Vol.30 - Hedge Fund Strategies Explained III
Hedge Fund Strategies Explained: Part III
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By Sridhar Venki & Simon Hookway, MSS Capital Ltd. | October 13, 2005
Investing in Hedge Funds via an Index Product -
The FTSE Hedge Index / FTSEhx Fund
The FTSE Hedge Index series is the latest addition to FTSE Group's portfolio of global benchmark indices. The index series aims to provide a daily measure of the aggregate risk and return characteristics of the broad-based universe of investible hedge funds in a representative, diversified, transparent and evolutionary manner. The index is weighted using FTSE’s “Investibility” methodology. Investibility is best viewed as a natural extension of the free-float methodology that FTSE uses for its equity indices.
Index Methodology
Initially, a hedge fund universe of over 6,000 funds was established using a variety of different data sources and industry contacts. The first FTSE Ground Rule was then applied to this universe, namely the requirement of a minimum track record of two years. Those hedge funds complying with this requirement were then grouped into the eight major trading strategies and each hedge fund was quantitatively assessed for representativeness relative to its strategy group as a whole, with the least representative removed from the universe. Any hedge funds following a strategy not consistent with the standard eight strategies within the Index were also removed from the universe.
Further FTSE Ground Rules were then applied to establish basic eligibility, namely a minimum fund size of US$50 million, quarterly liquidity or better, with the hedge funds having to be open and accepting new money. There are no closed hedge funds within the Index. The Investibility concept was then introduced at the constituent selection stage of the Ground Rules to firstly determine the strategy weightings within the Index and secondly to assign a weighting to each hedge fund within its strategy.
The investibility weighting is a function of a fund’s current size and the remaining capacity available until it reaches an asset size at which it ceases to accept new money.
Each hedge fund was then ranked within its strategy in accordance with its investibility weighting and the final constituent managers were selected on the basis of their representativeness, investibility and willingness to comply with all of the platform requirements, especially transparency.
Weightings
The FTSE indices were launched in July 2004 with 40 constituent hedge funds, although the number of funds is expected to grow over time, in order to keep the diversification benefits.
As a result of the implementation of the Ground Rules to create the FTSE Index, the constituent hedge fund managers have the following geographical location: 68% USA, 29% Europe and 3% Asia. The eight strategies represented within the Index are Equity Hedge 30%, Fixed Income Relative Value 13%, CTA/Managed Futures 13%, Distressed & Opportunity 10%, Merger Arbitrage 10%, Global Marco 8%, Convertible Arbitrage 8% and Equity Arbitrage 8%.
Due Diligence
All hedge funds selected for the Index in accordance with the Ground Rules must additionally pass a rigorous due diligence process covering quantitative, qualitative and operational areas (ensuring the hedge fund in question is of institutional quality and has sufficient internal and external controls) prior to their inclusion within the Index. The due diligence consultant for the platform is Harcourt Consulting AG, headquartered in Zurich.
In addition, the Index is overseen by the FTSE Hedge Fund Advisory Group, which comprises independent and authoritative individuals who are senior professionals in investment management. No hedge fund will be included in the Index until it has received final approval from the committee. Other platform parties include FTSE Group (index licensor), Derivative Portfolio Management LLC (administrator) and MSS Capital Ltd (investment adviser). .
Investment Opportunity
Global financial institutions, family offices and high net worth individuals are increasing their allocations to alternative investments. Relative to the difficulty of selecting an actively managed fund of funds or the even greater difficulties of selecting individual hedge funds within the various strategies from such a large universe, the FTSE Index offers a diversified, transparent and low cost means of obtaining exposure to the global hedge fund sector.
Investors can gain an exposure to the hedge fund sector by investing in The FTSEhx Fund, a fund of hedge funds incorporated in the Cayman Islands and whose shares are listed on the Irish Stock Exchange. The Fund invests in the constituent hedge fund managers of the FTSE Hedge Index series in the proportion to which these managers are investibility-weighted within the Index.
The allocation to each constituent fund is generally via a managed account. The managed account gives the required levels of transparency and control, and is governed, together with liquidity and capacity terms, by means of legally binding documentation between the parties. The transparency of the investments made in the constituent hedge funds by the Fund allows MSS Capital to actively manage the risks associated with hedge fund investing. The MSS Capital risk management system allows day-to-day monitoring of various aspects of each of the constituent hedge fund assets, set against certain parameters, for example, the total level of gearing being used, concentration of risk and types of traded instruments being used. The risk management system is also used for monitoring style drift within each constituent hedge fund. Any breach of the agreed investment parameters of the managed account may lead to the manager being removed from the FTSE Index and thus as an investment from the portfolio of the Fund.
There are 12 different ways to invest in The FTSEhx Fund. Investors can allocate capital to the Global share class, which gives exposure to all 40 constituent hedge funds across all styles and strategies. Alternatively, they can allocate to any of the three style classes (Directional, Non-Directional and Event Driven) and gain exposure to just the constituent hedge funds in that style. Or investment can be made into any of the eight Strategy classes to gain exposure to just the constituent hedge funds in that strategy. Investors can therefore tailor their investment according to their exact requirements.
The Fund offers monthly liquidity. The initial minimum subscription amount for each new investor is US$500,000 (or equivalent), with a minimum of US$100,000 (or equivalent) in any one share class. Additional subscriptions for an established investor are subject to a minimum of US$100,000 (or equivalent). There are no subscription charges levied by The FTSEhx Fund. Shareholders may redeem up to 100% of shares held on any dealing day with 35 calendar days written notice and may redeem up to 10% of the shares held (within each individual share class) on any dealing day with 5 business days written notice prior to calendar month end. There are no redemption charges levied by the Fund.
Performance
The performance of hedge funds compares favourably with traditional asset classes such as equities and bonds. Since December 1997, global equities have returned an annualized 3.8% (FTSE All-World Index), global bonds an annualized 6.7% (JPM Global Bond Index) and hedge funds* an annualized 8.4% (FTSE Hedge Global Composite Index). More impressively, hedge funds achieved this superior performance with just 3.8% annualized volatility, which is significantly less volatility than equities (15.6%) and bonds (7%).
Sridhar Venki -- Investment Manager, MSS Capital Ltd
Simon Hookway -- Chief Investment Officer, MSS Capital Ltd
* FTSE Hedge Index Series, net of fees, 31st Dec 1997 to 31st August 2005 (pro-forma figures prior to April 2004)
MSS Capital Ltd
Sridhar Venki - Investment Manager
Simon Hookway - Chief Investment Officer
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October 12, 2005 in Personal Finance | Permalink | Comments (1)
Vol.24 - What is Offshore - What are the Benefits of Placing Assets Offshore?
6. What is Offshore – What are the Benefits to Placing Assets Offshore?
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By Scott Asahina, Star Financial Management | August 31, 2005 | Comment on this article
Over the coming months I hope to offer you some valuable guidance on a range of investment-related topics. From a generic prospective, and under the assumption you live in Japan, I will cover the following subjects:
1 How to choose an investment advisor
2 How to choose an investment fund
3 Risk management - How to build a balanced portfolio of funds
4 Tax deferral - Direct investment verses custody accounts
5 Hedge & Futures funds! - What are Alternative Investments?
6 Not just for the rich and famous – Investment options on a budget
What is offshore?
We have noticed that many of the investments within the previous newsletters are based upon offshore investments. We are frequently asked “What is Offshore” so we will try to answer this sometimes confusing issue.
Going offshore in simple terms means placing your savings, investments, assets or business concerns outside of your home/resident country within one of the many tax havens. A tax haven is a country that has very favourable tax advantages, which means that your savings, investments, assets or business profits can grow free of almost any taxation.
Individuals and businesses usually "go offshore" for one or more of the following reasons:
- Privacy
- Tax Efficiency
- Asset Protection
- Regulatory Advantages
Privacy
To protect the free flow of your personal information and dealings. An offshore entity has no or limited obligation to release your personal or business information, affording you with a great deal of privacy & confidentiality.
In general terms your personal information will not be divulged to any governing body or tax authority unless suitable evidence can be shown to prove that you have been involved in criminal activities, such as money laundering or drug trafficking.
Financial privacy is becoming a thing of the past. Almost every single transaction made at a bank or ATM, by law, must be recorded and filed. Consumer credit agencies maintain databases full of sensitive information that is used and shared by other organizations and agencies. Asset collectors routinely advertise their ability to locate bank accounts, brokerage accounts, and real estate and business holdings. Should asset collectors find substantial wealth, the individual or corporation becomes an easy target for a lawsuit.
Unless ethical and legal steps are taken to insure privacy, sensitive and confidential information could easily get into the wrong hands. Placing your assets, investments, savings bank and brokerage accounts offshore will keep them off the asset collector's radar screen. Consumer credit agencies and government departments do not have access to foreign account records or transactions. Domestic property may be held in the name of a foreign corporation (IBC) or trust. This insures that asset collectors and agencies cannot locate it. By taking advantage of these methods an individual or corporation becomes a smaller target and the likelihood of being sued is reduced. Utilizing offshore tools to protect privacy could mean the difference between keeping and losing what is rightfully yours.
Tax Efficiency
As stated above, your savings, investments, assets or business profits can grow almost free of any form of taxation. This does not mean tax avoidance, it simply means whilst your assets are held offshore they will benefit from very favourable tax advantages. There will for many however, be a potential tax liability when you look to repatriate your assets to your home country. This will depend on your nationality and your country of residence at the time of repatriation.
Asset Protection
There are many methods in which to protect your assets using an offshore structure, in the form of an investment product, an IBC (International Business Company) or a offshore trust, or even a simple offshore bank account.
These will protect your assets from:
- Protection from invasive bureaucracy
- Protection against lawsuits
- Protect your assets from seizure
The simplest form of protection offshore is the nature of the offshore privacy rules. What isn't known can't be attacked. The basic form of offshore privacy combined with an IBC or Trust is a very secure method to legally protect your assets from prying eyes.
Lawsuits are filed every week. Ex-spouses, ex-business partners, disgruntled employees or predatory lawyers may file a suit if they believe a potential defendant is an attractive target. Losing such a lawsuit could cause a lifetime's worth of savings, investments and real estate holdings to be lost. In light of this, placing assets offshore is a wise and effective means of protection from frivolous lawsuits.
Once your assets are held offshore they are unreachable by domestic courts. In the event of a lawsuit, a defendant may be forced to forfeit domestic assets, but offshore assets will remain untouched. Offshore courts do not recognize or carry out domestic judgments. This insures that assets sent offshore will remain confidential, secure, and permanently in the hands of their rightful owners. Moving assets offshore will create peace of mind that what's yours will always be yours.
Regulatory Advantages
The regulations in force within most high tax countries, are there to protect investors, and rightly so. However, due to the very strict nature of these regulations, fund managers feel as if they are wearing a financial straight Jacket. It is difficult for them to compete with the returns of their offshore-based partners who enjoy less restrictive regulation. Many offshore jurisdictions have very mature regulatory systems in place, often based on those present within the US or the UK, yet they allow fund managers great freedom to add value for their investors. This is why offshore funds nearly always outperform their onshore equivalents.
Within the high regulated onshore countries, excessive rules and bureaucracy often plague domestic businesses and operations. Valuable resources are diverted away from the productive process in order to monitor compliance as a result of the restrictions imposed. Curing this problem is as simple as moving to friendlier shores. Offshore jurisdictions are intentionally business-friendly and have regulations that are straightforward, simple to understand and inexpensive to comply with. Moving a business offshore and enjoying a more pleasant business climate may require nothing more than forming an offshore corporation and transferring assets from the domestic corporation to the foreign one.
Is all of this legal?
Do you trust your current bank or investment provider?
Chances are that they too have an offshore operation; most of the world’s major banks and investment companies have an offshore presence.
Companies such as Merrill Lynch, HSBC, ING Barings, UBS, Barclays, Deustche bank all have offshore operations. It is not the offshore industry itself that is illegal; it is only the devious activities of certain individuals who may give the offshore industry a poor reputation. It is also true that the due diligence, and money laundering checks performed by offshore companies is increasing, especially after the 911 terrorist attacks. Which should ensure that it becomes difficult for criminals to abuse the offshore industry?
In fact the offshore industry is probably one of the fastest growing sectors within the financial services industry. Many of the worlds most talented fund managers and analysts are leaving their well paid positions as onshore fund managers, to set up their own offshore funds, due to the greater flexibility and choice they can offer to their clients. As a result of all of this, the offshore market place is no longer the exclusive territory of the rich and famous. Nowadays due to the reduced costs and entry levels, almost anyone can own an offshore fund, investment, bank account or company. Most people are still unaware of the opportunities open to them within the offshore marketplace, which is mainly due to the lack of information available.
Within this article we have only briefly touched upon the potential advantages of going offshore. Depending on your nationality and/or residency, going offshore may or may not be a suitable tax planning exercise. As with any form of investment, banking or general tax planning it is highly recommended that you seek advice from a suitably qualified and licensed advisor.
If you have any queries please contact a STAR Financial Management advisor
Scott Asahina
Director of Portfolio Management
Star Financial Management
STAR Financial Management is licensed and regulated by the Ministry of Finance Japan – License number 1237 Kanto region
The information contained within this article does not constitute an offer to buy or solicitation to sell any shares or units of any of the Funds referred to or any services, by or to anyone in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. Nothing within this article constitutes investment advice and it is important that you do not rely upon its content to make investment decisions. The Funds may not be suitable for everyone. If you have any doubts as to suitability, you should seek advice from an investment advisor. Please remember that past performance is not necessarily a guide to the future. Market and currency movements may cause the value of investments and the income from them to fall as well as rise and you may get back less than you invested when you decide to sell your investments.
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August 19, 2005 in Personal Finance | Permalink | Comments (1)
Vol.23 - Hedge Fund Trading Strategies Explained
Hedge Fund Trading Strategies Explained
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By MSS Capital, | August 17, 2005
Hedge funds have become a core asset class. The explosive growth of the alternative asset management industry over the last few years has thrust hedge funds to the forefront of investors’ minds. The growth of the hedge fund sector has coincided with an economic and financial market environment that is one of the most challenging in recent memory. Despite this, hedge funds remain one of the most consistent performing asset classes within the entire spectrum of investment opportunities.
Hedge funds seek to deliver absolute positive returns with low downside volatility regardless of market conditions, and hence risk-adjusted returns that are superior to that of traditional asset classes such as equities and bonds. Because of low volatility and consequently low correlations with traditional asset classes, hedge funds can be incorporated into traditional long-only portfolios to enhance returns and at the same time reduce risk: The so called diversification “free lunch”.
However, though capital inflows into the hedge fund sector have been significant since 1998, there are several hurdles to overcome when investing in hedge funds. The sector is largely unregulated (to date) and is often difficult to invest in directly. The sector comprises over 6,000 hedge funds, globally located, which apply a wide range of investment strategies to financial markets. Information on these hedge funds, their managers, trading advisors and management companies is often not in the public domain and is therefore difficult to access, making the task of hedge fund selection both extremely difficult and risky.
Given the aim of investing in hedge funds to maximise risk-adjusted return, a key consideration is the investor’s appetite for risk. This will, to an extent, determine which specific strategies or mix of strategies they wish to invest in, ie directional, event-driven or non-directional.
Trading Strategies and Risk Preference
Using the FTSE Hedge Index classification system, the mainstream directional strategies are long/short equity, global macro and CTA/managed futures. Hedge fund investors with a higher appetite for risk will typically have greater exposure to these strategies.
Long/short equity hedge funds consist of a holding of long equities hedged with short sales of stocks and/or stock index futures and options. Some managers maintain a substantial portion of their assets within a hedged structure and commonly employ leverage. The strategy risks include long bias, concentrated portfolios and “star” managers not living up to expectations. Since December 1997* this strategy has delivered an annualized return of 14.5% with annualized volatility of 8.0% (information ratio** 1.81).
Global macro hedge funds make leveraged investments based on the anticipated price movements of stock markets, interest rates, foreign exchange and commodities. Macro managers employ a “top-down” approach, forecasting shifts in world economies and the global supply and demand for resources, both physical and financial, and may invest in any markets. The strategy risks include volatile markets and rapidly changing fundamentals whereby themes that are identified do not play out. Since December 1997* this strategy has delivered an annualized return of 8.8% with annualized volatility of 7.1% (information ratio** 1.2).
CTA/managed futures hedge funds take long and short positions in currencies, interest rates, stock market indices and commodities, using liquid futures contracts to establish their exposure. Their investment process is quantitative trend following and always model-driven. The strategy risks include volatility, markets lacking trends and margin calls. Since December 1997* this strategy has delivered an annualized return of 12.6% with annualized volatility of 14.9% (information ratio** 0.9).
Catalyst-driven investors seeking to benefit from specific events taking place (that move the price) will be most interested in event-driven strategies such as distressed and opportunity, and merger arbitrage. These strategies are not without risk, but typically sit lower down the risk/reward curve than the directional ones considered above.
Distressed strategies invest in, and may sell short, the securities of companies where the security’s price has been, or is expected to be, effected by a distressed situation. This may involve reorganisations, bankruptcies, distressed sales and other corporate restructurings. Depending on the manager’s style, investments may be made in bank debt, corporate debt, trade claims, common stock, preferred stock and warrants.
Opportunity involves investing in opportunities created by significant transactional events such as spin-offs, mergers and acquisitions, bankruptcy reorganisations, recapitalisations and share buybacks. Instruments include common and preferred stock, as well as long and short-term debt securities and options. The strategy risks include deal risk, illiquid positions and pricing. Since December 1997* this strategy has delivered an annualized return of 5.4% with annualized volatility of 7.2% (information ratio** 0.8).
Merger arbitrage hedge funds invest in announced situations such as leveraged buy-outs, mergers, hostile takeovers and related transactions. This strategy generates returns by purchasing the stock of the company being acquired, and in some instances, selling short stock of the acquiring company. Managers may employ the use of equity options as a low-risk alternative to the outright purchase or sale of common stock, or perhaps to insure the tail risk associated with deal breakdown. The strategy risks include deal risk and reduction in merger activity. Since December 1997* this strategy has delivered an annualized return of 4.5% with annualized volatility of 3.3% (information ratio** 1.4).
Non-directional strategies typically sit at the lower end of the risk/reward spectrum due to their market-neutral stance. These are equity arbitrage, convertible arbitrage and fixed income relative value.
Equity arbitrage hedge funds exploit pricing inefficiencies between related equity securities, neutralising exposure to market risk by combining long and short positions. Portfolios are typically structured to be broadly neutral with respect to market, industry, sector, capitalisation and gross invested exposures. Within equity arbitrage, statistical arbitrage managers utilize quantitative models and pattern recognition techniques to exploit short-term pricing inefficiencies between related equity securities; quantitative equity market neutral managers utilize quantitative models to exploit long-term behavioural biases within the market place; and fundamental equity market neutral managers employ discretionary techniques within tight market neutral constraints to concentrate on alpha creation and hedge out beta exposure. The strategy risks include irrational markets and corporate actions. Since December 1997* this strategy has delivered an annualized return of 4.4% with annualized volatility of 3.9% (information ratio** 1.1).
Convertible arbitrage hedge funds purchase a portfolio of convertible securities, generally convertible bonds, and delta hedge the equity risk by selling short the underlying common stock. The strategy may also assume or hedge out credit and interest rate exposures. Strategy risks include credit spreads, illiquid positions and market depth. Since December 1997* this strategy has delivered an annualized return of 8.0% with annualized volatility of 5.6% (information ratio** 1.4).
Fixed income relative value hedge funds adopt a market neutral strategy that seeks to generate returns by exploiting pricing inefficiencies between related fixed income securities while neutralising undesired exposures such as interest rate, credit or prepayment risk. These managers tend to specialize in a single area of the fixed income arena, such as credit (relative value) or mortgage backed securities. The strategy has undergone significant deleveraging since LTCM’s collapse. The strategy risks include leverage, pricing and “flight to quality”. Since December 1997* this strategy has delivered an annualized return of 1.4% with annualized volatility of 4.6% (information ratio** 0.3).
The performance of hedge funds compares favourably with traditional asset classes such as equities and bonds. Since December 1997*, global equities have returned an annualized 3.3% (FTSE All-World Index), global bonds an annualized 6.8% (JPM Global Bond Index) and hedge funds an annualized 8.5% (FTSE Hedge Global Composite Index). More impressively, hedge funds achieved this superior performance with just 3.9% annualized volatility, which is significantly less volatility than equities (15.7%) and bonds (7.1%).
Investors can establish an exposure to hedge funds by either allocating directly to individual funds, investing in an actively managed fund of hedge funds, investing in an investible hedge fund index investment vehicle*** or investing in a structured product with any of the previous three as an underlying. These routes of investment will be thoroughly explored in the two articles to follow.
* FTSE Hedge Index Series, net of fees, 31st Dec 1997 to 30th June 2005 (pro-forma figures prior to April 2004)
** Annualized return divided by annualized volatility
*** The FTSE Hedge Index Series is investible via the FTSEhx Fund SPC, managed by MSS Capital Ltd
MSS Capital Ltd
Sridhar Venki - Investment Manager
Simon Hookway - Chief Investment Officer
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August 17, 2005 in Personal Finance | Permalink | Comments (1)
Vol.22 - Team Tokyo Forex Special: Yen Defies Weak Speculation
Team Tokyo Forex Special: Yen Defies Weak Speculation.
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By Team Tokyo FOREX, | August 11, 2005
The thumbled rejection of the proposed Privatization of Japan Post which, rumour has it, was modeled off New Zealand’s aggresive privatization campaign almost 10 years ago caused swift retaliation by Japan’s PM (Koizumi) to initiate a no confidence vote and to completely severe the Lower House of the Diet. Surprisingly this had no immediate effect on the currency market as the Pound/ Yen reached a testing point of 200.00
Looking at the state of the New Zealand economy things are just peachy and the New Zealand currency anylists along with the government are worried about the down side of this trend . You know, that pesky thing called inflation. There could be a lesson well learnt here for Koizumi’s less patriotic followers.
Bloomberg announced during Monday afternoon in Tokyo, that the Yen would depreciate due to PM Koizumi’s failure to get the Japan Post privatization bill passed through the Diet, causing uncertainty over the stability of Japanese markets. This proved to be a premature editorial decision for Bloomberg as the Yen climbed against the dollar on Monday’s New York market hours, falling to 111.50 per dollar from 112.20 earlier in the day. The fall of the yen against the dollar at 13:00 to 14:00 hours in Tokyo was in fact due to technical causes, unrelated to politics, as was the more significant fall of the dollar later in the day in New York.
The Pound Sterling and the Euro continued their bullish run after recovering from the London terrorist bombing and the failed Euro Constitution vote. It is reported that the GBP/JPY pair may decisively break the psychological barrier of 200.00 over the course of the week.
In fundamental news: On Tuesday afternoon, Chairman Greenspan’s and the U.S Federal Reserve Bank’s announcement of raising interest rates is expected to be a market-mover. Currencies have bounced around recently and speculation is that this will show an underlining show of strength from the U.S spilling over to the Euro Zone. Additionally major Japanese economic indicators from the Bank of Japan are expected to hit the market early morning on Wednesday, with expectations of a decreased economic output from the last 7 month period. The U.S dollar index was unable to penetrate the down turn line and there are mixed feelings that perhaps signals to buy have turned to sell signals. We can only wait and see.
Without being over zealous, the events that have taken place since the war on terroism started are testimonial to the fact that the developed world has a sure thing going and as long as investors and traders read the trends as well as keep a keen eye on the news, Forex currency investments make a lot more sense than risking investments in a new start up with a poor business plan.
The Pound/Yen pair tests the 200.00 resistance *image
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August 11, 2005 in Personal Finance | Permalink | Comments (0)
Vol.11 - Proprius Investments LTd - How to Invest Profitably in US Real Estate
How to Invest Profitably in US Real Estate
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By Proprius Investments Ltd|May 26, 2005|Comment on this article
To invest profitably in the US real estate market we suggest one should follow the principles that have been used successfully for decades. The procedure I am going to describe is used not only by long term individual investors but also by institutional investors. This process is simple but today with record appreciation in 55 out of 362 of major US markets many people are investing for appreciation only. While this strategy can be successful it is not guaranteed and it is not easy to do while living in Japan.
The following is the model that I believe is easy to use while not living close to where you invest. The model begins with the ability of the property you buy to create cash flow. We define cash flow as what is left over after operating expenses. Operating expenses are those expenses such as management, utilities, maintenance. The cash flow that is created is used to pay back the mortgage on the property.
As the mortgage balance is paid off Equity is created. Equity is the difference between the market value of the property and the mortgage balance. As the mortgage balance decreases your equity grows. In other words someone else is paying for your asset!
Now you have some Equity growth and this begins to accelerate as time goes by. At some point your Equity has grown to an amount that makes more financial sense to use that Equity to purchase a larger investment that produces more cash flow thus increases the rate of equity growth. So as we get the engine to run faster by increasing our equity we receive larger and larger returns.
This wealth and cash flow creating engine throws off 2 other possible significant benefits. Price appreciation and tax advantages. Both of these benefits are not guaranteed. Market conditions shift often and tax regulations may be changed at any time. The point is investing for equity growth is something that you can control! Appreciation and taxes are not. By using the above described model with the real estate investment planning technique that many wealthy and famous investors such as Robert Kiyosaki use, one can realize superior returns that over time can grow a very modest investment into multi-millions.
1st one must create goals for the venture. The type of goal statement I use is. "I will grow my equity from $50,000 to $500,000 and create $3,000 per month of passive income by Dec. 31st 2015."
2nd The strategy must be defined. I have seen strategies like buying apartment buildings with 25% down and growing the equity to 50% of market value and then trading to a larger investment.
3rd. You must select a team of professionals to help you invest. You will need an investment consultant or real estate broker. The investment consultant must be an investor and have an impressive track record. There are many real estate professionals who help people find homes for their primary residence but they generally are not skilled in finding or structuring great investments. You will also need a Certified Public Accountant to help you with the tax ramifications, and finally a property manager to handle tenants, rents and maintenance.
4th you must determine how you will finance your investments. You will need to answer questions like… How much cash am I willing to invest? What bank can I get a mortgage from? What currency should I borrow?
Finally, buy your first few investments. In the real estate game you must begin in order to start really learning how to make your money grow.
James Robinson
Proprius Investments Ltd
President & Broker
Sacramento, CA
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Yen Mortgages
