Look into real estate deals in areas in the States that are not declining much, but also look closely at international real estate, where you must learn the rules because they operate very differently in many countries. In some countries, a realtor can sell the seller’s house for a higher list price, give the seller what he asked for, and keep the rest!
I have friends who purchased a home in Panama, only to have the agent tell them one day before they left to move down there that their home was sold to someone else for $95,000 more than they contracted for, even though they put a down payment on the home and signed a contract! They received their down payment back, but they had to find another home, which took them two additional months!
Speculative Investments
Speculative (high risk) investments are just that. These are the high yield; high risk investments that are offered mostly by companies that only deal with Accredited Investors.
Accredited Investors are people who have a million dollars net worth (excluding the value of a primary residence), or who earn $200,000 per year as a single person or $300,000 as a married couple. This designation, developed by the Securities and Exchange Commission (SEC), keeps the middle class from excelling in income investments. By deciding that middle class people are not smart enough to research and invest with wisdom, the SEC forbids brokers and investment advisors from showing high yield investments to people who don’t meet the criteria. Even if you have great investment knowledge, you can’t invest in certain investments if you don’t earn $200,000 a year and you don’t have one million dollars net worth. This is wrong on so many different levels that I just have to stop right here before I get angry all over again.
A stock broker who is licensed and regulated by the SEC and the National Association of Securities Dealers (NASD) can have you in his office selling you on IRAs and Mutual Funds, and the very next hour have another couple in his office selling them on high-yield investments that you will never know about. Not all of these investments are high risk!
Another high yield investment strategy is to become a small venture capitalist who loans funds to small up and coming businesses that prove that they will make a profit. This method takes serious research. I know a man who makes a living investing in companies that show great potential. He does his research and if he can make money investing in these small companies, he invests and reaps large dividends, as opposed to throwing money into mutual funds that include failing companies that he knows nothing about.
There are many ways for you to take advantage of some of these higher yield investments even when you have the funds but are not an accredited investor, and I will discuss those options in the next section of the book when we talk about what the wealthy do to become and stay wealthy. Speculative investments should be your last step, though; like it does for the wealthy, this is where your money makes money.
Questions you need to ask before investing
I talked earlier about how people go to investment seminars, get caught up in the hype of the smooth talking presenter and throw their wallets open, often without asking any questions about the investment offered. Before you invest anything, you need to ask these questions:
· What is being offered/what is the product? If the presenter can’t explain this clearly and in detail, you may want to turn away. I attended an investment conference in Cancun and another attendee had done his homework to the point that he ran circles around the presenter with his questions. I was embarrassed for the presenter, and she was as red as an apple by the end of her presentation. Needless to say, none of the attendees invested in the product she was offering.
· Why do they need my money? Often, they really don’t! Others could fund the opportunity they present, or they may have squandered money previously invested. In either case, you want to find out how much money the company has spent, and how the company spent it.
· Who is in charge? You always want to know who is at the helm of the product or service being presented. The presenter at an investment conference in Greece was the actual product inventor and developer; he had put his life into the product, and I could feel his passion. He was an engineer and he did a great job developing and presenting the product, and I felt very comfortable with that investment.
· Do they make money even if I don’t? I don’t invest in the stock market or use stock brokers, because they make me broker and broker. Whenever others make money whether you make any or not, you are going down a dangerous road. Often when you trade stock, the broker earns money on every trade. Also, stock and insurance brokers earn differing commissions on different products, so they may offer you an inferior product just to receive a higher commission.
· How much money does the presenter personally have invested? Presentations made by sales people are turnoffs to me; I want to hear from the owner, founder, or an officer who has a personal stake in the product or service. These are the people who have the real knowledge necessary to make prudent investment decisions. In my previous example, the presenter was a saleswoman who knew less than the attendee, and it showed when she couldn’t answer questions that someone more intimately involved with the company would have been able to answer.
· What market factors drive the amount of projected return? Market factors such as interest rates, economic growth, trade and capital flows, and merger and acquisition activity affect the amount of return you may receive on an investment. In addition, some products are manufactured in different places of the world. You need to know where the products are made and the political climate in that area. I lost thousands in an investment based in a South American country when corporate greed and government corruption tied the company’s hands and stopped production. Who knows whether I will ever regain my principal investment?
· What is the company’s background? How long has it been in business? The shorter the amount of time a company has been in business, the riskier the investment. New companies need to work out their glitches before you invest substantial amounts of money; they need to earn your trust by showing growth and profits. Make sure that when you ask this question the answer includes only the amount of time the company has existed in its current state. I have heard presenters give longer existence dates for companies that started out with other names, but failed and re-opened with a new name. Many companies don’t want you to know that they have a checkered past.
· Will all or part of my invested principal be at risk? Earlier, we discussed capital guaranteed investments, in which you are guaranteed to get back at least what you invested. Some guarantee only to return part of your investment should there be problems or loss involved. Make sure you know the entire story and exactly how much is guaranteed, and get it in writing!
· Can I or any other investors visit the company’s facility? This is an important question, as some “fake” companies operate out of a private mail box address, or even from someone’s home. People tend not to invest in companies that don’t have a brick-and-mortar presence, and some organizations try to hide the fact that they are small by renting a private mail box on a busy street. I have seen some of them bring pictures of their supposed facility, which turned out to be pictures of someone else’s business. Before many of my friends invest, they pay a visit to the company and have a talk with the partners and officers. Even if a partner or officer presented the investment, the investor validates concerns by visiting the actual facility and seeing the work in progress.
· How often do investors receive updates and payments? When you are considering an investment, you need to know the company’s policies and procedures. You want to know how often you will receive updates about your investment; some companies send out monthly or quarterly newsletters, while others only contact investors once a year. You also want to know when you will be paid; some investments pay out monthly or quarterly. I have heard about investments that paid out after five years and usually offer a higher rate of return because they have your money so long. If you want a long-term investment to gen
erate college tuition for your teenager, this may be the way to go.
· What is the exit strategy to recoup all of my funds? You should always know where the exits are when you are in a building and when you invest. If you don’t ask, you may find out the hard way that you can’t get your money back or at least not before a certain date. If you invest in a product that has a high rate of return and claims that you will receive full principal and interest in five years, will you be able to get the principal back after two years if you fall on hard times, or will you forfeit part of the principal and interest earned by taking the money out early? You need to ask the hard questions, or you might end up in a bad predicament.
If someone asked these questions during “slick” presentations, most people in the audience would never invest unless the answers were true and acceptable.
I said all that about high-risk investments, but wealthy people put little into them. Wealthy people invest in “high-yield low-risk” investments
While hanging around wealthy people I’ve learned some once classified information concerning wealth. This information permits wealthy people to stay that way. What I learned is that wealthy people only use a small percentage of their money on speculative investments. They first create and grow a strong financial foundation that’s secure and virtually totally protected against losses. Then they do research and find companies and opportunities in which to invest. Sometimes these investments are “long shots” and if they fail all of the invested funds are lost. However, if the investments pay off they bring high returns and the wealthy use part of these high returns to invest in other opportunities that are considered speculative. Wealthy people invest most of their money in companies and opportunities that they are familiar with, as opposed to throwing money into the stock market. They start businesses, take over good businesses with bad management and replace the management, and they constantly research to find solid opportunities. These investments bring them consistent cash flow, and if they decide to sell a company that they have started they usually earn millions of dollars.
From now on we must make sure that we carefully research before we invest or we will not be able to climb the stairs to wealth without falling backward.
How Do The Wealthy Stay Wealthy?
First, we need to define wealth so that we are all on the same page.
The best definition that I have heard for financial wealth is this:
Wealth is determined by (1) the number of days you can survive without working, (2) or anyone else in your household physically working (3) and still maintain (or increase) your standard of living.
That definition kicks out people who have a lot of stuff, but would lose it all in a month or two if they could not work to keep that stuff.
There are literally millions of people in the US with luxury cars, homes, vacation homes and all of the latest gadgets who would lose it all in a matter of months if there were a job loss, divorce, medical catastrophe, or something of that nature. These people are not wealthy and they never were. Wealthy people make money on their money and have multiple streams of income so that they can go on for years or for the rest of their lives without physically having to work. This is your achievable goal if you follow the principles and the rules you have learned.
We all want financial freedom. My favorite definition of financial freedom is the ability to do what you love, when you want, with whomever you want, with no concern about money. In order for you to have the time to do what you want and have no concern about money, you have to get to work on your strategy right away.
Let me tell you the secrets of the wealthy. They have been teaching me for many years now because they found that I was not only willing to learn, but willing to listen and implement the strategies they shared. They realized that they were not throwing their pearls before swine, and I gleaned an abundance of knowledge from them, for which I’m truly grateful.
Wealthy people buy assets, not liabilities. They don’t just rent a building for an office; they buy a building, put their office in it, and rent out the other space so that their tenants pay the mortgage for the entire building, usually without knowing that one of them owns the building! Wealthy people buy or form profitable businesses. Instead of buying big cars and homes they can’t afford, they wait until the business income is enough to pay for the cars and homes. They let the company buy the cars and homes that they live in and drive. I have learned that wealthy people endeavor to own nothing, but control everything through corporations, trusts and foundations.
Wealthy people’s assets grow based on the formula for compound interest and they become wealthier. They use money that has been passively earned through investments, and their assets pay for their liabilities. If they want a new house, they use the earnings from an investment to get that property. They will purchase rental property, and when it is fully paid for (via the rental income), they will use that rental income to pay for their new home. When they utilize these strategies, their time is their own to use as they see fit; they find more ways for their money to make money, instead of working ten hours a day only to come home to watch the ballgame.
They become powerful and influential; people with money-making opportunities introduce them to more opportunities because they are able to fund their deals. As these opportunities roll in and, after research, they take advantage of them; they build wealth and multiple income streams very quickly.
One of the most important things about wealthy people is that they teach their children HOW TO HAVE MONEY WORK FOR THEM, not how to work for money. They start their children off young, teaching them that they can make money without working for other people.
Many wealthy people have their very young children involved in Internet businesses, so while the children are asleep on a Tuesday night, they are making money because someone on the other side of the country or the other side of the world is buying that product. That child will learn the definition of “mailbox/inbox money,” when they receive checks in the mail or have funds earned in their business downloaded to a prepaid debit card or to their bank account. These children can earn thousands of dollars before even reaching high school, and be determined to always make “mailbox/inbox money” instead of working for a paycheck.
Don’t get me wrong—cutting grass and babysitting are fine, but wealthy people teach their children how to operate on a global level, and you need to start learning how and teaching your children the same thing!
Wealthy people also make sure their children receive a good practical, hands-on education and work in their business, instead of watching a lot of TV or playing too many sports and video games. They tell the children that they will have to work now in order to receive a share of the family business later, which gives them incentive to work hard and learn the business, like Donald Trump learned from his father, and the Rockefellers and many other wealthy children learned from their families.
Wealthy people create their own reality, and if something in their environment is not to their liking, they have the money and power to change it. They find and utilize the resources they need to accomplish their goals and dreams.
The wealthy are not limited by conventional thinking or the perceived limitations of the masses; most people limit themselves with excuses and things that happened to them in the past. Wealthy people do not let obstacles stop them; they move the obstacle, destroy it, or buy it!
The bottom line is that whatever wealthy people can conceive, they can achieve, and this is the mindset that we all need to develop in order to become wealthy.
Some of the things we are not taught in the public school system but that wealthy people know and teach their children are listed below:
How to keep the money we earn.
· Control spending. As discussed earlier, middle class people are in an earn/spend cycle and as long as that is the case, they will never become wealthy. Wealthy people control their spending and utilize the age-old principle of delayed gratification. My father taugh
t me about delayed gratification when I was eight years old, when he told me that if I saved my little allowance instead of buying candy or toys, I would later be able to get nicer things, like a bike or the archery set that I wanted.
Wealthy children learn about delayed gratification, unlike many children not born wealthy. We need to get back to showing our children the value of saving for things instead of always having their hands out. We ourselves need to learn that the mall isn’t the place to be when we are in debt! Also, we need to practice delayed gratification daily.
How to research where to invest our earnings.
· Stop taking financial advice from financially illiterate people. People will listen to—and throw money at—someone with the hottest stock tip, who may be more broke than a panhandler. You need to pay attention to who advises you. If the people you learn about wealth from aren’t wealthy, then you need to start listening to those who are wealthy and those who are on the path to wealth.
How to keep other people away from the money that we earn.
· Let’s talk about contingency litigation and frivolous lawsuits. Our country is one of the few that will let one person sue another without paying a bond.
A lawyer can take a case on contingency, which means that they get paid after they get a judgment, which many so-called third-world countries don’t even allow.
In Panama, you have to put up a $25,000 bond in order to sue someone; if you lose, the $25,000 goes toward the defendant’s attorney fees and loss of work dealing with the case! Over half of the lawsuits would surely stop if that were the law in the U.S.; however, since most legislators are also lawyers, we have as much chance of getting rid of contingency litigation as I have of winning the lottery, which I have never played.
How to Escape the Rat Race Page 11