The World’s Greatest Money Maker: Evan Davis meets Warren Buffett – 3 of 6


Warren Buffett is the greatest investor of all time. His decisions about buying shares and companies have beaten the stock market year after year and made him the richest person in the world – thought to be worth 37 billion dollars. Yet Buffett lives modestly in his native Omaha, in America’s mid-West, and runs his 150 billion dollar business with a staff of just twenty. Evan Davis meets him to find out about his unique investment strategy and his eccentric lifestyle. He talks to Buffett’s family, friends and colleagues about the man they call the Sage of Omaha, and Buffett’s friend Bill Gates praises his philosophy of life. As the greed of the super-wealthy is widely criticised in the current financial crisis, Davis asks whether Warren Buffett is the acceptable face of the filthy rich.

The World’s Greatest Money Maker: Evan Davis meets Warren Buffett – 2 of 6


Warren Buffett is the greatest investor of all time. His decisions about buying shares and companies have beaten the stock market year after year and made him the richest person in the world – thought to be worth 37 billion dollars. Yet Buffett lives modestly in his native Omaha, in America’s mid-West, and runs his 150 billion dollar business with a staff of just twenty. Evan Davis meets him to find out about his unique investment strategy and his eccentric lifestyle. He talks to Buffett’s family, friends and colleagues about the man they call the Sage of Omaha, and Buffett’s friend Bill Gates praises his philosophy of life. As the greed of the super-wealthy is widely criticised in the current financial crisis, Davis asks whether Warren Buffett is the acceptable face of the filthy rich.

Mobile Home Park Money Trees

Mobile Home Park Money Trees

Mobile home park investors across the nation are raking in the dough while countless single family home real estate investors are struggling to turn a monthly profit. Okay, so it’s not exactly like investing on Madison Ave. However, if you have the knowledge you can do just as well as the Donald Trump in real estate. Just ask Jim Clayton of Clayton homes who sold his company and portfolio of mobile home parks to Warren Buffett for a cool $1.7 Billion dollars!

Why are mobile home parks the “red-headed stepchildren” of the commercial real estate investment world? Perhaps one of the reasons why most investors ignore this lucrative asset class, other than for obvious eye sore reasons and the negative connotation associated with mobile home parks (we like to call it the Jerry Springer effect), is because they believe it requires too much up front cash and a personal income statement well above their means. This might be true if you were trying to finance your property through a large bank, however many mobile home parks are purchased with much less than 20% down and with little financial reserves in the bank. In fact, many of these mobile home parks are purchased with seller financing.

Small to medium sized parks are typically owned by “mom and pop owners” that have been running or overseeing the managers of their respective parks for a long time. Many of these owners have mobile home parks that have a large vacancy due to the glut of repossessed mobile homes caused by the mobile home industry overheating in the late 1990’s. It is difficult for these owners to refinance or sell the mobile home parks conventionally due to the significant vacancies in their park.

Furthermore, some of these same owners prefer doing business the old fashioned way (without bankers / real estate brokers). In other words, a large percentage of mobile home park owners would rather take some initial financial consideration, make a nice profit each month off the interest on their note and not worry about the day-to-day issues of running the park. Additionally, many do not want to deal with a large tax problem if they sell the park outright. Sure they could 1031 exchange it into something bigger; but then they would be in the same situation all-over again.

Investing in mobile home parks is an absolutely beautiful thing! Not only is it a long term land play, but you have NUMEROUS ways to make money through multiple “profit centers” in a park. Single family homes and apartments are a “one trick pony” with only one source of revenue… the rent payment. It is much easier to achieve your financial goals with mobile home parks due to the following reasons:

1. The parks are usually in a less than favorable part of town. Therefore the land is cheap and you will be spreading that cost over numerous mobile homes.

2. Provided you purchased the right mobile home park, there will be vacancies for you to bring in extra mobile homes. (Yes, that’s right….you want at least 20% of the park vacant so that you have a huge upside!) You’re healthy, sharp and full of energy so you’ll improve the quality of the park, raise rents and maximize your rent roll. By the way, this will immediately increase the value of your mobile home park through the cap rate valuation.

Example

30 Space Park, $300 a month Rent Roll (50% Vacant) = $45,000 yearly rent

$45,000 – 15,000 (33% of rent goes towards Operating Expenses) = $30,000

$30,000 (N.O.I.) / 9.0 % (cap rate) = $333,333 (Your Purchase Price)

The Upside:

30 Space Park, 100% Occupancy, $320 a month rent roll = $115,200 yearly rent

$115,200 – $34,560 (30% park operating expenses) = $80,640

$80,640 (N.O.I.) / 9.0% (cap rate) = $896,000 (at 100% occupancy)

Over $500,000 profit!

3. If the cash flow of a park is low, you can add additional revenue by putting in a coin operated laundry mats, vending machines, lawn service, day care service, self storage, etc.

4. You can purchase mobile homes at a 40%-50% discount and resell them on terms (either with a lease option or note). Home ownership is the American dream so when you advertise “Own your own home, $2000 down, low monthly payments – Bad credit OK, call Boca Vista Mobile Home Park” your phone will ring off the hook, trust me. From there you take their down payment and have them sign your lease option paperwork that details the term of their loan with you. So why sell them one of your mobile homes….isn’t that an asset to the park you ask? Yes, but:

A. You now collect the lot rent. Pure profit with no additional expense.

B. Now you have someone in your park that has pride of ownership and will most likely take better care of the mobile home than a renter.

C. No costly maintenance. The buyer is responsible for all maintenance.

D. You can purchase the mobile home at wholesale cost and sell to your customer for retail. In many cases, you can double your money on each home. In addition, you charge an interest rate of 10-15%.

E. Some of your buyers will not finish out the loan term and will give you back the home in good condition. At that point, the property is 100% yours again, you’ve pocketed the $2000 option payment and you start the process all over.

As you can see, mobile home parks are an amazing real estate investment. Where else can you find an income property with so many profit centers (with the exception of self storage). Mobile home parks are huge cash cows and ultimately will become a land play. Take advantage of the untapped opportunity that exists today in the mobile home park industry before it is discovered by the masses!

Corey Donaldson is co-founder of www.MobileHomeUniversity.com. www.MobileHomeUniversity.com is the leading online website for mobile home and mobile home park investor education, providing hard-hitting advice and information to investors about the mobile home industry. Mobile Home University presents a full range of teleseminars, bootcamps, and live events, including Mobile Home Millions (http://mobilehomeuniversity.com/mobilehomemillions/), now in its sixth year. Visitors to MobileHomeUniversity.com may access free articles, an active forum, and a topical and timely blog, as well as opt-in to a free investor’s ezine.

How I Stopped Getting Private Money Loans And Got More Private Money

When I first started raising money from private investors for my real estate investments, I thought pretty much like everyone else did. Private Money ‘Lenders.’ My pitch to prospective investors was in essence: “will you loan me money secured by real estate?

You’re probably familiar with this pitch. Maybe you’ve used it. Perhaps you’ve had success, perhaps not (at least yet). One day I was reading a biography on Warren Buffett, billionaire investor and Chairman of Berkshire Hathaway. Buffett has generated returns in excess of 10% higher than the market for the past 45 years. When Buffett took control of Berkshire Hathaway in 1965, the share price was $20. Today the share price is $122,000.

Hmm…

Needless to say, I have always thought following and trying to copy Buffett as much as possible – to the greatest extent I could – would be helpful in making more money. Well, one day I was reading a bio on Buffett and I was really enlightened upon reading something not widely talked about, with regard to how Buffett got started in his investing business. You see, Buffett started his investing career by forming partnerships. He brought other people’s money into the partnership, invested it and then he got to keep a part of the profits made. Starting out with $100,000 in partnership funding, he soon had people all over his home town (Omaha) wanting to ‘get in’ with him. After a few years, he had plenty of capital and was on his way. Those first few investors were a catalyst for long term wealth.

The most interesting thing, though, was how Buffett structured his partnerships. Everybody that came in as a partner owned a proportional interest in the partnership. Buffett earned a piece of the profits the money generated (by his management). What Buffett did NOT do, was borrow money. He had equity investors.

A thought hit me when I read this: “I should do the same thing.” Instead of borrowing money, secured by mortgages and jumping through hoops each time a deal closed (buy side and sell side), I would raise an amount and each investor would own a proportionate interest in the company, and I would keep part of the profits generated.

BINGO.

This was really rocket fuel at the time. My business started growing much faster after I started raising equity capital versus only private money loans. Another big side benefit of this revolution in my business was that I was able to bring in more private money, because my offering had an appeal to higher net worth investors that could write bigger checks. These investors were less concerned about security and collateral and more concerned about returns and tax consequences of investment. Off and running I was. It doesn’t take much to give your business a boost and you never know where the next “lightening” moment is going to strike you.

I heard a long time ago that “luck is when preparation meets opportunity.” With real estate, the opportunity is there right now, so get prepared and then prepare to get lucky.

Adam Davis is a real estate investor, author, speaker and founder of Ultimate Private Money. He teaches real estate investors how to raise capital from private investors. Adam has completed hundreds of real estate deals- from single family house flips, lease options to apartment buildings, land contracts and hard money loans – all with none of his own money. All told, he has raised millions of dollars from private individuals to finance real estate deals. For a FREE audio program on how to get private money go to: http://www.UltimatePrivateMoney.com.

Making Money With the Market’s Buffett

In 1999, Warren Buffett was interviewed by Fortune magazine and discussed his thoughts on the stock market and how it might do over the next 17 years. It was, to put it mildly, a dour assessment. His views were triggered by surveys showing an unusually high level of expectations and confidence among both new and experienced investors. As we look to the future, it’s a good time to review Buffett’s thoughts from the second half of 1999. Based on his historical analysis of the U.S. stock market, Buffett concluded that stocks could return 4% per year on average including dividends (+2%) and adjusted for inflation (-2%) from November of 1999 to November of 2016. This compares to around an 8% real return earned from 1926 to today. Buffett said that if he were to be wrong, he’d guess the actual results might be lower than 4%. Here is how he arrived at his forecast.

First, the crowd psychology was all wrong. In July 1999, UBS Securities found by surveying experienced clients that they expected a 12.9% return over the next five years and less experienced clients expected 22%. Buffett described this as “rearview mirror” investing. The prior five years had provided very high returns (abnormally high) and investors were extrapolating those results forward.

Second, Buffett acknowledged that the prevailing interest rates on relatively low risk investments like treasury bonds and notes have a great deal to do with pricing the future profits of common stocks. If the interest rates are high on low risk investments, investors feel there is no need to take risk. However, when the prevailing interest rates decline, payment of future profits are worth more to investors. Between 1964 and 1981 the Gross Domestic Product (GDP) of the U.S. grew 370%, but investors preferred inflation protection and earning interest as rates went higher and higher.

Third, corporate profitability as a percentage of Gross Domestic Product (GDP) is an important variable. When profitability rises over long stretches of time, stocks can get more popular and when profitability falls, stocks can lose popularity. Profits as a percentage of GDP bottomed at 3.5% in 1982 and rose dramatically over the next 17 years during a period of great stock popularity.

Today the U.S. stock market is sitting about 5-10% below where it was when the original interview was printed in November of 1999. The first question for us is, “how will we do going forward if his 17-year prediction comes true”? The second question is, “have those three important variables changed since then to affect his prediction?”

The good news isn’t that we saved a bunch of money on our car insurance, but that Buffett’s 1999 prediction was for the S&P 500 Index to hit 2900 by November of 2016. From where we are today, around 1300 on the S&P 500 Index, it would be a gain of 115% in the remaining 8-plus years or somewhere close to 9% per year appreciation. This could exceed the historical 8% norm.

The variables that he felt could change the outcome of his prediction also paint a positive picture. The crowd psychology of the stock market is about as favorable as it can get because the expectations of investors are as low as at other major market bottoms. First, looking backwards in the rearview mirror for four, five and eight years makes an investor wonder if there is any money to be made owning quality U.S. companies. Second, individual investors have panicked out of the market for the last 60 to 90 days and the American Association of Individual Investors weekly poll recently showed their members are the most negative they’ve been in 20 years (the direct opposite of 8 years ago). Third, a major investment firm survey showed that the big money institutional investors are as negative as they have been anytime in the last 7 years (including right after the 9/11 attacks). Fourth, among the historically smart money crowd, the market-making specialists on the New York Stock Exchange (NYSE) are selling short the least amount of stock as a percentage of overall short sales in 40 years, officers and directors of publicly-traded companies are buying at record levels and wealthy billionaires like Buffett, Wilbur Ross, Warburg Pincus and Sandy Weill are buying bargains like mad men.

Interest rates on Treasury Notes and Bonds are well lower than they were in November of 1999 (2-year notes around 1.8% versus 5% and 10-year bonds at 3.6% versus 6% in 1999). This indicates to Buffett that the future profits of the companies should be valued more highly because of a less competitive risk-less rate and a lower discount rate for computing present value.

The profitability scorecard shows a mixed picture. Companies have been much more profitable since 1999 than Buffett expected, but those profits are high in relation to GDP, which argues that profits growth will be harder to come by in the future. However, in 1999 Buffett pointed out that there was much more economic growth between 1964 and 1981 (370%) with lousy stock market results. We assume at this point that the cyclical industries (Oil, Basic Materials and Heavy Industrial) which are enjoying record profit margins will see profits and margins recede through this business cycle. Simultaneously, the financial service companies are reporting the fallout from the “sub-prime debacle” and the combination of the two sector profit margin declines (cyclical and financial) could quickly drive the ratio of profits to GDP back to a comfortable zone. As we have seen in the market-place, “what the Lord giveth, the Lord taketh away.”

Let me tie it all together. Warren Buffett correctly predicted a difficult 17-year stretch in the stock market back in November of 1999. Based on his prediction and the variables which he felt would most affect it, we feel the next 8.5 years could be an excellent period for the kind of large capitalization recession-resistant stocks we like to own; even if his dour prediction comes true. Buffett followed his teacher, Ben Graham, who taught him the concept of “margin of safety” and we believe our participation going forward has one. We look anxiously and positively to the remainder of 2008 expecting our scenario could play out in the marketplace.

Smead Capital Management, Inc.(“SCM”) is an SEC registered investment adviser with its principal place of business in the State of Washington. SCM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which SCM maintains clients. SCM may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements.

This newsletter contains general information that is not suitable for everyone. Any information contained in this newsletter represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. SCM cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of this newsletter bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice. SCM, its officers, directors, employees and/or affiliates, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the Publications.

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William Smead is the founder of Smead Capital Management, where he oversees all activities of the firm. As Chief Investment Officer he is responsible for all investment and portfolio decisions as well as reviewing the implementation of those decisions. Prior to starting SCM he was Portfolio Manager of the Smead Investment Group of Wachovia Securities. He has over twenty seven years of experience in the investment industry.

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The World’s Greatest Money Maker: Evan Davis meets Warren Buffett – 1 of 6


Warren Buffett is the greatest investor of all time. His decisions about buying shares and companies have beaten the stock market year after year and made him the richest person in the world – thought to be worth 37 billion dollars. Yet Buffett lives modestly in his native Omaha, in America’s mid-West, and runs his 150 billion dollar business with a staff of just twenty. Evan Davis meets him to find out about his unique investment strategy and his eccentric lifestyle. He talks to Buffett’s family, friends and colleagues about the man they call the Sage of Omaha, and Buffett’s friend Bill Gates praises his philosophy of life. As the greed of the super-wealthy is widely criticised in the current financial crisis, Davis asks whether Warren Buffett is the acceptable face of the filthy rich.

8 Money Secrets From Warren Buffett

We all have someone whom we admire and respect. For me one person on my shortlist is Warren Buffett who is sometimes referred to as the “Sage of Omaha”. I first heard about Buffett back in 2001 when I first started getting serious about investing and so I started reading all the titles with his name on it. Off course Buffett hasn’t actually written any of them but they were priceless none the less.


If you have never heard of Buffett, Forbes currently ranks him as the third richest man in the world and he is arguably the world’s greatest investor. He has amassed his fortune by making astute investment decisions and investing in businesses. Here is what I have learnt from Buffett:


1. Rich Is A State Of Mind

“I always knew I was going to be rich. I don’t think I ever doubted it for a minute.” – Warren Buffett


The difference between being poor and being rich is really just a state of mind. Poor people think thoughts of poverty and lack, rich people think thoughts of abundance and prosperity. Your beliefs are going to determine the way you perceive wealth, the decisions you make and the way you act towards it.


2. Success Is More Than About Your Bank Balance

When asked by CNBC what is the secret to success, Buffett replied “If people get to my age and they have the people love them that they want to have love them, they’re successful. It doesn’t make any difference if they’ve got a thousand dollars in the bank or a billion dollars in the bank… Success is really doing what you love and doing it well. It’s as simple as that. I’ve never met anyone doing that who doesn’t feel like a success. And I’ve met plenty of people who have not achieved that and whose lives are miserable.”


3. Spend Less Than You Earn

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” -Warren Buffett


It seems like common sense advice and you’ve no doubt heard financial experts preaching about it for years. You can’t possibly get ahead financially if you’re spending more than your paycheck. Buffett is famous for living a simple and frugal lifestyle. He is the only billionaire I know that still lives in the same house he bought back in 1958 for $31,500. He drove a 2001 Lincoln Town Car for years which he bought second hand. Buffett has a net worth in excess of $52 billion and yet lives off an annual salary of $100,000. The relative percentage of his spending based on his overall net worth is minuscule.


4. Avoid Consumer Debt

The sooner we realize that consumerism is a social plague that has been propagated by billion dollar marketing machines to keep you shackled to your job, the sooner we can stop spending money on useless stuff. It is a fool’s game to spend today so that you can work tomorrow to pay it off. It is a losing proposition because one day your working days are going to be over but the debt is still going to be hanging over your head. Clever marketing has convinced our society that to be happy you have to have more, be more and do more. Buffett abhors consumer debt instead choosing to use debt wisely by leveraging it in investments.


5. You Are Who You Associate With

“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” -Warren Buffett


If you want to succeed financially you need to associate with people who are most conducive to encouraging and cheering on your financial journey. If the people you associate with see money as evil, object to capitalism and find wealth a foreign concept then your financial health and well being is going to be influenced by their views. Whether we like it or not we are all influenced to some extent by the people we spend our primary time with. If you aspire to achieve financial security then you need to find a mastermind of people in your life whom you can all encourage and help each other.


6. Gambling Is A Fools Game

“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” – Warren Buffett


While we are young and naive we choose to take risks with our money that are dumb and stupid. Trying to hit a home run with your money every time is a losing proposition with long term consequences. To chase investments that offer a high rate of return you must also assume that it also comes with a higher rate of risk. Bill Gates once quipped “Warren’s and my betting has always been confined to $1 bets” when talking about them paying poker together. If two billionaires take risk management this seriously, it’s time we average punters did the same thing.


7. Give Back To The Community

“Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.” – Warren Buffett


They say that to have more you need to give more. A contradiction in terms, maybe, but it’s a simple truth that is as enduring as time. As the bible says “It is more blessed to give than to receive -Acts 20:35”. Buffett has announced in 2006 that he was giving away over $30 billion to the Bill and Melinda Gates Foundation making it at the time of writing the largest charitable donation in history. He also contributes large sums to his children’s charitable foundations.


8. Generosity and Abundance Goes Hand In Hand

“Even though Ben Graham [Buffett’s mentor] had everything he needed in life, he still wanted to give something back by teaching, So just as we got it from somebody else, we don’t want it to stop with us. We want to pass it along too.” – Warren Buffett


A famous bible quote goes: “What benefit will it be to you if you gain the whole world but lose your own soul?” – Mark 8:36. The path to wealth isn’t a solo endeavor. How sad would life be if you come to the end of your life and there is no one to share it with. So as you journey on your path to financial abundance remember that there will be many people who generously helped you on your journey so it is only fitting to pay it forward when the opportunity arises. Generosity with your time, with your money, with your resources are great virtues to have. The greatest ally to building a strong friendship is to help others achieve what they want from life.


I leave you with this last quote “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

Being 4 Eva Young is not about age, it’s about attitude. 4 Eva Young is dedicated to inspire, motivate and encourage anyone who is young at heart to live a life of significance filled with peace, joy, and contentment. For more information visit: http://www.4evayoung.com