Tuesday, June 15, 2010

The RRSP Secret

The RRSP Secret:
Defend and Build Your Wealth with This Powerful Investment Strategy
Greg Habstritt (Mississauga, ON: John Wiley & Sons, 2010), 236 pages

Greg Habstritt’s first book, The RRSP Secret, makes a significant contribution in the realm of personal finance in Canada.

This is not a novel, so I’ll give away the secret: the subject matter deals with investing in Arm’s Length Mortgages. “Why do you think the biggest financial institutions rely on mortgage financing as their bread-and-butter business? It’s because it is so profitable!” (70) Sophisticated investors have long used this strategy in their personal portfolios. Greg shows readers how almost anyone can.

Greg describes arm’s length mortgage investing as: stable and predictable; able to consistently produce double-digit returns with controllable risk; not requiring payment of commissions/fees to advisors/‘experts’; virtually immune to what markets are doing; and 100% eligible for your RRSP, RESP, RRIF, TFSA, and LIRA. (69)

The Introduction suitably sets the stage and provides a personal connection with the author. Many Free Bonuses are available by registering yourself as an owner of the book on Greg’s www.rrspSecret.com website (which also adds you to his growing database and impressive marketing machine).

Part 1, What the Financial Industry Doesn’t Want You To Know, is extraordinarily informative, readable, and intentionally disturbing.

Most readers will recognize themselves in a chapter devoted to investor bias. “Any time you invest in something you don’t understand, you’re gambling, not investing.” (7) Habstritt believes that “a direct indicator of how successful you will be in life (not just financially) is based on your willingness to be accountable for your results.” (9)

In this section Habstritt reveals how the financial industry really works and how the government uses RRSPs to generate tax revenues. He uncovers the unfortunate truth about the limited availability of truly unbiased financial advice, and turns some well-worn ‘truisms’ on their head. By way of example, here’s what Warren Buffet has to say about diversification: “Wide diversification is only required when investors do not understand what they are doing.” (43)

In Part 2, The Best-Kept Investing Secret for Canadians, Habstritt tackles the task of describing mortgage investing step-by-step, including finding and evaluating opportunities, setting terms, and managing risk. This section, while packed with information, is considerably less readable.

One of Habstritt’s challenges is that he’s addressing two audiences: lenders and borrowers. Happily, the end result is a balanced presentation useful for any party willing and able to sort through the comprehensive detail provided.

If you’re wondering if this book is for you, simply start at the back and read the short section entitled Conclusions, where Greg explains why he wrote it and shares two third-party success stories. I recommend Greg Habstritt’s The RRSP Secret to anyone willing to learn and employ one simple strategy to strengthen their financial future.

Thursday, June 10, 2010

It’s Not About the Speech…

A former mentor of mine, Floyd Wickman, who commanded speaking fees in the tens of thousands of dollars, once shared with me how he was able to almost mystically captivate his audiences. Would you like to know his secret?

I’ll give you a hint: It’s not about the speech – it’s about the audience!

Floyd explained that, in any audience, there are only ever ten people. Wouldn’t it be great if you knew everything you needed to know about all ten of them before you ever stepped up to a podium or onto a stage? Well you can…

Classic speaking theory suggests that most speeches fall into one of three general purposes: to entertain, to educate, or to motivate. Floyd showed me, that in order to really connect with your audience, you need to do all three – every time.


We all love to be entertained. For a speech to be entertaining, it doesn’t need to be uproariously funny; it only needs to be enjoyable and perhaps divert our attention for a few moments. As I write this, Shrek 3 is in theatres. Although I’ve not seen this one, it no doubt delivers a childlike storyline and moral for the kids, cleverly combined with more sophisticated diversions for mom and dad.


One of the most common purposes of a speech is to educate or inform. This involves helping people to learn about a new subject, develop a new skill, or learn more about a familiar subject. Many workplace speeches are intended to inform.


To motivate or persuade requires changing an audience’s attitudes or behaviours. Change rarely comes easily, so this can be one of the hardest tasks of a speaker. However, if done effectively, it can also be one of the most rewarding. Sales presentations and high level vision talks are good examples of speeches intended to motivate.

Your Audience

But it’s not about the speech; it’s about the audience. So who are these ten people in your audience?

The first three only want to be entertained. These may be your toughest customers. They already know everything they need to know about your subject – in fact they may know more than you do. What’s worse, these are the people that are already out there doing it! They certainly don’t need to be motivated. They may be asking themselves why they’re even wasting their time listening to you. Ah, but if you can entertain them, they could become your biggest fans.

The second three people only want to be educated. These people are hungry. They come with notepads and poised pens. They want to learn. So if you merely entertain or motivate, they’ll go away feeling cheated. But if you leave them with memorable information that will help improve some part of their life, they will be very glad they came.

The third three people in your audience only want to be motivated. These people are having a bad day, week, month, or year. They’re thinking: “I already know everything I need to know – I’m just not doing it! So don’t try to teach me and don’t just entertain me!” However, if you can move them to finally take action, they’ll love you forever.

And what about that tenth guy? Well, for whatever reason, no matter what you do, you’re never going to get through to him. He’s probably in the wrong room. Maybe he meant to attend a session down the hall and is just waiting for an opportune time to get up and leave without drawing attention to himself. You will never be able to completely satisfy everyone in every audience.


It’s not about the speech; it’s about the audience. Merely delivering a speech will get you only so far. Entertaining, educating, and motivating, combined with inspiration, will transform audiences. To inspire literally means ‘to breathe life into’.

Several months ago, Bruce Springsteen appeared with Elvis Costello on a wonderful show called Spectacle. Between powerful performances, Bruce described how he wants to write and perform in a way that connects with real people. There are loads of talented musicians, singers, and songwriters, but only a handful can do this. Bruce approaches his craft with a passion for transcendence by being “up in the heavens and connected to the earth” with “music that’s rooted, and at the same time, flying.” Arguably, Springsteen has succeeded.

Now breathe in. As you prepare your next speech, think about how to entertain, educate, and motivate every time, and begin to breathe life into your audiences.

Remember: It’s not about the speech; it’s about the audience!

Saturday, June 5, 2010

Wholesale-Hybrid Real Estate Investment Model

Executive Summary:

The Basic Residential Real Estate Investment Model demonstrates our ability to generate superior investment gains through the prudent use of leverage secured against hard assets. This involves acquisition, at or slightly below market value, of homes that are in generally good repair. These are essentially retail investments.

Wholesale investing involves purchasing homes, in need of more major repairs, at discounted prices and adding value through renovation. These opportunities are found through court-ordered sales or from otherwise motivated sellers. Acceptance of wholesale offers requires the ability to pay cash and to close quickly.

When renovations are complete and a qualified tenant is in place, new conventional first mortgage financing can be put in place. This means that an investor may then be able to extract up to 80% of the improved market value. Ultimately we are controlling the same asset, but with significantly less capital.

Adding value through renovation, and this more sophisticated use of leverage, translates into higher returns. Capital raised through refinance can then be redirected to the next project – thus recycling the down payment.

Why Use an Equity Partner?

This is by far the best question I have received. Real estate investors routinely target returns of 20-40%. They just don’t usually share them with you!

It is certainly possible to arrange short-term debt (bridge financing) through private or commercial lenders. Interest rates are naturally higher than conventional financing, but not unreasonable. The problem is that each deal requires at least some new capital, and additional credit when it comes time to refinance. Eventually I will run out of both.

An equity partner is in for the long haul and shares in gains through renovations, as well as cash flow, mortgage principal reduction, and appreciation. Ready access to capital and credit enables us to find and close better deals.

There is risk associated with all investment activity

Seasoned investors identify, mitigate, and manage risk. The lowest risk real estate investments are single-family homes. Townhouses have fewer variables when it comes to renovation – interior only – so there is reduced likelihood of error in estimates. We are minimizing down payment, but not equity, and we are fully secured on title.

These wholesale purchases do however require cash up front, and the luxury of conditions, inspections, and written estimates may be significantly lessened.

Case Study:

This is the same property profiled in the Basic Model. After Repaired Value and rental assumptions are the same. The reason returns are so much better is because of the wholesale purchase price, value added through renovations, refinancing, and most importantly, because the same asset is controlled with less capital.

Wholesale-Hybrid Model (recycling down payment)

After Repaired Value (retail)


Unconditional Cash Purchase Price (90% of ARV less Renovations)


Seller Financing


Closing, Carrying Costs & Contingency (3 months)


Full Interior Renovations


Initial Financial Contribution (Purchase + Renovations + Carrying)


Refinance with new first mortgage (80% loan-to-value)


Acquisition & Project Management Fee (2% of ARV)


Capital Investment Remaining after Refinance (initial + fee - mortgage)


Year 1 cash-flow (rent - PITCM)


Year 1 cash-on-cash return


Year 1 principal reduction (35 year amortization; 2.5% variable interest)


Year 1 gain (cash flow + principal reduction)


Year 1 return on investment assuming 0% appreciation (gain / investment)


Estimated 5-year value (assuming 3.5% annual appreciation)


Estimated 5-year mortgage balance


Estimated 5-year gain (Value + cash-flow – mortgage balance – investment)


Estimated 5-year return on investment (5 year gain / investment)


Capital Partner:

The Capital Partner’s projected net gain is calculated as follows:

Calculation of Capital Partner 5-Year ROI

Estimated 5-year gain


50% of 5-year gain


Divide by Capital Investment


Capital Partner return on investment (5-years simple interest)


A Final Note:

This post is provided for information purposes only. It is not intended to solicit investors.