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Dr. Kalinda Rose Stevenson
How Much Are You Willing To Pay For Money?
“Profitability is the sovereign criterion of the enterprise.” Peter Drucker
My question for the day is, “How much are you willing to pay for money?”
Does the question strike you as strange? Do you think of buying money or is money simply something you use to buy other items? In fact, anytime you borrow money, you are actually buying money.
One of the primary distinctions between the mindset of investors and the mindset of consumers is that investors are willing to pay more to buy money. The reason is that investors focus on profits more than costs.
“Money often costs too much.” Ralph Waldo Emerson
Consumers are trained to think cost first. The primary consumer question is, “How much does it cost?” When consumers buy real estate, they think cost first. “What is the price and how much do I have to pay for the property.” Consumers are taught to shop for interest rates, and to refinance when interest rates drop.
The typical consumer hears that private money lenders might charge 15% interest, and says, “Why would I pay 15% interest when the banks are charging 6%?
One of the many reasons why an investor would pay 15% interest rather than buy money at the bank at 6% interest is that banks make it very hard to buy money. The rule seems to be, If you have plenty of money, the banks will let you buy more. If you need money, the banks won’t let you have it.
The harsh truth is that buying money from the bank can be a painful process. You have to beg for money, provide stacks of documents, pass the credit worthiness test, and already have money for a down payment. If you pass all of these tests, the bank might be willing to loan you money at 6% interest.
The problem is that many people cannot meet the bank’s requirements for buying money. In the county where I live, in the San Francisco Bay Area, the percentage of homeowners is less than 14%. Most people simply cannot qualify to buy money from the bank in the form of a mortgage for real estate.
“There are always opportunities through which businessmen can profit handsomely if they will only recognize and seize them.” J. Paul Getty
The alternative to banks is private investors who will loan money to you to buy investment property based on the property itself rather than your money and credit scores. Private investors usually charge a higher interest rate than the banks.
To make the matter even more interesting, here’s another question for you. What’s too high an interest rate for you to pay a private investor to buy investment property? Would you pay 10%? Would you pay 20%? Would you pay 50%?
If you are like most consumers, you hear these percentages and say, “No way would I pay those interest rates.” You probably think that 50% interest sounds completely outrageous.
But imagine that I am a private money lender and will loan you short term money at 50% interest. With my money, you can buy a property with no money of your own. At the end of six months, you sell the property for a million dollar profit. Would you be willing to split that million dollars fifty-fifty so that you end up with half a million dollars in profit on a property you could not have bought without my money? Is it worth it to you to pay 50% interest to make $500,000?
If you are balking at paying such a high interest rate to buy money, remember that the private money lender makes it possible to buy properties you could not afford to buy with the bank’s money.
“It is a socialist idea that making profits is a vice; I consider the real vice is making losses.” Winston Churchill
To an investor, interest rate and cost are not the first questions to ask about borrowing money. The investor’s first question concerns profit. “How much profit can I generate with the borrowed money?”
Interest rates and cost also become significant factors in considering profit. You obviously will have more profit if you buy money at 15% interest rather than 50% interest. And it is entirely possible that there is no room for profit if you pay as 50% interest.
“Any business arrangement that is not profitable to the other person will in the end prove unprofitable for you. The bargain that yields mutual satisfaction is the only one that is apt to be repeated.” B. C. Forbes
Another factor to add to this consideration of profit is that investing is a team sport. Be careful that you don’t begrudge your private money person the opportunity to make a profit on loaning you money.
Don’t count the other person’s profit. Instead of complaining that you had to pay 15% interest to a money lender, step back and say, “If it weren’t for my private money lender, I couldn’t have gotten into the deal in the first place.”
I return to the question I asked at the outset. How much are you willing to pay for money? What if the critical barrier between you and creating abundance in your life is your willingness to pay more for money? Instead of beginning cost first, begin profit first. If you can make a profit, does it really matter that you are paying a high rate of interest?
Kalinda Rose Stevenson
This article was originally published April 5, 2005.
http://www.abundantlyalivenow.com/archive/AANN-2005-04-05.htm
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The Persistence Of The Solstice
“Some people plant in the spring and leave in the summer. If you’re signed up for a season, see it through. You don’t have to stay forever, but at least stay until you see it through.” Jim Rohn
Today is the summer solstice in the Northern Hemisphere. The turn of another season. The end of spring and the beginning of summer.
Each season has its gifts and its challenges. The gifts of summer are warmth and light, the essential elements of growth. The challenge of summer is persistence.
Most people begin new projects with enthusiasm, even though starting a new project can mean a lot of work.
Back in my gardening days, I used to live in New England. I used to think that the most successful crop in my garden were the granite rocks deposited by ancient glaciers, granite rocks that had to be pried out of the cold ground, and deposited with the others in the rock wall at the edge of the property. No matter how many I had pried out the year before, each spring thaw heaved another crop of rocks into my garden.
It’s hard work to plant a garden, but spring is the time of promise. There is something about a new beginning at the end of a long hard winter to motivate hard work.
Each year it is the same. You repeat the magic ritual of planting seeds and setting out small plants, carefully placing them into the earth with the ardent expectation that they will grow and flourish. You imagine the garden in its fullness even as you dig in the bare ground.
And then summer comes. And with the change in season, you face a different kind of work.
Summer work is tending, weeding, hoeing. And it means working when the sun is hot, or when the sky is so perfectly blue that you want to quit working and go off to play.
Summer is the time when it is easy to quit. You tell yourself that it is too hot, too buggy, or too humid. Or it is so beautiful that you want to go swim in the lake or go for a picnic in the woods.
The famous fable of the ant and the grasshopper catches the temptation to stop working in the midst of the summer.
The ant works very hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he’s a fool and laughs and dances and plays the summer away. Comes winter, the ant is warm and well fed. The grasshopper has no food or shelter so he dies out in the cold.
Summer is the real trial for all of us. Most of us can begin our projects, with hope and hard work. The capacity to persist in the middle of summer divides the beginners from the finishers. Who wants to be out weeding the garden in the hot sun? Yet weeding the garden in summer is an essential step.
This is the lifecycle of any creative project. Every project has a beginning, a middle, and an end, just as any dramatic story has a beginning, a middle, and an end. Middles are always the hardest to sustain because they are not as exciting as beginnings and endings.
For two or three years, I took several screenwriting courses and even wrote first drafts of four screenplays. I began but never finished any of them.
I loved everything about the process, and came to appreciate how incredibly difficult it is to tell a good story following the structure of the classical three-act drama. And I watch movies differently now than I did before I studied screenwriting.
One of my teachers described the three act structure this way.
“In the first act, you get your hero up the tree.
In the second act, you throw rocks at him.
In the third act, you let him down.”
In the classic “hero’s journey” story structure, the first act sets the scene, introduces the characters, and sets the hero out on the journey. In the third act, the hero has a final confrontation with the primary antagonist that either ends triumphantly or tragically. In either case, the hero is permanently changed.
The middle act lasts as long as the first act and the third act put together. In this act, the hero keeps enduring in the face of obstacle after obstacle. The middle act is the hardest to write. The middle act shows the hero slogging along between the bold beginning and the final brave resolution.
Look at the blockbuster trilogy movies. Star Trek (the early ones,) The Lord of the Rings, The Matrix. Each movie is one act in a three-part drama. The middle movie of such trilogies tends to be the darkest and the most problematic. And typically, the middle movie is the least satisfying of the trilogy, resulting in bad reviews and unfavorable comparisons to the excitement of the first-act movie. It’s hard to be a hero in the middle of the journey, and it’s not as much fun to watch. Yet the middle act is essential to the structure of the drama. The hero who faces the antagonist at the climax of the movie has earned the right by persisting through the trials of the middle.
“It is summer, it is the solstice
the crowd is cheering, the crowd is laughing
in detail permanently, seriously without thought.” William Carlos Williams
In the seasons of the year, summer is the middle act. It’s fun to plant in the spring. It’s not much fun to weed in summer. Yet, the harvest in the fall depends on what happens in the summer. The heroic task of summer is to stick with it, even when you would rather be doing something else.
The true mark of the hero is the willingness to keep on keeping on. This is also the true mark of any successful person who finishes any creative project, whether it is writing a book or building a business. You keep on keeping on, even when you would rather be doing something else. The word for this is “persistence.”
“Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan “press on” has solved and always will solve the problems of the human race.” Calvin Coolidge
And so at the beginning of summer, when the days are long and the temptations are great, the question is, “What did you begin in the spring that you need to sustain in the summer to harvest your reward in the fall?”
Kalinda Rose Stevenson
This article was originally published June 21, 2005.
http://www.abundantlyalivenow.com/archive/AANN-2005-06-21.htm
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