In the past few days a friend of mine (whom I would define as “definitely wealthy”), expressed some worries over his financial assets which underwent a major erosion lately.
Because of increasing financial losses together with the real estate crisis, his incomes are not the same they used to be. And his spent is growing bigger day by day.
In practice he’s in that peculiar stage where the spent is higher than the incomes.
What really stunned me was considering the fact the man is smart, he’s not a rookie, he’s a man who knows what he does and he’s economically and financially literate.
Why he’s so worried then?
First factor. The worry.
As you may have read in my latest post, at the end of the day having a bad feeling might be helpful only for one thing: to realize that what you think does not match your desiderata.
The Law of Attraction tells us that what you think is what you get, even if it’s actually what you don’t want to happen. Because our mind does not distinguish between what we want and what we don’t want.
Whatever we think on an emotional level, that thing will get closer to us.
I know it might sound strange or even weird to most of you, but this is exactly what happens.
In this particular case, the worry is like a red alarm lighting up in our cockpit.
It tells us that something is not aligned with our will, but because we keep thinking about it, it’s going to get closer to us. This is the case in which you have to be awake, simply to realize that something’s wrong.
That’s what can happen to a wealthy man with a brilliant mind, someone who is financially literate and skilled enough to forecast a loss in the long term.
The second factor is our friend’s financial intelligence. Indeed he’s got all the skills to know if he’s getting richer or not. So his list of priorities (that helps him to filter the world’s events) is already well set upon the Retire Rich scale.
The sum of the first and the second factors together made me wonder: “Someone who knows how to make money with Rental Properties gets so worried…there should be something wrong here.”
That’s when I said to myself: “Luigi you absolutely have to know what’s wrong with this situation and let it know through the blog to all of your friends!”
As you just read, his worry is like an inner voice that says : ”hey, watch out! The spent is out of control and you have fewer incomes. Let’s get busy and do something to change this course…Meanwhile I am sending you a worrying message to let you know what’s going on”.
If you manage to understand this kind of signals you’ll be able to undergo a process of self-criticism and make the necessary changes to feel better.
The financial distress is very hard. It creates many worries and some of its consequences might be dramatic. But there’s a positive side, what goes around comes around if you take the right path.
The thing is, sometimes, even if you realize what’s the right thing to do, contingency is there to make things harder and you can screw up.
In these cases, it might be helpful to have a friend like a business saviour. That would make it easier for you to find a way out.
It’s not always said that you can break through but I have seen it working… for many.
One thing I want to say is I am not willing to tell here what’s the formula to become Rich or to become Richer, because mine is just life experience or better business experience.
That said, after we scrutinized our friend’s worry, which is motivated by facts and strengthened by the experience, I said to myself: “Luigi try to go deeper into this thing and make yourself an idea on what’s really going on”.
That’s when I started analyzing his portfolio.
His are properties in non-exclusive areas, which are hardly rentable. It became obvious that in a time of crisis like the one we are living now, fewer people would like to buy your property and even fewer would be interested in renting yours.
Properties in non-exclusive areas that are non-profitable. Plus you have to consider the expensive mortgages.
Eventually I analyzed his financial needs. A property rental that is certain and safe.
The worry finds its roots in the fact that it would be aimed at high profits but his assets don’t allow him to do so while he’s leading an expensive lifestyle.
This formula leads to impoverishment and you need to take drastic measures to stop it.
1. Drastic cuts to your lifestyle .What you can spend for current expenses has to be reduced to the essential. Cut!
2. Determine your Operating Cash Flow (OCF)- You have to calculate the incomes from every estate, decrease Condo fees, interest rate where applicable, amortization where applicable, a fixed amount for maintenance fees, property taxes and income taxes. If the result is negative, your property is a moneypit.
3. Do a nice mortgage analysis. At this point, I am revealing you the power of the financial lever and I make you an example. The lever is like electrical energy you can light up your bed room with it or you can give it to someone on the electrical chair or you can also get shocked with it.
Mortgages are very similar to electrical energy. A mortgage is useful only and solely if it helps you to produce cash flows. My advice is to make it with actual cash flow and not future. So that if the mortgage rates have interests that are too high, or the amortization are too fast, you should negotiate new conditions.
Simple to say, hard to do it. By yourself. Just in case I advise you to find a financial planner who can help you in finding the right financial product that better suits your needs.
4. At this very moment, by using the elements of the preceding points you can determine your Cash Flow by following the information already in your possess. The cash flow will be the result of the sum of all incomes, the business outcomes and your living expenses. Through the Cash Flow you can make simulations to understand if the properties you have possess all the requirements to be profitable and/or if some of them or others could be more suitable for your specific case.
5. After you know what you have to do, you can give the sales mandate to your real estate Agent. I always suggest to rely on trustable and expert Estate Agents because they know the market better than anyone. Although they have to be reliable, honest and work on your own interest. I am kind of lucky because I can rely on really skilled professionals.
I do work on these things very often on a weekly basis. It’s my training to enter the Retire Rich stage.
If you are reading this, you understand this can be very valuable, but then any situation is different and you can only rely on yourself and the expertise you were able to develop while working on the field as I do every single day.
I warmly invite you to read my other posts on financial wealth that you can find in the blog index.
You should also remember you can always contact us at firstname.lastname@example.org I will personally take care of every email and I would provide you with valuable advice on every issue you may submit to my attention.
I would like to thank my worried friend for telling me about his situation and for providing me a chance of reflecting about this situation.
Obviously, I will never reveal his identity.