Reality Based Thinking

Reality TV seems to be by far the hottest thing on the tube right now. It amazes me that people watch so much reality TV, yet they don’t face reality in their own lives. You see, in “reality” there are two ways of viewing life that ultimately dictate how you choose to live. They are two dichotomous world perspectives. These two worlds are – the world of “Should Be” and the world of “As Is.” The sooner you get out of the world of “Should Be” and enter the world of “As Is”, the faster you will succeed in life.

There is a very common school of thought that suggests that a perfect balance of fairness and equality should exist amongst all people - there “should be” no racism, no sexism, no classism, no poor, no exceedingly rich, no this, no that, and SOMEBODY should Change the way things are so everyone has a chance to be equal because that would be fair. In a perfect world, all of that might be true, but… that is not REALITY.

The world of “As Is” puts the truth straight in your face and forces you to deal with it as it is. Once you deal with the world of "As Is", you make no more excuses for not being successful no matter what you are starting with or what obstacles are presented to you. You become solution oriented and no longer use HOPE as a strategy (Hoping things will change and be equal is a poor strategy. You accept the real world and navigate your way through the tough challenges of life. You will succeed or you won’t and no one will care except you… that’s the world of As Is.

The world of "As Is" says that even though the playing field is not level and there are many obstacles in front of me, I have the power to overcome them or to succumb to them, but either way it’s MY CHOICE.

Below are two examples to dramatically illustrate how crazy it is when you are stuck in the world of "should be" and how simple life can be when you enter the world of "as is."

Person #1 walks into a room with the intent to come out on the other side but soon realizes that there is no door to exit. He says to himself, “hmmm! There should be a door here,” and proceeds to walk into the wall. He backs up and gets angry and says again, “there should be a door here.” He continues bumping into the wall over and over until he finally gives up hope and sits down and progresses no further thinking to himself that life is not fair because there should be a door here.

Person #2 walks into the same room with the intention of coming out on the other side and also sees that there is no exit straight through. The thought does cross her mind that there should be a door there, but she does not hesitate or dwell on that thought. She simply walks back out the door having learned a valuable lesson, and then walks through the adjoining hallway that she discovered being solution oriented and passes by that room on to her desired destination.

Which world are you living in?

One Entrepreneur Mom’s Secret to Beating the Recession

"From a technical perspective, the recession is very likely over at this point," Federal Reserve Chairman Ben Bernanke told a conference at the Brookings Institution in mid September. He went on however, to caution, “that many people will still find that their job security and their employment status is not what they wish it was." The harsh reality is that the worst recession since 1931 may be over from a “technical perspective” but the affects of the recession on the job market will be impacting and long lasting. As companies struggle to keep their doors open by cutting their greatest expense, labor, unemployment has risen to a 26 year high of 9.8%, and according to the latest Federal Reserve outlook, unemployment rates are expected to remain high for five or six years. As gloomy as this outlook seems, it does not mean that ample opportunity does not exist to make more money than ever before in an economy where there are currently six times as many people seeking work as there are job offers. One Brooklyn Mom has found a way to thrive during the recession without waiting on a bailout or for the economy to change.

Nefer Bernard seems like a typical mother of three when you see her at a PTA meeting or at one of her children’s sporting events, but what you don’t see is the mastermind behind a thriving business that has not only survived during the recession but has seen a huge boom in business despite the poor economy. Nefer, as she is known by her clients, is the founder and lead stylist of Sheny Nefer Natural Hair Care, Inc. in Brooklyn, a local leader in the natural hair care industry that has been featured in national magazines as well as at hair shows in the International African Arts Festival, Intertwined VI and shows in Philadelphia and Atlanta. Nefer has a unique business model that has all of the ingredients for success. She says her formula for success is “simple and can be used by anyone.” Her formula can be summed up as: tap into a growing niche market where there is little competition, learn from and maintain relationships with mentors, and keep your start up and operating costs to a bare minimum.

Nefer didn’t come upon this winning model right away. Nefer said she tried other businesses that just didn’t work out; a day care center, custom made, African centered, designer baby bedding, and a slew of multilevel marketing ventures. Having locked hair herself, Nefer said she always had an interest in natural hair and saw a growing trend in working women locking their hair and wearing natural styles. Nefer decided to go about this new business venture differently. She knew that in order to be successful she had to develop not only her hair care skills, but her business skills as well. Nefer said she, “became an apprentice with a well established stylist, and later became a hair model for a pioneer in the industry that was happy to share her experience in hair care and business with me.” Nefer still maintains her relationship with her mentor and they meet regularly to keep up on the latest trends in the industry. Most new business owners miss this critical step and flounder around making costly mistakes that could easily be avoided if they attach themselves to a mentor.

When doing research on recession resistant businesses I discovered that most experts believe that service-oriented businesses including plumbers, electricians, auto repair, carpet cleaners, handymen, and computer repair technicians tend to thrive in rocky economic times because people spend money on maintaining and repairing what they have as opposed to buying new items. So, I asked Nefer why she believes a salon that specializes in locking hair and other natural styles does so well. Nefer attributes the steady increase in clients to two reasons. She said her clients that still have a job have told her that their “appearance and presenting a good image is more important than ever.” Her clients feel that it gives them a slight edge in keeping their job to look well groomed with a professional appearance. Also, looking good helps them feel better during this stressful time in our economy.

When Nefer started her business she didn’t choose a traditional storefront, but instead took advantage of a situation that most people would be stressed about. When the tenant from the rental unit in her own house moved out, rather than find a new tenant, she set up her shop in the vacant apartment. Nefer said this served many useful purposes. First, as a mother, it gave her the ability to better “monitor the children, help them out with homework, and make sure they have a nutritious meal to eat.” She said, “I didn’t want someone else raising my children while I worked.” Second, it kept her costs down significantly. Nefer didn’t have to save up for a huge deposit and sign a long term lease with a landlord that she didn’t know. “Why pay someone else when you can contribute to your own household?” Nefer concluded. She saved thousands of dollars on start up and operating costs by running the business from home.

How does Nefer’s formula for success overcome the common adage that says the location you choose should get maximum exposure to walk by traffic? Nefer has built her business around exclusivity. She completely avoids walk in service and only schedules clients by appointment. She has set up a cozy, social atmosphere, where her clients interact and engage in great conversation. She even has theme nights and some clients only schedule appointments on those days. Her clients enjoy the exclusivity of being a Sheny Nefer client and have become advocates for her business. Referrals are the lifeblood of her business and she has capitalized on that by setting up a referral reward system to encourage her clients to keep sending new clients. Business is going so well that, in addition to the current stylist she now employs, she is looking to expand and bring in one or two additional stylists to keep up with the increase in demand.

Starting your own business certainly is not a simple task to accomplish. However, neither is getting up to go to work and having other people dictate your agenda, your meal breaks, what time you'll go home, and then leaving feeling under-appreciated and realizing you might lose your job at anytime. With no end in sight to the steady stream of people losing their jobs, now could be the perfect time for you to weigh your options, start doing research, and make a new and better future for yourself. Take advantage of the new opportunities that this new economy offers. For help getting started you can go to your local Chamber of Commerce, The Small Business Administration or your local library.

The Secret to Success Is No Real Secret

Let me first say that I enjoyed and appreciated reading Napoleon Hill’s classic wealthy mindset book, Think and Grow Rich. I can also say it was a brilliant strategy to take the principles of that book and put them in a modern medium (video) and create the “Secret,” another best seller and soon to be classic. They were both inspirational and chock full of exercises geared towards aligning your mind towards attracting wealth. I recommend anyone considering getting rich should own a copy of each. As a matter of fact, when surveyed, many self made millionaires said that “Think and Grow Rich” influenced them more than any other book except the Bible. That is pretty powerful.

As powerful as aligning your mind towards money is, it is NOT enough. Ultimately, only one thing will get you what you want – the one thing Napoleon Hill left out of the book and the “Secret” never addressed. That one thing is no real mystery – it’s DECISIVE ACTION.

“Rules such as ‘if I hold positive thoughts about prosperity, money will just start pouring into my life’ are just too simplistic to work… money exists in the physical domain. Money doesn’t come as the result of thoughts in the metaphysical realm; it comes as the result of actions in the physical domain." -Maria Nemeth, PhD; author of "The Energy of Money"

The bottom line is you can think about money, talk about it, write about it in your journal, list it with your things to do, hang it on the refrigerator in the form of an affirmation, and tell as many people that will bother to listen to you about your dreams, but none of that will make you successful unless you take decisive action. “Action speaks louder than words!”

Every day you must take focused and specific action towards your desired outcomes. If your thoughts and words are not congruent with your actions towards attaining wealth, then wealth will never be achieved. Once you align your thoughts, feelings and actions towards attaining wealth, it will come easy and continue to come for as long as you remain consistent.

Real Estate Investing In The New Economy

Whether you are a seasoned real estate investor or simply want to try your hand at it for the first time, you have an opportunity to take advantage of and create huge profits from the real estate bust as desperate property owners of top quality, pristine real estate compete to sell their properties against the glut of properties in various stages of foreclosures that are driving down the housing prices. With property sales steadily declining, and as banks continue to make it difficult for potential buyers to borrow for a mortgage, property owners seeking to sell their properties are ripe for making a deal in which you can negotiate favorable terms on a lease option deal.

What exactly is a lease option? A lease option (also known as a lease with an option to buy, lease-to-own and rent-to-own) is a lease combined with an option to purchase the property within a specified period, usually 3 years or less, at an agreed-upon price. The buyer pays a non-refundable upfront option fee, usually 1% to 5% of the price (this negotiable in today’s market and can be even less), which is credited against the purchase price. The buyer pays rent, and an additional amount of money (also negotiable) that is also credited to the purchase price. At the end of the option period, the buyer has the right to buy at the predetermined price. If the purchase option is not exercised, the buyer loses both the option fee and the additional premium.

The lease option offers property ownership opportunities to any interested buyer even if they’ve experienced a bankruptcy, foreclosure, divorce, have bad credit, no job history and have little or no money. During the option period, they have the opportunity to rebuild their credit and accumulate equity while creating income from the property. Some additional benefits include: equity accumulates much faster (five times or more) than with conventional financing through a bank or lender because of the way a traditional loan is amortized; option money and monthly payment are working towards the purchase (like buying a property on layaway); minimum cash out of pocket to take control of the property; increased buying power; no taxes and less liability; minimal maintenance; and privacy since your name will not be on the deed or in the public records until you exercise your option to buy.

Even though it seems costly, the right to not exercise the option is of value to buyers as well. It gives you the right to test drive a property without the commitment and cost of a traditional purchase. If there is something seriously wrong with the house, neighborhood, or neighbors, the money left behind on a lease option is much smaller than the cost of an outright purchase followed by a sale.

Although lease options can be used in any market, right now is a particularly good time to use this strategy. According to the Association of Progressive Rental Organizations, the rental industry’s trade association, the lease option business generates $4.4 billion in revenues for the industry, and serves nearly three million customers. It shows no signs of slowing down. In fact, all indications point to increased revenues for years to come.

Steps to a Successful Lease Option Deal

Step 1 - After assessing your available resources (available cash, credit, etc.), and regional trends (potential growth areas), choose a geographic location to specialize in.
Step 2 – Locate leads (For sale by owner is best) and qualify them by analyzing the numbers. It’s all about profit potential.
Step 3 – negotiate with the seller to determine the purchase price. You must delineate all terms of the purchase at the time you make the lease-option agreement. If property prices go down, you will have to choose between buying the property at the originally agreed-upon higher price and losing the option money.
Step 4 - Agree on the term of the lease. This will be the maximum length of time you want the opportunity to exercise your option to buy. You may be asked to put up option money - typically 1% to 5% of the purchase price paid to the seller - for the privilege of having the option to buy.
Step 5 - Determine how much you will pay for your monthly rent. (This is the amount a person would pay to simply rent the property.) Then add $250 to $1,000 per month to be applied toward the future down payment of the property. (This is not a requirement, but it helps you accumulate money for a down payment.) All option and additional rent monies paid to the seller are nonrefundable if you do not exercise the option to buy.
Step 6 - Agree upon terms regarding the exercise of the option, such as the escrow period and financing.
Step 7 - Determine who will pay for inspections, work and warranties when the time comes to complete the purchase.
Step 8 – Have your attorney review the lease-option contract.
Step 9 - Handle the transaction as a lease until you are ready to exercise the option.
Step 10 – Generate income from the property (by subletting, vacation rentals, government programs, etc.) to cover your costs.
Step 11- Exercise the option in writing.

Success Secrets of a Financial Champion

Success doesn’t happen by accident whether it is on the athletic field or in the financial arena. Although life may seem unfair, we all have the ability to maximize our talents, tools and resources to create the greatest financial outcome for ourselves possible. Some people seem to make it look easy; gliding through life with one financial success after another while others constantly struggle, rarely accomplishing the smallest financial goal. Having a long history of athletic success in track, football and martial arts as well as financial success in business and investing, I have been able to identify four distinct personality types that are consistent with the amount of success that people achieve. I don’t believe that you are stuck in any type. I believe with knowledge, skills and effort you can ascend to the highest level of success. The four types are Losers, Players, Winners, and Champions. I have described them below:

LOSERS

Don’t realize that they can determine the outcome of the game. They have no clue as to what the rules are. They just go with the flow and unhappily accept whatever happens. They often complain about the game being unfair, and make excuses why they can’t win. They don’t even bother trying to compete since they believe they are doomed from the start.

PLAYERS

Realize that they are in the game, but lack sufficient knowledge of the rules and skills to win. They want to win, but rarely do consistently. They fail to study the game or their competition and put little effort into perfecting their skills. They rarely seek to compete in tough arenas that bring greater rewards because they fear losing. They would rather accept a small victory than to take a chance and lose a big game.

WINNERS

Try harder than the others to win. They put in an enormous amount of personal effort to win. They try to understand and master every aspect of the game. They take personal responsibility for their wins and losses. They win more often than they lose, but are always one step short of being a champion.

CHAMPIONS

They make the game look easy. They win consistently. Even when they lose, they bounce right back seemingly stronger than before. The champion plays to his/her strengths and supplements his/her weaknesses with the resources available to everyone (i.e a great coach, great teammates, and great fans). They understand how to maximize their talent, skills and resources by having a mentor (coach) that can help guide them and develop their skills, a team that compliments their skills (no one can do it alone), and the support of fans (family, friends, etc.)

Everyone has the same opportunity to succeed financially, but you must first learn the rules of the game. I have briefly outlined the basic rules below:

Rule #1 - You must realize that you are only limited by your own beliefs.

If you do not believe that you are capable of the highest levels of success, it is impossible to make it happen. You cannot accomplish what you do not believe is accomplishable.

Rule#2 - You must commit 100% to victory.

The commitment to victory starts long before the actual competition. Alabama football coach Bear Bryant once said, “The will to win compares little to the will to prepare to win.” Your commitment has to be stronger than the pain, discomfort, fear and anxiety you will inevitably feel when it is time to play the game.

Rule#3 - You must have a powerful strategy.

It takes more than just desire and skills to win. It takes a well thought out plan based upon thorough research of the arena that you are in, your competition, your strengths, weaknesses and the likelihood of success.

Rule#4 - You must recognize your strengths and weaknesses.

Make an honest assessment, without judgment, of your strengths and weaknesses. No one is strong in every area. The quicker you can identify what you are working with, the quicker you can ensure a course for victory.

Rule#5 - You must supplement your weaknesses with the strengths of others.

Play to your strengths and supplement your weaknesses. Having a solid team that compliments each other’s skill sets is critical to your success. You do not need a group of people with the same skills that duplicate efforts. Find teammates with different skills but with a common goal.

Reinventing Yourself for the New Economy

One very serious affect that a recession has is the inevitable layoffs that occur as companies struggle to keep their doors open by cutting their greatest expense – labor. Unemployment is currently at a 25 year high at 8.9%, and according to the new Federal Reserve outlook, unemployment is expected to continue to rise to between 9.2% and 9.6% this year. The minutes from the April 28-29 Federal Open Market Committee meeting showed Most Fed members "indicated they expected the economy to take five or six years to converge to a longer-run path characterized by a sustainable rate of output growth and by rates of unemployment and inflation consistent with the Federal Reserve's dual objectives, but several said full convergence would take longer." This means that the staggering 5.7 million jobs lost since the recession officially began in December 2007, including the 539,000 jobs lost last month, pales in comparison to what is to come. As gloomy as this seems, it doesn’t mean that there will not be ample opportunity to make more money than ever before. With innovations in technology, transportation and communication you now have a global marketplace to tap into.

Protestors march with picket signs everyday trying to hang on to jobs from industries long gone to distant shores where corporations can find less expensive labor and materials. Gone are the days when you could graduate high school and work at the local factory or mill or go to college and manage that plant or mill until you were ready for retirement 40 years later. Being a life-long employee in a company just isn't realistic anymore. Those days are gone forever. The quicker we begin to understand that, the quicker we can see the new opportunities that are emerging around the world.

Outsourcing, which many Americans see as the downfall of this country can also be the saving grace of this country. Aside from the fact that outsourcing has kept inflation down, thus maintaining a higher standard of living for the average American, it has also provided new opportunities for those with the technical skills that emerging economies around the world require. Once we get past our own arrogance, we can see that as the US dollar declines against the British pound, the Euro and the Yen we are a cheaper source of labor for companies in other countries. You can become the recipient of outsourcing from other countries that lack the affordable labor pool with the skills required for their growth. You can place your skills on websites that cater to a global audience of companies that require services such as www.elance.com.

There is also money to be made closer to home if you are willing to examine the future trends of how companies will do business in the new economy. Companies are scaling down to skeleton crews, and will begin to hire specialists (independent contractors) on a job by job basis. This allows a company to reduce its operating costs and maintain a higher profit margin as opposed to keeping a full time staff that would require union wages, sick leave, vacation time, payroll taxes and health benefits. This means that in order to have steady income you must retrain and repackage yourself as an independent contractor that moves from company to company offering your specialized knowledge at a price. Independent contractors can perform specific functions for a company ranging from, telemarketing, advertising manager to electrician, and sign an independent contractor agreement specifying the range of time they'll be working with the company and how and when they are compensated. You become a highly-valued specialist and the very thing most people only dream of... your own boss.

Outsourcing your skills or becoming an independent contractor is not a simple task to accomplish. However, neither is getting up to go to work and having other people dictate your agenda, your meal breaks, what time you'll go home, and then leaving feeling under-appreciated and realizing you can get axed at anytime. Weigh your options, start doing the research, and make something happen. Your future depends on it.

12 Principles of Successful Real Estate Investing

There is no doubt that we are in one of the worst economic times that America has seen in many years. Massive layoffs, interest rate adjustments, and over building have lead to a major crisis for many in the real estate market. These factors have led to a record numbers of foreclosures. With a glut of foreclosed properties entering the market, prices of all properties continue to drop as fewer qualified buyers are in the market to purchase these properties.

Although, this market may seem like the worst time to be a real estate investor, it is actually the best time – if you know how to maneuver in this game. I bought my first property in 1996. It was a major ordeal full of unbelievable trials because I didn’t have a clue how the process worked. I relied on others who didn’t have my best interest at heart to close the deal. In retrospect, a lot of people made a lot of money from my ignorance. In the years that followed, I have amassed a tremendous amount of knowledge investing in real estate during boom times as well as during the decline. The best lessons I have learned have not only come from my personal experiences, but from observing others in the game – some who were greatly successful and others who disastrously failed. From this experience, I have come up with a set of twelve guiding principles that any investor, green or seasoned, can follow in order to succeed.

Rule #1: The numbers don’t lie

There are only five types of math you need to know to be a good investor. They are addition, subtraction, multiplication, division and probability. If you analyze every deal using simple math – not emotion, not speculation – you will only pick the deals that can make you a profit. Don’t ever forget that real estate investing is a business in which your ultimate goal is to make a profit; whether that profit comes in the form of a cash return on a sale or from monthly cash flow from rentals, the objective is to make money. A bad deal is a bad deal. It doesn’t matter how you try to justify it or explain it away, if the numbers don’t add up to a significant profit, don’t enter into the deal.

Rule #2: You can’t do good deals with bad people
Unfortunately, there are some very unscrupulous people in the real estate industry. Do your homework and check out anybody you intend to do business with. Interview them, Google them, ask for references, check with watch dog agencies and see if there is something that raises a red flag. If you find anything wrong, tangible or simply a bad feeling, move on. A predator does not discriminate. If they took advantage of someone else, no matter what they try to tell you or how safe and profitable the deal looks, they WILL eventually take advantage of YOU!

Rule #3: Don’t try and predict the market trends
The only guarantee about the market is that it will shift. There are no real indicators that can determine how long the excesses will last, nor is there any way to know what will change the attitudes of the government, lenders and buyers that fuel the change. So, whether there is a “bubble” or a down turn in the market, you should remain disciplined in how you analyze and acquire your investments. During a “bubble,” don’t assume the market will continue to climb and purchase an overpriced property speculating that it will increase in value.

Rule#4: Learn to recognize opportunity
There is ample opportunity to profit in any market. You have to learn how to recognize those opportunities that no one else can see. While others are blinded by the market trends – chasing any dangling carrot put in front of them - you must remain clear and focused on real value. The best opportunities exist investing in areas that have properties with intrinsic value that have been adversely affected by circumstances causing people to forget about its long term economic value.

Rule #5: Understand the difference between price and value
This can be explained simply; price is what you pay. Value is what you get. Often times, new investors confuse the two. Based upon a fear or lack of available resources they often chase after the deals with the lowest price only to find that what they bought does not have strong economic value. In essence, it would have been better to pass on the low price and increase resources to purchase something that will produce greater profitability through a resale or rental income. A smart investor realizes that a property does not have to be bought for a rock bottom price to be a good investment. It only has to be selling for less than what you determine the value of the property is.

Rule #6: Always look for intrinsic value
There is no formula to figure out intrinsic value. You have to understand the neighborhood in which you intend to invest. In New York City, there are certain types of buildings, such as brownstones and limestones that have intrinsic value that transcend the market fluctuations. This is because of their architectural beauty and quality. You cannot reasonably afford to build a property with that level of quality and craftsmanship in the proximity of other equally magnificent properties today. Since the cost to build one will continuously ascend out of reach, to acquire one of these properties gives you long term economic value. The same consideration goes for waterfront properties which are finite and properties overlooking Central Park in Manhattan or Prospect Park in Brooklyn.

Rule #7: If everybody’s buying – SELL!
Most people get interested in investing real estate when it’s popular. The best time to get interested in real estate investing is when no one else is. The bottom line is when it comes to investing you can’t buy what is popular and do well. When there is a buying frenzy, prices are driven up by the overwhelming demand; this is not the time to buy. It is the time to sell and reap the benefits of the markets irrationality. Also, when the buying seems to grind to a halt, prices drop and inventory increases. This is the time to seek out bargains and buy as much as possible.

Rule #8: Minimize risk
There is no way to completely avoid risk because every factor cannot be 100% accounted for, but you can significantly reduce your risk to close to zero. This is done by performing tedious due diligence on every deal. Develop a niche neighborhood to invest in, don’t get caught up in the trends, scrutinize every opportunity to find the best use of the property, add up all of your costs and subtract that from potential income to determine the profit margin; and make sure you have your team and resources in place to capitalize on opportunities. Most of all don’t get emotionally attached to any deal; learn to walk away if the risk is too great.

Rule# 9: Avoid overleveraging
Do not borrow more money than you can afford to pay back if the market shifts or an unforeseen event causes you to liquidate the property. One hundred and one hundred and six percent financing has caused the financial ruin of many new and seasoned investors that greedily gobbled up every property they could get their hands on over the past five or six years. The market shifted, sparking decreases in value and now the properties are worth less than what they paid for with borrowed money. There is no opportunity to sell the properties without still owing the lender money.

Rule# 10: Be patient
You only need to make moves when opportunities arise. There will be times when multiple opportunities will come your way, and their will be times when nothing good comes you r way for a long time. That is the nature of the game. Fight the temptation to force a deal to happen simply because you are impatient. Impatience causes you to ignore sound investing principles. This leads to greater risk and potential losses. Don’t panic or become remorseful over a missed opportunity either since it is inevitable that a new opportunity will come your way again.

Rule # 11: Only invest in what you understand
Ignorance coupled with borrowed money is a recipe for disaster. Do not try to do deals that are outside of your scope of understanding. Keep it simple and develop your knowledge and skill set in a very specific neighborhood, property type, investment strategy and ability to determine value. Learn from your mistakes and continue to expand your knowledgebase.

Rule # 12: Know your ultimate goal for the investment
Before you get into any deal, you need to know what your ultimate goal is for the property. Is your intention to buy the property, improve it to increase its value in order to sell it quickly for a profit; or is your intention to fill it with amenities attractive to your target market to maximize monthly cash flow from rentals. Before you can determine if a deal is good or not, you must know what your intention for the property is.

The Truth About How We Got Here (Part 2)

The real estate bubble and inevitable crash was fueled by several factors that in retrospect should have been crystal clear. However, greed is a blinding force that allows people to ignore the obvious.

The incredibly rapid climb and equally as rapid crash and burn in the real estate market got its start with President Bush’s desire to keep his campaign promise of expanding home ownership, especially amongst lower income families and minorities. In June 2002, he unveiled his plan called “Renewing the Dream," which would give nearly $2.4 billion in tax credits over the next five years to investors and builders who developed affordable single-family housing in distressed areas. Along with this, he created the "American Dream" down payment initiative, which provided down payment assistance to approximately 40,000 low-income families.

President Bush also issued America's home ownership challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the home ownership rates of minorities and non-minorities. Banks were all too happy to expand their market into this new untapped area. This was given incentive with the advent of fractional reserve lending which suddenly allowed banks to lend 10 to 30 times their reserves. The Federal Reserve fell right in line and dramatically lowered interest rates making money less expensive to borrow. The trap was set.

New buyers flooded the market, now able to get down payment assistance and an inexpensive loan. This sudden demand drove up the prices of properties on the market. Financial institutions responded by creating new loan packages to accommodate the higher prices – 100% financing became the norm. This unfortunately drove prices even higher since it allowed even more buyers in the game. As expected, lenders responded and came up with 106% financing (6% to cover closing costs). Prices climbed even higher – basic supply and demand. The feeding frenzy was on!

Current homeowners saw the equity in their homes skyrocket to obscene amounts (in some cases 500%). Homeowners began to pull that equity from their properties refinancing as much as every three to six months. In 2005, homeowners extracted $750 billion of equity from their homes (up from $106 billion in 1996), spending 2/3 of it on personal consumption, home improvements, and credit card debt.

Lenders excited about the money pouring in would lend to almost anyone that stated they had money and a decent credit score which quickly exhausted the market of qualified borrowers. When the banks ran out of creditworthy borrowers, they had to turn to “sub prime” borrowers; and to avoid losses from default, they moved these risky mortgages off their books by bundling them into “securities” and selling them to investors. To induce investors to buy, these securities they were then “insured” with credit default swaps (see “The Truth about How We Got Here” part 1).

They also enticed greedy buyers with low teaser interest rates on adjustable rate mortgages (ARMs) offering as little as 2% fixed for the first two years and 28 years adjustable based upon the prime rate. With greed blinding the consumers into thinking the market would continue to grow and they would be able to refinance out these loans were readily accepted.

The growth was unsustainable. Some of the cities that had experienced the fastest growth during 2000–2005 began to experience high foreclosure rates as those adjustable rate mortgages adjusted. The sub prime market fell first followed by the mainstream market. As refinancing suddenly ground to a halt, the economy saw a sudden loss of the consumption that had been driven by the withdrawal of mortgage equity. Real estate related industries began to crumble and consumer retail markets saw an instant drop in sales revenue.

The massive defaults on foreclosures caused insurers not to be able to cover CDS defaults. Banks and business failures occurred in a dramatic fashion. The credit card industry quickly followed behind the real estate industry and the rest is history – Recession 2009!

The truth About How We Got Here (Part 1)

It’s all over the news, the internet and talk in the street - we are in the midst of a full blown recession the likes that have not been experienced since the Great Depression. Yet some people are steadily building their fortunes as we witness long standing financial giants topple. Having had first hand experience with big movers and shakers in the real estate and business world (and insight from political powerhouses) I have a unique perspective on this mess that few others have had the privilege to bear witness to. I am dedicated to revealing to you the little known facts about how to develop wealth and be successful in any economy based upon my unique experience. In order to fully understand how to make money in any economy, it is important to understand the mindset of the players (buyers and sellers) in the “market,” and how it led to the situation we find ourselves in.

It is critical to realize that it is the emotional state of the players in the market that create bubbles and their inevitable bursts. How did we get into such a quagmire with the economy? The simple answer is pure greed, but that wouldn’t adequately sum it up. You see the market is driven by two emotions fear and greed. During a recession fear is the prevailing emotion and buying, selling, lending and investing grind to a halt. However, during boom times greed or the prospect of making outrageous sums of money at little risk drives investors to invest, lenders to lend, business owners to expand and consumers to spend recklessly. Unfortunately, it also lures the unskilled and unknowledgeable into the game as well. The prospect of easy money makes people and institutions take chances on things they clearly don’t understand.

Our economic disaster started out fifteen years ago like a scene from a stereotypical Hollywood movie about greedy bankers. In 1994, a team of JP Morgan bankers was having what they call one of their “Off-Site Weekends." Typically these are yacht parties, with bikini models, and $1,000 bottles of Cristal; and this trip wasn’t much different at the Boca Raton Resort & Club in Florida. The difference was, as they were holed up for most of the weekend in a conference room at the pink, Spanish-style resort, these JPMorgan bankers were brainstorming how to free up their capital reserves and still be able to lend tens of billions of dollars skirting the current banking regulations (By the mid-'90s, JPMorgan's books were loaded with tens of billions of dollars in loans to corporations and foreign governments, and by federal law it had to keep huge amounts of capital in reserve in case any of them went bad). They pondered how they could create a device that would protect them if those loans defaulted, and free up that capital at the same time so they could lend even more (Greed).

What those hard partying bankers came up with was a sort of insurance policy where a third party would assume the risk of the debt going bad, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves. The scheme was called a "credit default swap," and it was a twist on something bankers had been doing for a while to hedge against fluctuations in interest rates and commodity prices.

The difference is JPMorgan hired young math and science grads from schools like MIT and Cambridge to create a new market for these complex instruments. In 1997, the credit default swap (CDS) was launched and quickly became the hot financial instrument, and the “safest” way to mitigate risk while maintaining a steady return. There are very few people on the planet that can tell you exactly how a CDS works, yet they were being gobbled up like hot cakes by foreign nations, major US corporations, hedge funds, pension funds and anyone with big money looking for an easy return. By 2007 it is estimated that the CDS market grew to more than $45 trillion (Greed).

When the economy turned and many of the loans that the CDS’s were created to cover went bad, the banks didn’t have the cash reserves to cover them and it started the domino effect of failing financial institutions. AIG became the best known casualty to CDS’s having to be bailed out by US tax dollars after it defaulted on $14 billion worth of credit default swaps it had made to investment banks, insurance companies and dozens of other entities.

In the next segment of this article, I will reveal the truth about how the real estate bubble was created and what really caused the bubble to burst. As usual, I welcome your questions, comments and insight and look forward to sharing more insider wealth tips with you.

Wealth Building Secrets

I want to welcome you to a new and revolutionary look at wealth building that transcends any economic swing – positive or negative. I want to share with you the fundamentals of how a free market economy, such as that which we live in, has the potential to produce wealth consistently if you are able to both see and, in a timely fashion, seize the abundance of opportunities that are constantly created.

Wealth building starts with a shift in perspective that requires a close examination of how the entire system works. Once you understand the rules (allowances and restrictions), and the nature of the economy it becomes easy to master over time.

This starts with understanding the foundation of our economy which you can find in Adam Smith’s 1776 masterpiece, “An Inquiry into the Nature and Causes of the Wealth of Nations.” Without getting into a long winded economic explanation of what a free market economy is based upon, it can be summed up in three major points:

1. It allows competition domestically and is open to trade with the rest of the world
2. It has institutions that make an economy work
3. It has a judicial system that enforces the rights of ownership

In the coming weeks, I will explain exactly how to employ these fundamental rules to creating an abundance of wealth through business ownership, real estate investing and securities investing that can be passed on from generation to generation.

To understand the nature of free market economies and how wealth is developed requires you to tap into your primitive survival mindset. It requires you to understand that “the market” like nature can provide everything you need to flourish, but “the market” just like nature is unforgiving if you do not pay attention. Mistakes can be catastrophic if you do not respect the power of the market.

Alan Greenspan summed it up best in this quote:

“Market economies have succeeded over the centuries by thoroughly weeding out the inefficient and poorly equipped, and by granting rewards to those who anticipate consumer demand and meet with the most efficient use of labor and capital resources.”

We are about to witness the greatest transfer of wealth in US history. For those who have the courage and tenacity to succeed, I will be offering - from my personal experience and the experience of others - tips, secrets and opportunities to be on the receiving end of this massive shift of wealth. I welcome any and all questions or comments and look forward to sharing with you.