This is the biggest open secret on the planet, most people don’t know this secret because THEY DON’T WANT TO KNOW because when they do know, they don’t know what to do with the information and they prefer to leave decisions to someone else. The vast, vast majority of people prefer to abdicate their responsibilities, it is why they go to the doctor and expect to be cured by a pill when in over 80% of cases they could change their life style, just a little, and not be ill. It is the reason why insurance companies exist and why governments are elected and even why ready meals are being sold in larger and larger quantities. It is why organised religion exists, why ambulance chasing ‘no win - on fee’ solicitors exists and why millions watch football instead of playing. There are hundreds of examples in modern day life of abdicating personal responsibilities. Finance & understanding it, is just another of those examples.
The Truth about Money and the Economy &
How We can Benefit from this Knowledge:
by Fred Turner © This work is copyright protected and is for the benefit of the very few people close to me. Prepare to have your eyes opened & Enjoy! Thanks to my good friends at one of the best car leasing companies that I know of, for supplying my three cars. They are a small company trying to fight against the big boys. That’s why I’m allowing them to post this article.
First a quotation:
“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. The issuing power should be taken from banks, and restored to the people.” Thomas Jefferson
Money was originally invented as a convenient alternative to barter, an alternative without which a highly developed civilisation, like ours, could not exist.Imagine trying to pay the taxi driver with a bag of coal or the grocery bill with a box of spanners and a set of golf clubs. Imagine trying to carry all that around with you when you go shopping. As societies grew more complex and social roles became more specialised, the idea of money was conceived as a better and more flexible way to exchange, and thereby distribute among men, goods and services.
Money is quite simply an idea! Agreed upon among people that some system of tokens or symbols: discs of metal (coins) paper with symbols on it (notes) and so on, will be used by them to represent or stand proxy for goods and services and that those tokens can be exchanged for goods and services. One can then exchange the tokens rather than bags of coal, boxes of spanners or what-have-you and the tokens are easy to carry around. Its workability depends upon the participants’ confidence that those tokens are and will continue to be exchangeable for a certain amount of goods or services.That’s all money is. It is no more complicated than that, although men may try to make it seem complex and hard to understand. The truth however is, as truths tend to be, simple; it is alterations of the truth - lies -that are complicated.
(see the end of this writing if you want to know more, most people will know this but may not have given it much thought so the details are shown at the end.)
THE ECCONOMY IS NOT BASED UPON WEALTH BUT UPON DEBT: WITHOUT DEBT
THE ECCONOMY WOULD COLLAPSE: SEE WHY:
LOOK HOW IT STARTED WITH GOLDSMITHS
In the old days gold was minted into coins and those coins, along with silver coins, formed the nation’s currency. Goldsmiths had strongboxes and vaults in which to securely store the precious metal with which they worked. It was natural enough then that other people took to asking the goldsmith to store their gold and gold coins in his vault and to pay the goldsmith for the service. A merchant (for example) would entrust to the goldsmith £20 worth of his own gold for safekeeping. When he handed over his gold, the goldsmith would provide him with a receipt or note promising to hand back the gold (pay the bearer on demand, still used on our notes today.) whenever the depositor returned and presented the note. The receipt held by the depositor was in fact as good as gold because he could exchange it for his £20 worth of gold any time he chose. But the note was easier to carry around than heavy and bulky amounts of gold and easier to conceal, so the depositor was often content to leave his gold in the goldsmith’s safekeeping for long periods. In fact when the time came to pay for some commodity with his £20 of gold, instead of returning to the goldsmith, exchanging the receipt for the gold and then using the gold to pay for his purchase, it was more convenient for him simply to hand over his receipt to the seller. The seller was happy to accept the receipt in lieu of actual gold because it was more convenient to carry around and he knew that should he present it to the goldsmith, £20 of gold would be handed over to him.Thus those gold receipts began to circulate and became the first paper money. People were happy to exchange them back and forth rather than the cumbersome gold they represented. The receipts had value because people were confident that in the goldsmith’s vault lay the gold, which they could redeem at any time.
Eventually, the goldsmiths noticed that the gold left by depositors remained in their vaults for longer and longer periods. People turned up wishing to exchange their receipts for gold less and less often, and that the receipts they had issued to depositors circulated in its place. It seemed a shame to have all that gold just sitting there doing nothing. Why not lend some of it out for a while? If it just sat there for year after year the owner, the holder of the receipt was not going to miss it if it were loaned to someone else for a period.
As long as there was enough gold in the vaults to satisfy anyone who did turn up with a receipt, then no-one would be any the wiser. So depositor Joe would leave £20 of gold with the goldsmith for safekeeping and depart with his receipt which he would then use as money in lieu of the gold and it would circulate. It might be years before anyone turned up with that £20 note asking for £20 of gold. Meanwhile Tom would turn up at the goldsmith’s asking to borrow £20 of gold and the goldsmith would lend it to him, demanding that it be paid back after a certain period at a certain amount of interest. But instead of lending Tom actual gold, the goldsmith would draw up a £20 receipt, just like the one depositor Joe had been given. Tom was happy to take the receipt in lieu of the gold because it was more convenient to carry around and people were happy to accept such receipts in payment for things.So Tom went off with his £20 note, content that through it he was now in temporary possession of £20 of gold. But unbeknownst to Tom, Joe also has a receipt representing that very same gold. In other words there are now two notes in circulation representing the same £20 of gold! Clearly the goldsmith’s issuance of two receipts for the same amount of gold is fraudulent - particularly when Tom repays the gold he believes he has borrowed in real gold. As each receipt promises to hand over the same £20 of gold on demand, the goldsmith is making a promise he knows he cannot keep.
Several things are clear at the moment the second receipt was issued and entered circulation: new money has been created out of thin air; that new money has been loaned into existence; as the loan has interest charged upon it, then a debt has also been created out of nothing, The Debt is the amount of loan Plus the amount of interest so the total DEBT is greater than the amount of new money created.
And another thing: Tom will eventually return to the goldsmith and repay his £20 loan, say at 10% interest. He will therefore hand the goldsmith, £22 in real gold. In other words, the goldsmith, in creating that bogus receipt and lending it to Tom, is creating for himself, albeit after a delay, real debt-free gold worth more than the new money he loaned into existence! It gets worse.
After a while the goldsmith, seeing that his fraud is working pretty well, thinks that if he can issue two £20 receipts against the same £20 of gold, then why not three or even four or five?
So Joe deposits £20 of gold and the goldsmith gives him his receipt. In time four other people turn up at his shop wanting to borrow that £20 of gold. The goldsmith obligingly lends it to each of them at interest, giving each a receipt purporting to represent that £20 of gold. There are now five receipts in circulation representing the same deposit of gold, one for the original depositor and one for each of the four borrowers. For that deposit of £20, £80 (4x £20) of new money is created merely by writing on a fancy piece of paper a promise that the borrower/s owe the Goldsmith £20 in gold each plus interest.
If (say) £2 of interest (10%) is charged on each loan, at the same time that £80 of new money is created out of thin air, a debt of £88 is also created out of thin air.
The borrower’s Property is held as security against these loans so if the borrower fails to repay with real gold the fraudulent piece of paper he borrowed upon, the goldsmith takes his property.
Each time the goldsmith lends £20 of bogus gold he charges 10% interest on the loan. By lending out £20 four times over and charging £2 interest on each loan, the goldsmith makes a whopping 40% (four times £2) in interest on the £20 “reserves” that were not even his to begin with! The goldsmith cannot lose and soon begins to amass a fortune from his fraud. It is the greatest get-rich-quick scheme ever invented. And it is, in essence, the basis of the modern banking system.
The goldsmiths of yesteryear became the bankers of today and although paper money and latterly electronic money took over from gold, essentially the same fraud is being run.
BANKERS
The business of lending pieces of paper pretending to be gold made the goldsmiths very wealthy and very influential men. Their easy wealth enabled them to move to upmarket premises. They became pillars of the community and some even became international financiers, lending money to king’s countries and governments.In the seventeenth century in England, conflict between the bankers of the day and the Stuarts led the bankers to act in concert with bankers in Europe. They joined forces with those in the Netherlands to finance the invasion of England by William of Orange. William overthrew the Stuart Kings in 1688 and became King William III.
By the end of the 1600s England was in financial ruin, gold and silver supplies were running low and a costly civil war followed by costly wars with France and Holland, all in a fifty year period, it had left her (England) heavily in debt.
Government officials met with the financiers to negotiate the loans they needed. King William was £20 million in debt and he could not pay his army. Apparently it did not occur to William or anyone that if William needed to pay his army or get the economy going, all he had to do was have the government print its own money and use that to pay the troops -something that Abraham Lincoln would do successfully during the American Civil war nearly two hundred years later!King William’s “friends”, the bankers, were willing to loan him the money he needed but the price they wanted for their “help” was high. They wanted a government-sanctioned but privately owned central bank that could; through fractional reserve lending, create money out of nothing and loan it to the government.
They got their way. In 1694 the world’s first privately owned central bank was created. It was to be called the Bank of England. The Bank’s charter included the following immortal words:
“The bank hath benefit on the interest on all monies which it creates out of nothing.”
Instead of exercising its right to create money and spend it into the economy, the government had the bank create it, then lend it to the government so that the government could spend it into the economy, then pay the loans back later with interest, this money was to be collected from the working people as taxes. That completely unnecessary complication was to have devastating consequences for the futures of the English people.As well as delivering extraordinary power over the nation into the hands of a privately owned business banking corporation, it also began the National Debt, a debt that would go on increasing remorselessly over the ensuing years until it had reached around £380 billion in 1996, and costs us (the tax payer) around £30 billion a year in interest payments and is still climbing.
By the end of the 17th century, the goldsmiths’ scam had become respectable banking sanctioned and then legalized by the government of the day. The role of the banks in issuing money through lending to individuals and businesses had already become widely accepted. Thus there came to be established two routes by which money was borrowed into the economy: private and commercial borrowing on the one hand and government borrowing on the other. That combined debt in the present day has now soared to well over one trillion pounds. (I’m not sure how to express a trillion in zeros! An American billion and trillion are different to the UK’s! )
In 1704, just ten years after the creation of the Bank of England, the banks’ promissory notes, on the recommendation of the bankers and financiers who advised the government, were declared legal tender.
Although the new central bank was an entirely privately owned corporation, the name chosen for it (The Bank of England) led generations of Englishmen to believe that it was part of their government, when it most certainly was not. Like any other privately owned corporation the new central bank sold shares to create its initial capital. Its investors - whose identities were never disclosed - were supposed to put up a total of £1 ¼ million in gold coin to purchase their shares. Only three quarters of a million was ever received, this shortfall and fraudulent action was never investigated or even questioned, merely documented.
Nevertheless, despite that minor technicality, the bank was chartered in 1694 and began the business of lending out several times (believed to be up to 10 times) the money it supposedly had in its reserves.
In exchange for this unique and immensely profitable privilege, the bank would very kindly lend the English, and later British, government as much money as it wanted, at interest of course, provided the debt was secured by direct taxation of the people.
THE MODERN INCARNATION OF FRAUD
What happens when you or I, or for that matter the government, borrow money from the bank? Prepare yourself for a surprise.Let’s say we want to borrow a £100,000 mortgage on a house. The bank or building society does what the goldsmith did and creates £100,000 out of thin air. Instead of handing us a paper certificate, it simply credits our bank account with the £100,000 and registers that £100,000 as a debt, with (say) a further £100,000 interest over 25 years. The money is simply penned into our account without any account anywhere being debited with the loaned money. New money is therefore created. Alongside it a debt (in this case £100,000 plus the roughly £100,000 of interest) is created. When we repay the debt, the interest is accounted as income for the bank. The £100,000 we originally borrowed is then withdrawn from circulation and is accounted as collateral for further lending; in turn it is loaned back into circulation when someone else borrows.
Our house is held as security so if we fail to keep up our repayments, the creditor takes possession of it. The repayments themselves can vary through no fault of our own, according to interest rates set by the banking industry. Over recent years The Bank of England, this privately owned company, has been given the power set what interest rates it wants to charge, completely independently from our elected government. In effect the privately owned company “The Bank of England” run the nations finances and therefore controls all of the tax paying population through their pockets!
After 25 years of blood sweat and tears we finally pay back the last instalment of the £200,000 capital-plus-interest we owed and the house in finally ours. It is not ours until that very final payment. Yet we all say, “I own my own home, with a mortgage.” Of course, that is a lie but that is how The Bank of England and the government want us to see it – and we oblige.The lender, who loaned us money which did not exist until the moment he created it out of nothing, winds up with £100,000 of interest on the loan: that is real, spendable income that comes courtesy of our real work and real wealth creation that we have toiled and spent 25 yrs working our fingers to the bone for. The numbers have been simplified to highlight the nature of the fraud and in practice the process is hidden under a great deal more complexity than I have show here but this in essence, is the process of money creation. So we now own our own home. We are nearly 60 yrs old and we have a valuable asset to leave to our offspring, don’t we? Well, probably not as much as you might think. When we die if our “Estate” our net worth, is over a certain level then up to 50% of our wealth is confiscated from our estate in the form of Taxes. Our offspring may not be able to afford to pay them unless they sell the property or take out a loan against it and the whole circle is repeated again. We have in fact exchanged our working lives just to exist and hand down potential debt, maybe a little wealth, to our offspring hopefully making their lives a little easier than our own.
Each time the banks create money they create a debt that is greater than the spending power they create. One can see too that each time they are creating a debt for the borrower; they are ultimately creating debt free money for themselves.
Before the goldsmiths’ scam began, the money in circulation was hard currency - usually gold or silver minted into coins which then circulated as the tokens used to represent goods and services. That minting and circulation of coinage was usually administered by the government or king.
However as soon as the goldsmiths’ certificates became used in lieu of gold, paper money had made an appearance. As soon as the goldsmiths began issuing paper notes for gold they did not actually have, the goldsmiths were themselves creating new money and lending it into circulation.
One can see that this establishes debt as the basis of our currency. Where once, long ago, the British pound represented something -so much gold or silver - it now represents so much debt, which is not only nothing, it is less than nothing. It is even easier to get into debt today than ever before. You can clearly see why banks need you to be in debt. Your debt on your home is secured by the property itself. Those who perpetrate this scam clearly value only one asset, not money, not gold but property. Nothing else! Other debt, not secured by property such as credit card debt, is high risk, or is it? Bearing in mind that they created that money and therefore that debt from nothing, then in reality they have nothing to risk yet it is called high risk because the actuality of the debt being repaid is less secure than when they hold the deeds to your property so they charge interest rates of up to 26% per annum so that those who do pay back their debt also pay for the defaulters who don’t. The more money lent and borrowed on unsecured debt, the greater the spending power of the people who borrowed it. The greater the spending power, the more buoyant the economy. The more money spent the dearer things become and the more taxes we pay. We are taxed when we inherit, we are taxed when we work, we are taxed on our profits, we are taxed when we spend, we are taxed when we borrow and we are taxed when we die. The beneficiaries are the Banks and the Governments a very few select people who control almost all of the wealth and therefore the people’s behaviour. That’s why, today’s democracy is merely a façade, a trick whereby we believe we have rights and power, in reality we are but puppets dancing to our master’s tune.
But wait! The banks have not done with your deeds just yet.
When you take out a mortgage and the bank keeps your deeds most people imaging that those deeds lay in a vault as you repay your mortgage thought the years. NOT A CHANCE! All lenders ‘bundle up’ groups of mortgage deeds into an ‘asset statement’ and sell that to other banks and lenders who use it for collateral or trade it in return. The money they get for selling on the deeds to your property frees up more capital so they can relend it and earn additional interest on it, then bundle, receive money, relend, earn additional interest … and on and on! This is called leverage. I warned you at the outset you didn’t really want to know this stuff!
So is this it or is there a way we can join the elite?
“Whoever controls the volume of money in any country is absolute master of all industry and commerce. And when we realize that the entire system is very easily controlled, one way or another, by a few very powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
U.S. President James Garfield.
A few weeks after making this statement, he was assassinated on July 12, 1818.
WHY?
Are there ways we can join the elite?
Let us look at the ways the elite create their wealth.
At the heart of their wealth is property.
They create more wealth by making & using leverage, in the form of interest, on the loans they make on new money that costs them nothing, selling those assets and repeating.
They control how much we spend, how much we are in debt and how much we pay for that privilege. By such processes a nation is ‘kept in check’ in effect work slaves to the government of the day and like puppets with every move being controlled though our spending and in particular our debt.
One of the most successful ways to get rich is to identify a proven formula and copy it. But, and this is a big BUT, if we simply copied what they do, we would be jailed for fraud, probably for life!
We must accept that we are never going to be in the elite league. Only a handful of men in each country are. Any seriously super rich person gets invited into the banking world. Look at Richard Branson for example. Sure, he was a very successful and wealthy businessman but it wasn’t until he launched his own banking service “The Virgin One Account” followed by other banking services that he became one of the elite. Before you can create wealth by creating debt you must first have the blessing and sanction of the government and the other banking institutions.
So how can this information help us?
Since property is so coveted by the elite, one of the possible ways is to own property. But to own property cost money and if you sell it you are taxed heavily which strips you of the gains you may have made. So exactly how can you make money from property?
One of the principals of being successful in business is to give others what they want. The banks do this, they give the people what they want, ‘money and credit’ to buy “things”. Buying “Things” provides a sense of power and control and is often dubbed “Retail Therapy”. What if, somehow we could be a middle man in this chain of events? By giving the people what they want, the banks get what they want, only in much larger amounts, by thousands of them. This part we CAN emulate without being arrested.
We can give the banks the opportunity to create NEW MONEY & NEW DEBT & INITEREST by them lending us the New Money they have created for us to buy property with. They are happy.
We give the people what they want, a nice home at reasonable rent with a good caring Landlord.
The people give us what we want; they pay for all of that interest on the debt and a bit more for us in the rent they give us.
This creates the opportunity for us to create wealth through leverage on the property value increase.
No, we can’t sell to realize that value without paying large amounts of TAX but we can become wealthy from it just the same.
Let me explain: , These are in no particular order, just as they come to me.
Principal 1: The tenant/s take care of the interest on the loan and provides some extra for us or to ensure a cushion for unforeseen times.
Principal 2: We take out a loan with the banks to buy the property but only intend to pay the interest back and never any of the capital. This is called an “Interest Only” Mortgage or Loan. These are not domestic mortgages and are generally only available to investors. WHY? Because the banks and lenders need us to stimulate the market so they can create more new money and more debt. So in essence we ‘borrow’ the building, allowing the loan to be serviced by the tenant/s plus a bit for us. This is far cheaper for the tenant than buying a home because if they did that, not only would they have to find a large deposit but they would have to pay Interest + Capital repayments or Interest + pensions or endowment, which together would be considerably out of their reach.
Principal 3: We must “buy” our property for at least 15% below market value much more if we can. Now that does not mean buying crap property that needs money spending on it to make it more valuable, it means buying a bargain because of: The circumstances: (and if you are buying a second hand property, The Ignorance of the seller and the Estate agents.)
Principal 4: We must buy using the minimum of our own capital as possible. We want to ‘own’ as little of the capital in the property as possible because this is ‘dead’ money. We use the ‘leverage’ of borrowed money and let the property increase in value, usually doubling every 7 to 8 yrs depending on the type of property, the area and the economy.
Principal 5: We must ensure a ‘stable’ interest rate for at least 2 yrs but better if 3yrs. Often, when you take out a new loan, there is a ‘honeymoon’ period to attract you to their product. This may be a particularly low rate, fixed for 3yrs, reverting to a more normal 1.5% over base variable after that time. The lenders can lend you money for .000001% and still make money from the loan because you have given them the opportunity to create New Money and New Debt which cost them nothing, so ANY interest they get is a bonus. However in reality, they don’t do this but they may go well below current base rate for a fixed period of say 2yrs or 3 yrs. Why would they do this? 2 reasons, firstly THEY want your business and they do not want you to go to the competitors. Secondly, most people, even business people, are lazy. Most will never re-evaluate their situation and will not bother to remortgage which leads us to:
Principal 6: Never let a mortgage run past the ‘special rate’ and revert to the ‘standard rate. Institutions know that people are lazy; in most cases they will take the least line of resistance. It’s human and animal nature. So many people including ‘would be professional investors’ fail to remortgage and find a better rate when their special rate runs out. It is a time tried and tested way of exploiting people – low start up costs, leading to higher costs thereafter if you do nothing. Many forms of sales use this ploy all the time. “internet for £6.99 per month (first 3 months thereafter £15.99) Interest free credit for 1 yr, knowing full well that most will neither pay anything off in the first yr and cannot afford to pay the lot at the end of the yr so then they get charged a heavy interest rate. It’s endemic, and it all relies upon the laziness of human nature. You buy property to benefit from the capital growth but if you don’t remortgage at the end of your special rate term then you give most of that capital growth to the lender and you will get next to nothing for your efforts and you are once again just one of the herd who are working for them.
Principal 7: Never spend more money on a property that the area or property warrants. Putting marble floors and hand made solid oak kitchens in an ex council house is more likely to detract from its value rather than improve it. Instead put reasonably priced but tastefully chosen ceramic tiles and a B&Q kitchen. External improvements should be refined to replacement windows, guttering and providing ‘kerb appeal’ and not water features or stone cladding! Never reduce the number of bedrooms even if they are small, a 2 bed house with large bedrooms will never make as much as a 3 bedroom house with small bedrooms. There is one exception, if the property is old and doesn’t have an inside bathroom then you can sacrifice the smallest bedroom to a bathroom and this will add value and desirability to the propert
Principal 8: Never buy a property that requires major renovation or structural work unless you are an experienced builder or property developer. Even if you are, think twice before you take on the commitment. Major renovations swallow up large amounts of cash and devour your time. The aim is to buy properties that need minimal work, some paint, perhaps a kitchen /bathroom upgrade, flooring, garden tidied etc. this way you can get them ready for rent and bringing in income in 3 to 4 weeks.
Heed these major principals and you won’t go wrong.
So how do we make money? Let’s say we buy a property for £200,000 and we get a mortgage on it for 85% (£170,000) That means that this £200,000 property has actually cost us £30,000 of our own money. The mortgage is a fixed rate for 3 yrs at 5.25% and repayments are £744 per month and the rent for a property of this value would be £1050 p.m. So the mortgage and maintenance is taken care of by the tenants rent. So, no profit there to speak of. We purchased the property at 15% below mkt value so the real value is £235,000 in addition to this the property capital value grows at the average rate of 11% compound each year so by the end of the three yrs fixed rate the property is now worth:
Whoaaaa boy! Hang on just a cotton pickin’ minute! Property prices are falling aren’t they? Well yes, for the last 6 months here in the UK they have fell very slightly, around 4% for most of England but much more in Ireland Scotland and Wales giving an average fall of around 7% for the whole of the UK. (notice that only the largest figure is used in the media) BUT and this is a big BUT, Property over the last 80yrs (since records have been kept) has DOUBLED in value, on average every 8yrs (this equates to an average increase of around 11% compound per annum) and that includes the previous recessions, the war, the 29% inflation under Prime Minister Harold Wilson and the Labour government, Devaluation of the £, AND the so called ‘housing crash’ in the 90’s. The current ‘fall’ is nothing but a ‘blip’ in the grand scheme of things. One must take a mid and long term view. So if you think you are going to get rich in the next 2 to 3 yrs by buying property then forget it. This is a mid to long term strategy. Right, back to the plot!
£235000 + 11% £260850 +11% £289543 +11% £321393 at the end of the 3 yr period we find another 3 yr fixed deal but we remortgage it for 85% of the current value. This means the loan is now £273000 of which the original mortgage is paid off £170,000 leaving £103,000, we deduct our original £30,000 capital investment and now we have NONE of our own money tied up in this property AND we will continue to benefit from the year on year growth in capital. Now we also have £73,000 to do with what we want, it can’t be taxed because it is ‘borrowed money’. We can buy a car, take a holiday, but most investors buy more property to repeat the process. OK what about the new mortgage payments? Now we are borrowing £273000 and the interest on that is a whopping £1180 p.m. BUT WAIT! There is more good news! Every year that passes the tenants rent will rise to match a figure between inflation and property growth so lets say the rent will rise on average 8% p.a. so in yr 2 he will pay, £1134: Yr 3 - £1224 and in this new yr £1325.
So let’s have a quick recap of what we did here! We brought a property using as little of our own capital as possible. We benefitted from the capital growth of that property not just on the £30,000 we put in but on the WHOLE amount of the property value. This is called leverage, similar to the banks but on a smaller scale. It is the same principal as the old goldsmith. We create wealth form something that we don’t actually own but nonetheless benefit form all the growth on all the value AND we don’t pay anything out because the rent takes care of that part. This is as close to the banking system as we can legally get. We made an original £30k investment and in three yrs got back out £30k and a further £73k (equity growth) and even if we don’t use any of our original capital, we have enough to invest in two properties this time! Remember what the banks do…repeat, repeat!
Of course we cannot go on in this way indefinitely so we have to have a strategy. And that is simple: Build wealth, consolidate wealth, and exit.
Something like this:
Phase 1: Building wealth:
Buy property for a targeted period or a targeted amount: My own target for example is £10m of property in 7 yrs.
I then stop buying and stop increasing my borrowing. Now we will have a surplus each year in rent as the rent increases but the mortgages remains the same (because we are not increasing borrowing)
Phase 2: Consolidate wealth:
So, we use this excess in rent each year to reduce the Capital on the property meaning that we now own more and more of the property each year. When we were building wealth in phase one, we wanted to own as little of the property as possible but now we are consolidation wealth we want to own as much as the property as we can before we exit. After 10 yrs the property will have increased 140% in value, or there about, so our original property of £200,000 after 17 yrs will be worth close on £1m, £273,000 of which is owed to the mortgage lender. Leaving us with a cool £.75m in equity. That is just 1 property! Repeat, repeat, repeat!
Phase 3: Exit:
Over the next 10 to 20yrs heading to our retirement and old age/death, we sell off one or maybe two or three properties per tax yr. BUT, before we do, we transfer the title deed into ‘joint’ names with your spouse. This means you receive double the tax allowance before Capital Gains Tax. The profit of what is left, unfortunately, the tax man will take 40% (currently) of but hopefully you work this so that it is a minimum each year. You then live like a millionaire off the proceeds every yr. Buying a mixed portfolio in the ratio of 70% domestic and 30% commercial has its merits as you can sell commercial properties without paying CGT. This will help your yearly exit strategy.
You may have to read this several times to grasp it fully. 3 yrs ago I invested £180k into property of my own money. Today my portfolio is already worth £3.4m with mortgages of £2.1m so I am well within my target since leverage will allow me to accelerate my level of purchases year on year. Currently I have 23 let properties and I have a further four properties in the process of buying as I write, which will boost my portfolio to £4.1m. My mortgages are covered by rents to the tune of 135% so I have 35% spare after all the mortgages are paid. Of course some of this is used up in maintenance and improvements. Higher interest rates from the credit crunch will take their toll and I calculate that they may eroded my excess rent to loan (yield) from my current 135% to around 110% but again, historically this won’t last beyond 2 to 3 yrs.
I hope this all makes sense to you. If not just keep reading it again and again.
Why not read my other article posted on this site, “The truth about the Credit Crunch”
Many societies have used gold and silver coins as their tokens, then later pieces of paper to represent gold and silver coins, and later cheques and ledger entries to represent notes and coins and in modern times electronic money, the shifting and balancing of numbers in computer memories, alongside or in place of coins, notes and cheques. Thus when we receive a computer print-out of our bank statement saying we have £500 in our current account we usually visualise a stack of £l0 notes sitting in a vault somewhere, or perhaps a bag of gold coins, although in reality there is no pile of notes or bag of coins, merely the ledger-entry in an electronic memory Saying we have £500. Should we then write a cheque in order to spend £50 of it, the numbers in our ledger change to £450 and the payee’s account increases by £50 in their ledger although no notes, gold or anything else has actually moved from one account to another.Yet it works because we have confidence in it and trust it and we know we can change that £500 for real notes, real coins or real goods or services whenever we want to.
This evolution in the system of tokens we use to represent real goods and services comes about through a succession of bright ideas in the direction of making distribution and exchange more convenient, the movement of wealth between people smoother and faster. However, anything can be used for money, provided people agree to use it and have confidence in it. For instance dried yak dung was once used in Tibet, notched pieces of wood in Medieval England, leather discs in Medieval Europe and even cigarettes and tins of coffee in post-war Germany. The money in use in a country is called currency, from the word current, meaning prevalent, in circulation or in use.
Governments firm up that agreement and confidence by enshrining a particular system of tokens in law and demanding those tokens in payment of taxes. A particular system of creating, denominating, issuing and circulating money - currency - where backed by law and deemed by law the only recognised system, and which cannot be legally refused as payment of a debt, is called legal tender. Where barter is no longer practised, one has to possess those tokens in order to acquire goods and services from others. It is the medium of exchange. Tokens, be they yak dung, metal discs or numbers with the ‘£’ symbol in front of them, are exchanged back and forth between people instead of goods and exchange does now usually occur without the use of tokens or the promise of tokens on the future.
The way one acquires tokens is by producing something and then selling it to someone who has expressed his want for it by offering us some of his tokens. This may be a ‘thing’ or a service of some kind. We do the deal and receive the tokens he has offered. Now we can go and exchange those tokens for other products that we desire, which we do not produce ourselves. Thus money enables goods and services to be exchanged among people and distribution of those goods and services to occur naturally, and according to the needs and wants of the participants.
The more of those tokens one possesses or is able to acquire through one’s ‘production’, the more one can if one wishes, acquire goods and services from others. One can also store money in a safe or bank account without having to build a couple of warehouses in which to store container-loads of spare goods. Money therefore confers exchange power or spending power on he who possesses it in direct ratio to the amount of it he is able to offer up for exchange. The greater the ‘spending power’ one possesses the greater the ‘options in life’ lay open to him. For example, he who possess wealth can choose whom he distributes his wealth to, thereby influencing who he helps and who he ignores according to his own sense of justice, morality or beliefs. In this small but significant way he has a degree of ‘control’ or power which is greater than those around him with no wealth. Therefore, wealth also represents a greater freedom of choice than those who are poor and have the vast majority of their monthly income claimed by those to whom they are reliant upon for their basic needs in life.
The major difference is that the wealthy can be proactive in their decisions making and therefore, non-reliant upon society, whereas the less wealthy (over 95% of the population to some degree) are reactionary in their decisions which means that they are heavily dependant upon society. Unfortunately, when wealth and power are obtained, many are incapable of using this power in a wise or just way, instead they use it in a greedy pursuit of more wealth and power, climbing over and even destroying others in that attempt. They become corrupt and immoral in both their actions and thoughts. Whilst wealth is desirable it should not be pursued otherwise corruption and immorality will prevail, instead, spread your wealth (without exposing yourself to extortion or poverty) by offering opportunities to others, not for your own immediate gain but because you can, be generous where you can afford to be and where it is deserved by others. These actions will attract, trust, willingness, good will and almost as a by product, more wealth your way. It may also teach others how to attain and maintain wealth and distribute it justly.
An often misquoted saying is “money is the root of all evil” and this has equated those with wealth as being evil. Clearly when you have wealth you have choices and one of those choices is to do good things with your power or do bad things with your power. The actual quote is…” The LOVE of money is the root of all evil” the money is not evil but the Love or pursuit of money for its own sake, is evil. The reason for this is that if your sole aim is to pursue money then you won’t care who you hurt or destroy in the process, these type of people are called Sociopaths, people who act without any care or responsibility or remorse of what damage they do to others in the pursuit of their obsession. I think most of us would agree that this could be interpreted as evil.
Wealth is not just money. Wealth is a much more encompassing thing. Wealth is people trusting you, having faith in your judgement, directing good will towards you, Wealth is as much about giving as acquiring.
Take care and may wealth be attracted to you, but then again, that’s up to you!: Fred Turner Sept 2007
