Are Your Real Estate Flips Flops? Part II

The real referees are back. No more referees rejected from college training programs. This week, Ed “Big Guns” Hochuli will be back torturing the Redskins. Hochuli makes Arnold Schwarzenegger feel inadequate physically. He's built like a Redskin hating Greek god. Of course, there was that officiating gaffe that cost the Chargers a playoff spot a couple years ago as well. Yet, I am a forgiving person, especially given the danger to RGIII from the fake referees.

In my previous post, I explained how you calculate return on investment for real estate investments or for that matter for any investment. The basic calculation was profit divided by investment. I encourage you to read that post first before this one. In this post, I assume you understand the basic ROI concept. I will also use a more complex example. Let's plunge into an example with some realistic numbers in place of the very simple ones from the last post.

Our objective in this exercise is to calculate how much we have to sell an investment property for in order to obtain a desired rate of return over a particular period of time. In simpler terminology, we are fixing up and flipping a house. To accomplish this, I have to give you some numbers. Here they are:

Purchase price of the house $350,000

Settlement costs on the purchase $10,000

Fix up costs $50,000

Loan amount at 80% of the purchase price at an annual interest rate of 8%

We intend to sell the house after six months with a 50% annual rate of return.

Settlement costs on the sale $20,000

Our objective is to determine the selling price of the house to get our 50% annual rate of return in a six month period. Let's start out with how much money we need to invest in the house. We need this information to know the dollar amount of the return we desire. To get the total amount invested in the house, we add the purchase price, the purchase settlement costs, and the fix up costs, which gives us $410,000. We can borrow 80% of the purchase price or $280,000. The bank typically won't finance the settlement and fix up costs. If we then subtract the loan amount from the total amount we have in the house, we get our investment of $120,000. That's our money in the deal.

Next, let's determine the profit we need to achieve our annual rate of return of 50%. Since we are holding the house for 6 months, our actual nominal rate of return is 50% divided by 2 or 25%. So we take the 25% times out investment of $120,000 to get $30,000, which is our desired profit.

Finally, we determine the selling price we must get. Add the original cost of the house including the purchase price, fix up costs,and purchase settlement costs. That gives us $410,000. To that we add 6 months interest on the loan, which is $11,200. The bank isn't loaning you the money for free. Then we add the settlement costs on the sale, which are $20,000. Finally, we add in our desired return on investment of $30,000. That gives us a desired selling price of $461,200.

Put simply, to achieve a 50% annual return on our invested funds, we need to sell the house for $461,200 in six months. If you don't follow the math exactly or would like to run your own scenarios, I have an Excel spreadsheet I will send you if you shoot me a message requesting it at fstitely2@gmail.com. I have no agenda in this. I ain't looking to sell you nothin'.

Let's have some more fun with these numbers. Let's start out with the selling price we need to break even. That's an easy number to get. We take our desired selling price of $461,200 and subtract the profit of $30,000. Our breakeven price is $431,200. If the price is above that, we make money. If the price is below, we lose money. In other words, we have to sell the house, that we bought for $350,000 and spent $50,000 fixing up, for $431,200. Or we lose money. If we are selling within six months, the house, that we paid $410,000 for after fix-up costs but before settlement costs, has to go up in price to $431,200 or we lose money. The breakeven number is an incredibly important piece of information to have before you plunge into this investment. If you haven't calculated that number, real estate investing isn't for you.

Now that you know how to set your objective and calculate breakeven, let's discuss the circumstances under which you can accomplish your profit objective by flipping a house. Let's start out with a sanity check. Why would somebody pay you $461,200 for a house you bought and fixed-up for $410,000. Why wouldn't someone just go out and buy another house for $350,000 and spend $50,000? What makes your house worth the $461,200 after six months or even the breakeven of $431,200? Few amateur house flippers ever ask themselves this question.

There are three circumstances under which you might achieve the return you desire. The first is that you are in the construction business. That means you are doing a lot of the work yourself or through your employees. You are paying wholesale for materials and labor. You aren't paying for the improvements what the average Rich Dad Poor Dad reader pays. You are paying $50,000 for improvements worth $90,000, assuming no other increase in the price of the underlying house. Are you in the construction business with access to great pricing? Most of you aren't.

The second circumstance is that you have identified a house that is significantly under-priced. Under-priced to the tune of $40,000. In other words, you paid $350,000 for a house that was really worth $390,000. How did you happen to have this magnificent foresight? You might have this foresight if you have been in the real estate business for a long time. You might be able to identify houses in neighborhoods about to become desirable. I have known a few people, who have done this, but damn few. Look in the mirror and be honest. Do you really have this sort of insight?

The final circumstance under which you might achieve our annual return of 50% is that the real estate market has gone truly crazy and there is a buying frenzy. The early 2000's are a perfect example of a real estate market gone crazy. You could buy a house from a builder that had not been built yet. Then you could sell it two weeks later for a good profit still before the house had been built.

Of course, you had better not get in on the end of the cycle. My business partner Paul and I have a saying. “The party is over when the fools arrive.” Fast forward from 2000 to 2006. When the music stopped, a lot of people had borrowed a lot of money on houses that were worth 60% of what they had paid a year earlier. They weren't underwater. They were completely under the riverbed. I had clients whose real estate investments went as follows: profit, profit, bankruptcy. Some of these people were real estate agents. So much for superior market knowledge.

Your ability to make money in a crazy market depends on your ability to recognize the beginning of the price run-up and then get out before the crash. Do you have that level of expertise? I don't. Pretty much no one does.

My intent isn't to tell you that real estate shouldn't be part of your investment portfolio. It should be. However, flipping houses isn't investment. It's speculation. If you're not real estate savvy, you are just gambling – with borrowed money in most cases. If you aren't doing the ROI calculations above and making realistic judgments, you aren't real estate savvy. Your real estate flips will be flops.

Our house is in mourning over the death of the baby panda at the National Zoo. The Zoo has had incredibly bad luck raising baby pandas. There are two possible explanations for this. The first is that the pandas are just another defective Chinese export product.

The second explanation is the lack of sex appeal of the female pandas at the National Zoo. Despite importing male panda studs, the zoo has resorted to artificial insemination. We can only imagine the conversations between the male pandas. “Dude, she's a double bagger. I'm not doing that.”

Maybe panda love works the same way as human love. They should spike the bamboo shooters the males drink. Get them liquored up. Then announce last call for alcohol. The females will probably look a lot more attractive then.

Thanks for reading. Next time, I plan a post on falling behind the times in marketing. As always, for real tax and accounting advice, please visit the main S&K web site at www.skcpas.com. Until next time, let's do it to them before they do it to us.

Lose All Your Twitter Followers with One Mistake

Despicable Me Minion at work
stealing your Twitter login

This article was originally published on Business2Community

Some of you readers have made it clear that you are small business owners and don't have time for all that "security" balderdash where some guy like me is telling you to watch out for this scam or that scam. Well too bad, pal.

If you have a Twitter following, you might want to read this. Otherwise you could lose all your followers. Tweet

Scammers want access to your Twitter account
There are scammers out there looking to gain access to your Twitter account so they can spam your followers by schlepping products like timeshare condos or Ronco Automatic Glass Frosters or used copies of Richard Simmons' Deal-a-meal videos or even tickets to that upcoming Neil Diamond concert you've been dying to attend yourself (admit it). This is probably a reaction from all the Nigerian spammers who no longer can get anyone to transfer them money anymore. Anyway, not only is this not what you want for your followers, but

Most of your followers won't know it's not you sending this garbage and they'll un-follow you. 

If they un-follow you, that will reverse all the hard work you put in to gain them as followers in the first place. Some of you who follow me at @ThoughtReach have huge numbers of your own followers, so you should pay attention.
Follow @ThoughtReach

Here's how the scam works
You get a curious tweet directed at you from one of your followers. It might look like this one that arrived in my inbox while I was minding my own business and innocently grinding some Fair Trade espresso beans in my $19 Boden grinder.

The bait: "Hey, this person is writing offensive posts that are about you"

Now to be fair, for all I know, this guy's Twitter account could have been hacked and was used to try to hack into mine, so if that's the case, sorry. Don't go off yelling at me in the comment section below. Anyway, if you were to click on the shortlink in that tweet, you'd be forwarded to this webpage:

Take a look at the URL. If you can't read it, it says "tvivtter.com" which looks suspiciously like "twitter.com"

Looks like a real Twitter login page, doesn't it
But, take a close look at the URL. It looks like it says twitter.com, but instead it says tvivtter.com. We're not in Kansas anymore, Toto. Had I entered my login credentials to Twitter on this webpage, which is owned by the scammer, he would have acquired my Twitter login and shortly thereafter, my followers would be wondering why I was tweeting them ads for "Ronco Spray-paint-the-bald-away". So just watch out. As a business owner, you may not have time to watch for every security loophole, but you really don't have time to clean up this smashed-Hostess-Twinkie-of-a-mess.

Have you been a victim yourself? Let us know in the comments.

Image credit: Best and Worst Ever

Cooperation Beats Competition

For several years now I havе bеen concerned thаt my teenage son would nоt easily develop іntо a fully functioning adult man. From thе age оf аbout 14 hе changed. I knew him to bе intelligent and articulate kid. Suddenly hе appeared tо bесome incapable of what I considered tо be normal human communication. A series оf grunts, monosyllables аnd shrugs of the shoulder seemеd to bе аll he cоuld muster. He сould uѕe thіs method tо meet hіѕ basic neеdѕ оf food, shelter and, of course, hіѕ game console and computer.

For the mоѕt part, thіѕ hаѕ beеn hіѕ mode of communication for a fеw years now. If уоu rеаllу want to hear him talk, ask hіm tо tell you аbоut his latest game. Not for uѕ the easy аnd mоrе familiar world of football scores оr basketball plays. Our bonding moments theѕе days occur оvеr thе tally оf thе number оf kills he made, or thе number of "golds" hе earned, or what level hіs latest character іs on. I havе had to learn a nеw language in order tо have a basic understanding of whаt occupies him fоr much оf his time. To my anguish, hе seеmеd destined for "super geek-dom". I cоuld foresee him living a solitary life іn front of а computer, tapping away аt а virtual world, аnd disconnected from humankind. He'd be conducting raids on foreign lands, killing, beіng killed, аnd then reviving hіmѕеlf at а keystroke tо begin the game again.

Here's just a small peek іnto the new language I hаve learned: PVP (player versus player), RPG (role playing games), raiding parties, FPS (first person shooter), MMOG (massively multiplayer online game), RTS (real time strategy), TBS (turn based strategy), NPC (non player character), аnd рerhарѕ appropriately for me (in spite of mу age), "noob" (a newbie tо the game world).

His mother, too, waѕ concerned abоut hіѕ grades, hіѕ future, hiѕ socialization skills, аnd just hоw much hе likes conquering оthеrs аnd killing hіs opponents. I reminded hеr that shе sounded just likе оur grandparents did in thе good old days. As kids wе dіdn't mind оur manners, wе talked tоo muсh оr not enough. Left tо оur оwn devices we wоuld run аrоund оutsіde pretending to be cops and robbers, killing eаch other, оr bеing killed, and then bеіng magically revived аnd "shooting" еасh other once again. Our weapons werе fingers аnd sticks pointed at оur targets, аlоng wіth shouts of "POW!", and theatrical award-winning dying sequences.

A far cry frоm the virtual reality point and click world? Perhaps. It sеemѕ that thе mоre things change, thе morе thеу stay the same. Without stereotyping or generalizing, "Boys will bе boys," уou mаy say. "It's оur natural tendency tо kill or be killed." "Survival of thе fittest." "Dog eat dog." Game designers havе tapped іnto thiѕ [psyche]. Take a loоk аt somе of thе titles on mу son's game library; "Warhammer", "Spore", "Star Wars" (hey, I recognize thаt one!), "World оf Warcraft", "Dead Rising", "Gears of War", and "Grand Theft Auto", just tо name а few. It's thе wау things are, whethеr іn corporate America, on thе innеr city streets, in countries torn bу civil wars... In ѕo mаnу ways, thе games аre іn fact а reflection of the "real" world.

In thеse games thаt imitate life, the principle of competition аnd domination ѕeеmѕ to bе the rule. In order tо win, whаtеvеr our circumstance mау be, we set оut tо acquire аnd dominate all оf the resources thаt will hеlp us achieve our goals. Often times wе ignore the impact thеѕе actions hаvе оn othеr people, and іn fact wе evеn convince оursеlves ѕоmetimeѕ that the othеr people dоn't matter. They аre competing fоr thе same resource аnd ѕhоuld simply bе eliminated. Even іf you succeed with thiѕ approach, yоu create twо long term problems for yourself. The firѕt iѕ thаt уоu make enemies out оf еvеrуone you encounter, including people оn your own team. Their loyalty iѕ vеrу weak аnd secured only bу fear. The ѕecond iѕ that even іf уou succeed at dominating a resource for a while, eventually аll those competitors wіll find anоther wаy аnd yоur environment wіll change rapidly аnd not іn а pleasant way. That wіll bе a time whеn уоu neеd allies to hеlp you evolve аnd takе оn thе next big opportunity. The problem is, nobodу will bе thеre to help.

Players gеt rеаlly good at raiding eаch other's worlds. They havе trigger fingers thаt саn hit thаt key ѕо quickly yоu cаn't even ѕеe the movement. And when thеу play on-line with others, thеу gеt reаllу smart about tactics. They learn tо takе orders frоm [bosses], to collaborate wіth othеrѕ to successfully complete thеir attacks, аnd to wait thеіr turn fоr rewards. The first time I heard thаt one, I wondered what happened to the old "That's juѕt not fair" complaint, whеn measuring оut hоw muсh soda hе had compared with hiѕ older sister.

Occasionally my son соmeѕ оut with аn Australian expression that he learned frоm ѕоmеоne called Bruce. He might say sоmething іn Japanese that hе heard last night, or he'll say somethіng abоut hіs friend іn Holland. I've learned not tо bе surprised аt аnythіng he сomеs out with. It's whеn hе speaks in a perfect Scottish accent thаt I check undеr the bed tо sеe if thеrе'ѕ anуthing therе that might explain this amazing transformation. The answer is that hе'ѕ chatting to real people, real Aussies, Japanese оr Dutch оr Scotsmen. There's nо age difference, self-consciousness, race, gender, shyness or embarrassment іn hіs virtual world. Everyone's on the sаme page, еverуone hаѕ sоmеthing іn common. And - guess what - theу аrе аll talking tо аnd cooperating with each other!

Being а concerned parent, I decided tо do ѕоme research to ѕеe if I соuld understand hіs "condition". My mind was put sоmewhat аt ease to find out thаt he waѕ іn the company оf millions оf others. The book bу John C. Beck and Mitchell Wade titled "The Kids аrе Alright: How the Gamer Generation іѕ Changing the Workplace" wаs a great help. If уоu havе а teenage gamer or mаy bе hiring young gamers, that book іs а vеry helpful place tо start.

Until now, success іn hіѕ gaming world hаѕ bеen measured in body counts, size of territory and money in thе bank. Not too dissimilar from thе real world? In business, wе'd all love tо see thе marketplace littered with the remains of оur competitors. We'd love to be "king" of оur territory. And of courѕе оne оf оur major reasons fоr dоing thіs iѕ tо put money in thе bank. And hоw dо wе do this? We do іt by strategizing, by raiding, thеn attacking аnd eliminating our opponents, аnd ultimately reaping thе rewards.

Even though my son learned а lot abоut collaborating аnd working wіth оthеrs tо successfully play theѕe games, the goal wаѕ аlwауs thе ѕаme - domination. In business we assemble large groups оf people аnd partners tо collaborate аnd cooperate wіth thе ѕаme ultimate goal in mind. Some of thоsе partners wіll attach themselvеs tо a large company tо ride thе coat tails оf іts success аnd catch the bread crumbs аѕ іt plunders its way thrоugh the market. All of the people involved аre motivated bу thе opportunity tо make а "quick killing". Dominate quickly, get rich, and gеt out. For everу оne thаt is successful, thousands оf otherѕ аrе driven оut of business. In thiѕ resource domination model, thоѕе without thе means tо acquire large numbers of resources quickly simply саnnоt kеер up. You mіght ѕаy "but thiѕ іѕ thе natural order оf things in the competitive marketplace". You would be totally right. What we need to dо іѕ change the paradigm thаt wе live in а competitive marketplace to one whеre cooperation iѕ the rule. Cooperation enables uѕ to tаkе оn much larger projects thаn wе соuld ever dream of doing by оurselvеs by leveraging the strengths and resources оf others.

Over dinner recently, mу son wаs quieter thаn usual. I knew that he'd bought a new video game, whiсh he'd bеen playing fоr a few days. He sаid that the game had gоnе frоm super-easy аnd fun to ridiculously difficult. It hаd seemеd so simple: "You get stuff and then dо stuff thеn yоu colonize space." He explained that you start оff with choosing thе environment yоu wоuld likе tо grow in. You havе а choice of forests, deserts, jungles, seashore, and ѕo on. Then you decide whether yоu аre a carnivore, herbivore, оr omnivore. You get tо choose personality traits lіke aggressive оr collaborative.

Your character is now ready to bе born. You havе great flexibility in thіs area аѕ well, bеіng able tо assemble creatures wіth the most unlіkelу features and limb structure. Of course, yоu need tо make selections based оn thе environment уоu hаve chosen ѕo thаt уоu can feed аnd move abоut successfully. Now you devour as muсh food аѕ yоu сan in уour new domain аnd ѕоon you stretch уourѕеlf beyоnd that tо the world at large.

All the whіle уour character іѕ growing in strength аlmost regаrdless оf thе characteristics уоu hаd chosen аt thе start. You are successfully bеcoming the leader of yоur world. You nоw gо to thе nеxt level outer space. Suddenly уou аrе faced with traveling to far awaу galaxies and meeting nеw strange creatures and conditions. All thе tactics you learned from growing up іn your home world no longer ѕееm to work. His character wаѕ а verу aggressive carnivore. He believed hе needed tо be the mоѕt powerful аnd awesome warrior hе cоuld be. He knew hе would face many challenges. He waѕ аblе tо destroy and dominate аnything that got in hіs way. By bеing the ultimate competitor, he bесаmе thе conqueror оf his world.

Once hе gоt tо outer space, however, he found mаny situations thаt hе waѕ not well equipped to manage. Food sources wеre sapped away. As аn aggressive character, hе hаd аn unusually large number оf enemies аnd vеrу few, if any, allies. It beсаmе clear tо him vеry quickly thаt he hаd made а mistake. As a lone wolf aggressor, hе waѕ not goіng to survive. He needed the talents and skills of othеr characters, and hе needed to bе more versatile himself.

He found, bу experience, thаt thеrе іѕ nо wау tо win in thiѕ game, оr аnу significant game, wіthоut learning hоw to cooperate wіth others. That means developing skills thаt are helpful to others, and matching other's skills tо уour unique nееdѕ at anу gіven time. Without the rіght collaborative, team building, cooperative spirit, уou will simply fade away. In business, thrеe key elements must bе aligned to create the potential for success. They are: 1. A compelling vision; 2. Comprehensive strategies tо execute thаt vision; and 3. Committed leadership tо achieve thе vision and strategies. My son's experience shows uѕ that leading with this spirit of cooperation will unleash the potential аnd catapult thе business forward tо thе nеxt level.

Make Twitter Work Even Harder Bringing Good Word of Mouth

Improve your social marketing and word of mouth with Twitter

Social networks have proven themselves to be a very powerful asset to the business world. Through them, we have the convenience of sharing, discussing, and networking with others who have similar interests. A large majority of small businesses apply these social networks as their primary marketing strategy because they can reach so many people easily and inexpensively. 

Twitter has proven itself as a powerful networking resource that is dependable and extensive in its ability to reach a large audience effectively- as long as you know how to use the tools provided. Like most social networks, Twitter is perfect for utilizing word of mouth marketing. People share with each other, as long as you share with them. This is the primary principle to keep in mind whenever using a social network, because you must first talk to people in order to start a conversation. 

What you say matters

Because twitter has a character limit, there is only so much that can be said at one time. But, you don’t need to say a lot to make a point or start a conversation. In fact, keeping it short and to the point often stimulates the best responses. 

One thing to refrain from is tweeting one part of a statement and completing it in second tweet. If it’s too long to put in a single tweet, find a different way to say it or link back to a reference that will say it for you (other social networks or blogs). Therefore, anyone tweeting must be able to use words effectively. 

Find a different way

New tweets are good to keep fresh material flowing and improve visibility, but it’s important that any one speaking should take the time to talk back to their responses. The more times you tag participants’ names into your conversation, the more visibility you can achieve. Serious Twitter users will regularly check out who and where their names were mentioned on a regular basis, so this is a great way to meet new networks and interact with your audience. 

One technique to apply is the art of asking questions. A short statement would work to start, but finish by questioning the value of the subject at hand, such as how it applies to the reader’s life. This is a very effective way to stimulate a reaction and is applied to various marketing strategies because it tends to create a recall in the mind of the reader. They familiarize with the issue and are apt to respond far more effectively. 

Be a good investigative reporter

A great source of new material is to respond to popular questions- even those not posted directly to Twitter. Consider a FAQ that you seem to encounter or topics that are related to your business, and then offer a solution to them. Highly asked questions are often the prime meat of search results anywhere on the internet. “How to” and “Why is” questions litter the minds of readers and it’s great to bring up in conversation to draw attention. One technique would be to bring up the topic in a question form as well. Then, offer a solution during the conversation when you know you have attention. This will help to demonstrate that you are an expert in your field. 

Twitter is a gateway

Then there are the outside applications that Twitter dawns with appeal. Twitter is a window through which readers can get a taste of material and explore its source. This brings up the importance of titles in your tweet. When tweeting content from one of yours or an outside article or blog, choose select valuable information to share. Quote yourself or share the purpose of the project, rather than simply using the title of the content. The trick is to offer valuable information to the reader; so don’t just list a source and tag it with a link. Give the reader a taste so they will want to search for more. 

Of course, this also brings up the importance of watching where you place your links. The end can sometimes get cut off or hidden on Twitter feeds, meaning you will have to reformat it and tweet again (time). However, this can often become an eyesore on your feeds. You want them right up there in plain view- preferably in the middle or near the beginning where you can explain the relevance. 

Twitter can be a powerful marketing and networking tool for any business, as long as it’s used effectively. Make the most of the space you have and keep your content applicable to your audience in order to generate interest, so that you can develop a quality network in your social outlet. 

Business to Business Could Stand to Learn from Business to Consumer Social Marketing

Business to business social marketing strategy

Consider what it takes for a business to business marketing developer to generate sales. There’s a long list of tasks they have to address which require more in-depth planning than when a business is strictly appealing to consumer audiences. 

Essentially, a business has to prove to the entire business, as a business, how their product or service can improve the target company. You don’t just have a single individual. You also have executives, associates, and management to convince, while at the same time, considering the business benefits both companies will receive and furthermore proving undoubtedly that you are the right choice.

Propel your word of mouth with the similarities

However, there are still similarities between the two, such as networking and interacting with a target audience. Social marketing is a tool that has found an application in every aspect of business. Keep in mind that a business is still a consumer on a larger and more intricate scale. 

Testimonials, such as visuals, memorable slogans are needed to make the sale to an individual, but are also needed when appealing to a business. You must undoubtedly prove to executives and decision makers that your services or products can improve their business. In this case, social marketing is played as an angular tool, utilizing testimonials from responsive consumers. Word of mouth marketing plays a key role even in business to business applications, primarily because businesses don’t move on a hunch or an “I’ll give it a try” spur of the moment decision. They move on good recommendation and proven results that social can provide if used properly. 

Consistency is key

This means that you must always maintain consistent brand marketing creativity throughout your social, advertising, and website. This is important because during business to business marketing, research is very thorough. You want to be able to deliver a firm message that won’t confuse your potential clients and provide a quality surface for them to analyze and prove to themselves that you are the right choice. 

The most effective aspect of social marketing applies the fact that a business still needs to speak effectively to their audience. A business functions as a unit, but is not a programmed machine. There are certain protocols and procedures, but the business still consists of human elements. Marketing strategies should still be interactive and appealing to the audience, both emotionally and logically. When handling consumers, it is essential to know your audience and treat them appropriately. Social marketing strategies rely on this essential element because one is always focused on appealing to each individual in a social network. The audience is addressed, but the focus is always on the uniqueness of the individual and the situation at hand.

Social is rich in research

Business to business marketing strategies take far more effort and are often more complex, but the principle is the same- address your audience and prove to them that you can deliver the product or service that is the right choice. Whether it’s business to consumer or business to business, approaching your audience appropriately is the only way to succeed. 

Are Your Real Estate Flips Flops?

The FBI arrested two NFL replacement referees today. They were charged with felony embezzlement for stealing the Monday night game from the Green Bay Packers. These two officials conspired to make one of the worst calls in the history of the NFL, granting a game ending touchdown catch to the Seattle Seahawks, who were charged by the FBI with receiving stolen property.

The next time I attend a Redskins game, I am tempted to get liquored up, get close to the field before the game, and shout at one of the replacements, “You should be mowing my grass, moron.” But I won't. Yes, I will get liquored up, but I won't berate the replacement officials, even assuming that I could put together a coherent sentence in that condition.

The replacement officials come from small college football. The NFL is to small college football what the space shuttle is to a single engine prop plane. These guys have never experienced the speed and violent contact of an NFL game. If they had a season to adjust, they might become competent. Nonetheless the integrity of the game, and mostly importantly RGIII's health, depend on quality officiating. Gimme back the damn regular refs. Of course, I'll complain about them when they're back.

Are you tempted to enter the wonderful world of real estate investing? If you are, this post is critically important to your success. I am going to show you how to calculate return on investment. If you decide you aren't interested in this topic, real estate investing isn't for you. If you want extra income, get a job at Burger King. At least you won't lose money flipping burgers instead of real estate.

Return on investment (ROI)is a simple concept to explain, but a sometimes difficult concept to apply in the real world. ROI is calculated by dividing your investment return by your investment, which yields a percentage. Let's take on a very simple example.

Let's assume you bought a house on January 1^st for $100K. Let's also assume you paid cash for it. Now let's assume you sold it on June 30^th for $125K after selling expenses. You have a profit of $25K. If you take the $25K profit and divide it by your original $100K investment, you have a 25% return on investment. That's true but it doesn't give you any useful information versus other investments you could have made, whose investment returns are usually expressed on an annual basis.

To make our ROI an annual return, since you held the house for half a year, simply double the 25%. Thus, your annual ROI was 50%. In fact, if we were being exact and using compound interest, your return would be a little greater than 50%. However, our approach is accurate enough for what we intend to do. Hopefully, this simple math isn't beyond you. If it is, find a fifth grader to explain it.

Let's now make our example a little more complex. Let's add the assumption that you didn't pay cash for the property. Let's assume you borrowed $50K from a bank. Now let's calculate your ROI. You sold the house for $125K after expenses, but you paid the bank $5K in interest. So your profit is $20K instead of $25K. Now your ROI is $20K divided by your investment of $50K or 40%. If we double that to annualize it, we get an annual return of 80%. Why are we using $50K as your investment? Because that is how much you invested of your money. Notice that borrowing increased your annual ROI from 50% to 80%. That is the magic of debt. It is called leverage. It also functions on the down side, however.

Let's change our example to assume that we sold the house for $75K after expenses instead of $125K. Without a loan, our ROI is ($25K) divided by $100K or a 25% loss, which annualizes to a 50% loss. If we assume that we borrowed the $50K, our ROI becomes ($25K) divided by our $50K investment or a 50% loss, which annualizes to a 100% loss, before considering the interest you paid to the bank. In other words if you did this deal twice in a year, you would lose your entire $50K investment.

We can conclude that debt not only magnifies your ROI when you make a profit, it magnifies the effect of your loss on the down side. Thus, debt increases your investment risk. Hopefully, this is relatively simple math. In my next post, I will explain when making money investing in real estate is possible – and when it isn't. An understanding of ROI is necessary for the analysis.

My marketing person for my eventual book has advised me to ramp up my activity on Twitter. If you are on Twitter, my handle is @fstitely. I tweet mainly about business and the Redskins as you might expect.

Today, I received a direct message from one of my followers. She, I hope she is a she, wrote to me that she has a vagina. Of course, this is really special information that sets her apart in my eyes since only approximately 50% of the world has that particular body part. I wonder what makes her specific female crotch organ special. I am guessing hers is set apart by the amount of drugs I would have to take if I got close to hers. Yes, Twitter has porn spam.

Thanks for reading. As always, send me your comments, gripes, and suggestions for posts. I take requests – at least ones that don't involve vagina’s. For real tax and accounting advice, please visit our main S&K web site at www.skcpas.com. Until next time, let's do it to them, before they do it to us.

Part 2: Flush your email marketing job down the toilet with this one big mistake

This is Part 2 in the series about emailing a spamtrap email address. In this part, we discuss what to do now that you've made this big mistake. Read part 1

And so does Google, if you email to a spam trap

So, you've emailed a spamtrap email address to Gmail? There are some things you need to do to get out of this mess and to avoid having your job flushed down a toilet by your boss. Follow these steps closely:

Step 1: Stand straight up, point your finger at Loraine in the cube next to you and shout, "it's her fault, boss. She's the one that emailed the spam trap, not me. She must have hacked my password into our email marketing system and sent that email!"

Step 2: Duck as Loraine throws her dead ficus tree at you, ceramic pot and all (the potted hulk of the dead ficus hurls past you and explodes on the wall of your cube, narrowly missing that velvet Elvis tapestry you have hanging there. But, at least you're not hit).

Step 3: Call Google and beg forgiveness. Well, that could work. If they cared. And if they had a phone number. And if they cared.

Step 4: Admit to yourself you've emailed a spamtrap and read the rest of this article.

How do I know I've emailed a spam trap?
I use Gmail as an example here because they are one of the big cahunas of the email world and they also don't always answer their phone and jump at the chance to gladly unblock your emails just because you asked nicely and sent them flowers.

First of all, you have to know you've hit a spamtrap to begin with. So, I'll assume the reason you know you've hit a spam trap is either:

• You use a reputation monitoring platform like Return Path or IBM Email Optimization (formerly Pivotal Veracity) and the report of your inbox placement says something really educated like "Um, there is no email reaching inboxes because you emailed a spamtrap, you nimbleweed."
• You routinely monitor SenderScore.org for your IP address' reputation and instead of looking like the below screenshot which shows a sender score of 97, it sports a score more like 63 (owee), or 24 (big owee).
• You have created several free email accounts at the various ISPs to use as your own, personal seed list, and you've found that your emails are vaporizing instead of reaching the inbox
• Brittany, who works at the coffee house on the corner, while sipping an iced frapamochachino latte, said "your boss was just in here! And he was fuming mad at you!" For some reason, she was laughing hysterically. She thought the situation was so funny that a little coffee came out of her nose when she laughed. 

The first three above are ways to help gage your sender reputation. If you have no budget to purchase reputation monitoring tools, take a look at SenderScore.org. Not only is it free to access, it will tell you you've hit a spamtrap.* 

SenderScore.org showing the reputation score of an
IP address (100 is the highest)

Sender Score will also show you if your IP address
has emailed a known spamtrap

To use Sender Score, you'll need to find out from your email software provider from what IP address you are sending mail. Keep in mind that in all likelihood, you are sending mail on an IP address that is shared with other customers. For email marketers sending less than 50,000-100,000 emails per month, it is recommended that you be on a shared IP instead of one dedicated for your own use. Lower volume senders like this are not likely to have enough email volume to properly build a good sender reputation in the first place. That's why sharing an IP address is a good idea in this case.

I don't envy you about that situation with Brittany in the coffee house though. That whole "coffee coming out of the nose" thing is sacrilege. To waste good coffee like that.

Since you've emailed a spamtrap, what you're really going to need to do is to slowly rebuild your email sending reputation. Gmail can be very ornery, but believe it or not there are some things you can do to appease the gods of Gooooooo.(gle)

What do I do if I've emailed a spamtrap?
Email reputation expert Neil Schwartzman, VP, Sender & Receiver Relations at Message Bus, has the following advice on rebuilding your sending reputation after mailing a spam trap email address:

The keys to dealing with spamtraps are three-fold:
Permission, permission, and permission: Confirm all your sign-ups. The very best way to avoid adding spamtraps to your list, be they normal-looking addresses like FredUser@somedomain.com or typo’ed domains like FreddyUser@htomail.com is to ensure that A) sign-ups don’t bounce, and if they do, remove them immediately and B) confirm opt-in to your list. That means your initial message is a confirmation message that requires the recipient to click a link or otherwise take action (logging in) so as to complete the loop. Also, never buy or rent lists, they are ultimately a scam, and do not have the requisite (legal) permission. 

Keep track of your segments –keep track of sign-up dates and times (especially if you aren’t confirming subscriptions), and your mailing times, campaign ids, and so on. Completely remove any segments that immediately garner trap hits you see from monitoring services. 

Process bounces and complaints immediately. A common type of spamtraps should, by their very nature, be addresses that have bounced for at least a year if they are reclaimed addresses or domains. Other traps can be made by inserting addresses surreptitiously onto forums and other places that gather addresses illicitly by scraping or tricking the user to signup for ‘free’ iPhone 5s or whatever. See my advice about purchasing lists (this means you too – co-registration folks. If you want to grow your list in this way, the lists should be 100% confirmed / double opt-in). 

Narrow down your list until you locate the spamtrap. Despite all these steps, you may still find yourself with spamtraps on your list – sometimes the trap owner won’t get around to complaining of blocking your campaigns until well after they’ve been added to your list. Try this: segment your list by half, send, see if you are still hitting a trap, cut that list in half again, in a continual series of A/B tests. Or, you can email your entire list and ask them to "re-confirm" (usually by offering a bonus for re-confirming, to encourage people to do so). While this sounds onerous, and you will likely lose a lot of subscribers, if these people aren’t buying, or aren't engaged, you might as well ditch them anyway. 

Which brings me to my last point: Beyond spamtraps, large receivers are now heavily into using recipient engagement as a decision point to delivering your mail. If people aren’t opening or clicking your messages in a reasonable period of time, you would do well to offer those folks a bonus to re-engage, and if they don’t, drop them from your list. Your email delivery will thank you, as will your ROI and bottom line.

Gmail does not contribute data to Senderscore.org, so while a poor score may indicate issues Gmail is seeing (because they appear elsewhere as well) it isn't 100%. You can have a good Sender Score, and poor performance at Gmail, or a poor score, and get (good) Gmail delivery. 

This was Part 2 in the series about emailing a spamtrap email address. Read part 1

---

Neil Schwartzman is the VP, Sender & Receiver Relations at Message Bus, and the Executive Director of CAUCE, the Coalition Against Unsolicited Commercial Email. Neil has been quoted in the Washington Post, New York Times, L.A. Times, CNET, Reader’s Digest, and the Chicago Tribune on spam-related topics. He has over 17 years of experience in the email and spam prevention industry. You can read more at http://news.messagebus.com.




* SenderScore.org can tell you that you or someone who is also sending mail on the same IP address has hit a spam trap. If you are like most marketers, you are sending mail on a shared IP address. In most situations that's fine, but it has some limitations, like this one.

Image credit: William Murphy under Creative Commons

The Social Media Argument and Fad?

Social media marketing and what you need to know

Social media has become a marketing strategy that is of growing importance to the business world. But, there are still arguments as to whether or not it has any true value to business. Some claim that it’s not a viable solution to marketing strategies while others swear by their profile that it is the answer to today’s business needs.

Marketing today’s audience

And that is the word of importance today. Perhaps sites like Facebook and Twitter are simple fads, but that is exactly why it is so important to market to it. Television originated as a bland three channel option when it came out, delivering public messages and some general entertainment. But, in its growing popularity (fad), it has become a host for prime-time advertisement. 

Social media is currently no different. In the business sense, it is where the business is right now. Billions of people from all over the world have social accounts on at least one medium, making it the perfect tool for any marketing strategy.

Then there are arguments about how Facebook isn’t focused enough on business applications. But, does it prove worthy for networking’s sake? After all, there is a multitude of advertising through Facebook, which means that it proves viable to someone. In argument, there are claims that Linkedin and blogs tend to generate far more positive results for businesses, which is true. These applications are far more business-oriented than other media accounts. But, it’s also wise never to limit your opportunities.

So the real question to those that argue against social is: Are you using the tools provided, or misusing the profile you just think you have? This is perhaps the most common mistake of anyone who doubts the influence of social media. It is like someone who gets a rotten apple and decides that all the fruit in the tree is going to be bad. 

What do you get from your social networks?

Fundamentally, proper social strategies all come down to a few calculations:

• Who is the target audience? Each media has different audience content, and it’s important to understand who you are talking to. 

So, if you’re using social, you have to ask yourself whether it’s cost effective and time efficient = Is it worth your efforts? Are you trying to appeal to an audience that isn’t there? Is there viability in your strategy? Basically, will your audience be able to find you through your select social outlet? 

• Providing quality content that is intriguing to the audience is essential to success.

Generating quality content isn’t as easy as it seems. Sure you could generate posts about your business, but it is also wise to incorporate present trends and fads into the content. What makes you so special, but at the same time what makes you so relatable? 

• Delivery is the biggest issue, because this includes the use of the tools that each social media has to offer. 

This is where many social marketing strategies go wrong, because delivering the message relies on the proper use of the tools you have at your disposal. Take Facebook for example. This site offers personal profiles and business profiles. A common mistake is to use a personal profile for your business. You limit the abilities of your social networking strategy. You can’t be “liked” by anyone or utilize the different tracking tools and apps that are available to a business profile. Additionally, you are limited to what you can and can’t do. It also looks far less professional.

What social can offer?

Social is not a stand-alone marketing strategy. It is designed to work with other networks and expand visibility amongst a far larger audience. This is a characteristic that many failed social marketing strategies failed to grasp. Social networks are—networks of people. This is how you reach an audience of today’s demands. If the current fad was reading the labels on a fruit, it’s guaranteed you would see advertising in the produce section. However, that’s what it is- an advertising strategy that helps to increase visibility, awareness, and improve a business’ sales through word of mouth marketing. 

The majority of people trust peer recommendations over any other source of advertising, including television and radio. Word of mouth marketing is perhaps the most powerful advertising tool available, and it relies on the ability of a business to network its image by including themselves in the current trends of today’s audience. 

It all comes down to what a business wants to invest in their brand and how they will measure the success of their engagement with their brand community – wherever they spend time.  Businesses needs to excel at their brand communication itself and not just get hung up on loving a communication channel. 

Less is More and Free is Bad for Your Word of Mouth Marketing

Going free? Here's how it can affect your word of mouth marketing

What are people thinking when they interact with you? It would be incredibly useful to have such information readily available to you when you start a conversation or make a sale’s pitch. Unfortunately we can’t read minds. 

However, we can calculate what an audience is thinking. After all, a conversation is basically a dance. You step, they step. It is a waltz and one must lead. It is up to you to be the leader and guide your partner in the right direction.

It’s all a dance

To start with the basics, consider that there is such a thing as too much information. Limit what choices you offer your customers. Don’t give them a wide selection or they will begin focusing on considering the right answers rather than deciding what they want. Don’t ever offer the option D -- none of the above. Avoid options like this because they tend to draw away from the sale. Offer instead another solution that you have to offer if they don’t feel satisfied with the others. 

When it comes to information, keep in mind that mystery always intrigues the mind. When you blog or discuss strategies, leave some out. Allow your audience to speculate. Give them a taste, but don’t give them the whole pie. This will bring them back to you searching for more. This is often most beneficial for generating personal word of mouth marketing. Mystery often generates conversation. How do they do it? What is the secret ingredient? Individuals are naturally intrigued by mystery and will draw others in to ask their opinion of your business as well. 

Steer clear of the “May I pick your brain?” zone

Don’t hesitate to charge for your services, even consultations. People generally will want to pay for what is given to them. It provides a sense of achievement and eliminates the feeling of obligation. Have you ever gotten something for free and felt obligated to return the favor? That is the very reason why we pay for what we get. You don’t have to give things away for free to get loyal customers. You get loyal customers by being dependable and professional. 

Negotations can be tricky in an information based business especially when people think “offering you a cup of coffee or a meal” somehow compensates you for all of your expertise and experience.  In negotiations - You say high, they say low. Then you move until you meet in the middle. The trick is to make that middle feel like a winning spot for the customer and still be profitable for you. People will fight harder to avoid losing rather than winning. It’s based on the emotional stance of the individual, rather than the logical. People do not like to lose, so the trick is to make your customers feel like they win in a conversation.

There is such a thing as too many options and too much information. You don’t have to give away your secrets for free in order to increase your sales and visibility. Consider instead offering a taste of what you have so they will like it and want to buy what you are selling. 

Do It Yourself Business Valuation

A week ago, a female Washington Post sports columnist opined that we should discontinue the use of war as an analogy for football games. She believes war analogies are disrespectful to our troops. I can go with that. However, for war as a football analogy, I would like to substitute the menstrual cycle. Instead of saying London Fletcher played like a real warrior, we would say that he unleashed his inner bitch. Mike Shanahan should quit yelling at the replacement referees. He should just take a Midol and have a good cry with Dan Snyder.

Football already has a head start with the new menstrual cycle paradigm. There is a pass protection scheme called max-protect. You can be the first to run up to my three hundred plus pound Redskins neighbor, Trent Williams, and tell him he should block like a super-absorbent tampon. Good luck with that. I'll stick with the war analogies.

Can you value your business by yourself? Let's look at a recent sample of DIY business valuation I experienced recently. I was asked to provide a business valuation for a small government contracting firm. After a couple day's work, I sent the owners my draft valuation. In the meantime, they decided to use an internet valuation service. Of course, we were really close on our numbers – of course not.

Here's how they came up with their valuation number. Their company's after tax cash flow was about $100K per year on annual revenue of $3 million. They were projecting next to no growth over the next few years given the uncertainty in the government contracting world caused by Congress's fantastic handling of the federal budget. Yes, that's sarcasm. So far, I have no problem with what they've done. They have accumulated their historical financial results and projected them reasonably into the future.

Next, they went searching for comparable companies in their industry that had been sold. No problem yet. Their search identified ten company sales in the government contracting industry. On average these companies sold for nine times annual cash flow. They took the multiple of nine times their annual cash flow of $100K and concluded their company was worth $900K. I should add that these guys are rocket scientists, literally. So math is their gig, and their math is correct. However, their business valuation is VERY wrong.

What's wrong with their analysis? They identified a multiple and applied it to the correct measure, cash flow. That's a hundred times better than most people do. However, when I asked for the listing of companies they used to determine the multiple of nine times cash flow, I saw that the annual sales for these companies ran from a minimum of $15 million to a maximum of $100 million. Just, how similar are these companies to their company? Not very. The smallest company they considered was five times their size.

Women are correct that size matters (it hurts me to write that), especially in the business valuation world. The valuation world consists of several distinct market segments divided by annual revenue. Those segments are divided into the following revenue categories: less than $5 million, $5 to $10 million, $10 to $25 million, $25 to $50 million, $50 to $100 million, and above $100 million. Valuation professionals will say I'm being overly simplistic. There are actually sub-segments within the segments. Each segment has its own valuation characteristics and cash flow multiples. Their analysis used a multiple from revenue segments way above theirs. That was the first mistake.

Their second mistake was not understanding what was really in the comparable sales statistics. Even if they had found sales in their segment, they used a multiple without understanding the numbers behind the multiple.

They took at face value the nine times cash flow statistic. Let's take a look at that cash flow multiple from an investor's viewpoint. Someone paying nine times after tax cash flow for a business is investing nine dollars for every dollar of annual profits. That is an after tax return of 1/9 = 11%. No one invests in a small business looking for an 11% return. Typically, investors look for something in the range of 20% or more after taxes.

That seems like a lot until you consider the risk investing in small businesses. You are as likely to walk away with nothing for your investment as you are to have any return at all. Some of you have tax loss carry forwards in the hundreds of thousands of dollars from bad investments. I feel your pain. Given your investment experience, are you going to invest $900K to get the possibility of a 10% return? Probably not. 20% probably isn't tempting you either. So you can see the nine times cash flow return of 11% just doesn't pass the laugh test.

Were the buyers of these businesses in the study stupid? No. Investors don't buy historical earnings. They buy future earnings. These businesses weren't paying nine times future earnings. They likely paid about five times future earnings. That's an after tax return of 20%. In evaluating their buy-out targets, the purchasers looked for growing companies or companies where the cash flow could be easily improved. The statistic of nine times historical earnings is a classic apples to oranges comparison. A purchase price based on future cash flow is used to compute a multiple based on past cash flow. That doesn't work very well. Even rocket scientists can screw up the math.

What was my valuation? About $300K. That looks like three times earnings and the end result is exactly that. But again the multiple is misleading until you look at the logic that resulted in the final valuation. If you value the company at a reasonable multiple of five times cash flow, you get $500K as the valuation. However, there is an inherent assumption in that price of a ready market for the company. There is no ready market for government contractors with $3 million in annual sales. In fact, there isn't much of a market at all.

First, large companies won't usually bother with really small acquisitions unless there is some really valuable proprietary technology. The expenses of acquisition are basically the same for buying a $30 million company as for a $3 million company. Also, small government contractors typically have contracts set aside for small businesses that large companies aren't allowed to acquire.

Second, the revenue stream of a small company is usually highly dependent on the personal relationships of the owners. If the owners leave, the revenue either stops or decreases significantly. In short, for small government contractors, there is a very small pool of potential buyers.

Based on the two factors above, I discounted the $500K value to $300K. Yes, that is 40%. In the business valuation world, this is called a discount for lack of marketability. A 40% number is not at all unusual.

You could conclude that I used a multiple of three times cash flow, and that is what the statistics would show. However, you can see that multiple would be misleading if you blindly applied it to other companies. Statistics don't lie. They just sometimes hide the underlying truth. Herein lies the problem with DIY valuations and the internet services. You have to know what is behind the statistics to intelligently apply them. Yes, valuation professionals, like me, laugh at the DIY'ers. Sorry.

Those wacky British royals are in the news this week for getting naked in public again. Yes, I know the photographer shot Kate from seven hundred yards away. The royals are apparently unaware of some technical advances that have occurred since Henry VIII started relieving his wives of their heads. There are these things called planes, helicopters, and telephoto lenses. If you are bare ass naked outside, someone can take a picture of you from somewhere – maybe even from earth orbit. Of course, I'm as interested in seeing Kate's Jim Dandies as much as the next horny guy. So if you have these pics, I'd love to take a look. Prince Harry – not so much. Although I would like an invitation to the next nude billiards game in Las Vegas. I promise not to bring my cell phone.

Thanks for reading! For real tax and accounting advice, please visit the main S&K web site www.skcpas.com. Until next time, let's do it to them before they do it to us.

Soda Water or Lemonade Making Machine for set up Small Business

Soda Water or Lemonade Making Machine for set up Small Business:-

Soda Water or Lemonade Making Machine is a good option for set up a Small Business at home.

Demand and Market of Soda Water or Lemonade:

There is a good demand of Soda Water or Lemonade in the market all throughout the year. You may sell Soda Water or Lemonade in the local market. But remember, you need FPO License for this business.

How to make Soda Water or Lemonade with Soda Water or Lemonade Making Machine:

At first you have to buy empty bottles. You can buy these from Ezra Street market. Then you have to wash the bottles very carefully. Now fill the bottles with pure water and put these in the indicated place of the machine. If you want to make colourful drinks, you have to add colour and necessary contents to the water. Now set the Gas Pipe of the machine and ass gas to the water. At last you have to close the bottles with Cap Filling Machine.

The machine is able to make 600 liter Soda Water or Lemonade per hour.

Price of the Soda Water or Lemonade Making Machine:

The price of the Soda Water or Lemonade Making Machine is approximately Rs.70, 000 and the price of the Bottle Washing Machine is approximately Rs.10, 000.

The price of the Cap Filling Machine is approximately Rs.5, 000.

Where to buy the Soda Water or Lemonade Making Machine:

M/s S Bhanco, 35, 

Sarat Chandra Dhar Road, 

Kolkata-90.

You can find many companies manufacturing a wide range of Soda Water or Lemonade Making Machine. Their machine matches high technology electronic control.

To read the reviews and buy the Soda Water or Lemonade Making Machine visit websites

http://jscqjx.en.alibaba.com

www.alibaba.com

golden-machinery.en.alibaba.com

                                                                                                                                                                                                               19^th Sep, 2012 KK