Borrowing Money, Leverage and Investing in Property

Many people live in a world where they believe that debt is bad. I used to. Debt is only bad if it’s not managed properly, otherwise it’s not just good – it’s great.

The text below will probably be stating the obvious to some but I hope will be of value to many of you. There will be two themes; [1] Leverage through debt and [2] How and offset mortgage can work for you. This article assumes some basic knowledge of personal finance and the terms used within it.

1. Leverage through debt.

We are going to assume here that we are going to invest money into property. the main assumption that the reader must make in order to make this work for you is that you have the cash to finance a deposit on the property.

Let’s say that you have £10,000 that you can invest. Let’s also say that you have credit rating such that you can secure a mortgage with a 90% LTV. Lastly, for sake of simplicity, let’s assume that purchasing costs total £5000 which you can capitalise. What this means is that someone will lend you £100,000, if you put down £10,000. Given that we’ve got costs of £5,000 it leaves us £95,000 to buy a property.

Assume now that you’ve bought your property, you are renting it out and the rent covers mortgage interest and other costs, i.e. you are cash flow neutral. Roll the clock forward 1 year and let’s assume that the value of your property has appreciated by 10% to £104,500. You decide to sell. You sell at £104,500 with £5,000 in selling costs leaving you with £99,500. Now, you owe £95,000 to the bank leaving you with £4,500.

So here’s leverage. you’ve just made £4,500 on an investment of £10,000. That’s a 45% return. Without the leverage, let’s say you purchase the property for your cash. You would have had a return of £4.7%. Which would you prefer?

It’s important that you read the above in conjunction with the assumptions at all times. The reality of property investment can be different but this principle always applies.

Notes:

a. You will see many adverts, often in the weekend papers, offering you a free seminar on how to borrow money with no deposit. I’ve never looked into any of these but I do believe that you get what you pay for. Hence if you’re borrowing money with no deposit then you are paying for it in someway regardless of how transparent this is.

b. You will not rent your property 100% of the year so either, you’ll need to increase rent to cover cashflow during vacant periods or take a hit to your cashflow.

c. If you take a hit to your cashflow this doesn’t have to be a bad thing as long as it’s managed. At the end of the day this just comes out of your profits. What you need to ensure is that you have the cash to ride the troughs.

2. How an offset mortgage can work for you.

Offset mortgages are great for those who have some equity in their property. For purposes of borrowing, an offset mortgage is essentially just a big overdraft secured on your house. Remember how I said above that you couldn’t borrow money for nothing, well there’s an exception to every rule and here it is.

Let’s say that you bought your house with a classic 25% deposit. Now go out and re-mortgage, for an interest only offset mortgage product, for more than 75% – let’s say 90%. You’ve just released 15% of the value of your house as cash – well done! Having read the first part of the blog, you know want to invest this money in property to achieve some leverage on this newly found cash – good choice. Having considered your options you’re concerned that through rental you won’t cover your monthly cashflow and you don’t have cash to support this. This would mean that you would default on your interest payments on the 15% extra in equity that you’ve just borrowed. (note: I’m assuming you could afford your mortgage interest repayments at 75% prior to re-mortgaging!).

Here’s what you do. Let’s say your house is worth £200,000 and so 15% of this is £30,000. The next assumption that you will buy, rent and sell your investment property in a calendar year (just because it makes the numbers a little easier on the eye). Some more assumptions. The interest rate on your offset is 5% and on the property you’re about to buy you’ll need £5,000 to cover vacant time. Lastly, I’m not including costs in this example just for simplicity, you can always factor them in yourself if you’re serious about this.

OK, now you can make some money.

1. Of the £30,000 that is available, take £23,500. This leaves £5000 to cover costs and £1500 annual interest on £30,000.

2. Use your £23,500 to secure 90% financing on a property and borrow £235,000.

3. Go and buy a property for £235,000

4. After 1 year, sell the property with 10% appreciation making £23,500 in profit.

General Notes:

I have simplified some statements and calculations in this article such that they are not 100% accurate. Despite any minor inaccuracies the magnitudes and principles remain the same, there is nothing deliberately misleading here. If you are to consider this seriously, you need to understand what goes into finder someone to rent your property, how much this costs (cost of acquisition), how much insurance is, how much you might pay in maintenance.

If you remember only one thing from this it should be leverage. Learn to obtain and manage debt so that you can exploit the risk giving you leverage

My background and experience is mainly project management within diverse environments such as large corporate financial institutions, medium-sized technology consultancies and smaller start-ups. Having held positions including Operations Director (COO) and Head of Process Management, I recently left corporate life as an employee…the entrepreneurial side of my character is prevailing.

My focus is on becoming an “Un-natural Entrepreneur”. I want to work with people and companies that have vision. I can offer key values and skills to help bring your ideas to fruition. If you are a “starter”, then I am your “finisher”. My approach to a challenge is to clarify, understand, problem-solve, develop and deliver.

To take an idea or concept through from its inception to its execution requires a consultative approach – a partnership. I am a rational and pragmatic thinker and can work within an existing management structure, or create a new management team through my extensive network.

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An Investment Primer For High Net Worth Investors Thinking Of Movie Finance

Alright, so you woke up one day, checked your Swiss Bank Account, called your family office planner, had breakfast with your private client service wealth manager, got your tax accountant on the phone, and between three of you, you decided to invest your proceeds from your latest company’s Merger or Acquisition not into some dubious hedge fund or start-up biotech venture, but into financing Hollywood films because you figure you need the State tax Credits, the Federal tax write-offs, as well as a nice hedge of revenues from a few movies.

Now, this may not ring too well initially with your hedge fund manager neighbors in Connecticut or your oil and gas investor friends in Bahrain or Dubai, but aren’t these the same guys who are financing Hollywood blockbusters? And the only question for you, how do you get in the game without feeling like the Uncle of the film school student who wrote his nephew a $1,000,000 check for a film that starred his theater department classmates and ended up as a free download on youtube.com?

So after doing your share of homework, here’s what you discover may be the opportunity to spice up your wealthy but boring life:

*Sergey Brin And Larry Page Of Google, Fred Smith, the CEO of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Todd Wagner and Marc Cuban (formerly of broadcast.com), Max Levchin and David Grodnick Of PAYPAL, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, former Chicago bulls co-owner Jim Stern, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg, Bob Yari; and, financiers Robert Sturm, Sheikh Waleed Al Ibrahim, Zeid Masri of SilverHaze Partners, Michael Singer, Mark Esses, David Larcher, Michael Goguen, Richard Landry, Michael Reilly, Rafael Fogel, and Philip Anschutz are just a handful of high net worth entrepreneurs who entered the motion picture finance and production business with successful results.

*There are various tradable state, federal, and international tax credit incentives that would offer a premium based on an equity position. Assuming there is a 10 million dollar budget film, where 50% of it is in equity, and 50% is through international distribution guarantees prior to release. Now assume there is a 20-25% tax credit on the entire amount of $10 million dollars, which will immediately translate into $2-2.5 million tax credit to an investor.

*Numerous hedge funds such as Reed, Conner & Birdwell (DISNEY), Legendary Fund (Warner Brothers), Melrose Fund (Paramount Pictures), Ingenious Media’s 700 Million dollar Float on London’s AIM, Benjamin Waisbren Investments, and a host of other funds and fund managers are entering the film finance arena.

*The explosion of international DVD, pay-per-view, home video, cable, megaplex theaters, the future of multi-lingual Internet video on demand downloads, and cross-market digital distribution including low-cost theatrical digital projection, the movie industry is accelerating at an unprecedented growth rate.

*The American Jobs Creation Act of 2004, which amends the Internal Revenue Code of 1986, was signed into law . The Act creates three tax incentives expressly applicable to motion pictures, one of which – § 181 of the Internal Revenue Code – is especially significant to independent film producers and their passive investors on qualifying films with budgets under $20 million dollars.

*The filmed and other entertainment sectors are constantly outperforming and beating analyst expectations with regards to growth, and are the only industries resistant to untimely global events and adverse economic conditions.

*Movie Investor returns may be more favorable and more liquid than holding direct equity positions in most public entertainment and other public companies, real estate investments, and other alternative investments.

*There is a huge demand, audience, and growing distribution structure for specialty independent, ,crime, horror, and other low budget films as exemplified by the success of such films as “Brokeback Mountain”, “Sideways”, “Capote”, “Garden State”, “Napolean Dynamite”, “Y Tu Mama Tambien”, “My Big Fat Greek Wedding”, “Memento”, “Crash” , “Saw 1 &2″, Friday The 13th”, “Halloween”, “Texas Chain Saw Massacre”, “Hostel” and “WOLF CREEK”, which was made for $800,000, bought for nearly 4 million dollars prior to its release by Dimension, as well as “Hustle and Flow” which was made for $2 million dollars and bought for $16 million by Paramount Pictures.

*Apart from large blockbusters such as “King Kong”, “Harry Potter”, and other large scale studio films, the majority of studio-produced films have been under performing at the box office. The films that have been successful for studios were all externally financed and or co-financed with studios, sold for 2-3 x their costs, and a majority of them retained foreign sales rights to maximize revenues.

So after looking at all the great benefits, how do you actually go about finding a deal or movie project where you are certain that half your money isn’t going to be used by a Hollywood producer as a down payment on a new mansion in Pacific Palisades?

The key that separates the successful film financiers vs. the newbie Oil magnates who come to Los Angeles with a pocketful of money and end up leaving with half a pocketful of money is called several things: structured finance, leverage, risk minimization, multiple exit strategies, tax credits, and the ethical consciousness of the filmmaker/producer.

What does that translate to you in a real world scenario. Lets say you want to finance 100% of a $1.5 million dollar low budget genre film whose worst case scenario is a DVD release and profits from international sales and perhaps some other equity sweeteners in the conversion of the securities that you subscribe for as part of the deal. Well, if you write a check for $1.5 million, and the film is shot in a state that has 30% in tax credits, you get back $450,000 in tax credits + under Section 181, you are able to write off that amount under Federal. So you are already making a nice return before the profits kick in. Then you figure you sell the film to 50 countries, and if you are really lucky, you sell the film for 3-4 times it cost to a studio at a swanky festival like Sundance, Toronto, Cannes, etc. Do this over 5-10 films and you can make a very profitable name for yourself among the Hollywood elite.

But lets really take this a step further and see how the bigger boys leverage film investing because they can get a bigger star which can translate in larger overseas sales. Lets say a filmmaker/producer has a $10 million film and you want in on the action. You would park $5 million in equity, receive an 20-30% tax credit on $10 million which will be $2-$3 million, the producer will get the biggest star he can, get a studio to kick in the other $5 million dollars, you wont worry about ever seeing a penny from the theatrical release because you know your DVD profits and international sales will cover your equity position. Make sense?

Now leverage this with different budgets, genres, stars, distribution, places where you can get high tax credits (Ie Puerto Rico is 40%), other exit strategies where you can find your shares on the London AIM, and you are on your new career path as a sophisticated and educated film financier. Off course, if you want to go even further and guarantee 100% of your capital, there are tricks to that as well.

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Business Casual Dress – What is Business Casual?

Business casual dress causes a great deal of confusion in the workplace. What exactly should you wear? Are jeans acceptable?

Here’s an explanation of what business casual means, and how you can put together a wardrobe that still looks professional.

Business casual dress is a combination of the formal, dark colors of business wear, with the relaxed, comfortable look of casual wear. But be careful. It’s not weekend wear, or sportswear. It’s somewhere in the middle ground. It combines the professionalism of business dress with the comfort of casual dress, to create a smart, polished office look that’s a step below business formal.

Here are 5 tips to guide you in planning your wardrobe.

1. If you wear business formal dress (a suit) to work everyday, and are now allowed to wear business casual on Fridays, dress one notch down. So you can wear a jacket and pants, but men can remove their tie. Or women can wear a pants suit instead of a suit with a jacket.

2. If your company allows you to wear business casual dress every day, when you are working in the office or for sales meetings, you still need to look professional. You don’t have to wear a suit, but you should wear neat separates. This would include a crisp blouse or shirt, or a nice sweater with pressed business pants (or skirt for women).

3. Keep a jacket handy for unexpected meetings or client visits. Most companies that allow business casual in the office still want their employees to dress up when meeting clients.

4. Dress to make your clients feel comfortable. Even if your office is informal, if you visit clients who are more formal or conservative, it’s a good idea to dress to match their environment. You’ll make a better impression, because you are showing them respect when you dress up.

5. Ditch the jeans. Few companies allow jeans with business casual. If you work in an extremely casual environment, such as in software development, and your clients dress the same way, or you don’t meet with clients, jeans may be alright. Again, take your clues from your boss or manager, and from the people you meet with.

Putting together a polished, professional business wardrobe takes time and thought.

Do you know the biggest business wardrobe mistakes? Find out with this free report:

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Business Casual Explained

What is Business Casual?

Ask ten different people and everyone would have a different interpretation on what it is, and what can be worn. This has lead to dress down confusion and frequently inappropriate office attire. The key word is “business”. Business casual is not casual dress, but a more casual way of business dressing versus business formal. Problems arise when business casual in the workplace gets too casual. It is not weekend casual, sporting event casual, gym wear such as jogging suits, night club attire, or beach wear. Business Casual means dressing in a professional more relaxed way, yet still looking neat and pulled together.

Whether business casual is designated to Friday or everyday, clarity should be provided in a business casual dress policy. The policy should provide specific guidelines to the employees. Employees who call on clients should be asked to keep a change of clothing in case they have to go outside the office to see a client.

Guidelines:

Clothing should be pressed, clean, and not show signs of wear.
No offensive clothing that has words or pictures that could offend others.
No clothing that reveals too much cleavage, your back, chest, stomach or your underwear.
Clothing shouldn’t be too tight or too baggy.
If jeans are allowed they should be dress jeans in a dark denim.
Avoid trendy.

Guidelines For Women:

Casual pressed pants, tailored pants or dressy capris. Avoid shorts and leggings.
Skirts. Avoid too short, floor length and high slits.
Tops: Collared shirts, conservative sweaters, cardigans and sweater sets.
Casual dresses. Avoid party dresses, floor length dresses, and sundresses.
Hosiery is not essential in the summer for business casual.
Shoes: Can be opened toed or a dressy sandal for the summer. Avoid thongs, flip flops or beach like sandals. In the winter a closed toe shoe or conservative boot.
Jewelry: Avoid extremes.

Guidelines For Men:

A sports jacket
Collared Shirt, polo shirts, knit shirts with collars
Ties are not necessary
Dress sweaters such as a turtleneck or crewneck
Tailored pants, Khakis
Socks
Shoes can be more casual such as a loafer. Avoid sandals, flip flops, athletic shoes and hiking boots.

One last word of advice, think business before casual.

Pat Elke, Founding President of Advancing With Style is a leading authority and executive advisor in the areas of professional image, business and social etiquette, workplace civility, international business etiquette, and cultural awareness.

Since 1982 she has worked with over 600 corporations and delivered more than 1500 seminars worldwide. Clients range from Fortune 500 companies to government agencies, and from political leaders to financial CEO’s.

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Great Tips on Business Dress and Business Casual For Men

Adhering to a business casual dress code often poses a challenge for many men. You want to be comfortable and relaxed, yet still maintain a professional look. On the contrary, when maintaining a business dress etiquette, where do you draw the line on incorporating sportswear? Whether you’re a young professional just starting to build your wardrobe, or are well seasoned in the business world and want to add new inspiration to your men’s apparel, you’re in luck. Discover the differences between business dress and business casual for men and how to incorporate the appropriate style for your situation.

What to wear: Every work environment is different. What may be considered appropriate for business casual in some work spaces, may be too casual for others. Your best bet? Check out what your co-workers and leaders are wearing. You don’t have to copy their style, but it will give you an idea of how to dress business casual.

Suits and suit separates: A fine suit is the prime differentiating factor between business dress and business casual. The standard business dress code always requires a tie. A suit made from fine materials, well-fitting dress shirt, and silk tie are go-to items for business dress. However, make sure your suit, shirts and ties are clean and pressed each time you wear them. Wearing fine clothes that sport stains, rips or tears can be worse than not adhering to a business dress code at all. And in most cases, you can remove your jacket once you’re in the office or a meeting.
Dress trousers and khakis: Dress trousers are always suitable for any business casual dress code. Depending on your work environment, khakis will most likely be considered appropriate business casual apparel. Pair either with a sportshirt or turtleneck, sportcoat and leather shoes for a professional yet comfortable look.
Dress shirts: Dress shirts balance the look of your outfit and visually complement your accessories. For a business casual dress code, try pairing a pinpoint dress shirt with tweed trousers, penny loafers, a leather belt and cashmere scarf, and you’ll look instantly dashing. When adhering to a business dress code, a point collar is the most versatile for business or dress. Button-down collars look best with a sportcoat and khaki pants; they are not typically worn with a suit. Also, look for dress shirts that come in wrinkle-free and stain resistant materials. They’ll keep you looking fresh even during your busy travel schedule.
Shoes: Shoes are a versatile category. Many dress shoes that can be worn with a suit, can also be paired with your business casual attire. Tuxedo shoes, or black patent leather dress shoes, are too dressy for the office and should be reserved for black tie affairs. Historically, sneakers have been too casual, although designers are coming out with more sophisticated styles that may be appropriate for your work setting. Choose a pair of shoes that offer clean, crisp lines and are made from genuine leather. Be sure to treat them with a leather protector and clean them regularly, as a shoddy pair of shoes can instantly spoil an entire outfit.
Briefcase/laptop bag: A distressed leather mail carrier style bag, messenger bag and laptop case in subdued shades is acceptable for a business casual work environment. For business dress, however, a briefcase is best. Look for a classic case in a versatile shade such as cognac, burgundy or black.

What not to wear: Be forewarned in case you were debating wearing any of the following to work:

Obnoxious t-shirts: Wearing a soft tee shirt made from finely woven cotton underneath a V neck sweater is perfectly fine for business casual apparel. However, wearing your Spring Break tee from 1999 is not. Prominently displayed logos can look tacky as well. Save the raucous bachelor shirts for weekend use only.
Jerseys of any kind: Absolutely not. No. Not ever. A basketball, football, baseball, or any other kind of sports jersey is never appropriate for the office. The same goes with baseball caps, giant finger gloves, track jackets, or any other sports apparel you’re tempted to wear on a day when you’re not feeling so fresh. Others will notice your lack of effort and inappropriate attire immediately.
Sandals: While flip-flops have a charming, beach-hippie sort of appeal, you should avoid wearing them in a business casual work environment. No matter the designer or materials, they are simply too casual for the office.

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Handy Tips for Wearing Business Casual Clothing

Smart casual attire means a variety of outfits you can wear on business casual meetings, dinners, birthday parties, holiday functions, business casual nights, family get-togethers and date nights. Your dressing style really matters a lot while attending different occasions. So, it’s important to dress up with the right clothes that look suitable and are well appropriate for different events. Casual dressing generally incorporates a lot of basic clothes and accessories but it can be changed according to the person’s preference and style. If you are looking for some smart casual dressing ideas that give you a stylish and more graceful look, here you can find different ways to create various business casual ensembles.

For Business Causal

· Men should consider light colors like light blue, light brown and khaki, instead of dark colors such as black, gray or navy for business casual dress code, as light colors look more casual than dark colors.

· Consider button down shirts in polyester, cotton twill fabric that allows comfort and gives a professional casual look. You can layer a button-down shirt with a casual blazer or sweater for a stylish casual look.

· For women, avoid wearing sleeveless top as it will not be appropriate for the business environment. It’s better to go for casual shirts, blouses, dress shirts or knit shirts, pair your shirts with blazers, lightweight cardigans or jackets.

· For bottoms, men should consider dress pants and avoid wearing shorts, trousers and sweatpants.

· Women can wear knee-length skirts and pencil skirts with leggings.

For Casual Parties

· Consider bright, bold or even light colors for casual tops like t-shirts, available in different styles like V-neck, crewneck, boat neck shirts. These shirts have quality fabrics made up of polyester and cotton, allowing comfort and give a casual chic look.

· When it comes to bottoms, men can go for khakis, jeans, sweatpants, while women can wear skinny jeans, capris, leggings, miniskirts, shorts and trousers.

· Sneakers and joggers go well for casual Fridays. Women can wear flat heel sand strappy sandals.

· For dinner parties, ladies can wear high heels while dark colored boots work well for men.

· Ladies can accessorize their casual outfits with jewelry items like earrings, necklace and chunky bracelets. Moreover, they can wrap a colored scarf around their neck to get a classy and versatile look.

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5 Tips For Choosing the Best Business Casual Clothing

In the last ten years or so, the way people dress for work has changed dramatically from a generation ago. If you take a look around a typical downtown city center in America these days, more than half the people are wearing business casual clothing, such as jeans, tee shirts, and sports shoes. While there are still those professionals who wear classic corporate clothes such as suits, more and more people are enjoying the buttoned-down look of casual business attire.

Like any other cross section of humanity, people wearing casual business attire vary in style. Whether you are going to meet up with a potential client at the local coffee shop or enjoy a nice celebration dinner with a favorite colleague, there are some good rules of thumb to consider when considering your casual business attire.

They are:

1. If you like jeans, Choose ones that are free from tears, rips, studs, chains, or other decorations. Save these for a night out with your friends at the dance club. Also, make sure they are not too low cut. Showing off the thong while dining with important clients is not the message you want to send! While jeans are becoming more and more accepted in business situations, common sense still should be your guide when looking for a pair to slip into for your day at work. There are a variety of sophisticated washes and styles now in jeans to meet just about anyone’s business taste.

2. Business casual clothing should be presentable, but that does not mean it has to be boring! Remember that many creative and freelance professionals enjoy expressing their personalities through their clothes. What to wear to work should be a reflection of what you do, so it is okay to jazz up an outfit with a pretty scarf or a fun jacket if you are more artsy, or put together a more tailored look with a blazer, turtleneck sweater, and slacks if you are more conservative.

3. Think about who you will most often interact with throughout the day when selecting your business casual clothing. Choose key foundation pieces that can be dressed up or down depending on your schedule and events. I always like to have a good supply of dressy tee-shirts in my closet that I can pair with a beautiful coat or leather jacket or even a cashmere cardigan. For guys, tee shirts are fine as long as they ares void of offensive images or language, unless you happen to be in the kind of business that encourages that sort of thing. Also, it is best to leave the sleeveless muscle tees at home unless you are meeting clients for a game of beach volleyball.

4. Business casual clothing also includes footwear, and once again, common sense prevails here. There are so many great choices these days for both men and women that extend beyond the proverbial wing-tip and pump. Boots, flats, even athletic shoes pass as acceptable footwear in today’s casual business attire climate. They key is to choose shoes that fit well and allow you to walk comfortably, especially if you work in an urban environment.

5. Finally, business casual does not equal sloppy or anything goes. Humans are quick to judge each other on how we look, so it is worth taking the time to choose a basic workable wardrobe and invest accordingly. A very good friend of mine who is a professional fashion consultant suggests that no matter what, every business casual professional should own a really good coat or jacket. This goes for both men and women. Again, the style is not as important as is the quality and the fact that you feel good when you wear it.

When trying to make money in a competitive business world, knowing what casual business attire is and is not can do wonders for your bottom line. In general, use the wisdom of the 3 P’s my Mom passed on to me when I was getting ready to enter the professional world: Would my Parents, Principal,and Priest give me the thumbs up about what I have on? Perhaps a bit old-fashioned to some readers out there, but in all fairness, those age-old ideas last for a very good reason. And with so many choices today in business casual, it’s better to be safe than wish you had checked to make sure your underwear wasn’t showing through a hole in your jeans when trying to land that lucrative client!

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