Another Concept Not Being Taught In Our Public Schools

We’re all born and we all die! These are things we all have in common whether we’re heading up a Fortune 100 company or broke and unemployed. Getting from birth to death has a cost to it. Granted that cost may be higher for some than others, but it’s a fact that our journey through life has a cost to it. What may not be so obvious is the fact that the money we spend today pays for the days from birth to the present. It’s the money we don’t spend; the portion that we invest that pays for the days from death back toward the present. When your investments grow to become enough to pay for the rest of your days on Earth, that’s financial independence. I call it functional retirement, because it’s the point when you get to choose what you do each day rather than having to do what someone else wants you to do to earn a living.

The beauty of reaching functional retirement is that there’s no age limit associated with it. Depending on your success, you might become financially independent in your 20s, 30s or 40s instead of waiting until your 60s or even 70s, but you’ll never get there without investments. With that thought in mind, can you see how starting to invest early and investing as much as possible can move retirement up dramatically? Why is this concept so difficult for young people to grasp? I think a lot has to do with our educational system.

Last week I wrote about the failure of public schools to teach basic consumer economics. Paying bills, balancing bank accounts, and understanding how and when to use credit are critically important to handling the money you earn, but that’s just the beginning. Understanding wealth and how to create it is even more important. When I talk with educators about the problem, they point to a myriad of initiatives that when reduced to a common denominator, all focus on teaching students how to get a job and work for a living. They never discuss programs designed to teach young people how to build wealth and secure their futures.

We are all blessed with three eight hour blocks of time per day, seven days per week. In a typical work week, most people work five of these eight hour blocks and they sleep seven of them. It’s what they do with the other nine that determines their fate in life. Most people treat the hours they aren’t working or sleeping as fun time and try to entertain themselves during these 72 discretionary hours. Unfortunately, this can be a recipe for disaster when it comes to wealth building.

If you work 5 of these eight hour blocks of time, try to pay all your bills with the money you earn, plus entertain yourself during all this discretionary time, can you see how money might become an issue? Why not invest part of your spare time instead of spending it? Thirty seven years ago, I decided to invest a few hours each week learning how to buy investment real estate. I recognized the potential it had for producing passive income. In case you don’t know; that’s income for which you don’t have to work.

Today, I still own all the investment properties I’ve purchased over the past 37 years. The income, which was only a break even proposition during the first year, has become enough to secure my future for the rest of my life. That’s what happens when you use patience and persistence and are willing to accept delayed gratification.

This concept is not being taught in our public schools. If you don’t believe me, just ask a few young people to tell you how much money they would have at age 60 if they started at age 20, invested $100 per month and earned an eight percent return compounded monthly. I did this recently and not one of the 14 new high school graduates I interviewed could come up with the correct answer. It’s just over $351,000, or at an 8 percent return, enough to pay a monthly income of almost $2350 per month for the rest of their lives. If they can’t calculate the future value of today’s actions, how can we expect young people to understand the value of delayed gratification? Why aren’t our schools teaching this?

401K plans, IRAs and other retirement type accounts rely on compounding interest and delayed gratification to produce maximum results. These investments aren’t attractive to most young people because they can’t calculate the future value of the account. They would rather have a new car or boat now and worry about the future later. The problem with this thinking is you lose the value of compounding in the early years. In the above example, by starting at age 20, it takes less than 9 years for the interest earned each month to exceed the $100 deposit being made. At that point over $200 per month is being added to the account. Students should not be allowed to graduate high school without understanding this concept.

Here’s a tip! I like real estate as a long term investment for several reasons. First, because it can be highly leveraged, real estate can earn outstanding returns on the cash invested; returns that are far greater than the 8 percent mentioned earlier. Secondly, rents from real estate grow with inflation. Third, as rents increase and mortgages pay down, cash flow increases. Fourth, real estate appreciates in value which increases the owner’s net worth. Fifth, and I think most important, real estate provides great protection from impulse spending because it cannot be readily converted to cash on a whim. Finally, current conditions are the best I’ve seen in my lifetime to invest in real estate.

Original text from article for Asheville Citizen-Times, 35th week of 2008

Why Little Johnny and Mary Struggle Financially As Adults

This school year millions of young people will sit through classes that focus on how to get a job, but fail to teach them how to handle the money they will earn. As a result the vast majority will go through life struggling to make payments on debts they probably wouldn’t have if they were taught how to manage their money and avoid the devastating effects of consumer debt. I don’t fault the teachers, I blame the system.

With all the money spent on education, why is it so rare to find high school graduates who know anything about consumer mathematics? We turn out students who can plot the course of a rocket to the moon, but can’t balance a checking account, reconcile a credit card account or know that loan payments consist of principal and interest. Why is so much emphasis placed on preparing young people for college and so little effort made to teach them how to prepare a budget, pay bills and run a household?

I’ve had numerous discussions with teachers on this topic and consistently I hear the same thing; they teach to prepare students for the tests that determine their school’s overall performance and whether or not they get bonuses. Can you blame them? I don’t! I blame the politicians who have created a system that fails to teach our children what they are going to need to function in the real world.

What concerns me the most is the long-term affect this failure is having on our country. Over the last three decades the gap between the rich and poor has widened, the middle class has been shrinking and the poor have been hit the hardest. According to the US Census Bureau, the top quintile, the wealthiest 20 percent of Americans, those who own homes, stocks, bonds and other investments control a larger percentage of the nation’s wealth today than they did a decade ago. Those in all other quintiles own less than they did a decade ago. Although it’s difficult to trace this trend to its root causes, I believe much of it can be blamed on a failure to teach the financial skills needed to create wealth.

Students are prepared to enter adulthood, get a job and earn money. They aren’t prepared to get the money they earn to work for them. Fresh out of high school, young people are bombarded with credit card offers, yet they receive no training nor are they cautioned about the devastating effect consumer debt can have on their lives. This lack of knowledge is what allows the wealthy to take advantage of the poor. Without understanding the consequences, less affluent people often borrow in an attempt to have some of what they see the rich enjoying. Unfortunately, that’s not how it works.

When rich people deposit money into banks and the banks loan that money to credit card holders, the interest the card holders pays becomes a transfer of wealth from the borrower to the investor. A portion of the interest paid by the card holder is paid as interest to the investors who get wealthier. It buys the borrowers nothing and reduces their wealth. Like it or not, that’s how economics work. Why aren’t we teaching this concept to our children when they are in middle and high school? Why are we letting them graduate thinking they can borrow their way to prosperity only to become entangled in a web of debt from which many never recover?

As a nation, we have become addicted to debt, both public and private. I wonder if politicians are afraid to teach young people about the negative consequences of debt for fear they will be tossed out of office for the reckless government spending they approve. I also wonder if powerful lobbying by lending institutions has led to economics 101 being dropped from school curriculums. Has consumer lending become so lucrative that exposing its dark side is no longer acceptable? Whatever the reasons, until a major focus is placed on teaching young people how to manage their finances, I think we will continue seeing the gap between the rich and poor widen.

Little Johnny or Mary should never be allowed to graduate high school until they can demonstrate their ability to write a check, balance a checking account, reconcile a credit card account, and understand the difference in cost between saving for big purchases and financing them. They should also be able to prepare a meaningful household budget that takes into consideration expenses that are paid annually or semi-annually. They should be able to calculate the future value of regular savings at various rates of return. They should understand how the combination of price and terms is what determines the value of long-term investments like real estate. These are just a few of the skills every high school graduate needs in order to function in the real world.

Here’s a tip! We’re never going to see these changes made if we continue to accept the status quo in education. Until we demand that consumer economics become a critical part of basic education, we’re going to continue to flood the workplace with financially illiterate young people. There should be a major focus on teaching youngsters skills they are going to need whether they become ditch diggers or doctors.

The current school year has started and there’s not much that can be done for this year, but if enough people call or write their legislators about this major flaw in our educational system, it might make a difference for coming years. Send them the message that not only should basic consumer economics be on the tests, it should carry extra weight. These skills are something every student will need in adulthood.

Original text from article for Asheville Citizen Times 34th week of 2008.

Asheville Pilots Get Kilpatrick and Family Home for Christmas

ASHEVILLE, Dec. 21, 2009 – It was the most beautiful reception you
could imagine. Tyler Kilpatrick, a UNCA student and Hendersonville
High graduate, made it home for Christmas.

What had been an educational trip to live with a host family in Cuernavaca, Mexico, turned into a tragic experience for the young exchange student when she was viciously attacked by a cab driver. She fought back ferociously but was stabbed more than a dozen times, suffering life-threatening injuries. Her life was saved by Mexican paramedics and more than two weeks of surgery and intensive care in a Cuernavaca  hospital.

While her life hung in the balance, no one could guess that she might be home for Christmas. But thanks to two local pilots, she and her father, J.J. Kilpatrick, arrived at the Asheville Odyssey Aviation Center Monday evening. It will be a joyous Christmas for the Kilpatrick family.

Despite it all, Mr. Kilpatrick had nothing but positive things to say about Cuernavaca, and is daughter’s host family. “Cuernavaca is the most beautiful place I have ever been,” Kilpatrick said from Mexico as he prepared to bring his daughter, Tyler, back to Hendersonville. “We have been blessed to be with our host family, the nicest people you can imagine.”
Maybe that’s not the reaction you’d expect from a man whose daughter was assaulted, stabbed and almost killed in this highland town of some 350,000 residents just 53 miles South of Mexico City.

But that was the message  Kilpatrick wanted to convey as he and Tyler prepared for the long flight home. “We have been blessed with the most wonderful host family you could imagine,” Kilpatrick said. “The experience Tyler had to go through was terrible, but through it all we have had the support of her host family who are really part of our family now, just as they made us part of theirs.”

Tyler Kilpatrick is a Hendersonville High graduate and a student at UNC-Asheville. She was in Cuernavaca on a student exchange program to learn more about Mexico and to improve her Spanish. Unfortunately, she was assaulted by a taxi driver, receiving more than a dozen stab wounds that did serious internal damage. She was treated in one local hospital then transferred to another for improved care. And thanks to local businessman
Mike Summey and his son, Jason, the Kilpatricks made it home for Christmas.

The Kilpatricks flew back to a warm and moving reception at the Asheville airport late Monday afternoon after a grueling 1,500 mile flight from Cuernavaca. The Summey’s left Asheville Sunday morning making a layover in Brownsville, Texas. They flew into Cuernavaca Monday morning to pick up the Kilpatricks. The return flight carried them 500 miles from Cuernavaca back to Brownsville for refueling and U.S. Customs inspection, then a long 1,100 mile hop directly back to Asheville.

Summey said the trip was his son’s idea, one with which he readily agreed. “Jason came by the house after the news broke about Tyler being attacked. He said, ‘Dad, we could bring them home for Christmas.’ I thought about it and realized he was right. We contacted Mr. Kilpatrick and I’ve been on the telephone just about constantlyfor the past two weeks, making the arrangements and getting the paperwork in order.” They were accompanied by Dr. Robert Wells of Asheville, an Internist who practices at Mission Hospitals. Prior to the trip, Dr. Wells consulted with Tyler Kilpatrick’s Mexican physicians.

Part of the paperwork Summey referred to involved getting clearances to take his aircraft into Mexico. “I was working for two days just to get the clearances,” Summey said. “We had to talk to the Mexican government, the U.S. Embassy in Mexico, Congressman Shuler’s office, and some other folks. I also had to get a customs decal to go on the airplane.” Another requirement was that Summey register all the people who would be on the flight each way with the border patrol, using the Electronic Advance Passenger Information System (EAPIS). “I had to go into EAPIS on-line to learn how to use it, then to fill out f light manifests in both directions.”

Summey said he had no real idea how much the trip would cost but fuel alone would be in excess of $6,000. Part of the expense is being borne by the Buncombe County Council of Independent Business Owners (CIBO) organization. “They’ve never done anything like this before,” Summey said,
“but they sent out an appeal to the membership to pitch in. If they have anything left over it’ll go toward Tyler’s medical care.” Contributions may be made by sending a check to the Tyler Kilpatrick fund, care of CIBO, P.O. Box 3215, Asheville, NC 28802. Questions can be directed to Mike Plemmons or Patty Beaver at CIBO, 828-254-2426.

Summey also noted that Jeppesen, an aeronautical chart maker, had donated all the charts he and Jason needed to navigate the route.

More than $2,000 in contributions for medical and other expenses were also raised in Henderson County by Chuck Hill, a golfer, professional photographer, and Henderson County ’s most popular radio personality. Hill is on the air 3:30 p.m. until 6 p.m. weekdays on WHKP-AM 1450.
“Tommy Laughter pulled together a bunch of money from golfers at the Crooked Creek Golf Club,” Summey said. “It’s all going to be needed, and not just for fuel for the airplane. This young lady was very seriously injured. Her
recovery is going to take awhile, and it’s going to be expensive.”

Summey said he has flown into Mexico before, “but not since 9/11.
Everything has changed. It’s a lot tougher to get in and out now.” Summey’s Beechcraft King Air is a six-passenger, pressurized high performance turbo-prop capable of cruising at 225 knots at 24,000 feet. He is an experienced pilot and a successful businessman. Writing with Roger Dawson, Summey has produced four best-selling books in the Weekend Millionaire series. Earlier this year he was honored with a personal profile in Aircraft Owners and Pilots Association’s “Pilot” magazine.

Hendersonville Tribune article, 12/23/09

A Personal Escrow Account Can Provide Peace Of Mind

For most people with a home mortgage, their monthly payment includes an amount that is placed in escrow to pay taxes and insurance. This forces borrowers to set aside a portion of these annual payments each month so they aren’t caught short when the bills come due. It protects both the lender and the borrowers. It is a concept that could be used by nearly everyone to avoid having to go in debt when large annual or semi-annual bills come due.

Unfortunately, too many people simply spend the excess cash that is left over after paying their monthly bills. They don’t realize that some or all of this money will be needed to cover items like car or life insurance premiums, birthday and Christmas gifts, personal property taxes, vacations, and any other large expenses that occur infrequently. When the bills come due, they are faced with three choices; earn more, spend less or go in debt. With consumer debt approaching $3 trillion, it’s quite obvious which choice these people are making.

Imagine how it must feel to be going along month after month enjoying life and thinking that you are doing well financially, only to receive a bill for several hundred dollars for the annual premium on your car insurance. You look at your bank account and realize that after paying the insurance bill, you won’t have enough left over to cover groceries, gasoline and other monthly expenses. That’s when the credit card comes out.

You charge the groceries, gasoline and other expenses to the credit card and tell yourself that you’ll pay it off next month when the bill comes due. But next month is vacation time, so you take a trip, spend your extra money and end up charging more to the credit card account. Once back from vacation, because you’ve overspent, you find that you need to charge still more to again cover basic necessities.

These added charges continue to mount and your credit card balance grows to more than you can pay in a month, so you make a partial payment and plan to pay the rest over the next couple of months. But the holiday season is fast approaching and you want to buy some nice gifts for family and friends. Once again, your expenses are more than your income, so more charges are put on the credit card account. Now, when the bill arrives, the first thing you notice is that several more dollars in finances charges have been added to the outstanding balance and the minimum payment does little more than cover the added interest. You can’t pay much more than the minimum payment, because it will cause you to be short again and you’ll need to add more to the balance. Sound familiar?

This scenario and variations of it are what get people in financial trouble. It is also the reason lenders require an escrow to cover taxes and insurance when they make a mortgage loan. They want their interest to be protected in case of fire or other disaster and they know that if you fail to pay taxes, they will have to pay the tax lien to protect their mortgage. Why don’t people follow this same procedure with other expenses to avoid getting in financial trouble? We all have expenses that only come due once or twice a year, yet too few people plan for them.

Here’s a tip! Start by making a list of all the things you pay annually or semi-annually. If you don’t know the exact amount of the expenses, make a generous estimate of what you think they will be. When you are doing this planning, be sure to add an amount for things like tires and repairs for your vehicles, home repairs, and other unexpected expenses that aren’t regular, but can be expected to occur. Once you’ve identified all of these type expenses, add them up and divide the total by twelve. This will give you a good estimate of the amount of money you will need to set aside each month to avoid having to go in debt.

Step two in the process is to open a money market account to use as an escrow account. Each month, treat the amount you calculated as a recurring monthly expense and deposit it into the account. Then adjust your lifestyle to live on what’s left over. Although it might sound overly simple and you might think it is foolish, using a separate escrow account to accumulate the money needed to pay large irregular expenses is a proven way to make sure the money will be available when the bills come due.

Keep in mind that these expenses are occurring each month whether you plan for them or not. Personal property taxes and auto insurance are just like homeowners insurance and real estate taxes, they will come due and have to be paid. Tires wear out and vehicles have to be maintained. Paint, carpet, roofs, appliances, heat and air conditioning systems eventually wear out and have to be replaced. Paying for the use of these items a little at a time as you use them is much easier than having to come up with a large amount of money or go in debt when they need to be replaced.

Using a personal escrow account to accumulate the money for large expenses has a couple of other big advantages, not the least of which is the fact that the money you are saving will earn interest instead of costing you interest as it does when you borrow. But, the biggest advantage of all is the peace of mind that comes with knowing your finances are in order and you won’t be caught short when large expenses come due. It sure beats going in debt.

Original text from article for Asheville Citizen-Times, 46th week of 2008

Current Conditions Dictate Lifestyle Changes For Many

According to a recent study by Ernst & Young LLP, nearly three out of five middle class retirees will outlive their financial assets. The report, conducted on behalf of Americans for Secure Retirement, found that of those who have only Social Security as a guaranteed retirement income, over 90 percent will outlive their financial assets. That’s a frightening statistic for Baby Boomers who are now beginning to retire.

In the 1970s and early 1980s, on average, American saved about 10 percent of their income. Beginning in the mid 1980s the saving rate began a slow decline that dipped into the negative by 2005. The 2006 savings rate continued the negative trend and produced back-to-back years of negative savings for the first time since the Great Depression. During this period, our standard of living has been soaring, but at what cost? Has this better lifestyle been the result of a growing economy or because we are spending money we used to save?

Spending more than one earns is like a farmer eating his seed corn. When planting season comes back around and he has nothing to plant, he has to turn to others for help. Today, more and more people and industries are turning to the government for help. The problem is, the only way government can help one person is to take from another. The more government takes from people who produce the less incentive they have to keep producing. It’s a vicious cycle where the more government helps, the more they have to take in order to do so.

This may sound a bit crass, but getting from birth to death has a cost to it. That’s a fact of life. What we spend today pays for the days from birth up until the present. It’s what we save and invest today that pays for the days from death back toward the present. When investments are sufficient to provide for the rest of your life, you can retire and not have to work and earn anymore. That doesn’t mean you can’t work if you want to, it just means that when you get up each morning, you get to choose what you will do and not be forced to do what someone else wants so you can earn a living. It’s called financial independence.

A recent story that was broadcast on ABC’s Good Morning America pointed out that on average; retiring Boomers are going to have to reduce their standard of living by at least 25 percent in order to keep from outliving their assets. When I heard that story, I couldn’t help but think about the impact the Baby Boom Generation has had on politics for the past thirty years. It brought back memories of President Gerald Ford saying, “A government big enough to do everything for you is big enough to take everything from you.” When Boomers start having to reduce their standard of living and workers begin feeling the bite the growing number of retirees will put on government, it may produce some significant and hard fought political changes.

As a nation, we have grown fat and lazy. An economy propped up with trillions of dollars of debt can only expand so much before it becomes top heavy and topples. Many factors are in play that could change the way we live forever. Real estate sales are in the tank, oil prices are soaring and the economy is growing increasingly sluggish. T. Boone Pickens is absolutely correct when he says we are seeing the greatest transfer of wealth in the history of mankind.

We send hard earned dollars to other countries to buy oil to make our lives more comfortable. The countries that sell us the oil get our hard earned dollars, but once we consume the oil, we are left with nothing but a craving for more. It’s a disaster looking for a place to happen. We have become a nation addicted to a standard of living we can’t support and we currently lack the will make changes unless they are forced upon us.

President Ford’s focus on long term economic growth was to put more resources toward saving and investments, the crux of long term growth, and less toward consumption. Congress didn’t allow that to happen. Consumption spending ballooned in both the private sector and government programs and gave us a false sense of economic prosperity. Now we are about to get a dose of reality. Unless we are willing to rein in consumption, become more frugal with our money and start planning for the future, we’re going to be in big trouble. As I said earlier, what we spend today pays for today. What we save and invest pays for tomorrow.

All signs point to tougher times ahead for the economy. The real estate crisis is far from over, government economic stimulus checks have done little other than add to the public debt and inflation is beginning to rear its ugly head. About the only good news, is bad news for many consumers, credit is becoming harder to obtain.

Here’s a tip! Unless you’re independently wealthy, you may want to start making some lifestyle adjustments. Look for little ways you trim expenses; eat out less, car pool, keep the house or apartment cooler, stay out of the stores unless you actually need something and then buy only what you need when you do go. Little cuts here and there can add up to a big saving. Whatever you do, don’t add to your credit card balances.

Current economic conditions will eventually improve, but until they do, don’t keep living like things are still booming. They aren’t! We are entering times when a little common sense and frugality can go a long way.

Original text from article for Asheville Citizen-Times, 31st week of 2008

Real Estate Is The Name, Wealth Building Is The Game

Real estate has gotten a bad name recently. If you talk to people on the street, they will tell you that real estate is in the tank; that it’s not a good investment. Then if you ask, “What is the best way to build wealth?” You’ll get a hesitation before most of them will tell you that over the long term, it’s with real estate investments. Then comes the fun part! Ask them to define wealth. You’ll get a hundred different answers.

The problem is that most people confuse income and wealth. They aren’t the same things. Wealth is not the big house in which you live. It’s not the expensive car you drive. It’s not the fancy clothes you wear. It’s not your country club membership or you boat or plane. All of these things may be an indicator that you have a good income, but that doesn’t mean you are wealthy. Wealth is measured by how long you can maintain your standard of living if you suddenly are no longer able to work and earn.

Wealth is an income stream; a source of passive income that doesn’t require you to trade your time for money. Passive income comes from interest, dividends, royalties or other instruments in which you have invested prior earnings or expertise. Rental income from investment real estate is also passive income and possibly the best way to build wealth.

Real estate is the world’s greatest wealth builder. It’s the only investment I know of that ordinary working people can purchase using a small amount of their earned income, yet it can produce enough revenue to pay for itself and provide a return on the cash used to leverage the purchases. Stocks and bonds can only be leveraged 50 percent, but real estate is frequently leveraged 100 percent and more. That means that under the right circumstances you can buy properties with no money down and finance the full purchase.

The biggest problem with this ability to highly leverage real estate is that it attracts speculators who have no intention of holding the properties for the income. These speculators acquire real estate to sell to others. This works fine as long as there are buyers who will pay enough to give the speculators a profit, but when the market goes cold and buyers aren’t there, it can be disastrous. That’s what’s happening right now!

Have you ever played the board game Monopoly? If so, you know that the way to win is to buy as many properties as possible, put houses and hotels on them as soon as possible, then sit back and collect the rents. Gradually, the players who were afraid to take risks and chose not to buy properties early in the game, are forced out because paying rent to those who did takes all their money. The interesting thing about playing Monopoly is that the winner is nearly always strapped for cash early in the game. He is always investing his earnings and often mortgaging properties he already owns in order to buy more.

The game is about as close to reality as it gets. The winner in Monopoly has little cash early in the game because he invests all he can. The winners in life do the same thing. Those who in their youth and spend everything they make on motorcycles, boats, big screen HD televisions, designer clothes and other things that go down in value, never enjoy life as much as those who invest. While they may initially appear to be more successful, people with this “look-at-me” lifestyle usually find themselves in an increasing struggle to keep up with the lifestyle of those who sacrifice in the beginning so they can invest for the future.

The losers at Monopoly will sit at the board with a pile of cash and pass up buying opportunities because they don’t want to risk running low on money. As a result, other players buy the properties and eventually force them out of the game. Without investments, their only income is to pass GO and collect $200. In real life, leveraged real estate has an income stream that will barely break even in the beginning. This is not exciting or stimulating unless you look at the impact of owning it over the long term. While initially it may take all of the income generated to pay expenses and mortgage payments, over time rents go up and the mortgages pay down. This produces a cash flow that starts as a trickle and grows as long as you own the properties.

The present crash has forced speculators out of the real estate market and falling prices are making it increasingly more attractive for long term investors. Granted, if you’ve never invested in real estate, it can be scary. I sat in the closing with sweaty palms and butterflies in my stomach when I bought my first investment property. Like many first time investors; I saw the mortgage payment coming from my earned income. Although I hoped the property would produce enough to make the payments, I wasn’t totally sure.

Here’s a tip! Now is the best time I’ve seen in my lifetime to start investing. Real estate is the name, wealth building is the game. Think of it as playing Monopoly for keeps. The more you learn and the longer you play the better you will get and the more comfortable you will become. I strongly recommend my Weekend Millionaire book series as a way to get started investing in real estate. You will not only find step-by-step guidance on how to make sensible investments, you will also learn what not to do as what to do, as well. Happy investing! Get started now!

Original text from article for Asheville Citizen-Times, 32nd week of 2008

The Coming Months Will Bring Some Great Home Values

Many people are in trouble with real estate. They paid inflated market prices and then expected values to go up so they could sell for a profit. Their rationale was that prices were going up so fast it didn’t matter what they paid, there would always be bigger fools coming along to bail them out. These people were speculators, not investors. Now they are feeling the sting of a market gone cold.

I’ve never speculated in real estate. I believe that if you buy right, you can make money even if the value never goes up. Historically, real estate prices, with few exceptions, have risen steadily even through recessionary times. The reason for this is twofold: scarcity and inflation.

As populations increase, the demand for housing grows. The problem is the amount of real estate remains constant. As the old saying goes, “They ain’t making any more of it.” Under normal market conditions, there are two factors that cause home prices to rise.

1. The number of people wanting to live in a particular area is increasing.
2. The regulations or terrain in that area restricts new building.

I live in Asheville, North Carolina, where both of these factors are very much in play. Terrain is limited and regulations make it virtually impossible to build housing that is considered affordable for average working people. Add to this an explosion of new comers wanting to live in one of the most desirable places in America and you had a recipe for rapidly escalating prices.

Areas like the Northeast corridor, the San Francisco peninsula and the Los Angeles basin have seen prices skyrocket as cities grew and the available land remained the same. The Asheville area is surrounded by mountainous terrain and growth is limited by the vast Biltmore Estate that lays in the center of the valley. These limiting factors coupled with the rest of the country discovering this wonderful area, have produced rapidly rising prices and a glut of expensive properties that will take years to absorb. This has opened the door for prudent buyers to take advantage of some exceptional opportunities.

Another factor contributing to rising prices is inflation, which occurs when there is more money available to buy than there are things to spend it on. In real estate, it is referred to as, “Too much money chasing too little property.” That’s what was happening in 2003-2006 when interest rates were at historic lows and there were millions of new buyers in the market. While the overall inflation rate was moderate, many areas saw annual double digit increases in real estate prices.

Real estate is an excellent hedge against inflation and large amounts of it can be leveraged with very little money. This makes it enormously attractive to speculators. During times of high inflation, they want to own as much as possible, but when the market cools and prices stabilize or fall, it’s a different story. These are times when you only want to own real estate that produces enough cash flow to support itself. They are also times when speculators find themselves awash in debt that they can’t support and have to sell at deeply discounted prices or face foreclosure.

While the current conditions are a crisis for some, they offer exceptional opportunities for others. A friend of mine recently looked at several new spec homes in expensive communities that builders had in their inventories. Asking prices were in the upper six to low seven figure range; hardly rental properties that might have interested me. What was interesting was the flexibility of builders who just a year ago wouldn’t think of coming off their price. Their offers to pay closing costs, give substantial discounts and make expensive upgrades still weren’t enough to entice my friend to buy. He said the deals would get much better before market conditions changed and I agreed with that assessment.

For over 35 years, I’ve lived by the philosophy that you make money when you buy, not when you sell. That’s why I’m an investor who has never sold a property. I’m different from people who buy a home in which to live. The residential properties I buy are to rent to average working people. Million dollar homes don’t fall into that category, but that’s where some of the best deals can be found today.

Here’s a tip! If you’re fortunate enough to be able to afford an expensive home, now is the time to go shopping. Builders are choking on unsold inventories. Banks are foreclosing on some very nice properties. In the coming months, many luxury homes will be sold at discounts of 30 – 50 percent off their original asking prices. The secret is to not being afraid to negotiate. Offers you feel comfortable making are probably too high. Don’t be afraid to ask for more than you expect to get; you might just get it.

Take advantage of the present opportunity. We may not see another time like this for 50 more years. When banks, builders and speculators get burned, it takes them a long time to get over the experience. There’s nothing like a tough dose of reality to bring common sense back to the marketplace. If you don’t believe it, just ask people who survived the Great Depression. It had a life long impact on their thinking about money and credit.

Original text from article for Asheville Citizen-Times, 30th week of 2008

Impending Obstacles to Achieving Financial Independence

Everyone would like to be in a position where they didn’t have to worry about money. That’s called financial independence! The problem is, there are a large number of predictable obstacles that stand between youngsters entering the workplace and oldsters leaving it with the security of knowing they have provided for the rest of their lives and won’t have to struggle in retirement.

Most of these obstacles fall into four categories: Transportation, Children, Retirement and Silent Killers. Transportation includes cars, trucks, motorcycles, recreational vehicles, boats, planes and other modes of travel. Everyone has transportation needs throughout life. Most people will own several automobiles or light trucks, and some will have one or more of the other vehicles. This is a known fact, which makes it something for which you can plan and prepare; if you don’t it becomes an obstacle.

Children present obstacles to financial independence, which like transportation can be anticipated and estimated. When children get old enough to drive they will want a car. Parents often help them with their first purchase or make it for them. College tuition is another big expense that comes with children. So are weddings, especially with female children. These can be quite costly and become major obstacles for parents who ignore them until the need arises.

Retirement looms far into the future, which makes it easy for young workers to ignore it until it’s too late. Programs like Social Security, Medicare and company retirement plans provide a false sense of security and discourage starting a savings plan at an early age when it can return the greatest benefits. In the beginning when earnings are limited, finding the motivation to set aside money that won’t be needed for decades is nearly impossible. The mantra is, “I’ll wait until I get a raise, a promotion, a better job, etc.” This type thinking leads to a spend everything now lifestyle that becomes so ingrained it leads to the silent killers of credit card and other consumer debt. When living paycheck-to-paycheck, there is no cushion or buffer to absorb large or unexpected expenses.

When these arise, people habitually meet the needs by incurring debt. This leads to a recurring cycle of debt that can increase rapidly. Many times the debt load becomes so burdensome that it results in bankruptcy. You can’t buy prosperity with consumer debt. The secret to avoiding these impediments is to start early. You know they are coming, so why not develop the habit of living on less than what you earn and setting aside money now so you won’t have to go in debt later? Granted, the amount you save might seem small when compared to the predictable needs you anticipate arising, but developing the habit of saving will make you or break you financially as you grow older. It’s always easier to move up in life than to come down.

By living below your means, and saving for anticipated expenses, you don’t become accustomed to a standard of living your earnings won’t sustain. The expenses associated with transportation, children and retirement are real, not imaginary. They will occur! You can’t avoid them! The longer you put them off, the greater the chance that you will subject yourself to the silent killer of debt by financing them. It takes earned income to make the payments on consumer debt. This forces you to lower your standard of living.

Transportation is an expense you will have all your life. You’re going to have to pay for it one way or another. If you pay for it first, by saving, the interest you earn is a reward for planning and it reduces your cost. If you finance it, the interest you pay becomes a penalty for failing to plan and it adds to your cost. The cost difference between planning and saving versus waiting and financing can be huge and prevent you from ever achieving financial independence.

The expenses of children are different from transportation expenses because they don’t (or aren’t supposed to) continue throughout life. If you start early and save for a child’s first car, college tuition, wedding, etc. when the time comes to pay the expense, the money is there. Once the expenses are paid, your standard of living can improve by the amount you had been saving instead of being reduced in order to make payments on loans.

Here’s another fact! Social Security, company retirement plans and Medicare won’t provide financial independence in your golden years. If you think they will, you might as well plan to work until you die. Starting young and saving small amounts regularly throughout your working years can provide the supplemental income needed to turn Social Security into financial security.

Here’s a tip! The theme throughout this article has been to save for anticipated expenses if you want to achieve financial independence. This tip requires developing the three Ds of success. You must have the Desire to achieve financial independence, you must acquire the Discipline to make the required sacrifices and you must possess the Dedication to stick with it until you achieve the goal. It takes all three Ds, to be successful. One or two won’t get you there. As the old Chinese proverb says, “Man sit in chair with mouth open for very long time waiting for roast duck to fly in.”

Original text from article for Asheville Citizen-Times, 28th week 2008

Blackhawk Gave Me “Even More Reasons” to love my King Air E90!

WOW! What a difference an upgrade can make! When I first started flying back in the 1970s, I used to go out to the airport and watch the “BIG” planes come and go. The little Piper Cherokee I flew back and forth between my North and South Carolina offices was dwarfed by the King Airs when one taxied by.

My favorite was the King Air E90. Within a few months of getting my pilot’s license I had a picture of an E90 taped to the wall in my office. “That’s what I’m going to have one day,” I told anyone who wanted to listen.

After progressing through a Beech Baron, then a Beech Duke, I realized my dream and bought my first King Air E90 in January 1984. It was my favorite back then and still is today. I’m now flying my second E90 and have even more reasons to love it.

I guess every pilot’s dream is to get more speed out of their aircraft. I’m no different. In March 2007 I decided to give my E90 a little boost by installing American Aviation’s ram air cowling modification and speed stacks. It worked! I got a little more speed, but nothing compared to what I got after upgrading to Blackhawk’s PT6A-I35A engines earlier this year.

Just to give you an idea of the enhanced performance: the best speed I got after the American Aviation modifications was at 17,000 feet where I saw a true airspeed of 246 knots with a fuel flow of 570 pounds per hour. This was up from 235 knots prior to the modification. By comparison, the best performance after adding the new Blackhawk engines was at FL230 where I saw 278 knots with a fuel burn of 590 pounds per hour. Do the math! More speed and less fuel per mile flown. That’s a hard combination to beat. Oh! It only took 12 minutes to climb to FL230 with the main tanks full and 4 people on board.

I’ve seen the promotional literature Blackhawk puts out, but my E90 beats any numbers I’ve seen. I think the  combination of the Blackhawk engines with the ram air modification and speed stacks may have resulted in a very unique airplane. I’m so pleased with it; I just put it back in the shop for
another upgrade, this time to a full glass cockpit and digital autopilot!
I guess I’ll be keeping it for a while!

As a real estate investor, (not a speculator) who does business in several southeastern states, my King Air E90 is a lifesaver. I recently left in the morning, flew to South Alabama, closed a real estate purchase and was back in my hometown of Asheville, North Carolina in time for lunch. It doesn’t get much better than that, especially when you love flying as much as I do.
Although it won’t enhance the speed performance, I guess the final chapter for my E90 will be written when it comes out of Stevens Aviation’s Greer, South Carolina facility with the new Alliant Integrated Flight Deck
system and S-Tec digital autopilot. Then it truly will be a unique
King Air.

Text from article from Blackhawk New, Q3 2009

Blackhawk Article 8.5×11 10-6-09

Consistency Creates The Confidence Which Builds Success

If there is a single characteristic that leads to wealth building and financial security, it is consistency. People are drawn to you if you act consistently, and they are repelled if you act inconsistently. It’s a concept that takes only seconds to learn, but it may take a lifetime to fully appreciate its power.

Why do we admire this characteristic so much? Our need for consistency comes from the tremendous need we have to develop a predictable world in which to live. Our most basic and intense need is survival. This is the key reason why humans, above all other species, have survived and prospered on earth. When our backs are against the wall, we will adapt, change, or do almost anything to assure our survival.

Our next strongest instinct is the need for security in our lives. Security is the assurance that we can continue to survive.

Imagine if you were vacationing on a beautiful tropical island in the South Pacific when a giant tsunami wave rolled in and destroyed everything in sight. You survive, but it looks as if you are now alone on the island. Wouldn’t your first concern be to figure out if you could survive on the island? Is there enough food and fresh water? Once you have established that you can survive on a short-term basis, wouldn’t your next concern be to assure your continued survival? You might develop a system to store rainwater so you wouldn’t run out of drinking water. You might construct a shelter in which you could store food and be protected from the elements.

The same basic need for survival and security, which is obvious if you were on a deserted island, is the same need that drives city people to seek a stable and predictable environment in which to live.  Instead of foraging for food on a day-to-day basis to assure their survival, they buy it in quantities and store it in huge freezers. Instead of daily looking for ways to make money, most people accept jobs that offer security and predictable wages, because the human mind equates consistency with our two most basic needs: survival and security.

When faced with inconsistent people and circumstances, we feel insecure. In relationships, we admire people who act with consistent patterns of behavior. We revere those who behave consistently and are more likely to be influenced and persuaded by them. The people we despise and fear are those who act erratically.

Imagine being examined by a heart surgeon who told you that you needed triple bypass heart surgery, and you said, “I think I can get by with just a double bypass.”

If he said, “Okay, let’s try a double and see how it works,” how would you feel about him? Would you let him near you with a knife? I don’t think so!

On the other hand, suppose he said, “I’m sorry, but you need a triple bypass and unless I can do what I know is best for you, you should find another doctor.” Wouldn’t you feel much better about letting him cut on you?

One of the most beloved presidents of the last century, Ronald Reagan, was brilliant at projecting the power of consistency. You never had a question in your mind about where he stood on an issue. You can project this power too, by developing a core set of values and sticking with them throughout your life. You don’t have to be born with a proverbial silver spoon in your mouth to build wealth and become financially independent. Lenders, investors and others who can help you achieve this status are looking to help people who demonstrate consistency. They want to invest in people they can count on when the going gets tough. That’s why consistency is the characteristic that has more to do with wealth building and creating financial security than any other single trait.

Here’s a tip! Whether your goals include achieving financial independence or something else, this tip will enable you to become better at whatever you choose to do. Develop a value blueprint to guide your life and make it part of your psyche. Let it be the guardrails that keep you on the road to success. Start early! The younger you start, the more time you will have to develop a consistent behavior pattern and the fewer mistakes you will have to overcome.

A part of your monetary value blueprint might be that you always save and invest 10 percent of your earnings. Another part may be that you don’t go in debt to buy things that goes down in value. Still another part may be that you don’t obligate yourself for bills you can’t pay within 5 days of receipt. Can you see how the longer you consistently followed these simple guidelines, the more your financial condition would improve?

And the good part is, you can institute this type of value blueprint for virtually everything you do in life. Just establish a pattern of actions that people know you will consistently take under certain circumstances. The longer you follow your value blueprint, the more reliable you will appear to others. The more reliable you become the more opportunities will come your way. Taking advantage of these opportunities is what brings success.