“Put all of your eggs in one basket and then keep your eyes on the damn basket”

Well, I put most of my eggs in one basket and have a big mess of broken eggs right now. Here’s what happened…

1. I sold my real estate business with financing. This means one of my assets is a note receivable, which is dependent on the real estate market.
2. Minton Publishing provides products and services to real estate agents, who are dependent on the real estate market.
3. I own numerous real estate investments, including apartment buildings, single-family homes and commercial properties. All of these investments have lost a significant amount of value.

The real estate market crash has had a major impact on my net worth because almost everything I had surrounded real estate. I worked my ass off to build my net worth and have watched the majority of it disappear within the last 20 months. All of my eggs were in one basket and I couldn’t protect the damn basket.

My mindset was to invest into assets that I understood. I lived real estate, just like you do, so it seemed to make sense to focus my investments in real estate. Hell, we know property values; rent rates, demand, financing and can spot great deals. We would be stupid not to take advantage of this, right?

Wrong – at least in my case.

This recession and market crash have provided another major lesson and that lesson is to diversify our investments outside of real estate. All of my major assets have suffered significantly because I didn’t diversify. Please don’t make this same mistake yourself.

As the real estate market rebounds, set a goal to invest 10% of every penny you make into something outside of real estate. It’s more important for you to invest outside of real estate, because your day-to-day income comes from real estate. If your income comes from real estate and the majority of your money is invested into real estate, you’re going to have a problem or two. This may not sound exciting, but I can assure you it’s the safest thing you can do. You might be wondering where you should invest this 10%?

I suggest checking out the Permanent Portfolio outlined in a great little book titled “Fail-Safe Investing – Lifelong Financial Security in 30-minutes a Year” by Harry Browne.

In Harry’s book, he recommends a simple portfolio designed to protect you from financial loss and based on all of my experiences investing, I believe this is the best strategy. Up until now, my investment objective was to maximize my return. Not any more. My objective today is simply to preserve.

Greed is definitely not good.

Harry recommends dividing your investment savings into 4 different categories:

• 25% in U.S. stocks, to provide a strong return during times of prosperity. For this portion of the portfolio, Browne recommends a basic S&P 500 index fund such as VFINX or FSKMX.
• 25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation (but which do poorly during other economic cycles).
• 25% in cash in order to hedge against periods of “tight money” or recession. In this case, “cash” means a money-market fund. (Note that our current recession is abnormal because money actually isn’t tight — interest rates are very low.)
• 25% in precious metals (gold, specifically) in order to provide protection during periods of inflation. Browne recommends gold bullion coins.

He refers to this approach as the Permanent Portfolio because it’s designed to protect you against ANY “ugly” economic cycle. In fact, here’s a quote from his book:

“The portfolio’s safety is assured by the contrasting qualities of the four investments — which ensure that any event that damages one investment should be good for one or more of the others. And no investment, even at its worst, can devastate the portfolio — no matter what surprises lurk around the corner — because no investment has more than 25% of your capital.”

If this approach appeals to you, I suggest Goggling “Permanent Portfolio.” You’ll probably be surprised at what you find. As an example, in 2008, one of the worst years in history, the Permanent Portfolio returned 1.97%. Compare this slight gain in 2008 to  the 37% loss in the S&P 500, the 36% loss in the Total Stock Market Index Fund, the 41% loss in Real Estate Investment Trust and the 18% loss in High Yield Bonds.

The Permanent Portfolio’s results for 2008 are actually very impressive considering the large losses in almost every traditional investment class. You can find several other studies of this approach for longer periods of time online, and I promise you’ll be happy with the results.

Browne’s book was written in 1999, and I wish I had read it then instead of now. Had I invested all of the money I put into real estate into creating my own Permanent Portfolio, I would have a hell of a lot more money. I also wouldn’t have to worry about the economy, value of the dollar, national deficit or the real estate market for that matter.

In his book, Browne specifically recommends that you don’t invest into anything in which you can lose more than you’ve invested in cash. For real estate investments, this means you shouldn’t invest unless you obtain a non-recourse loan or pay cash for properties.

Years ago, I learned there were two kinds of debt: good debt and bad debt.  Good debt was debt incurred to buy an asset that pays you every month. Bad debt was incurred to buy consumer-related items like clothes, furniture, cars and vacations.

I’ve lived below my means for many years and have invested a great deal of money into real estate using what I believed was “good” debt to compound my returns and have watched every penny of equity disappear. This has taught me that all debt is bad. There ain’t no such thing as “good” debt. Debt creates obligation and you cannot have financial freedom with obligation. Sure, it can help you make more money in prosperous times, but it can and will take you down in bad times.

What have you learned about investing, real estate and debt from this recession? Please share your lessons in the comments to this post!

Photo by lovelypetal

Back February, I had a meeting with my accountant and my bookkeeper to discuss the various tax returns we had to file for 2009. My accountant started asking some questions about one of my businesses. The finances for this business were handled by one of my long-term employees who left in 2009. My bookkeeper wasn’t able to answer my accountant’s questions because various bank account statements were missing.

We looked everywhere for these bank statements, but couldn’t find them. Finally, we requested the missing statements from the bank and paid to have them pulled from archives.

The statements received from the bank showed several online transfers into my employee’s personal bank account. All totaled, these transfers were in excess of $57,000.

I was obviously alarmed by this and sent my former employee an email asking why there would be over $57,000 transferred into their personal account. The response I received indicated that they weren’t able to transfer the money into the business’s savings account because it wasn’t available online. The employee indicated they transferred the money into their account and then moved it into the businesses savings account.

Makes perfect sense, right?

Needless to say, the savings account statements were missing, too. So to speed up the process, I asked this person to show me the money being transferred from their account back into the business’s savings account. A day or two later, I received copies of this person’s bank statements showing online transfers from their account into the businesses saving’s account. Thank god!

To be safe, I decided to request all of the missing saving’s account statements from the bank just to make sure everything matched up. When I finally received these statements, I couldn’t find corresponding deposits. I took all of the statements to the bank to get to the bottom of this once and for all. Believe it or not, my former employee sent me factitious statements of their account showing fake transfers into the business’s savings account. The money was never returned.

This person stole over $57,000 and then tried to cover it up. The hardest part of this is the betrayal. My wife and I felt sorry for this person and included them in holiday dinners. We sent this person on vacations at our expense. We even paid for a dinner reception after their father’s funeral.

This person was stealing money from us the entire time.

This person was recently charged with grand theft, which is a 4th degree felony and will probably do time. I share all of this with you because I’m hoping to prevent something like this from happening to you. I made a few costly mistakes, which allowed all of this to happen. Here they are:

STUPID MISTAKE #1: This employee had check signing privileges and access to the business’s online bank account.

It was very easy for this person to transfer money out of the account. For every other business I own, I’ve personally signed all of the checks. This was the one business where I delegated check signing. Never, ever delegate check signing. This includes delegating to partners and/or employees. You should sign every check personally. I know it’s not convenient. However, it’s vitally important if you’d like to keep your money!

STUPID MISTAKE #2: The bank statements for this business were mailed to the office.

As you know, I work mostly from home. This employee was the first one to get the bank statements. In fact, I never even saw them. Even worse, I didn’t have access to the business’s bank account online. I had no idea what checks were written or what money was transferred out. I completely trusted this person. Shame on me.

Believe it or not, all of the other bank statements for every other business I own, are mailed directly to my home. I’m the first person to open them and can see everything flowing through the account. You should be the first one to receive and open your bank statements. If they go to a partner or employee, you’ve opened up the opportunity for theft. Simply change the mailing address for all of your bank accounts and have them sent where you’re the first person to open them.

STUPID MISTAKE #3: Make sure all incoming money comes directly to you.

In my various businesses, money was sent to my office. This includes my rental properties, too. Tenants would mail their rent to my office or would drop it off in person. And in many cases, tenants paid their rent in cash. My employees had access to this money and could redirect it into their own accounts. Today, I have a P.O. Box and I’m the only one with a key. All incoming rents, checks and other payments are now sent to this P.O. Box and I’ve eliminated the possibility of theft.

STUPID MISTAKE #4: I felt sorry for this employee.

Every single time I’ve felt sorry for someone, I’ve been burned. This has happened with tenants in my rental properties and it has now happened in business with one of my longest, most trusted employees.

I realize this sounds terrible, but you cannot allow yourself to feel sorry for an employee, a business partner, or anyone else you do business with. You have to take emotion out of your business decisions. If you want to help other people, do so outside of your business.

Please understand that what I’ve shared with you applies to business partnerships, rental properties and your employees. Anytime your money is accessible by someone else, you have to pay attention and you have to exert control over key areas.

I’m not suggesting that you handle the bookkeeping for your business. Paying bills, preparing financial statements and balancing your checkbook is not a good use of your time. You should definitely higher a competent bookkeeper to handle these activities for you. However, you should still manually sign every check. You should have the banks statements sent directly to you. You should also remove access to all incoming checks or payments. My bookkeeper didn’t handle this one business. My employee did. I broke my own rules and suffered a significant financial loss.

Don’t read this article and think this can’t happen to you. It can and will, if you don’t set things up properly.

Please feel free to share any other theft prevention ideas in the comments to this article! Or if you’ve had something similar happen to you, tell your story and hopefully others can learn from what happened to you!

Time to make the doughnuts!

One of the most challenging parts of our business is that we have to constantly sell more homes to get paid. I’ve often felt like the doughnut guy in this commercial. I’m sure you have too! It’s a never ending cycle and it can wear you down. Almost as if you’re stuck on a treadmill and can’t get off.

Several years ago, I spent an entire day at Panera Bread thinking about my real estate business. I left my cell phone in the car and completely shut myself off from the outside world. I made a list of other professions and which ones seemed to be the most profitable. Believe it or not, an author gravitated to the top of my list. The reason why an author was at the top of my list was because the author writes one book and gets paid over-and-over again. In other words, they make doughnuts one time and get to sell them multiple times. As an example, Napoleon Hill’s estate is still receiving income from his legendary book “Think & Grow Rich.” He died in 1970.

Will your family receive income 40 years from now from the home you sell today?

Not likely.

After thinking through all of this at Panera Bread, I made the decision to change my entire business. I wanted to focus on opportunities that provided recurring income. I didn’t want to have to work forever like the doughnut guy. I wanted to engineer my life so I could work when I wanted to work and play when I wanted to play. I wanted to have the lifestyle of John Grisham, one of my favorite authors. He writes books because he wants to, not because he has to.

From that day forward, I vowed to only focus on opportunities which provided recurring revenue. And thankfully, I’ve followed through with this decision. I’ll be honest – it wasn’t easy. Everyone said I was crazy. My agents didn’t agree. It didn’t matter what anyone else said. I stuck to my guns and transformed my business.

I think there is a BIG opportunity for agents to engineer attractive recurring revenue in their businesses. I’ve detailed this opportunity in a new 11-page report you can download right now at this link:

Listing Income-PDF

In this report, I share how you can create 3 new income streams from sellers. One of these income streams is recurring monthly revenue. I also share how I evaluate new ideas for my businesses. I think you’ll find this little exercise to be very helpful for your business, too!

Can money buy happiness?

Every person over 30 years old has realized money doesn’t buy happiness. When they started their businesses, they had dreamt of massive wealth, beautiful homes, high-end cars and lots of toys. As they grew older, they began to realize that money what wasn’t what it was all cracked up to be.

Two years ago, I read a book titled “How to Get Rich” by Felix Dennis. Felix Dennis is a multi-millionaire and shares his journey to wealth throughout his book. It’s a fantastic book. In one of the final chapters, he wrote the following:

“Ask me what I will give you if you could wave a magic wand and give me my youth back. The answer would be everything I own and everything I will ever own.”

Here’s a man who dedicated most of his life to building wealth who is willing to trade it all to be young again. This is very powerful and has had a big impact on me over the last year or so. In real estate, we tend to work 7 days a week, week-after-week.

He wrote:

“Seeking substantial wealth is almost always a fool’s game. The statistics show that very few people ever succeed. Most of them should never have made the attempt in the first place….the search will take up a great deal of your waking life for many, many years….Time is finite. Which is a fancy way of saying that you only have so much of it – then it will run out.”

Felix is saying that the price he paid with his time to accumulate wealth was too high. In other words, he overpaid and is suggesting that we be careful of overpaying, too. Felix has realized that TIME IS MORE VALUABLE THAN MONEY. I’ve been fond of saying “Time is Money.” This is actually incorrect.

Back to Felix…

“If you are young and reading this, then I ask you to remember just this: you are richer than anyone older than you, and far richer than those who are much older. What you choose to do with the time that stretches out before you is entirely a matter for you. But do not say you started the journey poor. If you are young, you are infinitely richer than I can ever be again.

Money is never owned. It is only in your custody for a while. Time is always running on, and the young have more of it in their pocket than the richest man or woman alive…And yet you wish to waste your youth in the getting of money? Really? Think hard, my young cub, think hard and think long before you embark on such a quest. The time spent attempting to acquire wealth will mount up and cannot be reclaimed, whether you succeed or whether you fail.”

Here’s another great quote from Douglas Adams:

“Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.”

An incredibly wealth man has said that he would trade every dollar he owned to get his time back. Will we learn from his experiences?

Maybe.

I think the recession and market crash has given us the opportunity to re-evaluate what’s important in our lives. Many of us now realize that our health, friends and family are the most important of all. My concern as the economy turns around is that we will fall back into the trap of focusing entirely on selling more homes and making more money. Will these lessons we’ve learned stay with us going forward?

Consider a little more from wealthy Felix…

“Am I happy? No. Or, at least, only occasionally, when I am walking in the woods alone, or deeply ensconced in composing a difficult piece of verse, or sitting quietly with old friends over a bottle of wine. Or feeding my stray cat. I could do all of those things without wealth….”

Felix’s book, “How to Get Rich,” is 300 pages long. This little section about the price of wealth I’ve been referring to is only five pages long. I didn’t expect to find these thoughts in a book titled “How to Get Rich.” When Felix concluded these five little pages, he wrote:

“I suspect it will have little effect on you, though…. the last one thousand five hundred words was an “important bit.” In my heart of hearts, I know it was the most important bit you will read in this book.”

Felix has indicated that the most important thing he wrote in his 300-page “How to Get Rich” book is NOT to get rich. The price you must pay with your time isn’t worth it.

Why you might ask?

Because an investor is always an investor. What I mean by this is an investor is ALWAYS interested in good deals. Take a second and think about this…

If you have investors in your database and they’re always interested in good deals, you have the ability to sell property anytime you want. All you have to do is find a great deal and market it to your database. It’s virtually impossible for a “real” investor to walk away from a great deal. I know because I’m one of them. Every time I hear about a great investment opportunity, I automatically start thinking how I can grab it for myself.

There are several ways for you to leverage this finding in your business and it might make sense for you to focus on larger investment properties because you’ll earn a great deal more for your efforts. Compare the commission earned on the sale of a 30 unit apartment building to the commission earned on the sale of a single-family home. Which commission check would you rather have?

The good news is that it might actually be easier to sell a larger investment property to your database than it is to sell a smaller deal. I’ve sold several larger investment properties to my database over-the-phone without a single showing appointment. You can see exactly how to do this yourself in a 12-minute video.  Here it is: