Your preparation to become an investor is not unlike considering any other profession or occupation.  There are basics and fundamentals that should be understood, if not mastered, in order to achieve your greatest success.

 

Let’s go over 7 fundamental concepts to general investing:

 

1 - Define a Clear Objective: Every dollar saved and every dollar invested should have a clear definitive purpose or goal. Your goal could be to acquire wealth for retirement, college, new car, and/or vacation. Your objective can be whatever you want it to be. It’s simply important that you have a definitive goal. 

 

Establishing a purpose helps to determine where you’ll save and how much you need to save.  This organization of funds also helps you determine your available capital to invest.  It is important to be goal oriented when saving and investing so you can achieve your potential.

 

2 - Time Horizon: Now that you have a goal and you’re accumulating money to reach your goal. When will you need to access the money to fulfill your goal? If you’ll need to access the money in the next year, it’s not safe to tie this money up in investments at all. 

 

You’re better off placing this money in safe conservative saving accounts, money market accounts, certificate of deposits, or money market mutual fund accounts. These types of accounts are also known as cash equivalents because they’re relatively safe and easily accessible. If you won’t need this money for five years or greater, you can consider investing in something with a greater return. 

 

Saving for retirement and other long-term saving goals is a little different.  Although you may access the money in the next five years, your retirement can last 30 or more years. As a result, you’ll want to keep this money invested in long term growth vehicles such as property or the stock market.

 

3 - Risk Tolerance: It’s important that you’re able to sleep at night and not be overwhelmed with the up and down swings of the market. Would you consider yourself a conservative, moderate, or an aggressive investor? A financial game plan, accurate knowledge, and a diversified investment portfolio will help you to better cope with and understand risk.

 

4 - Diversification  A sure-fire way to minimize risk in your investment portfolio is to have your money spread around in various places.  People who lose their life savings in the stock market do so because they’re heavily weighted in individual stocks. 

 

Employees of companies like Enron whose entire retirement portfolio went down the drain did so because they were heavily weighted in Enron stocks. If they would have held mutual funds with 100 or more companies in its portfolio and Enron was one of those companies, the losses derived from Enron would have been offset by the other 99 companies who remained stable and/or growing.

 

Invest in a diverse classes of investments.  Financial advisors never recommend you keep your money all tied up in one place.  There are ways to diversify your holdings even within the different classes of investments.  If you have elected to put a majority of your capital into real estate investments, you should always be aware of opportunities to invest in different types of properties. (REITs, multi-family, single family, etc.)

 

5 - Asset Allocation: The biggest decision you’ll make that impacts your return on investment is not which property you select. Instead, it’s how your investment is allocated between property, stock, bonds, and cash equivalents. 

 

Stocks are riskier than bonds. Stocks have also been more rewarding than bonds over an extended period of time. According to Ibbotson, an independent research firm, stocks have an average rate of return of 12% over the past 75 years whereas bonds has an average rate of return of 6% over the same time span. 

 

Real Estate has show an average of a 9% gain over the past 75 years, but there are many other factors that give real estate an advantage.  Real estate has indirect advantages of ownership in regards to tax savings and the ability to leverage the asset.  Leverage via real estate is much more commonplace as homeowners strive and stretch to buy their homes with what they can afford. Doing so has made fortunes for countless households across the nation.

 

Cash equivalents averaged right around 3%. The more your portfolio is weighted toward cash equivalents, the lower your rate of return will be.

 

6 - Track Record: Before selecting an investment, you want to look at its track record. Take a mutual fund for example.  The longer the mutual fund has been in existence, the longer the track record you can obtain. At a minimum, you want to purchase mutual funds that have a five-year track record or better. A track record will give you a history of how well the mutual fund performed over the years. 

 

For real estate investing, it is import to gather as much data on the local market as possible.  This is where it helps to have some type of support system or partnership with a larger entity.  There are services and groups that you can belong to that will help you with the task of analyzing the local market.  We’ll talk more about the pros and cons of different types of groups in later chapters.

 

7 - Dollar Cost Averaging:  Dollar cost averaging sounds more complicated than it is.  It simply refers to investing consistently over time.  You will do better investing in the long run if each month and each year you have a determined amount that you plan to invest.  

 

As opposed to trying to time the market or investing a large lump sum, it’s better to systematically invest money at regular time intervals over an extended period of time regardless of the fluctuation of the market. This allows you to buy more when prices are down and allows you to buy less when prices are high. 

 

The huge opportunity for investing right now due to the economic recession may have been what sparked your interest in the real estate market.  Prices of properties are uncharacteristically low, and certain to rebound.  This is a unique situation we are in right now.  Typically, there will be some fluctuation in price in any market, but we find ourselves now in extraordinary circumstances and poised for great returns.

 

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Investing money is different from saving money.? It perplexes me sometimes that millions of Americans graduate high school each year without understanding some basic but valuable concepts about obtaining wealth.

Money that is invested is committed for a period of time with a sure risk for the purpose of earning a financial return. The concept of saving money merely means to put it aside as a store or reserve.

Your goal in Investing could be to make the greatest return possible resource within the shortest period of time without losing any of the principle amounts you have originally invested.

Many people are afraid in Investing their hard earned money because one of the most leading reasons for this fear is ignorance. People should understand that the more they learn and understand the better equipped they will become to make wise decisions as a money manager.

Why Investing can be Important?

While Investing one of your key responsibilities is not only to provide for yourself and your family, but resource within the short term but also to trait within the long term. Unlike saving money, Investing will always be associated with a risk factor.

The degree of risk is dependent on the Investing option you choose and is typically proportional to the potential return of the investment. The old saying, ?If it sounds too good to be true?? it typically is. Each person has a different tolerance for risk. You would never be Investing in things that make you lose sleep at night.

Mainly due to the negative effects of inflation, it is the opinion of many people that making the choice not to invest is the greatest risk you can most defiantly make with your savings. Inflation is the single greatest threat to your future financial well being in Investing. It results trait within the constant, steady erosion of money?s value.

When to start Investing?

To start Investing, time is your greatest asset element within the accumulation of wealth. You could begin to invest as soon as possible but not until you have built a solid financial foundation for yourself. Investing requires a long-term commitment.

The money you allocate to would not be money that will be required for many years. To trait within the event of a major depressing financial situation, you definitely wouldn?t want to be forced to withdraw money that has been allocated in a long-term investment to meet the requirements of a short term need.

Thus, it is imperative that, no matter what may come, your financial foundation must be strong. As a minimum, you would eliminate all of your high interst debts like the credit cards, furniture loans, etc and build an adequate cash emergency account.? I recommend a 3 month supply of cash in an easily accessed account.

Where can Investing be done?

Okay… Here comes the blatant sales pitch ;-)? Here at Mason Hill, we have developed several strategies to make investing in real estate easy, lucrative and enjoyable.? Even if you have never invested in real estate, our company can walk you through every step of the process from acquisition to managing the investment and finally, the successful sale of your property.

We typically work with seasoned professional investors who tend to acquire multiple properties.? Someone who is experienced in real estate quickly recognizes the value in working with a company that does all the difficult work for you.? Even though we have so many repeat customers, we are always eager to help bring new faces into real estate investing.

In order to help you develop a clear strategy for investing in real estate, you should take a look at a new report we just published - ?Real Estate Investment Strategies for 2009?.? The real estate market is quickly changing and there is a lot of money to be made in the next few years.? It?s important for you to get educated on best practices for investing so you don?t get left behind as the market begins to recover.

Here is the link to the report. ?It is a good place to start your research, and by the way, it’s free.

If you have any specific questions and would like to speak to one of our properties specialist, please call us!? Our contact information is located here.

Baron Rothschild, the quintessential banking opportunist, is said to have advised that the best time to buy is when there is “blood in the streets.” This is the best time in the last century to purchase real estate. Over the past 120 years there has been a trend of increase in home values. In the the past 20 years, we have seen that trend make the jump to lightspeed.

Populations around the globe are increasing at exponential rates and the world isn?t getting any larger to accommodate the growing need for housing. Basic laws of supply and demand predict that there will be a long term strain on various products, services, and resources. Inevitably, prices will be driven higher.

Here in the U.S. we saw a tremendous boom in home prices that is now experiencing the effects of some natural price corrections. Although there are many individuals in the past few years that have suffered from a combination of credit crisis and falling home values, there are some wise investors that are still working profitably in the housing sector. At a macro level, there is no place for property value to go but up.

A little History…

Yale economist Robert J. Shiller created an index of American housing prices going back to 1890. It presents housing values in consistent terms over 116 years, factoring out the effects of inflation. The 1890 benchmark is 100 on the chart. If a standard house sold in 1890 for $100,000 (inflation adjusted to today’s dollar’s), an equivalent standard house would have sold for $66,000 in 1920 (66 on the index scale) and $199,000 in 2006 (199 on the index scale, or 99 percent higher than 1890).

If we examine the year over year change in the Case/Shiller index since 1988, we see a steady rise in values until it peaked in July 2006. The sharp decline since that point has reset prices to below the dip in 1991, in fact, prices are down to 1980 levels. As this recession slows and turns a corner, the natural progression will be upward. Whether the recovery and growth will be a rapid or whether is will pace slowly is what many analysts today are discussing.

The S&P/Case-Shiller index for home prices in 20 major cities in the three months ending June 30, 2009 was up 1.4% from its level in the three months ending May 31, 2009. It was the first time the index rose two months in a row since mid-2006. Prices gained in 18 of 20 markets, but were still down 31% from their July 2006 peak.

These numbers mark a definitive slowing in the downward spiral. “Momentum matters,” said Robert Shiller, the Yale University economist who helped create the index. “This is a sudden break in momentum.”

One component of the Case-Shiller index, consumer expectations of where the economy will be in six months, rose to 75.8, its highest since the recession began in December 2007. Consumers’ assessment of present conditions also improved, along with stepped-up plans for buying homes, autos and several major appliances.

We are now hearing almost daily reports of “good news” in the real estate sector. This good news compounds upon itself and begins to move the market in a more definite direction of growth. We may be rounding the corner on the recession.

Many people mistakenly rely on national trends when evaluating the real estate market. The key is to focus on and understand your local market or the market you plan to invest in.  One of our key messages to clients here at Mason Hill is that your local market most likely isn’t the best investment.  We help clients to consider the top performing markets in the US.  Here is what to watch out for…

“The housing market is booming!” “The housing market is in a downturn.” “The housing market is expected to do go up or down over the next year.” These are all statements you will hear from time to time from alleged real estate gurus on television or radio shows. Should you pay attention to these predictions? No. First, pundits are famous for getting it wrong. More importantly, these individuals are talking about national trends, not a local market. The two markets are distinctly different.

Focusing on a local real estate market is the key to evaluating real estate deals. That being said, it can be a bit tougher to evaluate since there is often less information on particular areas versus the national situation. To understand a local real estate market, here are a few things to focus on.

Job growth is the fuel of many real estate markets. Where there is strong growth, there are new workers. New workers need someplace to live. A vast percentage of these people will be moving in from another area and often are bringing money from a previous home. If job growth is strong, your real estate market should be stable and showing appreciation.

New construction is another area to consider when evaluating your market. In this case, we are focusing on supply and demand. The more homes available to buyers, the harder it will be for sellers to move properties. Most communities have some new construction, but the key is to determine if it is outpacing the demand.

Las Vegas, for instance, is a city that is realizing serious population increases each year. That being said, the real estate market in the summer of 2006 was very tepid because the construction of new homes had saturated the market. When evaluating a local real estate market, try to get a feel for such an issue.

A secret to evaluating a local real estate market is to look at people in that area. One sign of a hot real estate market is the number of people who suddenly become real estate investors. These tend to be people using the equity in their primary home to make secondary purchases. There is no statistical analysis for this factor. Just keep an ear out for people who are suddenly investing in multiple properties.  Local real estate online forums and blogs are a great place to get a sense for this. 

 

Trends in the national real estate market are interesting, but often irrelevant when evaluating the local market. Focus on your area of interest and you should be able to better evaluate whether you should sell, hold or buy properties.

To view wholesale properties offered by Mason Hill follow this link.

Over the next 15 years, “baby boomers” will be looking for places to invest about $46 trillion from a combination of inheritance and their own qualified retirement plans, such as a 401k from a former employer.

Every major brokerage house and bank in America is well aware of the potential to earn enormous incomes from fees and commissions “helping” to place this money in secure investments. But, individuals who understand the power of utilizing Self Directed IRAs are in the best position to take advantage of this incredible transference of wealth.

Many “boomers” are looking at starting their own business and need investment capital to make their dreams come true. Actually, they need to look no further than their own retirement accounts. They can tap into these funds to buy a franchise, start a business, or simply provide an existing business with working capital.

What about investing in the stock of a private company? Yes, there’s no problem with doing that, even if it’s outside the United States. And, other options, both mundane and exotic, abound.

Then, there’s real estate. Most people think the boom is over, but they may be mistaken. According to a report from The Brookings Institute and an article in Business 2.O Magazine (November 2005), more than $25 trillion will be spent in real estate development between now and the year 2030.

To accommodate another 70 million people being added to the population base in the next two decades, 127 billion square feet of new or replacement structures will be added to the existing base of 300 billion square feet.

The executive summary of The Brookings report entitled “Toward A New Metropolis: The Opportunity To Rebuild America” written by Arthur C. Nelson, states the following:

-In 2030, about half the buildings in which Americans live, work, and shop will have been built after 2000.

-Most of the space built between 2000 and 2030 will be residential space. The largest component of this space will be homes. Over 100 billion square feet of new residential space will be needed by 2030.

-Overall, most new growth will occur in the South and West. In the West, 87 percent of the space existing in 2030 will have been built since 2000.

This report was primarily written for urban, city, regional and state planners so they would understand how to prepare for infrastructure needs to support the increased population base. The need for new water treatment facilities, roads, bridges, schools and general land use planning will be of great concern to everyone, but especially to these planners.

The Business 2.0 article entitled “The $25 Trillion Land Grab” took the mostly statistical information from the Brookings report and restated it so that it was more readable and understandable. Bottom Line: The development will represent “the biggest business opportunity since the end of World War II”.

That’s good news for investors. Anyone with a Self Directed IRA can tap directly into this opportunity, whether through equipment leasing, real estate lending or direct investment into a myriad of real estate projects. It all starts with education.

We recommend that clients pick one area of investment opportunity and become experts. Then when conferring with investment advisors and tax consultants, good decisions can be made that will result in building wealth that is potentially much greater than can be realized by only investing in the securities markets. As we like to say to our clients, it’s as simple as 1-2-3: Learn, Setup and Invest.

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By now, you have come to depend on the Internet for important parts of your business transactions. You may be a very internet-savvy real estate investor, but we wanted to make sure you are taking full advantage of some important Internet resources.

Here are 5 picks in important real estate investment categories to consider:

Real Estate Investment Resources:

Real Estate Property Calculator

RealVal (www.realval.com), online software that allows real estate investors to analyze their property value, forecast income, determine expenses, and calculate ROI. This tool allows you to load in data for multiple properties and compare strategies.

Property Investment Software

Tex-Rex Global (www.trexglobal.com/real-estate-software), which offers a host of free real estate software designed to streamline the marketing and reporting process. These web-based tools focus on a variety of topics including taxes, property depreciation, and 1031 Exchange.

Investment Property Rental Applications

Renting Authority (www.rentingauthority.com) offers an easy and free way to create a tenant application online. Renting Authority offer a wide variety of resources that will make the process of qualify tenants a whole lot easier. On their site, you will find resources for background checks, employment verifications, and more.

Finding Tenants for your Property

Craigslist (www.craigslist.org), an online community offering a host of free classified ads. The site?s Housing section has a ?Housing Wanted? sub-section where tenants seeking homes post their requests.

Locating Investment Properties

There exists many search tools on the web for finding investment properties. Surfing through thousands of listings in an MLS database site or a site like LoopNet (www.loopnet.com) can be very time consuming. You may be better off locating a search site that is more specific to your specific real estate strategy.

The property search area at Mason Hill (www.masonhill.com) provides a list of carefully analyzed properties targeted at maximum ROI in today?s market. The search tool is free and provides properties only in specific markets that are predicted to appreciate as well as generate positive monthly cash flow.

There are many more resources on the web that will make you a skillful investor. Stay tuned to our blog here at Mason Hill to find out more about important tips for successful property investing.

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