Dress to suit your audience …

I’m sure that Miley thinks she looks great … and, I’m DEFINITELY sure that her audience does, otherwise why would they come to her concerts in droves? It sure ain’t for the singing 😉

But, as cool as she may (or may not) be … she had better not be dressed like that when she’s going for:

– a job interview

– a bank loan (well, in her case this might be OK)

– a sales presentation

– etc.

In other words, it’s not important how you look, but that you fit in with how your audience EXPECTS you to look.

When we have a Life’s Purpose that transcends ‘today’, you can make these kinds of short-term trade-off’s – you know, the “but my friends are all …” kind – because you KNOW that you have a long-term pay-off (your Number/Date, allowing you to live your Life’s Purpose, which probably includes your dream lifestyle) that your friends are simply unlikely to ever achieve!

Let me give you an example of dressing (or presenting yourself) for your audience:

When I first started in business, I had three modes of dress:

– Smart casual for my clients, who were all tradesmen: I wanted to dress nicely (to present a good image) but not ‘stuffy’

– Suits for my corporate clients: my other business was much more corporate; whenever I had a client meeting, I would dust off my ‘power suits’ and ties (nowadays, you can dress more casual, but ONLY if your client does, also).

– Suits WITH gold watches/cuff-links/jewellery: for my meetings with the bank … I always want to leave my banker with the impression that I don’t NEED the money 😉

Now, this doesn’t mean that you can’t dress like Johnny Rotten after hours!

If that’s your ‘thing’ go right ahead … I mean, you gotta live, right?

BUT, make sure that your fashion accessories of the bodily kind can be TOTALLY hidden from view, come Monday!

Body piercings are fine; tongue/eyebrow/lip/ear piercings are not.

Small earings are fine; multiple piercings and ear ‘plates’ (the ones that enlarge the holes on your ears) are not.

Hidden tatoos are fine; visible ones are not.


Because the majority of people who you NEED to help you become successful (bankers, clients, partners) are nowhere near as broad-minded as you think!

Now, before you accuse me, my staff broke all the ‘rules’ … but, I was able to look beyond the physical (even if I had to endure a raised customer eyebrow or two), but don’t limit your market to me and the two other CEO’s out there who are as broad-minded as I am.

Let me give you another example:

A close friend of mine is CEO of a small public company. Interesting.

What his clients don’t know is that he has wall to wall tattoos on his body. Amazing.

BUT, he has to keep his shirt buttoned up (including his neck) and his sleeves all the way down to hide them … I guarantee that he regrets his tattoo decision for this reason.

So, that’s the sad truth about freedom of self-expression today; maybe it will change in a few years, maybe it won’t. Just don’t take the risk, if you want to reach your Large Number by Your Soon Date … it’s probably not worth it.

BTW: Nowadays, I don’t dress to impress anybody …

… on the other hand, I’ve already reached my Number. Have you?

A question I’m not sure I should answer …

Sometimes, I’m posed a question that I’m not sure that I should answer.

Case in point: Drew asked a question about my 7 Million Dollar Journey :

What were the terms of your first $1.25 million building purchase in 2001? You mentioned you had been in debt and had been losing money in your business until sometime in 2000 when you began to turn a profit. You had to have had a lot of profits quickly to put together the down payment for the building and be approved for a loan in such a short time period after years of money losing operations.

A straight-forward question, but the answer isn’t straight-forward … there’s a question of ethics and also a question of giving my readers potentially dangerous strategies.

After much uhmm’ing and aah’ing, I’ve decided that honesty is the best policy and to throw it to my readers to decide on the issues of ethics and danger:

As I mentioned, I had only recently become profitable, yet I managed to:

1. Stump up the 25% deposit on a $1.25 million commercial real-estate purchase,

2. Make the mortgage payments,

3. Make the additional lease payments on the $400k rehab and fit-out required.

Quite a tall order, so here’s how I managed it:

First, I made sure that I was profitable enough to:

i) Make the mortgage payments as and when due,

ii) Keep up with the lease payments,

iii) Pay back the deposit

Did you catch that?

Number (iii), I said: “Pay back the deposit”

You see, I actually borrowed 100%+ (i.e. the deposit, the mortgage set up fees, and the closing costs), but here is where the question of ethics and danger come into it …

… I borrowed the deposit and the closing costs from my customers!

And, here’s where ‘ethics’ come into the picture – my customers didn’t know!

You see, one of the easiest, best, but most dangerous ways to raise money, is to raise it from your customers.


It’s actually quite simple: most businesses have large inventories (the goods that you hold in stock), accounts payable (money that you owe your suppliers) and accounts receivable (money that your customers owe you).

Any and all of these have value.

For example, it’s quite a normal/accepted practice to borrow against the value of your inventory; unfortunately, your bank may not want to take the risk, and your finance broker may only give you a little money at a high interest cost because of the perceived risk (after all, do they really know how to sell the inventory if you default?).

It’s also quite normal to leverage the value in your receivables by approaching a specialist finance company to ‘factor’ those debts: that means that instead of waiting 4 to 6 weeks for your customers to pay, the finance company may advance you up to 80% of the value of those debts (i.e. your total receivables). This is, in fact, one of the businesses that I still own.

But, there is a third method that requires no bank or finance company to get involved: it’s simply to pay your suppliers slower than your customers pay you!

My business, being a services business had no stock (so no inventory finance opportunity), and factoring can have the stigma of a weak business so I didn’t want to go that route with my ‘Fortune 500’ corporate clients.

But, I did have a very tight contract that saw my largest clients paying my invoices in just 7 days (really!), yet I was only obligated to pay my suppliers in 30 to 60 days. Further, my turnover was huge (compared to my fees) because of the nature of my business.

This meant, effectively, that I had a line of finance equal to 3 to 7 weeks of my sales/turnover!

That was more than enough to raise the deposit for the building.

OK, back to my initial reticence to share this with you:

1. In most businesses, the turnover isn’t large enough, and the negotiated spread between accounts payable/receivable large enough to raise very much cash,

2. I think it’s ethical to use these funds for your business (unless you have lead your customers to believe that these funds are to be, somehow, quarantined and/or held in trust), borderline to use them for the building that houses the business (for example is the building going to be bought in the name of the business, or in a separate entity as I would normally recommend?), and unethical to use them for personal use / purchases outside the business … but, ethics is in the eye of the beholder, so YOU tell me what you think?!

3. I think it’s dangerous because your business MUST have the necessary solvency (not just profitability) to not only keep up with the payments (both mortgage and lease) as well as to ‘buy back’ the deposit over a relatively short period of time (in my case, 12 to 18 months).

So, now you are armed with a powerful – and dangerous – business financing tool. Use it wisely … and, sparingly!

How much home should I buy?

A reader who works with RE, Whittier Homes, says:

I’m in the camp that you don’t leave too much equity tied up in the walls of a house. That being said there is a risk factor or a comfort zone that every investor has to know. The bottom line is you don’t want to get over leverage and get caught on the short end of a declining market.

Home equity is simply what your home is valued at (today) less what you still owe on it (today).

This leads me to think that I’ve never said … and, nobody’s ever asked: How much equity should I have in my own home?

Well, there’s a reason:

I have NOTHING to say about how much equity – as a % of your house value – and, EVERYTHING to say about how much equity – as a % of your Net Worth – you should have tied up in your own home.

In other words, your equity is a function of:

– How much your house costs to buy

– How much it increases in value over time

– How much deposit you have available now

– How much you choose to put in / take out of the value of your house over time

I have no advice as to how much you should spend on your house in the first place, that’s your business not mine 🙂

But, I do have some guidelines that pretty much help to answer the “how much home should I buy?” question (other than for your first home), albeit obliquely:

1. The 20% Rule ensures that you are always investing at least 75% of your entire Net Worth (after allowing for another 5% to be spent on ‘stuff’),

2. The 25% Income Rule ensures that if you do decide to borrow money to buy a home, that you do not overcommit your cashflow,

3. The Cash Cascade makes sure that if you do have a mortgage, that you don’t pay it off too quickly if better investing opportunities abound.

Put these ‘rules’ into practice and you won’t go too far wrong, when it comes to your own home …

10 Paths To Wealth?

Ken Fisher is a well-known money manager – I know, because I’ve had to endure phone call after phone call when I stupidly signed up for one of his ‘free’ reports!

However, watching this video (and, maybe even buying his book) seems like a fairly non-threatening way to learn some of his wisdom.

Personally, I think you need to mix’n’match some of these methods to have a bats-chance-in-hades of making your Large Number / Soon Date.

On the other hand, I’m all for marrying into wealth, but who’d have me? 🙂

What should you invest in first?

My wife just got back (well, just before our Noosa trip) from a trip overseas to attend her nephew’s wedding; and, the young happily married couple decided to spend part of their honeymoon in Australia … so, they are staying with us right now!

This was an opportunity for me to interfere in their financial lives … naturally, I couldn’t resist 😉

It’s also an opportunity for me to share my financial plan for our younger readers, whether single or married.

The plan is simple:

Step 1: Start working!

Step 2: Use your pre-work spending and living standards as a guide to ensure that you save at least 10% of your gross salary; preferably more.

Step 3: No matter what your Step 2 Income and Expenditure, save at least 50% of any future salary increase

Step 4: That includes any ‘found money’ such as: change found on the street; tax refund checks; small handouts/inheritences from friends/family (naturally, you will ‘up this’ to saving 95% of any LARGE handout/inheritence); etc.

It won’t take too long to actually have some money (perhaps for the first time in your life) to think about actually INVESTING.

So, what to invest in? Stocks; car parks; italian art; … ?

It’s simple: your own home!

It will probably be a small house or condo to start with … possibly with some ‘fixer upper’ potential …

But, what about the 20% Equity Rule and the 25% Income Rule, which will ensure that you can only afford to buy a shoe-box (literally) at this early stage of your financial life?

You forget them for your first home …

… and, replace them with these guidelines:

– Put as much equity into your house (by way of making a deposit) as you have savings (you’ll want to keep a little buffer against immediate expenses)

– Borrow as much as the mortgage payment that you can afford, which will be the amount per month that you are currently saving (of course, you’ll want to keep a little buffer against extra expenses).

When you (eventually) get tempted to ‘trade up’ to a bigger house, that’s when you apply the 20% Rule and the 25% Income Rule!

But, shouldn’t you invest in something else first? Perhaps you’re not even married yet and can happily rent for a while?

This is true: but, buy the condo anyway … then you can evaluate if your rent is so cheap that you should rent out the condo for a while before moving into it. Same applies if you move to another location: rent out the house/condo and rent for yourself elsewhere until you are ready to trade up (or across).


Let’s decide whether, over the course of your life, real-estate will go up in price or down in price? The answer for all of history has been UP (over a sufficiently long period).

Decide whether you will ever want to own your own residence? Again, the answer is YES for the overwhelming portion of humanity (and, even if you think not, I guarantee that your eventual spouse will have a very hard go at convincing you otherwise).

So, unless you have an overwhelming reason to believe that RE won’t go up in price for the next X month/years, then you are compounding your money at RE’s typical growth rate (6% … depending upon who you believe and where you live) TIMES the leverage that the bank is giving you LESS (your mortgage payment/costs – rent you would have otherwise paid).

Run the numbers; it’s a VERY good/safe rate of return 🙂

Be the bank!

My son asked why I don’t just plonk by money into a safety deposit box to tap into those wonderful gross margins that banks earn buy ‘buying’ your money at 3% and ‘selling’ it back to you (or to other people/businesses) at 7%.

That lead to a great discussion on P2P lending, which partially addressed the problem of risk for me: P2P offers filters to allow you to sort loans; ratings to allow you to evaluate loans; and FICO-based ‘risk rated’ interest rates (circa 10%) to go along with all of this.

But, that doesn’t satisfy me …

And, it’s not because the banks have MUCH better systems to evaluate and manage loans and it’s their core business, it’s because I can do much better with my limited capital than P2P levels of interest.

Here’s two things to think about:

– Does P2P provide the annual compound growth rate that YOU need to reach your Number?

– Do you have the bank’s virtually UNLIMITED access to capital or is the amount that you can apply to P2P as a % of your Net Worth limited?

These points are critical: you have a limited amount of investment resource available to you and (probably!) a very large Number / soon Date to achieve using what you currently have as a springboard.

Now, let’s flip to the other side:

Banks dig into their ability to borrow (which IS the basis for their entire business, investment banking / asset management services aside) and lend to us for what?

Either to SPEND (on consumer items, if we are dumb) or to INVEST (in our homes, businesses, etc.) if we are smart.

So, let’s put those things together to create our own ‘bank’:

1. We have limited cash to ‘lend’ at our disposal, so we need to find a way to tap into vast amounts of borrowing power just like the banks.

2. Well, we don’t have the Regulations, Reputations, and Resources (e.g. access to the capital markets) that allow the banks to borrow (then lend) so much, but we do have something that allows us to achieve effectively the same huge jump in personal borrowing capacity: the spare equity in our houses.

[AJC: You knew there was a catch! If you don’t have a house, have GFC’ed your equity out the window, or otherwise don’t have enough equity built up yet, bookmark this post and take the rest of the day off …]

3. If you DO have spare equity in your house, and can refi. to a fixed rate loan that locks in your borrowings circa 4% or so then you are probably now sitting on a relatively large sum of cash to lend, just like a bank (relatively speaking!).

4. So, you can either:

– Do, what the banks do and lend to somebody who needs the cash at a higher rate; e.g. P2P where you may get 10% for each 4% ‘unit’ that you supply … a VERY healthy 150% gross margin (plus, you have NO staff or overheads), OR

– Do, what I would recommend: cut out the middle-man and lend the money to yourself!

What would you do with that money that you have borrowed?

What any sensible investor would do with money that they borrow from the bank – depending upon their Number and their appetite for risk:

– Buy some investment real-estate,

– Buy stock [AJC: a friendly ‘bank manager’, no margin calls …. sweet],

– Start a business … it could even be a P2P lending business 😉

That last one isn’t such a joke; I would be more tempted to invest IN a P2P business than I would be to lend VIA a P2P. Why?

It’s simple … the former gives me ho hum 10% returns (with some credit risk attached), whilst the latter gives me access to potentially, unlimited returns!

Are you worried about the risk of business failure?

Well, if the P2P site goes under, isn’t my risk of capital loss the same as if my cash was sitting in their investment accounts [AJC: which is one of the reasons why the SEC is VERY interested in regulating P2P, all of a sudden … but, until they do … 😉 ]?

Peer to Peer Lending. A 7m7y tool?

In my last post, I suggested that banks are profitable businesses because they have such a large mark-up. If they’re so great, my son asked, why don’t I simply plonk my cash into a safety deposit box and dole it out to willing borrowers like some kid with a lemonade stand?!

Why not, indeed?

The simple and obvious answer is risk, which the bank handles, I said to my son, with a combination of volume (to spread risk), people (to manage risk), and systems (to assess and ‘price’ risk).

However, Rick Francis offers perhaps a better-lemonade-stand-solution (?) … Peer-to-Peer Lending:

There is a fairly easy way to become the bank- peer to peer lending. It doesn’t remove the risk of default but does allow for diversification and there is a framework to asses the risk. They break loans into many small pieces that different individuals fund, so you don’t risk too much on any one loan.

Yep, P2P Lending certainly helps to address one of the banks’ three mechanisms for handling risk: you can spread your loans (the bank lend $400k many/many times over … you lend $40 many/many times over).

But, what about the experienced PEOPLE? It can take some time/trouble to sift through all of those loan apps listed on the leading P2P sites, as Jake points out:

P2P lending requires you to pick through hundreds of loan apps, and filter it to the set that you believe has the best risk / return ratio.

Then you have to diversify – invest in many loans so that a single default will not wipe you out. I think that you should invest no more than 1% of your portfolio into a given loan – so lets say you need to invest in at least 100 loans. Unfortunately, that requires you to pick through probably 1,000 applications hand-by-hand (you already discard the vast majority based on search criteria).

That’s frankly just too much work to be worth it, no?

it’s worth it for the bank, but probably not worth it for you and me (even though you can filter/sort the loan applications by various criteria) ‘just’ to get that 10% return that Rick has experienced …

And, we still haven’t addressed the risk management SYSTEMS that the bank applies, what does P2P offer there? Many sites, as Rick pointed out, offer some sort of FICO-based ranking, but banks rely on a lot more than that (for example, where’s that little thing called ‘collateral’?!) …

The only compensation for these last two (PEOPLE and SYSTEMS), that I can see, is that P2P borrowers may not want to default for a combination of:

– Getting locked out of the P2P sites … perhaps a similar mechanism to eBay’s Rating system is available?

– Perhaps it’s enough that P2P borrowers appreciate the opportunity that they have been given and don’t wish to abuse it by defaulting?

It is perhaps these two reasons that help to explain why micro-lending in 3rd world countries has such a low default rate?

But, it’s the simple logistics that Jake pointed out that put the kibosh on P2P for me …

Have you had any experience with P2P and would you use it again?

A (post)Vacation Question – Part III

Now that we’re back from vacation I can retain my blogger’s right to semi-anonymity, yet risk little by answering Mike’s [and, some of our other readers’] question:  “Which beach in Australia is this?”

Noosa in Queensland.

After discussing the real-estate ‘deals’ of Bill the shaved ice man, and Massimo the ice-cream man [AJC: did I mention him?], while buying – naturally – shaved ice and icecream, as one does when in Noosa on vacation, now that we were finally home and ready for a change of scenery …

… we discussed bank-financing of real-estate on our way back from buying ice-cream at the 7-Eleven store not far from our own home 🙂

The conversation went something like this:

Son: “Why has the bank invited you to their private corporate box at [a certain upcoming international sporting event]?”

Father: “Well I have a lot of money on deposit with them”

Son: “But, they have to pay you money [interest], aren’t their important customers the ones that they lend money to and who have to pay the bank money?”

Father: “Good point!”

So, I explained to my son that I am now both a borrower and a lender to my bank:

– As a lender, they pay me roughly 3% on the money that I have sitting in their bank,

– As a (recent) borrower, they charge me roughly 7% (interest + bank fees and charges) on the money that they lend me.

Son: “So, they only make 4% interest … is that enough for the bank to make money on?”

Father: “Don’t feel too sorry for the banks!” 😉

As I explained to my son, the bank is like any other business buying a product for $3 (or, in the bank’s case, borrowing money for 3%) and selling that same product for $7 (or, in the bank’s case, lending money for 7%):

They are operating on (at least in this example) a 133% Gross Margin.

Most people DREAM of having a business that operates on 133% Gross Margin …

… of course, the banks have costs:

– They have to carry stock (i.e. pay interest on funds deposited) even if they don’t sell it (i.e. lend it) … unlike a ‘normal business’ the bank has these great treasury departments who simply put this ‘spare money’ into the short-term money market and earn interest,

– They have the usual staff, office lease, and overhead expenses of any other business,

– They have the risk of fraud / credit default on the money that they lend out.

All of this is factored in to produce a Net Profit that is amongst the best of any type of business (GFC aside). This got my son thinking:

Son: ” So, why don’t you put your money in a safety deposit box and lend it out to other people instead of letting the bank make all the profit on your money?”

Well, as I explained, I actually do: I have a finance company of my own, and we look at our finances this way; the interest that we charge our clients is treated as ‘fees’ … we divide that Fee Income (very roughly) into three parts:

– 1/3 goes to pay the bank’s interest and fees on the money that we borrow from them to lend to our clients,

– 1/3 goes to pay our staff, rent, and overheads, leaving

– 1/3 which goes to our [AJC: my] profit.

This is strikingly similar to the ‘standard’ restaurant formula:

– 1/3 goes to pay for the raw material [AJC: pun intended 😛 ],

– 1/3 goes to pay their staff, rent, and overheads, leaving

– 1/3 which goes to their profit … of course, that’s the theory but the reality for restaurants and many other businesses is vastly different (but, that’s a subject for another post).

So, why don’t I do what my son suggests for the bulk of my money?

Simple: I don’t have the ability to handle the credit / fraud risk!

But, the bank can because they have the people, the systems, and the sheer bulk of money out there which effectively spreads their risk (IF they have followed sound credit lending policies ….enter housing crash and GFC).

Later on this week, though, I will tell you how YOU can become the bank … without the risk.

Stay tuned!

Call me … make it happen!

OK, so he wants you to buy five houses this year … and, he gives you the quick ‘hard sell’ at the end … but, the basic philosophy – to me – is sound:

– Houses are depressed in the USA, but so are interest rates,

– Unless the USA ‘double dips’ prices will begin to go up (when?)

– You can fix an incredibly low interest rate on your primary residence (can the bank rewrite the mortgage if you move?)

– You MAY be able to receive enough rent to cover most/all of the mortgage

– Who says you need to buy five houses (except for this Realtor!?) … just think about one for now

Do the numbers for your area/s of interest (price of house, monthly cost of mortgage, likely rental income, other expenses such as 6% – 9% property management etc.) … if you can even come close to breaking even, could you find a better return on your deposit plus the cumulative cost of any monthly shortfall (or gain of any monthly excess)?

Now, run the numbers again assuming that the US market stays flat for another 5 years before some sort of rebound … maybe it still makes sense?

Have you run the numbers? If so, what do you think?

A Vacation Question – Part II

But, what about the other financial question that my son asked while we were on vacation?

Well, we were walking along the beach and Bill, the shaved ice vendor, drove past with his little all terrain vehicle pulling his ‘shop’ behind only to stop a few yards up the beach to tempt my son – and, the many other children running along the sand and swimming in the warm surf.

Naturally, I  quickly became $3.50 poorer and my son had his paper cone filled with shaved ice with various color sweeteners poured over it (he chose ‘rainbow’ flavoring), which got us talking:

You see, it’s popular folk-lore that Bill, who has been selling his flavored shaved ice along the beach for 20 to 40 years, owns many of the apartments in the vacation rental buildings all around [AJC: check out the aerial shot in yesterday’s post] … if true, then Bill is the poster-child for the Wealth Alchemist i.e. turning temporary cashflow into long-term assets.

It’s not hard to see that Bill turns over thousands of dollars a day, most of it costing him nothing (little staff, few overheads, little-to-no-cost-of-goods-sold), after all, how much can ice cost to make?!

Instead of spending all of that money, it’s not a great leap to assume that Bill saves up enough for a deposit to buy a property every now and then; we figure $1 million worth of property each year (with 20% initial equity).

Here is my son’s question:

“Would he pay cash for the properties, or would he just save up enough for a deposit and borrow the rest?”

Now, this is a seemingly simple – yet terribly interesting – question; one that we could labor over for many posts … instead, we’ll look at this another way, by asking:

“Does Bill need the property for income now or for its future value (hence, future income)?”

The answer is clear: Bill has plenty of income now, but what does he do if his income stops?

Presuming that he can’t rely on being able to sell his business (for example, the council could decide that they no longer want people peddling ice on their beaches), then Bill will probably want his properties to generate a replacement income “one day”.

So, which would do that better? When Bill moves into MM301, it’s likely that owning the properties outright and living off the rental treams that they throw off will be best …

… until then, Bill has to (in my opinion) work on the strategy that will produce the most properties by the time he wants to retire.

So, I had to explain the concept of leverage to my son:

SCENARIO A: If you purchase a property for $100k CASH and it doubles in 10 years, then you have $200k of property. Well done!

SCENARIO B: But, if you purchase TWO $100k properties, putting $50k deposit into each and borrowing $50k for each from the bank, then in 10 years (assuming they both double), you now have $400k of properties, of which you owe the bank $100k (assuming that you haven’t paid down any of the loan in the meantime), leaving you with $300k of property … a $100k improvement over Scenario A.

At least, that’s what the property spruikers would have you believe …

… because, they have conveniently forgotten that in Scenario A, you also have some rental income (after, say 25% costs) coming in, whereas in Scenario B that income would be largely offset by interest owed to the bank.

The question is, is that differential in income ‘worth’ $100k over 10 years?

Let’s assume that we can get a 5% return from our Scenario A property (after costs), giving us $5k a year initially (when the property is worth $100k), increasing over time to $10k a year (when the property increases to $200k in value). It doesn’t take a genius to figure that this comes to less than the extra $100k that Scenario B gives us (if you assume an average $7,500 per year rent for the 10 years, we are comparing $75k in rent for Scenario A to $100k in additional capital gain for Scenario B).

Now, add the benefits of:

– 80% gearing (i.e. only making a $20k down payment in our example), which should buy you 5 properties instead of Scenario B’s 2 properties (cost = $500k; worth in 10 years $1 mill., less $80k loan on each = $600k v $300k for Scenario B and $200k for Scenario A. Get it?),

– Increasing rents offsetting fixed interest rates (possibly producing some positive cashflow from each of our 5 properties as time passes),

– Tax deductibility of any excess of interest over income in the early years (a.k.a. negative gearing),

– And, any additional tax and depreciation benefits of 5 properties v only 2

… and, it’s just possibly a ‘no brainer’, even if that does make some of those scummy spruikers right 😉

But, how does Bill pay his bills?

Well, that depends on how much excess of income the properties produce by the time Bill is ready (or has) to retire …

… if  insufficient to pay Bill’s bills, he can sell enough properties to pay off the bulk (or all) of the bank loans, thus forcing a positive cashflow situation (assuming the properties aren’t total dogs, which is highly unlikely in this well sought after tourist area, which boasts near 100% year-round occupancy) and that (after a reserve to cover costs of vacancy, property management, and repairs and maintenance) is his infltation-protected income for the rest of his life.

Then Bill can spend the rest of his days lazing on the beach … buying shaved ice from the next shmuck who chucked in his chance at earning a college degree for the life of a beach bum 🙂