But if we are currently living from pay cheque to pay cheque, never seeming to get ahead or having any savings, how do we change things? Where do we start in our quest for financial security?

The best thing we can do, is sit down, take a deep breath and contemplate the differences between the haves and the have nots, the achievers and the laymen. What is it that the successful and wealthy do, that is different to us? What are the principles that they utilise to create wealth?

Once we find out the principles that others who have created financial security have used, it seems that then the only step left would be for us to try and duplicate the process.

Following is a list of some of the wealth building principles that I have discovered in my study of and conversations with successful people.

These concepts have been utilised extensively by those who have already created enormous wealth.

1. Use the power of Compounding Interest/Growth.  John D. Rockerfeller once described compounding interest as the “Eighth Wonder of the World”. Compounding is also referred to as Rate & Time because the longer the time, and the higher the growth rate, the greater the effects of compounding become. Compounding works by letting any interest earned get added to the initial investment, and then the next lot of interest is calculated on the sum of the two, and so on. Interest is earned on interest. This gives the effect of exponentially increasing the value of an investment. One of easiest ways to calculate how compounding interest works with different rates of return is to become familiar with the Rule of  72. This rule states that “The number of years that it will take for your money to double is 72 divided by the interest (growth) rate”.Therefore if you have $1,000.00 invested at 10% interest, then the number of years that it will take for your money to double to $2000.00 is 7.2. 72  divided  by  10  =  7.2
2. Use the tried and true method of investing in residential real estate. Statistics show that over 98% of the world’s millionaires have made their money through property. It should really not come as a surprise, because everyone needs a place to live, and generally at least one third of the population are renting. Property is a necessity, so it can never go out of fashion. As the population increases, so does the need for housing. The laws of supply and demand therefore will ensure that prices keep rising. Banks consider property to be one of the most secure investments and because of this they will loan you a high percentage of the value. This leads to the next principle.
3. Using Other Peoples Money or Gearing is a tool used extensively by the wealthy. Why is using Other People’s Money so important? The reason is that it is possible to use “leverage”, also known as “gearing” to obtain a greater result, than you could have obtained using only your own contributions. The word leverage comes from “lever”. As you know a small amount of force applied on one end of a lever, can produce force far greater than what was initially exerted.  A lever has the effect of multiplying the power exerted. In the case of investing, it is referred to as leveraging when you use just a small portion of your own money, say 10% deposit on a $300,000.00 house, and borrow (leverage) the rest, in this case 90%. The capital growth that you benefit from is then calculated on the full $300,000.00, not just the $30,000.00 that you personally contributed, having the effect of multiplying your capital gain.

Gearing allows you to purchase a far more expensive property than you could if you were using only your own money. Controlling assets of a higher value means that compounding growth has more to work on, and therefore your net worth will increase much quicker. Gearing allows you to build an investment portfolio more quickly than would otherwise be possible.

When you invest in commercial real estate, you need to understand that there is a vast difference between commercial real estate and residential. Not only is the market different, but so are the laws. Due diligence in commercial real estate is different than that in the residential market. You still want to make sure you get an inspection of the property prior to the settlement as well as a survey of the property. You also have to make sure that you get any easements included in the sale if they are needed.

Most people think of easements as those that burden the property, such as those for utilities and sewer. With commercial property, there are often easements that benefit the property. In some cases, in order to get to a property people have to drive their vehicles over other property owned by other people. In such a case, the person who purchases the commercial real estate will want to make sure that they get the easements needed for parking or entering and exiting. These can be included in the deed or in an easement agreement.

The only way to see if you need easements is to get a survey of your property depicting not just the property but any easements that pertain to the property. The title insurance commitment should also reflect a legal description of the easements. The title company needs to search not only the commercial real estate property that you are purchasing but also any other property in which you are receiving an easement. The reason for having this property searched includes the following points:

1.You need to know that the person who signs the easement agreement or deed is legally entitled to convey interest in the property;
2.You need to know that there are no burden on the easement property that would prevent you from using it;
3.You need to know that the taxes on the easement property are current. It would be unfortunate to purchase commercial real estate property that is dependent on easements and discover that the property is in a tax sale. A person who purchases the property could insist that you pay money to use their property; they may even erect a fence to prevent you from using the land.

When you invest in commercial real estate, make sure that you have an attorney who is well versed when it comes to commercial real estate, not just residential real estate. Commercial real estate is an entirely different than residential real estate and your attorney should be knowledgeable in this aspect of the real estate industry.

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