With this text, I thee wed …

With this simple text message, I purchased a commercial property for $1.5 million (plus taxes and closing costs):

demo $75 and roofing $60 the rest $200 – $250 approx.

Good enough for me to close the deal!

Let me backtrack a little …

Over the past three or four weeks, I’ve been going through my numbers on developing a main road site into a high-rise condominium complex (60+ condo’s over 8 stories plus basement car-parking), but the project didn’t start that way:

It actually started as a buy-with-a-twist project that I favor so much (for good reason, I might add) …

…. the idea was to buy an unloved showroom/warehouse and rehab it into a bright, modern showroom with an excellent main-road frontage, then rent it out as a ‘buy/renovate/hold’ investment. It was only AFTER I made the decision to acquire it that we found out about the potential to rezone as multi-story.

So, let me walk you through the buy/renovate/hold scenario; you’ll be surprised [AJC: unless you've read this series of posts ] how LITTLE financial analysis that I do before acquiring

Step 1

The first step is to understand what your end product is worth: to that end, I undertook EXACTLY the kind of analysis that I talk about in this post. This tells me that a showroom in this area should rent for approx. $250 per square meter (or, $23.25 per square foot) for office/showrooms in the 800 square meter (8,600 square feet) size range. It also tells me that the ‘capitalization rate’ in this area/market – at the current time – is approx. 5.5% to 6%, which is (a) not much in absolute terms, and (b) not even much when compared to prevailing interest rates.

So, now I know two things:

(i) Buying and holding a ‘ready made’ investment (i.e. something in good condition, already leased to a good tenant) ain’t gonna do much for my future financial well-being, and

(ii) Creating a ‘ready made’ investment for some other sucker … I mean, investor … could be the way to go.

Step 2

I now need to work out how much the project will cost me; which is easy, thanks to that little text:

- Purchase Price: $1,500,000

- Taxes and Closing Costs: $200,000 (approx.)

- Rehab costs; this is where that text – which was from my builder [AJC: whom, I should mention, is a trusted friend ... otherwise, I would have looked for written quotes before proceeding] – comes in handy because it lays out the major costs for me:

- Demolition works – at $75,000 actually a large expense because the roof is asbestos and has been fire damaged, so needs to be entirely (and, carefully!) removed and disposed of; also, the building was formerly squash courts, so there are remnants of internal brick walls that need to be removed

- New roof – once the old roof is gone, it appears to be (surprisingly) cheaper to put up the new roof than it was to demolish the old!

- Renovations – now that we have a ‘clean’ four walls and (new) roof, $200k to $250k should be enough to render the horrible old yellow-brick exterior, put in nice large aluminum showroom windows, new plasterboard interior walls, suspend a new ceiling and associated lighting, dab a little paint on the walls, and put in some flooring (and, a little kitchen and bathroom) and we have a ‘new’ building for not much money!

[AJC: commercial renovations are generally cheaper on a per-square-foot basis than residential because the quality of finishes is lesser and there are no - or, small - kitchens and bathrooms to fit out]

Step 3

Now, I get to redo the sums:

a) I have an ‘as new’ showroom in a prime position that cost me $2,085,000 all up,

b) It provides a ‘net lettable area’ of approx. 800 square meters at $250 per square meter … we’ll have some letting, management costs out of this, but the tenants pay ‘all outgoings’, so let’s say that this nets $200 psm x 800 sm = $160,000 per year

c) This provides me with a $160k / $2,085k = 7.7% return

Step 4

Now, a 7.7% return isn’t shabby (in the local market that we are talking about); but, I could now turn around and find one of those lazy investors that we spoke about in the beginning … one of those guys who is after a low-maintenance, fully-let property and who is willing to accept a paltry 5.5% – 6% return.

They should be willing to pay me $160k / 5.5% to 6% = $2.7 mill. to $2.9 mill. or a cool $600k+ profit for not a lot of work/time on my part …

So, if I decide not to build the condo’s, my backup plan is complete

Let me know if this long-winded series on real-estate has been useful to you …

Technical issues …

… again.

Apparently GoDaddy (who hosts this site) are experiencing temporary/intermittent problems with this site (in fact, many of their hosted wordpress sites). This means that (hopefully, only occasionally) you might see a “page error” message … obviously, you aren’t seeing it now

Hopefully, it will be a thing of the past, soon. In the meantime, you have my apologies …. and, theirs:

The issue you have been experiencing is being worked on by our technicians. You site is currently active, however you may still experience intermittent issues.  Service will return to normal as soon as possible. Unfortunately, we are unable to give a specific time frame for this resolution. We appreciate your patience and understanding in this matter and we apologize for any inconvenience.

Welcome to the ALL NEW 7million7years!

Welcome to the UPDATED 7 million 7 years blog … a new look, and new features (some still in the queue, waiting for our inhouse ‘geek squad’ to activate them over the weekend … I hope!)

We have tried to bring across all of our archive of posts, but some of the links and videos may not work … don’t worry, we’ll (eventually) find them all and fix ‘em! In the meantime, please take a look around … subscribe by e-mail … and let me know what you think?!

Adrian.

How to find a business to invest in …

You don’t need to know much more about buying a whole or part (e.g. the stock) of a business than what Warren Buffett imparts to this group of MBA students in this video …

… look and learn. It ain’t rocket science

The right balance to get rich …

… who is this hell of a smart guy!?

Whoever he is, he is right, you need to balance:

- Research,

- Creativity,

- The Practical (just do it!).

It takes all three to be a success: if you focus on just any one of these three areas you could be:

- paralyzed by (over) analysis, or

- dreaming, dreaming, dreaming, or

- bull-dozing your way down a path where there is NO demand and no return.

Who says you can’t learn anything useful on the Internet?

Why do personal finance bloggers blog … what's in it for me?

I must admit that whenever I read a personal finance book I ask myself the question: was this guy rich before he wrote this book or because he wrote this book?

Sadly, for many, writing the book is a way to wealth for the author … not a way to express wealth to the reader.

For personal finance blogging, I feel that it is different, simply because there isn’t enough money in it to justify the time … even for those who do accept advertising on their blogs.

So, why do personal finance bloggers blog?

For the answer to that question, I turned to a blogger who is clearly so successful that he can’t possibly be in it just ‘for the money’ – or the fame - Guy Kawasaki … he already had plenty of both!

If you don’t know Guy and his blog, I suggest that you open a new tab in your browser and get acquainted with him now.

In a recent post, Guy talks about a a three-part study from C-NET, appropriately called “The Influencer Study from CNET Networks: Challenging Perceptions.”

Guy says that the study ”explored the structure of social networks, the motivations for giving advice, and methods of acquiring information.”

The part that interested me was this comment about influencers: 

Influencers aren’t driven to share information for the sake of appearing knowledgeable or to demonstrate their expertise. They’re primarily motivated by a basic desire to help others. They develop a stronger sense of self-confidence when it’s well-received, further motivating them to help and advise others.

Now, I can relate to this …

I write this blog because I want to share what I learned the hard way … there was no clear roadmap for me to follow when I was struggling financially, so I want to create one for others to follow.

The many books -  and blogs – that are out there dealing with the subject of money seem to mainly focus on how to save and get debt free, or how to retire on plus/minus 20% of your current salary …

… while important, none addressed my need to be totally financially free, at a (relatively) young age and with enough ‘play money’ to do the things that I needed to do.

And, none showed me how to do that quicker than ‘get rich slow’, but more safely than ‘get rich quick’.

I  guess I had to write my own ‘manual’ on how to get rich – by trial (many) and error (many) as I went along … this blog is the result.

I hope that it works to make your path to wealth a little quicker and easier for you than it was for me!

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8 Principles of Fun

I enjoy finding videos for my ‘Videos on Sundays’ series. Sometimes they are about money, sometimes just frivolous (but, I usually try and find at least some tenuous link to the subject at hand), and sometimes about life itself.

I came across this interesting and rather inspiring piece and I thought you would enjoy it, too …

 http://www.eightprinciples.com/

… my plan was to then try and create a list called the 8 Principles of Finance to keep this post ’on subject’ but really felt that I could leave that to you … any ideas?

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Want to see more personal finance blogs?

Here, we cover basic as well as advanced topics designed to help you make serious amounts of money over time … no scams or ‘get rich schemes’ … you have to WORK for it, Bud!

But, do you also want to see what other Personal Finance bloggers are writing about? You should …

I got an e-mail from Guy Kawasaki today telling me that he has listed this blog on his new site: Alltop.com … a nifty ‘dashboard’ that aggregates stories from all the top personal finance sites on the web and displays them on a single page!

It’s not just all about personal finance, though … Alltop has a series of pages on all topics from celebrity gossip to autos to news to ‘geekery’ (gadgets, computers, technology), and many, many more.

Check out Alltop Personal Finance, or head over to Alltop’s main page and pick your area of interest.

Let me know what you think?

Do you know how much you will retire on?

If you are like most Americans, the chances are that you have virtually no idea how much you will be able to retire on …

In fact, only 1 in 3 do. And, everybody else in the world is pretty clueless, too … at least according to this AXA survey:

It gets worse, of those who do know (or think they know) how much they will retire on almost half don’t think it will be enough:

… and, I bet that 90% of the other half are simply settling for a LOT LESS than their dream retirement.

Don’t let that be you … start by working out your Number, and let’s go from there …

When is investing gambling?

I was browsing a new finance forum the other day and came across a great question from a self-confessed ‘beginner investor’.

He asked:

“Where can I learn how to trade with a few thou for the short term (<3mo) with greater than 20% return. I’ve never invested anything. I know that long term investing seems much easier from what i’ve read ie. value investing with stock screens, but what is another good strategy? I am looking for a strategy, teacher, website, anything to start learning, but with a goal of putting money in the market. I’m not interested in funds or managers.”

That, my friends, is called ‘gambling’ not ‘investing’!

You see, when evaluating ANY so-called ‘investment strategy’ you have to consider the return that you can make against ‘market norms’ …

… which is a very simple way of saying “if I can do it … and I don’t have any SPECIAL INSIDER KNOWLEDGE that makes me SPECIAL … then why isn’t EVERYBODY doing it?”

The answer is, of course, is: it’s simply NOT possible … otherwise EVERYBODY would be doing it, already!

… unless you get extremely lucky (which is why what you want to achieve is called ‘speculating = gambling’).

A friend and I had a similar conversation the other day …

He is becoming a professional speaker and consultant; he has already made a great start by writing and self-publishing a book and already has some paid speaking engagements.

BUT, his target is to earn $200k next year … just from speaking/consulting, as a near-beginner!

So I asked him: ”How many corporate executives, with expertise in your specific area [customer service] earn anything close to your $200k target right now?”

He said: ”Not many … that’s a BIG corporate salary …”

Next, I asked him: “How many of them could write and speak about customer service?”

He answered: “Probably a lot more than you’d expect, especially if they knew that was $200k on the line …”

“Exactly!” I said, almost jumping out of my chair: “So, why would any of them work for somebody else, if they could simply write a book then earn $200k … with the added benefit of lots of travel, flexible hours, and no boss?”

“Hmmmm” he said, his brain obviously (finally) ticking over: “They wouldn’t!”

Which was exactly the point that I was trying to get across:

It simply CAN’T be DONE, by the average person … otherwise, they would all be doing it!

Of course, there are PLENTY of speakers and consultants earning $200k or way more – as there are plenty of people in all areas of ‘investment’ (stocks, options, currencies, futures, real-estate, business, etc, etc) earning outstanding returns even in a crappy market - but …

… they generally have SPECIAL INSIDER KNOWLEDGE that makes them SPECIAL … or, they work MUCH harder than anybody else and/or they get extremely LUCKY …

So, what would you tell our ‘Beginner Investor’?

I would say, when evaluating any opportunity or even your own investing goals and strategy consider:

1. Are you investing – in which case, you should expect ‘normal’ rates of return over the long haul, or

2. Are you really gambling – in which case, the sky is the limit … but, the ground could equally rush up to meet you …

depending upon how lucky you get.

BOTH have a place in your journey towards $7million in 7 years (or whatever target you set for yourself)  … it’s how I did it …

But, always be very clear on when and why you are investing and when and why you are gambling.

I’d like to hear your views …