Wealth Tip of the Day for Saturday, October 14, 2006

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Hi this is Diane Kennedy. Today is Day 13 of the 30-day Coundown to the release of my new book, The Maui Millionaires™ that I co-wrote the book with David Finkel. The book is scheduled to be released on November 3, 2006, and from now until then I’ll be checking in every day with a Wealth Tip excerpt from the book, written either by myself or by my co-author, David Finkel.

Wealth Tip 13: Becoming an Investor

An investor is someone who finds assets that they can buy or control with the anticipation that those assets will either increase in value or generate a passive cash flow, or ideally BOTH! For me I started off building a business and as an investor at the same time. My focus as an investor started off buying single family homes and condos. After several years and hundreds of properties I made the move to larger commercial real estate deals (apartment complexes, shopping centers, office complexes, and industrial buildings.)

The key for an investor is to become an expert in a niche, and then focus on investing in that niche where you have cultivated an advantage. As a Level Two wealth builder you are investing for “Forced Appreciation” rather than passive cash flow. Forced appreciation comes when you buy an asset and through one means or another you “force” that asset to become more valuable. For example, you buy a 12-unit apartment building that is not well managed. You work to clean it up, rent it out, and increase the rents while lowering the expenses. By doing this you have tapped into forced appreciation to make the building worth tens or hundreds of thousands of dollars more.

I once bought a 322-unit apartment complex for about $7.5 million. The building had a 45% vacancy factor! We fixed it up, filled it to 80% full, and then sold that building for about $2 million more than we had bought it 18 months before. That $2 million increase in value over 18 months is another example of forced appreciation. It didn’t happen because the whole real estate market moved up; it happened because we created value in the deal to make that forced appreciation happen.

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