March 09, 2009

Should We Take Responsibility

I often wonder whether the excesses of our lifestyles (as opposed to the lifestyles of our parents and grandparents) are at least partially responsible for this mess we're in now.   For many decades, we have lived in what I call the "I deserve" decade.   During this time, we have not worked for the money first, then purchased later.   Instead, we have bought first (because we deserve) then figured out how to pay for it later.   In simple terms, this is easy to understand:  the over mortgaging of a house, the easy credit society of North America, the resistance to working for a living, or the grandiose excesses of our lives.  
What if we were to apply this concept to a much larger scenario?   Take for example, the workers in the automobile industry.   Can we consider that the union strength and worker demands might have had at least something to do with the fact that there is almost no positive, healthy auto industry left?  What about Nortel?  This corporation (who's stock are now valued at 10 cents, and has written off 3 billion dollars over the last 4 months and fired over 70,000 employees) has just somehow voted on 45 million dollars worth of bonuses for senior level management!   I mean, imagine the entitlement umbrella under which these guys are taking cover!  And this is just after posting a 15% drop in revenue!
If we think about, we have all been responsible for getting to where we have landed.  Our destination was almost certified from the day we boarded the train.   If we are to climb our way out of this, I believe we will need to take some responsibility for changing the way we operate, both personally, and corporately. 

March 07, 2009

A Dozen Hard Learned Lessons!



Lesson # 1:  Combine the things you love, but make sure one of them makes you money! 
Lesson # 2:  Watch Fads because they could become Moneymakers! 
Lesson # 3:  Even successful people can be close minded about new things - they may only trust the market they know. 
Lesson # 4:  Realize how stupid you were yesterday, how much you need to learn today, and how much you will realize you didn't know today when tomorrow comes
Lesson # 5:  There is always another way to solve the problem; you just have to be open-minded enough to see it
Lesson # 6:  Don't be afraid to venture out and try something new
Lesson # 7:  Real estate growth is way easier than working for a living
Lesson # 8:  "Listen to people who have more than you in the field in which you wish to gain, not less.   Pay attention to their prejudices about new things, but trust what they say about what they know.
Lesson # 9:  Even though you make the same amount of money, you can move up if your real estate makes more money than you do!) 
Lesson # 10:  Don't be afraid to do what you love, just find something else to subsidize it, instead of having it deplete you.)  
Lesson # 11:  Fear and need are powerful motivators.
Lesson # 12:  Don't forget to give.   You shall receive.   Always spend your days trying to find some way of giving back something.   It doesn't really matter what, who, or how much.   Just do it!

Listen Up!


I talked to an old timer the other days (these guys are great to talk to you because you get their wisdom instead of your own arrogant knowledge base (I speak for myself), so you always seem to learn something knew - if of course, you're willing to listenWe started talking about how times have changed and how he's seen it all ... blah..blah...blah.... I guess (I must admit) I slightly glazed over when he was talking about the good old days in real estate, but I was sadly too arrogant to completely listen, because only when I was intelligent enough to tune back in did I realize he was given me nuggets of gold.  He told me that he had rental homes ("you young people have fancy names for them like cashflow holdings, but they're really just rental homes you didn't buy when either you or the market was being stupid") for example, in 1981 when the rates where 19, 20 and 21 (bank rates are always a bit higher than the Bank of Canada rate.   Thankfully, I was totally alert by then, when he said (after I asked him how he fared during those times), "no problem:  I wasn't stupid, so I didn't buy anything and try to apply for a mortgage when the rates were so high, plus I just sat on the homes I had when the rates were low.   I had some cash by then, so I bought a few home from people who went 'belly up' - I kid you not, those were his words - IN CASH while everyone else was scrounging for pennies and crying because they couldn't pay.   And you know what, young lady? (for a few seconds I was called a young lady- which was nice - my kids usually call me 'old bag' -lol),  'it was the best time for real estate'!   I still have those homes (because I've never sold anything, and now I'm a millionaire many times over."    Needless to say I was internally embarrased that I didn't quite listen to the first part of the conversation, but I have to say I was happy when he told me that he liked my style until he issued forth the punch line: "I think I know a bit about your holdings....been snooping around to see if you're for real....don't like those wiseguys selling courses who don't know what they're I just checked you out and, you are for real.   But that's not the best thing I like about you.  You know what that is?  Most of the time, you look like a bum!"    With that he laughed, clapped me on the back, showed me the twinkle in his eye and walked away!
It serves me right, I guess.   But still, - it was informative.   And I learned more in that few minutes than I have at any university class!

Psychology of Building Wealth Through Real Estate


Many people have tried and failed to build wealth through real estate.   The first question we should ask (even if it was us) is why?   What did we do wrong?   The truth be told:   those of us who have failed (including me at times), have not followed the equations; we've invested without thinking, without having a plan, without seeing the overall picture, without doing our homeowrk, etc.   Sometimes we were short-sighted with our vision and saw only what we wanted to see, but not what really was....
How can we change our thinking?   Here are a few tips:
  • Instead of saying "We can't afford it.", think:   "How can we afford it?"
  • Instead of thinking "We're poor", think:  "How can we be rich?"
  • Instead of thinking "It doesn't work!", think" "What can I do different to make it work?"
  • Instead of thinking "I don't have money this month again - to pay the bills.", think:   "How can I generate more cash monthly?"
  • Instead of being negative, forget about yesterday and think about today and tomorrow.
  • Read more and talk less, unless it is to ask someone who knows more than you do (because they've done it, not because they say it). 
  • Agree that you need to know more and find out what you're missing.
  • Get a real estate investment mentor.
  • Set a goal and then work backwords.
  • Write it down and pin it up somewhere where you'll see it everyday - except change the colour or backing of the paper weekly so you don't get used to it and treat it like something you can just walk by and ignore.
  • Join the clubs and take a few courses.
  • Intermingle with people you aspire to be... the value of networking cannot be underestimated.
  • Buy someone (who knows more than you) some lunch or dinner...then listen to them while they share with you their secrets of wealth attainment.  Cardinal rule:   don't pretend you know more than they do, instead value their knowledge and learn from it.
But, what can we actually do?   Here are a few tips:
The first and foremost:   inform yourself and then buy cashflow properties first.   When you want to do more, buy equity and value added properties to increase wealth exponentially.
Think of the three income types:   earned income, portfolio income (for which we are taxed) and passive income (through real estate for which we can claim expenses).   Which one do you depend on?   If you're like most of us, it's the earned income.   But what does that mean?   In clear terms, it means that we must work to earn.   If we want to earn more, we must work more.   And really, is that all we want to do?   Although I'm personally at odds with this (I absolutely LOVE doing the job I do - and I don't think I'd be able to be happy and spiritually satisfied if I didn't do the job I do), most people seem to be in a different boat.   They're working because they have to - and not liking it.   How can we switch it to passive income through real estate?   Here's the simple answer:   cash flow properties only.  If we want to work a little and gain a lot, then we can extend this to equity purchases and land improvement (building, renovating, etc.)  But if we don't want to work too much, here's the answer:  plain, simple and boring cash flow properties are the ticket to achieving wealth.
Here's another interesting psychological nugget from Guide to Investing on unsuccessful people:
"Unsuccessful people find their strengths and spend their lives making their strengths stronger, often ignoring their weaknesses, until one day their weaknesses cannot be ignored anymore.   Successful pepole find their weaknesses and make them into their strengths."  (p. 274) 
Which group do you want to belong to?

The R-Word: Recession!

Recession Definition
None of us has been living in a cave for the past few months, so we all know that the economic crisis in the US is in full swing.   Most of us also know, believe, respect the opinion of economists, or at minimum, recognize that history repeats with respect to most things; the translation advises us that we are about to be affected by the economic crisis faced by the US and a recession is either already occuring or imminent.
What exactly is a recession?   According to economic definitions, a recession is a downturn in the business cycle that occurs when the real gross national product (GNP)—the total output of goods and services produced population declines for two consecutive quarters, (1/4 year = 3 months, so 2 consecutive quarters is six months). Recessions are usually characterized by a general decrease in output, income, employment, and trade lasting from six months to a year. A more severe and long-lasting economic crisis is known as a depression.   Mostly because we are living in North America, our government somewhat protects us from dropping into an economic depression, which hasn't happened for decades - mostly due to government interventions and strategies. 
Recession History
A quick review of the history of the recession indicators from the turn of century start with a 1907 drop in the Dow Jones Industrial Average to the tune of 35% over a period of nine months!   If we remember anything from high school history, we know about the Stock Market Crash of 1929, when stock markets dipped 85% over three years, but made a dramatic drop over a few short months and for the first time affected global markets.   Then there was the 10 month recession in 1960-61.  Then the Iranian Revolution and the associated oil crisis and energy crisis of 1969-1970.   Some of us might remember the oil stock crash of 1973, when the evening news showed us line ups for gasoline in the US, oil prices quadrupling (due to OPEC changes) and heavy financial losses from Vietnam, with economists and financial analysts described the 40% drop in the two year period post 1973.   In the early 1980s, there was the recession of 1982 and 1983, caused by tight monetary policy in the US to control inflation and sharp correction to overproduction of the previous decade, which effectively was masked by inflation.  The national exuberance of the 80s (real estate in Canada as well as the S & L (Savings & Loan) exuberance) period probably led to the recession of the late 1980s.    Most of us can't help but forget the 'Black Monday' of  October 8th 1987, when stocks abruptly fell in one morning, but continued to fall over three weeks to an almost 82 points.   Then, spurred on by the tech stocks, the collapse of junnk bonds and a credit crunch, as well as the internet revolution, there was the serious 1990 recession that lasted from July 1990 through to March of 1991, but had after effects for some time after that; fortunately, government spending and other initiatives helped to stall the advent of an actual depression, although interest rates for residential mortgages climbed dramatically during this period.   The next recession began in March of 2001 and ended in November, with after effects until 2003 with the collapse of the Dot com Bubble.    Of course, we all remember the minor correction/contraction caused by the September 11th attacks and the accounting scandals.  However, since about 2002-2003, there has been no recession, with the economy in an upward swing that seemed everlasting - until now.
Update - July 2008

Another war and another credit crunch brings us to 2008.   Here we are, with a brooding economy south of the border (should we have known when our dollar crept up for the first time in three decades?).   As the real estate bubble continued to gain momentum, and more and more people were encouraged by the social morals of this day and age (purchase on credit and worry later - laden with debt) affected the judgement of the mortgage industry, and we continued to buy, buy, buy, and spend, spend, spend, we should have known it would end.   And now, it has.  

What are we to do?   That's the million dollar question.  If you're in real estate, you might now be reducing your risk and playing the RichDad "Where can I really find hard core cash flow properties?" routine....whatever your choice, you've surely reviewed your goals and modified your real estate decisions over the last six months, to accommodate for the changing financial arenas.
Update - March 2009
Well, here we are:  in a full out recession, which people are likening to the Great Depression of the Dirty Thirties!   With AIG needing a further bailout, with auto companies failing, and European banks at the brink of disaster, what are we to do?     I continue to say that this is likely one of the best times to buy we've seen in the last couple decades.  You could argue that we should wait a few more months to a year to make sure that we've hit the low, but regardless, moving forward, we should look at the situation as a situation of hope!   Why?   Because this is the type of situation they are talking about when they say "Buy Low, Sell High."   Don't run for cover or let the media and the economic uncertainty rule your decision making.   Break free!  

Cashflow, Cashflow, Cashflow!


I'd like to re-iterate the importance of doing the numbers on your prospective property purchase, as I've heard a few people saying they know it cashflows, but can't produce a spreadsheet to prove it.   In my opinion, and believe me, I've learned my lesson in this area, properties that seem like they would cashflow don't necessarily cashflow.  And that's fine, provided you're buying for equity (and that's your strategy) AND you can support the negative cash flow in your overall picture.  Notice that I've attempted to make an impact on readers by dramatically highlighting the key phrases.  


It's also important to consider the "BIG PICTURE".   To do that, the best suggestion I have is to buy a large piece of bristol board, (like you did in Grade six when you had to do that project on the Native Peoples of Canada) and plot it all out in boxes.   What do you have?   Colour code the cash flow properties one colour (blue - solid/boring, but cashflow productive) and the equity properties another colour (red - to signify hot/lucrative, but dangerous).   Make the bristoal board total picture match your goal.  If your goal is to purchase three cashflow properties by December, then you should include three empty boxes, which should 'bug you" as you look at them sitting empty every day - right beside your desk or hanging by your bedroom lamp, where you'll see it all the time.    This simple exercise will help you: identify your goals, write them down (in visual format), see what's missing visually, and constantly try to fill in the missing pieces.   It will keep you on track when you're looking at investments, because it'll make you think (while you're hearing people talk about great deals) - "does it fill in my empty box bugging me on the bristol board beside my desk?"

A Warning With A Lot of Notice


In one of my newsletters of the past, I included the following sentence: " Since everyone is saying that real estate is about to take a major plunge downwards..."  then I went on to warn people (like I'm warning myself) to maybe consider hiding in cashflow properties, and less in equity purchases.  Quickly thereafter, I received a chastizing email saying that my comments were terribly irresponsible; there was also a link to a CMHC article about the sellers' markets returning to a balanced state!   (In retrospect, what were they thinking to write an article like that when clearly the writing was on the wall?)   The email went on to say that my comments could become a self-fulfilling prophecy.   And, I do believe in those types of things as well.  I know, like the movie "The Secret" ( - if you haven't watched it, you've missed a great message) that our beliefs, ideas, and values become our reality because they drive our daily decisions.  
The only problem is that I don't believe I was prophesizing.   I think I was reflecting on the market changes in the US, which have historically been followed by market changes right here in Canada because of our major trade connection and inter-dependence.   Remember Pierre Elliot Trudeau's famous comment about the mouse and the elephant?   Who has greater power?   I  think it stands to reason that we are about to be impacted by the growing and impending recession in the US.   This is not a prophecy:  Michigan is in a disastrous condition and Florida is becoming known as the "Foreclosure State".  Several other states have seen huge decreases of real estate equity. 
At the same time, I believe that we will not drop dramatically and have as many problems as the US is having and is about to have, because we haven't been as aggressive as the US in the sub-prime mortgage market.  As Canadians, our ideas, beliefs, and values are somewhat less aggressive, and from a business perspective, when times are good, this may not been viewed as avant-guarde, (or old fashioned, as even the new 40 year amortization raises eyebrows here) but during times of recession, the offsetting value is that we will be somewhat insulated from the degree of negative drop. 
Although I'm no economics major, and certainly don't profess to be anybody important in this great debate, I have to wonder why the Bank Of Canada is even considering dropping the rates.   After all, I know a few basic things:  
  1. There is a huge sub-prime mortgage crisis occurring in the US; 
  2. The US will suffer from the 3 trillion + spent on the war effort for decades;
  3. We are succumbing more and more to the manufacturing prowess of the emerging markets;
  4. The trade interdependency between the US and Canada will affect us more than it will them, and lastly;
  5. The downturn in the economy already happening will negatively affect the Canadian economy because of its interdependency.   
So, I guess I agree that while some ideas can become self-fulfilling prophecies, other thoughts and ideas can be reflective of changing trends in the markets, and should be serving as warnings to us all.   Current investors need to be aware, in my opinion, more than ever before, that this is a time for cash flow purchases - not risky equity deals.  If the market continues to drop, your cash flow properties will protect you and provide more or less the same income, regardless of whether the value of the property goes higher or lower. 
This did prove to be a correct summation of the recessionary tendency of the time.  Now, there isn't anyone who wouldn't agree that 'hindsight is 20/20', but it wasn't too hard to see this one coming!

January 15, 2009

It's Amazing What People Will Do and How They Think!

Each time I check my website statistics, I am baffled by the contents!

I remember thinking it was strange initially.   Now, I no longer think it's strange, but I still think it's a product of our lifestyles, our thinking, our negative money patterns, and our ignorance.

I continue to be amazed at how many people do it?   What is it, you ask?

Here it is:   more people check my "Products" pages than my "Links" or "Resources" pages!   Why is that?

I mean, if you log onto a great website (such as  - lol), then why not use it to your benefit instead of looking for a way to have it negate some part of you?  If  people are looking more at my products pages for examples than my resources pages (not that I mind it, mind you), but this means they're immediately looking for what I sell (so they can buy), instead of what I offer (so they can learn, register information, and improve their lives).  

Now don't get me wrong:   everything I sell is worthwhile and it goes to a good cause; I use it to subsidize the kids at my school who can't afford to come.     So, it's going to a good cause, for sure.

But think about it:  this means that most people are FIRST thinking to buy something/spend money, than to learn about how to change their lives!

It's our thinking that's off-centre.   We should change.   And, we should spread the word about change.