227: Creative Tips to Increase Your Personal Cash Flow

SHOW NOTES FOR EPISODE 227: CREATIVE TIPS TO INCREASE YOUR PERSONAL CASH FLOW

Many people have tried real estate investing but, unfortunately, fail miserably for the simple reason that their personal finances weren’t in order first.  In this podcast episode, Jordan Goodman, 18-year personal finance writer for Money Magazine and noted expert on personal finance, shares some tips and tools that will help you improve your personal finances so you can better succeed in real estate investing.

What You Will Learn

• How to set up the right ongoing personal financial habits to produce good long-term results
• How to get 8% return on your savings backed by the tangible asset of real estate
• How to pay off your 30 year mortgage in 5 to 7 years through Mortgage Equity Optimization
• How to leverage your service-oriented career to get significant mortgage discounts, rebates and other savings
• How to know if a reverse mortgage is for you
• What is the number one mistake most people entering retirement make?

About Our Guest

Jordan Goodman

Jordan Goodman has spent the past 40 years focused on one mission: to help Americans do better with their money.  In a career spanning newspapers, magazines, books, radio, television, live events, teleseminars, and the Internet (www.moneyanswers.com), he has helped millions of people to solve their financial problems and realize their financial dreams.

An honors graduate of Amherst College, Jordan had just received his master’s degree from the Columbia University School of Journalism in 1977 when he launched an award-winning, consumer-oriented newspaper insert, INFO, which reached 4 million readers every week.  That early foray into consumer journalism soon led to an 18-year stint at MONEY magazine, the foremost personal-finance magazine in the U.S., where Jordan reported and wrote on every aspect of personal finance.  During his tenure at MONEY, he also became a regular presence on radio and television programs around the country.

When Jane Pauley and Bryant Gumbel of the “Today Show” wanted to refute some of the more dubious strategies of financial guru Charles Givens in 1986, it was Jordan they asked to face down Givens.  When Ted Koppel needed a financial expert to explain to “Nightline” viewers the implications of the stock-market crash of October 19, 1987, it was Jordan to whom he turned.

While at MONEY magazine, Jordan also began to write the first of his 14 highly acclaimed books on personal finance.  The Barron’s Dictionary of Finance and Investment Terms (1984), which Jordan co-authored with John Downes, has been translated into Spanish, German, Russian, Japanese, and Chinese, and has sold over 3 million copies worldwide.  Now in its tenth edition, it is considered a classic in its field and a staple on the syllabi of college personal-finance and business courses, MBA classes, and securities training seminars.

In the 34 years since the Dictionary was first released, Jordan has also written:

• Barron’s Finance and Investment Handbook
• Everyone’s Money Book
• The Everyone’s Money Book Series
• Reading Between the Lies: How to Avoid Becoming a Victim of Wall Street’s Next Scandal
• Master Your Money Type

More about Jordan

• At early age, Jordan was always interested in financial matters and a very early entrepreneur (at age 9 he started delivering the Cap Cod Times).
• Jordan’s inspiration came from his grandfather who was a very successful businessman and built an empire in the 1920’s selling silk stockings.
• His mother was also very interested in investing and taught him about stocks early on.
• Living in Cape Cod right near where the boat / ferries going to Martha’s Vineyard, Jordan started delivering “Cape Cod Times” at the age of 9.
• At age 12, he saw the demand for people crossing the ferry to want to read a newspaper.  With zero cost (these were papers that were going to be tossed anyway), he started selling newspapers at $0.25 per paper to the people sitting for 5 minutes on the ferry ride with nothing to do.  By the time the boat departed, three quarters of the people had a newspaper in hand, making him $200-$300 a day.
• He went to Amherst College in Massachusetts, London School of Economics junior year in London, went to Columbia School of Journalism specializing in economics and business reporting.
• Soon after that, he worked with Money Magazine at 18 years old from 1979 – late 1990s, during the boom years in the stock market, real estate, and with Reagan’s tax reform.
• Learned a lot on the job, and basically, what he loves about it, service journalism actually can help people.

Earn 8% Plus with Secured Real Estate Funds

• You can do real estate actively or, if you don’t have the time, you can do it passively and get a nice return without being a real estate expert.
• There is a fund which is called “Secured Real Estate Funds” where you can get a yield of 8% plus, the “plus” being on profit sharing on annual basis or you can take a monthly check if you like, or re-invest the check if you like.
• You can get this 8%  yield at www.securedrealestatefunds.com (888-444-2102).
• Secured Real Estate Funds is lending money on a short-term, over a year or so, to different commercial real estate projects all over the country such as apartment buildings, medical offices, student housing, assisted living, parking lots, etc.
• The common feature or theme is “Collaborative Lending.” This means that the fund is like a partner with the builder/developer to get the project done in a really good way.  When the project is finished, you also get a cut of the profits.
• This is a unique strategy wherein they are not just a bank giving the money away, but there are the partners all the way along to make sure it works well.
• In return, the builder / developer / borrower, gives them a piece of the profit when the building is sold at a profit. This is where you get the “plus” on profit sharing beyond the 8% yield.
• The profit sharing distribution is on a quarterly basis when the building is sold at a profit and usually half to 1% on top of the 8%.
• This “Collaborative Lending” model is a win-win relationship.
• The builder/developer/borrower gets the project done and get a nice return on his investment
• The “fund partner” get its fund back and earn a piece of return of the profit
• The minimum investment is $5,000 with a holding period of one year.  There is no commission and the full amount is invested.  The way the fund makes its money is they’re taking out of the return on the fund.
• Technically, this is a Regulation A+ fund, which basically is a crowd funding. This is the effect of the “Jumpstart Our Business Startups JOBS Act of 2012” passed by the congress.
• This Regulation A+ fund offers an opportunity that allows an average individual to get into something which is in the past is only done by big institution.  An individual with $5,000 versus the $100 million in the past.
• The fund manager chooses the projects with a maximum of 70% Loan-to-value (LTV).  There is always a 30% cushion.

How to Pay-Off Your Mortgage in 5-7 Years

• Mortgage Equity Optimization allows you to pay off a 30 year mortgage loan in 5 to 7 years on your existing level of income.
• You can use this strategy for your own home or your rental properties.
• You can be free and clear much faster than 30 years on the existing income that you are generating from rents or your own house.
• For details about this strategy, you can go to www.truthinequity.com or read “Mortgage-Free in 5-7 years chapter” which is chapter 6 of Jordan’s book “Master Your Debt” written by Jordan Goodman himself.
• With the traditional system:
  • You keep your money in the bank in a checking account earning ‘zero.”
  • You pay  the same mortgage payment for 30 years, wherein the first 10 – 15 years is pretty much all interest payments, with a very little progress reducing the principal mortgage amount.
  • And then, when you refinance, you start a whole new 30-year clock all over again, even though the interest payment maybe lower.  Even though you have paid all that interest on your original loan, you start all over again. paying interest first again.  That’s why the banks love that system!
• Mortgage Equity Optimization completely reverses this system and your money will actually work for you
  • In addition to the traditional first mortgage at a good rate of 4%, you get a Home-Equity Line of Credit (HELOC)
  • HELOC is a liquid line of credit against your property wherein you can put money in, you can take it out without penalty, which is basically like having a checking account backed by your property.
  • Take that HELOC and you take money from the HELOC, and pay down your first traditional loan a little bit and and you keep you money, which is normally in your checking account earning nothing, in the HELOC pushing your balance down everyday
  • You pay the HELOC off, and then you pay more towards the first, and you can have the whole thing paid off in 5 – 7 years.
• A simple example how it works:
  • You have a property valued at $300,000
  • You have a traditional first mortgage at $200,000 at 4% interest rate.
  • You then go out and get a $50,000 HELOC
  • Write a $50,000 check on the HELOC towards your first mortgage
  • So, now, your 1st mortgage is decreased to $150,000 instead of $200,000
  • You keep your income in that HELOC and every day, you are making progress on that principal, so, after a year or so, you pay that $50,000 HELOC off to “zero”
  • Then, do it again
  • Instead of your money sitting in a checking account doing nothing, your money is in the HELOC pushing down the balance
  • The HELOC is based on average daily balance – “How much do I owe today?”
• An simple example of how the it works:
  • When you get your $50,000 HELOC for the first time,
  • Then you get a paycheck of $1,000, you put it into HELOC
  • You now pay the balance down to $49,000, thus the interest is based on $49,000 instead of $50,000.
  • As more income keeps going into that HELOC, you are pushing the balance down every day
  • You pay all your bills out of HELOC as well
  • And if you can combine all your bills in one credit card, your balance will go up but you are making progress on your principal everyday
  • As a real estate investor, instead of keeping your money coming from rents into your checking account, you open a HELOC on the rental property and your renters are paying your mortgage off in 5 years instead of 30 years
  • You are now debt free and clear in 5 or 6 years
• However, the tax law for HELOC has changed, the interest on HELOC is no longer deductible. You get your deduction at your tax rate instead.  You get value since the tax rate has come down.
• Mortgage-Equity Optimization strategy will save you 25 years off your loan and tens of thousands in interest expense.

Mortgage Discounts for Service-Oriented Careers

• For people who are considered as American Heroes, there are all kinds of special deals on the real estate market with both mortgages and buying and selling an home.
• Heroes are defined as active duty military, veterans, police, fire, EMTs, law enforcement of any kind, health care, doctors, dentists, teachers, clergy, and all other service professionals.
• This program is giving back to these heroes to help them in real estate which is called “Heroes Come First”
• When a hero buys a home, he gets a rebate of ¼ of the real estate agent commission
• When a hero sells a home, he gets a rebate of ¼ of the real estate agent commission
• A hero gets a lower interest rate and discount on all the closing costs
• The details of this program can be found on www.heroescomefirst.com
• The people in the program, through the website, refer you to lenders and agents who participate in the program

Reverse Mortgage Loan

• You should be at least 62 years old or older
• You should own your home and usually have a balance on your mortgage loan
• You get a reverse mortgage loan for the value of the home
• The older you are, the more you get, based on actuarial table
• Typically, you get it in two payments and get only 50% of the value of the house upfront
• You can also get is as a lump sum or a line of credit, or as annuity
• Jordan suggests that if you get a reverse mortgage, which he considers as a last resource, that you invest it or use it to pay off your mortgage, and whatever is left over, invest it instead of spending it, to increase the amount of your income
• There is a good resource website www.reverseloanchoices.com (833-785-3390)

 Common Mistakes

• Too much debt, people should enter retirement debt free.
• Mortgage debt, credit card debt, and even the student loan debt of their kids and grandkids

Rap-It-Up

• Favorite business book: The Truth About Your Future: The Money Guide You Need Now, Later, and Much Later by Ric Edelman
• Most valuable web site for success (other than your own):  Yahoo Finance
• Favorite app: Cinch
• If you had to start all over, knowing what you know, and you only had $1,000 cash, what would you do to launch your real estate investing business?  The key word in business is leverage. Leveraging your relationships and contacts. 

How to Reach Jordan

• Special Page Just for Old Dawg Listeners: go.moneyanswers.com/rei
• His Regular Website: moneyanswers.com
• On YouTube: Money Answers TV

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Episode Sponsor: Meno Studio – menostudio777@gmail.com