Archive for the ‘Debt’ Category
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17
Mar
2010
A loan flipchart for everyone to review
Two businesses—one a well-known bank and the other an investment firm—were planning to undertake a joint marketing program to expand the bank’s investment opportunities and generate new customers. The bank’s vision statement:
To enhance the value of our investors’ portfolios through long-term investing strategies while building trust and confidence by using the most rigorous financial analysis tools and face-to-face research to ensure investment security.
The investment firm’s vision statement: To provide our customers with the highest level of banking products and services with convenience and a safe and friendly attitude.
On the surface, the vision statements are complementary. The question that partners should ask themselves while strategically planning their partnership is this: “Based on these vision statements, what are the commonalities and the differences?” Then they can brainstorm these items and list them on a flipchart for everyone to review. Is there some difference that would prevent the two organizations from creating a joint marketing plan?
8
Jan
2010
Use good credit to boost your profits
Almost every inventor who is operating on limited funds has had that “Aha” moment when they think, “I’ll just tell someone my idea and they will see how terrific it is and want to give me money to develop it.” If you are lucky enough to find someone who shares your enthusiasm for your product to the degree that he wants to invest his money in it, you should negotiate your arrangement with him in a professional manner. You will need to have a written contract that clearly delineates what he is giving you and what he is getting in return. Is he sharing in gross profits or net profits?
How do you determine what those are to everyone’s satisfaction? Will he have part ownership in your business or company? If so, how much? How much is too much? Will he have a percentage of your company or shares of company stock? How do you determine what is a fair percentage to give him in exchange for his financial investment? How much input will he have in the decision-making process of your company? Are you required to pay back his investment in addition to sharing profits? Does he understand the risks involved; that he may earn money on his investment or he may lose all of it? What happens in that case? Are you required to pay him back if that should happen?
If you are getting an investor it is a good idea to get a legal contract drawn up by an attorney to reduce the likelihood of misunderstandings down the line. This is true whether your investor is family, a friend, or merely a business acquaintance.
5
Jan
2010
Credit card interest rates are high for high amounts
If you do not have personal savings with which to fund your invention, you could use your credit cards. This is a slippery slope, however. Never charge more than you can easily pay back within a reasonably short time. Credit card interest rates are among the highest and using credit cards for large amounts that must be paid back over an extended period of time is not a wise course of action. It is appropriate to use your credit card for small purchases of prototype materials or prototyping services, for example, especially if you are like us and like to get air miles for nearly everything you purchase.
4
Aug
2009
The 3 Steps of Investing
To get from the chaos of your investment life to your comfort zone, you need to take three steps: study the emotional content of different investments, study your own emotional makeup, and match your emotional makeup to the appropriate investments.
To avoid confusion, I have divided this book into three steps rather than three parts:
Step 1: Chapters 3 through 7 set out the emotional content of the different investments. Step 1 requires study but no writing or analysis. The material in Step 1 will also be used as a reference when you reach Step 3. Per the discussion in Step 1, saving, investing, and speculating are different activities. However, throughout this book, the term “investor” is used to signify a person engaged in all three activities unless otherwise specified. The term “investment” also includes savings, investments, and speculations unless clarified. Among other things, Step 1 is about learning the difference between a saver, an investor, and a speculator.
Step 2: Chapter 8 shows you how to study your emotional makeup. It requires writing and analysis. Step 2 is the workbook section of Comfort Zone Investing.
Step 3: Chapters 9 matches you to the appropriate investments.
20
Jul
2009
How Bad is it?
When it comes to eliminating your debt, we’ve arrived at that point. It’s time for you to pull back the sheet and see how ugly this thing really is. It’s time to grab pen, paper, and calculator and get the numbers on paper.
For now I just want you to break down your debts between long- and short-term debt. If you’ll recall from Chapters 2 and 3, long-term debt includes your mortgage and student loans, while short-term debt includes credit cards, car loans, medical bills, and everything else.
Add everything up and record the numbers here:
Total short-term debt: $___________
Total long-term debt: $___________
23
May
2009
Investing Abroad
A few years back I was shown a property by Craig Donnell, a colleague who consistently ferrets out opportunistic deals, in Melbourne, Australia. The building was located directly opposite the University of Melbourne, and comprised 12 stories of student accommodation (277 rooms) along with ground-floor retail space and a basement. (See Figure 22.1.) There was a new 10-plus-5-plus-5-year lease in place to the university at a starting rental of A$950,000 per annum, with annual reviews in line with the consumer price index (CPI). To an outsider looking at market cap rates, returns, location, strength of lease, and in deference to the fact that the building had been completely renovated, it appeared as though the building was being offered at a price substantially above market. This would also explain why it had not sold.
However, this building also highlights the need to conduct thorough due diligence. It turns out that despite the recent renovations, the building did not comply with the fire code. Before long, the students had to be evacuated and relocated, and the university commenced legal action against the owner. We were informed that an offer would be entertained by the owner, who was eager to extricate himself from the situation.
30
Apr
2009
Real Estate and Opportunities of Investing abroad
Bear in mind that one of the tremendous advantages of real estate is that you do not need most of the money required to buy a property—banks willingly provide those funds in the form of a mortgage. In general, banks will not lend money on real estate purchased abroad,1 so if you were to buy a NZ$10 million property in New Zealand, you may only need NZ$1 million or less as a down payment from your own country—the rest is financed locally.
If the value of this investment over time goes from NZ$10 million to NZ$20 million, then not only have you made a 1,000 percent return on your cash investment of NZ$1 million, but the NZ$10 million profit, expressed in U.S. dollars, will also have gone up (or down) according to the change in exchange rate.
Secondly, many people claim that investing overseas is unpatriotic, as it diverts resources away from your home country to other countries. This is pure nonsense for two reasons. As we have just been reminded, when you invest in real estate in a foreign country, most of the funds required for an acquisition are provided by a locally sourced mortgage. Furthermore, claiming that investing abroad diverts funds away from your own country ignores the fact that the explicit purpose of any investment is to generate a return and (should you ever sell) a capital profit, both of which will eventually be brought back to your country.