Archive for August, 2016

The Argument for Investing in Real Estate in Your 20’s

Tuesday, August 23rd, 2016

investing in your 20s

There is never a bad time to start investing and saving for your future. Real estate can be an especially attractive sector to invest in because it can offer consistent returns from the moment you purchase it. Let’s take a look at some specific reasons why its a good idea to start investing in real estate in your 20’s.

Live in a Home That You Also Rent

One of the best financial decisions that you can make in your 20’s is to buy a duplex or another property that has space that can be rented. Buying a property that you will both occupy and rent allows you to buy a home while also keeping your mortgage to a reasonable level. As you get older and your finances become more stable, you can buy a new principal residence and rent out the entire property.

There Are Lots of Ways to Invest in Real Estate

You don’t have to buy a home to invest in real estate. One of the easiest ways to enter the sector is to buy a REIT, which is like a mutual fund for real estate transactions. You can also buy real estate ETFs that trade like stocks and have high levels of liquidity, which allow you to buy and sell at will. It may also be possible to make small loans to those who want to buy homes to fix and flip them. Known as hard money loans, you could make an annual return of up to 12 percent with limited risk because you have a lien on the property until the loan is repaid.

Put Money In a Self-Directed IRA to Good Use

Unlike a typical IRA, you are the one who gets to decide where you invest the cash as opposed to a trustee from the institution that holds your money. This means that if you want to invest in real estate with your self-directed IRA, then you’re able to. Using money in an IRA can be doubly beneficial because you can usually take a tax deduction when you put money into the account. Any profit that is made from the investment goes back into your IRA, where you can in turn, invest it further.

Investing Now Means You Get Maximum Appreciation

A home or building that you purchase today could appreciate by as much as 5 percent per more each year. This is in addition to any rent that you receive on a monthly basis. While you may not get 5 percent every single year or in every single market, real estate appreciation rates over a 20 or 30 year period tend to be steady. This means that you can help to secure your financial situation today while also helping you prepare for retirement.

Commercial Properties May Come With Reliable Long-Term Tenants

If you can acquire a commercial building, it may be possible to negotiate what is called a triple-net lease. What this means is that the tenant is responsible for maintaining the building, paying taxes and taking care of insurance and other costs related to operating the property. In essence, you do nothing more than collect a rent check each month for as long as the lease is in effect. As your tenant wants to protect its business reputation, you can be sure that it will take the time and effort to keep it secure and free from damage.

If you have just graduated from college or otherwise starting out in life, it could be a good idea to start investing in real estate. There are many opportunities for anyone regardless of their current income or how much they have in the bank. Even if you have to get together with a group of investors, it is never too early to invest in a quality sector that can offer stable returns for years to come.

Q&A: Partnering Your IRA with Real Estate

Monday, August 15th, 2016

IRA with real estate - square

Why real estate? What are the benefits?

For one, you’re diversifying your retirement portfolio, and getting it out of the stock market where it’s tied to the ups and downs of the same market that we saw lose $2 trillion in 2008. Your IRA is also more secure, since it’s backed by tangible real estate, where the returns can provide a stable source of income that goes directly back to your IRA, where it will wait for you come retirement.

If I invest in a home with my IRA, can I live in it?

Unfortunately, no. IRS rules prohibit certain people related to the IRA owner, including the IRA owner, from living on the premises. The rules are there to prevent what’s known as “self dealing”, to minimize conflicts of interests, that could adversely affect your IRA.

Disqualified persons?

A disqualified person would be:

  • The IRA owner
  • The IRA owner’s spouse
  • Ancestors
  • Lineal descendents
  • Spouses of lineal descendents
  • Investment advisors
  • Fiduciaries
  • Any business entity (LLC, Corporation, Partnership, Trust) in which any of the disqualified persons previously mentioned has a 50% or greater interest

What are prohibited transactions?

Prohibited transactions include the following:

  • The selling or leasing of any property between a plan and a disqualified person
  • Lending money or other extension of credit between a plan and a disqualified person
  • Furnishing goods, services, or facilities between a plan and a disqualified person
  • Transferring or using by or for the benefit of, a disqualified person the income or assets of a plan
  • Dealing with income or assets of a plan by a disqualified person who is a fiduciary acting in their own interest or for their own account

Do I need an LLC to purchase the real estate?

No, you don’t need an LLC to purchase the real estate, so long as it’s possible for you to purchase the real estate directly through your self-directed IRA custodian. When done this way, all rent checks and expenses will be paid to and through the custodian. However, if you would like checkbook control over your IRA, meaning you will be the one to collect the rent and pay all the expenses, then you need to set up an IRA LLC.

What’s checkbook control?

Checkbook control is just as it sounds, it’s a checkbook that you control. It means that you have signing power over your IRA, so that you no longer need to go through your custodian to get funds moved around. So if you need to call a plumber to get something fixed on your property, you can pay them then and there, and the cost will be debited from your IRA. It’s essentially cutting out the middleman, making your IRA more efficient.

Protecting Your Retirement from Market Turmoil

Monday, August 8th, 2016

turmoil - square

The financial collapse of 2008 seriously impacted millions of Americans retirement accounts, so much so that we’re still trying to recover. So what’s happening now, and are we doomed to repeat history? The fallout from brexit is still having an effect on markets worldwide, and China’s economic slowing is forcing other markets to beg the question… are we safe from another economic crisis? Is there more volatility is in store?

Will your retirement portfolio be up or down tomorrow? What about the next day?
Knowing how to handle stock market turmoil is important for your peace of mind and for your financial health.

Be informed, because financial markets are incredibly complicated, but you should have a reason for being invested in whatever way you are invested. Have a philosophy and goals in mind, and stick to them. That way you can make investment decisions based on substance and not just the way the wind is blowing.

Don’t blindly trust any and all investment advice. Whether it is watching cable news, talking to your neighbor or even reading this article — be wary of all financial advice. There are exceptions to every rule and that is especially true of investment wisdom. Thankfully, the Department of Labor passed the new fiduciary rule on financial advisors this past Spring. The new rule imposes limits on how brokers offer financial advice to retirement savers, so that the advisors own interests aren’t at the forefront of your retirement.

Diversify. The old adage, “don’t keep all of your eggs in one basket,” is particularly true for retirement savings. You might want to hold stocks, but you would not want all of your money in stocks, because usually if one aspect of financial markets is down, something else is seeing gains. A financial advisor can help you diversify your money into a mix of investments that is likely to reduce your risks while still realizing gains.
A diversified investment portfolio example might have 30 percent in stocks (of a variety of types), 20 percent in annuities, 20 percent in bonds, 15 percent in precious metals and 15 percent invested internationally.

Have a retirement plan and keep it updated. Your retirement plan should have a lot more to it than just savings and investments. Most people have other significant sources of wealth that could have a greater impact on our retirement security than savings.

For example, most of us have home equity, the ability to go back to work or delay our retirement date and — if we are lucky — we also have friends and relatives to help us smooth out our financial lives.

If you are experiencing losses in retirement investments, consider alternate sources of wealth before selling stocks that are down. Many people get a reverse mortgage as a source of money that can be used instead of stocks. Other people choose to go back to work to help make ends meet.