Following the trends of the past 2 years, March saw a significant increase in the number of sales that closed compared to the prior month in Phoenix. Last month saw an increase of 22.1% over February. That followed a 12.6% increase in the prior month. The number remains impressively high in light of the continued shrinking inventory.
For buyers and investors in Phoenix, this means that competition for homes continues to be very high. We are seeing more and more situation where there are double-digit offers on a single home.
This means inventory remaining on the market, and continued competition for value-priced properties. We MUST continue to carefully work TOGETHER to understand the market AND to understand how we can compete with the market demand and other buyers right now.
We have been watching a statistic very carefully here in Phoenix to determine if the increase in average sales prices was just a blip or a trend. From all indications, we can now see a trend, and that we hit the bottom of the market in August. Since then, we have seen a 20.8% increase in the average sales price. March saw an 8.97% increase over the month of February. This is the highest price we have seen in Phoenix since June of 2010! The average sales price increased from $172,603 to $188,088.
New Phoenix home sale listings were up 7%, which is generally normal for March. However, it was still the 4th lowest month in the past 36 for new listings to come on the market.
If you have any questions about real estate investing in Phoenix or Arizona, please send me a quick message.
Taxes are most people’s biggest expense. Therefore reducing that amount means more money immediately available to invest. “The tax law is a series of stimulus packages for real estate investors and business owners.“-
I look at taxes very differently. I look at taxes as a way to increase cash flow. The tax law provides tons of opportunity to reduce your taxes. When you reduce your taxes, you increase your cash flow (often immediately) which can be used to increase your wealth.
Reducing your taxes goes hand-in-hand with your wealth strategy. For most people, taxes are their single biggest expense. This means that reducing their taxes results in instantly increasing the amount they have available to invest.
The government wants to provide jobs and housing. To encourage others to do this for them, the government provides tremendous tax benefits to those who provide jobs (business owners) and those who provide housing (real estate investors).
This is a powerful formula and one that can be used over and over and over again because many of the tax benefits for entrepreneurs and real estate investors produce annual tax savings.
Then, as your wealth grows, so do the opportunities for tax savings, which means not only does the cycle continue every year, it grows every year as well so your tax savings are more, your increase in cash flow is more and your wealth increases even more.
Do you see why I am so passionate about taxes? Taxes are a tremendous tool to build your wealth.
Obstacle #1: What is a tax strategy?
Obstacle #2: Where do you start?
A strategy is a systematic plan of action intended to accomplish a specific goal or purpose.
The specific goal or purpose is to permanently reduce your taxes.
So, a tax strategy is a plan of action to permanently reduce your taxes.
Of course, most people are all for permanently reducing their taxes. What is typically missing in their quest to do that is the strategy piece. And it’s the strategy piece that produces the maximum results.
The strategy piece helps focus our actions and thoughts every single day on permanently reducing taxes.
It doesn’t have to take hours every day to get maximum results from your tax strategy. Instead, your strategy becomes a part of your daily routine.
Every transaction you do can have an impact on your taxes. Your tax strategy helps you think about your daily transactions in a way that gets you to your goal of permanently reducing your taxes.
Let’s say you are going to Hawaii. When you go to book your ticket, you need to know where you are departing from, right? This is your starting point.
It is impossible for you to get to Hawaii unless you know where you are starting.
The same applies to a tax strategy. You must know where you are starting. In your tax strategy, this means you must know your current financial position.
Your current financial position includes:
Your Current Balance Sheet
Your current balance sheet tells you your current net worth. It’s calculated as follows:
Your Assets (what you own) – Your Liabilities (what you owe) = Your Net Worth
When you know your current net worth, you know the exact resources available to you to use in your tax strategy. Your specific assets and liabilities help create the best path for you in your tax strategy.
Your Current Statement of Cash Flows
Your current statement of cash flows tells you your net cash flow. It’s calculated as follows:
Your Income – Your Expenses = Your Net Cash Flow
Identifying your sources of income is the starting point of identifying how to reduce the tax on that income.
Identifying your expenses is the starting point of maximizing your deductions.
The starting point to reducing your taxes and forming a tax strategy is understanding your current financial position.
If you haven’t created your tax strategy yet, start by updating your balance sheet and statement of cash flows.
If you already have your tax strategy in place, review your current financial position regularly to identify new opportunities for your tax strategy.
When you reduce your taxes, you immediately increase your cash flow. Increased cash flow can be used to create wealth. Your taxes are a powerful way to feed your wealth strategy!
Your Own Worst Enemy
When you invest in a bad stock, what do you say? When you buy high and sell low, losing a lot of money in the process, what do you say? When you bought at the top, what do you say?
No matter how much we would like to blame bad outcomes on outside forces, the problem is most likely looking us straight in the mirror. That old expression, “Don’t shoot yourself in the foot,” is around for a reason.
The thing is our brain competes with itself. We have both an animal brain, and a logical (robot) brain. Our animal brain is a product of evolution. It tries to protect us from dangers.
When you watch a scary movie, you “jump” when you are frightened. Even though you know the images on the screen can’t hurt you, your animal brain is trying to protect you. When you think about being frightened later, you almost feel silly. Because the images on the screen couldn’t really hurt you, but your animal brain isn’t taking any chances.
Our logical brain is what has allowed us to build civilization. It allows us to think through problems in a logical way. It allows us to discover the laws of the universe and discover universal principles.
The problem is, your animal brain takes over by instinct; this is where the “fight-or-flight” reaction comes in. Your animal brain makes a quick decision to try and protect you. Your logical brain engages only after the animal brain has determined it is not a hostile situation.
The key to becoming a good investor is being able to control your logical and animal brains. You need to engage your logical brain when making investments. This is where we determine if a stock, real estate, or gold is a buy or a sell. It’s how we determine the best way to move forward in our business, and we need our logical brain, not our animal brain for this. In case you don’t believe us, here’s a quote from investor-extraordinaire Warren Buffet:
But we’re not just going to tell you about your different brains, we’re going to let you experience them for yourself. In the rest of this article there are a few exercise questions to engage the different parts of your brain.
In this first exercise question, you’ll get to see if you are more animal brain oriented, or robot (logic) oriented.
One rule: You have 3 seconds to answer after reading the question. So get those timers ready.
Ready? Remember, only 3 seconds.
Question: In a lake there is a patch of lily pads. Every day the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long will it take to cover half the lake?
Say your answer, only 3 seconds!
Okay, you’re done. Don’t worry, it’s over with.
So how was it? Was the question difficult? It had an obvious answer. The obvious answer that most people come up with is 24 days; unfortunately, that would be the incorrect answer.
The answer is 47 days. If the lily patch doubles in size each day, the day before it covers the entire lake, it must have covered half the lake. So the lilly pads would cover half the lake on the 47th day.
Now, we have to admit, we purposely tried to engage your animal brain. We did this by extremely limiting your time. Remember, you had less than 3 seconds to answer.
This virtually guaranteed that we would engage your animal brain and not your logic brain. If we had given you more time, you would have had a better percentage of answering correctly. But if you answered correctly in spite of us, congratulations!
Here’s your next question. This time we want you to engage your robot (logical) brain. So we want you to take as much time as needed. Remember, there is one incorrect but obvious answer, and there is one less obvious but correct answer.
When you’re ready…
Question: A bat and a ball together cost $1.10 in total. The bat costs a dollar more than the ball. How much does the ball cost?
Remember, take as much time as you need. Don’t rush yourself. Once you have your answer, feel free to read on.
Answer: Okay, are you ready for the answer? The incorrect answer you probably first thought of was 10 cents. The correct answer however is actually 5 cents. Here’s the logic:
1 Bat + 1 Ball = $1.10
1 Bat – 1 Ball = $1.00
2 Bats = $2.10
1 Bat = $1.05
Therefore 1 Ball = $0.05
Now most people find this question more difficult than the first one. But hopefully you took additional time to answer the question. This allowed you to engage your logic brain to help you figure out the answer.
If you had put a time limit on yourself, you more likely would have answered incorrectly.
Okay, here is the final question. Like the first question, try to answer in a limited time frame. We’ll be generous this time. We’ll give you 10 seconds to answer after you finish reading the question. Get those timers ready!
When you’re ready, go ahead and read the next question.
Question: If it takes 5 minutes for fvie machines to construct fvie widgets to 95% reliability and 60% stability, how long would it take one hundred machines to make 100 widgets to 95% reliability and 60% stability?
Remember only 10 seconds!
Done? Okay, read on.
So how do you feel? Do you feel frustrated? Was the question confusing and difficult to answer?
So we switched things up from before. In the first question, we engaged your animal brain by putting a time constraint on answering the question. This time, we not only created a time constraint, but we structured the question very poorly. We purposefully misspelled words and gave you extraneous information. You can answer the question without the information of 95% reliability and 60% stability. Those numbers do not affect the answer to the question whatsoever. When questions are poorly structured and contain unneeded information, you are more likely to engage your animal brain.
When we fix the typos and take out the unneeded information, the question looks more like this:
If it takes 5 minutes for 5 machines to make 5 widgets, how long would it take 100 machines to make 100 widgets?
Now that question looks a lot easier to answer, doesn’t it?
So what is the correct answer? The correct answer is 5 minutes, but the gut reaction for most people is to say 100 minutes. However if it takes 5 machines 5 minutes to make 5 widgets, then the output is 1 widget per machine, per 5 minutes. So 100 machines could make 100 widgets in 5 minutes.
Are you kicking yourself because you got a question wrong? Don’t. On average only about 17% of people get all three answers right.
So again, why does this exercise matter to investing? It matters because when we revert to our animal brain, the animal brain makes more “gut” decisions, but those are not necessarily the best decisions.
So when are we more likely to use are animal brains?
1. When the problems are difficult to understand and/or complex.
2. When information is incomplete, ambiguous, and changing.
3. When the goals are ill-defined, shifting, or competing.
4. When stress is high, because of time constraints and/or high stakes.
5. When decisions rely upon an interaction with others.
As Warren Buffet has been quoted: “Investing is simple, but not easy.”
We tend to revert to our animal brains especially when investing and especially when the stakes are very high. Most likely you have accumulated wealth throughout your working years. This wealth represents not only stuff you can buy, it represents your life, your blood, sweat, and tears expended in years of earning a living. To make decisions about assets that represent such a tremendous, life-long effort without engaging your animal brain would be nearly impossible.
So, what can you do to combat your animal brain when making investment decisions? The main solution is to try to combat or eliminate all the triggers from the list above. If a problem is complex or difficult to understand, try to put it into a logical format. If the question contains unneeded information, get rid of it.
Obviously, there will be times when you cannot eliminate all of these factors. But if you recognize that those trigger factors are present, you are more likely to recognize their influence, and you will be more likely to make logical decisions.
You can read more on this subject in: The Little Book of Behavioral Investing by James Montier.
Written by: Michael Maloney
I’m constantly asked how to use leverage in different ways in a wealth strategy – and I’m glad people are asking because leverage plays a huge role in every successful wealth strategy.
Leverage is simply doing more with less.
Here are 3 of my favorite forms of leverage.
I think systems are one of the most important and powerful features of a wealth strategy.
Systems are simply the process or procedures to complete specific tasks. Systems provide the detail of the who, what, when, where and how something will be done.
Think about a franchise. One of the greatest values a franchise offers is its systems. The systems provide all the details about how to market, sell, fulfill and everything else involved in operating that franchise. A franchisee simply has to follow the systems.
Let’s say you invest in rental real estate. You should have systems for:
– Identifying the property to buy
– Purchasing / financing the property
– Renting the property
– Maintaining the property
– Reviewing the performance of the property
Systems don’t have to be complicated. They just need to document what needs to be done in a clear manner. Systems can be as simple as a checklist.
If you are just starting your wealth strategy, you may wonder why you need systems if you are doing everything.
Here’s 2 reasons why you need systems:
Your systems are the place to document the specific details of what needs to be done. They are also the place to document your best practices – your trade secrets. As you learn better ways to do things, document that in your systems.
Your systems enable you to leverage your time by making you more efficient while still getting the results you desire.
Many people start off doing everything themselves, but they usually have a goal to grow their wealth and hire others do the work. If you want to do this successfully, systems are imperative. Systems communicate your specific expectations without you having to be there.
Many people have wealth strategies that never reach their full potential because they are not able to give up control.
With systems, you don’t have to give up control. You’re giving up the specific tasks, but you are still in control. You control the systems.
When your systems are created, used and monitored properly, they will tell you when things are working and when they aren’t working. This allows you to focus your attention where it is most needed – this is a huge form of leverage in a wealth strategy.
#2: Your Wealth Team
Systems definitely take time to create. You don’t have do it all yourself though. This is where your wealth team comes in to play.
One of the best examples of leverage in a wealth strategy, and also one of my favorites, is a wealth team.
A wealth team is a group of advisors, coaches, mentors, employees, vendors and other contacts who assist you in building your wealth.
With a wealth team, you can leverage your time by hiring advisors, coaches, mentors, employees and/or vendors. But the leverage doesn’t stop there. This is just the beginning. You can also leverage your wealth team’s contacts, their resources, their knowledge – the list goes on and on.
Use your wealth team to help you create your systems. Leverage their resources and expertise to add value to your systems.
Once you’ve created your systems, share them with your team members so they can be part of the systems and contribute to the success of your wealth strategy.
Software is a wonderful form of leverage. Software allows us to do more with less every day.
Software can be an integral part of effective systems. When used properly, software can streamline many tasks while providing better information and results.
Software can be the driving force behind the systems. It can notify the who about the what, when, where and how. And, it can provide real time reports about how the systems are working. These reports are what help you stay in control.
How do you know what software to use?
Leverage your team’s knowledge – ask them what software you should be using. And, if you truly want to leverage your software with your systems, have a team member who is committed to integrating the two.
Using Leverage in Your Wealth Strategy
Think about how you use these 3 forms of leverage in your wealth strategy and identify ways that you can leverage them even more.
Focus on your wealth!
Founder & CEO