David Finkel's Wealth Blog: November 2006

Wednesday, November 29, 2006

Wealth Tip: Understand that as risk in investments increase the less control you have.

I was talking with an investor friend of mine a few days ago and we got on the subject of private placement memorandums (PPM’s), which are often used to raise money for real estate deals. In essence, a PPM is a formal way a group of investors can find passive money partners for a real estate deal (or other type of investment opportunity.)

We spent a good half hour talking about our experiences working to get our net worth actively earning higher rates of return for us and I’d like to summarize several of our key insights in the hope they you can leverage your returns safer using our insights.

First, you must always compare investments within the SAME risk category. No good comparing the return of a CD (say 5%) with the return from a PPM (projected to be 15-20%) because the CD is virtually no risk (although you lose liquidity potentially) and the PPM may have high or medium risk (or less) depending on the investment itself.

Yet we both have seen too many investors make this apples to oranges comparison to their detriment. I’ll have more on this in the months ahead, just keep reading future week’s Wealth Tips eLetters.

Next, cash flow deals where money is regularly being paid out tend to be much safer than capital gains deals. For example, an apartment complex where you are regularly paid a 8-10% return (with an equity stake for down the road) is usually much safer than an apartment deal where you are buying an empty property at a low price with the intention to fix up, fill up, then resell. Now both are potentially good investments, but they really can’t be compared to each other because their risk characteristics vary too much.

When money is being paid out monthly or quarterly not only are you immediately recouping some of your investment, but much more importantly there is a lot less that tends to go wrong with those type of deals (provided you have done your due diligence on the leadership team and deal itself). And if a problem does arise, you’ll find out about it so much sooner than in a cap gain deal where the general partner or “founder” who is managing the deal could hide the problems for months or even a year or longer.

While no one wants to hear bad news, it is always better to hear that bad news sooner.

This same concept applies to real estate notes that you may invest in. For example I have several first and second mortgages that I own where I’ve lent money to investors to buy real estate. Some are interest accruing, others are interest paid monthly. The interest paid monthly is LOWER risk to me than the interest accruing, all other things being equal.

For me, I get 10-12% interest on the monthly medium term loans and get 15% accruing on the medium term loans that my interest keeps adding up. Which is better? It depends on what you want, just invest with your eyes wide open. (Side note: if the loans were for short term (less than 12 months) I would require a higher return for both types of loans, the key is that I get a premium of 3-5% on the loan for the extra risk of letting the interest accrue.)

Monday, November 27, 2006

Wealth Tip: The Single Word that Guarantees Your Wealth

What if there was a single word that if you listened to its whisper could make certain your wealth. Would you listen closely?

Well here is that single, powerful word—Gratitude.

What things in your life are you grateful for?

Who are the people in your life that have touched and cared for you? Who make your heart sing?

Have you told them how you feel? Don’t wait another moment, share your feelings today.

How does this relate to wealth? Just try it and see how wealthy you FEEL.

Wealth isn’t about money in the bank, it’s a feeling. A feeling of abundance and gratitude. The real power of gratitude is how it makes our wealth visible. It takes what we pass over and calls our conscious attention to it so that we can FEEL its wonder.

Friday, November 03, 2006

Wealth Tip 30: Know that it is Doable for You to become Financially Free

I hope that this 30-Day Maui Millionaire™ countdown has inspired you with how real the possibility of financial freedom is for you. The first step is the decision to become financially free. Then the next step is taking tangible action.

If you are at the front end of your wealth building the first action step will be to get busy reading and learning about wealth and the financial skills you’ll need to create it, especially books and courses that help you take a close look at your Wealth Operating System™.

I hope you’ve found these daily reminders of key wealth concepts useful and helpful. If you haven’t already gotten your copy of, The Maui Millionaires, I urge you to do so. Not only will you get great ideas, inspiration, and concrete tools in the book, but you’ll also get a free $2,495 gift with your book.

You heard me right. Diane and I really wanted to make the book impact lives and we know that sometimes it takes more than just a book to do that. So we created the Maui Millionaire Wealth Mentorship Program™ as an extra bonus and gift for EVERY reader. You’ll get 10 hours of online training, special e-books, and a whole lot more proprietary wealth building tools—FREE!

Thank you for sharing this exciting time of the 30-Day Maui Millionaire™ Countdown and both Diane and I wish you joy and adventure on your journey to become a Maui Millionaire™.

Thursday, November 02, 2006

Wealth Tip 29: Maui Millionaires™ use Leverage to help them Earn More while still Enjoying the Maui Lifestyle

Leverage is when a small amount of effort produces a magnified result. Maui Millionaires™ use leverage in three powerful ways to accelerate their wealth building.

First they use financial leverage. For example, when I started my first successful business I used $6,500 on my credit card to fund my advertising budget for the month. This small start grew into a business with over $7 million per year in sales with a very high profit margin. I leveraged that initial $6,500 in millions of dollars of profits over a ten year period.

Second, they use networking leverage. One of the biggest benefits from having a mastermind team is the way they can connect you to people they know who will open up business and investing doors for you with ease. For example, one of my mastermind partners referred me to a real estate deal on a large commercial property. He made finding that investment opportunity easy and effortless. That’s an example of leveraging your contacts and network to build your net worth.

Third, Maui Millionaires™ leverage other people’s experiences and expertise. You don’t have to know it all. You just have to know the right people who can help you leverage their talents and experiences. One Maui Millionaire™ I know recently shared with me how he found an incredible business attorney who has helped him raise a million for a development project he was working on.

The bottom line is that Maui Millionaires™ all use leverage to make building wealth easy and fun.

For more on using leverage to build your wealth see, The Maui Millionaires, pp. 205-207.

Wednesday, November 01, 2006

Wealth Tip 28: Maui Millionaires™ - Savor the Journey as well as the Accomplishment.

I lived ten years of my life with the single minded focus of playing in the Olympics. It was the dream and goal that defined that era of my life. And I failed.

Oh I’m not talking about the fact that I got injured and wasn’t able to compete in the Olympics, that wasn’t my real failure. The real “failure” was how for the last six years of my dream I kept pushing back the day I would celebrate and enjoy my journey to the precise moment I attained it. I even asked my dad to not come watch me compete until he could see me in the Olympics so that he would see me at my pinnacle moment.

I smile as I share this because I recognize and am so grateful for the lessons this experience taught me. In fact, I wouldn’t trade the lessons and experience back in to get “success” in this dream. What I really learned was that it is a costly mistake to live your life focused on the day your dream comes true. The real juice and joy in life comes when you are actively engaged in your life, dreaming big and playing full out, and enjoying every step along the way. Why only enjoy and celebrate at the top for one transitory moment? Instead savor the journey and drink deeply from the experiences along the way.

I look back and what do I miss most about my hockey days? Two things. I miss playing hockey every day—the training sessions. And I miss how good it felt to be in that kind of elite level physical condition. Funny how these were two of the things I most took for granted and even ignored while I was experiencing them. After all, I had a dream to pursue and no time to waste on the joy of the journey. Sometimes life’s best lessons come wrapped in irony. God’s got to be smiling.

I share this story with you because I want you to remember that as you dream big dreams and go after them with all you’ve got savor the journey. In the end it guarantees you’ll be successful no matter what the outcome.