Houses that were once $100,000 were now $75,000. But instead of shopping with local real estate agents, I began shopping at the bankruptcy attorney’s office, or the courthouse steps. In these shopping places, a $75,000 house could sometimes be bought for $20,000 or less. For $2,000, which was loaned to me from a friend for 90 days for $200, I gave an attorney a cashier’s check as a down payment. While the acquisition was being processed, I ran an ad advertising a $75,000 house for only $60,000 and no money down. The phone rang hard and heavy. Prospective buyers were screened and once the property was legally mine, all the prospective buyers were allowed to look at the house. It was a feeding frenzy. The house sold in a few minutes. I asked for a $2,500 processing fee, which they gladly handed over, and the escrow and title company took over from there. I returned the $2,000 to my friend with an additional $200. He was happy, the home buyer was happy, the attorney was happy, and I was happy. I had sold a house for $60,000 that cost me $20,000. The $40,000 was created from money in my asset column in the form of a promissory note from the buyer. Total working time: five hours.
So now that you are on your way to becoming more financially literate and skilled at reading numbers, I will show you why this is an example of money being invented.
uring this depressed market, Kim and I were able to do six of these simple transactions in our spare time. While the bulk of our money was in larger properties and the stock market, we were able to create more than $190,000 in assets (notes at 10 percent interest) in those six “buy, create, and sell” transactions. That comes to approximately $19,000 a year income, much of it sheltered through our private corporation. Much of that $19,000 a year goes to pay for our company cars, gas, trips, insurance, dinners with clients, and other things. By the time the government gets a chance to tax that income, it’s been spent on legally allowed pre-tax expenses.
This was a simple example of how money is invented, created, and protected using financial intelligence.
Ask yourself: How long would it take to save $190,000?
Would the bank pay you 10 percent interest on your money? And the promissory note is good for 30 years. I hope they never pay me the $190,000. I have to pay a tax if they pay me the principal, and besides, $19,000 paid over 30 years is a little over $500,000 in income.
I have people ask what happens if the person doesn’t pay. That does happen, and it’s good news. That $60,000 home could be taken back and re-sold for $70,000, and another $2,500 collected as a loan-processing fee. It would still be a zero-down transaction in the mind of the new buyer. And the process would go on.
The first time I sold the house, I paid back the $2,000, so technically, I have no money in the transaction. My return on investment (ROI) is infinity. It’s an example of no money making a lot of money.
In the second transaction, when re-sold, I would have put $2,000 in my pocket and re-extended the loan to 30 years. What would my ROI be if I got paid money to make money? I do not know, but it sure beats saving $100 a month, which actually starts out as $150 because it’s after tax income for 40 years earning low interest. And again, you’re taxed on the interest. That is not too intelligent. It may be safe, but it’s not smart.
A few years later, as the Phoenix real estate market strengthened, those houses we sold for $60,000 became worth $110,000. Foreclosure opportunities were still available, but became rare. It cost a valuable asset, my time, to go out looking for them. Thousands of buyers were looking for the few available deals. The market had changed. It was time to move on and look for other opportunities to put in the asset column.
“You can’t do that here.” “That is against the law.” “You’re lying.” I hear those comments much more often than “Can you show me how to do that?” The math is simple. You do not need algebra or calculus. And the escrow company handles the legal transaction and the servicing of the payments. I have no roofs to fix or toilets to unplug because the owners do that. It’s their house. Occasionally someone does not pay. And that is wonderful because there are late fees, or they move out and the property is sold again. The court system handles that.
And it may not work in your area. The market conditions may be different. But the example illustrates how a simple financial process can create hundreds of thousands of dollars, with little money and low risk. It is an example of money being only an agreement. Anyone with a high school education can do it.
Yet most people won’t. Most people listen to the standard advice of “Work hard and save money.”
For about 30 hours of work, approximately $190,000 was created in the asset column, and no taxes were paid.
Which one sounds harder to you?
1. Work hard. Pay 50% in taxes. Save what is left.
Your savings then earn 5%, which is also taxed.
OR
2. Take the time to develop your financial intelligence Harness the power of your brain and the asset column.
If you use option number one, be sure to factor in how much time it takes you to save $190,000. Time is one of your greatest assets.
Now you may understand why I silently shake my head when I hear parents say, “My child is doing well in school and receiving a good education.” It may be good, but is it adequate?
I know the above investment strategy is a small one. It is used to illustrate how small can grow into big. Again, my success reflects the importance of a strong financial foundation, which starts with a strong financial education.
I have said it before, but it’s worth repeating. Financial intelligence is made up of these four main technical skills:
1. Accounting
Accounting is financial literacy, or the ability to read numbers. This is a vital skill if you want to build businesses or investments.
2. Investing
Investing is the science of money making money.
3. Understanding markets
Understanding markets is the science of supply and demand Alexander Graham Bell gave the market what it wanted. So did Bill Gates. A $75,000 house off
ered for $60,000 that cost $20,000 was also the result of seizing an opportunity created by the market. Somebody was buying, and someone was selling.
ered for $60,000 that cost $20,000 was also the result of seizing an opportunity created by the market. Somebody was buying, and someone was selling.
4. The law
The law is the awareness of accounting corporate, state and federal regulations. I recommend playing by the rules.
It is this basic foundation, or the combination of these skills, that is needed to be successful in the pursuit of wealth, whether it be through the buying of small homes, apartment buildings, companies, stocks, bonds, precious metals, baseball cards, or the like.
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