Monthly Archives: July 2015

All Profit comes from 5% of the Sellers

 MonopolyHouses

This is a follow up article from the last 3 weeks on real estate investment. Please read the first in the series and the latest article from last week. To get killer deals on real estate you must understand one simple fact:

At any given time across America there are really two real estate markets. The first is the regular or retail marketplace. This is usually about 95% of the market and this world is inhabited mainly by Realtors™, builders, banks, mortgage brokers, home owners, home inspectors, mortgage originators, and any other group of people that focuses on helping “normal buyers and sellers” buy and sell properties.

There is also a secret sub culture of the real estate market. This second market is usually around 5% to 10% of where the total marketplace falls. This world is inhabited by investors, REO brokers and agents (bank foreclosure brokers and agents), private money lenders, hard money lenders, foreclosures, probate properties, highly motivated sellers, contractors, subprime buyers, and anyone else that’s geared toward the investor buyer/seller and subprime buyer.

The profit for the savvy investor is dealing only with the 5 to 10% of the marketplace that will allow you to make the profits you require for your business. So many beginning investors will waste the bulk of their time dealing in the 95% world and wonder why they don’t buy any properties or the properties that they buy are subpar deals.

Make a decision right now to only deal in the 5 to 10% world and your life and business will be far more enjoyable and profitable. You need to become an expert in dealing with the 5% world and all its players. There are great deals all around you but you must be the prospector and focus only on the gold and not the dust.

In my over two decades in real estate I have been through every kind of market imaginable from red hot multiple offers in hours kind of market to a free falling value market where it seemed you could not give properties away. I have found that unsuccessful investors will always find reasons why they are not doing well or finding good deals. See if any of these sound familiar:

“The market is too hot here to find any good deals”

“This market is so bad that nobody is buying”

“You can’t do those kinds of deals in this market”

None of these are true and I don’t care what cycle your target real estate market is currently experiencing. During red hot markets I bought properties and got great deals. During dead dog slow collapsing markets both I and my clients have bought killer properties at rock bottom pricing. During a red hot market you really need to stay tuned to the 5 to 10% of the market. When you buy in these markets most of the houses are never “officially on the market” but rather the properties were found by you or your ant farm using the marketing strategies above. They also might have been on the open market and did not sell. They had some kind of problem that the agent and owner did not know how to solve.   If the property hits the MLS and is a super bargain it will always be hard not to overpay for the property. The rule of thumb is the more people that know the property is for sale the more money you can expect to pay to acquire the property.

That’s the bad news; the good news is because that kind of market is so hot you don’t always need as big a discount to make the deal work. The hotter the market is when you go to resell the quicker sell you will have and less holding costs you will need to pay. When you are dealing with very slow markets, many times you can pick and choose the deals you want to buy right off the MLS and find solid deals that make sense.   You must customize your buying and selling machine based on the market conditions.

The third type of property is pretty homes and those are homes that require a whole different approach than the ugly and semi ugly homes. These will be covered in a future article.

Analyze Deals Quickly

The next step once you have found a deal you think might be a good deal is to run your fast turn numbers.
Here is a simple formula to use every time.

After Repaired Value (what you believe it will sell for after repairs are made based on comps)
Repairs to be made (more on figuring these in a future article)
Holding costs (utilities, taxes, insurance, lawn, snow) (budget 5 months minimum)
Interest on funds (interest paid to outside lenders or your own bank (remember being the bank?)
Buying closing costs such as points on money, insurance, title company fees etc (check with local investors and title companies to get an idea)
Selling costs such as real estate commissions, transfer taxes, title insurance (check with local investors and title companies to get an idea)
Cost over runs and oops factor
Your minimum acceptable profit


Maximum offer allowed by you

Tune in next week when we continue our discussion on finding killer real estate deals!

Sellers Sell for Just Two Reasons

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This is another article in a series of how to invest in solid real estate deals. Please read the previous article before proceeding with this new article. These are more ways to find killer real estate investments in addition to the ones already mentioned in the previous articles:

  1. Put up a website and get a decent domain. Many sites do this but I get my domains and some of my sites through GoDaddy®. The website does not have to be fancy or expensive but make it solid and clean and keep it current. So many sites get put up and forgotten about it blows their credibility. I suggest a 4 minute video every month to post to the site. Keep the site relevant and use the domain in all your marketing
  2. Make up your wedding list. Imagine you are getting married and going to have a huge wedding.   Who would you invite? Get that list together and get all their contact information and let them know periodically (at least every quarter) that you are looking for real estate investments
  3. Find out who in your area handles bank foreclosures (otherwise known as REO’s or real estate owned by a bank) and send those agents a letter introducing yourself. Follow up these letters with calls and ask for a one on one appointment and buy these agents and brokers lunch. If there is a good sized foreclosure market in your area this one strategy can be a gold mine for your business
  4. The internet is loaded with properties but depending on the site the information can be very old so nothing will replace building relationships with real human beings who are in the world of real estate
  5. Estate properties sometimes can offer a great opportunity at a bargain. I have bought dozens of properties from my local probate court lists. When people pass away many times they leave a will that will have to go through probate court. These probates are public information and usually posted in a county legal news and/or website. These notices will have the person who passed away and the person who is the personal representative for the estate. These are the people in charge of opening and closing of probate and the estate. A well placed letter and follow up phone call have provided me with some great deals and large profits. I always got more excited when the personal representative is located out of town because they are sometimes more motivated to get the estate closed as quickly as possible. I would never send letters to spouses who just lost their mate; they have enough on their minds without me seeing if they want to sell. Most of the time you can tell by the address of the decedent and the address of the personal representative. If Ken Jones passed away and Lisa Jones is the personal representative and both live at 1234 Maple Street it means that Lisa is probably Ken’s wife. If the representative lives at a different address they are more than likely a child and that property will more than likely be sold in the next 30 to 90 days. I also got better deals when there were several siblings which meant the money was being split by several people. A $40,000 price reduction might only be $10,000 per person and easier to accept

When you receive leads from the above and some of the other 100 ways on the downloadable list they will come in 3 basic categories of properties:

  • Ugly
  • Semi Ugly
  • Pretty

When you are looking to buy and sell for a profit most (but certainly not all) of those deals will be ugly (they need a lot of TLC and money to bring them up to snuff) or semi-ugly (needs work for sure but more simple cosmetics than real contractor television stuff)

Before you even go to the next step of analyzing the lead, first pay attention to why the seller is selling the property. What is their true motivation for selling? All sellers sell for only two reasons. The need for cash or the need for debt relief are those two reasons. Yes, there are dozens of sub reasons such as divorce, pending foreclosure, settle estate, relocation, getting non performing loan off the books (REO’s aka bank foreclosures) and many others. All of those sub reasons go back to the two main reasons above.

Is the seller’s reason for selling strong enough that might allow you to buy this property under its current market value? The stronger the reason the bigger the discount on the price you could expect to receive. If a seller wants to sell because they are upgrading their home and need more space will that usually allow you a chance for a deal? No it will not! On the other hand if the seller has inherited the property and lives out of state and has just been informed the property is a beat up old mess does that sound like you might have a better chance at the kind of property we are trying to secure?You have a much higher chance of success based on that need to sell.

Tune in next week for more information on making successful real estate investments.

Earn Extra Money Renting Out Your Stocks

Stocks

Many investors rent out their stocks every month to generate potentially larger returns. Of course, when they do that, they don’t call it renting: The term they use is a “covered call.” That’s when you sell an option to another investor to buy your stock at an agreed-upon figure, called a strike price.

Why would you rent your stock? Let’s consider a hypothetical example: Maybe you bought 1,000 shares of a company some time ago for $18, and the stock has performed nicely, but now seems to be stuck in a range, hovering around its current price of $23. You don’t mind owning the stock. But it’s not doing much.

A bullish investor could pay $23,000 to buy the shares from you on the open market. Or he could buy 10 call options for $2 per share, or $2,000 total investment. Each call option gives the right but not the obligation to buy 100 shares of the stock by a certain date at a specific price. Only some stocks are optionable, via the Chicago Board of Options Exchange.

As Time Goes By

The value of those call options will generally rise and fall with the value of the stock. So if that stock hits $27, the investor can use the option and buy all the stock or can just sell the option without ever owning the stock. So if that investor bought October $25 calls for $2, they could now be worth $3.50 each, or $3,500. That’s a nice profit of $1,500 on a $2,000 investment. (This example excludes commissions and the difference between the bid and the ask price. And yes, the valuation of options is complicated.)

But remember, every day that passes toward the option’s expiration day means these options become worth a little less money. If that stock goes down, the options become worthless, and the total investment of $2,000 could be lost.

If the stock rises to the strike price of $25 or higher, you will probably be called, which means you have to sell your stock at $25, which is not terrible because you bought it for $18 — plus you received $2,000 for the option. If that stock does not make it to $25, then you keep the $2,000 and the stock.

You could sell the next month’s call option at $25 for maybe another $2,000 — or sell a call further into the future for more money. This could be a good strategy if you are long (meaning you already own it). But it might not be optimal. After all, if you bought the stock at $18 and think it’s heading toward $40, then it would not be advisable to sell it at $25.

Some Other Considerations

  • Stocks that are more volatile have higher options pricing.
  • You must be approved to trade covered calls by your broker. With experience, you can also be approved to deal in advanced option trades.
  • A “covered call” means you have covered your option sell by actually owning the stock before you sold the call. Uncovered calls could be riskier.
  • Selling a covered call is no more risky than owning the individual stock, so it is allowed inside of individual retirement accounts. Buying calls and put options (options bought when you are betting that a stock will go down in value) are riskier and are not allowed with retirement funds.

Never buy a stock just to sell the call. Make sure you like the stock on its own merits, because if you buy it to sell a call, and the stock tanks, you could still lose much of your investment, regardless of the extra you could make on renting it out.

Finding Killer Real Estate Deals

If you missed last weeks article on real estate investing,I recommend you read it before you move on to this week’s follow up article. All good real estate investments start out at the same place and that is where you must:

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Find a Good Deal

The term good is such a broad term and is in the eye of the beholder. My definition of good and yours might be totally different. From the perspective of a guy who has bought and sold tens of millions of dollars of real estate let’s talk about what’s a good deal. This assumes you want to buy a fixer upper cheap and rehab the property for immediate resale. This also assumes you are going to cash out of the transaction by selling to a retail buyer who wants to live in the property. You will see in upcoming articles that is not even close to the only way to sell properties but for this article, that will be the discussion.

You must buy your property at a big enough discount off its retail or repaired value to allow you to make repairs, pay holding costs, pay sales costs, and make a nice profit. The first thing needed is to know what the value of the home is after you put it in nice shape. One of my first mentors, Mr. Nick Koon, told me this “son, until you know value, you know nothing!”

We need to know what similar homes in the same area are selling for and are currently on the market for offered by other sellers. You are looking for as close to your style, size, lot size, school district, age, bedrooms and baths as possible. Does the subject property have a basement? Does it have a garage? These are the biggest factors in pulling the comparables (or comps as they are referred to in the trade).

There are many sites on the internet that will allow you to gather comparables but none will be as good as the local multiple listing service (MLS for short) that Realtors™ have at their disposal to conduct their business. Working with a real estate agent will be a huge asset to your business but make sure you don’t waste their time. I would use these other sites (Zillow, Real Estate abc, Trulia) to get a ball park and then ask my agent for their “comps”. By the way, real estate agents and brokers pay big money every month to have the best information in the marketplace so they should have the best and most up to date information.

If my prospective investment home is a 3 bedroom 2 bath 1,500 sq ft ranch than that is the kind of home I am looking for to compare against my home. On the same street or in the same subdivision would be great but at least as close as you can get. You are looking for a range of value because no two homes, however similar, are rarely exactly the same. If I see similar homes in nice shape selling for $240,000 to $260,000 then my value will be about $250,000. You would like sold comparables to be within 60 days or sooner when possible for the most accurate snapshot of current market value.

A Simple Formula to Keep You Profitable

Determine the After Repaired Value and multiply that amount by 70% to 75% maximum. Then back out your estimated repairs. This figure will give you your maximum offer on a fixer upper. It would be nice to buy it for less than this figure but this figure is the maximum you can pay.   Deviate from this formula at your own risk. This will allow you to make a nice profit on the deal. By paying more you put your profitability at risk. The “After Repaired Value” is what your property would sell for assuming it was fixed up nicely to compare with or even be better than the other properties that have sold in the last 60 days.

We need to be buying this $250,000 home (depending on repairs) in the $170,000 to $190,000 range.  We will first focus on bringing good prospects and leads to us so we can find a good deal as described above. We will focus on a few key ways to find good deals in this and subsequent articles but we can only scratch the surface. I would like to give you 100 best sources to consistently find good investment prospects. Please visit www.wealthwithoutstocks.com for a free download of the 100 ways to find great deals.

  1. The local Multiple Listing Service- This is usually only a good strategy when the overall market is very slow and there are large numbers of unsold inventory on the market. During those markets there is usually enough inventories in any good sized market to keep you busy.   Most local MLS’s download to realtor.com where you can access millions of listings from all over the country. When your market is hot you can expect to find very few deals on the MLS and the rare times there is a great deal listed it will most likely have multiple offers.
  2. Getting the word out that you are a serious investor and are looking for good deals in any condition.
    1. Get business cards made stating that you buy houses, in any condition, any area, and close quickly. Buy 1,000 and leave them all over and pass them out as often as possible
    2. Over-sized flyers stating the above as well as domain name for a website. May consider passing these out (services do it for cheap) or mailing to a certain geographic location if you really want to own properties in that area
    3. Good old fashioned bandit signs still work. These are usually yellow signs with permanent marker hand written on them and placed all over town. Get a service to put them up for you but check with local zoning ordinances so you don’t get fined. Add a 21st century technique to the sign and put something like text to “webuyhouses123” for a quicker response. This will get you cell phone numbers from prospects instead of just bad email addresses
    4. Pay an ant farm to bring you deals. After you download your 100 ways to find deals find all the people on there that are around houses all day every day and make connections with as many as possible. Tell them if they bring you a lead that ends up as a successful investment you will play them $300.00 or some figure that makes sense to both of you. You also might just pay them $10.00 per each lead sheet they bring you back filled out with the information you need to make a decision. Think of having 20 or 50 “ants” in the field bringing you solid leads. This is leverage at its finest!

Tune in next week to find out more killer ways to find great real estate investment prospects.

Are you in the Retirement Danger Zone?

retirement sign

A bad investment can be a serious wealth stealer, but as much as it matters how much you lose, it can matter equally when the loss occurs. As you approach or enter your retirement years, declines in the value of your portfolio can be especially devastating.

“Dollar-cost averaging” describes how you can benefit even when the market goes backwards — if you don’t need to withdraw your money anytime soon, and continue to regularly invest when prices are low. Let’s say you invest $500 a month in a mutual fund. When the fund is $15 a share, you’re buying more share than when it’s $20. Then when the market comes back and your fund hopefully goes up, you own more shares, so your gains will be bigger.

However, dollar-cost averaging assumes that you are in the accumulation phase of life and will keep putting in fresh money toward retirement for awhile. It also assumes you have enough time before you’ll need the money to allow your portfolio to rebound from any significant downturns.

If you’re in the distribution phase of life and are taking funds out of that mutual fund, what you run up against is the phenomenon of “reverse dollar cost averaging.” If you are taking out $3,000 a month to help cover your retirement expenses, and you have to sell shares at the lower $15 apiece price, you’ll need to sell more of them, which means you won’t be holding them when they recover. And sales like that can cause you to run out of money quicker.

Enter the Retirement Danger Zone

The retirement danger zone begins when you get within 10 years of your scheduled retirement date, and lasts for the remainder of your life. Any losses you take during this phase can dramatically affect the quality of your later years. Many older people who experienced such pains to their portfolios in 2007 and 2008 found that they couldn’t afford to retire on schedule, or had to go back to work to supplement their income. According to the Federal Reserve, the median net worth for Americans ages 55 to 64 went down approximately 33 percent from 2007 to 2010.

Stock indexes are hitting records again now, and enthusiasm may be causing some people to forget just how fast the market can turn. It is critical for those in the retirement danger zone to begin to reallocate more of their retirement funds toward rock-solid products that remove any risk of market loss. Below are some places you could reallocate money from stock and bond mutual funds to places with much less volatility. The old rule of thumb is that you will sacrifice decent growth to preserve your principal. In many cases, that is true.

  • Savings accounts have a pitiful rate of growth and should be used strictly for a liquid emergency fund. The principal is protected and FDIC-insured.
  • Money market accounts are usually very safe and offer a higher — but still low — growth rate than savings accounts. They are very liquid.
  • Fixed annuities offer better rates than above but are not liquid. Annuities come built in with an early withdrawal penalty that can wipe out modest gains if funds are needed sooner than expected. Don’t confuse a fixed annuity with a variable annuity that tracks the markets and hence are subject to large losses. Variable annuities are not a place for retirement danger zone money.
  • Certificates of deposit offer more interest than savings accounts but take away liquidity. CDs are for defined periods from 30 days to a number of years. The longer you agree to not touch the money, the more interest the bank will pay.
  • Fixed indexed annuities are a hybrid of fixed and variable annuities that will protect your principal in down markets but allow you to participate in a portion of the gains in up markets. You can also buy a lifetime income rider that will assure a certain income for you and your spouse’s lifetime. They are illiquid for the first seven to 10 years, depending on the product. They could be a great place for IRA funds to grow safely.
  • Cash accounts allow people to deposit funds with some life insurance companies on a fixed rate of return that is usually more attractive than what banks offers. When banks are paying 0.5 percent, some of these accounts pay 3 percent. These accounts are generally liquid — but if you withdraw from the account, you must withdraw the entire balance.

Intro to Real Estate Investing

In upcoming articles we are going to look at how to profitably invest in real estate of many kinds, starting with the old fix and flip. Stay tuned in coming weeks if you would like to enter that business or simply add some solid real estate holdings to your wealth portfolio.
My first love is real estate investment because it took me to levels that I could not have achieved without getting to be an expert in that arena. Before I bought my first property I was in college for two years and before that I was a juvenile delinquent and high school failure.

sold house

Your life can change in 30 minutes

My second year in college my grades were respectable. I was not winning any awards but I was doing far better than I had ever done in high school. The main reason was a reality check from my mom who told me in no uncertain terms that if I received the same grades in college as I received in high school that she would be cutting me off from my education funding. I couldn’t blame her as who wants to waste big money on someone who is not taking it seriously? Even though my grades were fine I hated every second of my two year college career.

Then late one night I watched an infomercial (brand new marketing strategy in the late 80’s that has now become common place) and it was talking about buying properties with no money, no job, or no credit. I had all of those so I figured I could make it happen. After some research and investing in that home study program I decided my second year at college would be my last. I jumped into the real estate investment business full time and eventually would also be a loan originator and real estate agent, in addition to an investor.

I found out that you could indeed buy properties starting with nothing if you had some cutting edge knowledge. I spent years and tens of thousands of dollars acquiring that education through books, tapes, and live seminars plus the real life education I learned on the streets.  I want to pass that real world information to you as much as possible in these next articles and in my book Wealth Without Stocks or Mutual Funds.

I then went on to train people all over the country in multi-day seminars where people spent thousands of dollars to attend these weekend events. I really love teaching people the power of real estate and how it changed my life. I obviously don’t have time or room to put all of those trainings into this article or the upcoming articles but I am going to load them with top notch real world information that you can put to use right away in your own life.

Who knew there were TV shows in flipping houses?

My young son loves to torture me with Real Estate “Reality Shows” because for some reason he is fascinated by the housing business. This will likely change as he gets older but if he wants to go into that field he sure was born into the right house! I am going to write these articles as if I was gone and trying to teach my sons the down and dirty of how to make money by fast turning or “flipping” houses. If they do what they learn on those “reality” shows they will certainly go bankrupt quickly.

Reality shows meet true Reality

I rarely watch these shows but when I do it becomes obvious they have little to do with the actual business of real estate investing and much more to do with drama and before and after photos. By the way, there is nothing wrong with this drama because people are tuning in to be entertained and not to be educated. The only problem is when people don’t know the difference and believe the televisions show is actual how to education. So let’s cut out the drama and get down to making real money.

Big paychecks are very possible in this business and are even possible starting with nothing. You see “no money down” does not generally mean there is not money in the deal it just means that it does not have to be our money. My first property was bought as a rental when I was 21 years old and did not require one dime of my own money. I used two strategies combined that allowed me to use a partner and seller financing to accomplish this first deal. My second deal was also no money down and I received about a $7,000 paycheck on the resale. Now $7,000 isn’t all the money in the world but when you are starting from scratch with none of your own money at 21 years old $7,000 was a windfall! Thankfully the deals and checks got bigger but those first two deals were critical to my future success in real estate.

I want to take you through the 5 steps of any profitable fast turn on a single family home. The 5 essential steps are:

1) Find a good deal
2) Analyze deal quickly
3) Make offer and close on accepted deal (or follow up on deals that didn’t get done but were close)
4) Repair for maximum profit
5) Sell Quickly

Seems simple enough doesn’t it? Inside of each one of those 5 steps are the details that will make you be successful or struggle in this niche business. Tune in next week when we further examine each step in more depth.

How you can avoid being a victim of a Ponzi Scheme

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History has seen countless shams, schemes, thefts and frauds — but how many con artists put their names into the language by their efforts? Charles Ponzi was an Italian con man who became famous (or infamous) in the 1920’s when the pyramid investment scheme he ran collapsed spectacularly. By the time the dust settled, it was clear he’s stolen $20 million from investors — the equivalent of $200 million in today’s dollars.

When the story hit the papers and the size of the scam became clear, Ponzi’s name became mud, and was forever linked to flim-flam schemes. The truth though, is that investment frauds have happened for centuries, and they are still frequent today. The most famous and largest to date was that of Bernie Madoff, who bilked investors over 30 years out of an estimated $65 billion in 2008. It’s estimated that at any given time, there are dozens of active Ponzi schemes that have yet to be exposed.

What It Is

At the heart of every classic Ponzi scheme are two things: an investment with (allegedly) an exceptionally attractive return, and a great story about just why the returns can be so extraordinary. Promissory notes are many times offered at high rates of return — so high that they should set off alarm bells among potential buyers. When an investment promises a guaranteed compounded monthly return, you can almost guarantee you are in trouble. These fraudulent promissory notes are never collateralized with anything of real value.

But the scam then must produce returns as promised for its investors, and usually, they do, for months or even many years — double digit rates of return year after year with no loss. How? With fraud, of course!

In most of these cases there is never any actual investing being done (though in some cases, there are initial attempts at legitimate investment in the short term). Instead, the “profits” come via the old “robbing from Peter to pay Paul” method. New investors’ money goes right back out the door to pay older investors, thus keeping them happily unaware that their original capital is at serious risk. Or rather, some of the money is used to pay returns to investors; much of it goes into the con artists pockets.

The long-term success of such an evil enterprise is highly dependent on the salesmanship of the con artists involved. Still, regardless of how good at selling they are, the reckoning will eventually come when too many investors want their original capital back — not just their dividends and returns. The house of cards can also collapse if too little new money is taken in to pay investors their promised returns. For example, during the financial crisis of 2007 and 2008, people went running for their capital to get them through some tough times, and investors in Bernard Madoff’s funds started trying to divest. He didn’t have nearly enough cash on hand to pay people back, nor the investments to liquidate, and his decades-long scam was exposed.

Despite all the press the Madoff case received, there are still crooks trying to use similar methods to steal your money. New schemes are uncovered every year, and usually after they are exposed, the investors manage to recoup about 5 cents on the dollar of their money. Those who might have been considered lucky enough to have gotten out before the collapse aren’t home free: bankruptcy trustees will go after them in what is called a “clawback“; even charities that received ill-gotten donations from the con artists are subject to having to reimburse of the donations.

One more subtle problem these scammers produce is that fear of them causes many people to shy away from legitimate investment opportunities. But rather than giving in to that fear, get educated instead. Here are some ways to differentiate between legitimate investments and scams.

Signs of a Possible Ponzi Scheme

  • You never receive real collateral for your investments, just promissory notes and statements
  • The rates of return you’re getting seem too good to be true (20 percent annually is generally the low end of these promises but Charles Ponzi promised 50 percent and even 100 percent rates of return)
  • You earn consistent strong returns with no losses, regardless of market behavior. There are legitimate financial products that offer and deliver stable returns with no market risk (such as some annuities) but these are backed by old, valuable companies with many assets on the books. And they don‘t pay those too-good-to-be-true returns.
  • You’re told complicated yet compelling stories about why the returns are so strong. Ponzi himself told the tale of postal reply coupons that could be bought and sold with different currencies producing huge profits
  • If you hear the terms “exclusive private placement,” that can be a red flag that something is amiss.
  • Recognize that new start up ventures are more prone to be frauds than older ventures, but remember that Madoff’s scheme ran for 30 years.

Steps to Take Before You Invest a Dime

  • Do your due diligence by researching the salesperson personally, as well as the company offering the investment. In these days of Google, and with the easy ability to to a criminal background check, you’d be foolish not to check these out. Get an official photo identification of your salesman. Is he really John Smith, or is that an alias?
  • Check with all relevant regulatory authorities and the Better Business Bureau for any complaints or investigations of any kind. These could include the Securities and Exchange Commission, state financial and securities commissioner’s office, along with the Financial Industry Regulatory Authority.
  • Ask what the collateral is for your investment
  • Find out who will be handling the closing of this investment? Are you giving them a check made out to their company? Maybe your attorney should handle all paperwork and work on your behalf to help verify whom you’re dealing with.
  • Referrals and references are important, but not nearly enough for a large investment because the people referring you could be victims of the con and not even know it yet
  • Don’t let greed overcome your good judgment. If your inner alarm bells are going off, listen to them and find another investment

The risk of getting taken a Ponzi scheme is much reduced if you invest with major brokerages and insurance carriers. Working through these kinds of companies doesn’t guarantee a good return, but it does give you the opportunity to make or lose money via above-board investments.

When you deal in private placements, venture capital, and private offerings, you must take extra care and time to evaluate that you are in fact, being offered a legitimate opportunity. There are tremendous amounts of money made and lost in such ventures but the risks are higher, so never put all your hard earned eggs in one basket.

Finally, if you’re going to take a chance and make a higher risk investment, invest only an amount that won’t seriously affect your lifestyle if it’s lost, whether due to the natural vagaries of the markets, or to the scheming of Ponzi’s modern disciples.

More Retirement Income? Many Look to Network Marketing

There’s no getting around it: Too many older Americans just haven’t saved enough for the retirement lifestyle they hope to enjoy. They add up their anticipated Social Security payments, their investment income, pensions and other sources, compare that sum to their expected expenses and — there’s a gap.

You can fill that gap by continuing to work, of course, but retirement isn’t really “retirement” if you’re still cranking away for a hovering boss. But there are alternatives, and one that is gaining popularity among those looking to pad their retirements is joining a direct sales enterprise. These businesses are also called network marketing, multilevel marketing, networking, direct sales and the not-so-flattering pyramid scheme.

In essence, you sell a product line or group of services to your “affinity groups” — in other words friends, friends of friends, family, and colleagues, past or present. You get a straightforward commission on your sales, and you can also invite people you know to sell the products as well — and you earn commissions on their sales. These sales structures can — and often do — go on for quite a few levels. Hence, the name multilevel marketing.

“In the United States, approximately 16 million people are involved in direct selling, accounting for almost $30 billion in annual sales,” the Direct Selling Association says. That averages out to $1,875 per person a year.
Networking
How It Works

Some people believe that since the people at the top of the distribution chain make the bulk of the money, that the term “pyramid” is appropriate. I’d respond to that by encouraging you to look at any large corporation; they all pay their top people significantly more money than their lower-level employees. Yes, it’s true: The company you work for is probably also one of those dreaded “pyramids.”

Multilevel marketing is merely a different way to promote and distribute products and services. Instead of spending large amounts of money on traditional marketing and advertising, it uses that money to pay commissions to its distributors or agents.

Distributors get to tie into an existing product line, and it takes minimal capital to get started. The key is to represent a product or service that you believe in, and one that has a good, true story of how it is helping people. Let’s say a certain brand of weight management products has been a huge help to you. Why not tell other people who have similar goals and earn a commission if they try the product?

Before You Get Involved

Here are seven tips to a successful network marketing experience.

  1. Make sure you love the products and that there is a true story you can to tell to your prospects about what the products have done for you or someone you know. Don’t get involved with any company just because of a compensation plan and its promises of riches. Passion is important to be successful selling anything.
  2. Understand how much you can make if you just sell the product and don’t recruit new sellers below you. Members of the association are required to give out “fact-based information about the company’s compensation structure and earning potential.”
  3. Look for a company that has been around for at least five years — and 10 would be better. Launches and failures of networking companies are common. Don’t worry about getting in on the ground floor — focus on dealing with a solid company with a track record.
  4. Investigate marketing support. You will most likely get a replicated website that you can use. How else does the company bring help distributors?
  5. Be wary of seminar companies in network marketing clothing. If you are forced or strongly encouraged to buy the CD of the month and a ticket to any and all events, that is the best sign that more money is being made on those items than on the actual product. Gatherings are a good thing in moderation. There has to be more than just hype and training materials.
  6. Be patient. It might take you a year or two to achieve that income goal — or more if you have bigger goals. Steady, persistent action is the key.
  7. Ask about if there are monthly minimums for personal production to qualify for commissions and if there are monthly personal points to be maintained.

Don’t judge direct selling by just the numbers. Judge by how it would work for you, with your own solid plan of action. One of my business ventures is a real estate brokerage, working with out-of-area investors. Realtors average a little over $14,000 a year. This encompasses everyone with a license — even if they don’t sell anything. Many friends and colleagues — and I — make many multiples of that amount. So don’t let an average scare you.

Do your homework, and look before you leap. Then be patient, persistent and refine your marketing campaign and sales skills. If you succeed, it could be just the boost your retirement needs.  I will share more information on this subject in my new book, Wealth Without Stocks or Mutual Funds, releasing this year.