Imagine two millionaires in a room and assume that their net worth was exactly $1 million including all investments, estates and assets. Neither person had anything hidden and both were happily married. The only difference between the two was their age. One millionaire was 65 years old while the other was 30. Looking outside of their balance sheets, is one worth more than the other?  Because of the idea of human capital, the 30 year old may be worth more than the retirement age person because the young millionaire has many more years left in their life to increase the value of their first million. Human capital is our personal ability to increase our wealth, and although wealth isn't just measured in dollar signs, we'll focus on financial wealth today. Are you wondering how to increase your human capital? Here are a few ways.

Education:

There are a lot of smart people writing about how the value of a college education may be less than it was, even one generation ago, but that may not be true. Education not only formally prepares us to work in advanced jobs, it also exercises our minds and allows us to hold on to our ability to continue learning. The brain, like the heart, needs exercise and that comes from education.

Be Well Rounded:

Are you an architect who only knows architecture, a lawyer who doesn't know much more than the law or a carpenter who can only build? That's dangerous in an economy that wiped out an unprecedented amount of workers in the real estate and financial services industry in less than two years. Learn a new position in your current job or study an entirely new field.

Volunteer:

Real estate investors must have basic valuation skills to make buy, sell, or hold decisions. Real estate investment companies have developed sophisticated valuation models to aid them in making investment decisions. However, by using spreadsheet tools an individual can produce an adequate valuation on most income-producing real estate. This would include residential real estate purchased as residential rental property.  Valuing real estate using discounted cash flow or capitalization methods is similar to valuing stocks or bonds. The only difference is that cash flows are derived from leasing space as opposed to selling products and services. Read on to find to out how any investor can create a valuation satisfactory enough to weed through prospective investment opportunities.
Individual Valuations:
Some individuals feel that producing a valuation is unnecessary if a certified appraisal has been completed. However, an investor's valuation may differ from an appraisal for several reasons. The investor may have different opinions about the property's ability to attract tenants or the lease rates that tenants are willing to pay. As a prospective purchaser or seller, the investor may feel that the property has more or less risk than the appraiser. Appraisers are compelled to conduct separate assessments of value. They include the cost to replace the property, a comparison of recent and comparable transactions and an income approach. Some of these methods commonly lag the market, underestimating value during uptrends, and overvaluing assets in a downtrend. Finding opportunities in the real estate market involves finding properties that have been incorrectly valued by the market. This often means managing a property to a level that surpasses market expectations. A valuation should provide one's estimate of the true income-producing potential of a property.

Real Estate Valuation:
The income approach to evaluating real estate is similar to the process for valuing stocks, bonds, or any other income-generating investment. Most analysts use the discounted cash flow (DCF) method to determine an asset's net present value (NPV). NPV is the property value in today's dollars that will achieve the investor's risk adjusted return.The NPV is determined by discounting the periodic cash flow available to owners by the investor's required rate of return (RROR). Since the RROR is an investor's required rate of return for the risks involved, the value derived is a risk-adjusted value for that individual investor. By comparing this value to market prices, an investor is able to make a buy, hold, or sell decision.  Stock values are derived by discounting dividends, bond values by discounting interest coupon payments and properties are valued by discounting net cash flow or the cash available to owners after all expenses have been deducted from leasing income. Valuing a property involves estimating all the rental revenues and then deducting all expenses required to execute and maintain those leases.

The following are the types of expenses that have to be considered when preparing an income valuation: •    Leasing costs
•    Management cost
•    Capital costs
Leasing costs refer to the expenses necessary to attract tenants and to execute leases. Management costs refer to property level expenses, such as utilities, cleaning, taxes, etc. as well as any costs to manage the property. Income less operating expenses equals net operating income (NOI). NOI is the cash flow derived from normal operations of the property. Cash flow is then derived by subtracting capital costs from NOI. Capital costs are any periodic capital outlays to maintain the property. These include any capital for leasing commissions, tenant improvements, or capital reserves for future property upgrades.
Buy, Sell or Hold:  When purchasing a property, if an investor's assessed value is greater than the seller's offer or appraised value, then the property can be purchased with a high probability of receiving the RROR. Conversely, when selling a property, if the assessed value is less than a buyer's offer, the property should be sold. In addition, if the assessed value is in line with the market and the RROR offers an adequate return for the risk involved, the owner may decide to hold the investment until there is a disequilibrium between the valuation and market value. Value can be defined as the greatest amount that someone would be willing to pay for a property. When purchasing an asset, financing should not affect the ultimate value of the property because each buyer has different financing options available. However this is not the case for investors who already own properties that have been financed. Financing must be considered when deciding on an appropriate time to sell because financing structures, such as prepayment penalties, can rob the investor of his or her sale's proceeds. This is important in cases where investors have received favorable financing terms that are no longer available in the market. The existing investment with debt may provide better risk-adjusted returns than can be achieved when reinvesting the prospective sales proceeds. Adjust risk RROR to include the additional financial risk of mortgage debt.

To Conclude:
Whether buying or selling, it is possible to produce a valuation model accurate enough to assist in the decision-making process. The math involved in creating the model is relatively straightforward and within the grasp of most investors. After gaining some rudimentary knowledge about local market standards, lease structures and how income and expenses work in different property types, one should be able to forecast future cash flows.

Every homeowner must pay for routine home maintenance, such as replacing worn-out plumbing components or staining the deck, but some choose to make improvements with the intention of increasing the home's value. Certain projects, such as adding a well thought-out family room - or other functional space - can be a wise investment, as they do add to the value of the home. Other projects, however, allow little opportunity to recover the costs when it's time to sell. Even though the current homeowner may greatly appreciate the improvement, a buyer could be unimpressed and unwilling to factor the upgrade into the purchase price. Homeowners, therefore, need to be careful with how they choose to spend their money if they are expecting the investment to pay off. Here are six things you think add value to your home, but really don't.

Swimming Pools:
Swimming pools are one of those things that may be nice to enjoy at your friend's or neighbour's house, but that can be a hassle to have at your own home. Many potential homebuyers view swimming pools as dangerous, expensive to maintain and a lawsuit waiting to happen. Families with young children in particular may turn down an otherwise perfect house because of the pool (and the fear of a child going in the pool unsupervised). In fact, a would-be buyer's offer may be contingent on the home seller dismantling an above-ground pool or filling in an in-ground pool. An in-ground pool costs anywhere from $10,000 to more than $100,000, and additional yearly maintenance expenses need to be considered. That's a significant amount of money that might never be recouped if and when the house is sold.

Overbuilding for the Neighbourhood:
Homeowners may, in an attempt to increase the value of a home, make improvements to the property that unintentionally make the home fall outside of the norm for the neighbourhood. While a large, expensive remodel, such as adding a second story with two bedrooms and a full bath, might make the home more appealing, it will not add significantly to the resale value if the house is in the midst of a neighbourhood of small, one-storey homes. In general, homebuyers do not want to pay $250,000 for a house that sits in a neighbourhood with an average sales price of $150,000; the house will seem overpriced even if it is more desirable than the surrounding properties. The buyer will instead look to spend the $250,000 in a $250,000 neighbourhood. The house might be beautiful, but any money spent on overbuilding might be difficult to recover unless the other homes in the neighborhood follow suit.

Extensive Landscaping:
Homebuyers may appreciate well-maintained or mature landscaping, but don't expect the home's value to increase because of it. A beautiful yard may encourage potential buyers to take a closer look at the property, but will probably not add to the selling price. If a buyer is unable or unwilling to put in the effort to maintain a garden, it will quickly become an eyesore, or the new homeowner might need to pay a qualified gardener to take charge. Either way, many buyers view elaborate landscaping as a burden (even though it might be attractive) and, as a result, are not likely to consider it when placing value on the home.

High-End Upgrades:
Putting stainless steel appliances in your kitchen or imported tiles in your entryway may do little to increase the value of your home if the bathrooms are still vinyl-floored and the shag carpeting in the bedrooms is leftover from the '60s. Upgrades should be consistent to maintain a similar style and quality throughout the home. A home that has a beautifully remodeled and modern kitchen can be viewed as a work in project if the bathrooms remain functionally obsolete. The remodel, therefore, might not fetch as high a return as if the rest of the home were brought up to the same level. High-quality upgrades generally increase the value of high-end homes, but not necessarily mid-range houses where the upgrade may be inconsistent with the rest of the home. In addition, specific high-end features such as media rooms with specialized audio, visual or gaming equipment may be appealing to a few prospective buyers, but many potential homebuyers would not consider paying more for the home simply because of this additional feature. Chances are that the room would be re-tasked to a more generic living space. 

Wall-to-Wall Carpeting:
While real estate listings may still boast "new carpeting throughout" as a selling point, potential homebuyers today may cringe at the idea of having wall-to-wall carpeting. Carpeting is expensive to purchase and install. In addition, there is growing concern over the healthfulness of carpeting due to the amount of chemicals used in its processing and the potential for allergens (a serious concern for families with children). Add to that the probability that the carpet style and colour that you thought was absolutely perfect might not be what someone else had in mind. Because of these hurdles, wall-to-wall carpet is something on which it's difficult to recoup the costs. Removing carpeting and restoring wood floors is usually a more profitable investment.

One of the curious outcomes of this recent recession and slow recovery may be a rethinking of how North Americans view their careers and go about training for them. While attending and graduating from a four-year college has long been billed as the golden ticket to a quality life, there are signs that this may be changing. Although some sort of post-high school training and skill development is very important, it may be the case that blue collar skilled trades should get a second look.

The College Problem:

One of the major issues in education today is the growing cost of a four-year college/university education. Numerous articles and studies have explored how the cost of attending college has not only outstripped inflation, but lapped it many times over in recent decades. This is putting education further and further out of reach for more and more people without resorting to loans, and increasing the student loan debt burden to an almost unsustainable degree. Now comes the second part of the college problem. As affordability is declining, so to is the utility of some degrees. Simply put, there just aren't enough jobs today that pay enough to legitimize borrowing $50,000, $100,000 or $250,000 to attain a bachelor's degree in English, history or education. Even apart from the poor employment prospects for over-supplied liberal arts degrees, there is the matter of how those who do get jobs manage to get by - many employed recent college graduates find that even with Spartan lifestyles (living with their parents, for instance), they are very nearly overwhelmed with repayment obligations for their student loans.

A Failed Premise?:

Canadian households spent a total of $22.8 billion on renovations in 2010, according to a recent survey conducted by the Canada Mortgage and Housing Corporation. While 51% of those home renos finished right on budget, about 34% of homeowners spent more than they anticipated, the findings suggest. While renovation costs can go up for all kinds of reasons - change of plans, structural problems, price of materials - here are a few steps you can take to anticipate and rein in expenses for projects large and small.

Big projects, big overrun potential:

By nature, the bigger the project, the greater the potential for cost overruns. While you can benefit from the know-how of skilled tradespeople or contractors, it's still up to you to watch the numbers:

• Be wary of a low-ball quote, which may end up being too good to be true.
• Ask for a detailed breakdown of costs from the contractor or tradesperson you plan to work with.
• Define any areas that might be considered "extras."
• Include contract terms specifying you must be immediately notified of additional costs that may arise, requiring your approval before proceeding.
• Shop around to become familiar with the cost of supplies, including premiums on special orders or rush deliveries.
• Give yourself leeway and factor in some wiggle room for contingencies, typically about 10% to 20%, depending on the nature of the project.
• Monitor the "upgrades" that can quickly add up: a pricier choice for one item or fixture may mean tightening up somewhere else.

Keeping DIY projects in check:

While it can be extremely satisfying to complete your own home improvement project, working without a project plan or quote can quickly get expensive if you don't stay on top of the big picture financially:

The ongoing financial woes in the US and in countries in Europe are one of the contributing factors to Canada's stable housing market and historically low interest rates, and these rates will continue right into mid-to late 2012.  The variable rate, which is based on the Bank of Canada's Prime rate is sitting at 3% and is likely to stay there right up until mid-to-late 2012. The main reason for this is the very slow economy in the US. The Federal Reserve there has already announced that their prime interest rate will not increase until 2013, hoping that it will create a more fertile ground for economic growth. By keeping the rates low, they hope to stimulate borrowing from businesses and consumers. Because the US is a major trading partner, it forces us to keep our rates low to keep our economy growing while we wait for the US and for Europe to catch up. 

Fixed rates will start moving up earlier than the variable rate but without major jumps. Benjamin Tal, deputy chief economist for CIBC said in an exclusive interview with TMG The Mortgage Group that fixed rates, which depend on bond markets, will remain relatively stable, with small increases, over the next six to eight months. 

"It is interesting that, here in Canada, when we believe there will be a slowdown, something happens in the world that helps us and makes our economy stronger," he said. "And because there is uncertainty in world markets, the Bank of Canada won't raise rates until those markets stabilize, which will take some time."  Currently, the Canadian housing market and the economy is stable and balanced. Consumers have been listening - they have slowed the pace of their borrowing and have been working on paying off their debts. It is, indeed, an ideal time, when rates are low, to do that. Tal cautions, however, that low interest rates may fuel an increase in borrowing, which has not happened yet, and this could be worrisome in the long-term.  

"Credit is not a bad thing - it is the electricity of the economy," he said. "We want banks and consumers to be responsible with their borrowing." Low interest rates are attractive but borrowing like there's no tomorrow is dangerous. Eventually those rates will go up and if you're stuck with large lines of credit it may be more difficult to pay them off and could burden the household budget.