FORTUNE FAVORS THE BOLD! We were reminded this while watching the Saints beat the heavily favored Colts on Superbowl Sunday. Rewards take Risks

We all begin the year with the best of intentions. We write a list of worthy resolutions and we follow through on them for a while. But as inevitably as February follows January, most of us end up slipping back into our old habits.  

Making changes that last isn’t easy. Yet after analyzing decades of scientific research and case studies, we’ve discovered that there are simple things you can do to snap the cycle of busted resolutions.

First, you need to know how your mind works. Your brain has two independent systems: the emotional side, the instinctive part that feels pain and pleasure; and the rational side, the analytical part that deliberates and plans. We like to use the analogy of the Elephant (the emotional side) and the Rider (the rational side) from psychologist Jonathan Haidt. Perched atop the Elephant, the Rider holds the reins and seems to be in charge. But because he is small, he’ll lose to the Elephant whenever they conflict. You experience this whenever you act against your better judgment and hit your alarm clock’s snooze button, have one drink too many, or procrastinate.

When your efforts to change fail, it’s because of the emotional Elephant. He likes instant gratification, and most changes require making short-term sacrifices for long-term payoffs: say, skipping potato chips today for a better body come summer. But the Elephant isn’t all bad. He has energy and drive, the power to get things done. Those are the opposite of the rational Rider’s weaknesses: overanalyzing and overthinking. For changes to last, they must appeal to both sides of your mind. Here are the basic principles. 

Give yourself crystal-clear directions. Vague resolutions like “Be healthier” or even “Lose weight” are doomed, because there are endless ways to interpret those commands. When your brain is given too many options, it’s easy to feel paralyzed. With too many choices, your emotional Elephant tends to gravitate toward the most familiar path, so you’ll fall back on going to your favorite place for a pepperoni pizza. Instead, you need to create a specific goal that leaves nowhere to hide, like “No wine ever,” “Gym every other day,” or “No more cookies.”

The drawback to these black-and-white objectives is they’re not inspiring. It helps your emotional and rational sides to find what we call a “destination postcard”—a vivid image from the near future to show you what’s possible. If your goal is to work out three days a week, find a picture of yourself from a year or two ago in which you look fantastic, and use it as your screensaver. Or hang up the dress or suit you’d love to wear if it weren’t so tight. Just keep the destination reasonable. You’ll be setting yourself up for frustration if you tape up a photo of an Olympic athlete or display jeans you last wore in college.

Keep yourself motivated. A central challenge of pulling off any switch is getting yourself to start—and keep—moving forward. A destination postcard helps; another trick is to shrink your change. Take housecleaning. We all love a clean home, but most of us dread cleaning. But what do we dread? Tossing a shirt in the hamper? Putting a glass in the dishwasher? Nope. We dread the enormity of the task. Cleaning house means taking on closets, rooms, and toilets, and it all feels like too much. To conquer your resistance, try the “Five-Minute Room Rescue” from home-organizing guru Marla Cilley. Get a timer and set it for five minutes. Pick a room, closet, or drawer, and as the timer ticks, clear a path. When the timer buzzes, stop with a clear conscience. Repeat the next day. You should have no trouble conquering these micro-milestones. As you pass them, you’ll begin to feel less reluctant and more hopeful. And hope is essential for making any change stick.

The same principle applies to tackling change on a larger scale. In one town in Canada, the police wanted to create a safer environment. Faced with such a huge goal, they decided to shrink their change. They started by asking all residents to turn on their exterior lights at night. This act made people immediately feel safer after dark, and it was also a clear sign of hope, which said, Yes, things can be different here.

Make your environment support your change. Many of us are blind to how much our situations actually shape our behavior. In countless ways, our surroundings have been carefully designed to make us act in a particular fashion. Traffic engineers want us to drive in a predictable and safe way, so they paint lane markers and install stoplights and road signs. Banks got tired of us leaving our ATM cards in the machine, so we have to remove them before we can get cash. You can also act as your own engineer and tweak your situation so that the right behaviors are easier to do and the wrong ones are harder.

Tweak your surroundings to make change easier.  As writers, our bad habit was letting ourselves get constantly distracted by e-mail. To solve the problem, one of us turned off the volume on his computer so he couldn’t hear the enticing bing of incoming mail. The other bought an old laptop that had no wireless Internet access.  

You’re probably full of ideas for changes you’d like to make to yourself, your workplace, and your community. Just remember: Change isn’t an event; it’s a process. Think about a child  learning how to walk. There’s no single moment when he learns how to do it. He staggers and struggles until, finally, one day he takes a few steps—and then falls down. But he doesn’t give up. He tries again and again, and before too long, he’s running.

Adapted from “Switch: How to Change When Change Is Hard,” by Chip and Dan Heath. To be published by Broadway Books Feb. 16.

Pre-order “Switch” at RandomHouse.com

     With new goals, a new determination to get it right this year, to be better, to be the person we are striving to be.  It has been said that 80% of New Year’s Resolutions are broken by Jan. 2nd.   Sad, isn’t it? 

     So how does one execute these goals and plans, get them done, in a world that careens at us 90mph?  By time blocking the activities and tasks. To-do lists don’t work to get big picture things accomplished; they are only good for minor tasks.  Big stuff takes time.  You need to block it off.  For example, let’s say one of your goals was to organize your database better and begin a follow up system.  Unless you have no database, organizing all of your contacts into groups takes time. If you have it listed as a to-do it will keep rolling over every day. 

     The tyranny of the urgent will overcome it.  That phone call from the frantic client, the need to get a closing to get some cash, the e-mails, the calls press in on us and that database will have to wait.  Week after week, it gets pushed off, and then, another year is gone.  It happens quicker and quicker every year.  

     The key is to block off time to execute these key tasks.  Like an appointment with an important client, you block off the time and get it done.  When you are face to face on an appointment with a VIP, you don’t check your e-mails; your calls go to voice mail.  The key to successful living is to treat your goals with the same respect.  Block off 2 hours Thursday morning to update your database – don’t take any calls, don’t look at your e-mail, unplug from Facebook, just do the task.  Your entire day should be made up of blocks like this where important goals are nailed down.  But I have to take that call, check that e-mail, deal with that crisis.  Really?  What happens when you are on the lunch appointment with th at VIP?  You did not answer that e-mail then.  When will we realize that until we place the important but not urgent above the urgent, we will never really live! 

    Everything that makes life great is important but not urgent, you NEED to plan these things into blocks of time and just do them.  Time blocked out to exercise, to date your wife, to worship God, to love your children, we actually need to set aside time to do these things or else the urgent will impose itself upon us and we will flounder around in mediocrity.  Another year wasted. 

     If you want to make this year better than last, you need to block off the important but not urgent things that need to get done.  Block off time to execute those goals, and then nail those blocks.

I often speak with clients who do not know how to figure out if a deal cash flows properly. In less than a minute and with just a calculator and tax returns, you can see if a deal is in fact cash flowing.  All too often a broker or client takes the time to put together a full package and get the deal to a bank without determining up front as to whether or not the business cash flows.  This can be a huge waste of your time.  Within just a few minutes you can determine whether or not the deal can even be considered a good deal.

Most lenders require  a 1:1 to 1:1.3 debt service on deals, which means that after all the add backs we allow, the business will make enough money to cover the new mortgage 1x’s. After receiving the past 3 years of the operating company’s tax returns, there are 3 easy steps to figure out cash flow.

Step 1

Configure the proposed monthly mortgage payment using the new mortgage amount, a 6.0% interest rate, and a 25-year amortization.  Multiply the payment by 12 to get the yearly payment since all figures on tax returns are yearly. 

Step 2

Take the net business income, or loss, on the 1^st page of the operating company’s tax returns and enter that into your calculator.  Oftentimes this number is negative so make sure that negative is reflected on your calculator. 

Next, on your tax returns you are going to add back Interest + Depreciation + Rents + Amortization (shown on the statements in other deductions).  This will give you the total income number so you can figure out if your deal cash flows or not.

For Example

$1,000,000 loan amount, 6% interest rate, 25-year term, $6,443.01 payment per month and $77,316.17 per year.

Net business income off the tax returns is $-35,000 + Interest ($75,500) + Deprecation ($31,000) + Rent ($27,500) + Amortization ($2,500) = $101,500.

Step 3

Take positive cash flow of $101,500 and divide by the new annual mortgage payment of $77,316.17 to get your debt service number of 1.31x’s. This means with their new mortgage, the borrowing entity can make the payment with some room to spare.

This method is a simple way to see if you have a viable cash flowing deal.  If your deal is close to debt servicing at 1x’s you should proceed with the loan.

*Note: With commercial loans there are always mitigating circumstance that can improve your cash flow to get the deal to debt service.  Make a point to ask your borrowers if in the past 3 years they had any one-time expenses.  These one-time expenses could be anything from a lawsuit to capital improvements.  If they’ve had any one-time expenses they need to document it and send in with the file.

Hopefully this will save you some time in the future and help us all be more profitable in 2010 and beyond!

A collection of links with great information, help, and forums to help you successfully modify your home loan.  I recently did some research to help a close friend, this is some of the best help I found.  Good luck.

LoanSafe.org  Protecting America’s Homeowners

NACA  Neighborhood Assitance Corporation of America, Non-Profit Advocates

MakingHomeAffordable.gov Q&A (.pdf) on Refinance and Modifications

Modification Program Guidelines from the US Treasury  Actual Instructions to Lenders

Save Your Home From Foreclosure Apr 2009

I can pre-approve you today!  Darren Malone 253.230.8860

Finalize your contracts by April 30th and close by June 30th, 2010

It looks like the $8,000 bet many existing homeowners made is going to pay off.  

Senate negotiators announced during the last week of October that they had come to an agreement on extending and slightly expanding the extremely popular $8,000 first time home buyer tax credit.

The existing $8,000 first time home buyer tax credit will be extended until June 30, 2010, for contracts that are finalized by April 30. Homeowners who lived in their homes for five consecutive years over the past eight years, will get a tax credit of up to $6,500 as long as they finalize their home purchase contract by April 30 and close by June 30.

Members of the Armed Forces who are on active duty for at least 90 days in 2008 or 2009 have until April 30, 2011 to claim the tax credit as either first-time buyers or trade-up buyers.

To protect against fraud, you must be 18 years of age or older to claim the credit (a 4-year old had claimed the credit as a first-time buyer because her parents already owned a home), and a HUD-1 settlement statement must be attached to the tax filing. Finally, the IRS will have greater oversight during the processing of forms, rather than waiting to audit them.The income limits for the tax credit have been raised to $125,000 for individuals and up to $225,000 for married couples.

The $8,000 first time home buyer tax credit was due to expire on November 30, 2009. Originally, the White House said it would be in favor of simply extending the tax credit for first-time buyers through the winter selling season, which is typically slightly slower than the rest of the year.

But the latest new home sales figures from the Commerce Department caught everyone by surprise: New home sales for September dropped a surprising 3.5 percent, to an annualized 402,000 sales for 2009.  

Economists were expecting new home sales to rise about 5 percent. The new annualized sales figure is about the lowest on record.

Up until the Commerce Department report, Senators were arguing about whether an extension or expansion of the tax credit was really needed. The cost, about $17 billion, is unpopular with some taxpayers who believe the Federal deficit shouldn’t be inflated any more than it already is.

But the National Association of Realtors, Mortgage Bankers, and National Association of Home Builders have been pushing Congress and the White House for months, arguing that without an extension and expansion of the $8,000 tax credit, existing and new home sales were destined to fall flat, much the way new car sales died after the “Cash for Clunkers” expired.

The new home sales number seems to be the “magic bullet” Senators and lobbyists were hoping to find. The deal, which had been in negotiation for weeks, came together quickly once the new homes numbers were announced.

In a press conference, Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan said they “welcome efforts taken by Congress to extend the First Time Homebuyers Tax Credit for a limited period. This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide.”

House Passes Home Buyer Tax Credit Extension      tax_credit_ext_chart_110409

I can pre-approve you today!  Darren Malone 253.230.8860
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