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My slogan for this blog is “The Science of Building Wealth.” This is an allusion to the classic financial book “The Science of Getting Rich” written over 100 years ago. Many of you and probably heard of the self-help book called “The Secret.” I have not read that book myself but from what I’ve heard of it many of its concept are based on The Science of Getting Rich.” When you boil it down, this book says that if you want to become rich, you can through the power of your mind.

Now that may sound like a bunch of baloney, and of course there are a lot of detractors to this unorthadox statement. Based on my experience though, there is a powerful effect caused by focusing your mind on building wealth. Rather that saying that you can simply think your way to riches, a more appropriate way to put it is that your ability to become rich depends greatly upon your outlook, for positive thinking is key. Use your experiences and learn from them. If you make a mistake that sets you back, be sure to learn from your experience and if you do then the mistake will be a blessing to you. Case in point: On the first income property I bought, the building was originally empty but once I made an offer that was accepted there were suddenly tenants in the building. I thought that was great, because I didn’t have worry about renting the places. However, the tenants were a disaster, both had to be evicted and both left big messes for me to clean up. Now I could have simply given up on investment properties as being too much trouble, and left it at that. But instead, I used what I learned from the experience (know your potential future tenants before you buy a building) to become a smarter investor and I’ve had much better luck. From the same situation, two very different outcomes can result, and it’s all about how your outlook that determines your successes.

As I said before, when buying real estate you want to keep as much of your own money in your pocket as possible. If you’re getting a bank loan though, the bank is going to require an appraisal, survey, inspection, and various other fees that are known as closing costs. Your closing costs will depend on how much the property is worth and the type of lender you use (a mortgage broker will cost you more than a traditional bank loan). For me, closing costs have been between $2000-$4000. That’s a lot of money out of your pocket, especially if you’re a fledgling investor. So what’s a cash strapped investor supposed to do?

It’s a little known fact that you can receive up to 3% cash back on your loan. Any time I make an offer, it is contingent upon the seller agreeing that 3% of the purchase price will be given back to me in order to pay for closing costs. Even if you have to pay a couple thousand more for the property in order to get the seller to agree to these terms, it is definitely worth it because it’s a couple thousand dollars less you have to pay up front. The less you pay up front, the better I say, because as I said before, the less money you have into it, the quicker you can “get your money back” and the quicker you’ll be financially free.

One of the key secrets to building wealth is your return on investment, or ROI. The greater percentage of return you get, the faster you get your money back. In the world of business, you want to get your initial investment back as quick as possible. If you invest in a CD, you’ll get about a 5% return on your investment. If you invest in a mutual fund, you *might* get a 10% or more ROI, as long as the market you’ve invested in doesn’t fall apart (see my previous post). Either way, you’re not going to get rich anytime soon using this method. Now let me give you an example of what I’ve done in the past: I used $6000 towards a down payment and closing costs for a duplex I bought, and after all my expenses the duplex is projected to make me over $2000 in profit in a year, which would be an over 33% ROI. That’s much better, but still, it’s going to take me 3 years to get my initial investment back. Now, if you can put together a deal, say in real estate, with no money out of your pocket, what’s your ROI? Well, if I had invested $0 of my own money in the above deal and profited $2000 in a year, then my ROI would be infinite wouldn’t it? With no money out of your pocket, your profit potential becomes unlimited. Now you can’t count on being able to always do this, but putting together such a deal CAN be done, I know because I’ve done it myself and many real estate moguls like Donald Trump have done this to build their incredible amounts of wealth in a relatively short period of time. Just remember, the greater your ROI is, the sooner you can be financially free.

Here’s an interesting article I found today:

Deepening Debt Crisis Hits Close to Home

Basically it’s discussing the impending problems with certain types of subprime loans, how they’ve been sold, and those who are unknowingly invested in them.

Here’s a couple of points I’d like to bring to your attention, in case you didn’t know: Many of the high risk subprime loans that were approved during the real estate bubble were not sold off singularly to third parties like Fannie Mae or Freddie Mac. Rather, they were packaged together with other, more stable loans, and sold off as a set to third party investors. This practice was banned as of the beginning of March 2007 but of course nearly all of these types of loan sets are still floating around out there. Furthermore, many of these investors in these loans are state pension funds and many mutual funds put together by financial advising institutions. A lot of these loans are now starting to fall apart, and soon the effect will be felt by investors. And if you have a state pension fund or bought into a mutual fund, that could mean YOU. It just goes to show that relying on others to take care of your financial future can put you directly in the line of this type of crisis. Now more than ever it is so important to look after yourself and your finances, because how can you trust anybody else to look after your well being in this day and age?