Mr.
Breaking the mindset of poverty and our first example of a good
real-estate deal... By Property Boys
(This article is written in an unformal style, Jason Tee as
co-author.)
Being a millionaire implies that you have sufficient funds to
sustain your current lifestyle, for the rest of your earthly
existence, without having to lift a finger.
It all began over two glasses of Seidelberg estate red wine,
Merlot. While sitting in a rented apartment, in an upper class
suburb in Pretoria the capital of South Africa; two recently
graduated chemical engineers pondering how they could relieve
themselves of their financial burdens. We were struck by an
amazing epiphany after reading the first two books of "Rich Dad
Poor Dad" series (of Robert Kiyosaki) several times.
Reaching financial freedom is achieved by cumulative growth in
numerous small adventures. The idea is based on moving your
money fast, and not to stick to the original idea of leaving
your money in long term investments. If you leave your money in
long term investments, you will only allow the bank to make the
fast money with your money. This means that you are working for
the bank, but we contemplated a method of being the bank. By
this we mean, that we don't work for our money, but our money
works for us and no one else. The bank is an institute where you
can access the required capital for your investment or business
ventures. Your money in the bank only just outperforms
inflation, but if you account for the banking charges it
probably performs worse than inflation. So money in the bank is
money wasted.
You don't need a formal education to achieve financial freedom.
Virgen Active's Richard Brandson is a popular example of a grade
9 scholar acquiring a fortune by taking calculated risks. He
started out as a paper delivering boy and realised the potential
that is out there. We are by no means degrading tertiary
institutions qualifications, because this could actually be a
stepping stone to give you a better credit status at banks. Also
while you are working, you can start your own business part time
with much less risk by using the skills you acquired with your
formal education, while being paid by your employer. Thus you
are basically educating yourself to become a millionaire on your
employer's revenue, thus getting value for money while being in
the rat race. But please do not get into the position where you
get so comfortable earning a salary and only enriching your
employer instead of looking after yourself in the first place.
But the only financial education you require is to understand
how inflation and interest rates influence the time value of
money. The time value of money can easily be explained by the
following example: Say you have a hundred Dollars in your pocket
today; this money will be worth more the longer you can use it
to pay yourself rather than paying your creditors first. Thus
you should be the banker and not pay the bank. If you paid your
creditor first, then they can use your money to enrich
themselves. Thus you should negotiate the terms of your contract
to pay the creditors last and yourself first, because then you
can keep your rightful interest on your money. This is the same
principle which Pick and Pay follows, they organize to pay their
creditors only after 3 months, but they receive the cash for
your goods immediately, thus they can receive the 3 months of
interest on your money.
Acquiring a fortune is accomplishing many things in life. It is
a school of learning, and this means having failures, but having
the courage to stick by your convictions and to take the leap of
faith to do what others fear. Hunger and poverty is a reality,
but we believe that we destined for more. By this we mean that
you can achieve a more wealthy reality for yourself by just
being confident and equip yourself to financial freedom. An
integral part of this is to believe in yourself and not to be
unmotivated by the pessimists who have not recovered from their
failures. We all make mistakes, but it is how we react to them
that makes us failures or successful. Thus if you make a
stumbling block your stepping stone, financial freedom is in
your grasp.
Why is it that certain epiphanies are only reached while being
in an intoxicating state or sitting on a toilette? We are
conditioned to worry and be captives of unnecessary pressure the
world puts on us to keep up with the Jones's. They are so last
season anyway, so why don't you just become the new mister Jones
that everyone wants to be, being rich...stinky rich. Now by this
arbitrary comparison we are simply referring to the fact that
any stinky rich individual is actually drinking the same $3
juice that you are. You are not anything less in person, but you
must realise that the system should not play you but you must
use the rules of the system in your own advantage to play the
system.
For instance why would you spend a $100 000 on real-estate when
you could spend $1000 on a property which have enormous
potential growth in the near future? Usually the $100 000 estate
will be in a developed area, but the cheaper $1000 estate will
be in an undeveloped area. Do not be apathetic towards less
expensive investments, because if it makes absolute financial
sense you can invest in at least 5 properties in the same area
for only +- $5 000. This we actually used as our first step to
ultimate financial freedom. We decided to invest into 4
properties for app. $1000 a property. These properties made
financial sense, because they were situated in a small town
which was going to have substantial growth potential in the near
future. This was due to the fact that it is situated on or near
to a large body of water where fishing and boat trips are
possible and a golf course where going to be build within 4
months time. Also it is situated close to another town, where a
large chemical engineering factory is situated (but out of
pollution and eyesight range), thus providing a close property
for employees of this large corporate facility. Another
interesting fact was that on an auction of some properties in
that town, we found that the properties actually went for double
the price we could get from the agent of that town. Thus, after
the auction we went straight to the agent to put in our offers
for these properties that were at half the estimated figurative
price of the auctioned properties. This insured a calculated
increase in money for these properties within a relative short
period of time. Thus, allowing us to sell of the properties
immediately for more than double the purchase price. While the
bank financed the properties for us, we used the banks money to
enrich us. Remember now, that for a property bank loan the
down-payment is only 10%, thus we bought these properties for
the approximate down-payment of only $500. This means we
purchased a property for $100 worth $1 000, get it! Thus, we
were thinking like the bank and not paying the bank. Remember
real-estate is just one investment vehicle.
Tip: Always buy from a motivated seller, because you make the
most money on your investment when you purchase and not when you
sell!
Obviously we paid off the mortgage and 10% interest on the
loans, but the sole purpose of these smaller real-estate
investments was to create capital. Now with more cash in our
pockets we could invest into larger opportunities and
real-estate which now generates us a positive passive income.
How, you ask? Well it is simple; use other people's money to
generate your passive income, by using the same basic principles
already discussed. Be the bank! With more capital, we could give
a bigger down-payment which equals a larger bank loan...and
bigger investment. With the money ($100 x 4 = $400) we started
investing with, plus the extra (+-$1000 x 4 = $4 000) we maid
with our previous smaller investments our total down-payment
currency amounted to $4 400. Now if you divide this amount by
10% then you get $44 000 of investment power we obtained in a
relatively short period of time. This meant that we could now
invest into rental apartments which in turn generated a passive
income for us. Thus, we didn't have to rely on the value of the
property to increase substantially in order to make the business
deal as feasible as our previous smaller investments. Now we
started making money immediately with our new investment and did
not have to wait for good markets in order to sell the property
to gain capital, and so we started our journey out of financial
bondage and into the fast lane where only the rich and powerful
dare to tread.
In hindsight, these smaller properties exceeded all
expectancies. This was because everyone is hungry to get into
the real-estate business, but these were some of the last
affordable starter properties. Within 6 months these properties
where valued at $10 000 - $20 000 depending on their individual
locations in town! Thus, this equals $40 000 - $80 000 of pure
investment power after we sold the properties after a year. Now,
if you use this as the deposit for your next investment then
your capital investment capability increase to $400 000 - $800
000 within only one year after starting with only $400 deposit
and total investment of one years payments.
And so can you! The important thing is not to have an
unbelievable deal, but to start. If you start taking action, you
will gain priceless experience which in turn will allow you to
see all the wonderful opportunities which where there all the
time surrounding you. You only learn by actually taking the risk
to do something, the only sure way to eventual success.
Go to auctions, read investment articles on the internet and
evaluate the growth of properties or shares as they grow on the
internet and test it against your own calculation. Do this even
for the multi-million dollar opportunities, so that when you
have accumulated enough know how and resources you will be able
to act fast. If I can do this, then so can you!
So don't wait, start today! Join me at: Property Boys