Dealing with Builders and Tradesmen

Builders, renovations for your own home and for investment properties

With the house you are living in, if maintenance has not been kept up, you may run into expensive repairs. Your renovations are more personal and you are there while the renovations are going on. So although you are inconvenienced by the noise and the mess, at least you are there to see how the work is progressing.

With an investment property, it’s a bit trickier because you have to meet the contractors at the property and you are not there to supervise the work. No matter how well you know your contractors, it is always advisable to show up on a regular basis and check out their progress.

Let me give you an example to illustrate this. I was having a builder put up a partition wall to make the through lounge into two rooms in one of my investment properties. The room was large enough to divide without sacrificing living space and I was going to make one of the rooms into another bedroom because I knew it would bring in more rental income. A job that should have taken a few days had already taken three months and, if it weren’t for a neighbour telling me that the builder and his men were sitting around on boxes every day drinking tea and smoking for hours on end, they might still be there three years later. After the neighbour reported this to me, I came to the house every day until the job was finished, pretending to work on different things. Amazingly, they finished the job a few days after I got there.

There are different ways of looking at property renovations:
For the most part, investors look at it as “let’s get it fixed up and rented out as quickly as possible. For the last several years, it was very common for people to buy a fixer-upper house – maybe they went in with two or three others and did their own repairs for a quick turnaround. Or they got others to do the renovations for them – either way, many people were making money hand over fist. When property prices are rising quickly, it’s easy to make money even if you are a novice. However, in this economic climate, you cannot turn around properties so easily any more. If you are investing right now, you will probably have to rent out the property for a few years before you are able to turn in around for a profit. Therefore, you need to consider the issue of renovations, upgrades and repairs very seriously.

With an investment property, you may want to use low-grade to medium-grade items and materials just so you can get tenants in.
For your own home, you may want to upgrade. It’s a different kind of call when you are doing your own house as opposed to an investment property.

Ask yourself, how much am I going to invest in my property? Am I going to stay there for a long time in which case I might like to get an upgraded bathroom, an upgraded kitchen and nicer appliances. Also, because it’s your own home and you are living in it, you have more time to save up and do the renovations in your own time.

With an investment property, you don’t have that kind of time. You need that property to start bringing in you an income as soon as possible and you want to do it as cheaply as possible, unless you have a luxury investment property where you can get a very good return on your investment. Then you may want to hire an interior designer to help you make the property as attractive as possible to tenants who will pay a very high rental.

However, if you are going to hire an interior designer, make sure that your builder is willing to work with them. I hired an interior designer to design the kind of kitchen that would be attractive to a prospective tenant who was going to be paying a high rent. She came in, made recommendations on cabinetry, counter tops, hardware and flooring. I was very pleased with the samples she showed me and she gave my builder a list of the things she needed.

Whether the builder was having a bad hair day or he had a hearing loss, or he just didn’t like the interior designer, the end result was that everything that she put down on her list was ignored. She asked for white counter tops of high grade quality and he had substituted a dingy greenish-brown colour of the cheapest grade. Instead of buying new doors for the cabinets, he gave me second hand doors and wanted to charge me for new doors. And the knobs – unbelievable as it may seem, he put on knobs that were different colours and sizes that he must have had lying around from other jobs. They weren’t just different colours and sizes but the wrong colours and the wrong sizes and wherever the doors and cabinets didn’t fit properly, he cut them down to make them almost fit, but not quite fit. The lesson I learned from this was that I needed to buy the materials myself – at least then I could be sure that the interior designer’s instructions had been adhered to.

To summarise:
- know the difference between renovations on your own home and those on an investment property
- with an investment property, try to make a point of supervising builders on a regular basis. If you are not living close by, get someone to check for you and report back to you
- in the current downturn economy, it’s very difficult to buy, fix up and sell a property in a short space of time. This is only for the professionals, not amateurs

With an investment property, what you want to avoid are hassles with your tenants. There are enough things that can go wrong when you are letting a property, so if you can get these things fixed before they move in, chances are you will save yourself a great deal of money and aggravation down the line.

Firstly, the heating. Make sure it works, and if necessary, pay a little extra for a guarantee which gives the tenants an emergency call-out number so that you are not disturbed at a very inconvenient moment.

The damp. The last thing you want is tenants calling you out saying that there are mushrooms growing up on the inside of the walls….In fact, this happened to me with one of my properties. It developed dry rot, a very expensive disaster to remedy, all because the builder did not give me the option of spending an extra $3.00 for three air bricks. Had he done so, my tenants would not have had to contend with huge mushrooms that kept sprouting up all over the bathroom and kitchen walls due to a lack of subfloor ventilation.

It’s amazing that so many damp companies go out of business within a few years of opening their doors. You would think that since most old houses have a bit of damp and people tend to have it treated to prevent major problems from developing, there would be enough work to keep these companies afloat for years to come. The reality is that many companies will give you ten and twenty year guarantees, but a couple of years later, they are out of business. On the odd chance that a company is still in business, their policies are downright ludicrous. Four years ago, I had a whole house treated for damp and they gave me a ten year guarantee. When I called them to come out and look at it, they tried to hit me up for another $110 before they would come out. Their new policy is that if they determine that the damp has come back and it is their fault, then they will fix it – otherwise they want nothing to do with it. So make sure the damp company you are dealing with is reputable.

The roof. Tenants having to use buckets to catch water pouring in, have a tendency to lose patience very quickly and to withhold their rent. A ceiling could fall down and injure your tenants.

I’ve had more problems with roofs than just about anything else in my property investment career.

Flat roofs are often the biggest nightmare. They usually last ten years, sometimes more, sometimes less, but they are always a problem at some stage. My offices had three flat roofs and finding someone who is exceptionally good at doing flat roofs is a real ordeal. I had five different roofers come out to bid for the job and I had five different recommendations.

The first roofer said they were fine and would last me another five years. The second roofer told me to put a coating of tar over them and that would seal them for a good few years. The third one told me to build up the roof with plasterboard and then it would be even and drain away properly. The fourth roofer told me that he could recover the existing roof with more felt and that would do the trick. Finally, the fifth roofer told me that the whole roof had to be stripped away and back to the very bones and then built up from the start. I went along with the fourth roofer who wanted to recover the existing one with the better quality felt. I was assured by my master roofer that this roofer was good but whenever I looked at the roof, there was always a huge pool of water sitting in it and it looked as though it would leak at any time. I keep thinking that a roof should have water draining away from it, not sitting in it. I have since sold that property, but sometimes I wonder how long that flat roof lasted and whether it still has water sitting in it to this day.

The plumbing – have the plumbers check all appliances, drains and gutters before the tenants move in.

At one of my properties, the tenants would regularly phone me saying that there was water leaking down into the lounge ceiling from the upstairs bathroom. The dangerous element here is that it would frequently be coming in through the electric light as well. Several plumbers came out to look at the problem.

One plumber said that problem was the silicone around the bathtub so he whipped it around and for about a week it was fine. Then it started leaking again and I had another plumber come and look at it. This one said it was a leak in the pipes under the bath and he replaced the pipes and said it would be fine. Not so. Another plumber came out and said that the bath was not even and needed to be put on a piece of plasterboard and made even. So they ripped out the bathtub and then put it on a piece of plasterboard. This held for about six months and then it started leaking again. When yet another plumber came out and told me I had to replace the whole bathroom and ceiling, I ushered him out the door. The last plumber I called had a simpler solution. He replaced all the tiling around the bath, regrouted it, and then put in new silicone. That lasted a year until I sold it and I only hope that the new owners have not had further leaks.

The saying, “adversity is the mother of invention” was very true in the case of another of my properties. The toilet had an enormous big copper pipe coming out of the seat at the back. It looked dreadful but each plumber who looked at it said that it was best left alone. They said “if it ain’t broke, don’t fix it.” It was working so I opted for not fixing it. Instead, I painted the pipe a cream colour to match the walls and sold the property as is.

the electrics must be checked by a certified electrician who gives you a document stating that they are safe to use

Basically, anything that involves the structure or safety of your property must be seen to as a matter of priority. The risk you run, otherwise, is that your insurance cover may be invalid.

The areas you can afford to economise on with a rental property are:
- the carpets,
- the appliances
- the paint job
- the curtains/drapes
- the quality of the fittings in the kitchen and bathroom

The areas you must take care of are:
- the plumbing
- the electrics
- the roof
- any damp
- the heating / cooling system
- the washing machine and dryer – make sure they are in working order

Another 6 US banks fail

This week I am going to discuss the failure of yet another batch of US banks.

Jim Sinclair is a precious metals expert who has authored numerous magazine articles and three books dealing with a variety of investment subjects, including precious metals, trading strategies and geopolitical events, and their relationship to world economics and the markets. He is a frequent and enormously popular speaker at gold investment conferences and his commentary on gold and other financial issues garners extensive media coverage at home and abroad.and a very generous, knowledgeable and person, has a wonderful website www.jsmineset.com that is literally a mine of accurate and essential information about gold. Having followed it for over two years now, I would like to quote from CIGA (Comrade in Golden Arms) Richard in today's posting about six US banks that have just failed:

Earlier this year, the Financial Accounting Standards Board (FASB) capitulated to pressure from banks and financial institutions and allowed financial institutions to value worthless assets at values that the financial institution had concluded were correct, not values that were market-related.

Six more banks were closed this week. Collectively, they had assets of $13.425 billion and deposits of $9.368 billion. The total estimated cost to the FDIC’s Deposit Insurance Fund (“DIF”) is $2.384 billion.

Consistent with recent trends, by the time these banks were finally closed their condition had deteriorated to a point far worse than banks were allowed to in the years before this crisis. As a result, the FDIC continues to incur much higher rescue costs than it would if it were able to close them at a stage more like they have been historically. The total cost to the DIF of closing this week’s failed banks exceeds 25% of their total deposits. By contrast, the FDIC was only required to make up about 5.7% of insured deposits in connection with the three banks it closed in 2007, at the beginning of this crisis.

The details of this week’s closings also point out some troublesome discrepancies between the value of assets stated on the banks’ balance sheets and their perceived market value. Five of the six acquiring banks this week required the FDIC to enter loss-share agreements as a condition of their purchasing the assets of the failed institutions.

Insisting upon a loss-share agreement indicates the prospective buyer is so worried about the value of the assets it is purchasing, it is unwilling to alone bear the risk that their value will turn out to be lower than anticipated. In the case of the three banks closed in 2007, none of the acquiring banks required that the FDIC enter into a loss-share agreement.

The largest of this week’s bank failures was AmTrust Bank of Cleveland, Ohio. On paper, AmTrust appeared to be very well capitalised. It claimed to have assets of $12 billion against deposits of $8 billion, a ratio of 1.5:1.

However, closing AmTrust cost the FDIC an estimated $2.0 billion, 25% of the value of its deposits. Furthermore, the purchasing bank, New York Community Bank (“NYCB”), was only willing to purchase about $9.0 billion (75%) of AmTrust’s assets, and did so only on the condition that the FDIC agree to share the risk of loss with respect to $6.0 billion of that amount. In the final analysis, it appears that NYCB had confidence in the value of only $3 billion of the $12 billion in assets on AmTrust’s balance sheet.

Furthermore, the parties appear to have concluded that the $12 billion in assets listed on AmTrust’s balance sheet were only worth about $6 billion. Otherwise, the FDIC would not have allowed for a $2 billion charge to the DIR to make good on AmTrust’s $8 billion in deposits.

There is not enough information available at this point to determine the causes of this huge discrepancy between the claimed and actual values of AmTrust’s assets. However, in the absence of an allegation of criminal fraud it stands to reason that the failure to require fair value accounting contributed substantially to this discrepancy.

The facts surrounding the closings of the remaining five banks this week raise similar concerns.

This week’s bank closings continue to warn of U.S. banks’ deteriorating balance sheets and of the FDIC’s inability to resolve troubled banks before they cause extraordinary losses. Nationwide, banks are going broke much faster than the FDIC can close them. This creates a domino effect whereby the FDIC loses the ability to mitigate losses at the same time it exhausts its capacity to pay claims.

As of November 12, 2009, the DIF had fallen into deficit and in order to replenish it, the FDIC ordered banks to pre-pay three years’ worth of deposit insurance premiums, amounting to about $45 billion. In the three weeks since then, the FDIC has been forced to acknowledge another $3.394 billion in liabilities – more than 7.5% of the new revenue it is attempting to raise by way of the pre-payments. Very soon the entire $45 billion will be wiped out and the U.S. Treasury will become the FDIC’s sole source of funding for years to come.

Given this dire situation with the banks in the US, the case for holding physical gold strengthens. If you have not yet added gold into your portfolio, I strongly suggest that you investigate your options and consider putting at least 10% of your assets into the yellow metal.

Commercial vs Residential Property Investment

What are the essential differences between residential and commercial property and which makes the best investment?

When you invest in residential property you are essentially dealing with people.
When the rent is late, you have to deal with a person – the tenant. If you feel the property is not being looked after properly, you will have to deal with people who may have a different opinion from you.

With commercial property, you are essentially dealing with contracts. If the rent is not paid on time, then the contract (lease agreement) stipulates a series of remedies that the landlord can take. If the property is not kept up to a certain standard, then the contract may stipulate that you can send in a commercial cleaner and send the bill to the tenant.

Generally, governments around the world have countless rules governing the renting of property to residential tenants, which override anything that you may put in your rental agreement. For example, in the UK, if a tenant is behind in their rent, you cannot just evict them. There are all sort of protections in place so that the tenants will not be exploited. You have to allow them to fall behind in rent for at least 30 days before you can start eviction proceedings.

With commercial property, what is in the lease contract is generally what goes. Many commercial leases have a clause in them that stipulates that if the rent if late by more than a week, then penalty interest will be applied to the amount of rent outstanding. If the tenant still has not paid the rent a certain period of time thereafter, then you have the right not only to change the locks and take your premises back, but also to seize all the tenant’s fittings, furniture and equipment on the premises, and to sell them to recover the rent owing. Your rights as a commercial landlord are far stronger than those as a residential landlord.

With commercial property, the tenants usually derive their income at your premises. Therefore they have a vested interest in keeping your property in good condition. With residential tenants, there is not the same drive to maintain your property, let alone improve it. With my commercial property, I spent thousands of pounds changing the business from a men’s hairdressers (which it had been for the previous 30 years) – into a real estate business. In fact, for the first couple of years, we often had men coming to the property and looking inside expecting to have their haircut.

With a commercial lease, the tenants often paint their premises every couple of years so that it will be attractive to customers. In fact, in a commercial property, the tenant is responsible for whatever maintenance repairs occur. So if there is a plumbing problem in a commercial property, it is up to the tenant to bring in his own plumber and to be responsible for whatever bills are presented to him. In a residential property, the tenant is entitled to call the landlord or the management company – they are compelled by law to fix whatever repairs are necessary.

Another fundamental difference between residential and commercial property concerns the typical length of the lease. With residential properties it can be on a month-to-month basis, but is rarely longer than one year. Commercial properties, on the other hand, are generally leased for many years at a time. From the tenant’s perspective, it gives their company or business the security of the same premises to work out of. Banks like long-term leases as well: the longer and stronger the lease, the more willing they are to lend money on the property.

In some countries a tenant cannot rent the premises with a lease that is under 5 years. There is an upside to this and a downside to this. The upside is that his business is secure in that location for at least 5 years. He cannot be asked to move. The downside is that if times are bad, he might be able to pay his rent and he has no wiggle room to get out of that lease. So in the end he possibly could lose everything. He could lose whatever deposits he has put down, he could lose his furnishings, his equipment. He could theoretically lose the essence of his business.

So far, you can see there are a lot of advantages of commercial properties over residential ones.

Let’s summarise the main categories of commercial property:

1. Retail: shops or any building where passing trade or the general public are invited
2. Office: commonly found with retail or alone, and often above the retail areas on the ground floor
3. Industrial: places where things are manufactured or services provided – but not necessarily where the general public are walking past.

Commercial property is much more specialised than residential and it may be more difficult to find a tenant in the area of specialisation catered to by your building.

Typically banks will lend you up to 80% of the value of the property on a residential investment. However, with commercial property usually the maximum is about 60%.

The biggest advantage of residential property over commercial comes when your property is empty. If you have a house where the tenants have just left, if you have bought it in a good location and the market is reasonably active, then you should be able to find tenants quite quickly. Generally even in a slow market, the only reason why a residential property sits empty for a long time is because of the rental price. If you drop your rent by 10% or more, you will usually get a tenant. However, this downturn economy has vastly affected both residential and commercial properties. Workers who have been made redundant find that they cannot pay the rent. Many commercial properties are suffering because their tenants have been forced out of business.

With residential property, if your tenant has been laid off or fired, it may take you months to be able to evict him let alone find another tenant. In a commercial property, you are entitled to keep his deposits, fittings, equipment and furnishings, but that still doesn’t give you an income for that property. And right now there are many commercial properties that are going bankrupt. So my best advice is that in this downturn economy, that while there may be numerous opportunities for investment, be aware that there are just as many situations where you could lose a great deal of money.

Let’s look at commercial property that has been empty for 3 months or 3 years, then the problem may not be because the rent is too high. Even if you were to slash it in half you still may not find a tenant.

The reason for this is simple. Just about any residential property on the market has all that is required for someone to live in it. However, when it comes to commercial property, the requirements vary hugely from tenant to tenant. For example, when a dog food cannery becomes vacant, it may not be simply a matter of reducing the rent to find a tenant. No matter how much you drop the rent, no photographer looking for a studio is likely to settle for the dog food cannery. No shoe shop that relies on passing foot trade will want the top floor in an office tower, no matter how good the view or how reasonable the rental.

To summarise the differences between residential and commercial property:
Residential
Tenants have little interest in maintaining or improving your property
Leases tend to be short
Tenants contact the landlord for minor problems
Governments tend to legislate to protect tenants rights
Banks lend up to 80% of the value
If the property is empty, it is usually easy to find a new tenant
You deal with people
Commercial
Tenants have a strong vested interest in the upkeep of your property
Leases tend to be long
Tenants tend to fix minor problems
Governments tend to leave you alone
Banks will lend only 50-60%
The appraised value when tenanted may be 2 or 3 times the value when empty
If the property is empty, it may be difficult to find a new tenant
You deal with contracts, not people

If you were coming to me for property investment advice and you didn’t know which would be better for you: to buy a house or to buy a piece of commercial property. The first thing I would say to you is: research, research, research commercial property. Find out everything you possibly can about being a landlord, about tenancy agreements, about your areas of responsibility, the tenant’s areas of responsibility, and when you have spoken to a number of commercial property landlords, and gotten to understand the business really really well, then I would look for a group of investors who would go in on a building with you.

I would also look for a syndicate – you would be just a small part of that syndicate. Your financial obligation would be very small in comparison if you had just gone into it yourself or with one or two other people. A syndicate usually implies a large group of investors. The upside is that you don’t have to have much of a cash outlay if you invest with a syndicate. The downside is that you don’t make as much money if you invest with a syndicate. But your risks are greatly reduced, which is why people have a tendency to look for syndicates. When you have a syndicate investing in residential property, a lot has been written about landlords – that the landlord or landlords plural, are just soulless people out to gouge as much money out of their tenants as possible, making the fewest number of repairs they can get away with. The laws governing commercial property makes that condition less likely – mainly because most of what we are talking about is the tenant’s responsibility.

Is it too late to buy Gold?

Is Gold Due for a Correction and is it a good time to buy now?

I have been recommending physical gold for the last three years to all my clients. Those who invested and took my advice are of course very pleased with their purchase. However, there are new clients coming to me know who are very anxious about the state of the world economy and the continuing uncertainty and wish to know whether it’s too late to invest in gold.

It’s a good question. Let’s take a brief look at the major moves in gold over the last 18 months or so. One of the key high points was in March 2008 when gold went over USD$1000 for the first time ever. At that point it looked as though it would continue to rise and go through the roof. However, much to the chagrin of many gold bugs, only two months later, gold was at just USD$870. And for the next five months, gold continued to drop and by October 2008 it was below USD$715.

It wasn’t until February 2009 – just under a year later, that gold managed to go above USD$1000 once again. So those who bought gold at its high in March 2008 had been kicking themselves for nearly a year. Many were very concerned that perhaps gold would never go above $1000 an ounce ever again. However, I did try to allay their fears by showing them that the world economy was far from certain and that for sure, it would come back again and show its true colours.

However, gold is not for the faint-hearted. It is not something that you can watch every day and worry about. This is not the idea of owning gold. It is largely for insurance purposes and could just make the difference between being able to pay your bills and buy food for the month if the world economy got into severe difficulties. It is always best to be prepared for the worst and then hope for the best. Because only two months after gold hit $1000 in February, it went below $880 in April. In September 2009 gold has started to rise parabolically – going over $1000 and in November to $1150 and rising…..

So should you buy now?
I advise all my clients to buy incrementally so that if you do happen to buy at the high point, you won’t feel too bad if it drops subsequently as you will still have funds to buy in the dips. However, with governments around the world buying gold, banks buying gold and more and more private individuals investing in gold, you can be sure that the price eventually will soar. It’s just a question of when. The UK has never sold so many gold coins to private individuals ever before. In the East, the public are more accustomed to buying gold. However, with Harrods offering gold to the public in the UK, the West is catching up.

If you do not have any physical gold in your portfolio I would strongly suggest that you seriously consider buying some. This is a very difficult time to decide whether to buy or wait. The price may just to up and up, or it may drop back before rising again. In my opinion, probability is on the side of it going up overall with a few small dips in between.

If you have already bought your gold, then just sit and wait!

Gold Hits New Highs

So just what is happening around the world? Gold hit new highs of $1123 per ounce this week, the US dollar came under severe pressure and yet stocks continue to rise. Some call this the “jobless recovery” and cannot understand what the media mean by “green shoots of recovery.” Others are convinced that we will soon be out of global recession. So whom can you believe and what is the truth behind all the stories that we hear?

In my view, I tend to agree with those pundits (who are in the minority) who say that this recession/depression has a long way to go. The fact that millions of dollars have been thrown at our banking institutions around the world and now that some are showing positive balance sheets and are paying themselves record-breaking bonuses once again beggars belief. Do we have to go through the same scenario once again – and maybe the second time it will be even more painful? Or are there some serious politicians and leaders out there who can see alternative solutions that might actually turn this impending depression around?

This week I was heartened to see that the Wall Street Journal reported that “Merkel (German Chancellor) Vows to Cut Taxes Despite Rising Job Losses.” This has made her very unpopular with some and she has received much criticism for her approach. In fact, this could be the best strategy out there right now. Cutting taxes is a very intelligent thing to do in order to deal with the current economic uncertainty. By cutting taxes more monies will be in the hands of the consumers who may just spend more and thus boost the economy. Cutting taxes is also a great way to encourage small businesses to hire people which could also be the answer to long-term job creation. Yet Merkel is being criticised for this longer-term stimulus proposal. She seems to be the first world leader who is willing to go against the tide and propose a new strategy that is constructive and promises to bring Germany out of recession sooner than many other countries. If she actually implements this policy, then Germany may be a country to keep an eye on for investing your money for the future.

I predicted that gold would soar in value as it is doing, (against the opinions of many stalwart investment analysts) and I think it still has a long way to go. So don’t be kicking yourself thinking that you should have bought earlier – try to buy when it goes down a little and buy incrementally so that you can take advantage of the dips when they occur.

We live in interesting times – the main thing is to try to protect yourself and your family first, then adjust your mindset so that you are aware of the possible outcomes around you and if necessary change your strategy to suit the prevailing conditions.

Housing Market and Mortgages Top Tips

I am frequently asked by clients and colleagues: Should I buy a house to live in or should I just rent? Should I get rid of or reduce my mortgage by moving into a smaller property?
Is it a good time to invest in a property or a piece of land? There are so many foreclosures out there – maybe there are some bargains to be had?

With the volatility in housing markets around the world, it’s very hard to know what action to take. Economists talk one day of a possible fall of 30% in the housing market and the next day they’ve changed their minds and they predict just a 15% drop. Whom can you trust and how reliable is the information we receive in the media and in our papers?

I have many clients around the world who are just dying to get back into property investing – why? Because they see that they are getting a very low return on their money in the bank – very often only 1,2 or 3% if they are lucky. They want to have something that brings them an income for their retirement and also hope that the value of the property will go up over time.

Today, I’m going to look at the various options available to you and their respective advantages and pitfalls.

The first thing to say is please do not be fooled by the media’s constant reporting of “green shoots” of recovery. There is very little evidence showing any recovery. There are three main reasons why it is likely that house prices will continue to fall for the foreseeable future:

- rising unemployment. The more people that are out of work – they cannot afford their mortgages and thus have to relinquish their homes. This means that more properties for sale come onto the market and thus drive the prices down. For example, if there is too much availability of rice and no one wants to buy it, then in order to attract buyers, the price has to be reduced. The housing market is no different. If you really want to sell a house in a falling market, you need to price it at least 20% below the average price in that area in order to generate some interest
- banks are now wanting at least 20% deposit. During the housing boom, banks were lending money to people often without asking them for a deposit at all. I saw this happening when I had my property investment company in the UK – they were lending to people who were on unemployment benefit! How irresponsible can you get? So because the banks have got into trouble, they have now tightened up their rules and are asking people for at least a 20% deposit. So this means that fewer people can get mortgages and thus afford to buy a house.
- interest rates will go up in the medium term. The reason why prices have gone up for such an extended period is because interest rates have steadily come down, which has meant that your mortgage payments have steadily gone down. In fact, in the US, they are now at 0%. However, there are already signs that the banks are going to increase interest rates and it is more than likely that they will start to go up in the next year or two. What this means for the housing market, is that fewer people will be able to afford to take out a mortgage and so more houses will be on the market and thus prices will fall further.

So those are the reasons why property prices are likely to either fall or at least remain static for the foreseeable future.

With this in mind, should you rent or should you buy?

It depends largely on your financial situation.

There are six conditions upon which I would consider buying a property to live in right now:
- You find an absolute bargain. This would be based on you having done extensive research on all the other properties in the area. For example, if the average price right now is $200,000 and you find something for $100,000 that is a foreclosure, then that might be a good buy. However, it is only a good buy if you can afford it.
- You have at least a 20% deposit and you have at least 12 months emergency funds in savings to cover unexpected situations
- If you are buying the property with a spouse or partner, you calculate your outgoings for just one income or even no income for a period of time – what happens if one or both of you gets laid off for an extended period of time and you cannot find other employment?
- You calculate your costs based upon interest rates going up which means that your mortgage will go up - so you need to have plenty of buffer monies
- You include in your calculations, the possibility of other costs rising such as property taxes, utilities, telephone, food etc. Many Councils are saying that your property is worth $1M and they are charging you taxes on that amount when in fact you could only get $200K for your property if you sold it.
- You are willing to hold onto the property for at least ten years before you may see an increase in its value.

Remember to keep in mind that if you buy now, you may be sorry as the property you buy for $300000 may only be worth $250000 within a few months. However, I have a client in Michigan and her property a year ago was worth $1M – now she has it on the market for $250K and she still cannot find a buyer. If you do buy a property, don’t have expectations that that property is going to go up in value anytime soon.

If you can satisfy all these conditions and you are not going in by the skin of your teeth – then off you go – happy house hunting!

If you cannot satisfy all those conditions, then I suggest you stick to renting for now. In fact, rents should also start to come down too and you may be able to negotiate a better deal with your landlord. The advantage of renting is that you are not tied into any mortgage agreement and you can be more flexible. If prices continue to fall, you may find that you are in a better position to pick up a bargain when the time comes.

For those of you who are struggling with your mortgage payments at the moment, try to negotiate a better deal with your bank. They would still prefer to have you in the property paying part of the mortgage rather than going through the procedure of foreclosure which usually costs them a whole lot more money. I knew someone who was having trouble paying her mortgage and she managed to negotiate a year’s holiday from paying the mortgage while she got herself back on her feet. It’s a bit like the negotiation we talked about last week – you have to be willing to ask. Also, if one bank does not want to negotiate, try to find one that will.

Depending on the size of your mortgage, you may consider moving to a smaller property so that you can either free yourself of debt altogether or at least reduce your monthly payments.

If you owe a lot of money on your property and you can still get some equity out and get rid of your mortgage altogether, I would suggest that you seriously consider taking that option. Then you are free to buy later when the prices have come down further.

If you have a property in a block of flats, or a condominium, where you are sharing the service charges – if many people in that block of flats have their apartments foreclosed, then the people who are still living there have to take on the added burden of those maintenance costs and if there are a lot of people out of work and not buying merchandise, then cities have to make up the money that they are nto collecting for taxes in some other way. Chances are that one of the first things they will be do will be to increase your property taxes substantially.

People really don’t know what to do with their money and because property investment has been such a good bet in recent years, there are many people itching to get back into the market. But is this the right time? It’s very difficult to pick the top and the bottom of any market – even the experts will tell you that that is almost impossible, but what you can do is to see the trend. With the degree of change that is happening right now, trends are much more difficult to predict, and for the average person, who is not well-informed on the housing market, it is best to wait until things have settled down somewhat before making a major purchase.

For those of you who are looking to invest, here are a few conditions I would suggest that you consider before putting your hard-earned money into property at this time:

- during a recession or depression, people have less available funds and may not be able to afford to rent. So you may need to drop your rental price. This is all right is you have no debt on the property and you have paid in cash – then you will not be too affected if you cannot find a tenant or if rental values go down for a few years. So if you are paying cash and you don’t need a mortgage, then buying a “real bargain” in a good location is a possibility. However, once again, don’t expect the value of the property to go up in value anytime soon.
- If you are taking out a mortgage, I would suggest that you do not take out more than 50-60% of the property price. Then if interest rates go up, your property taxes go up, your property sits vacant for a year or more, you will stillbe able to afford the outgoings. But you must be prepared to sit on the property for a few years and have your money tied up. Remember that selling a property is not a quick exercise and you may have to wait several months or even years to access your cash.

Buying land is even more risky as you do not have a property on it to bring you a regular income. You would either have to hang onto the land until such time as prices go up – which could be many years away – or you could build on the land and hopefully find tenants to bring you an income. However, I know people who own sections around the world and they are having great difficulty selling them right now. Indeed, in Fiji, a couple have had to reduce their section by 50% and they still have not found anyone to buy it. I see this happening around the world. Land, unless you are using it for yourself, is largely unproductive and does not bring you an income. So unless you are using it yourself e.g. to grow vegetables, for farming, livestock and you have a business that brings you an income from your land, then it is not the best investment during a downturn economy.

Summary
Do not leverage yourself too highly – i.e. don’t take out too much debt and make sure you have plenty of buffer funds
In volatile times, best to play it safe and not to borrow too much. Remember if you buy with a 20% deposit and the house price drops 20% you have lost all your equity.

If you rent – you are flexible, you can move quickly and you will be able to pick up the bargains at a later date

Investors: - not the best time to be buying – not only are rental yields low, but leverage is not wise now as there is no promise of capital gain in the near future. If you are paying cash, the risk is much lower and you can afford to wait and sit it out

If you are buying without too much debt – i.e. preferably only 50-60% and you know you can afford the mortgage and rising property taxes and other costs, then ok, but if not, then wait.

If you want to extend or renovate your house – this is going to be a good time:
-builders are looking for work and are willing to negotiate on their labour costs.

Credit Card Debt - how to free yourself

As amazing as it seems, most people do not understand credit card debt. They see a refrigerator and they think – oh, it’s only $10 a month for the refrigerator. We can afford that can’t we? They don’t think in terms of how much money is on their credit cards as a total amount. They just see it as another sum of money they will have to come up with each month, and while $10 a month more may sound reasonable and doable, that $10 a month, added to what they already owe, may tally into the thousands of dollars.

What they also may not understand, is that $10 a month is going towards a $700 refrigerator – by the time it’s paid off, they would have been able to buy 3 refrigerators for all the finance charges they had to pay over the years.

I know a woman who only bought merchandise that was on sale – whether she needed it or not – if it was on sale, she bought it. She had a closet full of clothing that she had bought over the years, most of which she had never worn, but they were all on sale so she bought them. And with each blouse or dress, she added to her collection in the closet, I kept hearing her tell me about the wonderful bargain she had got and how much money she had saved. These articles of clothing stayed in her closet unworn for years at a time- while she stuck to just a few outfits that felt comfortable on her. She was struggling to pay her bills – I said to her – stop shopping – and she said: that’s the only thing my husband and I enjoy doing together.

I told her that she and her husband needed to develop another hobby. They did. They started eating. Gargantuan amounts of food so she couldn’t even get into any of her bargain clothing. This went on for several years. When she lost her job and couldn’t find employment, I started to counsel her on her spending habits. I wanted to know what she needed at a bare minimum to survive. Part of me was afraid to ask her how much her credit card debt amounted to – but I did anyway. When she told me she had racked up $50000, it took everything in me not to let out a loud gasp in shock. I then proceeded to give her financial counselling for many years after that – and now I’m pleased to say that she’s free of credit card debt and she even has $4000 in her savings account.

Credit cards are very seductive. When they first came into existence, people used them for the purpose for which they were intended – as emergency funds. Your car breaks down, you have no cash, no savings, nothing that you could use to pay the towtruck to come and rescue you for the repairs that are needed at a service station, so you whipped out your trusty little credit card that was on hand just for an emergency, and you breathed a sigh of relief when they put on a new fan belt or a new radiator or a new tyre to replace the one that had just blown – and that’s what credit cards were supposed to be used for.

But over the years, people have become very irresponsible with their finances. These credit cards are no longer being used just for emergencies by most people. They are being used for a better way of life, a higher standard of living, expensive purchases that they don’t really need. And the credit card debt just keeps going up and up and up – and they pay no attention to it as long as they can make their payments.

When they are laid off from their job or fired, and their income goes out of the window, they suddenly become aware of payments that they cannot meet. And still it doesn’t occur to them that they have become credit card junkies. When they are facing bankruptcy and they have to go for consumer counselling and all their credit cards are taken away from them, while the credit card counsellor negotiates with the credit card companies for manageable payments, it’s like having withdrawal symptoms. And never underestimate the fact that they are not only having financial withdrawal symptoms but emotional ones as well. Because now, they cannot see a way of life that doesn’t feel hopeless.

To illustrate this point, during the Cuban missile crisis of October 1962, the people in Miami, Florida, were only 90 miles away from Cuba when the threat of being bombed and blown out of existence became a very real possibility. Emotions ran high, people panicked and the main attitude of the residents was – if I’m going to die, I might as well enjoy my last few days. They rushed to the stores in droves. They charged all kinds of luxury items on their credit cards because they never really expected to have to pay them off. After all, if they were going to be bombed, they wouldn’t have to pay the consequences, so they might as well enjoy themselves. They bought television sets, they bought boats, they bought cars. They bought all the things that they never could have afforded if they lived to be over 100.

The Cuban crisis was averted. Miami stayed intact, people went on with their lives – except one vast difference –now they had credit card debt up to their eyeballs. They had big ticket items that they couldn’t afford and wouldn’t be able to use. They had small ticket items too, but a great many of them - again with purchases that were totally unnecessary, extravagant and way beyond their budget.

The economy of that state was in great jeopardy. People’s homes were foreclosed, their cars and their boats were repossessed and people were out on the street. Businesses went under when their customers couldn’t afford to pay their debts.

Now if we look at what took place in 1962, a little under 40 years ago, and we multiply it by many millions of dollars more, we get to see the beginnings of what would eventually affect a global economy.

To summarise:
- be aware that your minimum monthly payment may seem to be a small amount, but you are paying several times over the original purchase price for your goods
- learn to use your credit cards only for emergencies and nothing else
- don’t incur any more debt than you already have

Let’s take a look at how our global economy got to be in such a mess. As we discussed with the Cuban Missile Crisis in 1962, we saw that what started with one small state in the US, became a temptation of easy living with no responsibility for paying off those debts. This is something that is felt around the world. I doubt if there is a country in the world now that doesn’t have its fair share of problems with people who are tempted to go into debt for luxuries that they cannot afford. We have only to look at the banking institutions, the financial institutions, with people who have got mortgages for nothing down, or 5% or 10% down, who would not have qualified as creditworthy if the banks had really vetted these people properly.

Now let’s look at cash advances. Again this is something that credit card companies have made too easy for its users. If it’s used appropriately for emergencies and nothing else, consumers might be better able to pay off these debts. Unfortunately, many people look at a cash advance differently. They ignore the fact that their finance charges start the minute they make that cash advance and that interest keeps accruing every single day from the first day of that loan. If they bothered to do the maths, they would have the option of seeing whether or not taking that cash advance was really of benefit to them.

More often than not, these cash advances are not paid off quickly, but they just get added into their ongoing credit card debt. Not enough people look at their statement each month to see how much money is going towards their cash advance and how much money is going towards their monthly charge –and those rates differ greatly.

Now let’s take a look at balance transfers. The average consumer sees a balance transfer as an quick way to pay off their credit cards, perhaps by combining all their payments into one, two or three payments instead of maybe ten payments. And if it were that simple, perhaps their credit card debt would be more manageable. But let’s look at some of the seductive ways that banks have of tempting you to do these balance transfers. During the good times, banks will offer a 0% finance charge for a certain number of months and then a higher charge for the remainder of the loan – and if you just looked at that, it might seem reasonable. But money has a way of making you greedy – so you may not look too closely at the fact that you may be paying $90 or $120 for every transaction you make on this balance transfer. Let’s say you want to pay off four of your credit cards: and you are going to transfer them onto this one credit card so that you have only one payment a month. For each of those four cards that you are transferring balances from to this one card, you will have to pay a fee of at least $90.00 per transaction. So you will be paying an extra $360 just for transferring the monies on these four cards. So you may be getting 0% financing for 6 months, however, and this is a big however, in smaller print, banks are telling you that they have the right to change that balance transfer offer as they see fit. So now you are thinking you are going in at 0% for the next 6 months and 9% after that until the balance is paid off. Now a few months later, you get your statement in the mail, if you look closely enough, you may be very surprised to see your interest rate go from 9% to 13.9% - because your bank can and often does change the original offer.

Here’s another eye-opener. You call your bank and you want to know what the payoff amount is, because now you have enough money to pay off the balance. You ask them to figure out the finance charges and add it to what you are supposed to be paying – and you think to yourself when you make that payment that you are finished with it. Not so fast. Your next statement comes in and lo and behold, there are more finance charges that have been accrued that you still owe.

So it’s very easy to see how credit card debt starts and how it escalates and how hopeless it seems for a lot of individuals.

And if you are one of the many consumers who looks at your statement and says – oh I just have to pay $15 – that’s the minimum amount due and then ignore the larger balance of everything that’s due, then you are one of those people who are just paying down the interest on the loan and not a penny off the principal of the loan.

Gold over $1000 an ounce

As I predicted in March 2008, October 2008, January 2009 and March 2009, I said that gold would increase in price substantially and would go over $1000.00. This week it is at $1005 per ounce. So where will it go from here?

With the Chinese stocking up on their gold reserves, Hong Kong deciding to take all its reserves out of a London depository and open their own holding at Hong Kong airport, with Russia saying that it’s advisable to have at least 10% of their assets in gold, there are signs worldwide that gold is becoming a more interesting commodity, even for the average person. Indeed in China, they Chinese public are being encouraged to buy gold and silver.

Nearly $2 trillion tax dollars have already been spent on bailouts of financial institutions and banks so far in the US, but we are probably about halfway through the unwinding of the mortgage bubble in the USA. There is still a lot of pain to come in terms of writedowns and losses that have yet to be recognised.

Things are going to be much worse than anyone anticipates. There were two other kinds of mortgages that became very popular. There were option arms which lured in all kinds of investors with very low “teaser rates” for 2, 3 or 5 years, but after that the interest rate goes up substantially. The other type is called Alt A loans and they too were given to people on low rates and the unwinding of these mortgages is yet to come. A mortgage of say $800 a month could easily jump to $1500. Now these loans are starting to reset causing mortgage payments to go up and owners to default. This will lead to more foreclosures. This is a time bomb. We are at the beginning of the second wave.

With this in mind, it is likely that more people will rush into the safety of gold. So expect the price to go up to $1500 or more within the next year or so.

Entitlement Issues - why they are causing our economic crisis on a global and a personal level

Let's take a look at how entitlement works globally and see the reasons behind our bank failures, our pension failures, our financial institutions and then we’ll bring it into a very personal level of how our attitudes of entitlement are bringing failures into our own lives.

We’ll look at ways to reverse this.
We’ll look at the issue of why our attitudes of entitlement are a luxury that we can no longer afford.

In the old days, on a global level, our standard of living was much lower. Our cars were basic, our entertainment was much less costly and in most economies around the world, families were able to make it on one income.

Over the years, as our standard of living rose higher and higher, it now takes two incomes just to survive. Instead of using one car for the family, now we see two cars or more for the family. Instead of just going to a movie and some place inexpensive for dinner for a special night out – now we have very expensive forms of entertainment.

In the old days, when we had a much lower standard of living people actually sat around in the evening and talked to one another. They even read books. They listened to the radio and used their imagination to recreate the scenes in their heads. If you had a telephone, it was a luxury. People made appointments to see one another, they didn’t sit on the phone for hours on end. Nowadays, there’s very little personal interaction. People sit on cellphones, they do text messaging, they sit on their computers, they do instant messaging, emails or messageboards – and social interaction has become a thing of the past. We are now leading very insular lives and the end result is that we have more cases of depression, especially among teenagers and young adults. We see more people today on anti-depressants than any other time in the history of mankind. This is more than just being dissatisfied with your lot in life. It has more to do with feeling a lack of purpose in your life. Having family and friends around you to share the good times and the bad times. This is about being able to live your life without having a single person in your life. Anything and everything that you can possibly want or need can be purchased online. You don’t ever have to leave your house. In so many different ways we can see the breakdown of the family and of the community coinciding with the breakdown of the economy.

The higher standard of living that we’ve grown accustomed to isn’t really about buying toilet paper in different colours, but it’s actually separating ourselves from the family unit. Instead of listening to the radio and using our creative imagination, or reading a book and letting it take us to different locales, now we have to be entertained. Now we don’t entertain ourselves. Now we need TV, video games, the internet…but the worst part is that we have isolated ourselves from each other.

Instead of conversation, we plant ourselves in front of TV’s. Instead of board games that can be played with the family, we’re now playing games on the computers – we’re having online relationships that are usually disappointing and we aren’t reading books like we used to. People used to have to develop social skills. Now with modern technology and a lack of social interaction, social skills seem to be at the bottom of the list of priorities.

Unfortunately the ills of society cannot be reversed by waving a magic wand over them. As a rule people don’t change unless they are forced to change. So how do we get past this attitude of entitlement? That the world owes us a living? That if you don’t have what you want that it’s ok to steal?

How do we go back to the basics of child-rearing?
Where the parents made the rules and the children obeyed them.
How do we get parents to see that their permissive attitude is damaging their children?
That it’s not ok to whine and cry until you get your own way. That we’re raising a generation of children who are growing up to be irresponsible adults who are not held accountable for their actions.
These same children will grow up to be dissatisfied with life, blaming others for their failures and not able to hold down a job.

So before we can fix the economy, we have to fix ourselves. We have to learn how to put back into the community what we have taken from it. We have to hold our bankers and our financial institutions accountable for everything. Our greed on a personal level corresponds with the greed on a corporate level. We have only to look at the increase in shoplifting to the CEO’s of major corporations who have stolen from their company’s pension funds. Now that we’re facing very very hard times, we need to see how our attitude is causing our own destruction.

When the economy started to go down, a taxi driver in New York City was asked what he was going to do if people didn’t have enough money to take taxis and he couldn’t pay his bills. Without batting an eyelid and having to think twice about it, he said “I’d steal.”

I heard of a woman in her 40’s who walked through the produce department of a supermarket and started to eat the grapes and cherries that were on display. She didn’t pay for them, nor did she feel guilty for having taken them. It was as if she had the right to sample whatever goods were out there. Although security would not have been called for pilfering grapes, especially since the goods would not be found on her, it’s easy to see why a storeowner’s losses would have to be passed onto its customers.

When doctors and patients submit fraudulent insurance claims – those costs aren’t just washed away – they get passed onto the other people who are insured.

I recently heard of a man who went into the hospital and was there for close to a month. A neighbour of his was one of his golfing buddies, and he was also a doctor. And every day he came to the hospital, he said hello to his friend. They talked about gold, about politics, their hobbies… and not once did he discuss this man’s medical problems .. and this man thought it was very nice of his neighbour to drop by. When he got his bill from the hospital, he was absolutely outraged to see that that neighbour charged his insurance company for every single visit for the month that he was there.

While most people would shrug their shoulders and not do anything about it because they didn’t have to pay for it out of their own pocket, this man called his insurance company and reported the fraud. He then called this doctor friend of his and told him that if he didn’t call the insurance company and rectify his mistake, he was going to contact the media and start an investigation. They lived in a small town and the doctor realised that he would be forced out of business if he didn’t drop the charges, which is probably the only reason he eventually notified the insurance company that he was dropping those charges.

The entitlement issues we face today can be traced back to the low standards we set for our children. The bar needs to be set higher, much higher. We are raising children who reach adulthood as grasping individuals taking whatever they can from whomever they wish without stopping to question their actions.

I recently heard of a widow in her late 50’s who sold the farm that she and her husband had owned for all of their marriage. She moved to a smaller place and planned on using the profits from the sale as her retirement income. Her children were so angry that they even refused to speak to her. They felt that the money from the sale was their inheritance and it should go to them. What kind of distorted thinking is that? She and her husband had worked the farm, had put in their life’s energy in that farm and she had every right to sell it and do whatever she wished with the money she received from it. Her adult children were living their own lives, earning their own money, and not supporting her. They weren’t entitled to one cent, yet they are trying to make her feel guilty for taking what she so rightfully earned.

In the US, they have been conducting surveys among middle management to upper-management employees who were laid off when their company’s downsized. There seems to be a growing trend among these people to try for a few months to find other employment, but then shortly afterwards, they give up and stop looking because they cannot find a job that pays the same kind of money. What we see happening to these people – they empty out their retirement funds, their pensions, their savings accounts, their family’s savings accounts, and mortgage their houses to the hilt. They have decided not to look for a job. If they cannot get the kind of money that they had been making, they are choosing to go on unemployment for however long it lasts and to live off everyone else. Some of them are sending their spouses to work at menial jobs, others are collecting food stamps and welfare and this number is growing rapidly. These are people who are able-bodied and capable of working but who choose not to – and society is supporting them.

You don’t have to look further than this to see how a country’s economic crisis is irrevocably tied to the entitlement issues of its populace.

A couple of years ago, I heard of a teenager who asked her father for a car after she got her license. Her parents were divorced and her father was trying to compensate for not being in the house as a full-time dad. He didn’t have much money so he got her a new Volkswagen. She was so angry that he didn’t get her a luxury car, that she deliberately rammed her car into a stone wall and practically demolished it. Her father couldn’t even claim on the insurance because it was deliberate. He ended up buying her a used car so that she would have transportation. This father, as well-meaning as he probably thought he was, only contributed to his daughter’s sense of entitlement. Had I been that child’s parent, I would never have bought her a replacement car and I would have had her go out and get a job and pay back, each week from her salary, every penny of the amount of the new car that she had been given.

This disregard for property, for other people’s financial problems, and for other people’s feelings represents the kind of attitude that is running rampant among many cultures. When parents accept this kind of behaviour from their children, they are setting their children up for failure as adults and of course this plays right into the failure of the economy of countries around the world.

How can we expect our politicians, our bankers, our financial institutions, our corporations, to exhibit more accountability than we expect from our own children?
Many children, single and married, move back home into their parents’ home because they cannot afford to make it on their own. At what point does a parent know that a child must learn how to survive on their own and stop taking money from their parents? At what point do parents know when they are causing more harm than good by continuing to treat their offspring as children? When they continue to make life easy for their children, these children will not know how to survive on their own when their parents die. It is far better to teach children moral and financial responsibility when they are young than have to learn it the hard way when they are older.

I had to learn this the hard way myself. My father kept on giving me money, even when I was in my 30’s and I never really learned how to be independent financially. It took me telling him that I didn’t need his help (even when I really did at the time), and then I learned how to stand on my own two feet and how to earn and manage money effectively.

I could go on and on giving you examples of entitlement in every strata of society, but the ones that I have cited are ample demonstrations of how we’re contributing to the downfall of our economy. We’re doing this on the local level, the national level and the international level. We’re taking the path of least resistance and while we’re holding everyone else accountable for their actions, we’re taking no responsibility for our own.

It’s time to reverse the status quo: Let’s try an experiment: for one week, between this show and next week’s show, try denying yourself something 3 times a day. Learn how to say no to yourself. Learn how to question your actions, how to observe them and question the validity of them.

Customer Service - The Bedrock of the Global Economy

When a country is experiencing an era of prosperity we so often see the level of customer service slipping greatly. People who work in retail, especially those who are on commission, often feel that they can let their customer service skills slide because there’s always another buyer right around the corner, and for many years, most countries have experienced prosperity. Nowadays, looking at the global economy, it’s patently clear that the economy is in deep trouble, customer service has hit a new low, and if we don’t change our attitudes about work and service, more businesses will be forced to close and more people will lose their jobs and be out of work.

You cannot separate customer service from the bottom line. With so many people competing for business, the only ones who will survive this economic downturn will be those who know how to give excellent service.

Studies show that a typical dissatisfied customer will tell 6-10 people about the problem. A typical satisfied customer will tell 1-2 people. It costs 6x more to attract a new customer than it does to keep an old one. Of those customers who stop doing business with you 68% do so because of an attitude of indifference by the company or a specific individual. About 7-10 complaining customers will do business with you again if you resolve the complaint in their favour. If you resolve a complaint on the spot, 95% of your customers will do business with you again.

How can you afford to ignore these statistics? As a business owner you stand to lose a lot of money and perhaps even your business if you ignore these statistics. As an employee you stand to lose your job if you don’t pay attention to your customer’s needs.

In the old days, people were expected to do their job and to do it well. And if they didn’t, they were fired. Today, we’re living in litigious times. Due to the recent spate of lawsuits, companies are afraid to fire people for fear of being taken to court. So now they are stuck with employees who don’t really care about the company, who are poorly trained, and whose attitude of indifference gives customer service a bad name. This has contributed greatly to the failing economy.

Good customer service is so rare that nowadays we find ourselves praising company employees profusely just for doing their job. In other words, we are getting accustomed to employees who are not properly trained, who have no job skills, who cannot think their way out of a paper bag and who are absolutely indifferent to their customer’s needs – and we wonder why the economy is in such bad shape.

Look at the culture we have accepted as our norm. It’s pitiful. It’s disgraceful. When you buy an expensive item, you probably want something that works, a company that stands behind its warranty and a salesperson who can tell you something about the product and be reasonably correct in the information they are disseminating.
And if that’s the case, why wouldn’t you give that same level of service to your customers?

We’ve already seen how manufacturers use the concept of planned obsolescence. If your washing machine has a warranty of 3 years - we can almost be sure that it’s going to be ready for the rubbish heap in 3 years and 1 week. There was a time when a washing machine would last for ever and a day, and if you needed service, the store would send someone who was reliable and knowledgeable and capable of fixing that machine.

Customer service is the bedrock of any business whether you provide a service or a product. If you are diligent about keeping appointments, being on top of follow-ups, correcting problems immediately and having a cheerful, cooperative attitude, you can’t help but be successful, no matter what the economy.

During the Great depression of 1929, with 23% of the population unemployed and standing on bread lines in the US, there were still enterprising people who opened businesses or continued businesses that had been in operation and who made a great deal of money.
People who were willing to work hard and go above and beyond what was expected of them. People who persevered, who did not give up hope, but who forged ahead in spite of every hardship they encountered.

I worry about people being unprepared emotionally and financially for the hard times yet to come.
Of all the things that we can do to turn this economy around, good customer service seems the easiest in theory. What could be easier than having one of your employees greet people at the door with a smile and welcoming them to the store and asking how they can help them? Yet more often than not, a potential customer walks into a store, no one says hello to them, no one asks them if they need help, no one is anxious to handle their complaints and no one seems anxious to get their business.

Several years ago, I heard of a store manager of a high end department store who had a customer who had just bought an expensive outfit from the store and she had no shoes to go with it. The store manager sent her 32 pairs of shoes delivered to her home the next day and told her to take what she needed and send the rest back. I am sure that that customer will do business with that store for the rest of her life – and that store manager will not only have gained the most loyal customer and all her family and friends but he will have increased the store’s profitability just by that one act.

Great customer service doesn’t only extend to external customers, but it extends to internal customers as well – namely, the employees. The companies that stay operational through the tough times are most likely to be the companies that take good care of their employees. The common reaction with a downturn economy is to try to pare down your costs – but the unwise employer often pares down the very things that motivate employees to be loyal and to take good care of their customers.

I know of a company in the US that scouted around for really qualified employees shortly after the economy came tumbling down. The CEO said that those he hired during this time were the cream of the crop, they were out of work because their companies had downsized, and they would be very loyal for having been hired during these tough times. He knew he was going to have to put a great deal of money into the training but his rationale was that when things are slow this is the best time to do these trainings. When business is brisk there is no time to do a really good job. So his people are well trained and he is doing great business and it’s doubtful that even if the economy goes through the roof, these people will be looking elsewhere for a better job. `

There’s a luggage company in the US that stands behind their products 100%. If a piece of their luggage ever gets damaged beyond repair, they replace it free of charge.
A man had an attaché case and he put it on the kichen counter too near a pot that was cooking on the stove. The attaché case caught fire and was badly damaged. He called the company, and told them what happened. He said: I know this is my fault, I did a stupid thing- I put the attaché case too close to the pan that was on the stove… they said “ we’ll send out a new one in tomorrow’s mail. He said “no, I’m not looking for a new one, this was my fault, I just want to know how much it will cost to repair it. They said – your attaché case is fully warrantied for any kind of damage and we’ll send you out a new one in tomorrow’s mail – which they did.

This is a customer who will never buy luggage from another company. Instead of telling 1-2 people about how satisfied he was, he told everyone he could think of about the company. This man singlehandedly caused that company’s new sales to skyrocket.

He told friends and neighbours and relatives about this company – and one of those people told a friend of mine who bought all her luggage from them too – and as a result I bought all my luggage from them as well. That’s the correlation between great customer service and the economy.

So an attaché case that cost $300 - $500 probably netted the company $1/2M in new sales.

I have never seen so many businesses with so few people at the helm who understood the meaning of business. I find it incredible that in this downturn economy, businesses are not rushing to do business with you, instead they are turning it away in droves. For the past couple of months, I have been looking to rent office space for classes on a weekly basis. I need a year’s lease and nobody wants to give it to me. The most the anyone has offered has been for two months and for the stupidest of reasons that are underscored by their inability to understand economics and how their business can survive this downturn economy.

Let me give you some examples of what I’m talking about.

I went to one place and asked for a year’s lease and she said that couldn’t be done, because once a month they hold a board meeting in that room (and by the way there’s only one room that will accommodate a large enough space for classes) – and she said that first they have dinner and then they have their board meeting. So I asked her if they couldn’t have their board meeting on another night. She said, no – that’s the night we’ve been having the meeting for many years. I asked he how many people came to these board meetings – she said there are 12 of them. So I thought to myself this makes absolutely no sense. This room is supposed to generate an income and yet, business is being turned away because these 12 people would be inconvenienced by having their meeting on another night.

If I owned that building, and these were my board members, you can be sure that if they wanted to have their meeting on that night and they wanted to have dinner, I would host the meeting in my house, order in pizza and have the meeting at my place for just 12 people.

Another building had a perfectly lovely room and they would only give me 2 months – because just in case they needed it for other events that may want to come in during the year. There’s an old saying: a bird in the hand is worth two in the bush” – they turned down a year’s lease that was guaranteed income for them, just in case, in the downturn economy, someone else wanted to use the room for a different event.

Then I went to a school with the same request for a year’s lease and they turned it down simply because twice a year they give exams to their students and they needed that room for their exams. With the economy being the way it is, and the exams being given just twice a year, you would think that even if they had to give those exams on a Saturday, they would have had the business sense to give me a year’s lease. Again, a guaranteed income for them.

Let me give you another example of really poor customer service. I bought a highly specialised software programme and there’s only one technician in my entire community who is licensed to do repairs, upgrades and tutorials. His fees are much higher than anyone else’s. He doesn’t get back to you when he promises. He only gets back to you when he knows he’s going to make some more money from you.

Up to this point, he’s been riding high. In his mind, he thinks that he will continue to thrive – what he doesn’t realise is that with so many people wanting our money, if he continues with such poor customer service – people like me will throw up our hands in disgust and buy a different software programme from someone else. And this deplorable level of customer service doesn’t only hold true in my country, but in a neighbouring country as well. I am trying to buy a $500 programme and they haven’t returned my telephone calls. And the sad part about all of this is that when their business fails and they have no income, they won’t even realise that they were the ones who caused their own downfall.

The heart of an economy is based on the numbers of employed people. A country cannot survive without people buying goods. If you are out of work, you cannot afford to buy anything. If you can’t afford to buy anything, the economy crashes. So it makes sense to look at why people need to hone up on their customer service skills as a way of generating new business and retaining existing business.

Everything that we do or fail to do has a direct correlation to our income and by extension to the economy of our country and the economy of the world.

To sum up:
1. If you are the boss, examine the things you can do to generate business
2. Don’t let convenience or habit stand in the way of taking advantage of a good business opportunity.
3. If your business involves performing a service, make sure you give 100% of yourself to your customers.
4. Be on time for your appointments
5. Return phone calls promptly
6. Make sure you follow through with all your commitments
7. At the end of the service you are providing, ask your customer if they are satisfied with the level of service they have received and don’t be offended if you have to hear criticism. Take it to heart and try to do better for the next customer
8. Be courteous, be cheerful, be helpful, be knowledgeable. If you don’t know the answer, or cannot perform the service, admit it. Don’t be afraid to refer that person to someone else who may be able to help, because that customer will probably come back to you in the future, just for your honesty.

Silver - to buy or not to buy?

Everything that uses electricity or electronics requires silver, almost. Think about it: your cell phone, your laptop, your CD player, plasma screen, refrigerator, washing machine . . . everything you can think of that uses electrical current or is an electronic item, like an iPod, uses silver to some level.

So even though it’s a miniscule amount, if you’ve got a billion people seeking these type of gizmos, gadgets, and just raw power or something as basic as a washing machine, that puts an upward pressure on the silver price from an industrial perspective.

There is much talk about China at the moment being a possible huge investor in silver. How much silver investment demand there will be and how it will catch on, no one knows at this point. Many pundits suggest that it will catch on and I am inclined to agree with them. People have a survival instinct and when there is panic and chaos, especially in financial markets, they seek anything that they perceive will preserve their wealth or protect them. Silver promises to do just that.
At over USD$900 per ounce at present, gold is too expensive for many people therefore silver is a very attractive and affordable option. We do not have a massive supply of silver worldwide and we have a much larger base of people willing to get into the silver market than ever before. It is quite possible that silver will reach in excess of USD$50 per ounce.

So for those of you who are afraid of having all your money in banking institutions and who either do not have the funds to buy gold at all, or who can buy only a little, then silver is a wonderful option. It is inexpensive, but one of the drawbacks is that it is very bulky and difficult to store. You may have to consider having it stored by a company overseas – there are several online and I suggest you check them out. www.goldmoney.com and www.bullionvault.com are a couple of options for you to start out.

For a relatively small amount of money, you can have some physical coins that will give you protection should the whole system collapse.

More on Written Agreements and Protecting your Assets

Contracts and agreements e.g. rental agreement, mortgage agreement, loan from family member or friend, credit card agreement, hire purchase agreement etc. affect most of us at some stage in our lives. and what you should be looking for to protect yourself and your assets.

Whether we are making these contracts and agreements with people we love and trust or whether we are making them with strangers. There are some simple rules of thumb that we should all be looking at as they apply to most of us.

Historically, 100-200 years ago, most countries did not recognise women’s rights to own property. They could not get a mortgage or credit without their husband’s permission. They themselves were treated as chattels.

If they wanted to know about money, they were told not to worry their pretty little heads – so it became the man’s job to worry about money and the woman’s job to take care of his personal needs and to be the heart of the house. He worked, he provided for their needs, she took care of the children, the household chores and her husband’s needs. Consequently when a husband died or divorced her or just disappeared, she was left not knowing how to balance a chequebook, not knowing what her mortgage rates were, or how responsible she was for paying that mortgage down. She had no knowledge of insurance and was often left without insurance coverage for herself and her family. As far as her car was concerned, she knew how to put the key in the ignition and get to the nearest service station.

Nowadays, women are in top positions in corporations but many of them still have their husband’s making the major decisions on things like insurance, mortgage rates, investments, medical coverage and pension plans.

Historically, when a woman gets into a relationship, she’s always given her husband dominion over her assets. She could come into a marriage with a house completely in her name and once she gets married and he wants to be put on the title to it, she doesn’t question it.

Also, historically, a woman takes the softer view. I love him, everything we have is ours. We share and share alike. I should be putting the house in both of our names. WRONG, wrong, wrong.

If he wants to be put on the title, or you want him to be put on the title, get 3 evaluations of the house and let him give you his share of the money for that house. After all if you are going into a business partnership and someone wants to buy into your business, you would have your business valued at current prices, and that partner would have to buy in cash at the current value. A house is no different.

Once he is on that title, he can do anything with that house, he can take out loans against it, and he can walk out on you, or he can mortgage it to the hilt and die leaving you with debt.

The same can be true of a man who owns property, but men usually cover themselves with pre-nuptial agreements. Women, historically have not been that smart. They have got smarter in recent years, but because their emotions are engaged so quickly and so deeply, they often have to be reminded to protect their assets.

The same thing holds true if you own your own house and your spouse wants you to sell it so that you can move into a larger place – once again, that partner should be compensating you with the value of his or her share of the house before you sell it. Because if the marriage falls apart, either way you would lose out because when it comes to a division of assets – you only own half of the new house and none of the house that you had in your own name before the partnership.

For example, I knew someone who had her own home that she had bought with her own money and had been living there for a number of years and that house was almost paid off. Then she got married. The new husband moved in. A few months later, he decided he didn’t want to live in that house. He wanted them to sell it and live in another house. After their divorce 15 years later, all she was able to get was half of the new house and nothing of the house that she had originally.

When you are dealing with monies, even if you are in a deep relationship, with a family member, a friendship, your spouse and you trust the other person deeply. You have had a lot of experience over the years and you think to yourself that you don’t need a written agreement – think again. You can never tell if or when the other person is going to back off and leave you with the debts and responsibilities or if the other person is going to sell off their half of the partnership leaving you unprotected.

On a professional level, I have a client who is having a house built, and she has known her builder for many years and he’s done work on other houses of hers. He has given her a quote for the work and said that it will not be above $120,000 for his labour costs – but she has decided that she doesn’t need a written agreement. I advised her that no matter how well she knows her builder, she does need a written agreement stating that his costs will not be above $120K. What happens if he is injured and he hasn’t been paying his public liability insurance? What if he goes into bankruptcy and just leaves the job halfway done and leaves the country?

If you have a quote from a builder with materials included, their suppliers could go out of business, the builders costs could go up and your costs could go up accordingly. If you want to protect yourself on materials, open up an account at a builder’s merchant so that you can buy the materials yourself and you can get the most competitive prices. That way, when your builder is quoting you prices for labour, you know you are just paying for labour and you can negotiate his labour costs, especially now when construction work is in such short supply.

So as you can see, on a personal and a professional level, you always need a written agreement.

You can be in a romantic relationship or a marriage and all of a sudden your partner goes to the bank and draws all your money and you are left with all the debts. And no matter how much you love someone, where there is money involved, make sure everything is spelled out really well. Make sure your lawyer has covered everything and you are not leaving any loopholes.

For example, I knew someone who had been married for 25 years and their only daughter was getting married. The wedding was very expensive and as soon as they got home from their daughter’s wedding, she started preparing for bed. She sees her husband has a suitcase and he is emptying his drawers out into the suitcase. What are you doing? I am packing, I’m leaving you. I just wanted to wait until our daughter got married and was out of the house so I could leave you. I have found someone else. After 25 years of marriage, he just walked out and left her with a pile of debts.

If you being asked to sign anything e.g. a husband of 30 years – make sure a lawyer checks the paperwork. Ensure that someone can explain it to you and don’t be led like a lamb to the slaughter. In the end that partner may leave you, divorce you or die and may leave you with a lot of debt. You need to know what you are going to be responsible for.

Another important point to remember is that if anyone wants you to sign papers quickly, your answer has to be NO. Don’t ever allow yourself to be rushed into a financial agreement. No matter how good the deal might sound, you need time to assess whether it is right for you.

Written Agreements

When you are dealing with monies, even if you are in a deep relationship, with a family member, a friendship, your spouse and you think to yourself that you don’t need a written agreement – think again. If you are going to have any agreement drawn up always go through a lawyer. You can never tell if or when the other person is going to back off and leave you with the debts and responsibilities or if the other person is going to sell of their half of the partnership leaving you unprotected.

You may trust this person wholeheartedly and may never had cause to doubt them – but circumstances can and often do change. For example, I had a client who had all his monies tied up with his wife and their business. On Christmas Eve, she threw him out of the house and would not allow him to come back. Luckily, he had done as I had advised previously which was to put some money aside in a separate bank account. Had he not done this, he would not have had the money for a month’s deposit on a lease and he would have been out in the street.

You can be in a romantic relationship or a marriage and all of a sudden your partner goes to the bank and draws all your money and you are left with all the debts. And no matter how much you love someone, where there is money involved, make sure everything is spelled out really well. Make sure your lawyer has covered everything and you are not leaving any loopholes.

If you being asked to sign anything e.g. a husband of 30 years – make sure it a lawyer checks the paperwork. Ensure that someone can explain it to you and don’t be led like a lamb to the slaughter. In the end that partner may leave you, divorce you or die and may leave you with a lot of debt. You need to know what you are going to be responsible for.

Another important point to remember is that if anyone wants you to sign papers quickly, your answer has to be NO. Don’t ever allow yourself to be rushed into a financial agreement. No matter how good the deal might sound, you need time to assess whether it is right for you.

If you are ever asked to sign a lease, or a mortgage with your partner or spouse, make sure you understand it thoroughly. Take it to a lawyer. Make sure you can afford it, even if the incomes between you are reduced to one income. People have a tendency when they sign a lease or a mortgage, that they figure out how much they can afford to spend each month. What they DON’T calculate into these costs is a failing economy, or one of the partners being laid off or fired and out of work, or other expenses that go through the roof.

So if you are contemplating signing a lease or a mortgage with a partner, make sure you calculate it for just one income, because if you are basing it on two incomes in this economy you may find that you do not have enough money to cover the rent or the mortgage. You must ensure that your property is not foreclosed on you risk being evicted.

Don’t be embarrassed to tell your spouse or business partner that you want to speak to a lawyer to have him go over the fine print with you. When signing a legal document, many people don’t bother to read the fine print – or if they do bother to read the fine print, they don’t understand all the details. Wherever your money is being spent, that’s where you need to be very vigilant about your role in protecting it.

There are always options

We are living in increasingly uncertain times. Whilst the stock markets seem to be rallying unerringly and governments keep reiterating that we are over the worst, more and more people are losing their jobs, their homes, their pensions and their future security.

In the USA, Michigan has one of the highest unemployment rates right now. I was talking to a client whose house was originally $1M a year ago and now at $250K she still cannot find a buyer. California and many other states are going through terrible times, yet the banks, having taken taxpayers money, continue to pay out huge salaries and bonuses to their employees.

What can we do about it?
First of all, be ready to speak out, to write to your representatives in Congress if you live in the US, or if you live elsewhere, to those in power. Don’t accept their excuses and get together with like-minded people and make your views known. For too long we have trusted our governments and the powers that be and now they are proving themselves untrustworthy and incompetent. It’s time to stand up and be counted.

If you are one of the unfortunate ones who have reached the stage that you are filing for bankruptcy, remember that JC Penny said that anyone who hasn’t gone bankrupt three times is a failure. If you find you have to sell everything for 10 cents on the dollar, at least it still gives you something. The tighter you hold onto what you have, the more desperate it becomes. For those of you who are struggling but who are not yet bankrupt, only buy goods that are on sale that you must have.

If you are locked into any contract, try to renegotiate your contract or your mortgage. There are always different options at your disposal. It may look very bleak one day, but you always have options. You may not like all your options, but there will always be some if you look hard enough.

Try to economise wherever you can. Here are a few ideas:
- don’t buy ready-made meals, start from scratch. It may take a little longer, but you will save money and it will be much healthier without all the additives and preservatives.
- avoid the fizzy drinks aisle in the supermarket – do you really need all those sugary, unhealthy liquids? If not, you will save yourself a lot of money.
- you don’t need a different cleaner for each part of the house e.g. bathroom, kitchen etc. For about $3 you can buy one cleaner that will do the entire house in different dilutions.
- when something is on offer that you like, buy it in bulk and stock up.
- buy toilet paper instead of tissues.
- start building up a storage cupboard of dried, tinned and dehydrated foods. You will then have some supplies should supermarkets be unable to stock their shelves, or if you experience a lean financial spell.

Wants and Needs - Next Steps

Let’s say that you have decided that you really NEED a new fridge. The next question is, can you afford it? Or are you thinking to yourself, well, it’s only another $10 a month. You really need to look at your income. That is your starting point. How much money do you make? i.e. What do you take home after taxes and deductions? That is your spending money. You can choose to spend all or it or some of it. But you should not be spending more than you have.

Every time you put something on a credit card – you had better look at the interest rate you will be paying. Add that to what is coming out of your income. Not only that, you may find that you pay up to three times the original price of the fridge by using a credit card instead of cash.

Let’s take it back to basics:
How much is your income?
How much are your fixed expenses?
How much money do you have left over after your fixed expenses? It’s that figure that should prompt you on how much you have to spend on that fridge. If you cannot afford it from what you have left over – you don’t buy it unless it is an absolute emergency. But remember, very few things are an absolute emergency.
So now we come back to wants and needs. Do you want that fridge or do you really need it? Can you make do with the fridge you already have, or is it beyond repair and your food for the family is rotting because it is not in the fridge?
Is there a way that you can exchange services with someone who has a fridge? Does someone have a fridge tucked away in their garage that they are not using?
If that’s not possible, there is always Trade Me in NZ or EBay around the world.

The best way to pay for anything is with hard cash. Then you are able to negotiate a much better deal. There is a lot of competition out there right now for your business, so make sure you negotiate assertively. Check around all the retail outlets, do your homework and then you will be in a stronger position to get a better price. It’s amazing what is negotiable. For example, I went to upgrade my memory for my laptop. I managed to negotiate the store down from an original quote of $280 to $200!

I’ll talk about negotiation in more detail next week. The first step it to have some cash jingling in your pocket to get the best bargains. Have a great week and only buy what you need!