Creating Wealth Through Real Estate

Recently on our radio show, one of the subjects we spoke about was motivation and how important it is not only in the real estate world, but also in life. I have included some sayings which my partner and I like very much, not only as metaphors, but to actually apply them to life and to your real estate investing goals. So here they are:

The rich act in spite of fear while others allow fear to stop them.

Rich people do what others think about doing.

Comfortable does not equal growth.

The greatest mistake in life you can make is to continuously be afraid you will make one.

These phrases point out the necessity to get over the "fear hump", jump off the fence, and take action. Many people say that they are afraid to make a decision to move forward investing in real estate (or anything else for that matter). What they do not realize is that they HAVE made a decision - that decision was to do nothing. Now, they may not lose anything per se, but they most certainly will not gain or grow either. Therefore, having the motivation to get paste fear and all the negative comments from others is the only path to success. Successful investors are just that because they take action, not because they "know secrets" everyone else does not. That is just guru propaganda. While education is very important, getting experience is where you will grow rapidly.

How does one get experience you may ask? Start with education and then align yourself with a mentor or team members who can guide you to the path of success, which is taking action! It will start with identifing your specific goals and then deriving a plan or path, if you will, to get you to that destination. Remember, he who fails to plan, plans to fail.

Here is an article I thought was of vital importance to our investments in the Metroplex. It is one of many professional articles providing documentation on the large growth of population, the strong economy, and the rapid job growth experienced in Fort Worth. These are the main reasons why we at Nationwide focused on this area for our investments and believe you should to!

Editorial of the New York Sun, July 25, 2008

As the Congress considers whether to follow President Bush's lead in repealing the decades-old moratorium on drilling for oil on the Outer Continental Shelf and in the Arctic National Wildlife Refuge, it might want to take a look at what's happening in the Barnett Shale region in TEXAS. The recent history of the Shale, where innovative energy companies have turned a once impenetrable rock formation into the most important natural gas source in America, provides a testament to the professional competence of the engineers and geologists who find and obtain the energy resources that make America's economy possible. It also illustrates just how irrational the Congress's persistent opposition to drilling has become.

In addition to being the largest onshore natural gas field in America, the Barnett Shale sits directly on top of the Dallas-Fort Worth metropolitan area, which is home to 6 million people. Companies are drilling for natural gas underneath schools, underneath the Dallas-Fort Worth International Airport, and underneath residential communities, and the process so far has been a resounding success. The Shale is producing at rates that have exceeded all expectations, and it's being done in a major American city without disturbing the residents who live there. Surely the reindeer in the Arctic National Wildlife Refuge, on whose behalf much of the resistance to drilling in that area is based, are as amenable to the process of drilling for resources as the citizens of Fort Worth.

Meanwhile, the Shale's economic impact on central Texas is a reminder that oil and natural gas are not just fueling energy addiction and pollution; these resources also create wealth. While the national economy is suffering, central Texas is experiencing a veritable boom. The annual economic impact of the Shale is $22 billion, according to a study by the Perryman Group. The Shale has also generated nearly three-quarters of a billion dollars in local and state tax revenues, and has created nearly 100,000 jobs with more on the way. It's made a few billionaires, more than a few millionaires, and lifted thousands of fortunate men and women into sudden affluence. Would not a rational Congress rather these rewards accrue to Americans rather than our enemies in the Middle East?

Only a few years ago, drilling for the gas in the Barnett Shale was considered virtually impossible. "It is far more complicated to extract natural gas from shale than from other sources of natural gas, like sandstone," a spokesmen for Devon Energy, Chip Minty, said. Devon Energy has been active in the Shale since 2002, but until recently other companies have shied away from the area. Exxon Mobil, for instance, was late in buying an interest in the Barnett Shale even though its global headquarters is only a few miles away. Geologists and energy companies have known about the vast natural gas deposits in the Shale for decades, but the tight, almost impermeable nature of shale, a black rock formed from organic deposits 300 million years ago, made drilling there economically infeasible. A few decades of trial and error and a couple of visionary technological innovations later, and the Shale has become the most important natural gas field in America. The history of the Shale, Mr. Minty said, "shows the potential for energy resources across America."

Will Barnard - Managing Partner, Nationwide Property Investments, LLC

The “American Dream” is and has been to own your home free and clear without any mortgage payment.

If this dream is still valid today, how can it be explained that thousands of financially successful Americans, who have the funds to pay off their mortgage, choose not to. The American Dream has been passed down to us by our parents and grandparents alike. Many Americans fear a home mortgage, particularly when they are at retirement age. This way of thinking is very outdated, although valid back in the 1930’s. During the great depression, banks were legally able to call a mortgage loan due in order to receive a much needed cash infusion. The stock market had lost over 75% of its value, un-employment was at an all-time high, and real estate values were falling dramatically. Many homeowners lost their homes because they did not have the funds to pay off their mortgage and they could not sell the home because there were no buyers at the time. Due to this horrific situation, a new way of thinking was born. “You should own your home and never carry a mortgage”. This way, if the economy dropped suddenly and you lost your job, you would at least have a roof over your head. Since then, laws have been past that make it illegal for banks to call your mortgage loan due.

Today, it is no longer the case that we will live in our homes for 30 years and keep the same mortgage for 30 years until it is paid in full like our grandparents did. Today, the average person lives in their home for only seven years and according to the Federal National Mortgage Association, the average American mortgage lasts for only 4.2 years. People are moving to larger homes in better areas as well as refinancing for a better rate or to pull equity for home improvements and other expenses. These statistics show that it makes little financial sense to pay down your mortgage by applying additional principle payments and to have large amounts of equity in your home.

Ask yourself these two questions: What rate of return do you receive on the equity sitting in your home? Would you burry $100,000 cash in your backyard? The answer to the first question is 0 or nothing! For question two, most people would answer NO, however, a vast majority of home owners across the US are basically doing just that by leaving the equity in their homes.

Rather then allow your cash to remain dormant, pull that equity out and utilize it in any number of great investments. One option is real estate. You receive tax benefits such as depreciation, cash flow and property appreciation. Another option would allow you to invest those funds as a private mortgage loan secured by real estate and earn double digit returns on your money collateralized with real estate. Both of these options make you money! Isn’t that much better then having the equity sitting in the walls of your home making you nothing?

Even if you were to pull $100,000 of equity from your home in the form of a Home Equity Line at an interest rate of 7% ($7,000 annual cost) and placed those funds in a safe interest producing asset which produced a return of 7% ($7,000 annual gain), would you be exactly even at this point? The answer is NO! The interest you pay on your equity line is tax deductible (mortgage interest is 100% tax deductible in most circumstances) therefore, the true cost of the 7% loan is actually only 4.55% (assuming a 35% tax bracket). It is not difficult at all these days to find an investment vehicle which produces a 7% return.

Another problem with all that equity sitting in your home is that if sued you risk losing it. You want to look cash poor when an attorney looks at your assets. If liens show up against your homes and it appears you have very little or no equity then it may keep you away from a lawsuit. Most attorneys won’t work for free. If they can’t find a way to get paid through your assets then they won’t file the lawsuit.

In closing and most importantly, it is a very wise decision to separate the equity from your home to prevent losing it. If you have an equity position in your home and the home values in your area decline, you will lose that equity. If you separate it from the home, via an equity loan for example, you secure the equity by converting it to cash which then may be used for safe & conservative investments. According to a recent study, 67% of Americans hold the majority of their net worth in personal home equity. If we were ever taught to diversify our investments, this statistic shows a failure to practice that advice.

Retirement planning can be a bumpy road. Without the right investment vehicle, you may outlive your savings or suffer a lower quality of life to make ends meet. The government doesn’t make it easy, either. Taxes, Medicaid, estate planning, and a variety of other factors add to the uncertainty, putting your financial security in question.

Retirement is your opportunity to live your dreams. Don’t spend it on a modest income or, even worse, burdening your family financially. With the right assistance and vehicle, you can guarantee income for the rest of your life, so you can enjoy your golden years without worrying about the finances.

Finding the right advisors and vehicle to provide a secure financial future for retirement isn’t easy. However selecting competent and proven professionals for your team is a must. A word of caution on this subject: financial advisors are not legally obligated to place your interests ahead of their own. Simply put, it is not illegal for an advisor to put you into a fund that pays a higher commission to the advisor rather than a fund that produces better results for you.

It is hard to believe that our government would allow an opportunity for financial professionals to take advantage of the investor, but make no mistake, the opportunity exists. This is not to say that all of these advisors would operate in this matter, but simply to inform you of the risks. There are ways to reduce this risk by educating yourself, interviewing advisors, asking specific questions, and investigating their credentials.

Let us take a look at what the majority of advisors suggest you do with your retirement funds:

IRA’s and 401k’s Invested in Stocks or Mutual Funds:
A $250,000 IRA account receiving a 10% rate of return from stocks or mutual funds would yield $25,000 of income and subject to taxation when withdrawn. You would also incur fees from your fund manager or stock broker thus reducing your profits. If your account had a bad year and lost 10% of its value, you would have to gain slightly over 11.1% just to recover the loss. Investing in the stock market can produce positive returns and build wealth for your retirement, but it should not be the only vehicle used.

Mutual Fund Payouts for Retirement:
Placing your retirement on the guess work of a fund manager is not our idea of a sound investment strategy. Retirees must also choose which funds to withdraw and at what amounts. If you live longer, you could run out of money. If the market crashes, your payouts would be reduced. You also may be in trouble if you under estimate how long you need the money. All withdrawals are also subject to taxation.

Annuities:
These accounts give you guaranteed income streams lasting as long as you do, however, they are very costly and lock you into a contract. In addition, if you are passed a certain age, you may not have enough time to fund the annuity.

Now let us take a look at what the wealthy and informed do:

Your retirement accounts are NOT LIMITED to stocks, bonds, and mutual funds. You may “self-direct” your retirement accounts giving you 100% control over your financial future. You may then invest these accounts in real estate and loans secured by real estate.

Real Estate:
Purchasing real estate provides monthly cash flow, annual tax benefits (outside of an IRA), and appreciation. Real estate also provides a much higher return on investment (ROI). When you consider the ability to leverage your retirement accounts with non-recourse bank loans utilizing a self-directed IRA, your retirement account will grow much faster and can continue to grow while you take withdrawals after retirement. The same $250,000 IRA account referenced above but invested in real estate could receive over twice the return at half (5%) the rate utilizing leverage. A large majority of this return could also be tax deferred or tax free when withdrawn by using advanced legal tax strategies.

Non-Recourse Loans:
This is a loan in which you do not personally guarantee. Only the investment property itself secures the loan. In other words, the lender may only look to the property alone for repayment and not your personal assets such as your home, car or credit. When utilizing leverage in your IRA, you are not allowed by the IRS to personally guarantee the loan, thus, standard mortgage loans are not permissible. These loans require a minimum of 30% down on rental properties and may require more depending on the condition of the property and the cash flow.

I encourage you to maximize the earning potential of your retirement account by placing funds into a self-directed IRA. Then invest those IRA funds in real estate and watch your nest egg grow giving you the retirement of your dreams.

With the lending market pulling tighter and tighter on the reigns, or more accurately, eliminating most available funds for lending, it is necessary to look at other avenues for investment funding. One of the most common and widely used is private mortgage lending. This is where an individual with liquid assets takes the place of the bank and loans their funds to another in order to purchase real estate. These loans are secured by the real estate purchase, in the same fashion as a bank would do so (lien on property, named additional insured on hazard insurance policy, etc.)

   We at Nationwide have utilized private funds since we started in this business, and today are looking to increase that usage. In most cases, we are willing to pay an individual more than we would a bank, for the convenience and availability of those funds. Many investors are interested in real estate investments, but do not necessarily want the responsibility of the management and ownership of the property itself. Investing their money in the loans makes sense for them and they receive a set rate of return on their investment, unlike the stock market where you can not only reduce the return, but also lose some or most of the principle investment. The volatility of the stock market, particularly in recent months, is enough to scare away even the most sophisticated of investors. We welcome you all to the private mortgage lending arena with open arms and show our gratitude by delivering handsome returns for the investment.

   If you are interested in receiving double digit returns on your investment, secured by real estate, with no management responsibilities, no costs, no brokerage fees, and no worries, contact me immediately. Your funds may be cash, CD's, money market accounts, 401k funds, IRA funds, lines of credit, home equity, and more. I have current investment opportunities available now in a variety of different projects we are working on.