It turns out that the presenter on that day was not a representative of Robert Kiyosaki himself, but a Canadian firm who’s reputation is shady at best.

CBC marketplace this week aired a 30 minute segment on the company, their scam, how they lure consumers and their deceitful tactics. What they describe with their hidden cameras and analysis is exactly what I saw two years ago at a seminar put on by the very same group. While I cannot be sure that the presenter was the same, I can assure you the presentation was. Whats worse, I recently had a client who had attended one of these seminars try to convince me that she knew more about mortgage financing using an almost identical line to this presenter. That client is about to get herself into a world of financial trouble.

Don’t just think this is an issue isolated to Rich Dad Poor Dad either. That same company I talked about last week with the shady mortgage scheme, well they also give presentations that are very similar to the ones described in CBC’s video. Not only that, but that company has all kinds of awards and recognitions from independent sources who much like the consumer are also unaware of their deceptive practices.

You can view the CBC Marketplace report here.

PS. I do recommend Robert Kiyosaki’s book in my book club section. Why? Because it is a really good read with a lot of really good information in it!

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The company’s offering was very impressive, at first. I literally watched one Monday evening as more than 20 people handed over in excess of $3,900 each, to become a member of the company’s mentorship program. It was clear that people who attended their seminars believed that the company had the knowledge to help make each of them millionaires.

*Before I go any further however, let me make one thing perfectly clear – I have no knowledge of anyone who joined this company or invested with this company either making or losing any money. Although I assume that there will be quite a few who lose a substantial amount of money with this company.*

The problem I had with this company was as follows. They promised to help clients pay off their mortgage in as little as seven years, based on a strategy that I taught them (and they modified) less than a week before they started promoting the program on television, radio, and in the newspaper. A weeks worth of knowledge is hardly enough time for them to portray themselves as experts the way in which they did. The strategy involved leveraging people’s homes and using the money to invest in what they considered to be a highly secure investment, but realistically was a highly risky investment. The investment vehicle they were using were secured second and third mortgages against residential properties that the company owned.

These mortgages are where my biggest problem resided. When I began to ask questions of the company’s owner, who at the time I had unlimited access to, I began to more often than not find myself in front of the gatekeeper instead of the owner who actually had the answers to my questions. When I began to ask the gatekeeper the same questions, I was met with the same canned answers that were being given to clients. “So and so has this many years experience, owns this many properties, knows what they are doing, etc.”

Well the fact of the matter is, the owner of the company did know what they were doing, and that was convincing people to leverage their homes to lend mortgages to the company at below market interest rates. Not only that, but the properties they owned often had more money borrowed against them than what the property was actually worth. How did this happen? The company convinced their small, un-knowledgeable, private lenders who had borrowed nearly all of the equity from their homes on the promise of high returns, that the houses they were lending on were actually worth what the city tax assessment valued them at. In other words, the company borrowed from people who didn’t know any better, because the banks sure as hell were not going to lend them the money! At the time, houses were consistently selling for less than what the city valued properties at. In many cases $500,000 houses the company owned, which the city valued at $600,000, had $575,000 to $650,000 worth of mortgages on them.

If a house is worth $500,000, and has $500,000 worth of mortgages on it, and you lend the owner another $100,000, how secure is your money? The answer is not secure at all. Why? Because those who lent the original $500,000 are in line ahead of you to get their money back if the homeowner ever defaults. If you lent them $100,000 all the company would have to do is default on the loan, and they would walk away with your money and all of the equity in your house. My thought, anyone who tries to convince you to leverage your house, so they can buy more houses, should be shot. Not only is this incredibly risky, it is downright stupid.

Here is the kicker though, it took me almost two years and many title searches to figure out what that company was doing. I work in finance, have an economics degree, and understand mortgages better than anyone. If I didn’t understand what this company was doing at the time, how could the clients who had far less knowledge than I understand? The answer is they couldn’t, and they didn’t, because they were duped into risking all they had in an investment scheme that was designed to have them fork over their money with as little objection possible.

Don’t get caught in the same situation.

Go to the Alberta Securities Commission website for details on how to prevent yourself from being scammed by real estate investment companies.

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While I am not officially part of the competition (although hopefully they will be kind enough to let me in), I am going to take part anyways, tracking their results against mine. If you want to participate, put the four stocks you would pick in the comments below, and I will track them for you!

My stock picking strategy will be psychology based. In other words, based on peoples habits and sentiments. I use this strategy when buying and selling stocks because while prices of stocks are based on fundamentals, and ratios, etc., the prices that stocks warrant are still derived by how much individuals at a specific point in time are willing to pay for a stock. A stock can have the best fundamentals in the world, but if no one wants to buy it because it is a fertilizer company no one cares about, then the price will go nowhere. My picks are as follows.

1. Starbucks (SBUX $23.06) – Starbucks remains a part of my portfolio for many reasons. I have bought it at various prices over the years and have done quite well with it using a dollar cost averaging strategy. The main reason why I am picking Starbucks as my first pick is simple. There are very few luxury brands in the world that are reasonably attainable by the masses, that are highly addictive, and that people will go out of their way to pay more for. I will never forget the day, mid recession in minus 20 degree weather, that I stood in a 20 person lineup in downtown Calgary and watched every type of person imaginable order up their favorite frothy drinks. From executives wearing Armani Collezioni suits, to construction workers in hard hats. What made me realize just how special of a company Starbucks is however, was that there were no less than 12 other coffee shops in the same building. All cheaper, and all with smaller lineups.

2. American Express (AXP $40.52) – American Express is another one of my favorite companies. Not just because Warren Buffet owns a bunch of it, but because no other credit card has the brand loyalty AMEX does. AMEX holders will actually make buying decisions based on who accepts the card. If you are a hole in the wall restaurant and you don’t accept AMEX, there is a good chance an AMEX holder will forgo your restaurant to eat elsewhere. Trying to sell a $3000 Mac computer without the option to pay on AMEX, expect the AMEX holder to fork his card over elsewhere. How do I know this? Forget that I used to work in retail and saw it firsthand at a non-AMEX accepting store, I’m an AMEX charge card holder. That’s right, I put nearly everything on a charge card (not a credit card), and pay it off at the end of every month, just so I can rack up the lucrative AMEX reward points. Venice here I come!

3. Ford (F $10.00) – What can I say about Ford? First assembly line mass producer of the automobile, American dynasty, only North American car company that didn’t need a bailout. Ford is a sentimental brand to Americans. Last year when it neared a $1.00 share price, you could feel the disbelief. With the prospects looking good for the company, I think there is a psychological factor among investors that $40 is where this stock belongs, for no other reason than that is where it has always been. In my mind this is a stock people flock to, sound fundamentals or not.

4. Gold (GLD NYSE $107.29) – Gold is going to be my most modest play. Why am I picking it, because guys like Peter Schiff are predicting a collapse of the American dollar. Do I see that as likely to happen, no not really, but I do see people flocking to gold as more and more people start to fear the possibility. With more demand will come higher prices, which is why I am banking on gold to be the rock of my selections. To track the price of gold I am going to use the SPDR Gold Trust ETF trade on the NYSE.

Please note that the only one of these four picks that I do not already own is Gold. In no way are these recommendations, they are picks that are designed no maximize returns for a game, a game where I am not risking any money. Never take a stock tip from anyone unless you have done your own due diligence.

Quite frankly I am surprised that I didn’t pick an oil stock, we will see how that plays out.

Here are the blogs that are participating in the competition. Take a look at all of them, as they should all be in your RSS reader. If you don’t have an RSS reader, go to http://reader.google.com and get one!

Million Dollar Journey
Where Does All My Money Go
Dividend Growth Investor
Four Pillars
Zach Stocks
The Wild Investor
The Intelligent Speculator
The Financial Blogger
My Traders Journal

Good luck everyone! Don’t forget to select your top four stock picks and put them in the comments section.

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In the next couple of days I will be chronicling a story from two years ago where I got involved with a company who made money by selling real estate courses designed to convince consumers to invest their savings and equity in their homes in real estate backed assets. I ultimately stopped my dealings with the company because I believed that clients were becoming over leveraged without understanding the potential consequences.

In the time being, take a look at this article from Yourhome.ca that discusses the warning signs of a get rich quick scheme.

Typically, what these no-money down programs attempt, in a two-hour “free” presentation, is to convince you to attend a three-day workshop in which you’ll learn the “secrets” to become an instant real estate entrepreneur. You are then invited to pay several thousand dollars to attend this seminar, with a promise that you’ll make tens of thousands of dollars within 30 to 60 days of completing the program.

Here are some of the methods used to entice you to attend the three-day seminars:

The instructor will usually spend time telling you about all the vacations he is taking now that he is financially secure, and that he has personally purchased several hundred properties in your area using this system.

The main principle is that the seminar will help you find properties in distress that no one knows about where the owners owe more on their mortgage than they can afford.

You will learn how to place advertising in key real estate magazines to help you find these owners who are in distress.

You will then receive at least 50 to 100 calls from sellers in trouble, either through job loss, marriage breakdown or a death in the family.

These homeowners will be very happy to give you their property if you take over their mortgage payments, so they can avoid having their credit score ruined for the next 10 years.

Even if you have bad credit, you will still be able to take over an owner’s mortgage without getting approval from the owner’s bank.

They will provide you with lenders who will lend you money at high interest rates for a short period of time – usually 30 to 60 days, which is okay because in two months you can re-sell your property and make your first profit.

They have a database of properties in your area that are in a category called “pre-foreclosure,” where the bank is about to take over.

Notice the phrase “pre-foreclosure.” That’s a term rarely used in Canada, but it’s common in the U.S. Many other principles in these seminars are taken from similar U.S. seminars that have little or no application in Canada.

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Financial blogs are the most important of the ones I read given my industry. While one may not always agree with what these financial blogs have to say, their importance lies in their ability to take perspectives from completely different views. For example, some love realtors, others hate them, but by reading both perspectives one can draw their own conclusion. One must also be careful however to fully understand the views that are expressed and the accuracy of the information. Take for example Million Dollar Journey, one of my favorite financial blogs. Last year they did an article on cash back mortgages, with some miscalculated and diluted numbers that made a perfectly good product for some buyers seem as though it was a financial raping from the devil himself. I rebutted this article recently in Kirk Wants a Free Down Payment Mortgage. While Million Dollar Journey was trying to help its reader, if they accepted Million Dollar Journey’s numbers as fact without further investigation they would have been mislead.

Million Dollar Journey’s article, even with the miscalculations, probably made a few people think twice about getting a cash back mortgage, and that is a good thing because it probably also helped them understand a little bit more about what they were getting into. Thought provocation is what these blogs are all about, and that thought provocation may save you from making a huge financial mistake, which is the reason you must read these blogs. Let me know what you think!

In no particular order:
Million Dollar Journey
Canadian Capitalist
Canadian Dream
Canadian Personal Finance Blog
Get Rich Slowly
Quest for Four Pillars
Freakonomics- just for some added thought provocation!

Don’t forget to add asknolan.com to your reader!

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If you’re barely staying ahead of the mortgage, you’re not
alone. For many Canadians, a drop in income has meant a
struggle to keep up with monthly bills. As a nation, we’re
starting to pile on credit-card debt – just to get by.

According to Equifax, the average delinquency rate for all
types of credit excluding mortgages was up 19% in May
2009 over 2008. BMO Capital Markets recently estimated
that more than 150,000 households in Canada were
experiencing some degree of stress in meeting their debt
obligations. And other stats show the same picture –
Canadian Bankers Association reports mortgage arrears
were 0.4% in May 2009, up from 0.26 a year earlier, while
the Office of the Superintendent of Bankruptcy noted that
consumer bankruptcies rose 31% year over year to the end
of April 2009.

It can be tempting to want to conceal your debt problem
for as long as possible – but that’s almost never the best
strategy. Your mortgage lender doesn’t want to see you
default on your mortgage; they’d much rather help
homeowners find a way to keep their home.
For mortgages insured by the Canada Mortgage and
Housing Corporation (CMHC), they have identified several
tools available to help you ride out a period of economic
uncertainty:

1. You may be able to convert a variable-interest
rate mortgage to a fixed-rate mortgage: a strategy
that can protect you in the event of a sudden jump
in interest rates.

2. Your lender may be willing to offer a temporary
payment deferral, or other flexible options for shortterm
relief. If you’ve made any lump-sum payments
against your mortgage in the past – or if you’ve been
on an accelerated payment schedule before – that
history can help.

3. You may be able to extend your amortization period to
reduce your monthly payments. You can shorten the
amortization again later if your circumstances change.

4. If you’ve actually missed a few payments already, you
may ask if the lender is willing to add them to the
mortgage balance and extend the payment period
accordingly. (Best, however, to start talking before
you start missing payments!)

5. A special payment arrangement for your situation may
also be possible.

Ultimately though, it’s best to seek help at the first sign of
financial trouble. A chat with an experienced independent
mortgage planner is often a great place to begin – because
they are working for you, not the lender, and they know
what the lenders are after. It can be easier to be completely
open about your situation. Independent planners also have
access to a huge range of lenders, so they can help you
build a tailored financial solution.

It’s possible that your financial situation just requires some
extra penny-pinching to stay on budget. But if you find
yourself adding to your credit card debt – or borrowing
to make mortgage payments – then it’s time to call an
experienced mortgage planner. The earlier you get help,
the easier it will be to conquer your debt demons!

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All of the above are questions that I ask a client before I give them my perspective on whether a fixed or a variable (adjustable) rate mortgage is right for them. I ask them these questions because I think that choosing between the two options is less of a question of which will save you more money, but more a question of a persons risk tolerance.

Think of fixed rates as a Guaranteed Investment Certificate (GIC). A GIC guarantees you a rate of return that is constant for a specified period of time. GICs are very safe, there will be no fluctuations, but do not have the potential returns that stocks do.

Stocks on the other hand are riskier, have the potential to have higher returns and losses, and fluctuate regularly. Stocks in this way are much like variable interest rates.

Over the long run, a well diversified stock portfolio usually crates substantially more wealth than GICs, however there is a lot more risk involved along with the potential for a brief diversion in strategy to cost a person thousands of dollars.When investing in stocks you are giving up security for potential returns. When investing in GICs you are giving up potential returns in exchange for security.

Taking a fixed rate mortgage is very similar to buying a GIC over a stock. You pay a premium (higher rate) in order for the security of knowing your rate will stay the same for a specified term. You don’t have to worry about your rate fluctuating or your payments changing until your mortgage comes up for renewal.

Taking a variable rate mortgage on the other hand is like buying a stock. It is very likely that your interest rate will fluctuate, there is more risk involved, but the variable rate is almost always priced lower. Much like a stock, those who stick with a variable rate strategy for the long term almost always end up saving more interest than had they taken a fixed rate.

All of the above being said, a variable rate mortgage can cause a persons payment to fluctuate, which is why many are adverse to taking them. However, one thing most people do not consider is that payments fluctuate for fixed rate mortgages as well, they just fluctuate every three or five years instead of gradually like a variable rate mortgage. This is one of the reasons I personally choose variable rates over fixed rates, because I would rather feel the payments fluctuate gradually over five years than feel the payment shock all at once in five years, while at the same time taking advantage of lower rates.

A person needs to decide for themselves if they can handle their payments fluctuating all of the time. If they cannot, then they should not be in a variable rate mortgage. Additionally, if there is any chance that you might panic and lock in out of panic the variable may not be best for you. You have to remember that when you lock in, you don’t get to lock in at what your current rate is, you have to lock in at whatever the fixed rate at the time is, which is almost always a higher rate than what your variable is at. Thinking that you can time the interest rate market is as ignorant as thinking you can time the stock market, therefore taking a variable with the intent of locking in when rates start to rise is a risky strategy. Just because variable rates haven’t moved doesn’t mean that fixed rates haven’t crept much higher. For example, prime rate hasn’t moved in the last four months, however in that same time fixed rates have increased half a percent. Those who were ignorant enough to think that they could time rates have potential cost themselves thousands because they incorrectly thought that prime rate and fixed rates move together.

Ultimately, a person needs to assess their risk tolerance and base their interest rate decision on that. After all, fixed rates are the lowest they have ever been, and as a result are a very good option for anybody who is ever a little risk averse. And for those who are on the fence, there is always the Merix 50/50 Mortgage.

What are your thoughts? Would you take a Fixed or Variable rate mortgage? Why?

Comment on this post and be entered to win a Nintendo WII!

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Merix 50/50 from Nolan Matthias on Vimeo.

A quick discussion of the Merix 50/50 product. Gives you the security of fixed with the savings of adjustable rates, as well as the ability to pay either down independently. If you are on the fence with respect to which way to go, and your risk tolerance, this might be the product for you!

Comment on this post and enter to win a Nintendo WII!

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