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Free Sample Jason Hartman's Financial Freedom Report newsletter

  1. 1. In This Issue: Volume 11, Issue 7 $197 annually e-mail, $297 print• The origins of bubbles.• Groupon - it’s hip, it’s The Province of Fools – Anatomy of the Bubble Machine popular, it’s everywhere. Part Two of a Three-Part Series But is it a good investment? When examining market bubbles,• Why you can’t have it is critical to understand economic recovery exactly what they represent. without more jobs. Fundamentally speaking, a• Why Washington can’t market bubble emerges when buy a recovery. expectations about the future growth for a certain asset grow so• The good, the bad, and high that people sacrifice future the ugly (and it sure can production and consumption for be ugly) about HOAs. the sake of investing in that asset. This was the case for tulip bulbs The Province of Fools - in Holland, technology stocks in The Bubble Machine Page 1 the 1990s, real estate during the early 21st century, and possibly Groupon vs. gold today. Income Property Page 1 The importance of this insight Who Gets the “Big Kid” comes from a deeper understanding of what free markets naturally do, and how bubbles distort this necessary Returns? Page 4 function. The most critical role of a free market is to allocate capital to its highest and best use through investors seeking the best (risk-adjusted) rate of return on their capital. Thus, in a normal market situation, businesses and No Jobs, No Recovery investments with the best fundamentals and highest prospects for real growth will be the ones that attract the Page 5 most capital. Reasons For the Home However, there are many situations where public policy either directly or indirectly creates market bubbles. When Price Collapse Page 6 the tax or regulatory status of a certain investment class is artificially altered by the government, it can create a bubble (tax credits for politically favored companies and industries, for example). When government policy Federal Money Can’t Buy makes financing artificially easier to obtain than would have been possible in a free market, it creates a bubble a Recovery Page 7 in assets that are purchased with financing due to a fresh influx of buyers (this is literally what created the real estate bubble). Property Performance (continued on page 2) Projections Pages 8-9 HOA Fees - The Good, The Groupon vs. Income Property Bad, and The Ugly Page 10 The recent filing an S-1 document by Groupon for the purpose of an Initial Public Offering has led to many people speculating about the value of the company, 2011 Income Property especially in the wake of Google’s $6 billion dollar acquisition offer that Groupon Forecast Page 10 refused. When their stock lands on the exchanges, many expect it to be an extremely hot item since many people are anxious to own a share of the rapidly New Ways to Market Your growing company. This filing has come on the heels of IPOs and IPO rumors from Home Business Page 12 companies such as Facebook, Twitter, and LinkedIn that has led many to believe that a second wave of the technology bubble may be emerging. Groupon - Boon or Fail for Small Business? Page 13 The key characteristic of the technology bubble in the late 1990s was excitement over proliferation of the Internet, and its potential to change business models. The predominant paradigm at play during this market frenzy Strategic Default: Now was a belief in growth at all costs. Companies were formed and investments were made based on the belief that Banks are Doing It Page 14 whoever was first to create a viable Internet marketplace would reap the lion’s share of the financial rewards. Since this growth paradigm generated tremendous losses for companies participating in the frenzy, many new PP Product Listing Page 15 measurements were concocted to cover up the fact that loads of investor capital was being burned by these new companies. Nothing Lasts Forever Page 16 (continued on page 3) Page 1
  2. 2. Other Shows and The Province of Fools – Resources from Anatomy of the Bubble Machine (continued from page 1) In the case of the technology bubble, it represented the intersection of the Internet moving into the technological mainstream, and an influx of venture capital that perpetuated valuations upward as multiple online entities all attempted to dominate their respective market niche by incurring substantial losses for the sake of growth. Each player in the marketplace spent significant investor resources, signed leases, bought equipment, and made other expenditures in of future profits. Unfortunately, ten companies cannot dominate the same market niche. This means that the (many) entities who failed to meet their growth and profitability projections went out of business. This phenomenon resulted in a sudden halt for technology demand that rippled out to the broader Analysis of the NASDAQ 100, Case-Schiller 20 index (with leverage) and gold prices over time tell a very distinctive story. From Q3’95 through Q1’00, the NASDAQ 100 increased by 450%, but by Q4’02 all of those gains had been lost. From Q3’03 through Q1’06, leveraged real estate returns increased at an even faster pace, but began to downslide in 2007 and were accelerated by the financial crisis of 2008. When gold is added to this chart, it tells a very similar story. Starting in Q1’01 through the end of 2010, gold has risen by over 500%. The course of past bubbles has been one of rapid escalation followed by an equally rapid collapse. Gold has been increasing in price considerably over the past few years, and some are even beginning to proclaim the emergence of a new paradigm where gold perpetually escalates in value. Coincidentally, this is almost the exact same rhetoric used during the technology and real estate bubbles that subsequently burst and deflated. Only time will tell the future of gold, but it is showing many features that are similar to past bubbles. As we can clearly see, the incidence of bubbles principally occur when something artificially skews incentives for market players and investors. In this situation, people perceive future profits based on artificial market movements. This shifts resources from other uses with greater rates of real productivity toward things like building more housing. This artificial shift escalates prices as people bid-up values for resources and end products. To the bubble market players, this appears to be evidence that a new paradigm is emerging, since prices are moving up and people are making lots of money. Of course, the point ultimately comes where new buyers cannot be found who will pay higher prices – and the value collapse ensues. The people who are in at the beginning of a bubble make money like bandits. However, the folks who enter too late end up paying the price for those profits captured by the early movers. No value is created…all of the profits from early movers come at the expense of late entrants. At the end of this cycle, we end up with many entities going bankrupt and a large amount of de- valued product from the bubble collapse. In addition to the direct losses that bubbles create, there is an even more dangerous effect. This effect is the lost productivity from capital that was taken away from more productive uses and spent in pursuit of a market bubble. Every person who chases quick money instead of fundamental value plays a small part in suppressing the nation’s long-term economic growth. Every bubble that rises and crashes destroys future growth by siphoning capital away from more productive use. As individuals, we are in the unfortunate situation where our actions cannot directly stop bubbles or change the course of public policy. However, we can ensure that our own activities are engaged in the pursuit of fundamental value instead of market bubbles. As businesspeople, this means avoiding fads or get-rich-quick schemes. As investors, this means focusing on providing real products and services that provide real value to real people. It means focusing on activities that generate real cash flows, instead of staking all of our returns on future value appreciation. When value appreciation is the only driver of your profits, you will be subject to sudden and unpredictable shifts in market sentiment that have the potential to destroy your investments. Action Item: Avoid the allure of bubbles and pursue fundamental value in all that you do. This will allow you to side-step the “quick buck” mentality that dominates financial media and leaves many people devastated by collapsing bubbles. Your investing / business / entrepreneurial news source for Page 2
  3. 3. “Invest in places that make sense so you can afford to live in places that don’t make sense.” - Jason HartmanGroupon vs. Income Property (continued from page 1)To wit, Groupon has made sure to place emphasis on metrics such as Free Cash Flow, and something they call Adjusted ConsolidatedSegment Operating Income, or Adjusted CSOI. Neither of these metrics are part of Generally Accepted Accounting Principles (or GAAP).Their “Free Cash Flow” measurement looks at operating cash flow with purchases and acquisitions removed. Many of these purchases arenecessary parts of operating a business. The “CSOI” metric examines profitability from existing subscribers/customers, but ignores thecost of acquiring customers, equity compensation, and taxes.As we can see, the measurements Groupon uses to evaluate itself leave out many significant costs that the management wishes to glossover when selling a growth story to investors. Groupon’s value proposition comes from being a large-scale player … however, that largescale comes with large losses. In contrast to this are the small-scale profits that come from otherwise boring investments such as incomeproperties.Large-Scale Losses • High growth and high spending that produces large losses to purchase large revenues. • Requires regular infusions of investor capital to keep the spending binge going. • Lots of media attention will attract wide-eyed investors who expect that the stock will remain “hot” forever. • Eventually, investors will tire of continuing to fund a money furnace. • The early movers and insiders will cash out long before the bubble bursts. Charting out some data from the Groupon SEC filings shows a very interesting trend. Groupon’s gross profit per Groupon sold is very important. This represents the amount of money they actually see after paying the vendor their share. This amount has been very flat over time. However, the total spending of Groupon divided by the total number of new customers shows a startling trend. Groupon must spend an ever increasing amount of money for each new customer that it acquires. This does not bode particularly well for its long-term profitability. Astute investors should be wary of what this trend means for the future of their equity stake. In contrast to the large-scale losses from a “sexy” enterprise like Groupon, you have the small-scale profits of an “un-sexy” investment such as income property. These two classes of investment differ in almost every fundamentally important way.Small-Scale Profits • Very little media attention – the fragmented market means that there is no money for people like Goldman Sachs to securitize things like income properties and market them to the general public. • “Day one” profitability combined with stable cash flow and low to modest growth makes things like income property less appealing to the general public who prefer “dynamic” investments. • The power of time works in your favor, instead of against you. Instead of timing the market just right to avoid a bursting bubble, you can ride out market cycles on the back of strong cash flows and sell when values are optimal.The contrast is clear…Groupon and all of the other associated “hot technology” stocks showcase lots of media attention, a sexy story,and large losses that grow with each passing year. Income properties offer small-scale, fragmented profits that keep them away frominvestment banks such as Goldman Sachs. For investors who are disciplined and astute, they offer a unique opportunity to grow personalwealth in an optimal manner.Action Item: Resist the temptation to chase after “hot” stocks with high rates of growth that burden investors with large losses.Discipline your mind, and stick to fundamentals when other people are chasing bubbles. This will place you in a position to takeadvantage of opportunities that emerge when the bubble inevitably pop. Focus on consistent, sustainable profits that will allowyou to build long-term wealth.Subscriptions: E-mail $197, Print $297 AnnuallyProduced by: The Hartman Media Company, © Copyright 2011.Reprint rights and interviews available with permission, please e-mail Media@JasonHartman.comThis publication is designed to provide general advice and education concerning real estate for investment purposes. Nothing contained in thispublication should be considered personalized investment, legal or tax advice. Every investor’s strategy and goals are unique; you should consult with alicensed real estate broker/agent or other licensed investment, tax and/or legal advisor before relying on any information contained in this publication.Please call (714) 820-4200 and visit for additional disclaimers, disclosures and questions. Page 3
  4. 4. “Big Kid” Returns go to Direct Investors Jason Hartman’s When most people think about investments, their minds immediately Creating Wealth drift to vehicles such as mutual funds, hedge funds, bond funds, Podcasts REITs, and other methods of pooled investments that are either managed or pegged against an index. Many noted academics such Over 200 informative, as Burton Malkiel have rightly observed that most active managers exciting, wealth-building fail to beat the market portfolio, and that it is optimal to simply podcasts available on purchase the market portfolio at the lowest cost possible. However, there is another aspect to consider in regard to pooled investment and investment Titles include: funds. This factor is that large pools of capital can only pursue large investments. Upon deeper#215 - Don’t Sell Your Gold or analysis, this reveals that anything which cannot be scaled into a large-scale portfolio willSilver...Yet! necessarily be overlooked by any aggregated funds or indexes.#214 - The Demographic Shift inTexas and the U.S. In many cases, there are small, fragmented opportunities where investors can capture very high#213 - A Rant on Loan rates of return, but are not scalable into pooled investment funds. Examples of this phenomenonModification, Short Sales, and are single-family income properties, and small privately-held companies. These investments areMobile Home Parks too small to be captured in indexed portfolios, so the high rates of return that they can produce#211 - Distressed Properties Up accrue only to those who invest in them directly.Close: The Phoenix Tour#208 - First-Time Landlord: Thus, it becomes true that “Big Kid” rates of return only go to direct investors. Anybody whoYour Guide to Renting Out a trusts a fund manager to select investments on their behalf places themselves at the mercy ofSingle-Family Home that manager’s decisions. In addition to this, consider that most fund managers are compensated#204 - Meet the Masters by receiving a percentage of the fund asset base. Because of this, their incentive is to attract#202 - The Winner Take All Society new investors, which grows the capital base, and makes it impossible for them pursue anything#199 - How to Improve Your outside of large-scale opportunities that typically produce only average rates of return.Credit Score#198 - The Wealthy Freelancer When constructing your personal investment portfolio, there is probably a place for pooledwith Steve Slaunwhite investments such as the market portfolio. For the portion of your investments where you are#196 - A Christmas Story - satisfied with the “average” market rate of return and don’t want to babysit the capital, the“A Tale of Two Brothers” market portfolio can be optimal. However, if you are seeking to achieve rates of return that the#195 - Guerilla Marketing with “Big Kids” like Donald Trump and Robert Kiyosaki talk about, it isn’t going to happen in a mutualDavid Fagan fund or REIT. Only direct investors can achieve these levels of returns.#193 - Exposing a Real EstateScam The rub is that being a direct investor requires much more research, courage, and discipline#190 - Millionaire Memory than purchasing a pooled investment. By taking the effort to become educated, developing the#189 - Unique Brand New, Fully discipline to follow fundamentals, and fostering the courage to act, these returns can be yours.Rented, Multi-Family Investments It all comes down to what efforts you are willing to make for the sake of your financial future.#188 - Did Congress Try toLegalize Foreclosure Fraud? Action Item: Develop the knowledge, discipline, and courage to become a successful direct#186 - Ric Edelman on 10 Great investor so that you are able to capture the rates of return that are out of reach forReasons to Carry a Big Long “average” investors.Mortgage and Never Pay It Off!#182 - The Complete Idiot’s Guideto Starting a Home-Based Business It’s that time of year again!#180 - The Divine Cosmos, 2012, Will you be any closerDreams and DNA to financial freedom#172 - Harvey Mackay: Swim with in one year? Threethe Sharks, Get Your Foot in the days can make allDoor the difference if#170 - The “Psychometrics” of you simply have theSuccess and Happiness courage to take action on your dream. The reality is you can#168 - Mobile Home Investing for fire your boss and live life on your own terms sooner than youFun and Profit think – so why not start now?#167 - 48 Days to the Work YouLove with Dan Miller With our panel of experts, we’re putting enough real estate brainpower in one room to make Donald Trump flinch. Meet the Masters is a powerhouse education that can revolutionize how you think about money and wealth. Coming in October 2011! Visit for more details Page 4
  5. 5. No Jobs, No Recovery The recurrent news stories about the current economic “recovery” have begun to wear on many people. What the population at large is beginning to wonder about is jobs. Specifically, why the employment situation is still so difficult in a “growing” and “recovering” economy. Each month, jobs reports are released by the government that articulate estimates about how many net jobs were gained or lost. Naturally, the political authorities overseeing the current anemic economy quickly jump on any increases in employment as evidence of success for their policies. However, it turns out that simply analyzing raw numbers does not paint a full picture of the economic situation. What the government press releases fail to articulate is the growth in jobs relative to the growth of the population. This is the real barometer of whether the economy is moving toward or away from prosperity. Forthe purpose of our analysis, the population of people aged 16 and above is the most relevant comparison for the total job growth,since these are the people who are eligible to work.When analyzing this trend over time, it becomes quicklyapparent that the current recession represents a levelof job destruction not seen since the Great Depression.Past recessions have resulted in net annual job growththat failed to keep pace with population growth andoccasionally dipped negative for a single year. However,the past few years have seen massive net job destructionthat has yet to show signs of reversal.When analyzing the net difference between job growthand population growth, it shows a long-term trend ofrelative expansions and contractions where jobs havegrown either faster or slower than the population ofpeople aged 16 and above. What this chart shows veryclearly is the extent to which people currently enteringthe job market are trapped behind a rock where massivejob destruction has displaced millions of workers whoare both skilled and experienced. Since most peopleentering the work force possess minimal skills or experience, and depend on their first jobs to build both of these attributes, there is atremendous risk being run of creating an entire generation of terminally unemployed citizens. Further evidence of the problems we are presented with are demonstrated by comparing the total number of employed people against the total population of people aged 16 and above. This removes the ambiguity of government unemployment calculations and simply compares total jobs against total people. What this analysis shows I that labor force participation has dipped down to a level not seen since the Nixon-Carter Stagflation Recession of the 1970s and early 1980s. It is certainly true that some people stay out of the labor force because they are retired, or they choose to raise a family. However, with labor force participation this low, it is impossible to ignore how few people are now supporting the entire government complex. Consider that taxes cannot be collected from people who have no income…as the employment base shrinks relative to the total population, the burden placed on those who produce will increase as more people become dependent on the Government-Entitlement Complex™. (continued on page 6) Page 5
  6. 6. No Jobs, No Recovery (continued from page 5) In response to this information, some would argue that the figures do not accurately reflect the “good news” that has come about in the second half of 2010 and 2011. To address this concern, we have constructed a monthly breakdown of the job growth relative to population growth of people 16 and older over the last 12 months. What the facts show is that over the last year, the population of employable people has grown nearly 0.5% faster than the number of jobs. The bottom line is that there has been no real recovery to date. The horrific levels of job losses in 2009 and 2010 have not even begun to be addressed, since the job gains over the last 12 months have not even kept pace with the rate at which new people are entering the labor pool. For all of the ruminating that pundits do over the future of the housing or stock market, the job climate is a critical variable that is not being fully appreciated.The housing market will not recover until more people can pay their mortgages. This will not happen unless more people becomegainfully employed. The stock market cannot continue its current rally unless more people invest. As unemployment continues to linger,more people will be selling their investments, which will suppress value growth in the financial markets. The simple facts are that thisrecession will be with us until policies and incentives are tilted toward real growth. There is no reason to believe that this will happenuntil or unless government policy moves in a different direction than it has over the past few years.Action Item: Use the investment opportunities created by this extended downturn to place yourself in an advantageous positionwhen the economy resumes a growth trajectory. The recent trend of destructive public policy has created a hotbed of opportunitiesfor investors. Capitalize on these opportunities before they disappear.Four Reasons Behind the Continuing Home Price CollapseDespite the current administration’s constant hyperactive dog-and-pony show, we at the FinancialFreedom Report think the gyrations are a bit excessive. If the economy is turning around, why arehome prices still flat on the ground and getting kicked in the teeth? If you listen only to PresidentObama, one might draw the conclusion that the Great Recession of the past few years is a distantmemory and we now have a chicken in every pot and a car in every garage, to quote the greatpolitical acumen of Herbert Hoover.But do we? If so, soaring unemployment and dropping home prices must be a mirage? Not to go outon a limb here, but maybe it’s because the President knows exactly what he’s saying and it’s alllies. Just off the top of our collective head, we can think of four very real factors that are keepinghome prices down, thus contributing to the limp-along economy. And now experts believe the globaleconomy is moving into recession as well. The straight story is that nothing will change until the housing market recovers in large sectionsof the country.1. ForeclosuresEvery bubble is followed by a precipitous drop in price when it pops. Such was the case in 2006 as the housing market began a steepdecline in many regions around the United States. Though everyone anticipated that the bubble would burst at some point, few expectedit to be on the pinpoint of the American Dream, and carried out via the mechanism of millions of home foreclosures – home foreclosurescaused by a double dose of bad government policy and irresponsible buyers.When you buy too much house for your income, the eventual result is personal financial implosion, and that’s exactly what happened tofar too many of your fellow Americans. Maybe you’re one of them. Did they make bad choices? Some did, and are suffering now for it.But also intrinsic to the foreclosure explosion was a national government that encouraged banks to make loans to people who would notnormally qualify. Good old Aunt Fannie and Uncle Freddie were standing by to pay the bill until the problem of delinquent mortgagesgot so big that it threatened to topple the entire economy. Eventually, the bad mortgages did topple the entire economy, and it’s notdone yet. Too many foreclosures are still for sale. Too many people afraid or unable to buy. Too many American Dreams yet to be groundunderfoot. (continued on page 11) Page 6
  7. 7. A “Recovery” Bought and Paid For by Washington is Not a Recovery Despite our best efforts to bring you the first and last words on what you need to know about income property investing and how it is affected by current fiscal policy from the ne’er-do-wells in Washington D.C., sometimes someone else says what we wanted to say just perfectly. Such is the case with a recent report written by Mike Larson and titled “The Great American Apocalypse of 2011-2012.” While he deals with many topics over the course of 60-some pages, one particularly caught our eye - the difference between a healthy economic recovery and one bought and paid for by the government. If you ever wanted to know exactly how to distinguish the two - take it away, Mike...“Despite the greatest government rescue operations of all time, America continues to suffer through the toughest of times. And thepattern is now clear: First a great speculative bubble ... then a greater bust ... followed by massive government stimulus, bailouts andmoney printing ... and then ... still another, even greater bubble and bust.When all is said and done, some people make fortunes. But millions of average hard-working people lose their jobs, get evicted fromtheir homes, sink deeper into debt, and even risk abject poverty. What our government has failed to understand is that the most recentbust could have been used as an opportunity to end this cycle — once and for all.Yes, we could have seen the collapse of the likes of AIG, Fannie Mae and other “too-big-to-fail” institutions. And yes, we could haveexperienced a very painful decline in asset prices. But that, in turn, could have allowed the patient and conservative, cash-rich investorswaiting on the sidelines to swoop in and scoop up the bargains of the century, helping to rebuild America from the ground up. Thatclimactic end to the crisis could have laid the groundwork for a healthy, sustainable economic recovery — one built on solid bedrockrather than quicksand.But Washington policymakers and politicians blinked! Officials at the Federal Reserve and Treasury panicked. They took the wrong lessonfrom the Lehman Brothers collapse — namely that anything and everything had to be done to prevent large financial implosions andcleansing recessions. That’s when they went to work with our money, ultimately lending, investing, spending, or committing at least $8trillion to...1. Bail out Bear Stearns, Fannie Mae, Freddie Mac, AIG, and General Motors...2. Shore up banks around the country via the $700 billion Troubled Asset Relief Program (TARP) program...3. Expand FDIC coverage to even wealthier individuals by raising the deposit insurance cap to $250,000 from $100,000...And rescue foreign investors and banks by swapping hundreds of billions of dollars with central banks in Canada, the U.K., Japan,Australia, and continental Europe. That’s also when the Federal Reserve embarked on its epic run of money-printing that we mentionedearlier. What about Congress? The Obama administration? More of the same! They showered the economy with money as part of the $787billion economic stimulus package in early 2009. They helped concoct the bogus “stress test” exercise for the banking sector, which madeit easy for banks to raise $75 billion in capital to shore up their balance sheets. And they passed targeted bailout packages for certainindustries, such as the $8,000 home buyer tax credit. The government takeover of U.S. credit markets has gotten so extensive, in fact,that Uncle Sam has been standing behind just about every home mortgage issued in this country: Fannie Mae, Freddie Mac, the FHA, andthe VA are backing as much as 97 percent of the home loans originated these days. That, in turn, effectively brings trillions of dollarsworth of additional, contingent liabilities onto Uncle Sam’s balance sheet.All told, federal government debt outstanding exploded by 24.2 percent in 2008 and another 22.7 percent in 2009, the biggest annualincreases since 1975, according to the Fed. Total public debt outstanding is now running at $13.2 trillion, per the Bureau of the PublicDebt. That’s a whopping 132 percent rise in the past decade! The budget deficit isnow running at close to 10 percent of GDP year afteryear, a level never seen before in American history except temporarily — during the Civil War and the two massive world wars.The result of all this money being thrown out of Washington helicopters? A bought-and-paid-for economic recovery. In other words, arecovery based on smoke, mirrors, trillions in funny money, and abundant hot air.Private companies didn’t abruptly decide to start building scores of new factories or hire millions of new workers. They were stillswimming in excess production capacity and labor from the bubble days. Consumers didn’t all of a sudden decide to go on a reneweddebt binge. They were still reeling from the housing market implosion and looking to repair their personal finances by paying down theirloans — or walking away from them!But with the Treasury and Fed vomiting so much free money, some was invariably spent. That gave us a few quarters of GDP growth,prevented the loss of some jobs, and helped levitate asset prices, driving the Dow up by more than 4,500 points.Yet even so, the recovery was extremely anemic — nothing like what we’ve seen in past, healthy rebounds driven by private sectorresurgence. And that’s not all. The government-led, bought-and-paid-for economic recovery always had a dangerous Achilles heel: Itrelied on the willingness of bond investors the world over to finance it! (continued on page 10) Page 7
  8. 8. 1 Year Performance Projection July 11, 2011 Decatur Home Built in 2000 Decatur, GA 30034Performance 3 Bedroom 2.5 Bath Home Built 2000 Square Feet 1,480Projection Initial Market Value $ 76,900 Purchase Price $ 76,900 Downpayment $ 15,380 Loan Origination Fees $0 Depreciable Closing Costs $ 1,538 Other Closing Costs and Fixup $0 Initial Cash Invested $ 16,918 Mortgage Info First Second Cost per Square Foot $ 51 Loan-to-Value Ratio 80% 0% Monthly Rent per Square Foot $ 0.60 Loan Amount $ 61,520 $0 Income Monthly Annual Monthly Payment $ 359.01 $ 0.00 Property Highlights: Gross Rent $ 895 $ 10,740 Loan Type Amortizing Fixed Vacancy Losses $ -71 $ -859 Term 30 Years Operating Income $ 823 $ 9,880 Interest Rate - Decatur, GA 30034 Monthly PMI 5.750% $0 0.000% Expenses Monthly Annual - 3 bedrooms, 2.5 baths Property Taxes $ -128 $ -1,538 Financial Indicators - Built in 2000 Insurance $ -44 $ -538 Debt Coverage Ratio 1.50 Management Fees $ -65 $ -790 Annual Gross Rent Multiplier 7 Leasing/Advertising Fees $0 $ 0 Monthly Gross Rent Multiplier 86 Association Fees $0 $ 0 Capitalization Rate 8.4% Maintenance $ -44 $ -537 Cash on Cash Return 13%Projected ROI Other Operating Expenses $ -283 $0 $ 0 Total Return on Investment $ -3,403 Total ROI with Tax Savings 31% 31% 31% Net Performance Monthly Annual Assumptions Net Operating Income $ 539 $ 6,477 Real Estate Appreciation Rate 3% Cash Flow - Mortgage Payments = Cash Flow $ -359 $ 180 $ -4,308 Vacancy Rate $ 2,168 Management Fee 8% $2,168 8% + Principal Reduction $ 65 $ 791 Maintenance Percentage 5% + First-Year Appreciation $ 192 $ 2,307 Comments = Gross Equity Income $ 438 $ 5,267 Split level home built in 2000! Sold in 2000 for $113,700 and + Tax Savings $0 $ 0 foreclosed in 2010 for $119,702! Home has dining room/living = GEI w/Tax Savings $ 438 $ 5,267 room combo, master on main and a breakfast area. Home is traditional style with vinyl siding. *Information is not guaranteed and investors should do their own research, get professional advice and conduct due diligence prior to investing. 1 Year Performance Projection July 11, 2011 BEING REHABBED - Incredible Phoenix Investment! Phoenix, AZ 85043 3 bed / 2 bath PLUS LOFT; Built in 2002. Square Feet 1,934 Initial Market Value $ 99,900 Purchase Price $ 99,900 Downpayment $ 24,975 Loan Origination Fees $ 749 Depreciable Closing Costs $ 3,496 Other Closing Costs and Fixup $0 Initial Cash Invested $ 29,220 Mortgage Info First Second Cost per Square Foot $ 51 Loan-to-Value Ratio 75% 0% Monthly Rent per Square Foot $ 0.51 Loan Amount $ 74,925 $0 Property Highlights: Income Monthly Annual Monthly Payment $ 425.42 $ 0.00 Gross Rent $ 1,000 $ 12,000 Loan Type Amortizing Fixed Vacancy Losses $ -80 $ -960 Term 30 Years Operating Income $ 920 $ 11,040 Interest Rate 5.500% 0.000% - Phoenix, AZ 85043 Expenses Monthly Annual Monthly PMI $0 - 3 bedrooms, 2 baths plus loft Property Taxes Insurance $ -79 $ -41 $ -959 Financial Indicators $ -499 Debt Coverage Ratio - Built in 2002 1.63 Management Fees $ -73 $ -883 Annual Gross Rent Multiplier 8 Leasing/Advertising Fees $0 $ 0 Monthly Gross Rent Multiplier 100 Association Fees $0 $ 0 Capitalization Rate 8.3% Maintenance $ -30 $ -360 Cash on Cash Return 11% Projected ROI Other $0 $ 0 Total Return on Investment 28% Operating Expenses $ -225 $ -2,701 Total ROI with Tax Savings 28% Net Performance Net Operating Income Monthly $ 694 Annual Assumptions $ 8,338 Real Estate Appreciation Rate 4% 28% - Mortgage Payments $ -425 $ -5,105 Vacancy Rate 8% = Cash Flow $ 269 $ 3,233 Management Fee 8% Cash Flow $3,233 + Principal Reduction $ 84 $ 1,009 Maintenance Percentage 3% + First-Year Appreciation $ 333 $ 3,996 Comments = Gross Equity Income $ 686 $ 8,238 Being rehabbed now. Large lot: 6,567 sq. ft.; RV parking; + Tax Savings $0 $ 0 spacious kitchen with island; large tile flooring throughout = GEI w/Tax Savings $ 686 $ 8,238 bottom floor; loft on 2nd story opens up over living room & formal dining area. *Information is not guaranteed and investors should do their own research, get professional advice and conduct due diligence prior to investing. Page 8
  9. 9. 1 Year Performance Projection July 11, 2011First Look! Fourplex at a 13% CAP RatePhoenix, AZ 85020 PerformanceLock this Fourplex down before its gone!Square Feet 1,776 ProjectionInitial Market Value $ 120,000Purchase Price $ 120,000Downpayment $ 30,000Loan Origination Fees $ 900Depreciable Closing Costs $ 4,800Other Closing Costs and Fixup $0Initial Cash Invested $ 35,700 Mortgage Info First SecondCost per Square Foot $ 67 Loan-to-Value Ratio 75% 0%Monthly Rent per Square Foot $ 1.15 Loan Amount $ 90,000 $0Income Monthly Annual Monthly Payment $ 511.01 $ 0.00Gross Rent $ 2,060 $ 24,720 Loan Type Amortizing Fixed Property Highlights:Vacancy Losses $ -164 $ -1,977 Term 30 YearsOperating Income $ 1,895 $ 22,742 Interest Rate - Phoenix, AZ 85020 5.500% 0.000%Expenses Monthly Annual Monthly PMI $0Property Taxes $ -91 $ -1,092 Financial Indicators - Four-plex of 1 bedroom, 1 bath unitsInsurance $ -80 $ -960 Debt Coverage Ratio 2.70 - Vintage 1964 buildingManagement Fees $ -151 $ -1,819 Annual Gross Rent Multiplier 5Leasing/Advertising Fees $ -32 $ -395 Monthly Gross Rent Multiplier 58Association Fees $0 $ 0 Capitalization Rate 13.8%Maintenance $ -61 $ -741 Cash on Cash Return 29%OtherOperating Expenses $ -100 $ -517 $ -1,200 Total Return on Investment $ -6,207 Total ROI with Tax Savings 46% 46% Projected ROINet Performance Monthly Annual Assumptions 46%Net Operating Income $ 1,377 $ 16,534 Real Estate Appreciation Rate 4%- Mortgage Payments= Cash Flow $ -511 $ 866 $ -6,132 Vacancy Rate $ 10,402 Management Fee 8% 8% Cash Flow+ Principal Reduction+ First-Year Appreciation $ 101 $ 400 $ 1,212 Maintenance Percentage $ 4,800 3% $10,402 Comments= Gross Equity Income $ 1,367 $ 16,414 PROPERTY STILL UNDER REMODEL. FINAL PRICE IS+ Tax Savings $0 $ 0 SUBJECT TO REMODEL COSTS BUT NOT EXPECTED TO= GEI w/Tax Savings $ 1,367 $ 16,414 CHANGE. All units are 1 Br / 1 Ba. Built in 1964. *Information is not guaranteed and investors should do their own research, get professional advice and conduct due diligence prior to investing. 1 Year Performance Projection July 11, 2011 Under $100k Dallas, TX 75253 3 Bd - 2 Ba Built in 2004 Square Feet 1,302 Initial Market Value $ 98,000 Purchase Price $ 98,000 Downpayment $ 19,600 Loan Origination Fees $ 3,136 Depreciable Closing Costs $ 1,960 Other Closing Costs and Fixup $ 0 Mortgage Info First Second Initial Cash Invested $ 24,696 Loan-to-Value Ratio 80% 0% Cost per Square Foot $ 75 Loan Amount $ 78,400 $0 Monthly Rent per Square Foot $ 0.88 Monthly Payment $ 420.87 $ 0.00 Loan Type Amortizing Fixed Property Highlights: Income Monthly Annual Term 30 Years Gross Rent $ 1,150 $ 13,800 Interest Rate 5.000% 0.000% Vacancy Losses $ -92 $ -1,104 Monthly PMI $0 - Dallas, TX 75253 Operating Income $ 1,058 $ 12,696 Financial Indicators - 3 bedrooms, 2 baths Expenses Monthly Annual Debt Coverage Ratio 1.47 - Built in 2004 Property Taxes Insurance $ -204 $ -65 $ -2,450 $ -784 Annual Gross Rent Multiplier 7 Monthly Gross Rent Multiplier 85 Management Fees $ -105 $ -1,269 Capitalization Rate 7.6% Leasing/Advertising Fees $ -31 $ -375 Cash on Cash Return 10% Association Fees $0 $0Projected ROI Maintenance $ -34 $ -414 Total Return on Investment Total ROI with Tax Savings 30% 30% 30% Other $0 $0 Operating Expenses $ -441 $ -5,292 Assumptions Real Estate Appreciation Rate 4% Net Performance Monthly Annual Vacancy Rate 8% Net Operating Income $ 616 $ 7,403 Management Fee 10% - Mortgage Payments $ -420 $ -5,050 Cash Flow = Cash Flow $ 196 $ 2,352 Maintenance Percentage 3% $2,352 + Principal Reduction $ 96 $ 1,156 Comments Fully Rehabbed - Better than new! Tenant placement, 6 + First-Year Appreciation $ 326 $ 3,920 months property management and one year home warranty = Gross Equity Income $ 619 $ 7,429 included. Photo is pre construction. CC + Tax Savings $0 $0 *Information is not guaranteed and investors should do their own = GEI w/Tax Savings $ 619 $ 7,429 research, get professional advice and conduct due diligence prior to investing. Page 9
  10. 10. Not a Recovery (continued from page 7)You see, it’s not like we had a bunch of money lying around to pay for all the bailouts, handouts and stimulus packages. We had to borrowit from the capital markets. The same was true for other nations, some of which embarked on the same kind of wild spending that we did.That worked for a while. Bond investors went along with it like lambs to the slaughter. But that is coming to an end ...”Mr. Larson is a researcher/writer at the Weiss Institute. If you want to get the rest of his fine report, Google it and download it. We getnothing in the way of compensation from suggesting this, but are merely concerned that the average American doesn’t realize how nearthe precipice our government is taking us with these foolish attempts to spend our way to prosperity. The current economic path we areon in America is an exceedingly dangerous one. Inoculating ourselves with endless nights of television, movies, and eating out will notmake it go away.If parents want their children to grow up in an America that resembles in any way, shape, or form her past economic glories, and not adestitute Third World borrower - better sit up and pay attention now!HOA Fees - The Good, The Bad, and The UglyIt’s become an increasingly common scenario that the American homeowner will be expected to pay Home Owner Association (HOA) feesranging from ten or twenty bucks a month up to several hundred or more. In some cases, especially in certain ritzy neighborhoods, youcould find yourself ponying up the equivalent of a new car payment each month for the privilege of living within a particular community.(Jason Hartman says that HOA fees should be simple, understandable, and priced no more than $40 monthly.) At Platinum PropertiesInvestor Network, we’re not against HOA fees entirely, but do advise that you know exactly what you’re getting into (and what you’regetting in return for your dues) when you sign on the dotted line.How It WorksIn the beginning, a developer decides he wants to build a subdivision, so he creates a legal entity (usually a corporation) which is knownas a homeowners’ association. He devises an initial set of rules and regulations that anyone must follow if they decide to buy a propertyin the neighborhood. Normally there is a president, vice-president, and assorted other officers who hold regular meetings and insure thatthe rules are being followed. Usually after a certain number of homes have been sold, the developer eases himself out of the association,transferring ownership completely to the subdivision’s home owners.The thing to keep in mind about an HOA is that if you want to buy a house within such a community, you MUST join the HOA. Thereare no exceptions. Furthermore, you must obey the particular rules set out for the community or risk being fined, or even having yourproperty foreclosed upon by the HOA in extreme circumstances. If you think this sounds like something less than the full property rightsguaranteed us in the United States Constitution, you’re not alone. The best practice is to read the HOA contract thoroughly and makesure you understand and agree with exactly what is required of you before going forward with the home purchase.HOA rules are famous for their insistence on conformity and keeping their community in nice, neat little homogenous rows. Are you a bigfan of a certain NFL football team? Take heed. If your pigskin heroes make it to the Super Bowl and you want to show a little team spiritby sticking a temporary flag in your front yard, there’s a good chance HOA rules could prevent it. (continued on page 14)Behold the Future . . . The 2011 Income Property Forecast The new 2011 Income Property Forecast, published in partnership with The American Monetary Association and Platinum Properties Investor Network, Inc., has all of the critical information that you need to succeed. The Financial Freedom Report has negotiated an exclusive price for our clients that allows them to acquire this research at a fantastic price. In this report, you will learn: • Key economic trends impacting income property investment. • The relationship between inflation, gold, and income property. • The current outlook of value and appreciation for 30 major markets. • Full income property ROI forecast for 30 major markets. This is a full ROI forecast that goes beyond appreciation to show the impact of leverage and cash flow to paint a full picture of investment prospects in each market. • Key recommendations for investment in 2011.Make sure to secure your copy of the 2011 Income Property Forecast by the American Monetary Association today at Page 10
  11. 11. “Invest in places that make sense so you can afford to live in places that don’t make sense.” - Jason HartmanReasons Behind the Continuing Home Price Collapse (continued from page 6)2. Unsold HomesWhat do contractors do when nobody is buying houses? They stop building them, which brings the housing market to a grinding halt. As amajor component of the overall United States economy, no real recovery can take place until housing gets headed in the right direction.That means builders building and buyers buying. Right now, no construction company with a brain is going to put resources and moneyat risk by cranking out a bunch of new homes that no one stands ready to buy. They’ve adopted a bunker mentality, hunkering downand waiting for the worst to pass, hoping their business can remain solvent until the American public overcomes an unwillingness andinability to buy.The current refugees from the foreclosure mess are headed for the rental market, which seems to be doing quite well for the moment,with rental rates expected to increase as much as 25% in the next three years, due to increased demand. But for now, home buying isat a standstill, with builders and buyers faced off against one another on Main Street at high noon. Someone has to blink. Eventually.3. Reluctance to BuyEven with home prices sagging back to 2002 levels, Joe Q. Public is afraid to buy a house right now, and who can blame him? Maybehe still has a job, but how long will it last? Maybe he’s one of the reported nine plus percent of Americans actively looking for work.That number swells to almost 20% if you look at the reality of the situation and toss out the manufactured government numbers. Whenthe administration admits to nine percent unemployment, you know the actual number is higher. Much higher. As an example, thegovernment figure does not include those who have given up and stopped looking for work. And it does include temporary workers likecensus takers who will be let go soon.The point is that buyers are nowhere near feeling secure enough in their personal finances to begin seriously considering buying a house.Like the construction industry, they’re are hunkered in a bunker of their own, too focused on having a job tomorrow, paying bills, andkeeping food on the table to worry about luxuries like owning a home.4. Inability to BuyAlong with a reluctance to extend themselves financially in order to buy a house, the cold truth is that many Americans simply cannotmeet the new lending industry guidelines required of new buyers. It wasn’t so long ago you could become the proud owner of a newhouse with only five percent down payment. And all you had to do was say you had a good enough job to cover the monthly payment.Since lenders were being prodded by the government to loan money practically to anyone and everyone, if you had a pulse and couldsign your name, congratulations, you just bought a house.Thankfully, much has changed in a short time, at least for the long-term health of the financial industry. Today’s buyer can expect to berequired to put down 20% to 25% of a new house purchase. Interest rates are still great, but a chunk of change that size is out of the rangeof most people right now. House prices are incredibly low, but few can qualify for loans. So they rent. And wait. And hope something willchange soon.The Good NewsThe good news is that if you are in the position to lay your hands on the cash necessary to make the down payment, prices have rolledback almost a decade in price, making it a premium time for real estate investors to jump in and land some really great deals. Andwe mean REALLY great deals. Markets like Phoenix, Atlanta, Orlando, Indianapolis, and Dallas are literally overflowing with incredibleproperty buys for residential property income investors.If you never considered becoming a landlord before, now is a good time to start pondering the possibility. With the stock marketapproximating the course of the average ping-pong ball, fueled by the alternating panic and euphoria of speculator frenzy, there areprecious few opportunities to create a comfortable financial future for yourself and family. Property investing is one such way; in fact,it is the best we have found.If you’re unsure of how to get started and the whole thing seems too complicated, we’d like to offer a single suggestion. Visit JasonHartman’s website and begin listening to the Creating Wealth Show. This series of free podcasts now numbers over 200 and is packed fullof the kind of information you need to become a savvy land investor in a short period of time. Listen online or download to play on theMP3 player of your choice at a later time at Imagine Your Property SOLD in Only Two Weeks! Open Door Auctions operates using a business model that is fundamentally different from every other traditional real estate agency in the marketplace. Open Door Auctions hosts weekly auction-style open houses – offering interested buyers, homeowners and real estate agents a more fruitful and exciting way to do business. Page 11
  12. 12. Four Marketing Strategies Your Home-Based BusinessShould Implement Immediately Sales and marketing tactics in business have drastically changed from high-touch, personal relationships to content creation and other educational methods to deliver a business’ value proposition. Those who aren’t adapting to the new methods will undoubtedly be left behind in what has become a digital media business environment. Anymore, it is a challenge to cold call a decision maker. Gatekeepers are impossible to get through, and the fact is, through technology, it is incredibly easy to screen calls. Cold calling is no different than walking into a building to get a face-to-face with a decision-maker; low probability and a poor use of time.Technology reduces cost of marketing in most cases; in fact, for a home-based business, technology enables a person to begin selling aproduct or service almost immediately with little cost.We have defined four marketing methods that any home-based business can use to build a brand following and sell its product or service:Search Engine OptimizationAlmost always, those seeking a product or service will do some web-based research to find a business delivering what they need. Peoplewho go through this research process head to the search engines, type in a set of keywords and find a business that sells the productor service they seek. As a business, the goal is to show up on the first page, if not the top three spots. This is done through a practicecalled search engine optimization, or SEO. In simple terms, it is a process of content creation, writing Meta data, friendly URLs and back-linking to a website all while using specific keywords to describe what is on a particular page. Websites who use on and off-page SEO bestpractices almost always see higher traffic and a lower bounce rate within a few months of implementing.PodcastingProviding educational content for free to your target market is the ultimate no-pressure way to gain interest in your topic and services.Podcasting is typically formatted in a few different ways to reel in followers, often times in the format of an interview or discussion abouta particular topic for each episode. Podcasters find that after creating multiple episodes with high-value content, they have developeda following for their brand, and they will also increase their web presence.Question & Answer BoardsSurprisingly, a lot of people still use discussion forums to ask questions and talk about topics they are interestedin. A great marketing strategy is to find discussion forums around a topic that aligns with your expertise andanswer questions people have. Make sure that every time you submit a question or response you include asignature containing a link to your business website. This is a great back-linking strategy for SEO, but moreimportantly, it allows the people in the conversation to find more resources at the website, which can leadto more customers.Speaking EngagementsThis is not technically an online marketing strategy, but you can sure leverage it into one! Get started byscheduling free speaking engagements at a local chamber of commerce, schools, and other places whereyour target customers typically hang out. Speaking for free on certain topics can lead to more followers ofyour brand and will give you the opportunity to spin it into a web-marketing strategy through webinars, pressreleases, video clips, and other forms of content creation. “Invest in places that make sense so you can afford to live in places that don’t make sense.” - Jason Hartman Page 12