Brian Tracy! Get Rich Your Way!
3. Invest to success
“There comes a time when great opportunities come your way;
when they come you have to be able to take advantage of them.” – Sam Walton
If you’re really passionate about getting rich your way,
now is the time to start doing something about it.
A financial plan is a tool you use to get you started from
where you are now
until you have the money you want.
In this chapter you will learn different investment strategies
and concepts you must know
if you want to build a fortune and retire richly.
“The bigger the solution, the bigger the paycheck,” ― Steve Siebold
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SMALL FINANCIAL PLANNING TOOL
The three steps of financial planning are savings deposits,
insurance premiums,
and investment capital.
We start with savings
and insurance plans.
How much money do you need?
The basic rule regarding savings deposits is
that you must have enough money
to cover 3 to 6 months of expenses
that must be set aside for short-term investments.
A short-term investment is an investment
you can get cash out of quickly,
such as,
a savings account,
a certificate of deposit,
or even some mutual funds.
Adequate insurance
You need proper life insurance
to protect your loved ones should something happen to you.
In addition, you’ll need fire insurance,
liability insurance,
medical insurance,
and insurance for any possible financial emergencies
that you can’t write a check to cover.
Life insurance must come first.
You should calculate how much money your family will need
to maintain a stable standard of living if you die unexpectedly.
Then you buy full life insurance so that the interest
from the life insurance process will be enough for your family to live on.
For example, if your family needs $50,000 per year
and the investment process can yield a 10% annual return,
then you would purchase a $500,000 life insurance policy
for your spouse and family who are the beneficiaries,
irrevocable trust ownership.
When you’re in your 20s to 30s,
the best use of life insurance is term insurance.
Term insurance is offered on an annual basis,
since it has no cumulative cash value,
it is relatively inexpensive if you are in good health.
When you reach the age of 40 to 50,
you need life insurance.
Whole life insurance is more expensive,
but it has a cumulative cash value
and this policy is never canceled once issued
as long as you keep the policy valid continuously (premium is payable)
insurance on time/within the grace period).
With lifetime insurance,
your property will receive the full face value
of the policy if an insured event happens to you.
You should consult with your insurance agent
for a complete understanding of your insurance needs
and the different options you can apply,
but you should be fully insured equivalent
to the basic financing for your life.
Investment variables
The third stage of the financial planning tool is capital investment.
The three variables in any investment are safety,
liquidity,
and growth.
There is always an exchange between these three factors.
If the investment capital has a high degree of safety,
for example, government bonds,
it usually has a low growth potential.
If the investment capital is highly liquid,
for example,
a savings account,
it usually has a low interest rate.
If an investment with a high growth potential,
for example,
an investment in a start-up business,
is typically more risky than a savings account
or money market investment fund,
it is less likely to turn around to transfer
and very difficult to recover capital quickly.
The type of investment that has the best chance of being safe,
long-term, increasing in face value is usually a low-volatility investment,
such as,
profitable real estate.
This type of investment usually takes a longer time to buy and sell.
Each person must choose a combination of investments
that he or she is comfortable with,
considering the level of risk involved.
That is something you have to decide for yourself.
Financial experts often refer to this as the “risk quotient”.
The level of risk you can
and should adjust
as you age and as your financial situation changes.
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DIRECTIONS OF THE RICH INVEST
Wealthy Americans,
including self-made millionaires,
mostly put their money in these five places:
1. Invest in their own business.
2. Profitable real estate investment.
3. Keep the land waiting for development.
4. Short-term investment.
5. Investing in stocks and bonds.
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INVEST IN YOUR OWN BUSINESS
Most of the wealthy and self-made millionaires achieved their financial success
by starting their own businesses.
For this reason,
most wealthy people often leave their money in their own companies.
In addition, the majority of senior executives
at parent companies often have their net worth
in the securities of the companies they manage.
In a recent survey conducted in New York,
a representative section of the business world,
professors,
journalists,
philosophers, and senior executives were asked
what they thought the best place would be
to invest the $100,000 that a person accumulates from their business
or from the work they do.
The most commonly chosen answer,
which is quite surprising,
is “The best place to invest $100,000 is to withdraw for yourself or your business,
even more effectively than what you did to earn that money in the first place.”
Of all the considerations about how you deploy your finances,
the most important are the level of risk
and the likelihood of a sure return.
If you have less than $100,000 to invest,
in many cases the best place for you
is to invest your money back into developing your skills,
you will get better results than you did.
If you make that money in your business,
then the best place to invest may be to go back to that business
or the business in which you are most proficient and highly specialized.
Ask yourself if what you’re doing today is getting you closer
to where you want to be tomorrow. ― Paulo Coelho
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INVEST IN REAL ESTATE PROFIT
Another major investment vehicle for wealthy Americans is real estate.
This property includes rental homes,
office buildings,
apartments,
industrial parks,
shopping malls,
and other rental properties that generate a steady stream of income.
Thousands of Americans have made their fortunes
by starting their own successful businesses,
and then holding on to their fortunes
by carefully investing systematically in commercial real estate.
When it takes time to choose a property to buy
and sell carefully
and you buy it under the right conditions,
it can be the best long-term investment.
Get rich from real estate
Perhaps in no field is there more myths about wealth
and success than real estate.
You hear people say that 90% of all fortunes in the United States come from real estate.
You’ll hear people say,
“We don’t have to earn any more.”
Many people say that for the average person investing in real estate
is the path to financial well-being where you can buy real estate without out-of-pocket
because the tenants have to pay for it and pay you.
Each decision to buy real estate in this way is both right and partly wrong.
The real estate industry is one of the most dynamic
and competitive sectors in America,
and the real estate business consists of some of the most determined,
shrewd,
sharp,
and experienced professionals anywhere.
Every year,
however,
there are even boom markets where these people,
the professionals lose millions of dollars
because their decisions
and investments turn out to be wrong.
There’s nothing for free
One of the most realistic things in business
and in life is that nothing is given for free.
There is nothing for nothing but “easily earned money”.
Nowhere in this book will you read that achieving financial success is easy.
If not twice as difficult,
the real estate business is exactly that.
Still, it’s possible to do well in real estate
if you master it like you would any other job.
Real estate investing is not a business
if you want to be successful.
You must be determined to enter the real estate field over the long term,
at least 10 years,
if you want to build a solid portfolio.
Real estate is a long-term investment that requires long-term thinking.
Definition of real estate
Let’s start with the definition of real estate in the simplest words.
Here is “Real Estate is the ability to make money in the future.”
Understand this is a very important principle.
The value of any property is determined
by the income that can be derived
from it when it develops to its highest
and most productive use now and in the future.
There are millions of acres of land across the United States
that never have any real value,
for example,
deserts cannot be developed
to satisfy individual needs and generate income.
When real estate values drop
There are large swaths of large cities where property values are falling
because of unstable growth and development,
but probably won’t grow again.
Every day,
people sell homes and properties at a loss
or foreclosure because of their mortgage,
because these properties decrease in earning capacity,
so their value also decreases.
Starting a Real Estate Business:
Buying a House to Renovate
If you really want to get into real estate,
buying property to own
and be an investor in many ways you can do it.
Perhaps the simplest way and the starting point
for many properties is known as the “renovate method”.
This is related to the strategy of buying properties
for renovations that increase their value.
There are several steps you need to take in the “buy a home to fix” approach.
1. Research.
2. Pay as low as possible.
3. Move in and remodel.
4. Sell, lease or refinance the repaired property.
5. Repeat the above process.
6. Move up into larger properties.
Research
Do your research first.
Choose the area you want to buy a home in,
and then go look at homes in that area
until you find a home that’s priced very low compared to neighboring properties
because it’s a home in poor condition
and in need of a home much to repair.
Real estate agents call this type of home “special for the handyman”
and they are sometimes advertised in newspapers as such.
Often they will advertise an old house rather than a house in need of “TLC”
(needs thorough repair).
For you, this type of house is a “empty house”.
These words are meant for the average person to consider it worthwhile.
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Pay as low as possible
Once you’ve found a home that’s really cheap compared to neighboring homes
and can be repaired,
you buy it for as low a cash price as possible.
Sellers will often agree to sell you your home without immediate payment,
especially if he or she wants to move somewhere else
and not have to pay off the mortgage anymore.
If this doesn’t work,
you can usually get the seller back for a second mortgage
(= the highest property value minus the value of the 1st mortgage)
or a deed of trust property with an amount representing
the highest mortgaged property value
of the person’s home mortgaged.
(See the section “Investment without immediate payment”.)
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Move in and remodel
You own the house,
move in and start fixing it up in the evenings and weekends,
redecorate the house and you have to do your best.
If necessary,
you can learn the craft of carpenter and builder,
buy tools,
learn from the experience of home repair professionals,
and then slowly learn how to do it yourself.
Maximize efficiency of investment capital
Once you’ve finished renovating both your home
and yard to make it look appealing,
then you can do one of three things.
You can sell your house for a profit.
You can use the profits from that house
to buy another house to repair and redecorate.
Another possibility is that you could lease
to collect monthly payments that would offset more than the mortgage payment
(the redemption amount collateral)
and it gives you an extra source of cash.
You can eventually refinance the home,
usually most of the money being paid
for it is based on the property’s ability
to make new money when renting it out.
With tenant payments paid to you each month,
your property can be valued more.
The bank will give you a loan
or you can use this property as a mortgage based on this property’s valuation.
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Repeat the above process
You can then repeat the process with another,
possibly larger,
home,
investing your “sweat capital”
or human capital in upgrading
until you are done with the renovation and ready to sell,
rent or raise capital again.
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Move up into larger assets
As you expand your assets,
cash resources,
and experience,
you can repeat the process above on a larger scale
as you upgrade to a two-family,
three-family,
four-family home and eventually into a townhouse.
The house has many apartments.
The principle of expansion is the same,
only the size and number of apartments for rent are more.
The benefits of buying and selling real estate for repair
There are two main advantages
to buying and renovating real estate.
First, you can make repairs while you’re
still doing your job during office hours,
continuing to make the property more profitable through your remodel.
Second, you can start a small business
without much capital,
little or no risk and gain more knowledge and experience.
It’s important to remember that buying
and renovating a home is just another way
to start a business.
If you want to start small
and rise or grow with your own efforts,
you are more likely to succeed
and you close the failure gap if you make mistakes.
It’s almost impossible for you to buy
and repair a home that makes you bankrupt.
Investments do not have to be paid immediately
You’ve probably heard of the process of “buying a fixed asset
with no immediate payment.”
There is no doubt that fixed assets can be purchased
do not have to pay immediately,
especially old houses.
It really is like that.
It is essential that you find a “goodwill seller”.
This is someone who is very keen to sell,
and will therefore agree
to sell you the home with a second mortgage
or deed without requiring you to pay cash any.
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Buying a house from a property divider
A person willing to sell a home can be motivated by many factors.
Often when a couple divorces and they want
to sell to end their marriage
and go their separate ways,
they’ll be desperate to get out of the house
and not have to pay the mortgage.
They can’t be patient
or very annoyed to have to wait any longer to sell their home.
Therefore, they will agree
to sell you that house
at a very favorable price for you.
Buying a house from the family
of someone who has passed away
When the homeowner dies,
the family member may want
to sell the home so they don’t have to be responsible
for regular expense payments and maintenance.
In this case,
if you come to bid to take over the home,
paying them a regular monthly amount as a second mortgage payment
(= the highest property value minus 1st mortgage 1)
during the first mortgage payment,
they will usually sign the house over to you.
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Financial problems or bankruptcy
Sometimes people going bankrupt are desperate
to sell their homes and avoid paying monthly payments.
Sometimes when people move from one place to another,
they also want to move back home.
In any event, a good-faith seller is the one
who agrees to accept “no immediate payment”
if he or she is no longer responsible
for paying the first mortgage (the buyer bears the )
and house maintenance.
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Rule 100 –1
Business professionals teach people how
to buy a home with no down payment using a popular,
empirically known principle,
known as the “100–10–3–1 rule.”
That means you as an inexperienced real estate investor will have to see 100 homes
before you find 10 for sale for little
or no immediate payment.
Out of these 10 houses,
you will bid for 3.
Out of these 3 houses,
one agrees to sell to you and you buy one.
in other words,
when you start buying a home with no immediate down payment,
you’ll have to look at 100 homes
before you find one that looks affordable.
But if you have a lot of time and little money,
this is a great way to get into the real estate business.
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How you buy a home without paying immediately
The following is a way to buy a house
without having to pay immediately.
Let’s say the house sells for $100,000
and you can get 80% of the mortgage value.
If the seller will get back $20,000 of the value
of the second mortgage or deed of trust,
you will end up owed the home without any out-of-pocket costs.
In other words,
the bank will provide $80,000 for the first mortgage,
the seller will get the $20,000 back
and you’ll have a $100,000 home that you owe (the bank) $100,000- la,
but you won’t have to spend any money.
Naturally, you’ll have to make the first mortgage payment ($80,000)
and the second ($20,000),
plus taxes
and any other costs associated with owning the property that house.
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Putting assets to work
You can then refinance the home
and rent it out for enough to cover the mortgage payment,
taxes, and other costs,
and eventually the tenant will cover the cost of the home
and you will own it
without immediate payment.
Or as mentioned at the beginning,
you can move in,
repair the house,
and then sell it back
for a profit or rent it out
for a higher price to cover all the payments
and so on will provide you with active working capital.
You can even refinance your home against a new cash source
that’s higher in rent
and make a profit that way.
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Possible obstacles
You may encounter a no-show method of buying a home.
If the home has a fair market value,
the seller won’t accept the “later payment”.
There is no shortage of people
who will be willing to pay them immediately
with the highest asset value of the home they mortgage.
More than 90% of real estate transactions are conducted this way.
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Must pay immediately
Remember that you’ll have to have enough income
to pay off both mortgages,
or else the seller has a preemptive right
to take back the home.
Furthermore, if you are renting,
you must be absolutely certain that the tenant will pay the rent on time,
otherwise you will have to pay both mortgages on time
or risk losing your home.
There are many pitfalls
and dangers in buying a home
or property without immediate payments
and many people have gone bankrupt
because of their mistake.
They can move into a house without paying immediately,
but they can’t afford the next payments.
Even worse, they rent out
and tenants damage the property.
As a result,
property values decline
and the buyer ends up taking on more debt than the home is worth.
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Succeed by renting a house
For the rest of your real estate business,
it’s important for you to understand how the choice of tenant
or tenant is crucial
to your success as a property owner rental
or accommodation business.
Unfortunately, tenants often damage the property they rent.
Sometimes they even destroy the property they rent.
When you decide to embark on your real estate investment journey,
you must be very careful in choosing your tenants.
You have to know their background,
especially when they have rented the property in the past.
Negligence leads to disaster.
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HOLDING LAND FOR DEVELOPMENT
Many wealthy Americans put their money in undeveloped land
to wait for development.
They buy land in the suburbs of developing cities,
which have many of the positive economic dynamics I talked about earlier.
As the city grew and expanded,
this land would increase in value
until it was eventually purchased for development.
At that time,
land prices often skyrocketed many times over.
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Water is essential
There are many factors to keep in mind
when buying unbuilt land.
The first and foremost concern is to ask,
“Where is the water here?”.
Soil can only be developed
when it has an adequate water supply.
Please consider this carefully.
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How do people get there?
Another thing to keep in mind
when buying unbuilt land is transportation.
How to get to that land for convenience?
In many areas land prices rise rapidly after the construction of highways
and highways and make them accessible to a larger population density.
Many people got rich by buying land many years
before it was developed.
Then the price of land can increase 10
to 20 times as the demand for housing,
schools and shopping centers rush to that land.
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Close to population centers
Anyone thinking about buying undeveloped land should also keep an eye on
the nearby population centers.
For land to be valuable,
it must be able to provide services to the population.
Where will these people come from?
Unbuilt land only increases in value as the population in that area increases.
Some land will never appreciate
because it lacks water,
has no roads,
or has no population pressure.
You mind is like the bank,
what you deposit is what you can withdraw? ― Warren Buffett
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SHORT-TERM INVESTMENTS
Wealthy Americans also keep their money in certificates of deposit,
money market deposit accounts,
and other profitable short-term investments.
In general, just money is not speculative money.
It is well-kept money.
It is money slowly earned over time
and invested with the purpose of preserving wealth.
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INVEST IN STOCKS AND BONDS
Wealthy people buy good quality stocks and bonds,
often for a long time.
Important investors in the stock market are called “value investors”.
They carefully research a security,
and then buy it based on potential underlying values.
They hold stocks for long periods of time,
regardless of the day-to-day fluctuations of the stock market.
Warren Buffet is the best example of this type of investor.
The single most powerful asset we all have is our mind.
If it is trained well,
it can create enormous wealth in what seems to be an instant. —Robert Kiyosaki
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HOW TO CHOOSE VALUE INVESTMENTS
Let’s say you are fully insured
and you have savings to come out to cover your expenses for 3 to 6 months.
With your solid foundation,
you can now take note of several places
where you can invest your money to accumulate it.
The philosophy of the rich and the poor is this:
The rich invest their money and spend what is left.
The poor spend their money and invest what is left. —Robert Kiyosaki
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WHERE TO STORE YOUR MONEY
There are 3 places (besides a savings account) you can put your savings
that will give you a high degree of security
and the ability to pay with cash:
money market deposit accounts,
securities only deposits and savings bonds.
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Money market deposit accounts
Money market accounts are available at your bank
and pay higher interest rates than savings accounts.
Money market deposit accounts require a minimum balance.
It is still quite competitive,
so you should look for the best service
and see how the banks that offer this service differ.
As soon as your savings account balance exceeds $1,000,
transfer it to a higher-interest money market deposit account.
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Certificates of deposit
Another means of savings that you may be interested in is a certificate of deposit (CD).
These certificates are issued by banks,
savings and loan funds,
and other financial institutions with terms ranging from 30 days to up to 10 years.
The longer you keep the money in the CD,
the higher the interest rate you get.
The downside of a certificate of deposit is that
if you need to withdraw your funds
before the maturity date,
you are often subject to high penalties.
You should find out clearly
before you buy a certificate of deposit
where you first bought it.
Certificates of deposit pay higher interest rates than money market deposit accounts
and are a safe place to put your savings.
However, they are not as flexible as the third option,
savings bonds.
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Savings bond
Savings bonds are the surest investment,
are safe and secure,
they have a reasonable interest rate.
Savings bonds are easy to convert
to cash if you need money at any time.
Savings bonds are backed by a government-issued full credit.
In other words,
you can’t lose money on savings bonds
unless the whole country goes bankrupt.
These three types of investments are the best place
to invest your 3 to 6 month savings.
You will get the highest profit
while being absolutely secure and safe
in terms of investment capital.
The key to financial freedom and great wealth is a person’s ability or skill to convert earned income into passive income and/or portfolio income. ― Robert Kiyosaki
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INVEST IN STOCK MARKET
Once you start earning and saving money left over after spending
for your short-term expenses
and insurance needs,
the next place you should explore is the stock market.
There are 3 major stock exchanges in the United States:
the New York Stock Exchange,
the American Stock Exchange, and the Nasdaq.
These stock markets are conducted by executives
and boards of directors,
mainly those of investment companies
and brokerage firms that trade on these markets.
Stockbrokers are companies that combine into exchanges
to create a public market for buying and selling stocks and bonds.
You can buy and sell over 14,000 different stocks plus hundreds of mutual funds
through stockbrokers that operate in offices like Merrill Lynch
or online like Ameritrade and Charles Schwab.
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Common securities
Most of the transactions you hear
or read about in the stock market are called “common securities”.
A share of common stock in a company represents a percentage
of ownership in that company.
Ownership of a stock gives you the right to share in the risks
and rewards of that company,
both up and down.
Your ownership in the company is proportional
to the number of shares you own relative to the number
of shares issued by the company.
For example, if a company issues 1 million shares
and you own one share,
you are entitled to a profit
or loss of 1/1,000,000 in that company.
When you buy stock in a company,
you actually become the owner of that company as long as you own the stock.
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Bet with the expert
There are several important factors you need to consider
if you are considering trading in the stock market.
First of all, in order for you to buy shares of a stock,
someone else must be willing to sell the stock.
Each time the transaction occurs,
the seller of the stock is sure
that the price of the stock will fall
or at least the price will not go up.
Buyers will surely beat sellers
and believe that the stock price will increase.
In this sense, trading in the stock market
Stock is a win-lose game.
Each buyer or seller will rely on their knowledge to bet against the other.
Unless you have knowledge of a certain stock,
market players are generally more knowledgeable than you,
and it is dangerous to believe that you can outsmart them.
Experts are simply people who have more than enough time and experience
to help you make better decisions than anyone else.
You’re probably better off investing in some kind of mutual fund [1].
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Index Fund
One of the largest and most popular mutual funds today
(see “Mutual Fund Investing” later in this chapter) is called an “Index Fund”.
These funds buy cross-sector stocks according to the S&P index
(Standard & Poor’s 500 stock price index),
or a particular industry.
Index funds almost always correctly represent general market ups and downs.
80% of the time, index funds will help the most experienced
and sophisticated investment managers of brokerage firms
or mutual fund companies perform better.
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Market trend projections
Share prices are determined largely
by the expectations that stock buyers in that market expect
to benefit from the issuer in the future.
Because estimates can change suddenly
and often fluctuate with all information,
stock prices can fluctuate up
and down dramatically from day to day or even hourly.
It is important that you have a good grasp
of the financial information in the world with each week having
to study the stock market for 40 to 60 hours
and make investment recommendations.
Despite the focus on stock market values,
more than 50% of the recommendations of securitization experts turn out to be false.
It is best to treat the advice of financial experts
as mere theoretical predictions.
It takes time to research stock market investments
In order to avoid mistakes
and rarely choose the correct stocks,
you will have to spend a lot of time
and effort to research the market.
You must research each industry in that market
and research each company in the industry
you are considering investing in.
Fortunately, thanks to the Internet,
you can get more information quickly
