Leverage may be a dirty word right now, but it’s still the best way to build wealth.

LEVERAGE: Lets begin with OPM–Other People’s Money

Leverage has gotten a very bad name in this current financial crisis. And lets be honest–debt and the deficit we’ve accumulated is the bane of our country’s present financial problems, not to mention so many individual’s over-leveraged experience, along with the anxiety-filled, sleepless nights that come along with it. What were we thinking!?!

But measured, reasonable, wisely applied leverage is still the best way someone with limited means can become someone with great means. It begins with a critical difference in mindset.

A consumption mindset asks: “How can I manage my debt in order to live the richest lifestyle possible.” The pursuit of this kind of life is an invitation to a stressful, workaholism that is something to be avoided like malaria.

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A non-leverage mindset asks: “How can I scrimp and save, and use whatever is left over to slowly build my nest egg.” The question to ask here is, “Am I avoiding leverage out of the decision to live as debt-free as possible or out of fear?” The former has a lot to be said for it, the latter is just another way to try to avoid all risk.

A leverage mindset asks: “How can I use borrow money wisely to multiply my money-making and business building activities in order to accelerate my returns?”

The biggest difference is NOT how we invest the money we HAVE but how we invest the money we DO NOT HAVE. It is how we leverage the money that we DON’T HAVE that can make us wealthy.

A leverage mindset does not look at an investment with the objection: “I just can’t afford this.” Instead it strategically considers, “How can I best use leverage to pay for this investment in a way that increases my overall return without taking on undo risk.

And don’t forget all those other…

OTHER PEOPLES’ RESOURCES that will leverage your TIME, TALENT & TREASURE…

OPE-XPERIENCE–Learning from MENTORS via in person books, etc.

OPE-XPERTISE–Using business ASSOCIATES to do what they are better trained at

OPM-ONEY–Borrowing CAPITAL which yields a higher rate than you are paying for it

OPT-IME–Building a skilled & committed TEAM to compliment and further your mission

OPS-YSTEM–Working to create the ULTIMATE in LEVERAGE: A TURN-KEY SYSTEM

Leveraging your time: never forget the 80/20 principle.

LEVERAGE: Adapting our Business to the Reality of Pareto & Parkinson’s Laws

Being busy is a form of laziness–lazy thinking and indiscriminate action. -Timothy Ferriss, The 4-Hour Workweek, p. 73 ff

Pareto’s Law–the 80/20 principle (Vilfredo Pareto, 1848-1923)

80% of Pareto’s garden peas were produced by 20% of the peapods he planted

80% of the wealth was in the hands of 20% of the people

80% of the outputs result from 20% of the inputs

80% of the consequences flow from 20% of the causes

80% of the results come from 20% of the effort and time

80% of company profits come from 20% of the products and customers

80% of all stock market gins are realized by 20% of the investors and

The list is infinitely long and diverse, and the ratio is often skewed even more severely: 90/10, 95/5, and 99/1 re not uncommon, but the minimum ratio to seek is 80/20

Parkinson’s Law dictates that a task will swell in (perceived) importance and complexity in relation to the time allotted for its completion. It is the magic of imminent deadline.

There are thus two synergistic approaches for increasing productivity that is inversions of each other:

1. Limit tasks to the important to shorten work time (Pareto’s Law, 80/20)

2. Shorten work time to limit tasks to the important (Parkinson’s Law)

The best solution is to use both together: Identify the few critical tasks that contribute most to income and schedule them with very short and clear deadlines. If you haven’t identified the mission-critical tasks and set aggressive start and stop times for their completion, the unimportant becomes the important.

The key to having more time is doing less:

(1) Define a short to-do list and (2) define a not-to-do list.

-If you had a heart attack and had to work two hours a day, what would you do? (from The 4-Hour Workweek, 78-81 of )

-If you had a second heart attack and had to work two hours a week, what would you do?

-If you had a gun to your head and had to stop doing 4/5 of different time-consuming activities, what would you remove?

-What are the top three activities I use to fill time to feel I as though I’ve been productive?

-Learn to ask, “If this is the only thing I accomplish today, will I be satisfied with my day?”

-Ask yourself three times a day, “Are you inventing things to do to avoid the important?”

-Use Parkinson’s Law on a Macro and Micro level.

Don’t expect loan modifications to solve the foreclosure mess!

On average the 1st lender loses $58,000 for every home that  goes through foreclosure. You’d think they’d do everything possible to keep homeowners in their homes. Well, it’s a lot harder than it seems. It didn’t even work for Hitler!

President-elect Obama, congressional leaders and various regulators, lenders and community groups are proposing more aggressive measures to try to stop the rising pace of home foreclosures. No matter what measures are enacted, these programs will likely encounter the same financial and legal hurdles that have slowed public and private foreclosure preventions for the past year.

Here are some of the roadblocks lenders and homeowners have faced as they try to work out more affordable loans that will slow the foreclosure rate and keep more people in their homes:

At the heart of the problem is the financial alchemy lenders used to stretch borrowers into mortgages beyond their means. Hundreds of mortgages – and sometimes other loans – were bundled and placed in separate trusts. Wall Street then sold investors bonds backed by that mortgage pool. The monthly payments from homeowners are used to pay back the holders of those bonds.

Wall Street bankers believed they had minimized the risk to any one investor that an individual loan would go bad. The problem is that no single lender owns a specific mortgage. So there’s no one party for a homeowner to negotiate with when it comes time to modify a loan. Their loan could be owned by thousands of investors.

“It may just be hard to contact all these folks,” said Adam Levitin, a Georgetown University law professor who recently wrote a paper on the problems servicers are having modifying loans. “They can be spread all over the world, and getting approval can be very difficult. This is Humpty Dumpty, and all of Paulson’s horses and Bernanke’s men can’t put this one together.”

Recent programs announced by private lenders like Bank of America and government regulators like Fannie Mae only apply to whole loans that are owned directly by a lender.

Most mortgages written during the peak of the lending bubble were bundled into pools of loans whose monthly payments are paid to the holders of a series of mortgage-backed bonds. The original lender no longer has an interest in the mortgage.

Payments from homeowners are collected by “servicers” and paid to investors holding the bonds backed by that mortgage. So it has fallen to these loan servicers to try to modify mortgage terms for homeowners whose loans were sold into these pools. So far, that process has involved a painstakingly slow review of each loan, something most servicers weren’t originally set up to do.

Each mortgage pool comes with different guidelines for how to deal with bad loans. Some don’t spell out clearly who has the authority to make changes in individual loans. Some trusts are managed by two layers that include both a ‘servicer’ and a ‘master servicer.’ If a servicer decides to modify a loan, it still faces a potential legal challenge from investors.

”That is not a resolved issue and potentially subject to litigation,” said William Longbrake, who recently retired as vice chairman of Washington Mutual. “And that makes servicers more conservative about how aggressive they’re willing to be.”

The securitization of home mortgages has complicated public and private efforts to modify loans because mortgages bundled into pools are backed by many different classes – or ‘tranches’ – of bonds. Each tranche comes with different rules that govern which investors get paid first if some mortgages default. One set of investors may benefit from a foreclosure, for example, even as other investors would profit from avoiding it. Some mortgage pools are backed by dozens of different tranches.

Now, as the companies charged with managing these mortgage pools try to modify terms on individual loans, they’re finding it difficult to get these multiple classes of bondholders to agree. Industry insiders have dubbed this process ‘tranche warfare.’

During the height of the lending boom, many lenders accepted a second mortgage in place of a down payment. After all, the thinking went, home prices never fall, so how could they lose?

Now, homeowners with second mortgages face a tough time getting a loan modified. In many cases, there isn’t enough home equity to cover both mortgages. So the investor holding the second mortgage, who takes the biggest hit, has no incentive to agree to new terms.

Without that approval, the holder of the first mortgage can’t modify its terms.

Since the tidal wave of failed home mortgages swamped the credit markets this year, falling home prices have created a major roadblock for millions of homeowners trying to modify loans that are now bigger than their house is worth. Some loans – based on inflated appraisals – were ‘underwater’ from the day the deal closed.

Now, with one in five mortgage holders in the same boat, public and private foreclosure prevention programs and proposals have run into the same critical question: Who should bear the loss when the principal balance of a loan is reduced to reflect the loss of the home’s value?

Some lenders have voluntarily agreed to take this “haircut.” But many investors holding bonds backed by mortgages have refused to go along. When a mortgage is part of a pool of bundled loans, all of the investors have to agree to reduce the principal.

The issue has been at the heart of the political debate over the government’s response to the crisis. Opponents of aggressive housing relief involving taxpayer funds have balked at the idea of bailing out borrowers who took on more debt than they can afford. Some foreclosure relief proposals would split the loss. Lenders and investors who agree to give up principal would share any future gains from the sale of the home.

Because the process of creating mortgage-backed securities was loosely regulated, there are no standard terms governing how these mortgage pools were bundled or how mortgage defaults would be handled.

The complex terms and financial structures of these mortgage pools vary from one offering to the next. In some cases, bonds from multiple mortgage pools were mixed together in yet another trust – which created yet another series of bonds twice-removed from the original mortgage.

As a result, there are no widely agreed-upon rules for modifying a mortgage owned by these pools.

Companies servicing these loan pools – originally tasked with managing payments to investors from a stream of monthly mortgage payments – now find themselves caught in the middle of a monumental mess as they try to balance the interests of individual mortgage holders at risk of default and the hundreds of investors who may hold a piece of that loan.

When a mortgage is modified to make it more affordable, that means lowering the interest rate or cutting the total loan amount – or both. And that means the investor who bought bonds backed by a mortgage pool will have to agree to accept a lower return on their investment.

Companies that service these mortgage-backed investments fear they may get sued if the investors later claim the borrower could have afforded the loan after all.

The legal structures of the trusts used to bundle mortgages can present further roadblocks. In some cases, efforts to modify the terms of a single loan may run afoul of a Depression-era law designed to prevent issuers of bonds from changing the terms after a bond offering is first issued. Changing the terms of even one loan in a pool could also remove favorable tax treatment for the entire pool.

The decision to modify mortgage terms is also clouded by the goal of limiting loan modification to only those borrowers who will eventually default – a prediction that’s extremely difficult to make in many cases. Loan servicers use complex formulas to judge both a borrower’s risk of default and the financial impact on investors who bought that loan.

Those calculations typically involve crunching historical data on home prices, credit risk and economic forces like unemployment. But those historical statistics turn out to be inadequate when trying to model the worst housing market in 75 years.

That’s why two homeowners with similar financial situations may get two very different responses when they try to modify their mortgage terms.

“There are a zillion and one assumptions you have to make and the calculation depends on how you do the math,” said Mark Zandi, chief econmist at Moody’s Economy.com. “One of the problems is that each servicer has their own math and each one uses their own set of assumptions. And to some degree, they’re not sure which assumptions to use and how to do the math.”

For a significant number of homeowners, no amount of loan modification will make them viable. During the peak of the credit bubble, lenders approved mortgages that were only sustainable in a rising housing market. As those mortgages reset to reflect the true cost of the loan, borrowers are simply swamped with too much debt.

“Many people were qualified for these loans with the expectation they would refinance based on home appreciation,” said William Longbrake, retired vice chairman of Washington Mutual. “That hasn’t happened. So they can’t refinance and they can’t make the higher payment.”

–Adapted from The Mortgage Modification Mess from MSNBC, www.msnbc.msn.com/id/28147389/

Is our mission to make money or to solve people’s problems?

Obviously we have to feed our families and we want our real estate investing efforts to do so much more; namely, provide us the FREEDOM of doing something we love and getting paid enormous amounts of money to do it…. BUT we only get paid if and when we help people by providing valuable, creative, and timely solutions to their needs.

Of course, we can make a buck without a care in the world about solving people’s problems. But we do so at the risk of making everything about the money. When people around us—employees, partners, sellers, buyers, other real estate professionals and business people—begin to sense that money rules our every decision, they will resent it and our business relationships will enviably suffer. And there is something even more frightening—our soul will shrivel and die. “What does it profit a man,” asked a poor but insightful carpenter from Nazareth, “to gain the whole world but to forfeit his soul?” The answer is no less true today.

Doesn’t money represent security for most people? It’s insurance that we will have what we want and what we need–we’ll be taken care of. But are you going to trust that a certain number of digits in your bank account will actually do that for you!? Maybe this begs the larger question… I mean the really BIG QUESTION. When people gather around at our funeral to say nice things about us what would want to hear—he/she did a great job at making money or he/she really made a difference in people’s lives? It’s not an EITHER/OR here. It’s BOTH/AND: He/she looked out for other people and in so doing he/she got what they needed… and wanted!

There was a book written twenty years ago now entitled, Do What You Love, The Money Will Follow. There is much truth in that and the same can be said about prioritizing our mission: Serve People in the Moment of Their Need and The Money Will Follow. Turn these two around and your business will suffer as much as your soul!

Stewardship Properties’ byline is to serve people in their housing needs.

Stewardship Mentors’ byline is to serve investors in their business needs.

We mean them both. Our successes comes from our service to others, our long-term success comes from a genuine heart of service. When you find a way to solve people’s problem you will find yourself handsomely rewarded for it. And if you don’t, well, you’ll live to serve another day.

Online or bust!

Here’s some statistics to consider in building your real estate investment business:

–In 2000, 28% of buyers said that they used the Internet as an important part of their home-buying selection process.

–In 2006, 70% said they did.

–As of 2008 the National Association of Realtors says that the number is 86%.

From 28% in 2000… to 70% in 2006… to 86% in 2008. Given these statistics, where do you find your buyers, not to mention your sellers and renters?… The answer is clear: ONLINE. The implications of this gigantic change in the real estate marketing landscape is nothing short of breathtaking and requires rethinking our entire marketing strategy.

We’ll cover the implications of this change much more in depth in an upcoming training video. Stay tuned.