Income for Life

How One Man Turned an $11-an-hour Job into $3 million

Posted by Rob Minton
Follow me on Twitter

Have you ever heard of Paul Navone? I read an article about him a little while ago, and his story seems relevant in these financial times. Let me share it:

Paul, who is nearing 80, never made more than $11 an hour at his job. However, last year he donated $2 million dollars to two schools. He also has about $1 million more saved for his retirement.

With his first job, he began saving money. At the age of 23, he purchased a duplex. He lived in one half and rented out the other half. He went on to purchase four more properties.

He used the income from his investment properties to cover his living expenses. In fact, here is what he said:

“I never spent any of my wages!”

Instead, he saved and invested 100% of his wages. The article stated “Navone invested in ‘a little bit of everything’ and stuck with a buy-and-hold strategy. He is partial to utility stocks, with their steady earnings and dividends (which he always reinvests).”

I found Paul’s story fascinating. He turned a job paying $23,000 a year into $3 million dollars. His process was exactly what I have been teaching in Income for Life. His first investments were real estate. Remember my article titled “The Velocity of Money?” He used the income from the real estate to cover his living expenses. He then invested his paycheck into the stock market. This was possible because he lived below his means. Had he spent his paycheck on toys, he would never have accumulated $3 million dollars.

Paul adhered to the buy-and-hold strategy with all of his investments, including his real estate. He saved and reinvested dividends. Isn’t this the same thing as trading one home for two?

It seems to me with the bargains out there now in both the real estate market, and the stock market, that now would be a pretty good time to start trying to duplicate what Paul did.

Something to think about, huh? 

An unfamiliar smell in the air

Maybe it's because it's finally that time of year here in Norheast Ohio, where I live. We haven't seen any snow for a few weeks; you can hear birds chirping outside; and last Friday was the official first day of spring. Whatever the reason, late last week and over the weekend, it seemed to me there was a faint scent in the air that we haven't experienced for quite some time.

The scent of optimism.

Have you gotten a whiff of it?

It must not be just me. Despite a down day last Friday, Wall Street had rallied over the previous 10 days or so. Buried a bit in the news last week was a report that housing starts had unexpectedly increased in February. Today we learned that sales of existing homes was on the rise, too. And for what it's worth, the announcement that the Treasury has a plan for buying banks' bad assets got Wall Street optimistic even further, the Dow rallying almost another 500 points today.

Now, I'm not saying there's a TON of reason to be optmistic -- whether the Treasury's plan works remains to be seen, for example -- and I'm not sure what we're catching a whiff of now will be sustained. I'm just saying that we might finally be seeing some signs of optimism. And optimism is what it's going to take to bring us out of this recession. Optimism on the part of investors. Optimism on the part of institutions that lend money. Optimism for the companies that hire workers. And optimism of consumers who buy things.

I saw a quote not long ago by Louis "Studs" Terkel, a Pulitzer-prize winning broadcaster, actor and author. Studs said:

"With optimism, you look upon the sunny side of things. People say, 'Studs, you're an optimist.' I never said I was an optimist. I have hope because what's the alternative to hope? Despair? If you have despair, you might as well put your head in the oven."

It seems to me there's been a lot of despair about the economy lately. And despair to me is useless. Like Studs said, you might as well put your head in the oven. Well, a nation of people with their heads in the oven is not going to recover from a recession.

Sticking your head in the oven isn't going to keep the unemployment rate from going up or fix the housing market. I'm not sure optimism alone will do those things, either, but it's a better alternative, isn't it?

Are you a battlefield warrior?

Posted by Rob Minton
Follow me on Twitter

Have you ever watched the movie "Troy?" To me, the movie turned out to be a dud, except for one particular scene. 

Early in the movie, Brad Pitt’s character, Achilles, is headed off to fight a life-or-death battle with an enormous warrior. A young boy was helping Achilles suit up for battle. The young boy had already seen the warrior Achilles was to fight, and he tells Achilles “I have seen the man you have to fight, and I would not want to fight him.”

Achilles responds:

“That is why no one will ever remember your name.”

The message delivered was that nobody respects or honors those who do not fight. You might be wondering how this relates to real estate investing or wealth building?

In my opinion, it relates on many levels because these things sometimes require you to fight. Those investors who choose not to fight lose massively. Here is what is lost when you decide to quit and not fight:

They lose self-confidence because deep down they know they quit.

They lose money on the actual investment.

They lose the opportunity to become financially free.

In fact, I would bet that most people who decide to quit do not realize the magnitude of what they have lost. They typically look at the short-term outcomes but completely miss the long-term ramifications as noted in No. 3 above.

Let’s go back to the movie again and change it a little bit. Let’s assume that the warrior is Donald Trump and instead of fighting a battle, he is considering investing in a large skyscraper that is half vacant. The little boy is shining his shoes when he tells Mr. Trump “I have seen the property you are considering investing in, and I wouldn’t want to buy that building.”

How do you think Trump would respond? The same way Achilles did. He would say:

“That is why you will never be wealthy.”

At some point in your life, you need to become a battlefield warrior. If you don’t, you will always be at the mercy of someone else. Not long ago, a partner of mine decided to leave our little partnership. I’m fine with him leaving the partnership, but I’m saddened because of the long-term ramifications of his decision. At some point, he needs to decide to fight.

Where are our Battlefield Warriors?

Why is it that when something goes wrong with an investment, most people complain, cry and say things like “This is too hard” or “This doesn’t work” or “This isn’t for me.”

It sometimes feels as though we are becoming a nation of sissies. Why are we so lazy and unwilling to fight for our financial future? Why is giving up the best choice? In Vince Lombardi’s famous speech he said:

“And in truth, I’ve never known a man worth his salt who in the long run, deep down in his heart, didn’t appreciate the grind, the discipline. There is something good in men that really yearns for discipline and the harsh reality of head-to-head combat."

This doesn’t seem to be the case anymore. It doesn’t seem as though many people want to face the harsh reality of head-to-head combat. Instead, they would rather give up and go home.  
Here is what author Carlos Castaneda said:

“To be a warrior is not a simple matter of wishing to be one. It is rather an endless struggle that will go on to the very last moment of our lives. Nobody is born a warrior, in exactly the same way that nobody is born an average man. We make ourselves into one or the other.”

Building wealth sometimes feels like you are going to war. Many times, things don’t go your way. You must become a warrior and fight when this happens.

I challenge you to read any biography of any billionaire and not find countless examples of when they fought. Go read about Andrew Carnegie, John D. Rockefeller, or Donald Trump. I promise you will see that they are all Battlefield Warriors.

Bill Gates had to fight a long and ugly anti-trust lawsuit — he prevailed.

Andrew Carnegie fought several strikes at his steel mills. In one of these strikes, several people were killed — he prevailed.

The “Donald” has fought many battles. In the 1980s he fought with tenants in a building he wanted to tear down. He ended up keeping the building and converting it into condos — he prevailed. (I’m not even going to mention the battle with Rosie O'Donnell…)

John D. Rockefeller battled 20 different government lawsuits against Standard Oil. He lost the lawsuit and was forced to dismantle his company. In the process his wealth escalated further.

Oprah Winfrey had a major battle with the dairy farmers over her comments on mad cow disease — she prevailed.

I could go on and on with billionaire battles, the point being that battling is part of wealth-building. If you are afraid to battle, don’t invest in real estate.

You don’t have to be a warrior to invest in a mutual fund. Simply mail your check to them and kick back and relax. Just remember, you have to keep saving and saving your money until you’re 83-and-a-half so that you can retire some day.

It’s your choice; would you rather be Achilles, or the young boy who nobody will ever remember?

The Perfect Storm

Posted by Preston Letts
Follow me on Twitter

I am sure many of you have seen the 2000 movie “The Perfect Storm,” starring George Clooney and Mark Wahlberg. The movie, in which Clooney and Wahlberg play a fishing boat captain and crew member, depicts a storm that their particular boat goes through.  In the movie, the storm is portrayed as one of the worst storms ever off the coast of Massachusetts, where two large storms run into the jet stream to create The Perfect Storm. 

Well, the reason I bring up this movie, and how this storm was created, is to portray the Perfect Storm that we are all currently living through. Now, you might ask what our current perfect storm is. Well, it is our current real estate market, and especially for those savvy investors out there who can see this opportunity.

You see, we are seeing a three-part cause-and-effect relationship, which is creating the ultimate perfect storm to be investing now in our real estate market.

No.1:  Properties can be bought for absolutely incredible values. Many of the Chicago Income for Life members I work with are able to purchase properties at 30% to 40 % below value.

No. 2: Interest Rates are at 50-year lows.  I was talking to an investor about the loan he is getting for an upcoming purchase, and the rate he was quoted was right around 6%. With interest rates this low, investor’s carrying costs have gone down by $100 to $200 a month per property.

No. 3: The demand in our rental market for nice single-family homes in nice areas, available on a Rent to Own program is skyrocketing.  Because the restrictions to purchase property today are significantly stricter, many people are being closed out of home ownership and need an alternative to create ownership.

When we take the three factors into account, what is created is what we call today our modern “Perfect Storm.” Today as investors, we can buy properties at discounts we have never seen, we get interest rates that have not been around for 50 years, and the demand for the properties that we have is absolutely out of control. 

The big question is, will you take advantage of the life altering investments, or will sit by idle and watch others begin to create their fortunes before your very eyes.

Preston Letts
Income for Life, Chicago

Great Foreclosure Buying Strategy

In today's Cleveland (Ohio) Plain Dealer, there is an article on foreclosure sales that's worth reading. It says that in Cleveland and East Cleveland in 2008, there were 1,400 homes that sold for $1,000 or less ... and 133 of them for just one dollar!

This article appeared two days after an Associated Press article detailed how a little further north, in Detroit, investors from as far away as the United Kingdom and Australia are buying Detroit houses in bulk.

These are seasoned investors, buying sometimes hundreds of homes at a time -- sight unseen. That might seem risky, but buying in bulk actually reduces risk. One investor, James Barnes, in the Plain Dealer's article says:

"Some of them ain't worth having. I can't always choose which house will work and which won't."

He said he'll sometimes buy a house that he later finds is hardly standing. He ends up donating those to nonprofit groups that repair or demolish them.

The good ones sell as fixer-uppers to home buyers with poor credit. Barnes or one of his investment partners clear any back taxes -- which he says average around $3,000 -- then might sell the property for around $30,000.

If this investor buys 100 homes and averages $26,000 per home on the good ones, he can afford to take a $4,000 hit on a few of the dogs he gets stuck with, can't he?

The most interesting part of this investor's strategy is that at those purchase prices, he and his partners can pay cash for the homes, which allows him to sell to buyers and provide them the financing himself. He usually charges a 10% interest rate, according to the article, for a 20-year mortgage. This strategy allows him to capitalize on his purchase in several ways.

1. By being the "bank," he removes the challenge of buyers having to qualify with a lender for a mortgage. This massively increases his pool of potential buyers, which allows him to sell the homes faster. Selling homes quickly is the major challenge for wholesalers/rehabbers.

2. By marketing them as "fixer-uppers," he sells them to buyers who do the repairs themselves. If they default on their loan and he has to take back possession, it should be in better shape than when he bought it.

3. By financing the purchases himself, he makes additional income that is completely passive. The interest paid by a buyer at 10% over 20 years on a $30,000 mortgage is $39,481. That is more than the purchase price of the house!

In most real estate transactions, it pays to be either the high-equity seller or the bank. Why not be both?

Of course, we don't all have the ability to buy 100 houses for cash at one time, like the investor in the above scenario. But couldn't we combine another strategy with a version of his?

What if you were to buy a house, roll the repair costs into your mortgage, and rent it out for as long as it takes to pay it off? At discounted prices, you could easily find homes that the rent amounts could pay off in 6 to 8 years, a strategy I outlined in March's Income for Life Members-Only newsletter.

Once the house is paid off, then you could be the bank, sell the house, and pocket the interest the way the investor in the article does.  

The article states that this investor and his partners bought more than 8,000 foreclosure properties in the United States last year. To me, that says their strategy must be working.

Struggles are preparations

I came across a cartoon on the Internet today that showed a group of people walking along, carrying crosses. Everybody's burden was the same, but one character in the cartoon stopped and cut his cross down a bit, in order to make it a little easier to carry.

He walked a little further along, his burden now a little smaller than everybody else's. This still wasn't good enough, however.

So he complained again about his heavy burden, and he again stopped to whittle it down and make it lighter. He picked it back up and kept walking with the others, now carrying the lightest burden and struggling less than everyone else.

Well, the group of people eventually came to the edge of a cliff. The other side was not too far, so everybody stretched their crosses out over the canyon and walked safely to the other side.

The problem for the guy who was carrying the lightest burden was that all his trimming down to make it lighter made it too short to use as a bridge. He was stuck. His progress was stopped.

The obvious lesson here is that the heavy burdens these people struggled with gave them the tools to make it through an obstacle down the road. Their struggles throughout one part of their journey prepared them for an important part later.

Do you view any struggles you might have now as preparation for what you might encounter in the future?

I can see how somebody who's constantly looking for the easy way out of things now will be unprepared for some bigger obstacle down the road. Our struggles now are our preparation for what lies ahead.

The old saying goes "What doesn't kill you makes you stronger." It can also be said that what doesn't beat you now will better prepare you for later.

It's good to remind ourselves of that from time to time.

What are your criteria for evaluating opportunity?

If you are the resourceful type, you’re probably now seeing opportunities that others don't see in this recession. New business opportunities. New investing opportunities. Maybe new personal or career development opportunities. This is great! The problem with being so resourceful is that you might also be chasing opportunities that you shouldn’t be chasing.

I have noticed this during my private consulting meetings with clients. I notice that people have the tendency to chase multiple opportunities at the same time. In almost every instance of this, I recommend that the person stop chasing lower-value opportunities and reinvest their time and resources into other higher-value opportunities.

So how do you determine what opportunities to pursue? This is a million-dollar question, isn’t it?

I would suggest setting up your own decision-making criteria. Apply your criteria with every opportunity you consider. Your criteria will help you quickly focus on the best opportunities and eliminate others. Here are a few things for you to think about in creating your “opportunity” criteria.

1. Does this opportunity provide any synergy for you? Does it directly relate to something else you're already doing? Synergy occurs when one opportunity feeds the other. Disney is fantastic about using Synergy in their businesses. One business feeds the other. Disney started with kids movies. Then they moved to theme parks based around characters in the movies. Next, they build resorts for theme park visitors. Notice they didn’t go from kids movies to auto manufacturing? Each new opportunity they pursue can be promoted to the same customers. Had they chosen to go into auto manufacturing, they would have to start from ground zero without any momentum.

2. Does the opportunity give you leverage? Can attractive outcomes be obtained from little inputs? For example, I have been asked to provide consulting on many occasions. I could build a consulting business, however, there is zero leverage in consulting. Consulting isn’t a business. It’s a job in which you trade time for money. I would rather work once and get paid over and over again. See the leverage?

3. Do you have control over the opportunity? Most people don’t want control. They would rather be passive and leave the decision-making process and responsibilities up to others. Not me. I want control. I don’t like to be dependent upon anyone or anything. I’ll pass on opportunities if I don’t have control over them.

4. How much do you have to invest and what is the expected return? Your investment includes both your time and your money. Does the opportunity provide an attractive return based on the total required investment? Is there another opportunity that meets your criteria that would provide an overall higher return? One Income for Life member I met with had just made $12,000 on one opportunity with about 15 hours of work. However, he was chasing a new opportunity that provided significantly less return with more risk. I suggested he spend more time on the $12,000 opportunity instead. Be honest when applying this criteria.

5. Am I a fan of the product or service myself? Before Income for Life, I tried to sell products or services that I wasn’t using. I struggled. I now only recommend/sell things that I’m using myself. I always go first. This works much better for me.

I use the four criteria above when considering opportunity. This hasn’t always been the case. I’ve chased many opportunities and made some big mistakes. After each mistake, I tried to learn from it. I also tried to determine how to avoid making the same mistake again. This led me to creating my own little system for evaluating opportunity. Don’t follow my “opportunity” criteria blindly. Use it to create your own “opportunity” criteria. The point is to have criteria. Don’t simply chase every opportunity that comes your way.