Finance, Credit, Investments – Economical Categories

Scientific works in the theories of finances and credit, according to the specification of the research object, are characterized to be many-sided and many-leveled.

The definition of totality of the economical relations formed in the process of formation, distribution and usage of finances, as money sources is widely spread. For example, in “the general theory of finances” there are two definitions of finances:

1) “…Finances reflect economical relations, formation of the funds of money sources, in the process of distribution and redistribution of national receipts according to the distribution and usage”. This definition is given relatively to the conditions of Capitalism, when cash-commodity relations gain universal character;

2) “Finances represent the formation of centralized ad decentralized money sources, economical relations relatively with the distribution and usage, which serve for fulfillment of the state functions and obligations and also provision of the conditions of the widened further production”. This definition is brought without showing the environment of its action. We share partly such explanation of finances and think expedient to make some specification.

First, finances overcome the bounds of distribution and redistribution service of the national income, though it is a basic foundation of finances. Also, formation and usage of the depreciation fund which is the part of financial domain, belongs not to the distribution and redistribution of the national income (of newly formed value during a year), but to the distribution of already developed value.

This latest first appears to be a part of value of main industrial funds, later it is moved to the cost price of a ready product (that is to the value too) and after its realization, and it is set the depression fund. Its source is taken into account before hand as a depression kind in the consistence of the ready products cost price.

Second, main goal of finances is much wider then “fulfillment of the state functions and obligations and provision of conditions for the widened further production”. Finances exist on the state level and also on the manufactures and branches’ level too, and in such conditions, when the most part of the manufactures are not state.

V. M. Rodionova has a different position about this subject: “real formation of the financial resources begins on the stage of distribution, when the value is realized and concrete economical forms of the realized value are separated from the consistence of the profit”. V. M. Rodionova makes an accent of finances, as distributing relations, when D. S. Moliakov underlines industrial foundation of finances. Though both of them give quite substantiate discussion of finances, as a system of formation, distribution and usage of the funds of money sources, that comes out of the following definition of the finances: “financial cash relations, which forms in the process of distribution and redistribution of the partial value of the national wealth and total social product, is related with the subjects of the economy and formation and usage of the state cash incomes and savings in the widened further production, in the material stimulation of the workers for satisfaction of the society social and other requests”.

In the manuals of the political economy we meet with the following definitions of finances:
“Finances of the socialistic state represent economical (cash) relations, with the help of which, in the way of planned distribution of the incomes and savings the funds of money sources of the state and socialistic manufactures are formed for guaranteeing the growth of the production, rising the material and cultural level of the people and for satisfying other general society requests”.
“The system of creation and usage of necessary funds of cash resources for guarantying socialistic widened further production represent exactly the finances of the socialistic society. And the totality of economical relations arisen between state, manufactures and organizations, branches, regions and separate citizen according to the movement of cash funds make financial relations”.
As we’ve seen, definitions of finances made by financiers and political economists do not differ greatly.
In every discussed position there are:

1) expression of essence and phenomenon in the definition of finances;

2) the definition of finances, as the system of the creation and usage of funds of cash sources on the level of phenomenon.

3) Distribution of finances as social product and the value of national income, definition of the distributions planned character, main goals of the economy and economical relations, for servicing of which it is used.

If refuse the preposition “socialistic” in the definition of finances, we may say, that it still keeps actuality. We meet with such traditional definitions of finances, without an adjective “socialistic”, in the modern economical literature. We may give such an elucidation: “finances represent cash resources of production and usage, also cash relations appeared in the process of distributing values of formed economical product and national wealth for formation and further production of the cash incomes and savings of the economical subjects and state, rewarding of the workers and satisfaction of the social requests”. in this elucidation of finances like D. S. Moliakov and V. M. Rodionov’s definitions, following the traditional inheritance, we meet with the widening of the financial foundation. They concern “distribution and redistribution of the value of created economical product, also the partial distribution of the value of national wealth”. This latest is very actual, relatively to the process of privatization and the transition to privacy and is periodically used in practice in different countries, for example, Great Britain and France.

“Finances – are cash sources, financial resources, their creation and movement, distribution and redistribution, usage, also economical relations, which are conditioned by intercalculations between the economical subjects, movement of cash sources, money circulation and usage”.
“Finances are the system of economical relations, which are connected with firm creation, distribution and usage of financial resources”.

We meet with absolutely innovational definitions of finances in Z. Body and R. Merton’s basis manuals. “Finance – it is the science about how the people lead spending `the deficit cash resources and incomes in the definite period of time. The financial decisions are characterized by the expenses and incomes which are 1) separated in time, and 2) as a rule, it is impossible to take them into account beforehand neither by those who get decisions nor any other person” . “Financial theory consists of numbers of the conceptions… which learns systematically the subjects of distribution of the cash resources relatively to the time factor; it also considers quantitative models, with the help of which the estimation, putting into practice and realization of the alternative variants of every financial decisions take place” .

These basic conceptions and quantitative models are used at every level of getting financial decisions, but in the latest definition of finances, we meet with the following doctrine of the financial foundation: main function of the finances is in the satisfaction of the people’s requests; the subjects of economical activities of any kind (firms, also state organs of every level) are directed towards fulfilling this basic function.

For the goals of our monograph, it is important to compare well-known definitions about finances, credit and investment, to decide how and how much it is possible to integrate the finances, investments and credit into the one total part.

Some researcher thing that credit is the consisting part of finances, if it is discussed from the position of essence and category. The other, more numerous group proves, that an economical category of credit exists parallel to the economical category of finances, by which it underlines impossibility of the credit’s existence in the consistence of finances.

N. K. Kuchukova underlined the independence of the category of credit and notes that it is only its “characteristic feature the turned movement of the value, which is not related with transmission of the loan opportunities together with the owners’ rights”.

N. D. Barkovski replies that functioning of money created an economical basis for apportioning finances and credit as an independent category and gave rise to the credit and financial relations. He noticed the Gnoseological roots of science in money and credit, as the science about finances has business with the research of such economical relations, which lean upon cash flow and credit.
Let’s discuss the most spread definitions of credit. in the modern publications credit appeared to be “luckier”, then finances. For example, we meet with the following definition of credit in the finance-economical dictionary: “credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying percent. Credit represents a form of movement of the loan capital and expresses economical relations between the creditor and borrower”.

This is the traditional definition of credit. In the earlier dictionary of the economy we read: “credit is the system of economical relations, which is formed while the transmission of cash and material means into the temporal usage, as a rule under the conditions of returning and paying percent”.
In the manual of the political economy published under reduction of V. A. Medvedev the following definition is given: “credit, as an economical category, expresses the created relations between the society, labour collective and workers during formation and usage of the loan funds, under the terms of paying present and returning, during transmission of sources for the temporal usage and accumulation”.

Credit is discussed in the following way in the earlier education-methodological manuals of political economy: “credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufactures, organizations and population. Credit has an objective character. It is used for providing widened further production of the state and other needs. Credit differs from finances by the returning character, while financing of manufactures and organizations by the state is fulfilled without this condition”.

We meet with the following definition if “the course of economy”: “credit is an economical category, which represents relations, while the separate industrial organizations or persons transmit money means to each-other for temporal usage under the conditions of returning. Creation of credit is conditioned by a historical process of fulfilling the economical and money relations, the form of which is the money relation”.

Following scientists give slightly different definitions of credit:
“Credit – is a loan in the form of money or commodity, which is given to the borrower by a creditor under the conditions of returning and paying the percentage rate by the borrower”.
Credit is giving the temporally free money sources or commodity as a debt for the defined terms by the price of fixed percentage. Thus, a credit is the loan in the form of money or commodity. In the process of this loan’s movement, a definite relations are formed between a creditor (the loan is given by a juridical of physical person, who gives certain cash as a debt) and the debtor.
Combining every definition named above, we come to an idea, that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of firm percentage rate. It expresses definite economical relations between the participants of the process of capital formation. Necessity of the credit relations is conditioned, from one side, by gathering solid quantity of temporarily free money sources, and from the second side, existence of requests of them.

Though, at the same time we must distinguish two resembling concepts: loan and credit. Loan is characterized by:

o Here, the discussion may touch upon transmission of money and also things form one side (loaner) to another (borrower): a)under the owning of the borrower and, at the same time, b) under the conditions of returning same amount or same quantity and quality of the things;

o The loaning of money may bear no interest;

o Any person may take part in it.
With the difference with loan, credit, which is somehow a private occasion of the loan, represents:

o One side (loaner) gives to the second one (borrower) only money, and _ for temporal usage;

o It may not bear no interest (if the assignment doesn’t foresee something);

o In it creditor is not any person, but a credit organization (at the first place, banks).
So, a credit is the bank credit. To our mind, it is not correct to use “credit” and “loan” as the synonyms.
Banking crediting is the union of relations between bank (as a creditor) and its borrower. These relations touch upon:

a) Giving a certain amount of money to the borrower for definite purpose (though, we meet with the so-called free credits, aims and objects of crediting are not appointed in the assignment);

b) Its opportune returning;

c) Getting percentage rate from the borrower for using the sources under his/her disposal.
The essential foundation of the credit essence and its important element is existence of trust between the two sides (in Latin “credo”, from which comes the word “credit”, means “trust”).
From the position of circulation of money forms (in the abstraction, historical process of formation economical relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. And truly, from the position of movement of the money forms, finances represent the process of formation and usage of the funds of cash means. Very often such movements are fulfilled without returning, but sometimes, it is possible to give loans from the budget for the investment projects of other needs. Also, when a manufacture or corporations use their cash funds and we mean the finances of industrial subject, such usage may be realized as inside the manufacture or corporation (there is no subject about returning or not returning of the usage), so gratis under conditions of returning. This latest is called commercial form because of transmitting the sources to others, but even in this occasion, it is the element of financial system of the manufacture and corporation.

From the point of cash means movement, main character of credit is the process of formation and usage of the funds of cash means under the conditions of returning and, as a rule, taking the value-percentage. If gating the credit value doesn’t take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. If gating credit value takes place, by the appearance form, credit is discussed to be financial modification.

From the historical point of view, finances (especially in the sort of the state budget) and credit (beginning with usury, later commercial and banking) were developing differently for considering credit to be the part of finances. Though, from the genetic-historical point of view, previous loaners, before giving loan, needed gathering the permanent capital not returning, that is the net financial foundation. The banks analogously needed concentration of the important own capital for influxing the consumers’ means and for getting higher percentage rate under the conditions of returning. Herewith, exactly on the financial basis, in the sort of financial fund (which later partially becomes loan fund) part of the bank capital appears to be the reservation (insurance) part of the fund, which by nature is financial and not loan. So notwithstanding the essential distinctions between finances and credit form the genetic-historical point of view, credit appears to be formed from finances and represent their modification.

From the essential position of expressing economical relations of finances and credit, we meet with cardinal distinctions between these two categories. Which mostly expressed by the distinction of the movement forms notwithstanding they are returnable or not. Finances express relations in the aspects of distribution and redistribution of social product and part of the national wealth. Credit expresses distribution of the appropriate value only in the section of percentage given for loan, while according to the loan itself, a only a temporal distribution of money sources takes place.
Herewith, there is a lot of common between the finances and credit as from the essential point of view, so according to the form of movement. At the same time, there is a significant distinction between finances and credit as in the essence, so in the form too. According to this, there must be a kind of generally economical category, which will consider finances and credit as a total unity, and in the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

Funding of the cash means is common to the researched economical categories. It takes place in any separate system of finances and credit, which have been touched upon during the analyses of defining finances and credit. Word combination “funding of the cash sources (fund formation)” reflects and defines exactly essence and form of economical category of more general character, those of finances and credit categories. Though in the in economical texts and practice, it is very uncomfortable to use a termini, which consists of three words. Also, “unloading” with an information hardens greatly its influxing into the circulation even in the conditions of its strict substantiation and thoroughness.
In the discussing context we consider:

1) wide and narrow understanding of economical category of the finances;

2) discussing finances in narrow understanding under general traditional meaning;

3) discussing finances, as funding of the cash means, in wide understanding, which concerns finances – in narrow meaning and credit – in complete meaning.
Termini “funding” and its equivalent “fund formation” are used by us as the purposeful structuring of cash means, which is based on two poles – accumulation of money sources (gathering) and its usage for definite purpose in the way of financing and crediting.
We have established a new termini – “finance-investment sphere” (FIS). Analyses about interrelation of finances and credit made by us give us an opportunity of proving, that in the given termini, the word “financial” is used with the meaning of funding cash sources, its purposeful structuring. In this process we consider at the same time financial, credit and investments’ economical categories.

Let’s sum up middle results of discussing new concept – “finance-investment sphere” and discuss its investment consisting parts.

The concept “investments” was brought into the native economical science from the West. In the Soviet economical science they for a long time used in the place “investments” the termini “capital placement”, which expressed the usage of the industrial factors in the sphere of real industrial activities during realization of capital projects. From one glance, this termini in its concept is identical to the “investments”, consequently it is possible to use them as synonyms. Though the termini “investments” and “investing” have the advantage towards the termini “capital placement” from linguistic and philological points of view, because they are expressed with one word. This is not only economical and comfortable in the process of working with the termini “investment” itself, but also it gives an opportunity of termini formation. More concretely: “investment process”, “investment domain”, “finance-investment sphere” – all these termini are much more acceptable.
Changing native economical termini with foreign ones is purposeful, if it really matters (by keeping parallel usage of the native termini for the inheritance). Though we must not change native economical termini into foreign ones all together, when by ordinal traditional language easy to explain private and narrow concrete processes and elements get their own termini. The “movement” of these termini is approved in the narrow professional bounds, but their “spitting out” into the economical science may turn economical language into the tangled slang.

Let’s discuss termini – “investment” and “capital placement’s” usage in the economical literature.
Investments are placement of funds into the main and circulation capital for the purpose of getting profit. “Investments in material assets – are the placements of funds into the mobile and real estate (land, buildings, furniture and so on). Investments in financial assets are the placements of funds into the securities bank accounts and other financial instruments”.

We don’t meet with the termini “investments” in the earlier economical dictionary, but we meet the combined termini “investment policy” – the union of the industrial decisions, which guarantee main directions of the capital investments, the activities of their concentration in the determinant suburbs, on which the reaching of planned rates of development of the society production is depended, balancing and effectiveness, getting more and more production and profit of the national income for every lost Ruble”. For today, in the most actual definitions, the capital investments are bounded only by financial means, when not only financial, but also the investment of natural, material-technical and informational resources takes place. Labour resources take an actual place in the investment process. They themselves fulfill this or that investment process.

A positive side of the discussed definitions is that they connect investment policy and capital placements (investments):

- economical development according to the key directions to the concentration;

- providing high rates of economical growth;

- raising an economical effectiveness, which is expressed:

a) by growing the throw off of the production and national income for every lost Ruble;

b) by fulfilling the branch structure of the investments;

c) by improving their technological structure;

d) by optimization of their further production structure.

Compared with such definition of the investments (capital placement) the definition of investments in the dictionary attaching the “Economics” seems to be unimproved: “investments – the expenses of gathering production and industrial means and increasing material reserve”. In this definition current expenses (production expenses) are mixed with the investment (capital) expense. Also, not the investment expenses but (though the investments are followed by the appropriate expenses) exactly advancing. It differs from the expenses by that the means (means) are put by returning the advanced values, also, under the conditions of growth, to which the concept-advanced capital is corresponding. the advancing may be realized in the money, natural-material and informational forms.

Except the termini “investments”, there are two more termini related with the investment. They are shown below.

“Human capital investment” – any activity provided for rising the workers labour productivity (in the way of growing their qualification and developing their abilities); at the expenses of improving the workers’ education, health and raising the mobility of the working forces”. It is very useful to use the mentioned termini, though it needs one correction: the human capital investments do not concern only workers, but also the servants, representatives of every kind of labour.
“Investment commodity, capital goods – a capital.”

In the official manuals of political economy of the reformation time the capital investments are discussed as “expenses for creating new main funds and widening, reconstruction and renewing the active ones”. In this definition the investments (capital placements) during separation of the forms (types) of further production of the main funds are bounded only by main funds (without increases of the circulation funds and insurance reserves):

a) creating new ones;

b) widening;

c) reconstruction;

d) renewing.

Also, the concept of the industrial gathering appears, at the expenses of widening of basic, circulation funds and also insurance reserves takes place”.

You’ll meet below the definitions of investments from “the course of economy”: the investments are called “placements of fund into the basic capital (basic means of production), reserves, also other economical objects and processes, which request long-termed influxing of material and cash means. “According to the division of capital into physical and money forms, the investments too must be divided into material and cash investments”.

They apportion investment commodity, to which belong industrial and nonindustrial building objects, vehicles purposed for changing or widened technical park and the furniture, increasing reserves and others.

“They call the total investments of production an investment product, which is directed towards keeping and increasing the basic capital (basic means) and reserve. Total investments consist of two parts. One of them is called the depreciation; it represents important investment resources for compensation of renewal till the level of before industrial usage, wearing out and repairing of the basic means. Second consisting part of the total investments is represented by net investments – capital investments for the purpose of increasing basic means”. Depreciation is not a compensation resource of wearing the basic funds out, but it is the purposeful financial source of such resources.
Human capital investment is “a specific kind of investments, mostly in education and health protection”.

“Real investments are the investments in the economical branches and also, they are kinds of economical activities, which provide influxing the increases of real capital, that is increasing material values of the industrial means”. We can agree with such definition with one specification that material and nonmaterial values too belong to the real capital (wealth), consequently science-researching experimental-construction results, various information, education of he workers and others. Such service as organization of the excitable games, also the service of redistribution social wealth from one private person to another (except charity).

“Financial investments represent placement of funds into the shares, obligations, promissory notes, other securities and instruments. Such investments, of course, do not give increases of the real material capital, but they help getting profit, consequently at the expenses of changing the course of the securities in the time of speculation, or distinguishing the course in different places of sell and purchasing”. We share wholly such definition, hence it follows that financial investments (if it is not followed by real investments as a result) do not increase real material wealth and real nonmaterial wealth. According to this context, the expression below is very important: “we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities for the purpose of getting profit and financial investments, which become cash and real, moved to real physical capital.”

In the “economical course” quoted before long and short-termed investments are separated. Recognizing the existence of the bounds between them, the authors ascribe short-termed investments to “one month or more” investments. If we get such conditioned criteria, that we can call the investments which overcome the terms of some months, long-termed ones, which is very doubtful and we don’t agree with it. A long-termed character of the fund placement is a significant feature of the investments (short-term doesn’t combine with the concept of investments). Principally, it would be better to point out quick compensative, middle termed compensative and long-termed compensative investments:

- less then 6 months – quick compensative;

- from 6 months up to the year and a half – middle termed compensative;

- more then the year and a half – long termed compensative.

We stopped at the definition of the investments in the capital work “economical course” for the special purpose, as, in it the author tried to discuss the concept of investments systemically and quite completely, herewith the book is published just now.

We’ll return to the discussion the definition economical category of “investments” in different publications in the following chapter. The definitions given here are quite enough for having a notion of the level of lighting up the given category in the economical literature.
What conclusions may be made according the definition of the mentioned economical category in the published works, except the made notions and specifications?

There is quite deeply, concretely and thoroughly defined the concept of “investments”, different definitions in the economical literature; but mostly in every works about the investments discussed by us until now, there is not opened the essence of investments as an economical category. In every monograph , even if it has a title investment, as an economical category , there is given only the definition, concept of investments. But, as the Academician Vasil Chantladze explains, “a concept is a discussion, which proves something about the distinguishing feature of the researched object. A concept out of much essential characteristic features represents only one, and essential in it is only – definition”.

But the categories are much wider; it is “a key, the most fundamental concept of every science”. Economical categories theoretically represent real, objectively existed productive relations. A category is the defining of occasions of existed characters, connections, relations of the objective world. Generally, any educational process is fulfilled by the categories, which give opportunities for dividing the processes and occasions semantically, for expressing the definitions of a subject and realize their specific peculiarities and economical relations of a material world.
Our goal is exactly to substantiate investments – as an economical category and also, as a financial category in the narrow understanding.

Here we apply for another manual thesis made by the academician Vasil Chantladze: “every financial relation is an economical one and every financial category is and economical one, but not every economical relation and economical category is financial relation and financial category”.
In the process of defining the investments, it is important to take in mind the sides of resources, expenses and incomes, because investment, from one side, is the result of the manufacture’s activity, and, from another one, – a part of income, which, in this case, is not used for usage.
Another occasion: it is advisable to discuss investments in two aspects: as a category of reserve and flow, which will reflect exactly the connection between “placement of funds” and “investments”.

Should Australians Still Invest Properties in the United States?

For several years now, people have been trying to call me to ask if it is still a good idea to invest in property in the United States? I have been buying properties in the United States for more than 20 years already.Buying a real estate in the United States started in the late 80s, when I got myself involved in the loan debacle and savings. This was when the banking system in the southern states was failing and we even had to make transactions of the property buying and selling without any banking system, since there were virtually no banks around.Now it’s as if there are bank crisis every 20 years in America. Prices significantly dropped, sometimes 95 cents on the dollar, when I was buying properties. We can even buy properties 5 cents on the dollar! There were even home units that we could buy for as low as $600 and a couple of thousand dollars per house.The fact that the Americans are currently going through a major bank crisis, a lot of Australians are apprehensive to take advantage of the US market. Perhaps you don’t have to worry about this issue if you are not going to live in the United States.In the late 80s, I did spend a lot of time with some Australians who were trying to save what’s left from their capital, the capital that they have invested in the U.S. And after 20 years, I’m doing it again – helping Australians who lost a lot of money, to get out of the United States and will still be able to keep the remaining capital that they have invested.The American and Australian Culture DifferencesWhy do you think this happened? Why do some Australians invest in the United States and end up being disappointed? Even if we read about 15% returns – 25% returns. I will examine that fact for you in a little while. But before that, I’d like to go back to analyzing the differences between the way Australians do business from the way the Americans do business. Most of this is outlined in the book, written in the 1970′s called, “American and Australian Cultural Differences”.In the book that Donald Trump wrote, “The Art of the Deal”, he simply mentioned there is no such thing as a win-win in business. It has always been ‘I win and you lose’. Here’s the first major difference, in Australia, people come first, then the money comes second. While in the United States, it is the other way around, big business and the big bucks comes first before the people. This doesn’t mean that Americans are bad and we are good, we simply have a different culture. Also, our governing laws lean that way.Our Australian culture and mentality is reflected in our legal system, a system that is shared with both legal and equitable law. Once a judge sees a contract that he doesn’t like, he can overturn the contract since under the equitable law, which means fair play law. Unfortunately, this is not how it works in the American playing field. The real deal is always on the piece of paper.On the lighter side of playing in the US market is, we both can sit down and talk work out a contract. I can even trade a portion of a property in the US for only $7. As long as we both sign a one page General Warranty Deed or Warranty Deed, that property is bought for $7. And it costs that much because that is what cost me to record this at the local court house and make the purchase. That is the deal whether we had a creative lease option or an installment contract. Unfortunately, if you get into some bad terms, you have no government body to come in and looks after you. The deal is, the dollar comes first.So, if ever you are in a country where the real estate has an “I win and you lose” kind of rule, be careful. They do have different set of rules.Here are some interesting stories of what actually happened over the years. Perhaps by the end of this article, some people can instill in their heads that the US may not be the best place to invest, unless, you already live there.US Property ManagementA lot of Australians assume that the US Property Management is handled the same way as it is in Australia. Here, when you buy or sell a piece of real estate, it is managed by the real estate agent. In the US, the people who sold the property to you have nothing to do with the management. Here, it is difficult to find someone who shares the same moral code as in Australia. And if ever you find one, it is expensive, and it can drain you financially.Here’s an example. Strangely, the American management companies can never bring your money to you in Australia. They seem to have a poor mail service since they lose a lot of cheques. What they do know is, your cheque sinks because Australia could be Atlantis. Bottom line is, it is about taking your money and not let you make a profit.If you choose to go for a good management company, a light bulb may only cost 25 cents, but if you get it installed, it may cost you $88. This is because good management company in the US, only use licensed people, and licensed people are expensive. Since everybody is afraid of being sued in the US, the property manager doesn’t use anybody who doesn’t have a license, whether it is a plumbing license, or electrical license.Although a light bulb in the US may last for 15 months, and it is indeed cheap to buy. However, since I have been an absent landlord, I have been charged several $88 to have my light bulb put in the house. And sadly, no Americans can change their own light bulbs.In Australia, we do a lot of stuff using our hands. Americans have been used to being gifted to for so long that they do nothing. When I rent my propertiesI noticed that my rented property in the US becomes un-rentable when: • the carpet is more than 2 years old, and• your property has been painted less than a year ago.In Australia, even if my place has a 10, 20 or even 30 year old carpet, I can still have it rented, even if it hasn’t been painted in the last 5 years. This is the reason why vacancy in the US is much higher than in Australia.How does this affect the management? We now know that a rented unit, apartment or a house in the US can’t be rented out unless it is in perfect condition, practically a new condition. This fact costs money. My apartment buildings in Dallas, Texas used to be vacant. I also had a building very close to SMU campus and the students had to move out at midnight. So, I had a crew go in to re-carpet and repaint. The next morning, I had new people coming in, at around 10 a.m. This is clearly an expense that you have, as a landlord.You also have management companies who make sure that they take money out of your pocket. Being constantly charged for various systems like, hot water, heating, and air conditioning which was never in your property.The Systems That Drains Your PocketHow about air conditioning? Most (if not all) of the properties in the US have air-conditioning. And air-conditioning is simply expensive. It would be great if the US tenants clean the filters. Unfortunately, they don’t. If that happens, your air conditioning systems get burn out. It would take another $300-$400 to have your air conditioning coils cleaned and have new compressors put in. This obviously drives you nuts! Another situation is the ice maker. American houses have an ice maker and every time you replace it, it costs $130 plus another $150 for the service call. That’s almost $300. Ice makers will last for 24 months.If you have 2 to 3 tenants who constantly change the temperature of the air conditioned properties, this can fry your air conditioning unit. You adjust the air conditioning system since you have tenants and unfortunately, they don’t respect your equipment. You will end up spending a fortune just for your air conditioning and heating systems. What may be standard in the US is not the standard in Australia.The management normally gets 10% of the gross income. A lot of American management companies get their kickbacks from the service tradesmen who are constantly sent out to the properties. Obviously, the landlord is not the priority of the US property management company, the tenants are. Whatever these tenants want, they get. No matter how careless these tenants are when using your equipments, no matter how constantly they burn up your cash flow or profits. These are just some of the things that never happens in Australia. Here in Australia, we serve people to live in is bottom of the range, Americans can’t be served this way.Most Americans don’t pay their rent. Those tenants who do pay rents in the US have a lower percentage compared to the Australians who do pay their rent. They even have a book that’s called “500 Ways to Rip Off Your Landlord and Never Pay Rent”. This book costs $19.95. You are simply in the area of big business, I make money and you don’t. A lot of these Americans don’t pay their rent. That’s how the business is – Americans do not pay their rent!A lot of Australians ran into these US properties with cash intending to refinance later and only to get their cash returned by creating more debt. The properties were cheap when bought because you can’t get financed. You will need to put all your cash in there and eventually bring out your cash out.If ever the management has left you any money, they will get it back from you by charging you all sorts of jobs that were never even done, like a house that has never been painted. That’s how landlords are eaten alive.Also, here’s something worth knowing, the American roof only lasts for 12 years. Ever wonder why the suburbs blow over in the storm? That’s because American houses do not have any steel nor cement in them, which are important. American houses are made of wood and bricks on the outside. The bricks aren’t even thick enough to hold up the house. They are only slate style brick which is an inch wide. Unlike Australian household brick, around 3-4 inches wide. This can actually hold up the house.For the American houses, the wood behind the brick face holds up the house. So the brick is just a fascia plate. What happens when a big hurricane comes? It wipes out the entire suburbs of this American house, simply because there are no bricks and no cement.What about the bathrooms? Here’s a revelation. They do not have any water nor sink hole for the water to go all the way down. The American bathroom floors are just made of plywood, standard of five ply. I change the bathroom floors every 4 years since it only costs $ 300 – $400…if you do it yourself. Yes, it is necessary to change the bathroom floors every four years, in case you didn’t know. As mentioned earlier, the American bathrooms do not have any drainage hole. So the water sits on the floor which is often carpeted. Eventually, it rots, that’s why it is a must to change your bathroom floors every four years.Another thing you should know is that American sewer pipes are 2 inches, not 4 inches. Expect to be fixing blocked toilets every so often. In order to have it fixed, you would need to call the Rotor Router guy and pay $90. It is the standard way of fixing blocked toilets.Your tenants will be blacks, whites or Hispanics. A lot of Australians do not realize that when they buy a cheap property, they do not understand where they are buying these properties. What kind of neighborhood it has and such. The Hispanics are great. They actually pay their rent even before they feed their children. But did you know that there is this expression called, ‘they’re hard on the machinery’, the Hispanics are really hard on a property. Perfect example is, they use lard when cooking. Lard is fat. They pour this lard down your sink, which causes the sink to get clogged. Which means, that you will need to call a Rotor Router guy every three to four months. Or perhaps, your managing agent will be the one to do this work for you. Making you spend more because they had to unplug all your pipes.I knew this one gentlemen who lived in the Sydney suburb of Roseville. He bought 52 cheap units. What he didn’t understand was that it was 52 units of Hispanic residents. This man ended up financially crippled because of the operating expenses of the Hispanics.The Hispanics, like to sit in the back of their pick up trucks and shoot their guns on a Friday or Saturday night, which is fine. They like to drink a lot, and in many of the States, there is no drunk driving laws. So I would often dig a pick up truck out of my swimming pool full of these drunk Hispanics who drove their pick up through my fence and straight into the swimming pool. What makes it harder is, majority of these Hispanics don’t speak English at all. And it is expensive to get tow trucks at 3 in the morning.The sad thing is, when Australians buy a property in America, they think that it has the same system and set of standards as it is in Australia. You have to remember that America is a totally different market. They think, do and act things differently. The carpets do not last long, the paint does not last long either. Although it is cheap to paint and you only need to spray the paint using spray gun. Nobody uses brush anymore because spray gun is a lot easier to use and you need to repaint after 2 years.Currently, I am assisting a lady who has a property in New York. Her agent put the property for $1.3 million on the market. Even to this day, I do not think that her property is worth anywhere more than $900,000 in the present market condition of the US. This agent has produced a back pocket buyer who don’t really exist. He would actually report someone trying to buy the property, and then not buying the property. There would be reports that this house does not have tenants when in fact there has been tenants in there for 9 months already. The agent collects the money and puts it in their back pockets telling the owner, “I’m sorry, we can’t get any tenants”.When you do find out that you actually have tenants in your properties, your management people will keep telling you there isn’t and they’ll just draw off the money and you’ll keep paying the cost.The main idea here, intentionally or unintentionally, is to make you financially bleed. Until such time that you decide to sell the property back. Surprisingly the management company has a back seat buyer who will take pennies on the dollar. I have witnessed this incident so many times.What about your lawns? What happens if they don’t get mowed? Your the management company does not take care of this. They do not organize anybody to mow lawns since the city is going to come in and mow the lawns for you. Simply because they have city codes and ordinances that you need to make your house look clean and tidy. If you do not make your house look clean, the city will come in and make it look clean and tidy, then you get charged for $400 for having them do that for you.You are not allowed to park your car on the street, that’s the rule for most parts of America, because if you do, you will be charged any towing costs. And you now have a lien to the city. If you are in Australia, you may not find out about this because the notice is probably sent to your American mailbox or even to your American property manager, which is the usual case. Your American property manager does not pay it. He goes out of business or simply destroys it. Since you don’t know what’s going on, the city sells your property from under you. The city wants its money back for its $400 lien, and will take your property to foreclosure and even sell you out.This is what you hear or watch on late night television, the city tax lien sales. This is where the city owed money on properties. Next thing you know, they will just sell your property up and you will just find out that they either sold your property or they have condemned it.Your property has a burst pipe flooding problem which is why the city will condemn it. We had the same issue in Dallas, Texas. That is a hot State and it simply means that you will have to constantly run those taps. So during the winter, if I don’t get all my piping blown out, there’s a huge risk that my pipes will burst during the winter months. Then I have major flood damage. Another term used for having the pipes blown out is winterizing. This leaves me two options, to have it winterized and cost me, or make sure that my taps are dripping and make sure that the house is above 68 degrees- which will also cost me on air conditioning and heating system running 24/7.Oftentimes, you get it wrong. Your pipes will burst while you are not around to fix and sort things out. So the city comes by, and condemns your property. They will condemn it by putting a huge tape across the front door. Worse is, the homeless people will move in and will destroy whatever’s left of it. They can even sue the city if they hurt themselves in a city condemned property which may lead to having to remove your house from the lot. They will leave you with what is called a PAD. This has happened a lot in the United States in the early 90′s. You will have nothing there but a cement pad. If you look at the bright side, the cement pad is clean and smooth for you to rebuild another house.These are just some of the things we don’t do in Australia. Many Australians get lost and confused by this. They sell their properties for $19,000 without understanding that they have black tenants who sometimes do guns and drugs and don’t pay the rent. So, if I was an American and I wanted to sell you some properties in Australia, I will put phantom tenants in the properties, create a bunch of leases that will show how much they’re supposed to pay and for 2 or 3 months. I will also make sure that the money goes through the books to encourage some Aussie sucker to buy properties.Aussies come in and their tenants don’t pay rent. All of these guys carry guns, unless you want to start learning how to use a.44 hand gun in order to collect rent, then you’ve to start getting these guys, who are doing drugs, out of your house. American properties can be bought for as low as $8,000 simply because nobody goes there. This neighborhood is the gang areas, the drug houses and the house of prostitutes. Australians are not used to this. There are a number of gun carrying States in America. People either strung out on drugs or get shot and these are the cheap properties that Aussies start buying.The issue here is not because the Aussies are buying cheap properties. The point is, they do not understand why it is cheap. They need to know that the Americans won’t touch it for many reasons. Most of the US mortgage companies do not lend money less than $50,000 and because of this, you cannot get your cash out. So even if there’s a buyer for your $40,000 or $45,000 property, an American cannot get this because of the loan size. Although it used to be $35,000, now they’ve increased it to $50,000-which is the minimum loan size.If that’s the case, most of these Hispanics, blacks and the people who live in this neighborhood cannot buy it since they do not have the 50 grand to spend for this property. They cannot borrow it because the loans don’t exist. Only thing left for them to do is to cash out.The investor will cash out the money, not the black person, nor the Hispanic person. This investor will take you out at $20,000 initially. Then he will walk in and string you out. He will do this because he’s the only one with the cash and you will find out that you are going to get about $20,000.Whenever people talk about these gross yields in America, what they say is, this property is gross yielding 26%. But it is important to remember that is before an amount of your money is taken out from repairs, maintenance, vacancy and other unforeseen expenses. My property, where I used to live, is 17.4 % of every dollar in up keep. It is indeed cheap to get parts for US houses. If you are in the US doing everything yourself, it would have been great. But if you actually live abroad, and you have properties in the US, that’s when it’s a killer. What will drain you financially is the cost labor of having someone to do the job while you are not around.Another burden foreign landlords need to keep in mind is the airfares, of flying back and forth to the US, not to mention the overseas phone calls and the time difference, when you have to get up at 5:00 am in Australia just to speak to somebody in the management office. Unfortunately, you don’t get to speak to anyone, because everybody has voice mail. The fact that you cannot speak to a live person drives you nuts. You will also notice that your cheques won’t arrive. That American banks won’t wire money to Australian banks unless you have filled out different legal documents.You have a whole bunch of extra paperwork from the new Patriots Act that Bush brought in. This whole stack of paperwork will stress you out to the point that you would simply want to pull your money out of the US back to Australia.Up to now, I do not know any Australian who made a profit from buying and holding a property in the US. But people still call me, people who bought properties in the US looking forward to getting a big profit. Fact is, that day may or may never come.Here is another story for you. I bought a 22 home units property from the US government and I owned it for 2 years. Well, it took me 2 years to fix things in order to buy it from the government. My cash flow should have been $11,000 after all my expenses. I have hanged on for 2 years and I never got a check above $1,500. Like their system, it goes, and disappears.You need to understand their structures, the LLCs, S Corps, companies, everything. You will need to do all these tax treaties and corporations with the US government. An average Aussie accountant will not be able to do your taxes any more. You’ll end up going to Coopers and Lybrand, the biggest companies in Australia to do your taxations, and because they understand the structure in the US. The LLCs, S Corps, C Corps, all these things that you have set up in the US.For Starters, these guys will charge $300 per hour. Here, you will discover that your tax bill will come from $1,000 up to $15,000 a year just to acquire an Australian and US tax return done. That would surely kill you. This is what you call, the on cost of doing business.However, if you do live in the United States, you will absolutely profit from it. You will earn a lot from buying and trading properties in the US, simply because Americans forget about equity. For them, real estate is not an investment vehicle but a consumer item, that as soon as they are finished with it, they can leave and move on. If you are in the US, you’ll witness this yourself. The Americans will know that Aussies have not left for Atlantis to live there, they will realize that you can show up the next day with a double barrel shotgun, demanding to get back your money, so you can make profits – BUT, that is only if you are physically there.We can take advantage of a lot of situations when we are there in the US. I made a lot of money when I was buying, selling, trading properties. But we have to understand how real estate trading works in the US. My objective of writing about this today is to recognize two essential things. We may speak the same language as the American, but our philosophy about business is totally different-which is, ‘they win and I lose’. Majority of Australians who invested in properties in the US do not go through this without legal battles.In the US, people sue each other. This isn’t about just winning, it’s about making the other guy bleed and dry. Whoever gives up first will comply to what the opposite party wants. This is the painful reality of real estate business in the US. I’ve seen a lot of Australians go into that industry in the US market, and will eventually come back broke, drained and stressed. They do not get anything near their returns at all. And yes, your cheques will mysteriously get lost in the mail.My ultimate message is, spare yourself from this painful experience. If you want to earn money, you can earn it here, in your own backyard, without having to buy any airline ticket, dealing with US corporations, learning and understanding a different country’s system and way of doing business-the hard way. Yes, we do speak the same language as them, but they do not do business the way we do. It may sound appealing and sexy to say that I’m off to see my house in Florida, but there are more negatives than positives in this experience. Find the same opportunities here in Australia.When you see US figures for yield returns, find out what the net yields and figures of the net return. Consider the repairs, maintenance, vacancy and other surprising expenses that will come your way. Brace yourself from disappointments. Don’t say I didn’t warn you. This is probably your way of knowing and seeing what properties in the US can do to the investor.I also came across an e-book about an author who shares his similar experience when buying a property in the US. In case you want to read about this as well, you can find it on http://www.seekingfortuneinnewyorkstate.com.

Bridging the Gap Between Search Engine Spiders and Humans

Search engine spiders are – in a way – the lifeblood of the internet. Without them, we wouldn’t have search engines. Without search engines, nobody could find your website, nor could you locate 99%+ of the internet either.

And yet, these little spiders – however necessary they are – don’t by any means paint the full picture of the business behind the website it’s spidering. All a spider can do is read the content of your site via the HTML you provide it. Therefore, we’re told to develop “search engine friendly” websites – ones with a good structure of headline tags, and using keywords that explicitly state what our website is about.

Of course, links play a part too. Authoritative links pointing to your site act as “votes” that search engines count in your favor. This helps them build a reasonable picture of the quality of your content. However, it’s often the case that there’s a massive gap between how search engines see your website, and the quality of service or product you provide. Let’s look at this gap a little closer, and see how it can be filled.

The Gap
Let’s imagine a business that established itself 25 years ago, and has provided a consistently high quality of drainage services in all of that time. They have repeat customers who don’t think twice about booking their services every year. To all intents and purposes, they are highly trusted, successful business. And yet, they are ranked very low in Google for all their main keywords. What’s gone wrong here? This “gap” in perception is because the website this business owns has very few (or even zero) authoritative links, poor on-page optimization, and poor content. Search engine spiders can’t see past these metrics. No business has a “right” to ranking well just because they provide an excellent “in real life” product or service.

How to Bridge This Gap?
There is a symbiotic relationship between website owners and search engines. Both need each other. This is why Google Search Console exists. It’s a means to allow the website owner to help Google better understand their website, and help bridge this gap.

That’s only the first step though. Having your site audited by an on-page optimization expert can help you fine-tune your website page structure, your URLs, your navigation, your titles, your content.

Where search engine spiders fail to see signals of trust like how well established your business is (even if the website is 6 months old), a human reviewer CAN. Third party services like human-review directories and customer review services can REALLY help close the gap.

Human-review directories
A high-quality human-review niche directory will look for signals of trust found on your website. These are often too subtle for a search engine spider to “join the dots” – but a discerning human can. For example, if a website claims to be a member of a particular association, it’s possible to search for the company name on the association’s website. The same can be done for company registration numbers too. If a company has been established for many years, and they show this on a company history page, a human reviewer can build up a picture of the company’s progress through the years. Moreover, it’s the aggregation of all of these things that help a human reviewer build a solid picture of the business. A search engine spider will not be able to see the nuances a human can.

Suggested article: Human-reviewed, Established Niche Directories

Review services
Your customer base is your ultimate cheerleaders (or perhaps, whistle-blowers!). They trusted your product or service, and they can write about their experiences via review services like Trustpilot. These help people get some idea of the quality of product or service you provide.

Suggested article: The Purpose of b2blistings.org

Online Reputation
Both human-review directories and review services can be used to give some proof as to the reputation you deserve online. When someone does a search for your brand name, and you’re listed in human-review directories and under review services, these signals of trust can be found in the search – helping prospective new customers gain some trust in your business. Search engines will also be visiting these directories and review services too, so it helps them get a better picture of your business as well.

Suggested article: Other Website Review Services We Run

Conclusion
It doesn’t matter how good your product or service is in “the real world”. Online, you start from zero and work your way up. It doesn’t mean that having a great product or service doesn’t help you. It does – very much. It’s just you have to jump through the same hoops as every other website owner to get yourself established. Once you are established and easily found, you’ll find your old friend (word-of-mouth marketing) was online this whole time. You’ll discover that your online presence will take on a life of its own as people start recommending you on social media and their own websites. It just takes time and effort to get to that point.