Earning Double Digit Returns

(By Kevin)

The wealthiest people in the world understand how to make their money work hard for them.  Banks and other financial institutions understand how to make their money work hard for them.  So why don't normal Joe's or Judy's understand these principles?  Because they aren't taught in our public schools.  I think these principles should be taught in school, probably at the middle school level.

In recent years the returns on savings accounts and even retirement accounts have been dismal, less than the rate of inflation.  Clearly if your savings are earning less than the rate of true inflation then you are losing purchasing power.  In other words you are actually losing money.  So how do you fix that?

Of course one of the ways we recommend is to invest in real estate.  We know of a number of people, including us, who have put together offerings that allow investors to join us in purchasing and then reaping the rewards of larger real estate investments.  These rewards are usually projected to be double digit returns however they are also usually limited to "Accredited Investors."

Accredited Investors are defined by the Security and Exchange commission to be:

1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

When we are talking about individuals, it is items 6 and 7 above that are most relevant.  As you can see this locks a lot of people out of making money through one of these offerings.  So what is a smaller investor to do?

We recommend you consider manufactured housing or the more common but erroneous term mobile homes.  It is an erroneous term because they are not very mobile.  Let's take a look at a real life sample opportunity.

You buy a previously owned manufactured home for $10,000 and put another $5,000 moving it into a park, skirting it, fixing it up, and selling it.  Your total investment is $15,000.  Then you sell it and owner finance it to someone who really needs a home.

Let's assume you sell it for $22,000 at 11% interest.  Yes 11% interest, usually if the monthly payments fit their budget the folks who buy these homes are not that concerned with the interest rate and since these are generally people with 600-650 credit scores the higher interest rate is justified.  Let's also assume this home is in a park with $200 per month lot rents.  Lot rents will vary depending on where the manufactured housing community is located.

Here is what this opportunity would look like given two different monthly payments.  We used two different monthly payments because you want to adjust the payments to the buyer's ability to pay.  You want them to be successful.

The first option has a $450 a month total payment with $200 going to the lot rent and $250 going to the house loan.  This will take approximately 15 years to pay off.  Add just another $50 to the monthly cost and the pay off period drops to 10 years and your annualized ROI goes up.  In either case the annualized ROI is a lot better than your local bank is offering.

Now let's suppose you didn't want to sell but want to be a landlord.  Then the initial investment is the same but now you are responsible for the repairs and management so let's assume a huge 50% cost to the landlord to cover items such as repairs, vacancy, insurance, taxes, and management fees.  Even with the lower rental income of $250 per month, you would receive half of that, $125 per month, or $1,500 per year in cash flow.  This equates to 10% return on your $15,000 investment.

In either case, you have achieved a double digit return on your investment.  We prefer selling the home because then we don't have to deal with repairs and owners will generally take better care of the home.

Another way to receive a nice return is to loan the money to a real estate investor who you trust.  Real estate investors routinely pay 8 - 12% to borrow money to get projects done.

Are risks associated with this kind of investing?  The simple answer is yes.  Generally the higher the potential reward the greater the risks.  When selling a home or renting a home there is always the risk that the buyers or renters won't pay and/or cause damage to the home.  You mitigate this by carefully screening your buyers/renters.  When loaning money, the risk is it won't be paid back.  You mitigate this by knowing who you are lending to and securing the loan with an asset worth at least as much as the loan itself.

The great news is that you can do this kind of investment with your IRA or other retirement funds if they are in the right kind of self-directed account.

If you want to know more about this type of investing please contact us. 

Greatness Within You!

We've decided to share one of these Maxwell Minutes that we really like with our readers each month.  Even if you've already seen it repetition is an important part of learning.  We hope you enjoy them.

John Maxwell and Les Brown discuss Greatness in this minute with Maxwell segment, watch it here.  

Industry News  

(by Kevin)

National Manufactured Housing Report   

Marcus & Millichap reports that the demand for manufactured housing rose dramatically through the recession, and performance gains continue to build momentum throughout the recovery. Improvements in occupancies and rents have been broad-based, supporting rising performance trends that have begun to draw a wide range of investors to this asset class.   Click here to access the report.

Laughs and Interesting Stuff 

(Kevin and Mary Jane)  

It Snows A Lot In Minneapolis

On a bitterly cold winter's morning a husband and wife in Minneapolis were listening to the radio during breakfast.  They heard the announcer say, "We are going to have 8 to 10 inches of snow today.  You must park your car on the even-numbered side of the street, so the snowplows can get through conveniently".

So the good wife went out and moved her car as instructed.

A week later while they are eating breakfast again, the radio announcer said, "We are expecting 10 to 12 inches of snow today.  You must park your car on the odd-numbered side of the street, so the snowplows can get through."

The good wife went out and moved her car again.

The next week they are again having breakfast when the radio announcer says, "We are expecting 12 to 14 inches of snow today.  You must park......."

Then the power went off.

The good wife was very upset, and with a worried look on her face she said, "I don't know what to do.  Which side of the street do I need to park on so the snowplows can get through?"

Then, with all the love and understanding in his voice that men who are married to blondes always exhibit, the husband replied, "Honey, why don't you just leave the car in the garage this time?"

Married 60 Years

The couple was 85 years old and had been married for sixty years.  Though they were far from rich, they managed to get by because they watched their pennies.

Though not young, they were both in very good health, largely due to the wife's insistence on healthy foods and exercise for the last decade.

One day, their good health didn't help when they went on a rare vacation and their plane crashed, sending them off to Heaven.

They reached the pearly gates, and St. Peter escorted them inside.  He took them to a beautiful mansion, furnished in gold and fine silks, with a fully stocked kitchen and a waterfall in the master bath.  A maid could be seen hanging their favorite clothes in the closet.

They gasped in astonishment when he said, "Welcome to Heaven.  This will be your home now."

The old man asked Peter how much all this was going to cost. "Why, nothing," Peter replied, "Remember, this is your reward in Heaven."

The old man looked out the window and right there he saw a championship golf course, finer and more beautiful than any ever built on Earth.

"What are the greens fees?", grumbled the old man.

"This is heaven," St. Peter replied. "You can play for free, every day."

Next they went to the clubhouse and saw the lavish buffet lunch, with every imaginable cuisine laid out before them, from seafood to steaks to exotic deserts, free flowing beverages.

"Don't even ask," said St. Peter to the man.  This is Heaven, it is all free for you to enjoy."

The old man looked around and glanced nervously at his wife.

"Well, where are the low fat and low cholesterol foods and the decaffeinated tea?", he asked.

That's the best part," St. Peter replied. "You can eat and drink as much as you like of whatever you like and you will never get fat or sick.  This is Heaven!"

The old man pushed, "No gym to work out at?"

"Not unless you want to," was the answer.

"No testing my sugar or blood pressure or..."

"Never again.  All you do here is enjoy yourself."

 

Keep On Smiling!

(so people will wonder what your up to AND its contagious)