want to retire in 24 years, but you want to invest less than 25%, this is easy to figure out. Do you want to invest only 15%? Then you will need to realize consistent returns of at around 8.5% rather than 6%. If you want to retire in 24 years while investing 10% of your income, you will need to realize a ROI of just over 10%.

For Those Who Hate Math

I will give some simple summaries for those who hate all the numbers above:

If you want to retire in 24 years on your current income... invest 25% of your income each year at 6%.

If you want to retire in 18 years on your current income... invest 25% of your income each year at 8%.

If you want to retire in 24 years at almost twice your current income... invest 25% of your income at 8% and know that after 24 years you can retire and only need to invest 16% for the rest of your life.

If you want to retire in 24 years and don't want to invest 25% of your income, you can invest 15% of your income at 8.5% and still reach your goal. Or you can invest 10% of your income at 10% and reach your goal.

Final Comments

Maybe you have looked at these numbers and you believe making 8% or even 6% is unrealistic. If you believe this, it is a dead giveaway that your only education about finances and investments comes from banks and very average financial planners. I encourage you to seek out better help in understanding how to invest in ways that make more than the returns banks and poor financial planners suggest. To begin on this journey please start by reading my other posts in this blog or, at the very least, wait until next week and read my second part of this series on retiring earlier than you believe possible.




Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

WHY AREN'T YOU CASH FLOWING?

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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Moving from a 'mom and pop' mindset to an investor mindset

If your day job is paying in any way for your properties after the initial down payment, you are doing something wrong... and very dangerous. You are putting your family at risk. I have discussed this in previous posts, but for today I would like to take a look at 4 reasons the average buy and hold investor is not cash flowing.

1. Your purchase price was too high

Always remember that if you pay more money for a property, it doesn't necessarily mean you will make more from that property in rent. I talk to relatives who consistently purchase expensive properties, don't make a lot from rent, and then complain about the market or properties in general. Here is a quick understanding of how I think about the purchase price of a property vs. the rent. While the purchase price of a property can very widely, rents typically do not in any market. I'll give you an example. In my city of Calgary a purchase price for a single family detached home can range from about 250k to 10 million dollars. Rent, however, hits a low around $700/month and a high of around $5,000/month (furnished). There are vacation rentals as well, but for our purpose today these numbers will suffice.

If you purchase a property for 300k, suite it, and then rent out both top and bottom for around 2,800 total, you will most likely cash flow. If you purchase a 'nicer' property for 500k, suite it, and then rent out both top and bottom for around 3,500, you will probably not cash flow (after all expenses). Always keep both your potential rental income as well as all of your expenses in mind before purchasing a property. Some areas rent for more than others, but generally speaking it is best to purchase smaller and less expensive properties and enjoy the fact that there is a basement to rental prices and that you will not make less than the low everywhere else.

For more on this it is good to learn about and run a quick "Rent to Value" ratio. This is equivalent to the 'earnings-price ratio' of publicly traded companies. You add up ho much rent you make in a year, and divide by the purchase price of the property (or property value if you already own it). This number should give you a basis from which you can quickly see where value is in the buy and hold market.

2. Lack of equity in your property

If you debt ratio is too high, you will also be in danger of going cash flow negative. Maybe you purchased a property at a great deal and own it for 20 years, but now you pull out as much equity as possible for other purchases or investments and you no longer cash flow. Keep in mind that if you are wanting to purchase properties with 20% down payments, you may be tight or not cash flow at all. This is where you will need to purchase a less expensive house (get a good deal by speaking to a wholesaler in your neighborhood). If, however, you refinance you may want to be careful about how much you pull out of the property. Is it ok to sit with 35% equity as long as everything is cash flowing? Absolutely!

3. Your turnover is too high

If you charge the absolute highest possible rent or don't take care of your tenants (slumlords), you may have a high turnover rate. This can often kill cash flow because each time tenants turn over you have to clean the property, fix at least something even if it's just holes in the wall, or redo flooring and paint. Unless your tenants are consistently ideal or you are doing all this work yourself (not ideal), these costs will add up and crush your cash flow. Another expense when rehabbing your property is that it may sit empty for a month. Now, there are ways around all these problems, but this is what I see from investors who don't understand how to make their money work for them.

My hint: Always take care of your tenants and it can often pay quite a lot to have one family stay in a property for 3-5 years even if you make $50 less in rent each month. Something to think about.

4. You may be spending too much or too little on maintenance

There is a balance to wise maintenance of a property. If you always wait for something to go wrong or break you will be paying professionals to fix these problems and it will be more expensive than regular cleaning and maintenance of your property. Even worse, you may have one problem that goes unnoticed, life a roof problem, that leads to massive problems, like an unnoticed leak for 3 months.

On the other hand, if you always only install marble counter tops and hardwood flooring in your properties, you will eventually have big maintenance costs because tenants typically don't treat your property as well as you would yourself (unless you are a slumlord... I hate slumlords!).

Summary

I will keep this summary VERY short. If you aren't cash flowing it means YOU are doing something wrong. Please don't blame others or real estate investing in general... simply change what you need to in order to cash flow. These are simple fixes. If you want more information join an investing club in your city or community and ask questions. You will be surprised how many people are willing to give you really great advice and tips when it comes to planning your retirement through investing in real estate.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

LEARNING HOW TO INVEST FROM THE ORACLE OF OMAHA

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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What Can We Learn about Real Estate Investing from Warren Buffett?

Buffett has a ton of great quotes and explanations of how to manage money. Not just with the asset classes of business or stocks, but with any asset class including real estate. Buffett has even praised the value of real estate as an investment. Today I would like to glean some wisdom with you from a few of Buffett's more famous quotes.

"Rule #1: Never lose money. Rule #2: Don't forget rule #1"

The obvious way to apply this rule to real estate investing is that your first way to invest is to purchase buy and hold properties, for a long period of time, and each investment MUST cash flow using the rules I've outlined before. When each property you own is cash flow positive after ALL expenses you have no need to worry no matter what happens. You could be injured or even die and your family would be taken care of. You could lose your job and yet not have any concerns about your rental properties.

“Price is what you pay; value is what you get. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Again, the application for real estate is obvious. When you purchase real estate you buy it at a reduced price. There are two easy ways to do so: 1. Purchase real estate when the market is down trending or in the basement because everyone else is selling and this is called a 'buyer's market' 2. Purchase real estate from people who are motivated to sell quickly. For many reasons a person can want to sell quickly and to help someone with this desire you can purchase a property at a discount.

"Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

Again, purchasing real estate for the long term is a way to take care of enormous amounts of risk. Don't take my word for it... take Buffett's.

Last Thoughts

While Buffett is rich for quotes and there are many others I could discuss in this post my intent was simply to point out that investing wisely and with a focus of lowering risk can be learned from many sources. My belief is that real estate delivers more bang for the average person's buck than stocks or business, but I also recognize that those with wisdom and experience in investing in ANY asset class should be well heeded and there are few better to learn from than Buffett.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

EXCUSES, EXCUSES, EXCUSES!

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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We All Have Them

The purpose of writing this particular post is not to heap shame onto anyone. Most of us deal with more than enough shame for a few people. Rather, my intent is simply to bring awareness to some of the ways we attempt to cope with fear. Fear is a powerful motivator for a short period of time, particularly when it comes to NOT doing something. Fear is a terrible long term motivator for positive change in our lives. In today's post I want to hit on a few excuses I hear all the time from myself as well as others around me and how you might be able to work with your fear.

Excuse #1: I'm too young

Fact: I have a 6 year old daughter that has an equity interest in a property already. She purchased this interest a year ago when she was 5 years old. If she isn't too young, you aren't. While I realize you may be in school you can can still do so much in real estate if you are willing to learn. My daughter had help with her first real estate deal and, truth be told, her equity share is a very small one. That's ok, isn't it? Is it not ok to learn and grow in your investing? You have to start somewhere.

Excuse #2: I'm too old

I know quite a few people who began investing in their 50s and are doing quite well. I actually know a couple people in their 60s just starting and we have a plan in place for them to retire and have their money work for them in just 5-7 years from now! Keep in mind that the average life expectancy for both men and women is in your late 70s to early 80s now. This means that if you are in your 60s you could have about 20 years to invest. Also keep in mind that the work you do now may change your life in 10-15 years as you may struggle with health later on. It is exciting to be only in your 60s and still have a significant amount of time to make a difference in your life.

Excuse #3: I don't have enough money

This is the oldest, most well worn excuse I have heard. While this excuse may simply come from our cultural norms. So many of us heard when we were kids and asked something of our parents: "Sorry, we don't have the money". While we may come by it honestly, it is still almost always an excuse. For a very few people this may be accurate. I worked at a homeless shelter for a year and believe I have some kind of handle on the oppression of poverty in multiple ways, but I am also someone who had to basically start from ground zero when I first came back from 7 years in China. I had owned property before moving to China, but came back with no money, a wife, and a newborn child. Please don't use this excuse with me because I have been in a place of having no money at all (actually being in debt) and yet finding ways to invest in real estate. For this excuse I may just refer you to some Kiyosaki books as they often focus on doing real estate deals with partners. This is a legitimate way to help someone else and yourself.

Excuse #4: I don't know how to real estate works (I lack knowledge or experience)

This is actually a legitimate excuse... for a few days. Take a few minutes right now and think about how much TV you watch each day or week. Now think about a future where you don't have to worry about finances. At the end of your life would you rather say "I watched every episode of The Big Bang Theory", or "I spend a couple hours each week investing in my future and now don't worry about money"? I like the latter rather than the former even if I really like The Big Bang Theory. It is about priorities, pure and simple.

So, What Can I Do About It?

There is a quote attributed to Henry Ford that I love: "Whether you think you can, or you think you can't - you're right". It explains the important psychological concept of Locus of Control. Our beliefs are powerful and affect every minute of our lives. I have consistently asked successful people what the difference between success and failure are. The answer almost every individual gives me focuses on two things: a plan and persistence. I want to encourage you to do three things.

1. I want you to start taking an honest look at the beliefs you have that limit you and your dreams. If you need help with this it can be useful to spend time with a counsellor, psychologist, life coach or therapist of some kind. While they don't have all the answers, they can help journey with you for a time that allows you to begin working to change certain beliefs that prevent you from living.

2. I encourage you to take about 2-3 hours on a day off and spend the time dreaming about what you want in life. While these posts can sometimes look like they are all focused on money, they are actually about encouraging people to dream about what money gives you in other ways: Time with those you love, extra health care when needed, an ability to learn and grow as a person the way you desire, or the time, energy, and life experience to invest in other people the way you see fit. Write down a list of dreams you have for yourself and your family. Then begin to spend time each and every week (even if just 10-15 minutes each time) to think about these dreams and begin thinking of ways in which you can realize these dreams.

3. If you have children I plead with you to think differently than many people around you. Do you ever catch yourself using the words: "You can't", or "You are so stubborn"? Please change these statements to "How can we figure out a way to do that" and "You are so persistent/determined and I love that about you because it will serve you well in the future"!



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

3 WONDERFUL WORDS TO AN INVESTOR: DEBT, EXPENSES, AND LOSSES?

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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Can Debt, Expenses, and Losses be Good?

Absolutely! Understanding the differences between good and bad debt, good and bad expenses, and good and bad losses is what separates investors from people who gamble their money away. Now, I've given credit to others before in my posts and acknowledged that most of what I present is not original, even if presented in my own way. This post in particular is not original in any way, shape, or form. I was recently reading a book by Robert Kiyosaki titled "Rich Dad's Guide to Investing" and was struck with the truth of a few paragraphs he wrote on these differences.

Good Debt

If you don't know the difference between good and bad debt this is vital information in a nutshell: Bad debt is dangerous because a turn in the economy or market can put you in a place where you not only lose your investment, but are now in the hole. An example is purchasing a property that doesn't cash flow. If an investment doesn't cash flow and you lose your job or your life or your ability to work for any reason, the bank will foreclose on your property as soon as you stop making payments. I am excited about each and every investment that I own because I know that if I die, or lose the ability to work due to an accident or anything else, my investments will continue to pay money to my family as long as they live. Again, the key is cash flow. Good debt increases my ability to make money. If the housing market appreciates at an average of 3% per year for the next 30 years, by investment grows by much more than that because (again, only if I am cash flowing each month) I can receive around 80% of the money needed for the property from the bank in the form of debt. 80% debt allows my money to grow at a rate of 15% each year if the average appreciation is 3% for the property. To make all these numbers very simple: I purchase a 100k property and put down 20k (the bank lends me 80k). The property is worth 103k after the first year which gives me 3k on my original investment of 20k (15%). There are two important factors here:

1. Cash flow each and every month to protect my investment
2. Long term focus to smooth out the peaks and dips of a market

Good Expenses

I love certain expenses when I invest! One example of a fantastic expense is hiring the services of an expensive investment lawyer or accountant who is worth each and every penny. Why do I get excited about these expenses? Because I learn so much when I spend time with these professionals. I go into each meeting prepared with a ton of questions I want to ask and make use of every minute I have with these people. If there is a new tax law that helps me keep more money they will know about this and help me understand it as well. I can focus my time and energy on investing and spend a few hours each year with these people who supercharge my investments and money management. A good accountant or lawyer will cost a lot of money, but make me so much more than that by helping me structure my investments in ways that can save me tens or even hundreds of thousands of dollars over just a few years!

Good Losses

While I don't often come across ideas for good losses, they do in fact exist. I will provide the example that I help my partners understand each time I meet with someone new who wants to invest with me. Depreciation is a loss that puts more money into my pocket. What I choose to do with that money is fundamentally important, but the fact that realizing depreciation losses on a property puts money into my pocket today is important to understand because it can be a very, very good thing and make an enormous difference on how much my net worth increases over the next few years. Some accountants will discourage people from realizing these losses. It is important to understand when realizing these losses is a good thing and when it is a bad thing. I'll give examples:

1. If you are going to sell your property in a few years, then it may hurt you rather than help you to save this money in taxes today.

2. If you are using the money saved in taxes to purchase a new truck or big screen TV that will lose much of its value within months of the purchase, then I would strongly discourage realizing these depreciated gains

3. If, however, you are planning on keeping a property for a decent amount of time (the actual amount of time will be different depending on how much you make on your invested money that you have gained as well as your long term plans) AND you plan to reinvest the money into an asset that pays out more than taxes will hurt you.... then depreciation can make very profitable sense (pun intended). If I save $5,000 in taxes this year and use that money to invest at even a very limited rate of the 15% example above (where I purchase a property with debt), that money will double in value just over 6 years' time. If you add in the cash flow amount, the other tax savings, and the principle pay down the rate of return jumps by quite a bit again.

Summary

Be careful about the words you hear often because they tend to take on specific connotations. For example, debt, expenses, and losses can be terrifying words to most people on this planet when they think of their investments. Savvy investors realize that there is more to the puzzle than simply one view of these three words. Like many people in Canada, it terrifies me to think about government debt, mutual fund expenses, or the loss of half my investments in a large stock market crash. Unlike many people in Canada I have been blessed to learn that debt, expenses, and losses can be fantastic for me long term if I equip myself with the knowledge and team I need to make my money work hard for me rather than spinning my tires working hard for my money.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

HOW TO PREDICT REAL ESTATE CYCLES

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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A Guaranteed Way to Predict The Next Cycle...

simply doesn't exist! Yes, there are ways to expect a dip or rise in any given market, but even these are not consistently reliable. The reason a real estate cycle is so difficult to predict is that there are so many factors that influence a market. A quick example is Calgary both in 2007 as well as this year. In 2006 every educated real estate investor understood that a dip was coming, but nobody knew exactly when it would hit. The reason informed investors knew a fall was coming was because of how fast the market was rising combined with new builds in the city as well as how long listings were staying on the market. These are three factors didn't tell the entire story, but they did follow basic supply and demand rules. Informed investors did well in 2007-2009! This was partially due to understanding market trends and partially due to plain old luck... When the US financial market hit such hard times in 2008 the fallout affected Calgary and prices fell below what they would have without the financial crisis. While it paid to be informed... most informed investors did not comprehend the extent of how bad the US mortgage crisis actually was.

This past year has been fascinating. I do not know one informed investor who predicted that oil prices would tank and then stay low for more than just a couple of months. I have heard many people talk about how Calgary would fall extremely low immediately... That didn't happen. Calgary has been relatively stable because, among many other factors, while oil prices affect us here we are also affected by the loss of jobs in northern Alberta and the trickle down of people looking for work in Calgary and needing a place to live.

Complexity

A wise individual once said (this is a paraphrase) that simple answers given before complex situations are more fully understood are pretty much useless answers. However, simple answers given after a person has wrestled with more complex ideas can often contain great wisdom. This world is complex, relationships are complex, addictions are complex, bullying is complex, and real estate markets connected to economies and financial markets are also complex. To come up with very simple explanations only helps the masses of people who want to be comforted instead of go through the process of wrestling with complex ideas and situations. I have spent innumerable hours looking through data and setting up models that help me understand the Calgary real estate market. Does this allow me to make decisions that contain absolutely no risk? No. They do predict norms and trends and high percentage guesses.

If No Guarantee... Then What?

Last night I was in a bank and the teller asked me what I do. I stated that I help people understand real estate investing and sometimes work together on real estate deals to maximize time and money efficiency with families. She asked me if the market is good for real estate right now. The way I responded surprised her. I said "Every second of every day is a good time to invest in real estate no matter the market".

I've written about this before, but I will recap here. Down trending markets are great for purchasing properties for very little money (supply is high, demand is low). Up trending markets are great for selling properties (low supply, high demand). This is an oversimplification, but I have at least 2 investing strategies for every type of real estate cycle and this allows me to take advantage of where the market is, not where I want it to be. This allows me to make money on real estate almost no matter what real estate does for even long periods of time. Read my previous blogs if you are interested in learning more about what I mean. The key to real estate is understanding that appreciation of a property is one of many ways to make money, and the least reliable in the short term... With that in mind it is now time to look into other strategies for making money with real estate and if that can be done, then appreciation is simply icing on the cake rather than a do or die lottery.

One quick note: Flipping properties is not investing! While programs on TV make this idea look extremely sexy and easy to do, it is a business at best if done properly, but not investing. Investing is longer term than a few months.




Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

A FEW THINGS TO THINK ABOUT BEFORE INVESTING WITH SOMEONE

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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3 Potential Problems

I realize that many people reading this are hoping to invest for yourself, but there are probable a few out there that simply want to understand real estate and then invest with someone else; a professional who does this as their full time job. There are 3 potential problems when handing your money over to someone else. The first is that they may lack integrity. I often hear or read of news stories where a local 'real estate investor' has taken advantage of people who trusted her/him enough with their money. Secondly, even if the person has integrity, they may simply not know enough about real estate to consistently make your money grow. Thirdly, even if you find an intelligent and knowledgeable investor who would has fantastic integrity... you are still paying them a cut for doing the work for you. This third problem actually isn't the largest problem, but it is still something to think about. It is common for a real estate investing professional to charge 50% of the earnings in a property for doing all the work which includes: Finding a great deal through her/his network, taking care of putting the deal together, managing the problems in the property as they arise, and managing the people in the property throughout the process. These are significant headaches for a lot of people who want to focus on their own jobs and family and not worry about the 'tenants and toilets' of property management. A question you must ask yourself is: How much money am I now making in my investments? If you know this number and you are able to make more by investing with a professional (even after her/his cut is taken) it makes sense to me that you would invest with the professional, but only after looking into this potential partner and making sure you are investing with a knowledgeable and honest person or company. 

Many people see the world in a pessimistic way. You will know you are this person if you scoffed when you read that a managing partner would make 50% of the profit from a property for managing the deal from start to finish. Let me provide another way of looking at the scenario. If you are able to find a way to make 7% return on your investment working on it yourself and a company, after taking their cut, can pay you a steady 10-12% return and also free up your 'investing time' to focus on your family or other work... what is the better option? Is it not usually better to take a smaller piece of pie if it is a much bigger pie and you will end up with more? 

On the other hand, you need to know that if you have both the skill/knowledge and time to invest in real estate, you will always make more money by doing it on your own.

I'm not saying one way is better than the other, I'm attempting to challenge those who fear others doing well even if it helps you. The metaphor in my mind is an oft heard anecdote that if you put a few crabs in a shallow pot every time one attempts to get out the others will pull it back in. If you want to do well in the investing world, or even simply in the world at all, it is good to begin thinking of how you can work together with people to create win-win scenarios rather than only thinking about how you can win regardless of how others do. This holds true for both those who will invest on their own (and build relationships with wholesalers and others to maximize their investments) as well as those who trust someone else with some of their investment money. The wealthy of this world tend to think in ways that help others AND themselves concurrently. Having said all this... make sure if you are going to invest with someone (it bears repeating) that they are both a savvy and honest investor.

Other Potential Problems

Alright, what if you truly don't know about how someone may manage your properties for the next 10-15 years (at least) because, face it, you don't have a crystal ball? Here are some ways to mitigate risk when investing with someone else even if you know them and trust them.

1. Make sure you have a share in the decision making of the property

While it may make sense for the managing partner to make decisions on area to invest in and the flooring to install in the property, you should have a say in the exit strategy. You should have an ability to buy out the partner if you decide to do things on your own. You should also have an ability to keep the managing partner accountable for the commitments they made to you from the beginning. The best way to accomplish this is to draft a Universal Shareholders Agreement (USA) with the help of a real estate lawyer. This agreement details all the potential problems and how you will manage these problems. I call it a "What if" agreement; a term my mentor taught me.

2. Your name should be on title

A fantastic way to keep your managing partner accountable is to have your name on title. This way, if something sketchy starts happening you will be notified. An example is if the managing partner begins to take equity out of the property by replacing equity with a second mortgage that takes the loan to value ratio right up to 100% or higher.

3. Make sure all documents you sign are first seen by your own real estate lawyer.

Don't use a run of the mill, do everything lawyer and don't only use the lawyer your managing partner uses. It is always healthy to have an unbiased second opinion from a professional when you are investing tens of thousands of dollars.

4. Interview investors

Just as you would interview a few realtors before selling or purchasing a house or interview a few doctors before you trust your long term physical health to one or interview a few psychologists before entrusting one with your psychological health... wait... you don't interview professionals who are managing your most valuable assets? Welcome to North America where we will interview a bunch of people for a deck costing $3,000, but not a doctor or a realtor who have a huge influence on assets worth so much more than $3,000. Remember... don't miss the hundred dollar bills in life because your focus is on the pennies on the ground!

When you invest multiple potential investment partners you will find that some ask you more questions than others and match your goals with a strategy that meets those goals while others simply attempt to force one investment strategy on you. You will also become better at asking questions because you will hear different perspectives on the same basic strategies. How can it hurt to invest 10 hours of your time meeting with 5 different people/companies before you trust potentially hundreds of thousands of dollars with them?

Summary

It is worthwhile to think through whether you will trust someone else with your money and have the potential to make more while also spending more time with your family and hobbies or, like many, work hard to educate yourself and take the time to manage your own money. If you do choose to trust someone else, take your time and make a decision that has a greater chance to protect your money for many years to come. There are many good, honest, fantastic investors out there if you are willing to put in a few hours to find them.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Handling Tenant Problems

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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The Real Problem!

I'm sorry to do this to you (well... there's a good reason I'm doing it even while I'm sorry that you've had tenant problems), but I'm going to get it out of the way before I write anything else. The real problem with having problem tenants is YOU. You may think of yourself as someone who is extremely unlucky, but if you are completely honest with yourself you will admit that the reason you keep having problems with bad tenants in your property or properties is that you simply aren't very skilled at managing your property. What I'm not saying is that you are a terrible person or treat others poorly or that you lack intelligence or even that sometimes even the best landlords may have a bad tenant here and there. What I am saying is that if you really want to have better tenants you will take the time needed to learn how to be a great landlord. In reality there are both good and bad tenants and good and bad landlords. As you become a good landlord you will find that good tenants magically appear everywhere and are willing to rent your property from you. Following is a list of practical suggestions anyone can use to become a better landlord, which in turn will lead to better tenants.

The List 

Note: Keep in mind that this is a cursory look at this issue. Each of these 5 tips should be explored more fully.

1. Screen Properly!

Seriously... this is the best way to get rid of your tenant problems. There are always TONS of people and families who are excellent to rent to. They are responsible and will both take care of your property and pay you on time. The key is to find these people (I'll most likely post on this next week so that you have more to go on).

2. Work toward a good business relationship with your tenants every chance you get

This is often overlooked. Keep in mind that these people are basically taking care of an asset of yours worth enough to look after you in your retirement. A good rental property should be giving you a very good return on your investment. Is it not worthwhile to develop a relationship with the people living in the property? If there are problems, negotiate. If there are maintenance issues, take care of them in a timely manner. I personally like to give gifts to my tenants on occasion to thank them for taking care of the place (If a $100 gift once a year keeps my property safe and secure it is more than worth it in the long run and I consider these gifts investments). Remember that it is the small stuff that makes large differences in relationships. Having said all this... tenants are not your friends. This is a business relationship and should remain a business relationship.

3. Follow up on how this is a business, not a friendship... always both set and enforce boundaries in the relationship

Make it clear from the beginning that each and every time rent is late the eviction process will begin. Make sure there is a paper trail each and every time a tenant does not pay the rent. If tenants know you are serious about enforcing the contract then there is less room to push boundaries. Long term this will save you from tenants who may think about taking advantage of you, but won't because they don't believe they have any opportunity to do so.

4. Pay people to leave if things are getting bad

If relationship has broken down, it is now time to figure out a way to have the tenants leave as soon as possible without any more problems. I am more than willing to pay my tenants to leave having them remain is costing me money. A few hundred bucks can go a long way because money really does talk. A caveat here... If you are going to pay them to leave make sure they understand that they must first be up to date in rental payments and have vacated the premises before they will be given cash.

5. When all else fails, hire a landlord/tenant specialist in your area

Remember that you get what you pay for with lawyers and that paying for the services of a specialist will generally give you much more bang for your buck than a lawyer who is your parent's friend, and handles divorces, and helps with real estate transactions, and sometimes works on accident cases and getting people off of tickets. Why? The answer should be self explanatory. If things get to this point in the relationship between you and your tenant the previous tip of documenting each and every time rent wasn't paid on time or other responsibilities were not lived up to will come in handy. Remember, if it isn't documented, it didn't really happen.

Summary

The most important point I want to make is that each and every property you own is a miniature business and should be handled as a business; professionally. I am consistently told by people or overhear others stating "real estate is a terrible investment because of the tenant headaches". I would respond by stating that often real estate investing ends up being terrible because of all the terrible landlords that exist. If you are one of these terrible landlords, take heart; It is a fairly simple process to learn some skills that will make you a great landlord.

Lastly, running a property while you are building your portfolio should not be a charity. I'm not saying you should be a jerk to people. My dream is to have a large portfolio and then help people with problems and sometimes give people breaks that I might not now give because there will be less risk to my entire portfolio at that time. Until you can miss a few months of rent and it doesn't put your portfolio at risk, you'll need to be shrewd (in the healthy sense) with your portfolio and make sure that you take good care of yourself so that you can better care for many more families later in life when losing a few thousand dollars simply doesn't make a big difference to you.




Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Risk vs. Risky

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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But isn't Investing Risky?

I love the pictures I chose for this week's post. Are the mountain goats doing something risky? What's your opinion? It certainly looks risky, doesn't it? Would it be risky for you to make the jump either goat is making?

I met with a friend for lunch this past week and we discussed what risky means. It's something I find many people struggle with, especially when it comes to investing. So we will define both terms; risk and risky and my earnest hope is that you come away from today's post with an understanding that will serve you better in the investing world.

Risk

There is risk in absolutely every action we take every day of our lives. A worst case scenario that would be catastrophic for ourselves and our families. For example, did you drive to work today? The risk involved in driving on a street with other vehicles is I could die or I could kill someone else. It is the same risk that exists each and every time I drive. With driving there are other, less substantial risks as well. My car could blow a tire and I could be late for work. Something could go wrong with my engine and I could get stuck on a main street and have to pay both for a tow truck as well as for an alternate way to get to work.

What about the risks of a relationship? There are massive emotional and psychological risks involved in relationships (as most of us know too well even before leaving our family of origin) including feeling abandoned, physical or emotional abuse, even financial ruin.

Lastly, what is the risk of investing no matter what type of investing you do? You could lose money. Period. That's the risk of investing.

My point is that risk is involved no matter what you do and that the risk remains no matter how you attempt to change how you drive, who you spend time with, or what you invest in. The risk is always there.

Risky

While risk is a term that I'm using to describe the potential difficulty or struggle or discomfort that always exists, risky is a term that refers to how much control we have over risk. Whether or not something is risky depends on 3 things: our experience, our skill, and our knowledge. Let's refer to the three scenarios above for examples.

Driving: I have driven for over 20 years now in multiple countries and invest in AMA insurance just in case I do have car trouble (my experience). I have learned to check my mirrors and be aware of both the driving conditions of any day as well as potential erratic behavior of drivers around me (skill). I have also taken driver's courses to learn how to drive safer and know that driving a certain distance behind others at certain speed affects the potential of getting into an accident (knowledge). In these ways I mitigate the risk of dying or killing someone else on the road. Do these ways take away the risk? Absolutely not. They simply mitigate the risk; decrease the chances of realizing these risks.

Relationships: I have experienced both healthy and unhealthy relationships with others. I have listening to others and relating to others in healthy ways including assertiveness and using boundaries which help both parties. I have worked with various groups of people in the three countries I've lived in and have studied 5 languages now. All of these activities have contributed to my skill in relating to others. And I have learned in many ways how to relate to others well through a master's degree in counselling psychology. Does this mean I can't hurt others or be hurt by others? Definitely not, but it does change the possibility of my getting into a relationship without knowing that there are some red flags screaming danger.

Investing: I invested in my first property when I was 20 years old and have invested in multiple properties since that time. I have learned, often through my experiences, how to manage tenants, set up accounts to take care of surprise maintenance costs, and negotiate with sellers in order to get great deals. And I have spent more money learning about investing than I have spent on both my bachelor and master's degrees. Does this mean I can't make a mistake or lose money? Again, no. It does mean my chances for making money rather than losing are constantly getting better. In fact, I have a mentor in real estate who has never lost a dollar on any investment he has made and he has purchased almost 200 properties in his investing career! You don't have to lose money to learn to invest well.

For me, driving, relationships, and investing in real estate all contain risk. They aren't very risky however because of my own experience, skills, and knowledge. The difference isn't in the car, the person, or the property, the difference is with me.

Final Thought

Look again at the pictures above. I'll ask again: are the mountain goats doing something risky? My guess is that the mountain goats, even the kid, have been making leaps from rock to rock multiple times a day for months or years already. These mountain goats have the same risks as I would making the same leaps. The difference is that the goats are experienced mountain climbers and jumpers with a different skills set than myself. My guess is that these leaps aren't very risky for the mountain goats and I know they are much more risky for me. Again, the difference isn't in the distance of the rocks or the height but rather the individual taking the action.

I encourage you to grow in experience, skill, and knowledge when you make any investment. If you lack in these areas, work with someone who is strong in these areas to start with. My suggestion is that if you have little to no control over your investment you are doing something very risky because you are depending on situations and people outside yourself to invest unless you know and can trust that person and they are accountable for their actions. Did you know that a mutual fund manager makes you pay the same percentage of money regardless of how the portfolio preforms? That's risky to me (also because I don't know each and every stock in the portfolio intimately). Grow in the areas we've covered this week so that you can become an investor who consistently mitigates your risk.

If you have questions please feel free to connect with me, even if it isn't about real estate specifically, through the link below. It will take you right to one of my websites.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

WHY DO I WANT TO BE WEALTHY?

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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Money is a Tool

I grew up believing there was something wrong with money. Having too much of it would corrupt and eat me from the inside. While these weren't statements my family or people around me made, it was something we all inherently believed to a degree. Terms and statements such as 'filthy rich' and 'money doesn't grow on trees' in our culture all influence us to a degree.

I've come to understand that money is simply a tool. Nothing more or less. Just like a hammer has the ability in the right hands to create beauty and safety or kill money is powerless without someone handling it. I'm hoping to give you three reasons I sincerely desire to be wealthy. I have not shared two of these desires with a lot of people outside my closest friends and family, but I believe it may be of help on some level for those who read this post to have a differing perspective from those around us whose focus is so much on money every day rather than what money can be used for.

Wealth Frees me to Chase more Important Dreams

Reason #1: Having wealth frees me to think about goals I dare not dream without money. For example, think about Bill Gates and Warren Buffet. They are extremely wealthy... to the point where having a goal for more money is pretty much a complete waste of time and energy. Wealth has freed these individuals to think about larger problems in life than how they will be able to take care of their next bill or overdue debt payment.

When a person or family has little, money takes up a lot of thought time. We tend to place too much focus on the thing that we believe will fix a lot of our problems. People tend to also discredit others who have money and look for the evil in them rather than the good because it helps to vilify those who have something I want; somehow I can feel more content with my situation (no money) if the other situation (having money) isn't all that much better (people become evil).

I want you to think back to when everyone farmed on the planet. What changed culture for the better? Tools for farming allowed one person to cultivate more food, which freed others up to build cities and think of new ideas that had the potential to improve life in many ways. Money has the same ability in the 21st century. If you have enough money to feel safe regardless of bills or payments of any kind, now you will have time and energy to think about greater purposes. Again, money is simply a tool.

Learning to Handle Wealth Allows me to Better Help Others

Every since I was about 4-5 years old I can remember wanting to help people. My ideal jobs were always along the lines of doctor or vet or, one job I have now, a psychotherapist. One beauty of having wealth is that I am not longer governed by how others want to help people. An example is that if I am a psychologist and am employed by the government or some other employer, I need to buy in to what that employer wants me to do and I need to help others in the way the employer tells me to help others. When I am independently wealthy I can now choose to help others the way I believe really best meets their needs.

My greatest purpose for the past 20 years is to become a sage; a person who has wisdom and has learned how to help people so that I can truly offer the help that is needed in various situations. I am passionate about learning about human nature because it allows me to better understand what any person's needs are, often I can see what a person needs and then I help them see it as well. I passionately desire to become someone who young people can come to for wisdom, guidance, and advice without forcing them to do anything. I want to throw myself into other people and how they can improve their lives and the lives of those around them. I also want to do this on a greater scale than simply my own family and friends.

Some people may dream about retirement as a time with no responsibilities on a golf course somewhere. If that is your dream I would like to challenge you today. Humans without purpose tend to lead very empty lives. If the highest purpose someone has is playing golf 24/7 I am willing to place a very large wager that the person feels pretty empty after a brief time of living out that dream (and I have nothing against golf, just in case you are wondering). This is why people with wealth tend to seek out a greater purpose. This is why Bill Gates and Warren Buffet commit their later years and almost all their wealth to making others' lives better.

Wealth allows me to dream big and then pursue those dreams. This has two benefits: It allows me to be satisfied with life knowing I am doing something worthwhile in life and it enriches the lives of others. I meet people daily that struggle with mid life crises or the frustration of living without very much purpose. I believe living without purpose is one of the most difficult things a person can attempt, yet most people do.

While becoming Wealthy I can Enrich Others' Lives

One truly beautiful and almost magical aspect of wealth is that when we begin to work toward wealth we can do this by enriching other people's lives. The more value I bring to others and the more I help them, the more wealth I can gain. I truly believe this is magical on some level because I can realize my dreams that wealth allows me to live out while I help, in part, make the lives of those around me better. This is another reason I am so excited about real estate; shelter is a basic human need and there are a lot of terrible landlords out there. I can actually make more money long term than slumlords when I truly take care of the people who live in the properties I own (this is just one example).

Final Thoughts

I would like you to take another look at the image I chose for this week's blog post. This is a metaphor of what wealth means to me. Wealth allows a little seed of ideas to become a great tree that, when fully grown, provides shelter and shade and rest and even nutrition and safety for both the people and environment in general around it. This great tree can grow in wisdom through it's experiences of growing fully and then share this wisdom with everyone and everything around it. It can become a pillar of a micro community that helps all. There is magic in every oak, maple, apple, or fig seed and there is magic in ideas that can be given full ability to grow with the tool of wealth.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

A SIMPLE RETIREMENT PLAN THAT YOU CONTROL

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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The Regular Person's Way to Become Very Wealthy

If you owned even one suited rental property in Calgary that does not have a mortgage did you know it easily generate about $2,000 each month after all expenses (calculated by even strict standards)? What difference would it make to you, your retirement, and your family if you owned 5 of these properties when you decided to retire. It would be the equivalent of $10,000 each month in your pocket! Would this be enough for you to enjoy retirement for the rest of your life?

Real estate is a way many families have become wealthy without having to take on a ton of risk or even worry about the management of these properties. I discuss risk in many of my posts and have definitely talked about having others manage a property for you. Today I simply want to focus on the fact that a 5 income generating property portfolio is something most Canadians would be very envious of. It actually is a lot simpler than most people believe as well.

The Steps

In order to accomplish this I would strongly suggest the first step you take is not to purchase a property, but rather learn more about what you are doing (I assume that is why you are reading this blog post). Beyond little tidbits here and there in blog posts you may want to look at taking a real estate investing course. My mentor and good friend Ken Beaton offers courses like this (he actually has a course titled "5 Homes to Freedom"). Another way to learn how to do this on your own is by partnering with someone who already knows how to safely invest and manage a portfolio of properties. I cannot speak highly enough about a good partner to join with because you will learn, by experience, exactly how someone handles potential risks and problems and deals with property managers well. If you would like to learn more about partnering with someone who already invests and understands how to mitigate risk and manage a portfolio you can call me at 587-315-6433 or 1-866-400-6767.

The second step is simply to take action. Work to find a property that matches the criteria you have set up (if you don't know what kind of criteria you need to think about please refer to step one: education) and purchase a property, or two, or however many you can afford. The beauty of purchasing real estate is that you really don't need an incredible amount of money to do so. For just $50,000-60,000 you can purchase an excellent property that will pay you back hundreds of thousands of dollars over the next 4-5 decades! Again, there are ways to do this will even less money up front. Again, it's best to be educated on how to plan for success by learning from others who do this.

Lastly, have a long term plan in place for how to take care of your assets in your retirement. Some good questions to ask yourself are: 1) How can I maximize the amount of money I can save in taxes by how I structure my company? 2) Do I have children, and if so, do I want to pass my portfolio down to them without them having to lose some of the portfolio to pay my estate taxes? 3) Do I, at any time, want to purchase real estate in the US?

Final Thoughts

Usually when I sit down with a family and discuss their plans I am quickly able to show them some creative ways that fit their plans and allow them to make a significant amount of money in retirement by simply taking some time now to plan (and without finding another 2 part time jobs to come up with the money to do so). One major difference between people who are wealthy and those who aren't is that wealthy people typically are good at making and following plans. Ask yourself right now: Do I have a solid plan for retirement? If so, am I following my plan? I will leave you with a quick challenge to do some homework on your own. I challenge you to purchase a few Forbes magazines or do some research online and find out how most wealthy people become wealthy. This is what I believe you will find. Among the wealthiest people in North America the large majority of them are business owners (or they inherited money from business building parents like the Walton family), you will also discover that there are very few wealthy people who have made money from purchasing stocks in the stock market (the big example would be Warren Buffet, but it is difficult to find a second example) because those who become rich from stocks are those who sell stocks to people like you and me rather than playing the market, the second largest group will quickly be seen as those who built a real estate portfolio from scratch! Here's another interesting challenge... Out of those who have made a lot of money by building a business do you know how many park their money in real estate to both keep it safe and help it grow even more? Last challenge: Find out how many people around you have become wealthy by investing in mutual funds. If there is even one person you can find, ask that person how much money they have invested in mutual funds and you will quickly discover that if you had invested that same money in real estate you would be able to have a much larger portfolio than 5 homes by the time your retire.


Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

UNDERSTANDING FINANCIAL STATEMENTS

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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What is it and Why May it be Important?

A financial statement gives an accurate and current snapshot of your finances and investments. It let's you know where you are so that you can plan well for where you want to be. Financial statements allow a person to invest in both real estate and businesses knowing exactly what you are getting into by understanding the numbers. 

I'm including an example financial statement I created that is based on Robert Kiyosaki's teachings on these because I find it simple for teaching new investors how to begin looking at cash flow. 

I realize this may be difficult to see, especially if you are attempting to read this post on a phone, but I simply want to give you a general idea at this point.

When investors talk to me about risk I immediately refer to financial statements because they give such a clear picture of risk vs. strength of an individual investment or business as well as a person's overall financial picture.

How do I Learn How to Use it?

As you can see above, there are two major parts of the financial statement. The first is called an income statement and shows your income as well as your expenses (again, you can use this for investments/businesses as well as your personal financial picture). Below the income statement is a balance sheet which shows your assets as well as your liabilities. Both of these are extremely important to understand. 

Before going forward I want to quickly recommend that each and every person reading this post talks to you accountant about financial statements so that you have a professional opinion on this. I'm giving some very simple basics in order to start you off, but if you really want to move forward with this you will want to speak with an accountant. The problem with some accountants is that they may not understand the difference between a liability and an asset, so I'll go over these two concepts quickly right now

What is an Asset?

An asset, and my definition will be different than other people in your life at some points, is anything that puts money in your bank account. A liability is anything that takes money out of your account. I'll provide a few examples:
-Your home is not an asset, it is a liability because it costs money each and every month. Even when the mortgage is paid off it is still a liability because you are paying property taxes, maintenance, insurance, and utilities to keep the thing. Yes, your home can have equity in it, but that doesn't mean it is an asset. You bank will disagree with this definition. They will call it an asset. One reason, in my opinion they call your house an asset is because while you have a mortgage on the house it is an asset to the bank (it puts money into the bank's accounts each and every month)
-If you write a book and collect royalties for the rest of your life... the contract and book are assets.
-If you own a property that cash flows after ALL EXPENSES are accounted for it is an asset (please read my previous post on this for a definition of expenses. This will at least provide a brief explanation to get you started)
-If you own a property that you must manage yourself in order to make it cash flow... it is an incredibly sketchy asset. Why? Because as soon as you can't mange the place for a month it can instantly turn into a liability. If you get into an accident or die and your family doesn't know how to properly manage a property, it has become a liability for your family. Most "investors" in real estate do not own assets. They own liabilities.
-If you loan money to a family member with a contract that states they will pay you back the loan with interest on a monthly basis... this loan to them is an asset.

How do I Learn about Risk from a Financial Statement?

I will explain this very quickly using a few examples. You can judge who is taking bigger risks. Person A owns 5 rental properties (assets) that all cash flow and she has a full time job that pays $50,000 each year which is enough to get by on year to year. Person B has no assets, but has a job that pays her $200,000 each year and a pension that states it will pay her $60,000 each year until she dies in her retirement. Who has taken care of their risk of not having money in retirement better?

Person C invests in a single family home. It cash flows at $1,000 each month and the outstanding mortgage is $200,000. Person D invests in a multi-family property that has 10 units with each unit cash flowing at just $50 each month and an outstanding mortgage of $1,000,000. Both of these people have the same income each year from their job ($60,000). Who is in the best place to manage their risk with all other factors being equal?

Hint: Evaluate these scenarios by plugging information into a financial statement to see how things change. As a general rule, the more assets a person has and the more sources of income (income streams) a person has, the less risk that person is taking. Why? Because if one income stream disappears for any reason, there are others to rely on. If there is only one income stream it doesn't matter how big it is, if it disappears, there is no income left. Also, no matter how big debt looks, if it is consistently paid off the risk of this debt is mitigated. If a property has multiple income streams, it has less risk because if one income stream dries up, there are others that will still balance the books.

Summary

Financial statements are not extremely difficult to understand, but they will take some practice and potentially some help from someone who knows more about them than you do in order to make sure you are taking everything into account. Having said this, they are extremely valuable tools for evaluating your financial picture or an individual investment.  If you don't understand the basics of financial statements I would recommend you don't invest in anything because you are taking on a lot of risk no matter what you invest in without understanding the risk. Overall what I recommend is that you being to understand financial statements and then begin investing for your future!

Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html