YodZiaN

Regardless of where we are in life we can all learn something about money and how to better prepare for our future. Especially when we see that the national average is $10,000 in credit card debt and that savings and preparedness is dropping. This article can put you back on track to a more fulfilling and financially free life.

1) Automate your investing. Experience has proven that if we have to make a conscious effort every time we need to invest we will start with good intentions and then miserably fail a few months later. If you can automate your savings, whether by using your employers 401k, a sep (self employment plan), or direct deductions from your account you will finish ahead. The rule here is if you don’t see it, you won’t realize it and you won’t miss it. Some of these deductions will reduce your taxable income and save you further on taxes (see your CPA and tax advisor for more info on this). A good rule of thumb is to set aside 10% of your income.

2) Real estate. If you haven’t already, buy a house. Renting will only make your landlord (hint – house owner) rich. Regardless of what the immediate market does real estate is one of the best long term investments you can make. It also has many advantages including deductions for mortgage interest. Real estate will always go up. People will always need a roof over their head. Just watch HGTV, real estate has made many millionaires and is a key factor in almost every tape and book series on gaining wealth. Stick with the standard 30 year fixed mortgage.

3) Medical and life insurance. You need to have them, if you think you don’t just ask anyone that didn’t have it when something unexpected happened. If you love your family, they are a must. But, on that note, don’t get taken. Buy term life. 20 years will give good term coverage and if you follow all of these tips you won’t need anything beyond that. Whole life only makes your agent rich and really never builds any value for the huge costs involved. Term life can be purchased cheap over the internet at great savings. For medical insurance, in most states Blue Cross and Blue Shield offer great plans that are a fraction of Cobra or employer plans. If you have an adequate employer plan, by all means use it. Stick with big names like Blue Cross as they will be around for years.

4) Don’t ever buy new cars. It is a fact that new cars lose 25-30% of their value the moment you drive it off the lot. Let someone else pay for that depreciation and get a two or three year old car or truck. With the latest technological advances cars can easily go 150,000 miles and above. A two or three year old vehicle with 30,000 miles on it will save you not only in initial cost, but also on your insurance, and taxes. Also do your homework before buying your car. Get your credit score and see what loans you qualify for. This can easily be done right off the internet and will save you big at your local dealer (never take a dealers word for your credit and rate – they will hold 1-3 points on rate and that can mean thousands in extra interest over the term of the loan).

5) Get out of debt. I put the Read more…

Your exit strategy is an extremely important part of your real estate investing business. In fact, it is one of the most important parts. Sometimes investors get excited because they learn how to buy properties, they find them and they get the money lined up to purchase them. But after the purchase, the excitement dies, as they have no idea what to do with their newly owned properties.

You must know your exit strategy when you buy. What do you plan to do with the property? Knowing this allows you to make all types of decisions, from how much to offer, to what kind of financing to use, and more. One strategy is to incorporate wholesaling into your real estate business plans.

What is Wholesaling?

It is simply finding a bargain property and passing it on to a bargain hunter. That bargain hunter will be an investor who will either purchase the property to resell it or purchase it to hold it for rental income. Your profit as a wholesaler should be between $5000 and $15,000 on each house. In some cases it will be higher than $15,000 and on some deals your profit may be a little lower than $5,000.

Why wholesale?

Real estate investors choose to wholesale properties for a few reasons. They could be:

1. Quick cash – it is possible to turn a property around anywhere from 7 to 45 days and get cash in your pocket. If you need to get your hands on some cash quickly, this would be a reason to wholesale. Or, you may not need the cash immediately. You might just want to build your cash reserves. Wholesaling is a good way to do this quickly.

2. Too many houses – maybe you’re good at finding houses, but you find more than you need or can use at any given time. If this is the case, wholesaling is a smart move for you. You can still profit from your locating skills, even if you aren’t going to keep the property for your own Read more…

We were three days from closing on a 45-day escrow. I was working with a first-time buyer who was becoming more and more anxious as the closing date grew nearer. Then, I received a call from the listing agent. Her client, an ?experienced? investor, wanted to perform a 1031 Tax-Deferred Exchanged.

?What,? I asked her. ?Now you tell us??

To say the least, I was pretty disappointed with the agent because from the beginning, I brought the subject up and she continuously told me her client didn?t want to perform one.

?Is your client performing a 1031 Exchange,? I asked her on one occasion.

?Are you sure he?s not performing a 1031 Exchange,? I asker her on another. ?He?s purchasing another property. He?s going to get killed on taxes!?

Finally, I just came out and asked, ?You did discuss an Exchange with your client, right??

On each occasion, she assured me it had been discussed and he just didn?t want to perform one. She also made it clear that she had been in real estate for a number of years and knew what she was doing. The case was closed for me! It?s in her hands now.

For those who may not know, a 1031 Tax-Deferred Exchange (also known as a ?1031? or ?Exchange?) is the method for exchanging one investment property for another one, while deferring the possible capital gains tax. The financial gain you would realize can be deferred as long as you follow the rules set out by IRS Code 1031?where the name comes from?and you use proper professionals who know and understand the process. They should also be able to explain the process to you and help you follow your requirements under the code. This is important because if there are any mistakes made, you could be left holding the legal and financial bag. That financial bag would be in the form of a healthy tax consequence levied by Uncle Sam! If used correctly, this a true wealth-preserving tool.

Fortunately, we were working with an experienced escrow officer. Early in Read more…

With the current downturn in the stock market and the likelihood that interest rates will remain low in the long term, there has been considerable interest in investing self directed 401(k) or IRA funds in real estate.

Ironically, there seems to be a direct correlation between the surge of interest in this area and the lack of accurate information about it. There are several fallacies promoted as fact about this kind of investment. I would like to address each of them in turn.

Fallacy #1 – This kind of investment is not considered appropriate by the IRS

This is flatly untrue. It has been perfectly legal to purchase real estate with your IRA funds since 1974 and to direct any profits, whether rental or capital, back to your IRA. You can also use your IRA funds to pay for the maintenance fees and development, decorative and other upgrade or modernization work on your real estate holdings.

Where the confusion lies is that any real estate investments you make may not be used by yourself or your immediate family, otherwise the ‘profit’ you make from their use would be regarded as a withdrawal from your IRA and subjected to the usual taxes and penalties.

While the IRS is sometimes accused of not reading its own code, what this actually means is that your parents, grandparents, children and grandchildren may not use the property for any purpose. Yet your brother or sister and their family may. So, if, for example, you invested in a holiday property in Mexico, your brother, sister in law and their children can use it for their holidays and pay you the rental but you couldn’t go and stay with them during their vacation.

Fallacy #2 – If it’s legal, why haven’t I heard of it until now?

Who would tell you, your current financial advisor? They will only let you invest your IRA in investments that their firm offers because they earn a commission off what they sell you. At a bank you will be limited to CDs. At a brokerage firm you will be limited to stocks and bonds.

There are any number of companies that help investors take their IRA cash and use it to purchase real estate for investment purposes or for any other legal investment purpose. The company’s representatives who do this are called ‘IRA Custodians’ or ‘Self Directed IRA Custodians’ – depending on the exact financial arrangements you have made.

Third-party IRA custodians look after your investments and will advise you on the kinds of choices – stocks, shares, bonds, mutual funds, CDs, business opportunities or real estate – you can make. They retain a degree of control over the disposition of funds and over the writing of checks.

Self directed IRA custodians are not allowed to advise you on your investment choices. They are mainly there to help you properly and legally administer your funds and to avoid accidentally making withdrawals or incurring penalties and taxes.

Both types of custodian take fees – and there is considerable variation in the rates charged and the services offered. So it pays to shop around.

This contrasts with the behavior of traditional investment community which has control over 97% of retirement accounts and has been making considerable profit from it for over 30 years. They have no motivation to inform you of alternatives that would be of no benefit to them.

As investors become ever more depressed and disappointed with poor investment returns in traditional funds, they want to take control of their own investments and to make more tangible investments such as real estate or more profitable ones such as business ventures.

But the response of their current custodians is that such investments are either illegal, over complex, too expensive or simply un-doable – advice which is neither objective, impartial or factual.

So in order to take advantage of these opportunities, investors have to take their business elsewhere.

Fallacy #3 – It is prohibitively expensive to invest in real estate

In Publication 590, ” Traditional IRAs”, you are prohibited from taking the following actions with your IRA -

* borrowing money from it

* selling property to it

* receiving unreasonable compensation for managing it

* using your IRA as security for a loan

* buying property for personal use (present or future)

These regulations do not prevent you from using your IRA funds to purchase investment property outright. Nor does it prevent you borrowing money (through a non-recourse loan) or using other people’s IRA in partnership in order to part fund the investment.

(An alternative route is to take a low-cost option to buy a property within 60 days and, if you manage to find a buyer at a higher price, you can make an immediate profit for with little up-front cash.)

Neither of these routes makes it prohibitive to procure real estate. Real estate investments should not eat up all your cash, particularly if you partner with others.

Not being permitted to receive unreasonable compensation for managing your IRA is not the same as not being permitted to receive reasonable compensation. If you check out the fees charged for administration as long as you stay within the current price range available on the market you cannot be accused of being ‘unreasonable’.

I have already covered the restrictions on buying property. But it should clarified that ‘future’ use does not preclude you taking your property out of your IRA after you have reached 70 ? when you are forced to take distributions and using it as a retirement home or vacation property.

Fallacy #4 – Real estate investment is trouble with a capital T

Real estate prices have been undergoing a considerable boom in prices over the past few years, but, despite the obvious gains, it is often considered a risky and troublesome form of investment with at least as many headaches as owning your own home. You may have to find tenants, or improve the property before selling it, or just maintain it.

All of this is true, but there are people and companies who will do this for you. Arguments that this will eat away at your profit leading to a poor final return on your investment are also fallacious as fees are charged for all investments you make. The difference is that you can see where the fees are applied and what you are getting for your money.

In addition, you gain some advantages over the stock market – lower risks, less market volatility, property insurance. While mutual funds and corporate stock have both been subjected to sudden and sharp nosedives over the past few years and slow and uninspiring recoveries. Nobody insures you against the loss of investment funds in the stock market. Ask Enron’s investors!

Fallacy #5 – Real estate funds are not liquid investments

It’s difficult to Read more…

The evidence is starting to stack up that 2006 will indeed be the year of peak world oil production. You only have to google “peak oil” to find more, but here are three of the most compelling reasons for believing that the peak is almost upon us.

Firstly, world oil production has been at a plateau of just under 85 million barrels per day since December 2004. In spite of sustained prices in the range of 60 to 70 dollars a barrel, extra production just isn’t forthcoming. This isn’t the market response you learned to expect in Economics 101, and the longer this situation persists, the more apparent it will be that a discontinuity of historic proportions is taking place.

Secondly, OPEC has stopped calling for production changes from its members, either to the upside or the downside. OPEC is increasingly looking like the rider of a rodeo horse who got thrown off. In its lack of relevance, OPEC is starting to resemble the Texas Railroad Commission in 1973. In that year, remember, the Texas Railroad Commission finally abandoned its role of limiting output in order to stabilize prices in the USA. I predict that OPEC will be out of business soon, and probably by 2009.

Thirdly, oil company stock prices are high, but they haven’t moved up as much as the oil price warrants. Why? Because oil companies can’t use the money the way that classical economics says they should. A dollar invested in oil exploration now delivers less than one dollar’s worth of oil. The oil majors know it, but are disguising the truth by drilling for oil in Wall Street. Most reserve growth now is generated by mergers and acquisitions, not by new discoveries in the field.

A peek behind the peak

You have to find oil before you can burn it. This seems quite obvious, but it has profound implications for every investor, as we shall see. The peak year for oil discovery in the United States was 1930, but the peak year for oil extraction occurred 41 years later, in 1971. So what? Well, the peak year for oil discovery in the world as a whole was 1965: add 41 years, and you get … 2006.

There’s no reason why the lag between the peaks of discovery and production in the world should mirror the 41-year lag in the USA, you might reply, and you would be right. However, consider this: the lag in the North Sea was only 18 years. The taxation regime there greatly favored fast extraction, and the latest technology was used. In Russia, on the other hand, the lag was over 50 years: contrary to the situation in the North Sea, the investment regime was usually unfavorable, and the Russians often had to use obsolete equipment. It appears that the US situation was somewhere between these two extremes. There was certainly no shortage of investment in Read more…

Unbeknownst to 98% of working people, the 40 year plan is over. Statistics show that by age 65 less than 2% of Americans can truly retire in comfort without the help of family members or the government. The lackluster performance of the stock market over the past 6 years has dashed many people’s hopes of retiring early. It used to be that you could get a great education, get a great job and settle with a company by 25 years of age, keep your nose clean, work your way to the top, invest in your companies stock and by age 65 retire the company you sacrificed for will take care of your retirement and medical expenses for life.

For many now this is just wishful thinking and a pipe dream.

Today’s norms:

The harsh reality is: Corporate down-sizing (e.g. Gillette, Ford, and GM). Corporate bankruptcies – Enron, Worldcom). Company’s robbing company pension plans and judges are allowing it to happen just ask people working for the airlines, illegal insider stock trading, age discrimination, companies cannot afford to pay health insurance premiums because they have sky-rocketed and people are living longer.

Other forces: World Instability, unfettered nuclear proliferation, Sept 11th, natural disasters all cooked together.

Yes, the poor performance of the stock market, lower interest rates and the real estate boom have contributed greatly to people looking for alternative investment strategies such as self directed Read more…

Why the buzz over this new condo development in Orlando, FL? Here are some of the basic facts that have got investors and Orlando vacationers watching this development:

- Suites will have an assortment of high class amenities, including big-screen plasma T.V.?s fine leather furniture in the dens and solid granite counter tops in the kitchens.

- Great Location – midway between the Orange County Convention Center and Universal Orlando making it a prime vacation spot for both vacationers and convention goes. (Note: The Orange County Convention Center is booked solid until 2028)

- 515 suites and rooms, a 1,000 seat theater that features Broadway shows, five restaurants and 75,000 square feet of meeting space.

- 2,000 covered parking spaces which will protect your cars new wash and wash from the frequent evening drizzles.

- Investors would own the suites in the Blue Rose Resort Hotel, but the resort would still operate like a conventional hotel renting out the rooms to Orlando vacationers; And being so close to Universal Orlando we expect no lack of families from this classy development.

- Marc Meunier, a well known French developer who has been involved in several hotel and entertainment projects in South Florida (not too mention all the other cities all around the country)

CMA said the first phase would contain studios and suites with 575 square feet to more that 3,000 square feet at prices starting at more than $300,000. Those of you that are familiar with the Orlando Florida real estate Read more…

The pursuit for a secure retirement has become progressively more difficult. Given the uncertainty of today’s stock market in light of corporate governance failure on a massive scale with the Enron and WorldCom scandals, the poor recovery of investment because of the panic selling of stocks and bonds that have since wobbled their way back up, without bringing investors’ funds with them and the political and economic uncertainty generated by the ‘war against terrorism’, it is not surprising that investors are looking for alternative choices to invest their retirement funds.

These days, many investors prefer to have a wider range of choices and the ability to diversify their retirement fund investments outside the poorly performing, so called conservative choices of stocks and bonds, and into other areas. This has resulted in a massive expansion in the market for self-directed IRAs.

Oftentimes the phrase self-directed IRA is tossed around by prominent investment firms and is only narrowly understood by the majority IRA investors. Unbeknownst to many self directed IRA investors many investment firms would have them believe that the term self-directed IRA only refers to the ability to choose which stocks, bonds and mutual funds they can buy. Fortunately, there is more to this narrative.

In contrast, a growing culture of investors is educating themselves on their investment alternatives and they are now starting to invest in real estate and other non-traditional assets. Indeed, any legitimate business investment is open to them both as single investors and undertaking group investments. If you know what you are doing or have expert advice in the area, it is possible even with low cash reserves to diversify retirement portfolios and in particular to capitalize on the growing real estate industry for example.

Most conventional financial planners don’t offer truly self directed IRA plans since they may operate under plan documents which only allow investors to invest in stocks, bonds and mutual funds. Nor is it in their interest to do so. Their commission structures are set up to favor investment in the financial markets whether this is in the best interest of the investor or not. Which means their advice is hardly objective.

Of course, this is not advising that investors completely abandon stock market offerings, merely that they do not keep all their eggs in one basket. Just as stock markets rise and fall so can real estate prices. But diversifying your investments minimizes the risk on your returns.

Procuring real estate for investment purposes with an IRA provides several favorable tax breaks. A Roth IRA allows the investor to benefit from tax deferral while it is growing and to be free from tax on distribution in contrast to a traditional IRA which is taxed at time of distribution. Nor is there a minimum distribution and investors can also continue to pay into Roth IRAs which can be of benefit if they intend to pass them to their heirs (which can be done without taxation). In addition, unlike 1031 exchanges, there are no specified investment timeframes or requirements to procure ‘like kind’ investments. Finally, capital gains tax is not applied since taxation does not occur until distribution.

All of these factors contribute to making real estate investment with IRA funds very tempting. However, it is not something that should be undertaken lightly nor should investors, unless they are experts in their own right in the tax and investment laws, undertake for themselves, due to the strict and sometimes complex legislation imposed through the IRS. Otherwise they may find themselves exposed to penalties and taxes. Just as you choose a traditional financial advisor when looking into stock and mutual fund investments you should also look a properly qualified self-directed IRA advisor.

First, traditional financial advisors are not usually best placed to give advice on real estate investment. While they have a good understanding of stocks Read more…

Many small real estate owners (1-4 unit properties) are confused about the best entity to hold their real estate, with potentially disastrous consequences.

In fact, the majority of small property owners still own their properties in their personal names.

Perhaps they read a book or take a course on asset protection. They become aware of the disastrous consequences that can befall property owners who own property in their personal names.

All it takes is a couple of mouse clicks in the age of the Internet to get a complete listing of every property owned by you in the entire county! You can lose everything you own, not just the real estate, to judgment creditors, lawsuits, liens, the IRS, etc.

It is a proven fact, that those who can be shown to own property are at a far higher risk of being sued than those who do not own property.

Then they have to decide. Should they use a corporation to hold their property, a C corp. or an S corp? How about an LLC or a partnership?

There are serious downsides to using the wrong or inappropriate entity.

? Double taxation on income and gains with a C corp.
? Corporate taxes are levied on property sold by an S corp.
? Ownership and allocation of profits is sharply restricted in an S corp
? The corporation itself (shares) can be seized by creditors along with any real estate it owns
? LLC?s can provide liability protection, but only to business, not personal property
? Neither corporations nor LLC?s provide secrecy of ownership
? The extra cost and complexity of setting up, reporting taxes and maintaining the entity
? Partnerships can expose partner?s assets to unlimited liability

Compounding the problem is the fact that banks will generally not OK the purchase of a 1-4 family property by any entity, even a limited partnership.

There is also a prohibition, the due on sale clause; that allows the bank to foreclose on the mortgage on a property that is transferred from the personal name of the borrower to an entity.

There could also be a problem if the owner wanted to do a 1031, tax-free exchange, if the title was transferred from the original owner.

The solution is for the real estate investor to set up a land trust.

? A land trust provides total secrecy of ownership.
? It provides asset protection.
? It carries no tax implications, it is a pass through entity, meaning that any gains or losses pass through to the owner?s personal tax return.
? Although most banks will not grant a mortgage to a property in a land trust, the due on sale clause cannot be invoked against the transfer of title to a properly constructed land trust.
? It does not impair the ability to do a 1031 tax free exchange
? It eliminates the need for probate upon the owner?s death

What is a land trust? It is simply a revocable contract between two or more parties. It has been in use for centuries.

The first party is the owner of the property; the grantor, in trust speak. He grants, or transfers title to the property to the trustee. He then becomes the Read more…

Would you like to receive 15% to 50% return on investment (ROI) guaranteed by the government? Tax lien certificates (TLC) offered in many states and counties in the U.S., U.S Virgin Islands and Puerto Rico offer returns that high. While most states offer less than 50% your investment may be safe because it is secured with real property. A TLC is a note issued by the county or municipality on properties that are in arrears with their property tax. Some states allow these notes to be senior to all other mortgages and liens, including federal tax liens. These notes are sold at auction by the individual counties, municipalities and/or states that issue them. Investors receive a fixed amount of interest monthly written on the note for a specific time period. This amount is state mandated. If the outstanding debt is paid before the term of the loan ends, the government will send the investor a check for the initial investment and all outstanding interest due. These note terms typically run for one to three years. If the property owner does not pay, you may have foreclosure rights; the government may send you the deed to the property. This means you may realize a huge ROI.

There is some risk involved with the purchase of TLC?s. The purchase of tax sale liens of properties under the control of Federal Deposit Insurance Corporation (FDIC) and those affected by the Drug Enforcement Administration (DEA), or if the owner files bankruptcy could possibly result in the loss of your investment. With due diligence, this risk can be reduced. Remember, not all TLC?s are equal, some are better than others. Sometimes you will have to fight it out in court with other lien holders if it gets to the foreclosure stage. Proper title and bankruptcy research should be done or your tax lien may end up worthless. Inspect the property to insure you are getting some value. I Read more…