New year: time to think and plan BIG

2008 is few days from us. At the beginning of the year, I like to think and plan on the goals I want to accomplish in the new year. Chances are that you're just like me, surrounded by people who has small dream, small goal, and little to no desire to get ahead their financial life. People who are "used to" living day by day , year by year, with no exciting dream to talk about. It's good idea to be alone and think clearly what are some BIG things you want to accomplish in the new year. Or else, next year will be same as this year. Think and plan on it. Write it down and be specific on your goals. The more specific it is, the bigger chance it will get done. These are some of the major goal I set to reach in year 2008:
*Buy Apartment building with over 40 units with over 5 thousands dollar cash flow.
*Develop a winning stock trading system allow me over 50% of profit with loss no more than 10%
*Find equity partner to invest with me for my properties.
What about yours?

When Cap Rate > Interest Rate...

Cap Rate is defined as : Net operating income / property price. Net operating income measures how much rent is left after all the related expense, such as insurance, taxes, maintainance and operating cost. For example, if the property values is $100,000, annual gross rental income is $10,000, total operating expense is 3000. Then your cap rate will be 7%. Cap rate is very useful because you can tell if the property going to cashflow postive or not immediately. Say, you're doing 100% financing with 7% interest rate. Then you're breaking even in the above example. If the interest rate is 6%, then you will have net 1% cashflow as your profit every year. This mean you can net 100,000 X 1% = 1000 dollar every year.

Moving Average

Using moving average is an helpful way to determine the trend of the market. The popular technique is to using a fast moving average , say 10 days, and a slow moving average, say 30 days, and plot these curves on top of the price chart. Whenever the fast moving average cross the slow moving average, it indicates a trend is developing. If 10 days MA cross 30 days MA, this means prices is on the rise. I found that using 2 moving average is helpful to determine the trend of the market. But there could be a lot of WHIPSAW, (MA cross above and below frequently), it could be quite confusing. Therefore, I will use one more slower moving average to helps eliminate whipsaw. A 50 days MA is useful in combination 10 and 30 days. Thus, I'll wait MA 10 cross MA 30 AND MA50 as a true confirmation of the trend. It still not perfect, but at least it can eliminate some whipsaw compare using only just two moving average.

HOPE now!? Worry later....

On Friday, President Bush push out a government assisted program to freeze mortgage rate for the sub prime borrowers such that their initial teaser rate maintain for up to 5 years without worrying resetting to a higher interest rate. The purpose is to help these sub prime borrowers continue able to afford the mortgage payment. This should help reduce the number foreclosed proprieties due to miss-payment and bank take over ownerships. Overall, it should help stabilize the tanking real estate market all across the U.S. However, these are some of the concerns I have:
1)Governement interference is not supposed to happen in a total capitialist market. Price should be determined by supply and demand. Thus, this program destory the basic element of a free market
2)It encourage people with poor credit / income get into the market in future because they expect governement will bail them out again if they face problem with their payment
3)Hope now, worry later? It's true that sub prime borrowers can temporaily get a break without worry their payment increase now. How about in 3 or 5 years, when this program finish their freezing period, these very same people will have to face the mortgage payment problem in that time? Of course, we all hope prices of real estate will rise in next few years, so these people could refinance it again in few years. What if the market is still weak? What happen to them? Is governemnt going to bail them out one more time ?
It's still too early to see the effect of this HOPE program, we'll have to continue to keep track of real estate market in next few months to years to conclude its effectivness . What's your view?

Foreclosure.com

As you should probably know, the number of foreclosure in many area of the country has experienced a significant increase in the past 6 months. There are more people behind or can't afford the payment and walk away from the mortgage obligation. House prices continue to fall as a result. This is quite an exciting time for buyer. I've been looking for foreclosure listing last several months. I rely the resources from Internet. While there are many website program out there charge you a monthly fees for seeing the listing, I found a site that is pretty informative in providing the foreclosure listing info without a charge. Foreclosure.com. It covers all the 50 states in U.S. While the address is not complete , (it only show the street name, city, and state), it is useful enough as a first step. After I review the listing, I 'll call my agent in the area I'm interested invested in. I give them the street name and ask him/her to do more research for me. Check it out and let me know how you like the site?

TDAmeritrade Backtest strategy feature

Few weeks ago, I have a friend told me the online broker TDAmeritrade. It is discount broker like scottrade, etrade, that charge discount transaction fees compare to traditional broker. The interesting feature that attract me is the back test strategy they provide to the user. Basically, one can enter a set of trading rule (entry and exit condition) based on certain technical indicator and test it with the real historic data of the stock you're interested. It let you see how much money you make or lose based on your input trading rule. I open an account with them few days ago and now is busy testing the trade idea I've had in the past. It is quite an impressive tool so far. I'll update with you when I find a formula that I like and have consistent winning result.

Buy low , refinance high!

From the last post "25 cent for a dollar", I blog some of my friends were able to get a super bargain discount price from Bank owned property. It 's very lucrative business and I decide to do a similar deal in the area I'm interested on. I'm going to make numerous offers on the area I'm interested on R.E.O properties. I will start out with 75% discount as my initial offer price. I expect there will be many rejections before I can nail down one deal. But it will all worth my effort. After I acquire the property, I will refinancing it with the market value, so I can pull out equity loan from the house and roll it over to next deal. This is going to be very exciting. I'll update my progress to you from time to time.

25 cent for a dollar

Recently, I met a friend sharing with me a very inspiring story. I thought that was very interesting and I want to share this with you. Recently, one of the area he lives nearby has tremendous amount of R.E.O available in market. R.E.O stands for Real Estate Owned. These are the property that the bank bought back from the auction when the previous owner fails to pay back the mortgage obligation and bank foreclosure upon it. Because bank is not in real estate business, these properties holding bring no financial benefit from the bank point of view. The bank would like to GET RID of these R.E.O houses as soon as they can. First, they list the property at the market price. However, with recent slowdown in real estate market, houses become harder to sell. The Bank starts to accumulate more of these R.E.O as more foreclosure pop in the market. What my friend did is that he focus in these type of R.E.O. He use a creative criteria to narrow down the properties of interests and he is able to get a bargain deal with 25cent for a dollar. This is his technique
1)R.E.O
2)Has been on market for more than 100 days
3)Asking price 10% below fair market value
After he narrow down the houses into these criteria with the area he is interested, he make an all cash offer with 25% of the asking price. After many many rejections, he finally got one bank accept his deal. It's amazing how cheap he can purchase the property from R.E.O.

Stock is NOT for LONG Term

"This stock is for long run" We usually hear this comment from people when they bought a stock and saw the price drop, drop and drop. Seeing the money draining day, after day, after day. Instead of selling the stock and cut the loss early, people will say "That's ok, this stock is for long run, it will come up" This is a losing mentality. Why would a person want to hold the stock for long time? What's the reason you want to buy stock at first place? The simple answer is: You want the stock price go higher your purchase price so you can profit the difference. If a stock does not do that, why'd you still holding it and HOPE for the long run? Stock is not like real estate, when a particular stock go down in value, it's not necessarily come back up. There are zillions of reasons why stock price go down. And if you don't understand why price go down, you wouldn't understand why stock price will go up neither. So, the smarter things to do is : Cut your loss immediately, preferably less than 10%, so you can limit it from serious downfall of the stock price when you see the trend is turning against your expectation.

what I learn from recent market crash?

Dow Jones index drop almost 1000 point from the last 10 trading days. This is the biggest drop and bear market for the entire year 2007. Many people lost the entire year profit in just one single week. Wow, that's a really bloody market! My positions also get hurt in the last few days, especially for the purchase I made in last few weeks when the market was peak. Anytime I make a mistake or bad move in the stock market. I like to go back and study what went wrong and what could I do next time. Over the last weeks, I spent a lot of time to learn different kind of technical indicator and check the validity of them. For example, if the indicator is correct, it should have told me to stay out the market BEFORE the crash. While most indicator fail to indicate, I do find one particular impressive one that I find useful to indicate bear market. That is MACD. Moving average convergence divergence. I encourage you to check out this interesting indicator to keep track of the market so you can learn to STAY OUT the market when bear is coming. When you Google MACD, you can find great info on the net. Whenever divergence becomes negative, that's the signal to stay out!

stockcharts.com

Recently, I'm spending tremendous amount of time to learn more about stock market. I want to learn the in and out and use Internet to gather useful resource to analyze stocks. I was using yahoo and msn's financial charts in the past. However, the more I learn different type of analysis, the more I found them less efficient and effective. The chart is not very up to date and sometimes even inaccurate. One of my friend recommend me to give a try on one of these site, and I found them very helpful. This is WWW.STOCKCHARTS.COM .
I highly recommend it, the interface are user friendly and professional. All the popular type of technical analysis, like MACD, William %R, Moving Average data are well displayed and updated. I think from now on, I'd rely on the chart information from there to do my stock study.

Holiday Real Estate on Sale

Tonight, I received a phone call from a home builder representative. His name is Mike, he is sales agent for this new home tract I went to visits six months ago. He called me around 9pm tonight. I was quite surprised he worked so late. Basically, he told me on this weekend, there will be a special deep discount on all the houses for sale. The discount is as big as 20% with special in-house financing, no money down required, no closing cost, interest rate can be offered as low as 5.5%! Wow, I told him, this sounds too good to be sure. And Mike explained, "Yes it is a great deal, the builder is doing the year end sales push and want to get rid of all the inventories. While I think this is a great bargain, my gut feeling tells me to be patient. It's because I'm believing the price could come down even more in the next few months. So, I told Mike, I'm very interested, but I'd pass on the opportunity. I'm waiting for more and more mouth-watering bargain at a even deeper discount price pop out in next few more months or so.

Opportunity: Commercial mortgage industry companies

With the recent turmoil in sub prime market, many financial lenders are badly affected in their quarter's earning performance. CitiBank, Wamu, WellsFargo are all trading currently at their 52 week low due to overall negative mortgage industry environment. But if we look at it closely, the sub prime mainly affecting "Residential" market. What I mean is these are related individual with low income or bad credit bought a house with price they can't normally afford. With interest rate resetting, these borrowers 's payment is increasing dramatically, and because of their lower income, they can't afford it anymore. They walk away leaving the bank's bunch of bad loan in their account, badly hurting bank's business. However, it rarely happens in the "Commercial" market. Commercial here refers to projects like shopping mall, hospital building, office building, apartment, warehouse. Since the underwriting guideline in commercial market are much more tightened and require a significant high down payment from buyer to initatie the loan process, commercial lenders are seldom at risk for their mortgage not getting paid on time. Therefore I believe commercial lenders 's business is minimum, if any, affected by the sub prime. With recent drop overall mortgage companies in stock market, I'm betting the commercial lender are going to perform well. These are the lists of stock I'm betting on . Check it out here. The earning for these companies are coming out next week, it'd be interesting to see how they do in 3rd quarter and their projection of future business.

Stock chart technical analysis : Candle Stick

Tonight, I want to share some of my recent learning on stock technical analysis. Basically technical analysis is more for short term trade. It doesn't pay as much attention on company's fundamental, earning, sales growth, debt level, etc. Instead, it focus on the price movement, the volume, the trend. Understand the technical analysis can potentially help you to decide the entry and exit signal and increase your chance of winning. The above chart is the first step to understand technical: Candlestick. It shows the open, close, high and low price of the stock you're interested every trading day. You can view the price 's past performance using candle stick in the stock chart. Check out an example here (link) There are many analysis and price pattern evolve around candle stick. I will take next few nights to demonstrate a couple of useful and powerful signal to tell investor the entry and exit point of a stock.

Catching a Falling Knief..........

When an investment (stock or real estate) is falling down from the very peak, we tends to think that "wow, that's a bargain price, time to jump in." But do we really know the price is already hit the bottom and ready to bounce back , or is it just the beginning of the price's free fall and price is going to get even lower. This is the questions most of us will face in our investment decision. Let's buy it now, this is a great price, 20% below the peak! Na, the price will come down more. Which one is right and how do we know? The fundamental answer lie in the approaches: Predicting or recognizing? Every can predicts things, I can predict predict stock market is in upward trend next month, while you can predict it is the other way. This is purely 50-50% chance to get it right, just luck. If we're lucky, we can make some nice profit. But if we guess it wrong, we're catching a falling knife that is going to hurt our wealth further and further. In recognizing, we 'll look into the price pattern, the chart, the market, the demand and supply, the trend, the news, and even the economy, the purpose is to collect as much information possible so we can make a more informed decision. We still couldn't get to 100% right, but it definitely will increase our 50% position to high level by adding the odds on our side, and our chance of winning. Avoid the falling knife! Learn to recognize rather than predict to build it right.

House Price v.s Rent

Tonight, I want to share an interesting relationship I learn between house price vs rent. In the area I live in, the house price has increased dramatically over the last three years. In this year, house price have been stable. In the same time, rent is pretty flat , if not declining over last three year. But this year, the rent has increased quite a significant amount. I find that this is also true in another area that I invested real estate in. House price and rent has a inverse relationship. When price increase intitally, there will be more people interested to buy house, this reduce the number of renter in the market. When the price has increased a significant level, house become less affordable and lesser buyer are interested or qualify. When it happens , the renter increase and drive up the market's rental value . Therefore, the rent is always lag the house price. As a investor in real estate, this is quite a good news. This means that the rent we're able to collect is likely to increase in the next few years down the road since house price in most area tends to become stable over next few years. This will certainly help our cash flow position.

Use limit order when you sell to close option contract

Few months ago, I start to learn investing option thru various sources. I make my first purchase back in sept (check it out) and result has been very rewarding so far. The more I understand and trade option, the more I view stock as riskier business. I 'd devote more of my energy and capital in fine-tuning my option method in the next few months. Tonight, I want to share one of the idea I learnt when I sell option. It is a bad idea to use market order when you sell to close option contract because you never know what exact price your broker offer you. The spread (difference between bid and ask) could be huge and you may end up not making much profit if your broker offer you a low bid price as your sold price. The better way is use limit order. You enter a price in between the bid and ask as your sold price. Your broker may not be able to sell it for you right away, but the advantage is that you know exactly how much price you sell for and your bottom line profit. This is my real life example of a option I just bought for $2.00 per contract
Bid : $2.10
Ask: $2.40
As you can see, the spread is $0.30. If I put a market order , I'd be most likely get a sold price around $2.10. This means my profit is only 5%! Not too attractive. Instead, I put a limit order with a price $2.30. The order didn't go thur immediately. It takes about 2 hours. But I 'm able to make 15% return of investment once the order executed.

Magic Formula Investing works like Magic for me!

Tonight, I want to share my experiencing using Magic Formula Investing concept to buy and profit from stock market. The Little book that beat the market, arguably the best stock investing book ever written from Wall street Analysts. This is a very easy to read and understand stock investing book I'd recommend to people. Basically, the concept is followed: Mr market is a very emotional guy, his decision in short run may not make sense, but in long run, he is a logical being. This means that sometimes he offer a stock at a very high price, but other time, he will offer you a bargain. It is magic formula's mission to find good company at bargain price. It is that simple!
How do we define good company?
According to magic formula, it looks at how much the return is generated from the invested capital or the return on assets (ROA). The higher the better.
How do we define bargain price?
Magic formula look for company's earning from the price, or earning yield, kind of like the reverse of P/E. Again, the higher, the better
Magic formula look for the universe of stocks and rank each company based on the above two measurement. Every day, it will update the list on the website: http://www.magicformulainvesting.com/
I've been buying stock from the list for the last six months, and the result has been very rewarding. So, tonight, if you've free time sitting at home watching TV, I highly recommend you go get this book to learn magic formula and how it can help you possibly achieve the north 20% annual return to build your wealth tonight.

Value Beat Growth!

There is always a debate in stock market to invest either in value or growth type of stock. Value stock emphasize on the fundamental date, ie, earning, return on assest. An example of value stock is UST. Growth stock focus on the stock price's growth above average of the relative industry. An example of growth stock would be goog. Few days ago, my company's 401k provider come to my company and give a presentation of the overall stock market over last 20 years. There are an interesting data which compare the performance of value and growth stock. Check out the above table.

It's clearly shows that value beat growth in every size of market. This is a good indicator that for long term success in stock market, we should focus on value than growth.

Just Trade It!

If you want to become professional golfer, what would you need to do? Just Swing it! It takes practise , practise, and practise to improve your golf skill to achieve a higher and higher level and become good at it. No one is born as a Pro. That's the reason Tiger Wood become #1 ==> because he practise golf every single day. To become a successful trader in stock market, what would I need to do? Just trade it. Make mistakes, correct it, improve it and become a smarter and informed trader next round. Few weeks ago, I was reading about the subject writing covered call to generate extra income for the stock I already bought. The idea sounds enlightening. But I tell myself, if I don't do it, I won't learn it. So last week, I jump in and write my first covered call for this stockAHR Even now, I still don't know sure if I make a right decision by writing 2 contracts on this stock. Regardless of the result of this trade, I"m learning and I practise. I get to see how broker credit premium to my sold options. The options will expire in few days and it seems that most likely the option will expire worthless. This means I could have the opportunity to write again next month! So, whenever you learn idea about investing, the best advice to start small, expected to make some mistake and correct from it. This learning process is priceless to build your wealth tonight.

Covered call Vs Call option

Tonight, I want to share some of my research on investing stock options. In particular I focus on CALL options, which is generally works the best when market condition is a rising bull market. You don't want to do CALL option when the market is sinking downward.
Price: For writing covered call purpose, first you must own the underlying shares of stock. Because each contract require 100 shares, the amount required to invest is reduced if the stock price is lower (<$20). Plus, the power of leverage will work better. For call option, you want the stock price higher (>$50) because they are less volatile on downside and solid on the up side.
Option Period: You don't want your option to be "call out" when you're writing covered call, so you'd like the period as short as possible. On the other hand, you want to give it more time to comes up in value when you're buying option call
Risk Level: Covered call is less risk since you're owning the actual stock. You can always wait for stock to bounce back. But in call option, when stock price drops, AND you're near expiration day, you could have high probability of losing your entire investment (premium)
Type of stock: You want a slow price appreciation in covered call because you don't want to get call out. But you want the fast price appreciation type of stock in buying call option to get the maximum gain
Potential return: Every time you write a covered call, you have limited the gain you could make. Your gain is equal the sum of premium you receive plus the difference between strike price and your purchase price. In option case, your return is unlimited, depending on how much stock risk before your options expire
Strike price: The closer the current price, the more premium you will received in covered call case. In opposite, the further out of money, the less you 'll pay for the option premium.
That's all the points I 've summarized as a guideline for investing call options. Hope you'll find it useful.

A must read for flipping real estate

Flipping: A buyer purchase the property, fix it up, and put it for sale for profit in a short period of time. I have done a flipping deal two years ago. I bought this run down property and intend to fix it up and put it on market for sale for profit. I did my homework and estimated the potential profit by estimating all the number: the cost to fix up, the buying and selling cost involved, the purchased price, and finally, the projected selling price. It turns out that all the amount I estimated are pretty close to the actual number. I thought I did great and I've made the projected amount of profit. However, I found that I've missed one important number in my original profit calculation: The CARRYING COST! From the time I acquired the porperty, fixed it up, to the time I sold it for a profit, it took total five and half months for the whole process. In the meantime, I'm responbile for all the holding cost that a normal buyer are responsbile: the mortage, the insurance, the tax and the utility. Each month, these cost add up to over $3000 dollar in my case! $3000 X 5.5 month =$16500! This is almost half of my profit! This is a big mistake I 've made but I learn from it and I'd do it differently if I do a flipping real estate again in future ==> Instead of closing the deal 30 days (normal real estate transaction), I'd ask for a longer closing time, say 3months. In the meantime, I ask for seller's permission to get in the property and do fix up and rehab to increase the value. Once the rehab is finished, I'd bring in an appraiser to appraise the property. Certainly, the new appraised value would increase. Then, I'd obtain a mortgage based on the new appraised value. Once 3 months period reached, I then acquired the property. Immediately, I'd put it back on market for sale. In essence, I will be minimizing my holding period, reducing the expense, and potentially get a better mortgage rate to further reduce the expense and increase the bottom line profit.

The better way to get Home equity line of credit (HELOC)?

I'm looking to get a home equity line of credit for a while. Because mortgage broker didn't make any money (not even a dime) to get you the HELOC, most broker is not very motivated to do this as a service. I call the broker I used in the past, but it seems that they don't care much about my HELOC as compared to refinance or purchase I did. After weeks of waiting, I got pretty frustrated for no responds from my broker, and I decide to go directly to the bank. I went to Wells Fargo and sit down with a investment advisor. After I explain what I needed, the person seems to be helpful. Except she won't tell me the rate until I "initiate" the process with the bank. She recommends me open a bank account with Wells Fargo and I did. Today, she finally call me and let me know the rate. It was a pretty ridiculous high rate "PRIME + 2" This is almost as high as a personal loan I can get from a credit union! Well, it seems like the lady is more interested to get me open an account than getting me the competitive rate of equity line I wanted. After some research, I learnt that http://www.bankrate.com/ actually offer a list of bank with interest rate sorted in order. I 'll give this list a try tomorrow and call the lowest rate company to get started. Hope I can find the right lender to get me the HELOC. Share your experience if you have a better way to get HELOC?

EX DATE is coming..

Since I decided to dedicate a portion of my stock investment into high yield dividend stock, I started to pay attention to EX DATE. In order to get the dividend payout for the quarter, I learn that I must buy the stock before EX date to be eligible to received dividend. Anyone buy on EX date or after will not get the dividend income. Right after EX date, I can sell the stock and I can still eligible to receive dividend. The interesting pattern I found is that the stock price will "automatically" reduced by the dividend payout amount on the opening of EX DATE, then the price will go back to normal after few days trading session. This could be an opportunity to buy the stock if your stategy is to ignore the dividend but betting purely the rise of the stock. One of my favoirte dividend payer stock FRO , which have a yield >15%, will have EX DATE tomorrow (10/10/07). The payout amount is impressive $3.25, or 6.25% assuming stock price $50 dollar. I bought this stock few days ago anticipating receiving this handsome amount of dividend. It'd be interesting to see how FRO trade tomorrow morning. My plan is to sell one or few days after ex date at the price I bought so I can receive the full amount dividend (6.25%) owning this stock just a week or two.

Things to consider when you particpate a lending project.

Recently, I was introduced to a real estate developing company around the area I lived. This developer is looking to build a 300+ high rise condo building in the downtown area. As far as I know, the developer already have a option fee to purchase the land. All they need right now is to raise funding to do a rezone of the land from residential to commercial so they can put a high rise building on it. They're looking to raise 4Million plus from investor and they offer excellent 50% return guaranteed by the company's trust to investor in 12 months. The minimum contribution is $100,000. This is definitely sound very attractive. If you lend them $100,000, after 12 months, they will return you $150,00. Once the rezone is done and approved by city, the developer plan to get a construction loan to pay back the investor principle plus interest. I'm reviewing their contract to consider this investment opportunity. These are some risk to consider:
1)What if the rezoning fail for some reason, the land cannot be rezone to build high rise building?
If the developer fail get the rezone approved, they obviously cannot get the loan to pay back the investor. As a investor, we have to check how strong and experienced the company and their team has done this kind of project before to weight the risk.
2)What if the builder don't pay back investor?
Well, according to the contract, investor's principle and interest is guaranteed by the company's trust. If the builder fail to get rezoned approved, they must liquefy their assets to pay back investor. The builder can show their financial statement to investor. As a investor, we need to check their financial strength (ie, how much networth the trust has)
3) What if the builder bankrupt?
That's obviously the biggest risk to consider! If the company do bankrupt, investor could potentially lose all the investment and need to file ligation to claim the return of money. Again, as an investor, we need to weight how reputable and likelihood the company may bankrupt.

50% cash on cash annual return is definitely attractive. But there is risk involved. I will have to do more research, meet with the officials of the company, check their financial strength by looking at their financial statement, check their previous works and references, to decide whether to go for the lending opportunity. Any one has experience of involving in any lending project in the past? Any insight to share?

Interest rate is creeping down

I have a mortgage which has a variable interested APR rate. My APR = Index + Margin. The index used in my mortgage is 12 Month Treasury average. Every month, my APR change according to this index. Tonight, I just check the trend of index last several month and it is decreasing. Since the FED reduce the prim rate in August, many index has started a trend of decreasing. This is certainly a good news for real estate market since the cost of borrowing is reduced and hopefully, it can help more people to afford the mortgage payment. A great reference you can find updated rate information is located at http://www.moneycafe.com/library/mta.htm

Don't Diversifiy, Concentrate into high perofrmance investment

Many people said diversify is the key to succeed in investing world. I do not completely agree with it. Especially, when you're young, you should consider take more risk since time is on your side. I'd rather concentrate my capital and energy into some higher risk AND potentially higher reward investment. For example, let's say you have a set amount of capital (say 30,000) to invest in Mutual Fund. It's normal for most people to invest 5 or 6 Fund to diversify. But I believe the more effective way to build wealth in a shorter period of time is to concentrate into high performing Fund. I'd do the research and analyze which fund will have a higher chance to increase in value. After I'm confident on my research, I'd concentrate all my seed money in it. I 'd buy no more than 3 Fund and watch how good or bad my picks are. I will go back and learn the mistake I make from the research and analyze if my fund go down in value. So, next round I can be more informed and make a better selection. So, diversify is the easy and lazy route. You could reach your goal when you're 65 or 70. But if you want to build wealth tonight, we should learn and train ourselves to select right investment with the right market to maximize our return.

Healthy >> Wealthy.

As we discussed before, for someone who has a 9 to 5 job, in order to get out the rat race, he or she must use the 5 to 9 during the evening time efficiently and effectively to build wealth. You may choose to go to seminar to learn about investing, network with successful investor or business-man or business -women, driving around your target area with your agent to look for property, or meeting client for presentation if you have a business or in network marketing business. Each task require dramatic amount of energy, especially we just spent 8 hour in our daytime job. We could get tired and lack of energy and it will affect our physical condition to build our wealth. Tonight I want to share few things I do to keep in good shape and health, so I can have the energy to continue to build wealth tonight. No health, no wealth. Health is your greatest resource , take good care of it!
1) From time to time (if I'm not in hurried), I park my car purposely few block from the company when I go to work morning. So, I have 10 min walking each morning to work. When I leave, I also get another 10 min walking. Total I can get 20 min right there walking as exercise.
2) I go to do YOGA at least once a week during lunch time for 45 min to 1 hour. YOGA is excellent especially if you have back or neck pain.
3) I put 1 litter of water in my cubicle each day. I force myself to finish it everyday before I go home.
4) I do swimming once a week.
Discipline is the key. You can come up your own tasks. When you can practise and develop good habit to build your health, I'm sure you chance of success will be increased when it comes to your wealth.

Wrong questions to ask lead you wrong result!

Five years ago, I purchase my first stock thru an online broker. I have no idea what I'm doing. I get curious about stock market when everyone around me is talking about how easy to make money. Without any knowledge in stock investing, I remember I will ask people I ran into, my boss, my doctor, my neighbors, and even the person who cut my hair this question " which stocks I should buy?" Everyone around me seems to be expert and they will tell me a list of stock symbol to buy. I collect this list and buy these stocks. As you may guess , my return is pretty ugly. I think I've lost a couple grand just by asking this questions to people I ran into.

I didn't let this setback discourage me from investing stock. I just know I need to become more educated. I read books, I attended seminar, I listen to educational program to learn how to make money in stocks. I figured out I 've asked the wrong question in the beginning and that's the exact reason why I lost money. Now, I learn to ask the right questions to people I ran into : "What system (method) I should use to screen, time in and time out stock?" Interestingly, almost on one around me can tell me any thing or don't have clue what I'm asking. The amazing things is after I learn the screen method that fit my investment style, the time in to buy and time out to sell (either capture a gain or minmize a loss), my return has been gradually increasing. If you're interested to learn what are few of the system I'm using (maybe not be the best, but it's making money consistently for me), simply leave a comment and say "529pm, tell me more!". I'd love to share what I know (my stock investing method) to you if you're interested to know. I'll reveal my method when there are 10 comments to this post. Will you comment? $D

A creative method to buy property with Nothing Down

Tonight, I just have a dinner with a successful real estate investor. Remember I blog earlier, your net worth is determined by your network, it is always great to hang around with smart and successful people to learn their wisdom. Basically, he share with me his experience of one of his new real estate investment. The coolest part is he is able to buy this property with NOTHING DOWN payment. This is the step he took
1) Target Bank owned (REO) properties. Bank is more willing to negotiate than a seller in general.
2) Identity fixer upper property that need some paint or carpet to bring to livable condition. The asking price of this type of fixer upper is usually 5-15% below market value.
3) Negotiated with the Bank to accept a even lower price offer PLUS three months period for closing
4) Ask for permission from the bank to enter property during the three month to do rehab and repairs
5) As soon as the repair are done, he brings in an appraiser to reappraise the repaired house. The appraisal value come out to be about 20% over his purchase price.
6) He bring this appraisal report and get a 80% Loan to Value Loan base on the Appraised price.
7) He bring no money down at the close of escrow in three months to close this transaction.
This is a very creative method to buy property with nothing down. Traditionally, the bank can only loan you 80% of the purchase price. In his case, he is able to buy the property lower value, delay the close of escrow period, fix up the property in the meantime, and get a loan using the new and higher appraised value. This is an excellent example of create value in real estate.

An excellent website to research the real estate market

As a real estate investor, it's crucial to gather
information about the city to decide whether the market you're interested to invest is in growing, declining or stable phase. The fundamental data include: population growth, the job growth, unemployment rate, cost of living, cost of housing, household income, demographic data, crime rate, climate, education level, property tax rate, percentage home rented vs home vacant, on and on... Basically, the more data you 're able to collect, the more educated you become about the market, and more intelligent decision you could make about your potential real estate investment. These data could usually be found in library or in the city's website. However, most of these data are not layout in a easy-to-read format. You might end up spending a lot of time to gather the information together from different sources, and process could be very tedious. Tonight, I found a excellent site provide these important data for most cities in U.S in a very easy to read and search format. WWW.BESTPLACES.NET It's very easy to search information about the cities and you can even compare it with national average data. The membership is FREE. Check out this site whenever you need any data about the city you're interested investing. It will definitely help you make a better decision about your investment.

Subprime mess and what can you do.

Three years ago, when mortgage interest were at historically low (~4%), many people take advantage of this incredibly low rate and refinance their home with a fixed period of low interest rate. Many choose the 3 year or 5 year fixed program and because of the lower monthly payment, they could afford the house otherwise wouldn't qualify. Now after 3 years, many of these short term fixed rate program become expired, and mortgage rate has increased to 2-3% higher. Many people are experiencing a payment shock! A 2% increase in interest for a 400,000 home could means as much as 1000 dollar increase in the mortgage payment. This is a big burden and lot of people just couldn't afford it. Many end up losing their house in foreclosure. This is what you should do if your loan program is about to expire and you know that you will not be able to afford the payment increase: CALL YOUR LENDER to negotiate a solution. Many people have payment behind too long (3-4 months) and the bank couldn't do much to save you. It's too late! But if you call your lender before you have any late payment, and explain to them your situation, many banks will try their best to work with you to help you continue to make payment. It's bank's interest to reduce the default property. Ex:the bank can extend the current interest rate for one more year, or the bank can gradually increase the payment such that you have more time to adjust and save for payment. Foreclsoure can be avoided! Dig into your statement and call the 1-800 to initiate the talk with bank. Give the bank time to come up a solution. If you waited and you have late payment already, the bank most likely cannot help you but foreclosure your property.Do this tonight if your mortage progam is expireing soon. Don't wait!

I don't need life insurance!?.. Really?

Tonight, I want to talk on the subject life insurance. Many people said " I don't need life insurance now, I'm single, I 'll wait few years until I have family" I don't agree with this point. In fact, I believe buying life insurance is the first fundamental step to take in order to build wealth tonight. It's more important than your retirement account. You should get one as soon as you get out from college and start a job. Let me tell you why. First, from the cost point of view, the younger you're, the cheaper the premium it is. The premium is calculated based on three factors: 1)Age, 2)Health 3)Policy amount. As you can imagine, you're usually healthier when you're young than when you're old. That's another factor to drive the cost down (save you money) when you buy early. Also, it is possible insurance company deny applicant because of health problem. Once it rejected, a person may never be able to be covered for his/her whole life. Go get it when you're young and healthy. Second, from a emotion point of view, isn't it one of your ultimate reason to make a lot of money, build a lot of wealth, is to share all the joy and wealth with your family, your parents, your brother, sister, your spouse, children, etc.. What if (touch wood) you leave the world too early? Wouldn't it be nice that you know at least you're leaving something behind to your loved one? At least your parents spend tons of money to raise you up! It just make sense to 529pm you should get coverage as soon as possible. Don't worry the cost! I've seen policy that is as cheap as 10 buck per month for 100,000 coverage. Your insurance agent should be able to help you.

Buy high sell higher

The old folks saying " Buy low sell high" just don't quite work for me, especially when it comes to stock investing. The biggest problem is when you buy low, you really don't know if the price has hit the bottom or still going down even more. Nobody knows. Even if the stock price is not going any lower after you bought, the second problem is when the stock going high again? Will it be next week, next month, next year or in some extreme case, never? So, "Buy low sell high" is a pretty risky method for me. Instead, I follow the method "Buy high sell higher" A things in motion tends to stay in motion. When a stock is at the 52 week high, it tends to keep getting higher and higher. Then, I use (the system ) to sell portion of my holding one at a time to capture the gain and continue enjoy the ride. Of course, nothing is guarantee in stock market. We just have to use the method that has higher chance to win than to lose. Buy high sell higher works out great for me.

7 things to consider before buying your first house

Tonight, I want to share the experience I gone through of buying the first real estate property as my own primary residence. There are things to consider before you jump into the market. Let me do my best to summarize below:
1) Emotionally be prepared. Buying a real estate is a long term commitment. There are sacrifices. Ex: Unlike living in apartment or renting a room, you can't move around every 3 to 6 months whenever you like. Make sure the property you're going to buy is really the place you want to live in for the next 3-5 years
2) Carefully calculating your budget. Before you consider to buy your own place, you should know very well the expense that incur about owning a real estate in your area. I blog on this subject few weeks earlier, check it out
3) Know what you want. After looking into the expense, you should have a brief idea how much the property you can afford. A qualified mortgage agent can help. Then you decide which area and which type of property you can afford and like to live in.
4) Consider a roommate to help out. I was a single when I bought my first condo. My idea is to rent out a room to get extra money to pay for my expense, so I can save more money for other investments
5) Select an agent that understand your needs. Interview with agents, check his/her background, ask him what is his speciality. If you're first time buyer, I strongly recommend you find an agent who has expertise working with first time buyer. Finding a right agent is crucial part of the whole process, spend time to select agent. Do not just go with an agent because he is your cousin or neighbour. Try to ask for referrals if possible.
6) Prepared to save down payment. The norm in today's market is 10%. Most banks require the source of down payment to be in your bank for at least 2 months history. If down payment is an issue, consider borrowing money from your friends or family members at a market return. Using the house as a collateral if needed. (Most private money lender charge + 10%) Create a deal such that both you and the borrower can benefits.
7) Stay clam. Find the right property, finding the right type of loan, working with the right agent, preparing the down payment, structuring an offer, negotiating with the seller, closing the transaction etc, ....are long and complicated process. Expect to run into problems. Don't let your emotion make decision, use your judgement. You're making the probably biggest purchase in your life. There are many things to learn in the process. Be positive and look for the bright side. After all, buying real estate is proofed to be one of the most rewarding and stable investment you can ever make.

Super lucky day!

Today is probably one of the most luckiest day in my stock trading experience. One of the stock I bought few months ago, PWI, skyrocketed return with over 30% gain in today's trading session. The reason is because it has entered an agreement to be acquired by United Arab company, with purchase price 26.75 per share. Stock immediately jump from 20.50 to 26.75 in today's opening. With this dramatic jump of the stock price, I sold the stock as soon as I see it in this moring to capture all the gain. I'd say this is not skill involved, it's just pure luck on this stock I own. It's feel good to be lucky $-)

Create Value in Real Estate

When I buy a stock, I ask myself "What can I do in this moment to increase the value of the stock I own?" Answer: Tell all my friends to buy the stock I own and hope my friends will tell his / her friends to do the same, and eventually, the stock's demand increase and it's price value increase. This is certainly not very practical if not impossible. Basically, the answer is NOTHING. One of the biggest advantage in investing real estate is the buyer can have many many ways to increase and create value of the property he / she already bought. It's only limited by imagination. Tonight, I want to share a few classical ways an investor can do to add value to the pieces of property already owned

• Add number of bedroom or bathroom. The more rooms your property has, usually the more it's worth
• Convert a open carport into a enclosed garage
• Remodel the kitchen and bathroom. If you have limited budget for remodel, always start with kitchen or bathroom first. These are the two places most buyers pay attention
• New paint, New Carpet, New fixtures, New lighting. A minor improvement detail could significantly add value to the property.
• If your property is rental or multi units, research into the rental market and consider increasing the rent whenever possible. Increase rent could increase the property's value dramatically. Vice verse, reducing your monthly expense will have a positive impact to the value as well.
• Consider an expansion, especially if you 've big lot. You must get permit to make it legal and recorded properly with the county to make it official approved. Careful budgeting is vital to monitor the anticipated value increased after expansion is more than the cost itself.

These are just few example I've considered to use. The goal is to THINK VALUE. It's only limited by our imagination. Let me know what have you done to increase the value of your property?

Full Doc vs Stated income

When I apply the loan for my investment property, my broker will ask me if I want to do full doc or stated income? Full doc require full job verification, income proof (W2), tax return in past 2 year, 2 months bank statement to verify source of down payment , etc to show the lender you're fully qualified for the loan. The interest rate is more advantageous when full doc is used. However, in some case, when the broker see that full doc is not possible. Stated income is used. This mean the income is merely stated and no proof required. The interest rate in Stated income is usually 0.5 pt to 1 pt higher than the Full doc, but the process is much simpler for borrower to get approved. Stated income is very popular during the last 2 year when market was HOT. However, due to recent sub prime market hit, many lenders has tighten the guideline and disallowed many stated income loan. The bank see the stated income loan are too high risk. I think this restrictions will further depress the already slow real estate market.

From dollar to a penny, Penny stock!

Tonight, I want to blog about the experience I had recently with one of this so called-" penny stock". Few months ago, one of my friend told me if I want to make big money in stock, I must own some potential penny stocks. The reasoning is that because they are cheap, usually ~1 dollar or less, I could own thousands of stocks and still very affordable. Plus, when stock move up a only few cent, my return is already skyrocketing. After listening to the reasoning, I said, "Sounds great, I will buy one to try!" So, I buy my first ever penny stock in June. This is the one I own.
Well, if you click on the link, you know my stock is not very pretty with this penny stock. I bought it at 1.40 and today's 0.36. That's 75% drop in 3 months! Average 25% drop in a month, scary! I don't remember I own a stock has such as terrible drop rate in my whole 5 year stock investing experience. Here are few things I learn about penny stock
1) Because of their extremely low volume trading, any single transaction could dramatically increase or decrease the price. The stock price therefore could get manipulated in speed of sec.
2) Market order is usually not allowed with penny stock. Only limit order is accepted
3) Because of their volatility, broker charge a higher commission cost compared to other normal stock
4) It's true that return could skyrocket in a matter of days, but the reverse could also happen. It's an extremely risky business
Well, my first ever owned penny stock just don't work out all that great for me. There are plenty of valuable stocks out there to choose, my recommendation to you: Consider other type of opportunity, you don't need penny stock to make money in stock. If you do have to buy penny stock for whatever your reason, do not put in 5% or more of your capital in it.

Two indicators to stay out stock equity market

While everyone of us want to make the big return in stock market, sometimes, it's more advantageous to stay out the market when market become unfavorable and decline. Two great indications to signals I use are :
1) stay out market when interest rate is rising. When rate go up, business will have higher cost to expand and growth is slowed. Also, think of stock and bond competing money from investor. When bond rate increase, more people will buy bond instead of stock. This could means stock's demands is less and price tend to fall. I usually compare the interest rate in the beginning of each month and compare its with six months ago. If the current interest rate is slower, I'd be more cautious to get into stock market
2) stay out market when 6 months treasury bond is higher than 10 year treasury bond. This is called inverted yield curve. Normally, the longer the bond period, the higher interest rate investor is supposed to receive. However, in some unusual situation, short term bond rate happens to be higher than long term bond rate. This phenomena could indicate that recession is around the corner. It'd be not a bad idea to leave the money in money market or saving account until the 6months treasury bond is lower
These 2 signal applied only to U.S market. If you 're investing in international market, these 2 signal does not has much correlation and not applied. Interest rate is dropping, yield curve is normal, so I'm investing more into stock market these periods.

Full force into equity market in next 2-3months

With FED reducing the rate by 0.5%, stock market has soared last two trading days. My portfolio has took the biggest increase of the year, rising almost 7% in last two trading days. It's exciting! I 'm going to put in more capital into stock market to capture the growth. Few area I will be focusing are ETF, Value Stock, Stocks that pay dividend, and using option to turbo-charge the return. I'm aiming to make another 10% (min) gain in my overall portfolio. I will give you update from time to time.

5 tricks to reduce your tax auditing chance.

No matter you like it or not, tax will be the biggest financial burden everyone could face. While we all have to report an honest and accurate tax filing every year, it 'd be nice to reduce the chance of seeing ourselves being audited by IRS. It's stressful to deal with and likely you end up paying penalty if they found you've missed reporting some income here or there. So how do we reduce our tax auditing chance? Few weeks ago, I have a dinner with a friend who is a certified tax consultant. He share with me 5 great tricks everyone can do to reduce audited chance. Check it out
1)No rounding number. EX: You have item X want to claim as expense. If you report this item X cost you 100 dollar, IRS know you're most likely just estimating. But if you put 97.32 for the item X, IRS will believer more this is the true cost you pay
2)Get extension. The rational is IRS assigned majority of their tax auditors for the regular tax season. Only quite few limited auditors are assigned for the extension period. And therefore, your chance being picked is reduced
3)Make it as a biz. Most auditors are familiar with personal 1040, the most basic tax form employee fill out. Not all auditors (especially the newbie) are not familiar with LLC, LP, S-crop or whatever complicated business structure you've. Auditors are just human, they won't bother to look at stuff that they not know very well
4)Keep number in line with national average. EX: you bought a desk for your office, and want to claim it as itemized expense. It's pretty normal to say this cost $89 bucks, but not $890 dollar
5)Keep all your receipt. In case you do get audited, when auditor see you've such a complete receipt and record, he knows that you're most likely honest with your tax filing and move on to next less organized target.
It makes sense to me, does it make sense to you?

I finally did my cash out refinance.

Few weeks ago, I mention in on of my post I have a difficult time getting refinance of my condo. I bought this condo with 20% down pay. After few repairs and remodel, I put the condo back on market for sale, aiming to flip it in short period of time. However, market turns and demand affected quite badly by the sub prime turmoil. After 2 months of listing, I wasn't able to sell it the price I wanted. I decide to take it back and get a refinance to get back my original investment as cash so I can move on the next investment projects. It was very difficult, most bank refuse to lend me money since the house was just listed on market. The bank's underwriting guideline was very stricted. After countless attempt of visiting banks and mortgage brokers, I finally found a broker who found the Bank willing to loan me money. This is ING lending. After all the process (which take about 1 months), tonight I finally get the refi done and able to pull out most of my original investment. My interest was 6.875%, fixed for 5 yr ARM, interest plus principle payment, with 90% Loan to Value ratio, one loan. Not bad.

FXI . A simple way to capture the CHINA growth

If you ask me which stock I'd buy today to has the highest possibility growth in the next 6 months, I'd definitely tell you to consider FXI. It is an index fund designed to represent the performance of the mainland China equity market that is available to international investors. The price YTD (Yield to date) increase is just SPECULAR!40% in 9 months. A lot of people say China stocks has gone up too much, and bubble soon. But my feeling is that the party is still far from over. With strong GDP growth China experiencing, and the bullish environment in the overall economy, China stocks is continuing to grow. 529pm prediction: this growth will continue until the summer next year, which china will hold the Olympic game. After Olympic game 's over, FXI may have major price correction. So, my strategy now? Jump in and enjoy the ride!

Can a $100,000 single family house really cash flow ?

Tonight, I went to seminar presenting opportunity investing in Dallas single family house (SFH) opportunity. House price of a 3b2b is around $100,000 and the rent is around $1000 dollar a month. At first glance, this look like excellent postive cash flow producing property. This is the breakdown of the calculation
Rent: $1000
Mortgage: $525 (assume 7% interest only, 10% down pay)
Insurance: $50
Tax: $250 (assume 3% of property tax)
Total PITI Expense in this case is $825 per month
So, the positive cash flow we're looking to get is $175. Multiply it by 12 , you get annual income 2100 a month. Dividing 2100 by 10000 to calculate your return of investment (ROI), you get 21%. This seems VERY Impressive. Plus, the potential of the house price appreciation over years in future. Look like a deal!?
But wait, let's look into further, first since I will not be managing it myself, I will need to hire property manager to take care renting. 10% of the rent is deducted. This reduce your annual income to only $900 and ROI to only 9%. Well, it's still ok, at least it's still comparable to stock market average return. But, here comes the BIG BUT, there could be unexpected expense that can pop up once a while and eat up all your cash flow. EX: A roof repair cost 2500, a carpet change needed cost 750, a paint need to be repaint once a while cost 500, heater breakdown cost 300, a window issue cost 350, a foundation problem cost 3000, the list could go on and on and on.... So, I'd say the reason to buy this deal should not be purely for cash flow. The profit is too slim to see them working. We should look more into the equity build up potential as a consideration and investment objective.

Staging is a MUST

Staging is a MUST if you 're looking to get top dollar in your investment property when you're ready to sell and capture the profit. The picture you see is one of my property that my agent decorate before we put on the market. Decorating is like helping a model dress up before presenting to the world. It can turn an average house into fantatistic and high class house. Buyer will like it and hence, you have better bargain power to ask for your price. Staging does not need to be expensive. Negotitate with agent to include it as part of the listing service. Not all agent willing to do that, interview few more until you find the one. Also, check his/her pervious work to see the quality of his staging skill. If you couldn't find an agent can do a quality staging work, consider hiring a staging company to do the professional job for your property. The budget should be kept under US 1000 dollars. It will be worth.

Do you have a PLAN?

In order to build wealth tonight, we must have a PLAN. Let me break it down and I hope you could start Planning your success tonight.
P stands for PASSIONATE. We must love what we do to become successful. One reason I couldn't see myself get a promotion from my job is because I really don't like my job. So, find something you're passionate about, that you really love to do. Money will follow.
L stands for Leverage. Leverage other people's resource (time, money, skills, talent, knowledge, network, creativity, reputation, the list is really endless..) to help them help you. Communicate your vision to inspire other people to join your team to help you achieve things that would otherwise be impossible by doing it yourself. Focus on long term relationship than short term profit. No one can become successful without other people's involvement in one form or other, so use Leverage!
A stands for ACT. Take massive action no matter you're ready or not. The prefect someday will never come, Take Action now.
N stands for Never give up. Never never give up. Winner never quit, quitter never win. Learn from the mistakes we make. Mistake should help us become smarter, not weaker. The only way we lose in build wealth game is we quit, so don't quit.
What's your PLAN right now?

What should we do when we see a gain in a stock?

This is a million dollar question, give it a serious thought for this question will help you make more money in stock market. Usually there are two things people will do.
1)Sell it. But wait, what if the stock price continue to rise? We will be kicking ourselves of "selling it too early" I used to own this one stock NVDA. After I sold it for a small profit, the very next day, the stock jump over 10% in few hours trading session. I just left regret and watching it go up with no stock on hands.
2)Hold onto it. But wait, what if the stock price tumble after reaching some new high. I had an experience which the stock price go from $5 to over $18 in a short period of time. I was so ignorant, thinking the stock will hit 30 dollar soon. So, I didn't sell a single share. Well, the stock crash down after some bad news earning! Now the price is sitting around 3 bucks!
Obviously, the above 2 ways are not very intelligent ways to handle the stock when it has a gain. Now after all my bad experience, I will tell you the 3rd way to help you build wealth.
529pm: sell a portion to lock in the gain gradually. EX:
When stock has risen and reach more than 7-10% of original buying price, you should sell half of the stock to lock in your gain.
When the stock price has reached 12-15% of the original buying price, you should sell a quarter of stock to lock in more gain.
Finally, when the stock has made 20% or more advance, you should sell the remaining quarter to capture the remaining gain.
I do believe that's the best way to answer the questions on topic. What's your thought?