Are you familiar with leverage?  Have you used leverage?  If you’ve purchased a home, chances are you have.  When you made that purchase did you make a down payment of 3, 5, 10% or more?  How long ago did you purchase your real estate?  Depending on that answer you have either leveraged up or down.  It’s also dependent on where you live.  Florida?  California?  Phoenix?  Las Vegas?  Michigan?  If you bought in one of those places between 2004 and 2007, you most likely leveraged down.  If you didn’t make a down payment, you may now be in foreclosure or on your way unless you locked in a fixed rate that you could afford.  If you used creative financing, you used another type of leverage and the combination can be deadly to your finances.

Leverage according to Daniel Webster is “1) the action of a lever or the mechanical advantage gained by it, 2) effectiveness, power”.  A Lever is “an inducing or compelling force”.  I like that word, compelling.  The effect of leverage is compelling.  It creates power.  It creates the power to gain or lose.  Leverage is what caused the Great Depression.  Leverage is what you use when you buy a home using a down payment or no down payment and financing.  It is neither good or bad by itself.  It all depends on the context in which it is used.

Here’s an example.  You are buying a $250,000 home and buy it with a conventional loan in the current market.  You provide a down payment of 20% or $50,000.  Now we know it isn’t going to appreciate anytime soon, but when it does, we’ll assume the average appreciation rate for the next 7 years (the average real estate ownership period) is 5% per year.  That means that in 2016 your property is now worth $351,775.  You have a gain in simple terms of $101,775.  When you divide that number by your down payment your money is now worth a little over triple what you invested.  You have made a 204% return or an average of 29.14% per year on your cash investment.  Your investment was not the purchase price of the home, it was the amount you invested as a down payment.  That’s leverage.  Is that better than a CD?  Better than the average return of stocks over the past 80 years?  Not bad.  And you get to live in the house, use it, make it your own, not have a landlord, and get tax breaks to boot.

What if you bought that same home in 2006 for $350,000 and not soon after it nosedived and when you needed to sell in 2008 you could only get $250,000.  The $50,000 you risked now is a loss of $100,000 or a 200% loss.  Again, you used leverage, but this time it didn’t benefit you.  That is why real estate, like stocks, should be considered a long term investment.  That’s why it is important to buy wisely and make sure the mortgage you get is one you can handle under most circumstances.  That’s why it is important to have additional reserves to get you through the hard times before purchasing real estate.  We just don’t know when those hard times will hit.  We don’t know when the balloon will pop or when the balloon will rise again.  Buying real estate is a lifestyle and investment choice that has to be carefully considered.  Sometimes circumstances are out of our control, but most of the time you will be able to control your circumstances by the choices you make before buying.  It does pay to be prepared.  Leverage is why the rich get richer.  That’s why paying interest on credit cards is a bad idea.  You are leveraging your debt to the benefit of the credit card company.  This market is making people think about frugality differently.  Being frugal is smart and allows you to leverage the money you have to your benefit.  Compounding is the eighth wonder of the world.  Be a winner!

So consider your current situation and how you might use leverage.  Is it a wise choice for you?  Check out the Recommended Reading List Page to find resources that will help you learn when it is and how to control more of your own circumstances.

One post leads to another it seems.  In looking for photos of the Collegiate Peaks in Colorado I clicked through one site to another.  In the process I found this great site for South Central Colorado - home of great skiing in winter and white water rafting in summer.  The Arkansas River stretches through this area and passes through the dramatic Rifle Gorge.  If you are planning a Colorado vacation, don’t miss this area of the state.  One of my favorite spots is the Great Sand Dunes.  Amazing!

Check out the new street maps on Google.  This map location happens to be for a home I’m putting on the market on Friday, 11/28.  These new maps give buyers an even better idea about homes they want to see before they turn on their car. What a time and gas saver!

Check out this map:
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Wow!  I just finished listening to the latest webinar in the library and it has some tips to help just about everyone.  Did you know that you should freeze credit bureau accounts for minors and the deceased so that their accounts aren’t at risk for identity theft?  Did you know when you co-sign a loan that the amount of the debt is on your credit bureau file also so it is added to debt you have when applying for a mortgage or other credit?  Did you know just one late payment of 30 days or more can impact your credit score by as much as 100 points?  Do you know how a short sale affects your credit?  Taking time to listen to the new webinar is worth it!  Learn ways to keep your FICO score as high as possible.  800+ is possible when you pay attention to managing your credit.

The latest webinar on Understanding Your Credit Score will be live on Wednesday, 10/29/08 at 4pm MDT.  It will be posted to the Webinar Library later in the week.  If you want to listen and see it live, please register, provide your email, and we will get you on the list for notification of this and future live webinars.  When it is archived we will post and let you know it’s available.

The importance of quality was brought home to me again this week.  Many companies talk the talk, but don’t walk the walk.  My daughter had a roof leak this summer and has had a new roof put on and is having damaged drywall replaced and her ceiling repainted.  One process went very well and one not so good.  It IS important who you work with no matter what the job that needs to be done.  That’s why my team and I emphasize the level of service and skill that we bring to our clients.  We want them to be wowed.  You can read testimonials at carefreehomes4u.com if you’d like.  The people providing my testimonials would give you the same testimonial on the phone too.

Back to my daughter’s story.  Our insurance company used to be run by a fabulous agent named Brian Smith, who was very responsive and always treated us like we were his best customer.  Since his retirement several years ago, the company has been sold twice and neither agent is anywhere close to being a Brian Smith.  Once a claim is out of their hands, forget about it - “Not my job.”  I hate that!  I’m looking for a new “Brian Smith” with the same company.

I referred an excellent roofing company, Empire Roofing, to my daughter and they did a great job.  They were timely and did skilled work.  They also did a great job for both a business partner and a client of mine, so I am happy to refer them.  The insurance company’s “preferred” contractor is your run of the mill firm doing insurance work who it appears is running their project manager ragged all over southern Colorado and there is a lack of oversight.  The painter started prepping and painting without the damaged sheetrock being replaced.  Duh!  Unfortunately, there are a lot of businesses like that out there.  Somehow we all let them get away with it.  Stop that!  Before you hire anyone, check them out.  Get referrals from people you trust - your Realtor, your great aunt, your neighbor, your lender, your dentist, whoever.  Call the BBB and see if they are listed and have a good record.  Get references and CALL them.  Drive by the location where the work was done and look at it.  Ask what the reference’s experience was with the company you are considering hiring.  Be specific with questions that are important to you.  Let’s all drive the quality of business up by increasing our expectations of the companies we hire.  You deserve excellent work.  Talk with your pocketbook and don’t sign off until it’s the way you expect it to be.

I always ask my clients to rate me after the transaction is complete and have a Platinum (100% satisfaction) rating for 2007.  Are the people you are working with doing that?  If not, what are they afraid of?  If they don’t ask, still give them feedback on the job they did and let the BBB know.  By the way, the contractor I trust in Colorado Springs is Brian Rief, owner of Independent Construction and Remodel.  Let me know if you need Brian’s contact information.

Check it out!  We have just created a link to a great new site that you will find to be an awesome resource for your life, your home, and your work.  We’re just getting started so there’s a lot more to come.  New webinars are presented live every month and we’ll post the date, time, and connection information right here so you can join in and ask questions of the presenter.  If your life is too chaotic to sit in live (like mine often is), you’ll be able to view and listen to the archived webinars here whenever it is convenient for you.  Click on the Webinar Library.  You’ll find access information on the page.  Enjoy!

Are you familiar with BNI? You can learn more at bni.com. Or check out the great site we have in Colorado - bnicolorado.com. I have been a member since late 2005 and was president of the Rocky Mountain Business Builders chapter from October 2006 through September 2007. Our chapter received the BNI Founders Award in 2007 and we have a great group of business people. I am happy to get up at 0 dark 30 to meet with them every Wednesday morning at 7am. If you would like to belong to an organization where everyone shows up once a week just to give you referrals :-), then check out this organization. Make a commitment to grow your business by connections with other business people that you get to know, like, and trust.

If you happen to be a BNI member and Realtor in another state or country, I’d love to hear from you.