Posts Tagged ‘Real Estate’

Is It Time For Rental Property In Your Self-Directed IRA

Saturday, May 5th, 2012

The housing crisis and global economic shock has and will forever change the psyche of the average American for decades to come. No longer is the thought of renting seen as a shortcoming for not striving or attaining the American dream. Renting is now a necessity for many and a financial practicality.

Home ownership is down from 69% in 2006 (the peak for all history) to 65.4% today. Much of this is due to foreclosures. But, we also see that by late 2011, according to Moodys, it was cheaper to rent versus own in 72% of the American metro areas. Additionally, building starts for structures with 5 or more units were up 60% in 2011 versus single family starts of 16.7%.

Its simple math to see that for many people renting saves them money and prevents them from getting into financial trouble. Hence, you see a major migration towards renting versus owning. We should not forget the fact that some people just cannot get a loan no matter what these days.

We Need Renters. In order to be a more healthy economy, we need people who can rent. Renters obviously generate income for the property owners, but more importantly, renters are more mobile and flexible. If you are an unemployed construction worker in Las Vegas (12% unemployment), that rents, its much easier for you to pick up and go to North Dakota (3% unemployment), to get a job. This is good for the economy as renting allows the skills and needs to easily find each other in the market place.

So, what does this mean for your self directed IRA? This all adds up to an opportunity to hold real estate in your self directed IRA. The demand for rental property is up significantly. The mind set for the average American will be that renting is OK, and financially wise. Property prices are way down (I know, you still have to be careful). These are all positive signs that maybe its time to take the initiative and secure rental properties in your self directed IRA.

The Coming Fiscal Crisis And The Self Directed IRA

Saturday, May 5th, 2012

We’ve been watching the stock market for the last several weeks and the price of precious metals and we can’t help but be confused at the paradox.

First of all you have the markets continuing to go up as if there are no problems with Europe or within the U.S. It was just 5 or 6 months ago the European crisis looked scary, and yet nothing has changed in Europe other than people committing to print more money.

Here in the U.S. our unemployment situation is not improving. In fact the mainstream media is finally pointing out how dire the jobs situation appears to be. Also, we know that inflation is running much higher than they tell us, but we know its wrong every time we go the store. But, what is a more immediate threat to the markets and investments is the coming fiscal crisis.

At the end of this year, Dec. 31, 2012, Trillions of dollars in tax cuts will expire along with Trillions of tax hikes for Obamacare and Trillions in automatic spending cuts will begin. Yet, with these massive threats on the horizon, the stock market is at a 4 year high.

Let’s just take a simple example how these fiscal issues would impact a single stock. Assume that the stock is $100. Assume that the dividend yield is $10. So, the person or companies that invested in this stock would pay 15% tax on that or $1.50. That leaves a net yield of 8.5%.

Now if the government does not act, the capital gains rates will go to 43.4% (39.6 for the pre-Bush rates plus 3.8% for Obama punishment for being able to invest). So now that same $10 dividend with a 8.5% yield is now yielding 5.66%. That’s a big hit for anyone to take. Big enough that its likely to have investor sensitivity because the investors and the market have already established the fair market price for the stock in relation to the dividend and what the investor requires. We’re betting that the market will need to correct itself by pushing the price of the stock down to compensate for the out of balance conditions caused by the government’s policies.

If our logic is correct, then that means there will have to be some correction forthcoming to offset government inaction. Now there will be those eternal optimists that will claim that the government will not allow these tax hikes to kick in, but that’s a big stretch right now. To date this administration and congress have yet to show that they can come to terms over such large and significant issues.

Because of these fiscal issues, it only makes sense to hedge your investments with your self directed IRA. If you want to be safe, it would seem that everyone should be holding some non-traditional self directed IRA investments in precious metals, real estate or other non-public/market adverse investments.