The economy needs more entrepreneurs. Only entrepreneurs create real, sustainable jobs. Unfortunately, since the government protects the ultra rich that own the big corporations and big banks, as well as the labor unions, it’s tough for entrepreneurs to survive today, which means fewer jobs will be created, which is why we have a jobless recovery, which is why unemployment will continue to go up.
Now that we have discussed some of the basics and tools used by real estate investors, we are properly oriented to look at a deal.
Doing the first deal, honestly, takes a leap of faith. What is this crazy thing called real estate investing? Am I going to lose everything? Will the renters burn down the house? What happens if they don’t pay rent? What if people make fun of me at work, church, or even at home? These are all legitimate concerns for the first time investor not because they will all come true, but because we have been taught our whole lives that getting a job, investing in stocks and bonds, and living on credit is the path to future happiness. Anything else is for losers. Well, the opposite is actually true.
I will show you an example of the very first rental property I purchased almost ten years ago. Because this was my first, I naturally had no idea what I was doing. I did some things well and some things not so well. Let’s see how I did.
This home was for sale from a family member who was moving out of state. The property was a former HUD home they had purchased and lived in for five years. During that time, they had put a lot of effort into fixing the property up. I participated in some of this and had intimate knowledge of the workings of the house and its prior challenges. We entered into a contract to purchase the house at the following specs:
Size: 1200 square feet; 4 bedrooms, 1.5 baths, with converted garage as the fourth bedroom; first and second loans taken to avoid paying PMI on a 15 year note
Purchase Price: $89,000
Down Payment: $8,900 (10%)
Interest Rate: 6.5%
Principal and Interest Payment: $698
Home Insurance: $60 per month
Taxes: $115 per month
Total Payment: $873 per month
First Rental Contract: $850 per month
Estimated Repairs: approximately 1% of value, $900 per year
Cash Flow Profits: $1,176 loss per year
Equity Earned Year 1: $3,299
Year 1 Gain/Loss: $2,123 gain
There it is. On my first property, and I took a $2,123 accounting gain on it. I say accounting gain because I am figuring in equity earned, which is not yet received until I sell or refinance the property. My cash flow was negative by the $1,176 more that I spent than earned. I spent an additional $23 per month on my mortgage payments, which included principle and interest, insurance, and property taxes. I also paid about $900 in repairs to the property.
If we take the total loss or gain and divide by the investment up front, we get our return on investment (ROI). This is a common technique for measuring how much money our investment generated in a given period of time. Real estate investors typically want 9% or more gain on any investment they make in a given year. This is not hard in active real estate investing.
My ROI for my very first year of investment can be calculated by taking the $2,123 accounting gain and dividing it by my investment of $8,900 to get into the property. This comes out to a 23.9% gain. Not bad for now knowing what I was doing!
Remember, this was my first foray into real estate investment and I was bound and determined to keep going, no matter what.
The great thing about real estate investment is that it is very forgiving. You can screw it up and still recover from your investment quite nicely. I made several mistakes that I began correcting over time, which led me further into the land of profits. Let us take another look.
Managing Your Way to Profits
First, I figured out how to calculate rents for the area. I did research on other homes for rent in the area and I called local landlords, apartments, and apartment locators. I soon had a lot of knowledge on the local real estate market that helped me price my property much better. I would recommend that before offering to buy any property, the investor take the time to investigate his target market, known as an Area of Expertise.
The important things to know about your target market are:
-Rental rates per square foot for like-sized properties
-Quality and proximity of primary schools
-Proximity of colleges
-City development plans
-City ordinances in relation to rental property and use of property
-State ordinances on rental properties (locks, landlord access, etc.)
-Quality of roads and availability of public transportation
-Major employers in the area
-Attractions and entertainment
-Any other factors which may change the value of your land or unit
Therefore, based on my research, I was able to price my rent at $900 instead of $850. This change alone allowed me to overcome my accounting loss. Now I was gaining $27 a month over my mortgage and escrows payment.
My ROI now looked like this:
- $27 per month cash flow = $324
- $3,299 per year equity
- $900 per year expense for repairs
= $2,723 yearly accounting gain
ROI = $2,723 / $8,900 down payment = 30.5% per year
The only problem was being short in cash flow to pay for repairs.
I really had no idea, at the time, what my rights and responsibilities as a landlord were when I handed over the keys. And I had no idea what the rights and responsibilities of the tenants should be. I basically fixed anything that needed repair when the tenants asked for it. I also did not properly screen my vendors. This lead to exorbitant repair costs.
So, I changed my approach. The second thing that I did was to research lease agreements. I found several examples used by apartment complexes. Most of the time, these are standard, boilerplate leases that are the same for everyone with only minor differences. I also found examples of Realtor Association leases. The benefit of these two things was that I needed to expand my lease clauses. My initial lease stood at three pages and really offered me no protections. The lease agreement I use now stands at thirteen pages, or fourteen depending on what addenda I choose to add.
How did this affect my costs? For one, the lease agreement now spelled out exactly what the tenant-landlord relationship should be. Gone were the days of me running myself ragged and covering any expense, including light bulbs. Now, the tenants were responsible for routine maintenance such as A/C filters, light bulbs, unclogging toilets they clogged through misuse, and fixing tenant-caused damages such as holes in walls or crayons on the wall. This lowered my repair bill by about 25%. This means I just gained $225 per year in income. I still was not cash flowing on the property yet, but I was making accounting profits when equity gains were added in.
My ROI can now be calculated like this.
- $27 per month cash flow gain = $324
– Repairs cost of $675
- Equity Earned Year 1 – $3,299
= $2,948 annual gain.
ROI = $2,948 / $8,900 = 33% per year.
That is a 9 % swing due to better management.
Some newer investors object to asking tenants to pay for repairs. I will use an example to show why this is normal practice. Let’s say you rent a car on your vacation. You are responsible for the gas and returning it to the rental place in clean condition. If you ding the door, then you are responsible for repairing it. You are also responsible for providing insurance coverage through your auto policy in case of an accident. Basically, the amount you pay to rent the car covers the use of the car itself with any additional charges to be billed per incident.
Things should be no different when you rent your house to a tenant. They pay you for the privilege, not the right, to rent your home. The home does not belong to them. If they cause damage, they are responsible for fixing it. If they break something through their negligence, such as a fixture such as a toilet or ceiling fan, then they are responsible for the cost of repairs. Why would we not ask them to cover these costs? This is a business, and they are free to rent or not rent from you. When they rent, they enter into a contract and are responsible for the use and care of your asset. Any other strategy makes no sense.
One stipulation I now put into all of my rental contracts is the repair clause. This clause basically states that if they cause damage through neglect or accidental misuse, the tenant covers the first $250 of repairs. This protects the landlord from a neglectful or abusive tenant that does not take good care of their property. Do not allow that tenant to abuse your asset that you worked long and hard to obtain.
At this point, I was making a profit. My cash flows were still negative, however, so I thought that something else had to be done. In the end, I would make a profit when I sold and recaptured my equity. However, I wasn’t looking at real estate as some sort of 401K plan to be earned later. I wanted to generate cash flow from this asset.
Structuring the Financing
One of the important things I learned from joining a real estate group was the art of structuring the deal. This involves the purchase side of the deal and will determine the monthly servicing costs of principal and interest. Structuring your real estate deal is one of the most important steps to realizing profits in real estate. One of the best values of real estate is that you leverage other people’s money to generate a rate of return.
If you are smart about this, you realize that you are generating not only a rate of return on your initial cash investment, but on the ENTIRE VALUE of the property itself. Many other investments do not give you this important advantage. That is why I love real estate.
In the original deal, I financed aggressively, thinking that the sooner I could pay off the asset, the less overall money I had to commit to the project. This is not a bad thought. If I pay the home off in fifteen years, then my potential profits skyrocket as most of the value of the rent, after taxes and insurance, is profit to me. In addition, I reason that, in fifteen years, rent would likely increase as demand for property increases, which would also increase the profit. So even before fifteen years, I would see naturally increasing rents that would boost profits.
But because I had decided to use real estate to generate cash flows, I wasn’t willing to wait fifteen years for a return on my investment. This wasn’t going to be my only property and one of my aims was to generate income as replacement for job income should the job market sour. Based upon the economic problems we are experiencing now and the dark clouds on the horizon, I think this is even more likely. Therefore, cash flow became my focus on these real estate deals.
Therefore, I refinanced my property. Now, you can just refinance the original loan and extend out the term. By extending the term, from say fifteen years to thirty, you reduce your principle and interest payments on a monthly basis. The overall amount of money you pay the bank rises, but you are allowed to pay it out over a longer horizon. You can illustrate this for yourself by finding any of the popular online mortgage calculators and experimenting with changing the time values to figure out how to modify your payment.
By refinancing to thirty years, I lowered my monthly payment. Now my monthly profit was increased by the amount difference I paid every month. I reasoned that because the rent would not likely fall over a long time period, I would always have a positive cash flow. My mortgage was fixed. Insurance and taxes can and will rise over time, but they tend to lag the market value of the homes, at least in my area. And the increases in taxes and insurance are also offset by rising rental rates. And worst-case scenario, the underlying asset was still there so that I could always sell and recoup my profits when I was ready. Single family homes are great for rentals, but also as sales to other families looking for a home. So I wasn’t worried.
At the same time I figured out that extending my time horizon would lower my monthly payment, I also figured out that I could use the equity the renters had paid down on more deals. Therefore, I opted to refinance with a cash out. I got almost the exact same interest rate. Because I was cashing out and basically taking out a loan in the amount similar to what I had originally taken, my monthly payment dropped but not by as much as if I had refinanced my smaller mortgage balance over thirty years. At the end of the day, my TOTAL mortgage payment, including taxes and escrows, was lowered to $765 per month.
Therefore, I earned $108 a month in extra profits from the refinance. And, because I took some of the equity out of the property, I had enough money to do some more deals. This expanded my business from a single home, structured much like a mutual fund where I invested in the short run expecting a long term payoff, to accepting positive cash flow each month, regaining my down payment that I put down on the home plus some extra, and also realizing a long term gain on the asset due to the equity buy down from the interest payments. It was a great idea!
It should also be noted that due to increased demand for rental property in my area, my rent rate on this investment rose from $900 per month to $1,000 per month. I had effectively increased my rent by 17.7% in a few years time.
My ROI now looked like this:
- Cash flow = $2,820 per year
- Yearly Equity = $994.77
- Yearly Repairs = $675
ROI = $3,040 / $8,900 = 34.2% per year.
My cash flow went from a negative $351 to a positive $2,145 per year.
However, I can also view the money I received from refinancing the property as a gain. I took out $20,000 from equity buy down and appreciation of the property from the last several years (five) that I owned it. If I subtract five years of equity already calculated in my yearly ROIs, the refinance gain looks like this.
($3,299 X 4) + $994 = $14,190 from the $20,000 taken out at refinance.
Therefore, I come up with $5,810 additional gain at refinance.
Therefore, the refinance ROI = $5,810 / $8,900 = 65% gain, on top of the yearly 34.2% gains from operation of the property going forward.
Also note that at the five year mark, the amount of equity I gain each year from the mortgage payment begins to rise substantially. This will effectively increase my ROI each year as interest paid to the lender begins to fade with each subsequent payment on the loan.
Because credit was insanely easy to get at the time, I took the refinance money and purchased two additional homes with it. I got one deal for 100% financing and another for 90% financing, both with no PMI based on the structure of the loans. Those were great deals, and they came along at the right time. And I did not commit any more of my personal income to gain them. They both came from the FIRST property that I purchased.
There is an interesting point to make here. These types of loans are risky to homeowners who may not be able to make their payments and eventually leave their homes because they didn’t put any money down in the deal. This is called “skin in the game.” But as an investor, this was a huge boon to my business. I have been faithful on all of my obligations to lenders and therefore am one of the few who were able to take advantage of loose credit and turn it into something more profitable.
Now I thought I knew what I was doing. My idea was to buy even bigger homes! If I could take a 1,200 square foot home and turn it into two more houses in a few years, then what could I do with a 1,500 square foot home? Or a 2,000 square foot? To me, the profits should scale with the square footage. This is where I learned another lesson.
It is true that there is a market for larger houses, but this market is smaller. Think about it in terms of your renters. When people make a certain amount of money, they are more likely to buy a home than rent. In addition, there are fewer of these people. I had left the sweet spot for single family rental homes without knowing it. I had shrunk my potential market and my potential profits. And to confirm this, to this day my most profitable house is my smallest one, not the largest. That’s just the way it works with single family homes. The target investment you want in single family homes is a three bedroom, two bath with a two car garage and a concrete slab foundation. Those types of houses are cash cows.
In any case, the portfolio of homes is profitable, but the larger ones often take longer to rent. I manage to keep them producing, but it takes more work. In a few years I will likely sell the larger homes in my portfolio. I have recently sold a previous rental property, using a method called seller financing.
Seller financing is another type of deal that is very valuable to the real estate investor. Let us discuss an example to make sense of it.
What is seller financing? Seller financing occurs when the owner decides to be the bank, and it is an incredibly powerful tool for the real estate investor. How can you be the bank? Well, you do your homework on a single family residence using the same criteria as you did on your rental home. Learning how to do a seller finance is not difficult, and therefore; this type of financing becomes a logical second step in the progression of a real estate investor.
Once you find the home and purchase it, or you have decided to convert one of your existing rentals, you do everything exactly as you would on a rental except for the contract. You advertise in the same publications. You put a sign out front that says “FOR SALE.” You show the home to interested people. When they ask you about buying the home, you mention that you have a solution for them to get in the home on a great program.
Most of the people who ask the owner for credit usually have some sort of credit issue. If they didn’t, they would just go get a bank loan. This can be a deterrent, but there are safeguards you can put in place to lower your risk. First, if they are a faithful renter of yours and you know they can make the payments, there isn’t any reason not to convert the renter into a buyer.
Secondly, some people have been faithful on all of their financial obligations for two years. This is an important milestone. For one, based upon the way the FICO credit score is calculated, two years of good payments will make a significant jump in their credit score. You want to be that first creditor to take advantage of this situation. It puts you ahead of others in a growing market in this country. Many people have dings on their credit due to excessive borrowing available in the marketplace. Those people have been fixing their issues, but aren’t quite there yet. Therefore, the banks will not lend to them. But that does not mean they are not a worthy risk in certain situations.
It is a very positive sign if the potential buyers have three years or more of solid work history. Another good sign is if they have no prior criminal convictions. If they are in their 30s, the prime earning years, and have settled into a family, or if they have parents or other relatives that can co-sign a loan, that is a also good sign. There are all sorts of ways to mitigate risks when seller financing as long as you do your due diligence on your buyers. This includes running a full credit check, background check, checking character references, checking employment history and tax returns, and checking previous rental histories.
In my case, I had renters who had credit problems. But they had paid their rent faithfully for sixteen months and took great care of the home. When they expressed to me an interest in buying the home, I knew everything about them that I need to know to make a decision and decided to seller finance the home to them.
This home had appreciated several thousand dollars in those sixteen months, even in the down economy. That, in addition to the discount I purchased the property at when I bought it, were going to be my capital gains. But if they buy, how do I get those gains out? Well, most seller financed deals involve a three to five year option period and then require a balloon payment for the balance at that time. This means the buyers have to work on their credit during the option period and get a loan from a bank later on. The bank then pays you off when they get that loan.
Not only do I expect to receive capital gains from the property, I also get cash flow in excess of what I earned when they were renters. The reason? When you offer your good credit to someone else, you charge them a premium on the interest rate. It allows them to rebuild their credit using yours. Without you, they couldn’t own a home and would continue renting! Therefore, the additional interest is profit for you the seller. This compensates you against the equity capture you lost when you decided to sell the home. After all, when they purchase the home, the amount of their payments credited to principal goes to them as owners. That is actually a handy way of turning your equity money, stuck in the property during a rental period, into monthly cash flow in the form of larger payments from the buyers. ALWAYS charge an interest premium to the buyers, over what you pay the bank, when you offer seller financing.
An advantage of being in a seller financing deal is that you are no longer liable for ANY repairs. This reduces your monthly costs to basically zero. Seller financing annuitizes your value in the asset back to you in the form of monthly cash flow plus the balloon payment when they finance with a bank and pay you off. That is a pretty good way to generate monthly ‘mailbox’ money.
Lastly, the seller finance note (contract) is now an asset which you can sell to another investor. The value to the note buyer is in giving you your money up front, often for a discount over what you would have gotten by keeping the note. This discount is the yield for the note buyer and your cost of selling the note. This gets you out of the note and into cash quickly. The note buyer now has control of the asset and you get to move on to another deal.
When you purchase real estate, you are not locked in forever. You can be very active in rentals, somewhat active in notes, or you can reduce your holdings by selling either the real estate or the note you have created on the real estate.
Commercial Real Estate
Commercial real estate is defined as any residential property over four units; including apartment buildings, industrial buildings, commercial-zoned land, office space, and retail buildings such as strip malls or stores.
For the purposes of this book, I will concentrate on multi-family commercial real estate as that is where my experience lies. However, it is encouraged that as part of your financial education, you learn the ins and outs of other types of commercial real estate and how these investments may benefit you. I have listed several good financial resources that you can get started with at the end of this book.
Commercial real estate has a major advantage over residential real estate as an investment vehicle.
The value of commercial real estate is not judged entirely by the worth of other similar properties in the area, but rather is determined by the net income that the property generates.
When you own a piece of commercial real estate, you can greatly influence the price at which you sell it. If you, for example, note that rents per unit are lower than average for the area for similar properties, then you have the option to raise the rents. Before doing this, it is helpful to survey the property to determine why the rents may be low. It may be because the previous owners simply did not raise rents over time. It may be that the property has fallen into disrepair, and the rents remained low to attract residents despite the quality problems.
When you purchase a commercial property that is undervalued and rehabilitate the units, then you can justify the higher rents. The repair costs are an investment into the property which will be paid back over time through increased rental income. In addition, the value of the property will increase substantially due to the increased net income derived from the increased rents.
The best way to rehab a commercial property is to estimate all costs before purchase and obtain a loan that includes capital to be used to fix up the property. That way, the costs of financing reflect all costs needed to get the property up to its optimal state to maximize rental income.
When the cost of rehab is factored into the purchase price, it should prevent overspending on needed repairs or the lender will not finance the project. In addition, the value of the improvements adds to the purchaser’s basis in the property. The basis is then used to determine the amount of depreciation that the purchaser can claim against income on their taxes. Higher basis leads to higher depreciation, which shields more net income from taxation.
If the repairs are not rolled into the purchase of the home, then the repairs may not step up the basis but may be treated as an expense. This reduces net operating income for the year and reduces the amount of depreciation that can be taken on the property, to offset tax exposure, for all years you will hold the property. Therefore, rolling rehab costs into the loan and rehabbing the property at purchase is the best financial option for the project.
Net Income and Cap Rates
I mentioned earlier that the value of the commercial multi-family real estate project is not determined solely by the value of other like properties in the area. The reason commercial valuation differs is because net income is the focus of the project. Net income number, which is the difference between your revenues and costs, gets modified by a value called a capitalization rate (cap rate) into a new number that represents the saleable price of the multi-family project.
The cap rate represents the value of the net income on the project. For example, when you buy a house, you are only willing to pay a certain amount. No matter how nice that house is, location and other factors will cap its value. People mainly purchase residential single family real estate to live in it, not to generate income. Investors are in the minority.
Commercial projects are intended to make money. Therefore, their value lies in the rate of return to the investor, defined primarily by the net income of the project. With higher net incomes, the rate of return value of the commercial project increases. With each year, the investor gains a higher level of profits.
What should the cap rate be? That is often very negotiable. There are three main grades of commercial multi-family. Grade A is of highest quality and is often purchased for use in REITs and other large investor projects. Grade B is lower quality, and Grade C is the typical target for first time multi-family investors. Each grade may bring a different cap rate, or rate of return, on the project depending on the net income it generates. And within each class, certain properties will generate different rates of return, or cap rates, on the initial investment (purchase price).
Here is a hypothetical example that is conservative of real world results.
Let us say that you are interested in a project, currently priced at $1,000,000, and returns 100,000 in net income. To figure cap rate, you take the price of $1 million and divide into the net income of $100,000 to find a cap rate of 10% or 0.10. If your target rate of return for the property of this class is 10% or lower, you have just found a project worth investing in.
Let us turn around the calculation of cap rates to determine how an increase in net income can substantially increase the value of the property you have purchased.
Let us say that you purchase this project, and feel through property and management improvements that you can increase net income. The cost of repairs and management changes will increase the total purchase price to $1,025,000. That is, you put $25,000 of improvements and management upgrades into the unit.
By virtue of these improvements over the first year, you have raised net income to $110,000. This is an increase of net income of $10,000 per year. Your rate of return on the original investment is 10,000 increase in net income / $1,025,000 investment = about 1%.
But there is another, larger benefit to be realized. The purchase price of your project just went up also. By increasing your investment into the property with the intent of raising net income, you have increased the SALES price of your project.
Remember that cap rate is the result of investment divided by net income. Mathematically stated:
Cap Rate = Annual Net Income / Cost of Project (including rehab financed at purchase)
We illustrated before that if we had just purchased the property as is, the cap rate came to be $100,000 net income / $1,000,000 purchase price = 10% . Well, since we have increased net income, should we not also then calculate what our new sales price to the next investor should be? After all, our sales price = their purchase price.
To do this, we have to use algebra to adjust our formula. That is because we have the net income and the cap rate, but we need to figure our new sales price. Without getting into detail the formula becomes:
Net Income / Cap Rate = Sales Price (purchase price for the next guy)
Our Net Income has risen to $110,000 after our rehab efforts. We assume, for sake of simplicity, that our cap rate has not changed even though we have improved the property. Our cap rate stands at 0.10. Notice we use the decimal value for cap rate, because cap rates are rates of return on original investment. The decimal value represents the percentage return on investment.
In this case, we use the same ‘cap rate’ because as you will find in real estate, cap rates become a leading measure of value in projects such that similar projects will use similar cap rates. Why? If an investor knows that he can create a cap rate of 0.10 yearly return on any project, why would he not then use 0.10 cap rate as his benchmark with which to judge the purchase price of new projects?
Therefore, you will typically see cap rates work within a specific range for similar investments. For example, Class C multi-family properties may trade in cap rates of 9 – 11, depending on your area. This means that investors expect from 9 -11 percent return, yearly, on investment or they will not invest. And by the same token, sellers then expect to sell at those cap rates, or they will not give up their property to an investor. Someone will pay for that cap rate on that property.
- Note: In contrast to residential real estate (less than 4 units), commercial properties are valued by their rate of return (cap rate) more than the intangible benefits of happiness that the property will bring to its owners. The net income is a measure of the happiness of the people that rent the units from the owners.
Ok, the new calculation becomes:
$110,000 / 0.10 = $1,100,000 .
That is, your property is now worth, to a new investor, $1,100,000. Since you bought it for $1,025,000, your immediate profit from rehabbing the property is $75,000. The rate of return on the value created by you for this project $75,000 / $1,025,000 = 7.3 % . Add in the 1% increase in net income, calculated earlier, and your total return is 8.3%.
Or is it?
Net Income Minus Debt Service
Remember when we talked about residential real estate, I mentioned that one of real estate’s advantages was returns on the entire value of the project, and not just your investment capital? Well what I just calculated above was the rate of return had you put cash down on the property. But we typically don’t do that in real estate. We use leverage to increase our rates of return. Leverage is the ability to use other people’s money (OPM) to increase our net worth.
Our investment in cash on the project is likely 30% of the purchase price. Therefore, we paid $307,500 of our own money, and took a loan from the bank on the rest. This changes the calculations a bit. We have to account for the payments we made to the bank for financing our project.
We will assume, for sake of simplicity, that we took a 30 year loan on the property for the amount of $717,500 in addition to our cash investment of $307,500. We then have to subtract our cost of debt service to the lender from our yearly net income to derive our cash flow profits from the project.
Therefore, 12 payments * $4301 monthly payment = $51,612 (rounded) . When we subtract that from our Net Income of $110,000, we come to a cash flow profit of $58,388. Our cash flow rate of return is then $58,338 / $307,500 = 18.9 % . Not bad rate of return. We now calculate that paying off our initial investment would take approximately just over 5 years.
The method used to calculate the new purchase price, however, does not change. We still use net income divided by cap rate, for a sales price of $1,100,000 . Because we have chosen to use OPM to finance the property, our rate of return on the investment also changes. We did not put all cash down on the property. Therefore:
$75,000 (value created) / 307,500 (initial investment) = 24.3% rate of return.
So, because of using OPM to finance the deal, we increased our project rate of return from 8.3% to 43.2%, which includes our 18.9% cash flow return plus a return of 24.3% on value creation.
Not a bad return, yes? Are your stocks and bonds growing at that rate?
This chapter is not intended to be an in-depth study of real estate investing, much like the chapter on gold and silver is not meant to be a comprehensive study on precious metals investing. The aims of these chapters are to present the key topics on each investment type. Further, I wrote them with the intention to stimulate the mind to find the advantages and disadvantages of these investments against other paper related investment types. I encourage you to study as many methods as you can find in order to build a strong and resilient portfolio that will continue to increase your wealth and happiness.