21st Century Academy

The secret to renting shares begins with the right mindset. Stock market investing does not have to be intimidating, and renting shares is amongst the most interesting yet untapped aspects to consider. The process requires a little knowledge of what share renting really is as well as its potential as a lucrative moneymaking prospect.

The first thing that you need to know about share renting is that anyone can get wealthy. Understanding the basics of this innovative concept is an excellent angle to take on the strategy. The best approach is to make an analogy between stocks and properties.

Shares as Property

Some website developers look at their sites as real estate. They create their pages with the intent to rent advertising space on them. In addition, the look at the project as a potential selling item for the future. Just as the website developer looks at each of his sites as property, you can look at your shares as property as well.

The Share Renting Process

The share renting process is relatively simple and if you have the right frame of mind combined with the right knowledge, you have an opportunity to maximize your earning potential. Consider the purchasing process:

In the United States, people are able to purchase a parcel of shares in lots of one hundred. In Australia, buyers have to invest in lots of one thousand. After you make the purchase, you can sell a call option for one month. Understanding what a call option is helps.

What is a Call Option?

A call option is purchased much like a share. A person can purchase one call option that is applicable to 100 shares. This allows the buyer to purchase a certain number of shares for a set price. The purchase has to be made within a predetermined amount of time.

This benefits the buyer because she can purchase shares for the set amount no matter what the going rate is at the time. This is a very attractive prospect for many investors and those who rent shares offer this incentive to the buyers.

Making Money on Renting Shares

Here is the breakdown of how you make money-renting shares:

1. Buy shares at 100 dollars
2. Sell a covered call for 105 dollars, locking in the rate
3. Check the progress

The third step is quite simple and you needn’t obsess over the outcome. Consider the different results that may transpire.

Possible Outcomes

The price of shares goes up. This means that you are forced to sell your share for the set price in spite of their going up. This is still beneficial to you because you still make a profit since you rented the shares for more than you initially paid.

The price of the share stays the same but you are still going to benefit because of the selling price. If you hadn’t rented the shares, you would simply break even.

What if the share goes down? You get to keep your shares, and if the loss is equal to the amount that you charged to rent the shares, you break even.

Using the term Renting Shares has got a few people into trouble. It is not the correct legal term. It’s probably because it make too much sense and we can’t have that, can we? Let’s have a go at explaining what the term is used for. What does it mean and why is is called Renting Shares? Well, I’ll run you through a hypothetical example of one years worth of trading to see exactly what it is. This is effectively an example I learned from 21st Century Academy and Jamie McIntyre.

First, to put this into perspective, I’ll use an analogy.

Renting Houses Like a Landlord

A landlord rents out a house. The house may have cost $100,000 and costs $8,000 a year in interest to the bank. The tenant pays $200 per week in rent and there are fees for real estate agents, upkeep, maintenance, rates etc… Here is a very simplified summary :

Cost of house: $100,000

Annual bank interest on a 100% loan: $8,000
Maintenance, upkeep etc: $2,000
Real estate agent fees: $400
Total expenses per annum: $10,400

Rental income: $200 per week = $10,400 per annum

This means your expenses are the same as the income and your house would be cashflow neutral. Not a bad investment considering properties generally go up in value over time. This means you can make money without any real drain to your cashflow. This example will of course vary heavily depending on different financial scenarios.

Renting Shares Like a Sharelord

Now, if you would be Renting Shares Like a Sharelord, you would effectively buy shares and just like a house, you’d simply rent them out to the stock market. You may buy a share at $10.00 and offer to sell it at $10.50. If the share goes above $10.50 you have to sell it at a 50c profit and cash in.

Cost of shares: $100,000

Annual bank interest on a 100% loan: $8,000
Estimated stock market brokerage: $1,000
Options fees, additional brokerage: $700
Total expenses per annum: $9,700

Approximate Share Rental income, non leveraged 2% per month: $24,000

Profit = $14,300
Return On Investment = 14,3% per annum

Should you wish to have a 90% insurance on your shares to cover yourself against a stock market correction, this would cost approximately 4-7% of the share cost, depending on the share volatility. If you want the added security, you can have an insured portfolio and still make around 6-10% on the share portfolio.

Create Wealth Through Renting Shares

In the above example, I haven’t allowed for the fact that you will get forced to sell your shares at a profit every now and again. This adds to your investment profits and there are some extra stock broker fees to consider. This is just a very simple example of how to create wealth through renting shares. Extra cashflow has never hurt anyone. When adding financial discipline to the equation you can benefit greatly.

Covered Calls and Compound Interest

The correct industry term for Renting Shares is Writing Covered Calls. You do this on the stock market and obviously should use a licensed qualified stockbroker. When this strategy is done correctly and the rules are respected, people can make some handsome returns. I don’t know about you but I’m pretty happy with a 2% per month return on investment. That is 24% per annum and is you were to apply compound interest, well that is whole new kettle of fish… We will cover compound interest when talking about building a Millionaire Mindset.

Until next time…

I wish you abundance in the 21st Century

Sean Rasmussen
21st Century Academy
Universal Wealth Creation © 2004 – 2007

Who wants to learn the Secrets Of The Rich and Ultra Wealthy? Most people do, I suspect. But who is prepared to do what it takes once the secrets are revealed? The truth of the matter is this:

We already know what to do. We just don’t do it!

It’s not rocket science to copy the super rich and ultra wealthy. Simply look at what they do and copy it to your best ability. This is exactly what I did with Jamie McIntyre. He may not be super rich or ultra wealthy but he certainly is in a position to be in the top 1% of Australians who can do what they want, when they want to, because they can. Being a self made millionaire certainly can put you into that category.

The wealth education company 21st Century Academy introduced me to these teachings. I discovered concepts like:

• Emotional Intelligence
• Financial Discipline
• Money Management
• Financial Security
• Millionaire Mindset
• Renting Shares

And many more… So I have now put many of these learnings into practice. I already knew most of these concepts. Jamie McIntyre finally put me into gear and propelled me into action. He showed me that I already knew the secrets of the rich. Sometimes (most times) it’s simply a case of doing something like: Taking Action.

To Your Continued Financial Success

Sean Rasmussen
21st Century Academy
Universal Wealth Creation © 2004 – 2007