If you’re thinking of making an investment in a Seller’s market, read this first…

We are living through interesting times. If you’re thinking about investing in real estate (or anything for that matter) in a Seller’s market, it’s essential to change your investing strategy to respond to different investment cycles.

Amateur investors learn an investing trick that worked once and try using that same trick over and over in all market cycles. That’s like planting corn in your garden every single month of the year. Some months you’ll have a bumper crop and other months you’ll wonder why there is no corn growing in your frost-covered garden. Your mutual fund sales person will call that dollar cost averaging; I call it silly.

There are times for buying and there are times for selling and times for just holding on. Having invested through the last real estate cycle of boom and bust and boom again, I am currently investing a lot more conservatively than I was in 2003-2007. Although real estate is local and there will always be good deals to be found, in today’s market good deals are definitely getting harder and harder to find. That’s because we are in a Seller’s market. In a Seller’s market, amateur investors overpay for properties because they don’t see any other alternative.

Investing 101 – buy as much as you can during a BUYER’S market. My home building company was very aggressive about purchasing heavily discounted vacant lots during the down market. Now that the housing market is booming, we are building houses with the help of contractors like Ideal Construction LLC and selling more houses than ever.

Vacant lot prices have quadrupled from the market bottom making it extraordinarily difficult to find vacant lots to replenish our inventory for future development.

Investing 202 – don’t overpay for assets during a SELLER’S market. Most home builders are currently ‘overpaying’ for the small supply of lots on the market, because they only know one trick – building houses. They have to pay the high market prices for lots because that is the raw ingredient that makes their business run. Many home builders will ‘overpay’ for lots even if that means their profit margins virtually disappear. Because they only know one trick, it means ‘overpay’ for their raw ingredient of lots or go out of business because they have no more lots to develop.

If you’re thinking about buying real estate in a Seller’s market, think long and hard about that decision. Although I don’t think we are at the peak of the current real estate or stock uptrend, I do think we are currently well above where the next market bottom will be for both real estate and stocks. Of course, if you’re buying real estate for long term cashflow and positive arbitrage, it could still make sense to buy today because interest rates are still incredibly low. You could say that real estate is in a Seller’s market, but interest rates are still in a Buyer’s market. If you are buying ‘over priced’ real estate with ‘under priced’ financing and you are positively arbitraged you hold on for a very long time, you’ll probably do very well. (Positive arbitrage is when your CAP rate exceeds your interest rate)

Investing 303 – When equities are overpriced, sell equities and buy bonds. In most of today’s US real estate markets, real estate is now overpriced. Click here to read my blog article “How To Predict Real Estate Prices” to determine whether your real estate market is currently under or over priced. DON’T MISS THIS PROFESSIONAL INVESTOR HINT: I am currently selling most of my real estate portfolio, using the cash to buy mortgage notes, and will sit on the sideline collecting mortgage interest until the equity market / home prices crash. I plan to buy back into the real estate market at the next cycle low. I am currently buying precious metals as their price continues to drop, as well as farmland and timberland as an ultra-conservative hedge against hyper-inflation and a potential currency collapse. Market cycles are very long. It can be a decade or more from market bottom to market top and back down again. Amateur investors do not think far enough into the future. They plant corn seeds in summer expecting to harvest their corn crop in the middle of winter. Sometimes it just makes common sense to stop planting and wait for the proper season for planting to come along.

Investing 404 – Not all bonds are created equal. Mortgage notes are my personal choice of bonds. The only thing I own in my IRA is mortgage notes. A mortgage note (bond) is a promise to pay secured by a piece of real estate. If the borrower pays me as agreed, I am happy because I have earned a 10% interest rate with no tenants, no toilets, and no vacancy. If my borrower pays late I earn late fees in addition to mortgage interest and my ROI goes even higher. If I buy a corporate or government bond and they don’t pay, I can pretty much write off that investment as a total loss. If I buy a real estate mortgage note (bond) and the borrower doesn’t pay as agreed, I will do the happy dance of joy because I get to foreclose upon the real estate for pennies on the dollar. By restricting my original loan amount to 75% of the property value, I should make a higher return on my money by foreclosing on the borrower’s equity rather than getting paid as agreed. That’s what I call a win-win! If the price of real estate drops and I have to foreclose, I at least have the borrower’s 25% down payment equity as protection from loss. I also have title insurance to help protect my investment from fraud and/or sloppy paperwork.

I am currently focused on buying income producing mortgage notes in Dallas, Fort Worth, and San Antonio Texas. These three cities have excellent population growth, economic diversity, very affordable and stable housing prices, and the foreclosure laws are extremely favorable to lenders. I’ve been buying and brokering mortgage notes in those cities for about five years and I’ve developed an extremely strong system in the process.

Using the strength of my investor network (the same network that brought you to be reading this blog post today), I have developed a steady supply of mortgage note investment opportunities. I promise you won’t find mortgage note investments like these anywhere else, because these notes are specifically created by my team to fit my personal investment philosophy.

All of our mortgage notes:

(1) are in the foreclosure friendly state of Texas and the rapidly growing markets of Dallas, Fort Worth, and San Antonio.

(2) are secured by recently renovated, highly affordable, single family homes in class B neighborhoods near major employment centers.

(3) have strong borrowers with less than 45% debt to income ratio.

(4) are 1st position deeds of trust at ~75% loan to value.

(5) have mortgage payment comparable to the cost of renting the same property. If it is the same monthly payment to rent or own, the borrower has little economic incentive to default. If you do foreclose on a non-performing note, you can resell the property for cash or rent out the foreclosed property and generate about the same net operating income as you were getting from your note.

(6) are supported by a conditional buy back guarantee from Hassle-Free Cashflow Investing giving our investors peace of mind and a secondary source of repayment for their mortgage investment.

(7) are professionally serviced by a licensed and bonded mortgage servicing company.

(8) are self-directed IRA friendly. Our team can handle all of the compliance paperwork for you.

(9) are turnkey and hassle-free.

(10) have lender title insurance in place issued by Chicago Title Company and paid for by the borrower.

(11) have zero investor closing costs associated with the purchase price.

(12) are able to be purchased at a nominal discount below the face value of the note – usually about 99 cents on the dollar and the 10% annualized ROI would be improved if the borrower paid their note off early.

(13) have complete due diligence files available on the property, the loan, and borrower.

(14) are professionally underwritten by a licensed and insured residential mortgage loan originator (RLMO) to be “Frank Dodd compliant”.

(15) are secured by houses who have a minimum value of $75,000.

(16) are fully amortized over 15 years but can be resold for the amount of the unpaid balance at any time.

(17) have a bite sized purchase price between $60,000 – $120,000

If you would like to purchase high-yielding real estate notes secured by 1st position deeds of trust recorded against quality real estate in Dallas-Fort Worth, TX send us an email – David@HassleFreeCashflowInvesting.com or call 866-931-9149 ext 1

To request general information about mortgage note investing, you can read my free white paper – “CLICK HERE for Secrets of Hassle-Free Cashflow Lending” as well as watch this video “CLICK HERE for Investing and Tax Strategies for Mortgage Note Investors” and this video “CLICK HERE for Nuts and Bolts of Being a Private Lender.”

How To Predict Real Estate Prices

Want to know how to predict real estate prices ?

Every investor wants to know how to predict real estate prices and the process is not as mysterious as it may appear

While I focus on investing for cash flow, loan amortization, and tax benefits, I also appreciate the warm and fuzzy feeling you get as a investor when your real estate values climb! So, what are the things I look for when figuring out how to predict real estate prices?
Prices are a result of supply, demand, AND capacity to pay.

Let’s look at these factors one at a time:

Demand for real estate is driven by population growth which is fueled by job growth. In resort and retirement communities, you might see high demand and price growth even when the local job market is stagnant because the money to fund real estate purchases in resort areas was earned somewhere else and imported.

Real estate supply is restricted by (1) availability of land, (2) geographic boundaries such as water and mountains, (3) political boundaries such as permit fees, restricted density policies, and (4) economic boundaries such as availability of development capital and the ability to build and sell new properties at a profit.

No matter how desirable or limited in supply something is, the price of the thing will be dictated by how many people can afford to buy it. Affluent communities have more expensive restaurants than the poor communities. Although the desire for food and supply of food to both of these neighborhoods might be the same, the prices in these two neighborhoods can be wildly different based on capacity to pay. For example a can of Coke could be $1 in a poor neighborhood and $3 in an affluent neighborhood. The main thing driving price differences in this illustration is capacity to pay.

Last week,my five year old son and I made blueberry muffins together. When they were done he proudly exclaimed, “Come buy blueberry muffins! Only THIRTY DOLLARS each!!!” I asked him why his muffins were so expensive. Without hesitating he said, “Because people around here have a lot of money!” Even at five years old, he’s paying attention to his dad’s lessons on economics!

As a real estate investor, I am attracted to affordable housing markets because it means the price of housing has the ability to increase in price. Just because something is affordable doesn’t mean it will go up in price, it just means it can go up in price. For prices to rise, the other variables of supply and demand must also be working in your favor. However, if something is unaffordable for the majority of people who want to buy it, that’s a pretty strong indicator that the price could be in a bubble and may soon come down to more affordable levels.

The ratio between median income and median home price is an effective way to gauge the affordability of housing in a particular market.

Median Home Price / Median Income = Affordability Ratio

Using data from Q3 2013, the San Francisco – Oakland MSA has a median home price of $705,000 and a median income of $76,300. That means the median home price is 9.2 times higher than the median income; it would require 9.2 years of median income to buy a median priced house. In terms of a monthly housing payment (Principal, Interest, Taxes, Insurance, and HOA dues), a median home in the San Francisco-Oakland MSA requires ~70% of the median income. That’s not sustainable. Either income must go up or housing prices must come down. I would bet on the former.
In Rockford, Illinois, the median home price is $88,900 and the median income is $51,500 which means the median home price is 1.7 times higher than the median income. To put it in other terms, residents of Rockford use a mere 13% of their household income for housing. WOW, that’s affordable!

Lenders don’t know how to predict real estate prices, but they know how to predict what borrowers are likely to pay and which are not. Lenders know that when you use a lower percentage of your income for housing, their loans are less likely to go into default. For example, FHA requires its borrowers to use no more than 31% of their gross income for housing and no more than 43% of their income for total debt service including housing and other loans. It seems pretty crazy for someone in California to use 70% of their income for housing!

I’ve traveled to both San Francisco and Rockford and I can tell you without hesitation there is more demand and less supply of housing in San Francisco, CA than Rockford, IL.

If you want to know how to predict real estate prices, there is a great equalizer in this supply and demand equation. CAPACITY TO PAY. Someone earning the median income and living on their parents’ couch in Rockford can save up all their pennies for 1.7 years and pay cash for a median level home in Rockford. Now, I’m not saying run out and buy real estate in Rockford because it’s amazingly affordable. (Remember, if you want to know how to predict real estate prices you also need the combination of supply and demand to create upward price movement.) However, I am saying San Francisco-Oakland prices are back into bubble territory and are poised for a downward price correction. If you’re thinking of buying a home in the San Francisco Bay Area because you think home prices will continue to go up, just ask yourself “Who can afford to pay more than 70% of their gross income to buy this house?” That’s right: NO ONE!

A housing price to income ratio less than 3 is very affordable, from 3 to 4 is moderately affordable, 4 to 5 is moderately unaffordable, and over 5 is severely unaffordable. Here’s an example of these ratios based on a $100,000 house whose PITI is $7500/year and using variable median incomes to illustrate my point.

If the median home price is more than five times the median income, those buyers will be required to use too much of their income for housing and will not qualify for mortgages. This affordability ratio can be comfortably higher in resort and second home areas because the income is imported from outside the metro where the property is located. However, if you are looking for rental property in a typical metro, properties with affordability ratios over 5 are overvalued based on the measure of capacity to pay.

One of the things I notice on this list is that the major metros in Texas rank remarkably well in terms of affordability: Austin 3.7, San Antonio 3.3, Houston 3.3, Dallas-Fort Worth 3.1 This healthy price to income affordability ratio is one of the things driving employers to bring jobs and people to Texas. The population of the DFW metro is booming and that is why I am focused on building affordable new homes and owning affordable rental properties in that metro. Let me know if you’d like to add some affordable Texas real estate to your portfolio as I would be happy to help.

CLICK HERE FOR A LIST OF OUR CURRENT INVESTMENT PROPERTY INVENTORY

If you would like to improve your odds knowing how to predict real estate prices, look for these three indicators of success: increasing demand (jobs), limited supply, and an affordability ratio below 5. Click this link if you want to use these criteria to see how to predict real estate prices in Dallas Texas.

  To your success,

David Campbell – professional investor / founder of Hassle-Free Cashflow Investing

866-931-9149 ext 1

Ten Reasons Why Savvy Investors Love Texas Cashflow Real Estate

You’ve probably heard lots of reasons why Texas cashflow real estate is attractive to investors, and here are ten more…

1. Texas cashflow real estate was less hurt by the Great Recession than the nation as a whole. Texas was still creating jobs when the rest of the economy had already started losing jobs in May 2008. Also Texas began posting positive employment growth 5 months before the nation as a whole.

2. Texas is the 14th largest economy in the world and 2nd in the nation (behind CA).

3. Texas added more people (nearly 4.3 million) than any other state between the US census counts of 2000 and 2010.

4. State demographers expect a population increase of 12 million in the next 20 years.

5. Texas private sector profitability ranks 13th in the nation. This means that businesses are able to retain more profits, maintaining cashflow and allowing for continued growth and hiring.

6. Texas produces more than 15% of all US exports.

7. Texas has no state income tax which is attractive to workers and businesses alike. Investors who reside in a no income tax states can avoid paying state taxes on Texas real estate profits.

8. The lower cost of living in Texas allows businesses to pay lower wages without affecting the quality of life of their employees. This cost savings allows Texas businesses to remain competitive in and outside of the US.

9. Housing affordability is 68% of the national average ($125,800) while rents for Texas real estate remain strong.

10. Texas ranked 10th in the nation for most entrepreneurs. This makes sense when you consider Texas consistently leads the nation in total number of jobs created and lowest rates of unemployment. Texas actively recruits (poaches) businesses from other states and countries through relocation incentives and tax subsidies for new businesses.

Texas is such a great place to invest, I couldn’t stop at just ten reasons. So, here are two more

11. Texans are more mobile than the rest of the nation on average. This is good for Texas real estate because a growing economy means a continual influx of new renters. This could lead to increases in higher rents in Texas cities like Dallas that are already facing land shortages near the major employment centers.

12. Recent increases in sales tax collections from business purchases, consumer purchases, and automobile sales signal that the Texas economy has emerged from the recent recession.

My favorite reason to invest in Texas cashflow real estate is the turn key investment opportunities offered by Hassle-free Cashflow Investing.

Imagine guaranteed rents = success!

If this has your interest peaked, pick up the phone and give us a call to see if Texas cashflow real estate is what you’ve been looking for. (866) 931-9149 Ext. 1

The statistics in this report come from the office of the Texas Comptroller as well as a report titled Nine Reasons to Invest in Texas printed in Tierra Grande which is published by the Mays Business School Real Estate Center of Texas A&M University.

Invest in Texas cashflow real estate and get Hassle-free cashflow from DAY ONE!

Part of our series of articles on investing in Dallas

Try on this recipe for financial success DFW style

Sales of existing DFW (Dallas – Fort Worth, Texas) single-family homes in August were up 24% from a year ago (aug 2010 to aug 2011), according to the most recent MLS data compiled by the Real Estate Center at Texas A&M University. Sales in DFW (Dallas County) are up 31%. Year over year median price is unchanged.

Increase in sales velocity is a leading indicator. Increase in prices is a trailing indicator. (NOTE: we are seeing a leading indicator of potential price increases).

The population of the Dallas – Fort Worth ( DFW ) metro is booming.

People are buying houses. People are consuming houses faster than builders are adding houses. Restricted land resources near job centers (yes there is lots of land, but not near where the jobs are), tight construction financing, and stringent home buyer lending requirements are causing a major constriction in construction (say that 10 times fast!).

What happens when demand increases faster than supply? Economics 101 = prices go up assuming there is capacity to pay more.

Homes are still very affordable in DFW with about 25% of household income being used for housing.

40% is about the maximum healthy allocation for housing. This means residents of Dallas have an additional 15% of their income to use towards discretionary housing expenses. This discretionary income allowance makes it possible for housing prices to go up. Historically low interest rates are making housing even more affordable. The majority of non-homeowners cannot get a mortgage because of tighter lending standards and credit challenges. If lender underwriting gets looser or credit begins to heal with time, more home owners will qualify thus causing an increase in demand.

In the interim, high population growth combined with housing supply restrictions combined with strict lending guidelines is a recipe for RENT INCREASES.

Buy a new construction house in DFW and rent it out for positive cashflow.

1) If home buyer demand increases because of looser lending, PRICES will go up and you’ll make a capital gain profit.

2) If home buyer demand decreases because of continued tight lending practices, RENTS will go up as the population increase puts further demand on the already limited supply of rental housing.

You win either way.

The team at Hassle-free Cashflow Investing would be happy to help you acquire a portfolio of positive cash flow single family homes in the the strongest rental market in the country – Dallas – Fort Worth, Texas.

Send an email to Invest@hasslefreecashflowinvesting.com to learn more about how cash flowing houses in DFW could fit into your personal investment strategy.

Part of our series of articles on investing in Dallas

Hassle-free Passive Income from Seller Financing (part 1)

The housing trend in Dallas is clear. The population boom is creating a housing shortage, but home buyers can’t get conventional financing. Building apartments for people to rent is a great solution for real estate developers like me, but how can average investors turn this situation into a profitable outcome for their family? Your answer might be “BECOME THE BANK”!

Here are three common stories in Dallas:

PERSON #1 just moved to Dallas from California because his company relocated and he chose to follow. He has great income, but he just lost his over-leveraged California house through foreclosure or short sale. The result is bad credit which prevents him from buying a house.

PERSON #2 felt the pinch of the economy and was unemployed for a few months. He burnt through his savings and got behind on his bills. He finally found a new job, caught up on his bills, and even put a few dollars in the bank but his credit is still shot which prevents him from buying a house.

PERSON #3 moved to Dallas from Mexico. He is hard working, employed or self-employed in the service industry, and he has thousands of dollars tucked under the mattress in his apartment. He makes enough money to buy, and he has a down payment, but he has no credit profile and his income is hard to document

All three people share the following characteristics:

They WANT to buy a house.
They can AFFORD to buy a house.
They can’t get a BANK LOAN to buy a house.
They are WILLING and ABLE to pay a high rate of interest because they have very few financing options available to them.

A private investor can step in to fill the void created by today’s tight lending conditions. This usually translates into seller financing. Here is a case study:

Investor buys a house for $125k with $25k down and $100k bank loan at a 5% interest rate.
Investor sells the house to a home owner (one of the hard to finance people described above) for $130k with $10k down and a $120k seller financed “wrap note” at an interest rate of 8%. The investor makes a small profit at the point of sale by reselling the house for top dollar (remember the buyer has very few choices).
The investor originally invested $25k and “got back” $10k from the buyer, so the investor’s net investment is $15k (we’ll assume the hard to finance home buyer pays all of the closing costs for both transactions).
The investor’s principal and interest payment on his 30 year $100k mortgage is $537.
The investor’s principal and interest income from his 30 year $120,000 seller financed wrap note is $881.
The investor’s cashflow is $344 / month of which $42 represents the amortization of the investor’s $15,000 investment and $302 is PROFIT!!!
$302 monthly profit = $3,624 annual profit
The investor’s return on investment is $3,624 divided by $15,000 which is 24% annualized.

Sound complicated? Well, it’s not! Here’s how YOU can do it:

Our company identifies a financially qualified but hard to traditionally finance buyer (occupant).
Our company matches the buyer with an investor willing to owner finance.
Our company helps the investor and the homeowner locate or build the perfect house to be financial “partners” on.
The investor buys the house from our company.
The homeowner buys the house from the investor.
The homeowner makes payments to a third party note servicing company.
The third party note servicing company collects monthly payments from the buyer, pays the investor’s mortgage, and distributes the PROFIT to the investor.
The note servicing company handles all of the annual paperwork reporting requirements.
Our company handles all of the details for the process with the goal of making the investor’s experience HASSLE-FREE!

Yes, this seller financing strategy would work in other markets as well. While Dallas is our specialty, we’re happy to help you implement this strategy in other cities as well. If you are interested in participating as an investor or a buyer in a hassle-free owner finance transaction, please send us an email to learn more.

To your success!

David Campbell
Professional Investor / Developer / Financial Mentor
Founder of Hassle-Free Cash Flow Investing
707-373-9966
David@hasslefreecashflowinvesting.com

Part of our series of articles on investing in Dallas

Dallas, Texas: Occupancy Rates

DALLAS, TX – ” The Occupancy Rate in Dallas is also posting a 4.4% annual growth rate. Effective Rental Rates are up 1.6%. Like everywhere else in Texas, the Fourth Quarter of this year is shaping up to be less than stellar. Don’t panic! The Dallas Metroplex will rebound with a vengeance once demand returns in early Spring. The three numbers that best forecast this market are: 3580, 17584 and 3250. Only 3580 new units have been delivered in the last 12-months; 17,584 more units are occupied today than 12 months ago; only 3250 units are currently under construction. It won’t be long before Dallas will again be putting up some very impressive numbers in both Occupancy and Rental Rate growth.” (Excerpted From ALN Apartment Data)

Part of our series of articles on investing in Dallas

Real Estate Investing Rules

by Professional Investor / Developer, David Campbell

Real estate investing is full of success stories and horror stories. Everyone loves to talk about their investing problems, but those who have been extremely profitable in their endeavors tend to keep their mouths shut. Talking about personal financial success is socially unpopular. Successful investors want to avoid lawsuits and protect their trade secrets. Profitable investors are usually too busy “doing deals” to take the time to teach others how to invest. People who write about investing are often professional “writers”, not professional “investors”. If professional investors aren’t writing about their successes, how can the average person learn to mimic their success? When you find a professional investor willing to share his ideas, make sure you learn everything you can. With that goal in mind, here are some of my best ideas for becoming a more profitable investor:

1) Surround yourself with successful investors. Real estate investing is like learning a foreign language. You are always learning and practicing. To learn a new language, you need to converse with native speakers on a regular basis. If you are studying real estate and you are primarily speaking with other newbies, you are likely to teach each other bad habits. Real estate field trips can be a great way to immerse yourself in the way professional investors think and act. Visit our field trip page to learn more about upcoming investor field trips.

2) If it sounds too good to be true, consult your mentors / investment team. There are a lot of charlatans and thieves in real estate that are trying to separate you and your money as quickly as possible. However, real estate investing really does offer truly ‘unbelievable’ returns for experienced investors who are in the right place at the right time. If you don’t use a knowledgeable team to help you make major decisions, you are taking unnecessary risks with your capital. A good team includes partners as well as vendors. When you are conducting business, try to understand what both parties have to gain from the transaction and strive for a win for both parties.

3) Slow and steady really does win the race. While you can make enough profit to retire off of a single deal; virtually no one retires off of their first deal. It takes time and repeated positive experience to develop the skills, relationships and confidence to hit a home run in real estate. Nine of out ten times you’ll be more profitable repeating “base hit” deals rather than going for the home run. Acquiring multiple properties over a long period of time increases your probability of success. Learn more by downloading (and reading) a free copy of my ebooks “Hassle-free Cashflow Investing” or “Hassle-free Cashflow Lending”.

4) Solving problems creatively is the gateway to profitability. An investor gets paid when he or she effectively implements a solution to a problem. This could be applying capital in a creative way or re-purposing a property in a creative way or solving a seller’s needs in a creative way. When two people are willing to trade for what the other has, there is usually a little bit of room for the coordinator to make a profit. However, when three people have their needs filled in a triangle of events, there is usually an opportunity to make a much larger profit for the person the coordinates the flow of events/transactions. Here is an example: of a “deal triangle” where there is room for the deal facilitator to make a generous profit: There is a baker who has bread but needs corn, a farmer who has corn but needs milk, and a rancher who has milk but wants bread. A person can identify the needs and capacity of each party and then create an exchange network whereby each party gets what they want by indirectly trading what they have. The indirect trade of a “deal triangle” will result in more profit to the problem solver than just connecting two parties in a more typical direct exchange. The fewer people there are who have the capacity and willingness to solve the problem, the higher the potential reward. If you have a real estate, business, or financial challenge you are trying to solve, consider sending me an email with your situation. I am gifted at finding multiple, creative, win-win, and highly profitable solutions. I also really enjoy doing it.

5) Be prepared to identify and act on opportunities quickly. There are opportunities to make huge profits in real estate if you are willing and able to take action quickly when the opportunity presents itself. The first step is to identify your personal strengths (assets) and weaknesses (liabilities). The second step is to formulate your personal investment philosophy (financial objectives) so you can articulate as specifically as possible what a suitable investment looks like. A suitable investment is one that aligns with your resources while offering the potential to bring you closer to your financial objectives. The third step is to learn to “thin slice” deals. Malcolm Gladwell writes about “thin slicing” in his excellent book “Blink: The Power of Thinking Without Thinking”. The fourth step is committing to thorough yet speedy due diligence. It is possible to spend years doing due diligence on a single deal, but great deals won’t wait that long. An investor must filter out the interesting digressions and improbable “what ifs” and focus their research only on the most relevant points and most probable outcomes of a deal. While it is possible to evaluate the risks of a tornado hitting your apartment complex, it is more profitable to focus on more relevant due diligence such as rental rates, occupancy, maintenance expenses, market conditions, etc. Focus 90% of your effort on the highest probable outcome, and 10% of your effort on your contingency plan. The fifth step is to consult your team with your business plan and your research. The sixth step is taking decisive action. The seventh step is reflecting upon the process to determine what can be done better next time.

If you are looking for financial or real estate coaching or if you are looking for active or passive investment opportunities, please send me an email or give me a call. I would be happy to help you.

To your success!

David Campbell
Real Estate Investor / Developer / Financial Mentor
Founder of Hassle-Free Cash Flow Investing
707-373-9966
David@hasslefreecashflowinvesting.com

Texas employers could expand payrolls by 250,000 jobs or more in 2011

Texas employers could expand payrolls by 250,000 jobs or more in 2011, amounting to about a 2.5 percent increase in employment in the state, a Federal Reserve Bank of Dallas economist said Thursday. Read the full article on the Dallas Morning News.

Part of our series of articles on investing in Dallas

Texas

“The Godfather of Real Estate” – Bob Helms – sent me this fun email about Texas and I thought it was worth passing it along. GO TEXAS!

Have you ever looked at a map of the world? Look at Texas with me just for a second. That picture, with the Panhandle and the Gulf Coast , and the Red River and the Rio Grande is as much a part of you as anything ever will be. As soon as anyone anywhere in the world looks at it they know what it is. It’s Texas . Pick any kid off the street in Japan and draw him a picture of Texas in the dirt and he’ll know what it is. What happens if I show you a picture of any other state? You might get it maybe after a second or two, but who else would? And even if you do, does it ever stir any feelings in you? In every man, woman and child on this planet, there is a person who wishes just once he could be a real live Texan and get up on a horse or ride off in a pickup. There is a little bit of Texas in everyone. Texas is the Alamo … Texas is 183 men standing in a church, facing thousands of Mexican nationals, fighting for freedom, who had the chance to walk out and save themselves, but stayed instead to fight and die for the cause of freedom. We send our kids to schools named William B. Travis and James Bowie and Davy Crockett, and do you know why? Because those men saw a line in the sand and they decided to cross it and be heroes. John Wayne paid to do the movie himself . That is the Spirit of Texas. Texas is Sam Houston capturing Antonio Lopez de Santa Ana at San Jacinto. Texas is huge forests of Piney Woods like the Davy Crockett and Sam Houston National Forests. Texas is breathtaking mountains in the Big Bend, and Guadalupe National Park . Texas is the unparalleled beauty of bluebonnet fields in the Texas Hill Country.

Texas is floating the rivers of the Hill Country on a hot summer day.

Texas is the beautiful, warm beaches of the Gulf Coast of South Texas.

Texas is beaches you can drive on and have many memorable bon-fires with close friends.

Texas is that warm feeling you get when someone asks where you’re from. Texas is the shiny skyscrapers in Houston and Dallas. Texas is world record bass from places like Lake Fork. Texas is Mexican foods like nowhere else, not even Mexico .

Texas is chicken fried steak and world famous Bar-B-Q.

Texas is the Fort Worth Stockyards, Bass Hall, the Ballpark in Arlington and the Astrodome. (guess now the Reliant Stadium too). Texas is larger-than-life legends like Michael DeBakey, Ann Richards, Denton Cooley, Willie Nelson, Buddy Holly, Gene Autry, Audie Murphy, Tommy Lee Jones, Waylon Jennings, Farrah Fawcet, Janis Joplin, Sandra Bullock, Kris Kristofferson, Tom Landry, Eva Longoria, Darrell Royal, ZZ Top, Eric Dickerson, Earl Campbell, Nolan Ryan, Sam Rayburn, Howard Hughes, George H.. W. Bush, Lyndon B. Johnson, and let’s not forget GEORGE STRAIT- PANTERA, the Big Bopper, Tex Ritter, George Jones, Clay Walker, Mark Chestnut, to name ONLY a few. Texas is great companies like Dell Computer, Texas Instruments, EDS and Compaq, Whataburger, Southwest Airlines , Bell Helicopter and LOCKHEED MARTIN AEROSPACE, Home of the F-16 Jet Fighter and the JSF Fighter, Valero. Texas is NASA. Texas is huge herds of cattle, beautiful horses and miles of crops.

Texas is home to the world famous King Ranch (and Someday Farm)

Texas is home to the most amazing sunsets of gold over an empty field. Texas is hundreds of deer running around neighborhoods and fields. Texas is skies blackened with doves and fields full of deer. Texas is a place where towns and cities shut down to watch the local high school football game on Friday nights and for the Cowboys on Monday Night Football, and for the night In Old San Antonio River Parade in San Antonio. To drive across Texas is to drive 1/3 the way across the United States. Texas is ocean beaches, deserts, lakes and rivers, mountains and prairies, and modern cities. If it isn’t already in Texas , you probably don’t need it. No one does anything bigger or better than it’s done in Texas. By federal law, Texas is the only state in the US that can fly its flag at the same height as the U.S. Flag. Think about that for a second. You fly the Stars and Stripes at 20 feet in Maryland , California , or Maine , and your state flag, whatever it is, goes at 17 feet. You fly the Stars and Stripes in front of Klein Oak High or anyplace else at 20 feet, the Lone Star flies at the same height – 20 feet. Do you know why? Because it is the only state that was a Republic before it became a state. Also, being a Texan is as high as being an American down here. Our capitol is the only one in the country that is taller than the capitol building in Washington , D.C. and we can divide our state into five states at any time if we wanted to! We can become a republic again at any time the voters of Texas choose, and we included these things as part of the deal when we came on. That’s the best part, right there. Texas even has its own power grid!! Did I mention Live music capitol of the world?

These are only a few reasons why Texas is the fastest growing state in the country.

Part of our series of articles on investing in Dallas

Texas Will Steal Market Share in Coming Years

According to the Real Estate Center at Texas A&M University, the Texas economy gained 133,100 jobs from August 2009 to August 2010. During the same period, the U.S. economy added 278,000 jobs. Texas produced 48% of all the new jobs in the country in the past year. The state’s private sector posted an annual employment growth rate of 1.4 compared with 0.3 percent for the United States.

The population of Texas is growing faster than any other state. Political and economic conditions are preventing new housing from being created. Occupancy rates in Dallas have increased over 3% in the past year. Many economists are forecasting a housing shortage and rising rents.

The Dallas-Fort Worth area’s population has grown by nearly 1.3 million from 2000 -2009. That is more than any other metropolitan area in the United States. The Dallas-Fort Worth-Arlington MSA is the largest metropolitan area in Texas, the largest in the South, the fourth-largest in the United States (SOURCE: Wikipedia on DFW) The Dallas, TX metro is forecasted to add 4 million new people from 2010 – 2040 according to the Texas Data Center and the North Texas Water Board. That’s one new person every 4 minutes!!! In 2009, the population of Texas grew by 231,539. That is more growth than Florida, Arizona, California, Nevada and Colorado, combined. A demographer at the Brookings Institution attributes the population growth to a more diversified economy in Texas and more conservative lending practices during the real estate boom. When combined with the state’s steady growth earlier in the decade, Texas is projected to receive three new seats in Congress. SOURCE: Recession Cuts Migration to Sun Belt, New Figures Show New York Times

Part of our series of articles on investing in Dallas

How to Profit from QE2 (Quantitative Easing) – PART 2

By: David Campbell, professional investor, developer, and founder of Hassle-free Cashflow Investing

This article is a sequel to my last newsletter, but can easily stand on its own. You are invited to read and comment on part 1 and 2 of this article on my blog.

I am absolutely certain we will (continue to) see high rates of inflation for the foreseeable future. Inflation doesn’t mean commodities will increase in value, it just means commodities will increase in price because of a devaluation of our currency. If you understand what inflation is, and you believe it will continue, you can either be a victim or a beneficiary of the phenomena. I went to the grocery store recently and was amazed (but not surprised) at how much food prices have increased. Rising prices is confusing and frustrating to most Americans, but it is a fact of life we must come to accept and financially prepare for. Inflation has a winner and a loser. Unfortunately, most people come out losers because they cannot out-earn or out-save inflation. When I observe signs of inflation (rising prices) around me it does not affect me emotionally, because I have prepared to WIN from inflation. When inflation happens, savvy investors like me get richer while workers and savers get poorer. This doesn’t make me feel good about the situation, but it is the economic reality we live in.

I spend a lot of time talking about inflation and taxes because these are the most important and misunderstood concepts in your financial life. Inflation is a hidden federal tax upon every dollar in circulation worldwide. If you are the US government, inflation is an ingenious invisible tax; if you are anyone else, inflation is taxation without consent (and, for most people, without knowledge). I am about to show you ways to profit from inflation, but in no way do I believe inflation is a good thing for society. If I could stop inflation, I would. Since I can’t stop inflation, the best I can do is make a profit from it.

Here are four ways to profit from inflation:

1) STEP ONE: purchase durable commodities today when the supply of dollars is less than the supply of dollars will be in the future. The durable commodities you purchase become assets on your balance sheet that maintain constant value while inflation drives prices up. When the supply of dollars increases and the supply of commodities remains the same, prices rise because more dollars are chasing the same basket of goods. Inflation as a result of increased money supply assumes demand for commodities has remained constant. If demand for commodities increases or decreases, there is a change in VALUE which may or may not result in a change in price. Value and demand are synonymous price is a metric of demand, money supply, and the velocity of money. We will talk about the velocity of money another day. Commodities may increase or decrease in value/desirability/demand, but inflation will make the PRICE of the commodity go up because of a looser money supply. For example, let’s say you bought a hammer in 1960 and it cost you $2.72. Over the past 50 years, the design and demand for hammers hasn’t really changed and therefore the value of a hammer in 1960 and in 2010 is exactly the same. Because the US currency has devalued (inflated), the price of the hammer is now $20. Over 50 years, the hammer has increased in price by 15% per year. RECAP: the value of the hammer didn’t change, but the price increased 15% per year because of inflation (15% per year isÂ simple interest, but it can also be expressed as 4% annualized compounding rate of increase which is how inflation is usually described). If you had purchased a truckload of hammers in 1960 (for $2.72) and resold them at today’s inflated prices ($20), you would have a healthy paper profit that outpaced most investments even though the VALUE of the hammer DIDN’T CHANGE. While it is nice to find commodities that will increase in VALUE because of increased desirability or demand, it is easier to find commodities that will increase in PRICE because of inflation. Because of increases in the money supply (or increases in the velocity of money), it is possible to have a commodity drop substantially in value but resell at a higher price / profit.

2) STEP TWO: purchase durable commodities using as much debt as can be paid for by leasing out the durable commodity. Cash-flowing real estate is the perfect example of this. Real estate and hammers are examples of durable commodities, while oil or soybeans are examples of consumable commodities. No one will rent soybeans from you because they must be consumed to have value. Many people will rent real estate from you because it produces utilitarian value without consuming it. A bank will loan you most (sometimes all) of the money you need to buy an asset and the income from leasing the asset will pay off the loan. FREE MONEY! Now, let’s add inflation to the mix. Let’s pretend you bought a house in 1960 and the value of your house is 6,250 hammers and the price of a hammer was $2.72. (6,250 hammers x $2.72 per hammer = $17,000 house). Over the 50 years between 1960 and 2010 we know the money supply went through the roof and the price of things followed suit. Let’s assume the value of the house you bought in 1960 didn’t change over 50 years due to deterioration or increased demand and neither did the value of a hammer. In 2010, the value of your house would still be 6,250 hammers. However, as the supply of currency increased, the price of everything increased. Hammers went up in price and so did houses. If hammers now cost $20 ($20 per hammer x 6,250 hammers) your house must cost $125,000 even though the value didn’t change. What happened to the value and price of the debt? Let’s assume you had a 50 year interest-only loan on the property and you purchased it with 100% financing (eg. $17,000 of debt in 1960 and $17,000 of debt in 2010). This assumption is highly unlikely, but it makes our illustration easier to understand. Over 50 years, the price of the debt stayed the same while the value of the debt decreased. When you purchased the property, your debt was equal to 6,250 hammers or 100% of a house or $17,000. Sixty years later, $17,000 is only worth 850 hammers or 14% of a house. Inflation made the VALUE of debt decrease. If you know inflation is coming, you want to be a borrower of good debt (good debt is debt serviced by your tenants) and hold the debt as long as you can while the supply of currency increases. Thirty year fixed interest rate mortgages are on sale right now. Get as many of these mortgages as you can while the government is still subsidizing low interest rates.

3) STEP THREE: Protect your profits from income taxation. As the price of real estate goes up with inflation, there is no income tax on the gain until the property is sold for a profit. It is also possible for an investor to “borrow the profit” out of a property and reinvest it without paying a single penny of income tax. Many types of investments (interest income, business income, mutual funds, oil and gas, etc.) must pay income taxes on their profits every single year. Annual taxation of your profits radically erodes your return (earning power) because you lose the ability to generate compound earnings on the portion you paid in taxes. If you could double your money every year ($1 : $2 : $4), one dollar would equal one million dollars in twenty-one years. Apply a 30% income tax rate before each year’s doubling and twenty-one years results in only $41,000. Can you see how ESSENTIAL it is to have income tax deferral as a central component of your wealth building strategy? The equity growth in real estate is automatically tax deferred (like anÂ IRA) while also creating a tax shelter for the ordinary income through depreciation of the real estate structures. Depreciation is a topic for another day.

4) STEP FOUR: Acquire income streams whose value will be enhanced by rising prices. Let’s assume rent has a fixed value of 60 hammers per month. In 1960 rent would be $163 per month (60 hammers x $2.72) and in 2010 rent would be $1200 per month (60 hammers x $20). The value of rent didn’t change, but the price changed because of increases in the supply of dollars (fiat currency). Let’s assume our rental house in 1960 had operating expenses of 28 hammers per month (taxes, insurance, maintenance, management) and mortgage payments of 30 hammers per month. There would be 2 hammers per month left over as the investor’s profit (60 hammers of income – 28 hammers of expenses – 30 hammers for mortgage). Over time, the PRICE of operating expenses will increase in direct proportion to the rate of inflation. However, the VALUE of operating expenses is not going up, the increase in the currency supply is making the PRICE of everything go up. Over time, the PRICE of your fixed interest rate mortgage will stay the same thus reducing its VALUE. In 1960, your mortgage is 30 hammers x $2.72 = $81.60/month.Â In 2010, your mortgage is still $81.60, but the price of a hammer has gone up with the money supply. Your mortgage in 2010 is $81.60 divided by $20 per hammer = 4 hammers. In 2010, you collect 60 hammers of income less 28 hammers of expenses (income and expenses didn’t change) less 4 hammers for mortgage = 28 hammers of investor profit (28 hammers x $20 = $560). The value of rent and expenses stayed the same, while inflation caused the VALUE of the mortgage to decrease therefore increasing the investor’s profit. Real estate is powerful because it allows you to control a very large amount of debt whose value is eroded by inflation. As the value of debt is eroded, the borrower of the debt wins. An investor doesn’t need the PRICE of his debt to decrease, to make a profit, he just needs the VALUE of his debt to decrease. If the cost of debt is 5% simple interest, but the rate of inflation was 15% simple growth between 1960-2010 it is obviously profitable to be a borrower of good debt during inflationary times (eg. borrow at 5% and earn 15% = 10% profit on the funds borrowed). Government inflation numbers are reported as compound rates of growth and that confuses people into thinking inflation is less of a factor than it really is. 4% inflation compounded annually over 50 years is the same as 15% simple interest. Here is an easy to use inflation calculator if you want to see how much the price of things have changed over the past 100 years.

In my next newsletter, I will prove the Federal Reserve must inflate the price of real estate by 50% or banks will continue to fail in huge numbers. There were 140 bank failures in 2009 and 149 bank failures in 2010. Here is an interesting interactive map showing where bank failures are occurring. What is worse for our economy, widespread bank failure or rapid inflation? The Fed has been explicit in its public commentary on this issue; aggressive inflation is preferable to continued bank failure, therefore heavy inflation must be targeted at the real estate sector to pull the banking industry out of its nose dive. The Fed has made its decree public knowledge. What are you going to do about it?

If you are like me and believe inflation is inevitable, how will you prepare yourself for it? Doing nothing means your savings and wages will be eaten up through increased consumer prices. Acquiring positive cash flow real estate with 100% financing makes you the ultimate winner during inflationary times.

Don’t become a victim of inflation! Acquiring Hassle-free Cashflow Real Estate is a very simple step towards prosperity in the coming years. If you would like help building a successful real estate portfolio, please call me right away while prices are low, long term interest rates are low, and banks are still lending to qualified buyers. Inflation is coming, and this beautiful buyer’s market will not last forever.

Best regards,

David Campbell
Real Estate Investor / Developer / Financial Mentor
Founder of Hassle-Free Cash Flow Investing
707-373-9966
David@hasslefreecashflowinvesting.com

Investing Versus Trading

INVESTOR = mostly passive + dividends + long term capital gains

TRADER = mostly active + short term capital gains

As a Hassle-Free Cash Flow Investor, you must clearly understand the difference between an investor and a trader. This is an important distinction in your investment style / investment philosophy. Many people call themselves real estate investors when they are really traders. While you can make a lot of money as a real estate trader, it is not the same thing as being an investor.

Hassle-Free Cash Flow Definition of INVESTOR: An investor converts a lump of cash into an asset that has the probability of paying an income stream over a long period of time. An investor is primarily concerned with cash flow and security of his principal over a long period of time. To an investor, the increase in the equity value of an asset is a secondary benefit. An investor is generally passive and expects his money to earn more money without the contribution of a lot of personal time and skill.

Hassle-Free Cash Flow Definition of TRADER: A trader converts a lump of cash into an asset that has the probability of being resold for a larger amount of cash in the future. A trader is primarily concerned about velocity and security of his principal usually over a shorter period of time. A trader must buy and sell quickly or carrying costs and time will quickly erode his annualized return. A trader is generally active and expects to contribute substantial amounts of management time and skill, as well as money. A trader makes money ONLY if the value of his asset increases in value.

Being a trader is a job. If you are like most people, you already have a job and don’t want a second one. Being a trader is NOT Hassle-Free. As an investor, your money works so you don’t have to! A good investor enjoys freedom of time and money. Begin with the end in mind. Focus on making good investments that will take care of you in the future while not eroding your quality of life in the present.

People looking to make money in real estate often call themselves investors, but their idea of investing is negotiating short sales, going to foreclosure auctions, scouring the world finding a needle in the hay stack deals, or doing rehabs and “flips”. All of these are active forms of real estate trading that involve controlling a distressed property, improving its value, and reselling the property for a short term profit. Admittedly there is a lot of money to be made being a real estate trader, but it is a JOB. I have done over forty real estate flips in my life and I have made a lot of money doing them. But doing flips is VERY hard and VERY time consuming. It took me five years of study and practice before I successfully completed my first flip. If the trader doesn’t show up to work, nothing happens. Unless you want to quit your day job and become a full time real estate professional, stay away from being a real estate trader and focus on being a real estate investor. A Hassle-Free Cash Flow investor should never have to do anything but monitor his cash flow and management team.

It is possible to build a real estate investment portfolio that takes less than one hour per month to manage. With the right deal structure, leverage (financing), and cash flow it is very possible to achieve investment results well over 100% per year as a semi-passive investor. If you can double your money every year as an investor working less than one hour a month, why take on the worries and time hassle of being an active trader?

TAKE AWAYS: Being an active real estate trader takes time, skill and tenacity; it is a job. However, being an investor in Hassle-Free Cash Flow real estate can be semi-passive, simple, and highly profitable. The goal of Hassle-Free Cash Flow Investing is to enjoy your quality of life now, while creating financial abundance for the future.