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Calculator Problem – 09/23/2013

If you invested $199 by not buying a new phone and $50 a month from your cell phone bill at 12%, how much money would you have at the end of thirty years?

(The answer will be posted with the new calculator problem in 2 weeks. Or if you can’t wait that long, you can go to for the answer.)

Answer for 09/09/2013 problem:

(N=480,I=12,PV= -10,000,PMT=0) FV= $1,186,477.25

(N=480,I=4,PV= -10,000,PMT=0) FV= $49,398.71

$1,186,477.25 / $49,398.71 = 24 times as much!

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Calculator Problem – 11/19/2012

What is the effective interest rate of a $100,000 loan at 12.5% with 3 points added into the loan over a six month term if it compounds monthly and has no payments?

(The answer will be posted with the new calculator problem in 2 weeks. Or if you can’t wait that long, you can go to for the answer.)

(N=36,I=22,PV= -100,000,PMT=1000) FV = $141,966.48

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Calculator Problem – 04/25/2011

If a property has $23,000 a month in net operating income, what would you pay for an 8 CAP?

(The answer will be posted with the new calculator problem in 2 weeks.  Or if you can’t wait that long, you can go to for the answer.)

Answer to 04-11-2011 problem:

The net income is $1100 * 65% = $715.
The payment on the on the loan is (N=180, I=8, PV=40,000, FV=0) PMT = $382.26
So the net after debt service would be $332.74.
Because you borrowed the entire amount of purchase plus rehab, you have nothing in the property.  When you divide any number by 0, you have an “undefined” answer.  You really have an “infinite” return on this property.  You have nothing in it and you are netting $332.74 a month.

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Calculator Problem – 01/03/2011

If you purchase a house for $35,000 and sell it for $59,000 five months later, what is the return on your investment?

(The answer will be posted with the new calculator problem in 2 weeks.  Or if you can’t wait that long, you can go to for the answer.)

Answer to 12-20-2010 problem:

$2,647,073.81 (N=480, I=12, PV=0, PMT= -225)  PMT = $7.50 * 30 = $225

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Monday Thoughts – 05/24/2010 – Graduates

Yesterday, one of my jobs was to shake the hands and congratulate high school graduates as they received their diplomas.  They were ready to tackle the world and full of smiles.  One of the many thoughts that ran across my mind as they walked across the stage was the lesson they probably didn’t learn while they were in school.  Oh how I wish that they understood the power of compounding and the big influence that time has on the equation.  My friend, Danny Williams, calls them compounding periods.  The vast majority of these young kids have a significant number of compounding periods.

If they can earn 12% on their money, it will double every 6 years.  In 48 years (18 to 66), invested money would double 8 times (48 / 6).  If they started out with $1000 from graduation and a summer job, it would grow-up to be $256,000 over those 48 years.  If they would add $100 a month over that same 48 years to the initial $1000, they would have $3.38M!  (They would contribute $58,600.)  Time is a great ally in their financial future.  It can be powerfully harnessed or let slip by.

No matter how old we are, we have compounding periods in front of us that can be harnessed.  Are you taking advantage of them?   Would you do a favor for me today?  Please find a graduate or young person in your life and share the power of compounding and the big influence time has with them?  It is one of the most critical lessons they will ever learn.

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Monday Thoughts – 05/10/2010 – Accountability

After the SEC filed the recent civil fraud charges against Goldman Sachs, I heard a lot of folks commenting on how greedy Goldman was and how they were finally being held accountable.  My view is that people are not being held accountable – especially the investors.  The assets they were buying were fully disclosed.  The job of every investor is to do good due diligence on any investment they are making.  (This is especially true when you are talking about the level of sophistication of these investors.)  The investors may not have known who selected the assets but a careful evaluation of the assets would have shown they were a dog.  They simply took a bet and they lost.  As investors, we have to make our own decisions and live with the consequences.  It is our money.  If we make a bad investment, it is our fault.

It seems like we have evolved as a society where if anything goes wrong, it is someone else’s fault.  The past couple of years seem to be the worst.  Lawsuits and bailouts reign supreme.  “It is Wall Street’s fault.”  (Not mine because I paid too much for a house and took out an even stupider loan.)  “It was the perfect storm that caused our business to fail.”  (Not the stupid decisions the board and executives made over the last 20 years including overpaying people for the job they were doing – or not doing.)  It is not my fault and someone else should pay! 

I made some bad investments over the past couple of years that would be easy to justify that were someone else’s fault; however, at the end of the day, it is my fault because I made the final decision.  The problem is that until we take full responsibility for our lives, they don’t get better.  We don’t control everything that happens to us, but we do have 100% control over the thoughts, decisions and actions we take.  Where are you not taking full accountability for the decisions you have made?

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Monday Thoughts – 04/26/2010 – The Real Question

A friend of mine recently introduced me to a fascinating man.  My friend knew I would enjoy his company.  He was an old cowboy that had been around a long time and had run cattle in several states.  He was a very smart business man and a really nice guy.  As part of the conversation, we were sharing some of the regulatory changes we are seeing in the real estate and investing arena with him.  Some are sweeping changes.  After expressing dismay about a few of the changes, he took a drink of coffee to collect his thoughts.  Then he said, “Now, I guess the real question is, ‘How can we profit from it?’”

What a great question!  It is not about how we can make money out of every situation but stepping back from the muck and looking for the opportunity in every situation.  It is so critical that we keep that positive, opportunistic, can do attitude in investing and life.  Give us lemons and we will make lemonade.  It can get discouraging (if you need a little, study the current financial “reform” bill being debated in congress right now), but we need to always step back when we start to get stuck in the muck and look for the opportunities.  They are always there; we just have to look for them.

How about you?  Are there changes in your environment that are getting you stuck in the muck?  Remember, the real question is…

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Monday Thoughts – 04/12/2010 – The Important Plan

A little over a week ago, a good friend’s father passed away.  The great loss of a family member can be compounded even more when there is not a solid estate plan.  While none of us like to think about that day, it is critical that we prepare a solid plan so the loved ones we leave behind are not left with a mess.  What is the current state of your estate plan?

Do you have a will?  (If not, please make it THE top priority to get one in place by the end of the month.)  If you have a will, when was the last time you updated it?  Does it conform to the latest laws?  If your estate is large enough, have you thought about a living trust?  If you have a living trust, have you changed the title of property into the trust name?  If you have property out of state, is it held in a trust?  Did you know if it is in your personal name, you have to probate in that state as well as the state you live in?  Is the ownership of your corporations and LLCs held in the trust?  Do you have enough term life insurance?  Does your family know where to find all of the important documents and accounts?  Do you have all the important documents in a single 3 ring binder so it is easy to locate (I call it the Red Book)?  Do you have a deal journal so your family can figure out all of the screwy deals you have done?  Are the passwords for your accounts and computers documented?  Have the beneficiaries for your retirement plans, life insurance, etc. been updated?  How difficult is your portfolio of investments to manage for the family left behind – does it take your skill set to manage it?  Are there clear instructions on how to generate immediate liquidity for the estate in your “Red Book”?  Etc, etc.

 Your estate plan and keeping it updated is a super important, but not urgent task.  It is critical that we make time for it for the loved ones we will leave behind.  How is your plan?

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Monday Thoughts – 03/29/2010 – Buckets & Thimbles

During a recent visit with some financial friends, we had a long conversation about how much one should take on during this time in the market.  In a lot of areas, we are seeing incredible investment opportunities.  The real question on the table was how aggressive should we get?  On the plane ride home, I read part of the annual report from Berkshire Hathaway.  One of Warren Buffett’s statements was, “Big opportunities come infrequently.  When it’s raining gold, reach for a bucket, not a thimble.”

As I pondered all of the conversations and Warren’s insight, I came to the conclusion that it is not wise to get overly aggressive even during “big opportunities”.  I have seen folks that have taken on more than their systems and processes could handle and it wasn’t pretty.  Berkshire Hathaway has spent decades building their systems so they can handle buckets of gold.  How much effort are you putting into increasing the capacity and capability of your systems and processes so you are ready to take advantage of future opportunities?  Even though it might be raining gold, only reach for a container that your current systems and processes can handle.  For some it will be buckets, others a thimble.  The more important question is what are you doing today to be able to handle a bigger container next time?

That’s my Monday Thoughts.

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Monday Thoughts – 03/15/2010 – Game Time

During a planning meeting last week, a close friend and I were discussing a new business venture.  He said something simple yet profound, “It is hard to learn how to play the game when you are not in the game.”  Oh, how true!  In high school, I played several sports.  You could practice as much as possible but nothing provided you experience like game time.  You really learn how to play any game by actually playing the game.  I think it is better to be on the junior varsity team and see more game time than make the varsity team and ride the bench.  The kids that make that choice are usually a lot better by their senior year.  There is nothing like actual game time to improve your skills and get valuable experience.

Are you in the game or sitting on the sidelines?  Are you waiting for the “perfect” opportunity?  Are you trying to sort through the “right” entity structure and making sure your plans are perfect before you start?  You will make mistakes – it is part of the learning process.  Don’t be afraid to start small (junior varsity).  It is more important to be playing in the game than being on the “varsity team”.  Start playing the game you want to play today because “It is hard to learn how to play the game when you are not in the game.”  Game on!

That’s my Monday Thoughts.