investing – Hassle-Free Cashflow Investing

Should I Buy In Today’s Seller’s Market?

Many of the local real estate markets in America are in a Seller’s market. If you want to determine if your real estate market of choice is a Buyer’s or Seller’s market CLICK HERE to read one of my most popular blog articles: “How to Predict Real Estate Prices”

I get this question a lot: “Should I Buy A Home In Today’s Seller’s Market?”

This is easy to answer from a purely theoretical perspective: NO!

Buy during buyer’s markets.
Sell during seller’s markets.
In between market cycles have your money invested in well-secured income-producing bonds like mortgage notes.

(Disclosure: Yes, I sell mortgage notes and I hope you buy lots of mortgage notes from my company. However, I hope you can read past this author bias because there are a lot of good lessons to glean from this article. Shameless plug: CLICK HERE to gain access to our current inventory of Hassle-Free Cashflow Mortgage Notes producing 10% annualized ROI.)

When I look at the vast number of buyers in today’s real estate market, I want to shout “WHERE WERE YOU FIVE YEARS AGO?” when it was the best buyer’s market of our lifetimes. You see it always happens this way… Smart investors buy when everyone is selling. When everyone is buying, dumb money rushes in and smart money sells. I’m not saying don’t buy right now. I’m saying BE SMART about buying. If you can still borrow at 5% and buy a property producing a +6% return… well, that sounds pretty smart to me. You see, even though real estate prices are relatively high right now compared to rents, money is still cheap (as a result of an abundance of Federal government stimulus). Interest rates are low which means it is a buyer’s market of debt. Smart investors are still borrowing all the money they can get their hands on at long term fixed interest rates. What do you do with that cheap money after you borrow it… well, BE SMART and make sure you are “positively arbitraged”.

If you aren’t really, really, really sure what “positive arbitrage” means, you must absolutely watch this free video series as soon as you’re doing reading this article: CLICK HERE

After you’re done with the above video series watch this free video training series on real estate investing math.
CLICK HERE

These two sets of free investor training videos could make you rich, or at the very least they could save you from making some very poor financial decisions.

OK class… everyone turn to your neighbor on the right and explain “positive arbitrage”. Getting the positive arbitrage formula right (CAP > interest rate) is the razor’s edge difference between financial freedom and bankruptcy. Positive arbitrage is the most important real estate lesson there is. Unfortunately, very few people teach it. If you don’t understand positive arbitrage well enough to teach it, please promise you will watch the above videos and not just gloss over this point.

The question “Should I Buy A Home In Today’s Seller’s Market?” is harder to answer from an owner occupant perspective because a primary residence is both a consumable item for pleasure and utility as well as a major financial investment.

As long as it is cheaper to rent than own, you are financially ahead to be a renter and go buy rental property in parts of the US where it is cheaper to own than rent (CLUE: this is why so many California investors are currently buying rental houses in Texas). When real estate prices are at a market cycle low, it could make financial sense to buy a primary residence even if the cost to own is higher than rent if you choose to speculate that when real estate prices return to market cycle norms you will make a bunch of equity that would be significantly greater than the cash flow “losses” you experienced from paying more to own than rent. The caveat of this formula is that once the market cycle booms, you need to sell your house, reinvest the equity, and go back to renting. In lieu of selling and going back to renting, some savvy property owners choose to harvest their market equity gains through a cash out refinance and reinvest the capital elsewhere. That is an excellent strategy as long as you have the positive arbitrage formula right (CAP > interest rate).

Of course, many times the decision to buy a primary residence is made on emotions rather than finances alone and that’s OK too. Ultimately, the money you earn is designed to bring you the things you want when you want them. So, if you can afford a house and you really want to own it, then market economics be damned! A house to live in is really a liability (not an asset) anyway. If you like the convenience of paying retail prices to get what you want when you want it, then who cares what part of the market cycle we’re in. A retail buyer will buy something because they want it and can afford it and that’s OK! I pay retail prices for food all the time. I know it is cheaper eating at home than eating out, but eating at a fine restaurant can be really, really fun. Sometimes it’s OK to pay retail prices for stuff you want when you want it. Just make sure you know you’re doing it on purpose. Dumb money buys the things they want because they want them and then justifies the expense as an investment. Expenses are fine; just realize that expenses and investments are very different things.

If it is cheaper to rent than own and you’re trying to make a financially intelligent decision, go find a rental situation you are happy in and use your cash to invest where the numbers make sense. If it is cheaper to rent than own and the house you want to buy is relatively fungible (e.g. not a unique one of a kind property that comes on the market once in a generation) then I would wait until the next buyer’s market to buy a house to live in. When the next buyer’s market comes along, it will be obvious to you and every one else because the words “foreclosure” and “short sale” will be on the evening news like it was 2009-2011 all over again.

If you have assets in the stock market, I would apply similar advice to the above. IMHO stocks are in a bubble. A few months ago, I published a prognosis to my newsletter subscribers that the stock market was at a top and ready to crash. The DJIA was 18,100 when I made that announcement. As you know, the market is currently down significantly from that point. Two weeks ago, I published to my subscribers that there is a lot more downward movement coming in the stock market. Today’s DJIA closed at 16,384… that’s a ~10% decline from the market peak just a few months. After reading my prognosis, a few of my investor clients cashed out of the stock market (at the top) and used their cash to buy well secured mortgage notes paying 10% interest. These clients achieved an ROI well over 20% annualized relative to where they would have been if they had left their assets in the stock market. Protecting yourself from loss is almost as good as earning a profit.
mortgage note to stock comparison chart

Of course, no one knows for sure where the market is headed so use your own judgement where things are going and how to prepare accordingly. Personally, I’m selling real estate in areas where I see a price bubble and moving this equity into income producing mortgage notes, farmland, and silver bullion. I am also still bullish on the Dallas-Fort Worth metro for acquiring income-producing, positively-arbitraged rental houses. If you can still borrow money cheaply and you’re looking to build long term equity and tax shelter, I would not be afraid of taking a long term investment position in the DFW rental housing market (HINT: CAP > interest rate). If you’re looking for investment opportunities in income producing Hassle-Free Cashflow Mortgage Notes or Dallas-Fort Worth (DFW) rental property, I am here to help you. Always remember, I offer a free 30 minute investment strategy consultation over the phone to help you navigate the potentially turbulent economic waters ahead.

CLICK HERE to schedule your no-cost investment strategy consultation with professional investor David Campbell
Best regards,

David Campbell
Real Estate Investing Strategist
866-931-9149 x1

Borrowing To Invest Can Increase Cashflow and Lower Risk

Borrowing To Invest Can Increase Cashflow and Lower Risk – Deploying existing real estate equity owned by you or your friend. Borrowing to invest can be a potentially obvious investment strategy that I would like to put a creative twist on for you. Borrowing to invest in real estate or notes using a cash out mortgage or line of credit against real estate you already own can have very powerful results and can often improve your cashflow and LOWER your risk. Here’s how:

My client owned a primary residence valued at $500,000 and had a $300,000 first mortgage and $200,000 of equity. The client refinanced the property with a new $400,000 first mortgage and pulled out $100,000 of investment capital. His net worth was the same before and after borrowing to invest; he just moved half of his equity into cash. He then took the cash and purchased two $50,000 notes totaling $100,000, secured by $140,000 worth of real estate. The client borrowed the money from his primary residence at 4% and invested it into notes paying 10%.

$100,000 borrowed capital x 4% = $4,000 interest expense $100,000 invested capital x 10% = $10,000 interest income $10,000 interest income – $4,000 interest expense = $6,000 annual profit

On a simplistic basis, we can see borrowing to invest was a profitable move because the fixed cost of funds was lower than the fixed earning rate. Let’s look a little deeper at the cashflow on this deal.

The $100,000 of extra mortgage expense at 4% on a 30 year fully amortized loan is a cashflow outgo of $477/month.
The $100,000 investment notes at 10% interest on a 15 year fully amortized loan is a cashflow income of $1,075/ month.
$1,075 cash in less $477 cash out = $598 positive cashflow

(Albeit, not all of the $598 is profit because we are dealing with principal and interest payments using two different amortization schedules (expense is 30 year and the income is 15 year).
The above is a great example of how being a borrower and using the concept of positive arbitrage can improve cashflow. The investor client is happy because he improved his cashflow position by $598 per month simply by signing his name a few times, but he is also happy because this situation LOWERED his risk. Here’s how:

When your monthly cashflow improves, your risk goes down because you have more liquidity to service your debts and build up cash reserves.

When the investor moved $100,000 of equity from his home into first position debt secured by other real estate, he moved the asset from higher risk “equity” to lower risk “senior debt”. Let me go deeper into this concept. If the investor loses his job or credit in the future, he would be unable to tap the equity in his home without selling his primary residence. However, by moving the equity from his home into first position liens on other property, he has the peace of mind that if he ever loses his job and wants to tap the equity in his home, he can always liquidate the notes for cash.

The investor has also insulated his assets from the potential of real estate price declines. If the investor had not moved his equity from his primary residence and real estate prices decline 40%, his $500,000 property would be worth $300,000, less the $300,000 of original debt, so his net equity would have gone from $200,000 to $0. If he sold his house at this point in the market, he would have zero cash from the sale and he certainly wouldn’t be able to refinance any equity out of her home because there would be no equity.

By borrowing to invest his equity into first position notes, his liquidity is more insulated from loss. His $500,000 property declines to $300,000. Less $400,000 of debt, that means he has a $100,000 negative equity in his primary residence but he doesn’t have to sell his primary residence until the market recovers. Remember, when investing in real estate the value of a property only matters when you are selling or refinancing. The main concern the investor is insulating against is not a change in profitability but a change in access to liquidity. Even if the notes go bad (always a risk), the investor will end up owning the underlying real estate. Ideally, the foreclosed houses would make great rental properties and would produce more rental income than what he was originally receiving in interest income from the previous owner. However, if he decided to sell the foreclosed real estate, even if that real estate had gone down in value, it would not have declined to zero as the equity in his home did. Moving your at risk “junior” equity into positively arbitraged “senior” notes while you have the equity and credit available to you would be the lesser of two evils in the event of large price declines.

Here is another risk mitigating bonus for my investor client: The investor owned a home in a high priced state and was concerned that the state’s economy and home prices might be fragile and unaffordable in the future. He moved his at risk “junior” equity from his high priced state into “senior debt” secured by entry level real estate in Dallas, Texas, which is a more vibrant and diverse economy. The investor felt that moving the equity out of his primary residence into a senior debt allowed him to (1) improve his immediate cashflow, (2) allow him to have access to this equity in the future regardless of his employment or credit position, (3) gave him options for liquidity in the future even if there are massive price declines, and (4) it gave his investments geographic diversity by moving a portion of her equity to Texas.

In addition to borrowing to invest in real estate and cashflow producing notes, I encourage you to watch this free video series where we discuss your “Eight Essential Resources” and how to use them to produce real estate profits: http://www.hasslefreecashflowinvesting.com/video/secrets-of-hassle-free-cashflow-real-estate-investing/   

If you would like help borrowing to invest, formulating your personal investment strategy, or if you would like to learn about current Hassle-Free Cashflow investment opportunities please give me a call at 866-931-9149 ext 1 or schedule our phone call using this link to my calendar. https://my.timedriver.com/WBYTQ

To your success!

David Campbell

 Real Estate Investing Strategist 

Office: (866) 931-9149 Ext. 1 

Cell: (707) 373-9966

Create Cashflow Using A Loan From Your 401(k)

Create Cashflow Using A Loan From Your 401(k) – If you have a 401(k) plan you may be able to create cashflow by borrowing against your 401(k) to create a pool of cash to invest for investing in real estate. (Check with your plan administrator and tax advisor to make sure this would work for you!) If you use the proceeds of your 401(k) loan for investing in real estate you may be able to pay interest to your 401(k) that is tax-deferred income to your 401(k) (A GOOD THING) and take a present day interest expense tax deduction on your personal tax return (A GOOD THING). Let’s say you borrowed $50,000 from your 401(k) for investing in real estate and then paid 4% interest per year to your 401(k), your 401(k) would be earning a 4% return ($2000), tax deferred, while you would have a $2000 deduction on your personal return. Let’s say you then invested the $50,000 from your 401(k) into a note and trust deed to create cashflow at 10% interest rate ($5000 profit per year). You would have $5000 of interest income less $2000 of interest expense (to your 401(k) which means $2000 of your note income would be tax deferred as earnings to your 401(k) and $3000 would be taxable to you personally in the current year. While it might be better tax planning to own the note directly in your 401(k) it might be logistically impossible to do so. For example if your 401(k) is invested in your current employer’s plan and you are unable to roll it over into a self-directed plan, most employer sponsored IRA plans will not let you self-direct your IRA into notes and real estate, but they may let you take out a loan against your own 401(k) and pay yourself interest. You would also create cashflow inside your 401(k) but depending on your personal financial situation you might prefer to have that cashflow outside of your 401(k).

Here’s a potentially better tax plan to create cashflow by investing in real estate with your 401(k) funds. Let’s say you borrowed $50,000 from your 401(k) and purchased a $250,000 rental house with 80% financing and 20% down.

Let’s say the rental house was a 6 CAP rate

($250,000 purchase price x 6 CAP rate = $15,000 Net Operating Income)
and you borrowed 80% of the money from the bank at 5%

($200,000 bank loan x 5% bank interest rate = $10,000 interest expense to bank)
and you pay back your 401(k) loan at 4% interest

($50,000 401(k) loan x 4% interest = $2,000 interest expense to 401(k))
Your gross real estate profit from rental activities would be $3,000

$15,000 NOI – $10,000 interest to bank – $2,000 interest to 401(k) = $3,000 profit

However, this $3,000 profit is before we add in the tax loss from depreciation. Assuming a $250,000 rental property is $30,000 land and $220,000 structure and we depreciate the structure over 27.5 years we get an $8,000 tax loss from depreciation.

$3,000 profit less $8,000 in depreciation results in a $5,000 tax loss

***Check with your tax advisor about all income tax related issues. Nothing on this website should be considered tax advice.***

So let’s recap this strategy to create cashflow…

EXAMPLE 1: By borrowing $50,000 from your 401(k) and purchasing a note you create cashflow and profit inside and outside of your 401(k). You would be creating tax deferral on the funds going into the 401(k) but you would have a taxable event in the current year on the profit that is in excess of the interest charged by your 401(k). Talk with your 401(k) plan administrator and tax advisor to see if you have control over the interest rate charged to yourself by your 401(k) and also confirm with your plan administrator that the interest you pay to your 401(k) accrues to your benefit rather than to the benefit of the plan administrator.

EXAMPLE 2: By borrowing $50,000 from your 401(k) and purchasing a $250,000 rental property you create cashflow outside of your 401(k) and tax deferred interest income inside of your 401(k) as well as a “phantom loss” on your personal tax return in the current year. This “phantom loss” may or may not be able to offset other income you’ve earned depending on your personal tax situation. Although the property is showing a paper loss (aka phantom loss) the property itself is profitable because you borrowed all of the money at an interest rate lower than the earning rate of the property. Investing in real estate at a CAP rate higher than the cost of borrowing is called positive arbitrage and this is a key way to create cashflow using the Hassle-Free Cashflow Investing philosophy. CAVEAT: even though the property in this example is profitable and creating a phantom loss (which are both good things) it could result in negative cashflow because the amortization on the bank loan in addition to the shorter term amortization on the loan to your 401(k). Remember, not all profitable investments create cashflow that is positive and not all negative cashflow investments are unprofitable.  

If you would like help formulating your personal investment strategy or if you would like to learn about current Hassle-Free Cashflow investment opportunities please give me a call at 866-931-9149 ext 1 or schedule our phone call using this link to my calendar. https://my.timedriver.com/WBYTQ

To your success!

David Campbell  

Real Estate Investing Strategist 

Office: (866) 931-9149 Ext. 1 

Cell: (707) 373-9966

Investment Real Estate and Einstein’s Theory of Relativity

To My Friends interested in Investment Real Estate

A highly simplified version of Einstein’s theory of relativity says that in order for low to exist, there must be also be high. In order for Winter to exist, there must be Spring. One extreme cannot exist without the existence of its opposite. As the great Jim Rohn says, “How often does Spring follow Winter? Every time! ” This means that if we are living in an economic Winter, Spring MUST be around the corner.

As inflation and interest rates increase, rents are very likely to increase at the same rate. If you acquire positive cash flow investment properties using today’s long term low interest rates, your ownership costs should stay the same while rental income should increase with inflation. Now is the perfect time to set yourself up to receive very high investment yields from positive cash flow real estate.

Investment Real Estate Money Making Action Items:

1) DO acquire positive cash flow properties with cheap long term financing.
2) DON’T sit on cash for too long as its buying power will soon be eroded with inflation.
3) DON’T sit out of the real estate market waiting prices to come down. Interest rates are eventually going up and the cost of a $125,000 mortgage payment at 5% is LESS than a $100,000 mortgage payment at 6.75%
4) If you already own negative cash flow real estate with no equity, consider buying more positive cash flow properties using your currently good credit, and AFTER you’ve monetized your good credit, you can consider doing a short sale on your negative cash flow / negative equity properties.

5) If you own negative cash flow real estate WITH equity, consider using your equity as the down payment on a positive cash flow or neutral cash flow asset. You can stimulate the sale of your property and probably achieve a premium price for it by being a buyer of someone else’s property. As a condition of purchasing the Seller’s property require that the Seller must purchase the property you want to get rid of. This is called a “must take” in equity marketing and is a great way if you are trading up in asset value and adding cash to the transaction. For example, if you have a $100,000 property that is negative cash flow but has $25,000 of equity, you can buy a $300,000 positive cash flow property by bringing in additional cash and financing to the table. The person buying your property will get $275,000 cash and $25,000 of equity in your “must take” house.

I enjoy coaching investors. If you want to schedule a time to talk about your unique situation, you can book an appointment with me online: https://my.timedriver.com/WBYTQ

Warm regards,

David Campbell
Professional Investor / Author / Real Estate Developer

Investment Real Estate Specialist

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

Real Estate Christmas Story

Last year I was at a friend’s home for a Christmas party. As I was mingling through crowds of festive party goers, I was surprised to meet my friend’s landlord. The party was at his rental house and my friend invited to be a guest of the party. I’ve been a landlord to over 100 properties and I’ve never once been invited to my tenant’s Christmas party!

The landlord, Mike, was a friendly man of about 68 years. We had a great time talking about real estate. In 1965, Mike took a job as a school janitor and he worked at the same job his entire career. Mike bought four single family homes over a period of 45 years and is now a multimillionaire with a $75,000 / year passive income from real estate. His passive real estate income is more than double what he earns from his janitor’s pension and social security.

What astounds me is the simplicity of Mike’s success. Mike purchased four “bread and butter” single family homes over 45 years. He always bought new properties, he always paid retail, and his cash flow was break even with 20% down and 30 year fixed fully amortized mortgages. Mike never refinanced, never prepaid his mortgage, and he never sold. While this plan may not have yielded the highest return, it was powerful none the less. The fact that the plan was so simple is one of the reasons Mike was successful with it.

Mike purchased his first house in 1965. He paid $18,000 using 20% down ($3,600) and an 80% mortgage ($14,400). His mortgage payment was $86/month. That was a lot of money when Mike was a 23 year old school janitor earning $350/month. Today, this Northern California house is worth $575,000 and rents for $2,200/month.
Mike's home price
Mike purchased this $18,000 house with only $3,600 down and his mortgage was paid off by his tenant 15 years ago. His $3,600 investment is now worth $575,000. Mike’s annualized non-compounded return on investment has averaged 350% per year for each of the past 45 years. What investment vehicle other than real estate can do that?

mikes ROI with 20% down

In 1970, Mike bought a second house. In 1975 he bought a third house and, in 1980, Mike bought his fourth and final house. All four houses are now owned free and clear with $2.3 million of equity and positive cash flow of $75,000 year. Mike spent his career as a janitor and retired a multi-millionaire because he had the foresight to acquire four pieces of real estate over 45 years.

Inflation seems small because it is reported as a year over year number. However, inflation (and real estate prices) actually move as a compounding force. Below is a chart of a basket of goods with prices from 1965 and 2010. I created a chart to illustrate the annualized compounding rate of increase for this basket of goods. Mike’s houses increased in price just slightly faster than the overall rate of inflation over the same period.
inflation basket of goods

Mike was the happiest guy at the party. He has the most abundant retirement plan of any of his peers, and he spent his entire career as a janitor not worrying about money or inflation. He always knew that when he retired he would have four houses that were completely paid for by his tenants, and these houses would take care of him and his children forever.

It is nice when real estate investing has had such a positive impact on someone’s life. I asked Mike what he would have done differently 45 years ago and he said, “I wish I would have bought more houses.”

Merry Christmas and Happy New Year,

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

Please leave a comment on this article.

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 gains political clout – adds 4 congressional seats

In 2011 Texas gains 4 seats in the house of representatives for a total of 36 seats out of 435. That means Texas represents 8.3% of the total vote in the House of Representatives. TX is second only to CA with 53. FL and NY are # 3 and 4 with 27 seats. Over the past decade, TX grew twice as much as any other state. http://news.yahoo.com/s/ap/20101222/ap_on_bi_ge/us_census2010_count

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 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.