The most basic computation in evaluating the rate of return for a real property investment is the simple interest. Calculation of simple interest consists of 3 elements: principal, rate, and time. The principal is the initial amount of investment. The rate, also referred to as rate on investment (ROI), is the interest rate of your investment at a given period of time.

Let me give you an example, Ms. Anne has decided to invest his bank savings worth $10,000 to a newly developed, residential district in Detroit, Michigan. The property consultant mentioned an annual interest rate of 7% after 2 years.

Principal = $20,000 Rate = 5% Time = 2 year

Simple Interest = Principal x Rate x Time

= $10,000 x .05 x 2

= $1,000

In 2 years time, your $10,000 investment will earn $1,000. Your property’s value then will be principal plus interest or $11,000. Obviously this is a simple scenario using simple interest. What if you have 2 property investments that need proper evaluation? Referring to Ms. Anne’s case discussed above, she decided to add more money so that her total annual earned interest will reach $1,500 or 7.5% of initial investment (instead of $1,000). If she expects the interest rate to increase to 9% how much additional money does she need to achieve her target?

Using the same formula:

Simple Interest = Principal x Rate x Time , since we have 2 investment periods, then

Simple Interest (period 1) + Simple Interest (period 2) = Simple Interest (total) , or

Principal x Rate x Time (period 1) + Principal x Rate x Time (period 2) = Principal x Rate x Time (total)

Substituting the values from the table:

(20,000 x .07 x 2) + (2 x .11 x y) = (20,000 + y) x .10 x 2

Solving for y will give you the value of $16,666.67. This means that Ms. Anne has to invest an additional of approximately $16,700 to attain her target.

Another computation frequently used in financing and economy is the compounded interest. Simple interest has lower yield or future value since the interest earned in compound is reinvested as capital. Knowing the fundamental interest calculation can help you make better offer to your clients. The properties you are selling can become more appealing if you can give them an idea how much it will worth after a period of time. If you are on the other side of the negotiation, you can evaluate the property on your own and even verify claims and assertions on a certain investment.

Below are basic points that will have an impact to your cash flow and eventually your real estate investment.  Items found on the cash flow-in are circumstances wherein you expect some cash flowing in to your portfolio.  On the cash flow-out column are obviously items that will result to cash out transaction.

These are just some of the things you need to know that may affect your cash flow management.  The next thing you should do is compute for the sum of all your cash flow-in and cash flow-out transactions.  If the sum of all cash flow-ins is significantly higher than the sum of all cash flow-outs then it is a good investment.

Cash is king not profit.  Even if your real estate has the highest rate of return in your entire investment portfolio, if cash management is not effectively maintained it will eat up your profit over time.  so before jumping into real estate investments, do your assignments first – read good materials, ask opinions of highly experienced people, and check your cash flow.

There are various types of brokers – commodity, insurance, stock, investment, real estate, etc.  It is vital to get a broker that can maximize your investments and at the same time share your common values and personalities.  Below are 4 simple steps you can follow in selecting your broker:

Step 1: Set your goals

Like any other venture it is a must to establish first your targets.  Determine how much are you investing, how much return you are expecting to gain and when do you want to get it, or how much risk you are willing to take.  These are basic questions that need to be answered to give your account executive an idea on what he needs to accomplish with your investments.  When objectives are set, you can evaluate anytime if your investment or broker is doing good or otherwise.

Step 2: Ask around

If you have friends or colleagues who have invested in the past or acquired the service of a broker and can recommend a good one then better for you.  You can also contact authorized government agencies such as the National Association of Securities Dealers (NASD) and other trusted organizations who can suggest good and trusted brokers.  This is also the best time to conduct background checkup of each brokerage firm and their list of representatives.

Step 3:  Make a shortlist

After all those researching and asking around it is now time to list some prospects.  You can schedule a meeting or interview to know more about them – education, experience, personalities, customer references, fees and commissions, etc.  You can do these through phone or in person.  This will initially establish your relationship with your soon-to-be broker.  Tell them about your financial goals or what you know about securities business and the things you want to learn.  Observe how they respond to your questions and if your plans coincide with his or her skills.

Step 4: Look for positive traits

You will be talking, discussing, and negotiating with your account executive majority of the time so it is highly recommended to choose one that you are comfortable working with.  The securities industry is quite complicated may give you some difficulty once in a while.  Do not hesitate to ask your account executive for any information regarding a transaction.  Also, do not be intimidated if you hear a technical term for the first time or not sure what it meant.  This is the best time to inquire and learn a lot from your broker.  He must be patient enough to guide you in every step of the way.  Do remember that every decision of your account executive has an effect to you and your investment.  It pays to know!

People in the investing and financing arena best know what Rule of 72 is all about. If you meet one who does not have any idea of it, then it is safe to assume he is on the wrong side of the world. Rule of 72 is a simple formula for computing the estimated number of years for your investment to double given a fixed annual rate of return. For example, in 2008 an amount of $10,000 is invested by Gary at 10%. It will be doubled using the principle below:

Number of years to double = 72

——————–

Interest Rate

= 72

——————–

10

= 7.2

Dividing 72 by the annual interest rate will give you the approximate number of years for your investment to double. This means that Gary can expect his investment to reach $20,000 after 7.2 years or by the year 2015. Sounds very simple you may think but that is not the whole picture. The following observations are worth knowing to fully understand the Rule of 72:

The computed number is just estimation. If you use a manual calculation or some programs it would give the figure 7.2725 years which more accurate.

It is safe to use the Rule of 72 for interest rates falling between 3% and 12%. The estimation is less precise at higher interest rates. For instance, if the return is 100%, dividing 72 by 100 will give us .72 years where in fact it will double in just one year.

Changes on income taxes, commission, inflation, etc. are not addressed in this rule. If for some reasons the government raised income taxes then your rate of return will also be affected. When this happens, it will be longer for you to achieve the two-fold of your investment.

The interest is understood to compound annually. For return that compounds frequently, then expect to double your property value faster than the computed years when Rule of 72 was used.

In 1494, Fra Luca Pacioli, made a similar theory in one of his published works on Mathematics – Summa de Arithmetica. Apparently, no explanation or derivation was given about the observation.

Knowledge is power. What you do with what you know makes all the difference. The world of investing and personal finance is very exciting and risky at the same time. No matter how accurate the information you got, how much risk you took, there will be times that all you can do is hope for the best and expect for the worse. The Rule of 72 is one tool available to give you an idea, a practical estimation, on what to expect in terms of your investment.

After launching the fund, fresh shares are hardly issued. Shares are usually redeemable for securities or cash until and unless the finance liquidates. Market makers and broker are the parties in secondary market where from investors can obtain shares by buying share in closed-end funds . It is unlike Open End funds, where all dealings ultimately result the fund in creation of fresh shares with redemption for either securities or cash.

The cost of the shares in closed-end funds is determined somewhat by the investments value in a fund, and in some measure by the discount (or premium) by the market that is positioned on it. When the whole values of each security of the fund is divide by the quantity of the shares of the fund, it is known as net assets value, often shortened as NAV. The value of the market fund share is often lower or higher than that of NAV. When fund’s share value is much more than NAV, then it is identified as selling at the best but when it’s down, it is considered to be at a discounted price as compared to the NAV.

Generally, for Closed-end funds, the trading takes place on the main universal stock exchanges. Although Amex is being in competition, the Stock Exchange of New York in US is still dominant. The Stock Exchange of London in UK which is the leading market is the abode to the majority funds.

Close-End Funds Working

Closed-end funds are normally sponsored through the companies that manage fund and also exercise control on the investments done. In initial public offerings, they start soliciting money through investors, for being limited or public. Equivalent to their primary savings, investors are given certain shares. Fund manager purchases securities and collects the money. It all depends and rests on the financial charter that what accurately fund supervisor can put in. He invests some part of the fund in stocks, some in bonds, some in quite specifically mentioned things.

Following points distinguish the Closed-End Fund from Simple Open-End Mutual Funds.

When it starts operating, it is closed for new capital.

Dealings are directly done on the Stock Exchange and they are not redeemed by the fund directly

Ordinary use of gearing and leverage is done to improve return. This is the distinguishing feature of a closed-end fund.

Sometimes the leveraging option is exercised by allotment of preference shares. In that case, there are two kinds of shareholders. Investments are made by common stock shareholders and preferred stock shareholders, when the fund is controlled by issue of preferred stock. Preferred stock shareholders gain from expenditure based on the total assets under management. In the case of common share holders, the case is different and they are charged on common assets rather than total assets.

Analyze the Benefits

The Exchange Traded Funds are associated with a number of benefits. The foremost benefit of these funds is that they are the most suitable investment tools for long duration of time. They are potential enough to add value to your invested money in this period of time. The fees on the annual basis lie just in between 0.2% to 2%. The other advantages include the ease and effectiveness involved in buying as well as selling them. The investors are not needed to have the knowledge of the market trends in the future. The exchange-traded funds are the synonyms of the powerful investment tool that is often accompanied with expansion, the cost that is very low and also the minimum turnover index. Thus, they are able to lure all kinds of investors that include the retail as well as institutional investors. Moreover, these funds are available for long term as well as short-term investments.

Not Free From Risk

The Exchange Traded Funds are not an exception while talking about the risk involved. There is an ongoing process of up and down in the investment that makes it necessary to understand the bottom line of investing in them. There are always some underlying securities associated with all kinds of ETF that should be understood. In the case of index ETF that deals with the individual shares, it is necessary to know about the indices. There are certain items like oil, whose future securities are very difficult too predict. Thus, it becomes difficult to take decision about investment in a particular type of Exchange Traded Funds .

It is a common trend these days that the investors are becoming more and more conscious and responsible in handling their investments by themselves. Thus, they no more require any professional team to manage the process of investment for them. The Exchange Traded Funds are so easy to invest in and provides you the biggest advantage of the market that is called market unpredictability. You never know, when the market value of these funds I going to rise or fall down. The many other popular funds don’t allow you to have this advantage and that too at such fast rate. It is advisable at this point of time, that you should possess the knowledge of the right time for investment in these funds.

When it comes to the government’s monetary policy, interest rates are of a vital consideration. Such rates are used to moderate the rates of inflation, investment as also unemployment. The Fed, or Federal Reserve, frequently organizes meetings to adjust the interest rates. Almost all the financial institutions and the Fed Agencies always publish the current interest rates of the market.

In case of a loan market, the interest rates on loans that are mortgaged have a huge impact on the interest rates. So the factors that influence the interest rates are to be taken into consideration as well. So what are the main influencing factors of the interest rate?

In economic terms, interest rates are influenced by the demand and supply of loanable funds. When borrowing is at the peak, the interest rate is at the highest. But when the economy isn’t performing very well, and not many people are attracted to borrow funds, the interest rates actually fall!

The Fed also has a huge influence on the interest rates. The Federal funds rate is determined by the Fed. In short, a federal funds rate is a short-term type of a rate which is charged to people on those funds which are lent between two banks. The Federal Open Market Committee or the FOMC determine such rates, the maturity period of which is two years in general.

If any action takes place in the federal funds rate, the short-term interest rates which includes the home rates of equity as well, and even those that are adjustable, are impacted a lot due to the inflation change. In fact, anything which relates to inflation has an effect on the interest rates. Such a situation is generally seen in cases where the short-term rates of interest fall. The long-term rates of interest are applicable to those loans which are borrowed for a period of greater than ten years, which mature after such a period of time. To maintain and keep the rate of inflation well under control, the Fed normally keeps the short-term rates of interest a bit on the higher side.

Given the complexity involved in the economy of the United States, the fixation of federal funds rate becomes a difficult exercise. Owing to such a reason, many borrowers are actually refinancing their loans of ARM into those bearing a mortgage and involving a fixed rate of interest to avoid being on the tenterhooks regarding the constantly changing interest rates!

Although hedge funds are like mutual funds to a great extent, they are small private funds in reality. Thus, in order to make a substantial fund of hedge funds , you can follow some unconventional business strategies.

When it comes to usual funds, your options are limited to a certain extent. You have to go ahead and buy bonds and stocks. You cannot apply great investment strategies to ensure that you do not end up with a huge loss when the stock markets fall. The case of hedge funds is completely different. You can go ’short’ with hedge funds and escape with profits even when the stock markets take a plunge.

The origin of hedge funds, in fact, came from the word hedging. Hedging means certain devices for minimizing risk. The hedge funds were designed to act as a shock absorber in case the stock markets fall. Keeping a fund of hedge funds is very important to ensure that you do not end up getting into huge losses. Those who invest in hedge funds basically take an advantage of the contemporary market conditions to make profits.

Those who invest in hedge funds earn a certain amount of money. In fact, the fund of hedge funds ensures that the investor has a net worth of about a million dollars. Since only accredited individuals are able to invest in the hedge funds, they are allowed certain special exemptions that general mutual fund investors are not allowed.

All the investment decisions that the individuals investing in hedge funds take is basically dependent on the offering documents. There are many hedge funds that demand a performance fee as well as a management fee. The management fee is a percentage of all the assets that are being managed by the company and the performance fee is taken as a percentage of the profits earned by the investors. There are many funds, however, that do not charge these fees until a certain goal is attained.

The mutual funds investments need to be disclosed to third parties. However, those who have funds of hedge funds are not obliged to do so. There is a certain aura of secrecy that shrouds hedge funds. Thus, many individuals tend to be suspicious of the funds of hedge funds . The government of the United States has tried to regulate the workings of the hedge funds but have been largely unsuccessful. There are certain locations that have numerous hedge funds. They are the Bermuda, the Cayman Islands or any other places where the rules and regulations are more relaxed and conducive to hedge funds.

There are many who swear by hedge funds and claim that they are a better option than high-fee mutual funds. In fact, the fund manager is generally happy with hedge funds because he gets better amounts for the hedge funds.

Silver has gone up some and is also fairly steady. Peter Schiff, a well known economist and author of “Crash Proof”, mentioned in a video blog that he believed Gold will begin to go up with increasing speed. He also mentioned that when he recommends Gold he also is recommending silver. He also says that he believes Silver is the better investment (whereas Gold is more of a hedge), following the same rational as Mike Maloney.

Silver is currently way way below it historical price ratio to Gold. Also when Gold reaches 3000 to 4000 per ounce people may rush into silver because it will be much more affordable, as compared to Gold, causing the price to skyrocket.

Sally and I are buying silver, little by little, with our limited monthly investment funds.

It begins with a brief overview of the events of an initial meeting at Jekyll Island by a group of men who represented at least one fourth of the world’s wealth including the Morgan monopoly and the Rothschild family. According to the author, the goal of this meeting was to keep a monopoly over the world’s wealth. This group had to convince the US congress that this new Federal bank would benefit the people of the US, which they did.

The book explains many things about the IMF, World Bank and international finance. Like I said, I’ve only read about 100 pages so far but the book is clearly attacking the Fed and many US financial policies as ploys to bring us further in to socialism and bigger government and more government control and it does a pretty convincing job. As you read it kind of opens your eyes just too how much government controls the economy and how connected people (the wealthy) end up being those who benefit the most.

This is the main issue of Kiyosaki’s latest book, ‘Conspiracy of the Rich’ (He timed quite well the release of this book.), about how ultimately the rich control the economy and wealth of the world. It doesn’t take a genius to see that both these authors are at least partially correct. The executives of same large banks and financial institutions that got even richer by playing the real estate markets in the boom should have been bankrupt and out of work. But what happened instead, the government bailed them out through the Fed-taxpayer money and the hidden tax of inflation. Basically they said, you can @#@@$!!@!! around as much as you like, drive the economy into shambles and not suffer for it. Here take some hand outs to keep your company running.

They claim it is necessary to keep these large banks running to save the little guy from losing their job and financial hardship but what really happens? The little guy gets screwed just the same as he pays in taxes to bailout the rich bankers and his savings lose value through inflation. People blame capitalism for the financial mess but it if capitalism were allowed to work and do its job it would clean up the mess on its own. The big companies would go bankrupt as they should and would be replaced by new more efficient companies with better practices. The market would dictate, not the government.

We can’t control what the government and what wealthy people in positions of power do but by increasing our knowledge and understand how our economies work we know the rules of the game so we can benefit financially.