Money Mindset

Money Mindset discusses the experiences and opinions of a middle-aged professional on the topic of money, including: financial planners, investment experiences, part-time income sources, real estate investment and private sales, web site income opportunities, changing professions, home office organization, money education for kids, and many other subjects I have experienced first hand or even just thought about.

Tuesday, January 30, 2007

My Top 3 Lessons Learned from Real Estate Investing

I was recently asked, "What are the top 3 things you have learned from investing in Real Estate". It caught me a bit off guard. But after thinking it through, here's what I came up with:

1) Location is still key. There's usually no point investing in a beautiful property, with all the amenities, even if it has great cashflow if the location is bad. If you aren't looking at what the growth potential, or the downside potential, is for the area, you could end up being very disappointed. It's pretty easy, once you know what to look for to pick an area of your city that is likely to beat the city's average growth rate over the next 5 or 10 years. Also, if you invest in any renovations, they can be worth a) the cost of materials in a flat market b) less than the cost of the materials in an area that is in decline, or has a dump about to expand down the street c) more than the cost of materials in an area where new development is happening and transportation links are being expanded nearby.

2) Nothing is as easy as the infomercial gurus say it is. In principle, you can simplify the steps to "analyze, buy low, fixup, sell high", but there are a lot of ethical and time-management decisions to be made along the way that will swamp anyone who doesn't have good social skills, self-discipline and work ethics, and a great deal of persistence.

3) You have to spend a lot of time learning the various aspects of Real Estate Investing to bite off a chunk that you can work with. If you spread yourself too thing trying to make every potential deal work all by yourself, you will burn out (and run out of money fast). Once you know the economic model and the type of people who complement your abilities, you can focus on becoming an expert a a "part" of the real estate market that you have a good chance of succeeding in.

There's no silver-bullet, unless someone hands you a lot of resources and time.

- Scott

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Wednesday, January 24, 2007

Keeping an Eye on Your Money!

Just a note that I have had some fraud attempts made on me personally over the past few months. They are easy to miss if you are busy.

1) A credit card I had not used in a year suddenly had a transaction on it. I wouldn't have noticed for quite a while except that I try to download my transactions and categorize them for budget tracking purposes every week or so.

2) In a squash club in a small town, I accidentally brought in my wallet which was in the rear pocket of my jeans. When I came out of the game to get dressed, the wallet was in a pocket I never use. Fortunately the only thing missing was $25. But now I have to watch my account balances to make sure nobody is using my credit card numbers.

I find Quicken to be a good way to force yourself to look at balances every few days. But you have to keep your eyes open all the time for strange occurences that could be related to fraud, social engineering or phishing.

- Scott

Tuesday, January 23, 2007

Starting a Tipping Point

Did you ever wonder how a social trend or fad starts? Wouldn't it be cool to start one yourself?

I recently listened to the audio CD set of the book "The Tipping Point" by Malcolm Gladwell. It's an interesting model that tells you what kinds of people are usually involved in what he calls a "social epidemic". It has close parallels to epidemic behaviours of illnesses.

Examples include crime waves in NYC, Hush-Puppies' resurgence, the cult of the "Ya-Ya Sisterhood" book, etc.

I recommend it. You may even learn who you need to network with, and what kind of message to spread that could promote your idea or product.

- Scott

Friday, January 19, 2007

Four Basic Reasons to Invest in Real Estate

Every time I see someone advocating that "Stocks are clearly better to hold than real estate", I have a reflex reaction in my mind that says, "If they thought about it in a different way, they could be much wealthier, with a much more secure position at any given time."

For example, in Ramit Sethi's blog "I Will Teach You to be Rich", I see a comment from a poster saying they think stocks are better to hold, but that the proceeds from real estate could be put into stocks.

One of the best ways I've seen it put is on the web site for Flagstone Properties, which summarizes Dolf de Roos' 4 questions to ask yourself when comparing Real Estate to stock based investments.

Basically, it explains why:
1) Real Estate is secure. Banks will lend you money to buy Real Estate, but not stocks or mutual funds
2) Gains in Real Estate are multiplied when you borrow on a mortgage.
3) The value of Real Estate can be manipulated by the investor much easier than stocks.
4) You can buy Real Estate at a bargain because of market inefficiency.

There are other good reasons, such as using home equity loans for downpayments means you don't need to save up the cash (ROI is again multiplied), and the interest costs on mortgages are tax deductable (they aren't in Canada for your principle residence, but they are for income properties).

To me, its a no-brainer. Your mileage may differ, but if I do my due diligence on the property and the people I use to manage, maintain, buy and sell, then I can't see a more secure or profitable investment.

- Scott

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Tuesday, January 16, 2007

Budgeting "Apples to Apples"

It's very difficult to keep a budget in your head when you are busy with your job, and your spouse is working, and you have kids doing things throughout the weeks and months. I used to think I could keep it straight in my head. But what I've found is that while you can save a bit of money by paying things as they come up, it ends up costing in terms of "stress" and unexpected hits on your bank account.

Recently, I've decided to move everything I can to monthly, and if possible, automatic payments. Where that's not possible, I try to put money into a separate account, automatically on a monthly basis to cover things like taxes and major expenses I know I'm going to have.

The link above has a table to work out monthly expenses. I find it is better for me to take the hit on interest and smooth out my cashflow.

- Scott

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Monday, January 15, 2007

Eat That Frog!

I just wanted to share a small piece of editorial comment on a book by Brian Tracy, the famous speaker and success coach.

For Christmas, I asked for the audio book version of Brian's book "Eat That Frog!". It was just what I needed to refocus my energy and priorities on my own personal goals. It is a great summary of many useful time management techniques you can put to use without learning a new time management system. I've studied several in my life, but was not usually able to make them work for very long.

As I look back, the best time management I was able to use for an extended period was called "Ascend", which was from Franklin, which eventuall became "Franklin Covey". But the key was in how it made you prioritize tasks by "A, B, C, D and E" with subpriorities. This is just one of the techniques Brian talks about. There are many others.

The most important point is that "There's never enough time to do everything you need to do in a day, but there's always enough time to do what's important to your life and career". You just have to think consciously at the beginning of each day and decide what is the biggest, most important task that you could be working on to get you closer to your goals. Then, work on that task only, since it is THE most important thing, working on anything else is a waste of time.

For another Blog on personal success and goals, check out Success Begins Today.

It's a great audio book, and there's a paper version. I highly recommend it.

I think this is another turning point in my own road to achieving my goals.

Let me know if you have any other major turning points yourself.

- Scott

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